What changed in this filing

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Item 1. Business

2023-03-16 compared with 2022-03-10 · 172 added, 169 removed, 92 unchanged (79% of the section changed)

GrowGeneration Corp.

(together with all of its direct and indirect wholly owned subsidiaries, collectively “GrowGeneration” or the “Company”), incorporated in Colorado in 2014, 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, vertical benching, environmental control systems and accessories for hydroponic gardening.

GrowGeneration owns and operates specialty retail hydroponic and organic gardening stores.

Currently, GrowGeneration has 63 stores, which include 23 locations in California, 8 locations in Colorado, 7 locations in Michigan, 5 locations in Maine, 5 locations in Oklahoma, 4 locations in Oregon, 3 locations in Washington, 2 locations in Nevada, 1 location in Arizona, 1 location in Rhode Island,1 location in Florida, 1 location in Massachusetts and 1 location in New Mexico.

GrowGeneration also operates an online superstore for cultivators at growgeneration.com.

GrowGeneration carries and sells thousands of products, including organic nutrients and soils, advanced lighting and state of the art hydroponic equipment to be used indoors and outdoors by commercial and home growers.

Our plan is to continue to acquire, open and operate hydroponic/gardening stores and related businesses throughout North America.

GrowGeneration sells 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 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 for indoor cultivation to give growers the ability to better regulate and control nutrient delivery, light, air, water, humidity, pests, and temperature.

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

and is a leading marketer and distributor of nutrients, growing media, lighting, benching and racking, environmental control systems and other products for both indoor and outdoor hydroponic and organic gardening.

Currently, GrowGeneration has 60 retail locations across 16 states in the U.S.

We also operate an online superstore for cultivators at growgeneration.com, as well as a wholesale business for resellers, HRG Distribution and MMI.

Our business is driven by a wide selection of products, facility design services, solutions driven staff and pick, pack and ship distribution and fulfillment capabilities.

GrowGeneration carries and sells thousands of products, including nutrients, growing media, lighting, environmental control systems, vertical benching and accessories for hydroponic gardening, as well as other indoor and outdoor growing products, that are capable of growing and maximizing yield and quality of a wide range of plants.

Our products include proprietary brands such as Charcoir, Drip Hydro, Power Si, MMI benching and racking, Ion lights, Durabreeze fans, and more.

GrowGeneration also provides facility design services to commercial growers.

We currently employ approximately 455 employees, a majority of them we have branded as “Grow Pros”.

Currently, our operations span over 946,000 square feet of retail and warehouse space.

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 for indoor cultivation to allow growers to better regulate and control growing

conditions, including nutrient delivery, light, air, water, humidity, pests, and temperature.

Hydroponic growers benefit from these techniques by producing crops faster and with higher crop yields 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.

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 pests.

GrowGeneration serves a new, yet sophisticated community of commercial and urban cultivators growing specialty crops, including organics, greens and plant-based medicines.

Vertical farms producing organic fruits and vegetables also utilize hydroponics due to a rising shortage of farmland as well as environmental vulnerabilities, including severe weather conditions and pests.

Our target customer segments include the commercial growers in the plant-based medicine market, the craft grower and vertical and urban farmers who grow organic herbs, fruits and vegetables.

Additionally, we sell products from our distribution and other segment to wholesalers, resellers, and retailers.

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.

Controlled-environment agriculture (CEA) is a technology-based approach to maintain optimal growing conditions throughout the development of the crop.

This enables them to produce crops at higher yields and quality, regardless of the season or weather conditions.

Controlled-environment agriculture (CEA) is a technology-based approach to maintain optimal growing conditions throughout the development of a crop.

Production takes place within an enclosed growing structure such as a greenhouse or building.

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CEA optimizes the use of resources such as water, energy, space, capital and labor.

Different techniques are available for growing in controlled environment agriculture.

The more viable option is vertical farming.

Vertical farming has the ability to produce crops all year round in a controlled environment, with the possibility of increased yield by adjusting the amount of carbon and nutrients the plants receive.

Our target customer segments include the commercial growers in the plant-based medicine market, the craft grower and vertical farms 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 “targets” for our acquisition 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 increasing number of licensed cultivation facilities in North America.

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

The Company believes there are over 15,000 active cannabis cultivation licenses in North America.

The average cultivation facility is approximately 36,000 sq.

and over 34,000,000 pounds of cannabis is projected to be cultivated by 2025.

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.

We employ approximately 702 employees, a majority of them we have branded as “Grow Pros”.

Currently, our operations span over 895,000 square feet of retail and warehouse space.

We operate our business through the following business units:

62 hydroponic/gardening centers focused on serving growers and cultivators.

Inclusive of commercial sales organizations selling directly to customers outside of the physical retail network.

Some of our garden centers have multi-functions, with added capabilities that include warehousing, distribution and fulfillment for direct shipments of products to garden center locations, pick, pack and ship for our online platforms and direct fulfillment to our commercial customers.

• E-Commerce/Omni-channel :

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

• Proprietary Brands and Private Label:

We have developed a line of private label products that we are selling through our garden centers under proprietary brands we own and trademark.

Our strategy is to deliver a one-stop shopping experience, through selection, service and solutions for our customers.

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 retail operations.

In addition to the 13 states we are currently operating in, we have identified new market opportunities in states that include Ohio, Illinois, Pennsylvania, New York, New Jersey, Mississippi, Missouri and Virginia.

During 2021, the Company acquired 23 new locations.

Our commercial sales organization is focused on selling end to end solutions for large commercial cultivators.

When a commercial customer gains a new cultivation license, they will need to purchase lighting, benching, environmental control

systems, irrigation, fertigation and other products to outfit their cultivation facility.

Commercial customers typically purchase in larger dollar amounts and sizes of products.

Different techniques are available for growing in CEA, including vertical farming, which can produce crops all year round in a controlled environment with increased yield and quality by adjusting the amount of light and nutrients the plants receive.

The landscape for hydroponic retail stores is very fragmented, with numerous single stores that we consider “targets” for our acquisition strategy.

Further, the products we sell and the expert knowledge we provide are in demand due to the ever-increasing legalization of plant-based medicines, primarily cannabis and hemp, and the increasing number of licensed cultivation facilities.

We operate our business through the following business segments:

The core of our business strategy is to operate the largest chain of retail garden centers in the U.S.

The hydroponic retail landscape is fragmented, which allows us to acquire “best of breed” hydroponic retail operations and leverage efficiencies of a centralized organization.

During 2022, the Company acquired or opened 5 new locations and expanded its physical retail presence into 4 new states.

Our plan is to continue to acquire, open and operate garden centers and related businesses throughout the U.S.

However, in light of persistent difficult market conditions, the Company also closed 8 underperforming retail locations in 2022 and may consider additional store consolidation in 2023.

Some of our garden centers have multi-functions, with added capabilities that include warehousing, distribution and fulfillment for our online platforms and direct fulfillment to our commercial customers.

Our retail segment also includes our commercial sales organization, which is focused on selling products and services, including end-to-end solutions, for large commercial cultivators outside of the physical retail network.

When commercial customers gain new cultivation licenses, they need lighting, benching, environmental control systems, irrigation, fertigation and other products to outfit their facilities.

Existing facilities also need consumable products for operations, as well as equipment updates from time to time.

Commercial customers typically purchase large dollar amounts and sizes of products.

We offer commercial customers volume pricing, terms and financing.

Our commercial team manages thousands of commercial accounts across North America.

E-Commerce/Omni-Channel

Our digital strategy is focused on capturing the home, craft and commercial grower online.

GrowGeneration.com offers over 10,000 hydroponic products, all curated by our product team.

Our digital strategy is primarily focused on capturing the home, craft and commercial grower online.

GrowGeneration.com offers thousands of hydroponic products, all curated by our product team.

GrowGeneration.com offers customers the option to have their orders shipped directly to their locations, anywhere in North America.

Proprietary Brands and Private Label

In December 2020, GrowGeneration purchased the business of Canopy Crop Management Corp., the developer of the popular Power Si line of monosilicic acid products, a widely used nutrient additive for plants.

On March 12, 2021, the Company purchased CharCoir, a line of premium coco pots, cubes and medium.

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

We use various trademarks and trade names in our private- label business, including Ion Lighting, Sunleaves powder nutrients and additive line, Optilime Bulbs, Blueprint controllers and timers, Growxcess pots and containers, Harvest Edge pruners, trellis and other gardening accessories, Durabreeze fans and dehumidifiers, and Drip Hydro nutrients.

Both “GrowGeneration” and “Where the Pros Go to Grow” are trademarks used to brand and market our garden centers across North America.

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 an experienced professional team to acquire and open new locations, products and technologies and successfully add them to our company portfolio.

Community Service and Charity

GrowGeneration, together with Harvest 360 Technologies, LLC (H360), has launched a new program to support education and training for social equity license applicants.

GrowGeneration also sells its products to consumers through online marketplaces such as Amazon and Walmart and to wholesalers through its distribution website, HRGdist.com.

Distribution and other:

In December 2020, GrowGeneration purchased the business of Canopy Crop Management Corp., the developer of the popular PowerSi line of monosilicic acid products, a widely used nutrient additive for plants.

In March 2021, the Company purchased Charcoir, a line of premium coco pots, cubes and medium.

In December 2021, the Company purchased the assets of Mobile Media, Inc.

("MMI"), a mobile shelving and storage solutions developer and manufacturer.

In February 2022, the Company purchased the assets of Horticultural Rep Group, Inc.

("HRG"), a specialty marketing and sales organization of horticultural products.

The Company is in the process of combining the operations and management of these non-retail enterprises.

The products these companies provide are integrated into our retail, e-commerce, and direct sales activities and we receive incremental revenue from the sale of these products.

PROPRIETARY BRANDS

As part of its one-stop solution, GrowGeneration provides its customers with a wide selection of top quality products across all categories.

A key part of that selection of products is GrowGeneration's own portfolio of industry-leading proprietary brands, including Ion Lighting, PowerSi monosilicic acid, Charcoir coco pots, cubes and medium, Drip Hydro liquid and powder nutrients, MMI Agriculture benching and racking, and other products.

We believe that building private label and proprietary brand offerings will not only drive positive experiences and outcomes for customers, but also will have a positive impact on our margins and profitability.

As a company of growers ourselves, we understand the ever-changing needs and technologies within our industry and seek to acquire and develop a strong portfolio of proprietary products for our customers.

SOCIAL ENGAGEMENT

GrowGeneration seeks to support its customers and their communities in various ways.

Together with Harvest 360 Technologies, LLC (H360), GrowGeneration launched a new program to support education and training for social equity license applicants.

Regulations in both New York and New Jersey seek to create a framework to regulate cannabis in these states in a manner that promotes social equity and economic development, placing an emphasis on promoting inclusion of diverse populations in the medicinal and recreational cannabis industries.

GrowGeneration is committed to delivering solutions to these operators and supporting their communities.

This program with H360 gives GrowGeneration a direct method to help new companies grow their businesses.

As part of this program, GrowGeneration and H360 have established the NEXTGEN Micro Cultivation competition for applicants seeking micro grow licenses in the New Jersey adult-use cannabis market.

GrowGeneration has committed up to $500,000 to provide education and training scholarships for 25 cultivation teams participating in the competition.

GrowGeneration will also provide access to equipment packages and market resources.

All contestants will get access to an online cultivation portal with valuable resources to assist in the preparation of an application and to be educated and informed about best practices in the New Jersey program.

The 25 finalist teams that make it to the second round will also receive complete planning and engineering services for their facilities from GrowGeneration, as well as access to a compliant business services package from H360 worth thousands of dollars.

Five winning teams will then be selected by a panel of judges to receive a comprehensive package, including financing, advanced training, business service packages, and direct operational support.

As part of this program, GrowGeneration and H360 established the NEXTGEN Micro Cultivation competition for applicants seeking micro grow licenses in the New Jersey adult-use cannabis market.

GrowGeneration has agreed to donate up to $500,000 for education and training scholarships for 25 cultivation teams to receive access to an online portal with valuable resources to assist in the preparation of an application and to be educated and informed about best practices in the New Jersey program.

GrowGeneration also provides access to equipment packages, facility design services, financing, advanced training and other market resources.

GrowGeneration also supports communities through charitable donations to various causes, both within and outside the hydroponics industry.

HOW WE EVALUATE OUR OPERATIONS

The Company generates sales primarily from the sale of hydroponic garden 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.

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.

The Company generates sales primarily from the sale of hydroponic garden products, including nutrients, growing media, lighting, environmental control systems, and accessories for hydroponic gardening, as well as other indoor and outdoor growing products.

In addition to these product sales, the Company sells and installs commercial fixtures.

The Company allocates transaction price to each distinct performance obligation and recognizes revenue, net of estimated returns and sales tax, at the time when it transfers control of the product to customers or when services are completed.

Revenues are measured based on the amount of consideration that the Company expects to receive as derived from a list price, reduced by estimates for variable consideration.

The variable consideration is based on the estimate of expected sales returns.

The majority of our returns come from retail sales.

Estimating future returns requires judgment based on current and historical trends and actual returns may vary from our estimates.

In evaluating the timing of the transfer of control of products to customers, the Company considers several control indicators, including significant risks and rewards of products, the Company’s right to payment and the legal title of the products.

Based on the assessment of control indicators, product sales are typically recognized when they are made available to the carrier or are picked up by the customer.

Promises related to product installation are considered a separate performance obligation from the product sale given the products can be used without customization or modification, installation is not complex and can be performed by other vendors.

Installation revenue is recognized upon completion of the installation service to the customer.

Sales and other taxes collected concurrent with revenue producing activities are excluded from revenue.

Customer deposits and lay away sales are not reported as revenue until final payment is received and the merchandise has been delivered.

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

Due to their nature, purchases of consumables result in repeat orders as customers seek to replenish their supplies.

Generally, in new 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 buildouts compared to purchases of consumables.

Payment for goods and services sold by the Company is typically due upon satisfaction of the performance obligations.

The Company's sales vary by the type of products that are sold between consumables and non-consumables.

Due to their nature, purchases of consumables typically result in repeat orders as customers seek to replenish their supplies.

Generally, in new markets where legalization of plant-based medicines is recent and licensors are starting new grow operations, there are more purchases of non-consumables for facility buildouts compared to purchases of recurring 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 and other promotions.

A majority of our sales are derived from our commercial customers.

We calculate gross profit as sales less cost of goods sold.

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

Our sales are also impacted by our customer mix of commercial and non-commercial customers, as commercial customers typically purchase more

product and may receive volume discounts and other promotions.

A majority of our sales are derived from commercial customers.

In addition, the Company serves customers that are other wholesalers and resellers of both consumables and non-consumables.

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 market adjustments.

Occupancy expenses, which consist of payroll, rent and other lease required costs, including common area maintenance and utilities, are included as a component of store operations and other operational expenses on the consolidated statements of operations.

We calculate gross profit as sales less cost of sales.

Cost of sales consists of cost of product sold, freight, tariffs, inventory shrink and obsolescence.

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

Our 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 buildouts.

In addition, our customer mix impacts gross profit margin due to larger commercial customers receiving discounts.

Our overall gross profit margin varies with our product mix, in particular the percentage of sales of consumable products, which are products that are used regularly in daily growing operations, versus non-consumable products, which are products that are one-time purchases, such as in connection with commercial facility buildouts.

Our customer mix also impacts gross profit margin due to larger commercial customers receiving discounts.

In addition, costs incurred for logistics, obsolescence, inventory adjustments, and vendor purchase discounts impact reported gross margin.

Operating Expenses

Operating 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.

Corporate overhead is comprised of share-based compensation, depreciation and amortization, selling, general and administrative costs and corporate salaries and related expenses.

Selling, general, and administrative expenses (“SG&A”) consist mainly of advertising and promotions, travel & entertainment, professional fees, and insurance.

SG&A as a percentage of sales does not increase commensurate with an increase in sales.

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

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

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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.

Closed stores become ineligible for inclusion in the comparable store base in the month in which operations cease.

Research and Development

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CUSTOMERS AND SUPPLIERS

Our key customers vary by state and are expected to be more defined as the Company increases focus on serving cultivation facilities directly and under predictable purchasing activity, compared to its retail walk-in purchasing sales strategy.

Currently, none of our customers accounted for more than 5% of our sales in 2021, 2020, or 2019.

Our key suppliers include several manufacturers and distributors such as Hawthorne Garden Supply, Hydrofarm, Fluence Engineering, Advanced Nutrients, House and Gardens, FoxFarm Fertilizer, Canna Gradening, and others.

Our key customers vary by state and segment.

No customer accounted for more than 5% of revenues for the years ended December 31, 2022, 2021, and 2020.

Three customers represented 28% of total accounts receivable as of December 31, 2022.

Our key suppliers include several manufacturers and distributors such as Hawthorne Garden Supply, Athena, Grodan, Hydrofarm, Canna Continental, and others.

All the products purchased and sold are applicable to indoor and outdoor growing for organics, greens, and plant-based medicines.

As of December 31, 2021, one supplier represented 28% of all of our purchases.

As of December 31, 2020 and 2019, two suppliers represented 41% and 51%, respectively, of all our purchases.

The Company is of the opinion that the loss of

either supplier would not have a material adverse impact on our business.

One supplier represented 24% and 28% of our total vendor purchases for the years ended December 31, 2022 and 2021, and 2 suppliers represented 41% of our total vendor purchases for the year ended December 31, 2020.

Although the Company expects to maintain relationships with these vendors, the loss of either supplier would not be expected to have a material adverse impact on our business because of the competitive nature of the products that we sell.

The Company also maintains direct manufacturing agreements with certain vendors.

2022 Acquisitions

On January 25, 2021, the Company purchased the assets of Indoor Garden & Lighting, Inc, a two-store chain of hydroponic and indoor gardening equipment and supply stores serving the Seattle and Tacoma, Washington area.

The total consideration for the purchase of Indoor Garden & Lighting was approximately $1.7 million, including approximately $1.2 million in cash and common stock valued at approximately $0.5 million.

Acquired goodwill represents the value expected to arise 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, Maine.

The total consideration for the purchase of Grow Depot Maine was approximately $2.1 million, including approximately $1.7 million in cash and common stock valued at approximately $0.4 million.

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

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

On February 1, 2022, the Company purchased the assets of HRG, a specialty marketing and sales organization of horticultural products based in Ogden, Utah.

The total consideration for the purchase of the assets of HRG was approximately $13.4 million, including $6.8 million in cash and common stock valued at approximately $5.7 million.

The Asset Purchase Agreement provides for an indemnity holdback to be settled in common stock of the Company valued at approximately $0.9 million.

Acquired goodwill 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, California.

The total consideration for the purchase of San Diego Hydroponics was approximately $9.3 million, including approximately $4.8 million in cash and common stock valued at approximately $4.5 million.

Acquired goodwill of approximately 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, which sells an RHP-certified growing medium made from the highest-grade coconut fiber.

HRG is included in our Distribution and other segment.

On November 3, 2022, the Company purchased certain assets of St.

Louis Hydroponic Company ("STL"), a hydroponic retail store in St.

Louis, Missouri.

The total consideration for the purchase of the assets of STL was approximately $0.4 million in cash.

Acquired goodwill of approximately $0.1 million represents the value expected to rise from organic growth and an opportunity to expand into a well-established market for the Company.

STL is included in our Retail segment.

2021 Acquisitions

On January 25, 2021, the Company purchased the assets of Indoor Garden & Lighting, Inc ("Indoor Garden"), a two-store chain of hydroponic and indoor gardening equipment and supply stores serving the Seattle and Tacoma, Washington area.

The total consideration for the purchase of Indoor Garden was approximately $1.7 million, including approximately $1.2 million in cash and common stock valued at approximately $0.5 million.

Acquired goodwill of approximately $0.7 million represents the value expected to arise from organic growth and an opportunity to expand into a well-established market for the Company.

Indoor Garden is included in our Retail segment.

On February 1, 2021, the Company purchased the assets of J.A.R.B., Inc d/b/a Grow Depot Maine ("Grow Depot Maine"), a two-store chain in Auburn and Augusta, Maine.

The total consideration for the purchase of Grow Depot Maine was approximately $2.1 million, including approximately $1.7 million in cash and common stock valued at approximately $0.4 million.

Acquired goodwill of approximately $0.9 million represents the value expected to rise from organic growth and an opportunity to expand into a well-established market for the Company.

Grow Depot Maine is included in our Retail segment.

On February 15, 2021, the Company purchased the assets of Grow Warehouse LLC ("Grow Warehouse"), 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 was approximately $17.8 million, including approximately $8.1 million in cash and common stock valued at approximately $9.7 million.

Acquired goodwill of approximately $11.1 million represents the value expected to rise from organic growth and an opportunity to expand into a well-established market for the Company.

Grow Warehouse is included in our Retail segment.

On February 22, 2021, the Company purchased the assets of San Diego Hydroponics & Organics ("San Diego Hydro"), a four-store chain of hydroponic and organic garden stores in San Diego, California.

The total consideration for the purchase of San Diego Hydro was approximately $9.3 million, including approximately $4.8 million in cash and common stock valued at approximately $4.5 million.

Acquired goodwill of approximately $5.7 million represents the value expected to rise from organic growth and an opportunity to expand into a well-established market for the Company.

San Diego Hydro is included in our Retail segment.

On March 12, 2021, the Company purchased the assets of Charcoir Corporation ("Charcoir"), which 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 approximately $9.9 million in cash and common stock valued at approximately $6.5 million.

Acquired goodwill 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 brand.

On March 15, 2021, the Company purchased the assets of 55 Hydroponics, a hydroponic and organic superstore located in Santa Ana, California.

The total consideration for the purchase of 55 Hydroponics was approximately $6.5 million, including approximately $5.3 million in cash and common stock valued at approximately $1.1 million.

Acquired goodwill 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 Hydroponics, a hydroponic and organic garden store in Springfield, Massachusetts.

Acquired goodwill of approximately $6.1 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 brand.

Charcoir is included in our Distribution and other segment.

On March 15, 2021, the Company purchased the assets of 55 Hydroponics ("55 Hydro"), a hydroponic and organic superstore located in Santa Ana, California.

The total consideration for the purchase of 55 Hydro was approximately $6.5 million, including approximately $5.3 million in cash and common stock valued at approximately $1.1 million.

Acquired goodwill of approximately $3.9 million represents the value expected to rise from organic growth and an opportunity to expand into a well-established market for the Company.

55 Hydro is included in our Retail segment.

On March 15, 2021, the Company purchased the assets of Aquarius Hydroponics ("Aquarius"), a hydroponic and organic garden store in Springfield, Massachusetts.

The total consideration for the purchase of Aquarius was approximately $3.6 million, including approximately $2.3 million in cash and common stock valued at approximately $1.2 million.

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

On March 19, 2021, the Company purchased the assets of Agron, LLC, an online seller of growing equipment.

Acquired goodwill of approximately $1.7 million represents the value expected to rise from organic growth and an opportunity to expand into a well-established market for the Company.

Aquarius is included in our Retail segment.

On March 19, 2021, the Company purchased the assets of Agron, LLC, ("Agron") an online seller of growing equipment.

The total consideration for the purchase of Agron was approximately $11.2 million, including approximately $6.0 million in cash and common stock valued at approximately $5.3 million.

Acquired goodwill 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.

Agron is included in our E-commerce segment.

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, Michigan.

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

Down River Hydro is included in our Retail segment.

On May 24, 2021, the Company purchased the assets of The Harvest Company ("Harvest"), a northern California-based hydroponic supply center and cultivation design innovator with stores in Redding and Trinity Counties.

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

Harvest is included in our Retail segment.

On July 19, 2021, the Company purchased the assets of Aqua Serene, Inc., ("Aqua Serene"), an Oregon corporation which consists of an indoor/outdoor garden center with stores in Eugene and Ashland, Oregon.

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

On July 3, 2021, the Company purchased the assets of Mendocino Greenhouse & Garden Supply, Inc, a Northern California-based hydroponic garden center located in Mendocino, California.

Aqua Serene is included in our Retail segment.

On July 3, 2021, the Company purchased the assets of Mendocino Greenhouse & Garden Supply, Inc ("Mendocino"), a Northern California-based hydroponic garden center located in Mendocino, California.

The purchase agreement was modified on July 19, 2021 to amend the purchase price.

The total consideration for the purchase was $4.0 million in cash.

This acquisition allows the Company to expand its footprint in the Northern California.

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

Mendocino is included in our Retail segment.

On August 24, 2021, the Company purchased the assets of Commercial Grow Supply, Inc.

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

CGS is included in our Retail segment.

On August 23, 2021 the Company purchased the assets of Hoagtech Hydroponics, Inc.

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The Company used a third-party specialist to value this contingent consideration.

The probability that the target will be reached was determined to be 5% which resulted in a value of approximately $28.5 thousand of contingent consideration which was added to goodwill.

This acquisition expands our footprint in the Pacific Northwest.

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

The probability that the target will be reached was determined to be 5%, resulting in a value of approximately $28.5 thousand of contingent consideration, which was added to goodwill.

Acquired goodwill represents the value expected to rise from organic growth and an opportunity to expand into a well-established market for the Company.Hoagtech is included in our Retail segment.

On October 15, 2021, the Company purchased the assets of Indoor Store, LLC ("All Seasons Gardening"), an indoor-outdoor garden supply center specializing in hydroponics systems, lighting, and nutrients.

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

On December 31, 2021, the Company purchased the assets of Mobile Media, Inc and MMI Agriculture ("MMI"), a mobile shelving manufacturing and warehouse facility.

All Seasons Gardening is included in our Retail segment.

On December 31, 2021, the Company purchased the assets of Mobile Media, Inc ("MMI"), a mobile shelving manufacturing and warehouse facility.

The total consideration for the purchase was approximately $9.1 million, including approximately $8.3 million in cash and common stock valued at approximately $0.8 million.

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

MMI is included in our Distribution and other segment.

2020 Acquisitions

On February 26, 2020 the Company purchased the assets of Health & Harvest LLC.

On February 26, 2020 the Company purchased the assets of Health & Harvest LLC ("Health & Harvest").

The total consideration for the purchase was approximately $2.9 million, including approximately approximately $1.8 million in cash and common stock valued at approximately $1.1 million.

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On October 20, 2020 the Company acquired the assets of Big Green Tomato (“BGT”), a two-store chain in Battle Creek and Taylor, Michigan.

The total consideration was approximately $9.0 million, including approximately $6.0 million in cash and shares of common stock valued at approximately $3.1 million.

The total consideration was approximately $9.0 million, including approximately $6.0 million in cash and common stock valued at approximately $3.1 million.

Acquired goodwill of approximately $4.0 million represents the value expected to rise from organic growth and an opportunity to expand into a well-established market for the Company.

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Acquired goodwill of approximately $28.5 million represents the value expected to rise from organic growth and an opportunity to expand into a well-established market for the Company.

On December 14, 2020, the Company acquired the assets of Grassroots Hydroponics, Inc., a three-store chain in California.

On December 14, 2020, the Company acquired the assets of Grassroots Hydroponics, Inc.

("Grassroots"), a three-store chain in California.

The total consideration for the purchase of Grassroots was approximately $10.0 million, including approximately $7.5 million in cash and common stock valued at approximately $2.5 million.

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On December 23, 2020, the Company acquired the assets of Canopy Crop Management (“Canopy”) and its complete portfolio of products including the Power SI brand of silicic acid-enriched fertilizers.

The total consideration for the purchase of Canopy Crop was approximately $9.2 million, including approximately $5.4 million in cash and common stock valued at approximately $3.8 million.

Acquired goodwill of approximately $4.9 million represents the value expected to rise from organic growth and an opportunity to expand into a well-established product distribution market for the Company.

2019 Acquisitions

On January 21, 2019, the Company acquired the assets of Chlorophyll, Inc., a single store in Colorado.

The total consideration for the purchase of Chlorophyll, Inc., was approximately $4.2 million, including approximately $3.7 million in cash and common stock valued at approximately $0.5 million.

Acquired goodwill of approximately $2.6 million represents the value expected to rise from organic growth and an opportunity to expand into a well-established product distribution market for the Company.

On February 7, 2019, the Company acquired the assets of Palm Springs Hydroponics, a 21-store chain in California.

The total consideration for the purchase of Palm Springs Hydroponics was approximately $1.0 million, including approximately $800 in cash an common stock valued at approximately $0.2 million.

Acquire goodwill of approximately $0.6 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 11, 2019, the Company acquired the assets of Reno Hydroponics ("Reno"), a single store in Reno, Nevada.

The total consideration for the purchase of Reno was approximately $0.8 million, including approximately $0.5 million in cash and common stock valued at approximately $0.3 million.

Acquired goodwill of approximately $0.5 million represents the value expected to rise from organic growth and an opportunity to expand into a well-established product distribution market for the Company.

On May 14, 2019, the Company acquired the assets of GreenLife Garden Supply ("GreenLife"), a three-store in New England.

The total consideration for the purchase of GreenLife was approximately $3.5 million, including approximately $2.6 million in cash and common stock valued at approximately $0.8 million.

Acquired goodwill of approximately $2.3 million represents the value expected to rise from organic growth and an opportunity to expand into a well-established product distribution market for the Company.

On September 3, 2019, the Company acquired the assets of Grand Rapids Hydroponics ("GRH"), a single store in Michigan.

The total consideration for the purchase of GRH was approximately $3.9 million, including approximately $2.4 million in cash and common stock valued at approximately $1.5 million.

Acquired goodwill of approximately $2.4 million represents the value expected to rise from organic growth and an opportunity to expand into a well-established product distribution market for the Company.

On December 16, 2019, the Company acquired the assets of Grow World LLC ("Grow World"), a single store in Oregon.

The total consideration for the purchase of Grow World was approximately $1.3 million, including approximately $1.0 million in cash and common stock valued at approximately $0.3 million.

The total consideration for the purchase of Canopy was approximately $9.2 million, including approximately $5.4 million in cash and common stock valued at approximately $3.8 million.

For further detail on all acquisitions please see Footnote 16 in the Notes to Consolidated Financial Statements.

For further detail on all acquisitions please see Note 16 in the notes to consolidated financial statements.

Our business is subject to some seasonal influences.

Historically, our highest volume of sales occurs in our second and third fiscal quarters, and the lower volume occurs during our first or fourth fiscal quarter.

Historically, our highest volume of sales occurs in our second and third fiscal quarters, primarily based on the outdoor growing seasons, and the lower volume occurs during our first or fourth fiscal quarters.

The markets in which we sell our products are highly competitive.

Our key competitors include many local and national vendors of gardening supplies, local product resellers of hydroponic and other specialty growing equipment, as well as online product resellers and large online marketplaces such as Amazon.com and eBay.

Our industry is a highly fragmented industry with over 1,000 retail hydroponic retailers throughout the U.S.

Notwithstanding the foregoing, we are the largest chain of hydroponic garden centers in North America and our pricing, inventory and product availability and overall customer service provide us the ability to compete in our industry.

In addition, as we continue to increase the number of garden centers, we expect to be able to continue to purchase inventory at lower volume prices, which we expect will enable us to price competitively and deliver the products that our customers are seeking.

The Company competes by delivering the widest selection of hydroponics products, end to end solutions for all types of cultivation environments, in-store sales and product support, direct manufacturer pricing and world-class customer service.

Intellectual Property and Proprietary Rights

Our key competitors include many local and national vendors of gardening supplies, local product resellers of hydroponic and other specialty growing equipment, and online product resellers and large online marketplaces such as Amazon and eBay.

Our industry is highly fragmented, with over 1,000 hydroponic retailers throughout the U.S.

by management's estimates.

Notwithstanding the foregoing, we are the largest chain of hydroponic garden centers in the U.S.

by management's estimates, and our pricing, inventory and product availability and overall customer service provide us the ability to compete in our industry.

In addition, as we continue to increase the scope of our operations, including both retail and distribution, we expect to continue to purchase inventory at lower volume prices, which we expect will enable us to price competitively and deliver the products that our customers are seeking.

The Company competes by delivering a one-stop shopping experience that includes the widest selection of hydroponics products, end-to-end solutions for all types of cultivation environments, in-store sales and product support, direct manufacturer pricing and industry-leading expertise and customer service.

INTELLECTUAL PROPERTY

Our intellectual property includes our brands and their related trademarks, domain names and websites, customer lists and affiliations, product knowledge and technology, patents, and marketing intangibles.

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We own several the federally registered trademarks, including for “GrowGeneration®” and “Where the Pros Go to Grow®” as well as our proprietary brands.

Government Regulation

MARKET DEVELOPMENT AND GOVERNMENT REGULATION

We sell products, including hydroponic gardening products, that end users may purchase for use in new and emerging industries or segments, including the growing of cannabis and hemp, that may not grow or achieve market acceptance in a manner that we can predict.

The demand for these products depends on the uncertain growth of these industries or segments.

Demand for these products depends on the uncertain growth of these industries or segments.

In addition, we sell products that end users may purchase for use in industries or segments, including the growing of cannabis and hemp, that are subject to varying, inconsistent, and rapidly changing laws, regulations, administrative practices, enforcement approaches, judicial interpretations, and consumer perceptions.

For example, certain countries and 36 U.S.

states have adopted frameworks that authorize, regulate, and tax the cultivation, processing, sale, and use of cannabis for medicinal and/or non-medicinal use, while the U.S.

For example, 37 U.S.

states, as well as four U.S.

territories and the District of Columbia, have adopted frameworks that authorize, regulate, and tax the cultivation, processing, sale, and use of cannabis for medicinal and/or non-medicinal use, while the U.S.

Controlled Substances Act and the laws of other U.S.

states prohibit growing cannabis.

In addition, with the passage of the Farm Bill in December 2018, hemp cultivation is now broadly permitted.

The Farm Bill explicitly allows the transfer of hemp-derived products across state lines for commercial or other purposes.

It also removes restrictions on the sale, transport, or possession of hemp-derived products, so long as those items are produced in a manner consistent with the law.

We believe passage of the 2018 Farm Bill will continue to allow the Company to expand its marketplace opportunities.

states prohibit some or all such activities.

Notwithstanding this conflicted legal landscape, we believe that there is a continuing trend towards further legalization that will allow the Company to expand its marketplace opportunities.

Our gardening products, including our hydroponic gardening products, are multi-purpose products designed and intended for growing a wide range of plants and are purchased by cultivators who may grow any variety of plants, including cannabis and hemp.

Although the demand for our products may be negatively impacted depending on how laws (including federal legalization of cannabis), regulations, administrative practices, enforcement approaches, judicial interpretations, and consumer perceptions develop, we cannot reasonably predict the nature of such developments or the effect, if any, that such developments could have on our business.

HUMAN CAPITAL RESOURCES

We strive to foster a collaborative and team-oriented culture and view our human capital resources as an ongoing priority.

As of February 23, 2022, we employ 687 employees:

634 full-time employees, 49 part-time employees, 4 independent contractors, no temporary or seasonal workers.

As of March 1, 2023, we employ 455 employees:

429 full-time employees, 26 part-time employees, and no temporary or seasonal workers.

None of our employees are subject to collective bargaining agreements, and we have had no labor-related work stoppages.

We believe we offer competitive terms and incentives to attract and retain employees.

Our retention rate for our full-time employees is approximately three years, and we employ various initiatives to attract new employees and retain existing employees, including employer contributions to health and welfare benefits, 401(k) plan matching, bonus programs and training opportunities.

We believe we offer competitive terms and incentives to attract and retain employees, including employer contributions to health and welfare benefits, 401(k) plan matching, bonus programs, employee discounts and training opportunities.

In late 2021, we also engaged a compensation consultant to ensure our key employee compensation packages are competitive.

Principal Offices

Our principal offices are located at 5619 DTC Parkway, Suite 900, Greenwood Village, CO 80111.

Currently, we lease 11 facilities in the State of Colorado, 26 in the State of California, 2 the State of Nevada, 3 in the State of Washington, 4 in the State of Oregon, 1 in the state of Arizona, 1 in the State of Rhode Island, 5 in the State of Oklahoma, 7 in the State of Michigan, 5 in the State of Maine, 2 in the State of Florida, 1 in the State of New Mexico, and 1 in the State of Massachusetts, all for our corporate and retail operations.

In total the Company currently leases approximately 900,000 square feet of space, which consists primarily of 7,000 feet of corporate office space, 100,000 square feet of warehouse space and 800,000 square feet of store space.

Compared sentence by sentence after normalising whitespace, quotation marks, case and digits, so re-formatting and restated figures do not read as changed language. Wording changes appear as one removal and one addition. The current filing and the prior one are authoritative.

What changed 10-K

Item 1. Business