What changed in this filing

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Item 1. Business

2024-03-13 compared with 2023-03-16 · 100 added, 247 removed, 17 unchanged (95% 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 specialty retail hydroponic and organic garden centers in the U.S.

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.

(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:

its Cultivation and Gardening segment, composed of the Company's hydroponic and organic gardening business;

and its Storage Solutions segment, composed of the Company's benching, racking, and storage solutions business.

BUSINESS SEGMENTS

During the fourth quarter of 2023, the Company realigned it operating and reportable segments to correspond with changes to its operating model, management structure, and internal reporting and to better align with how the Chief Executive Officer makes operating decisions, allocates resources, and assesses performance.

Accordingly, the Company identified two operating segments, each its own reportable segment, based on its major lines of business:

the Cultivation and Gardening segment and the Storage Solutions segment.

Comparative prior period disclosures in this Annual Report on Form 10-K have been recast to conform to the current segment presentation.

Refer to Note 14, Segments, of the Consolidated Financial Statements included in Item 8 of this Annual Report on Form 10-K ("Consolidated Financial Statements") for additional information regarding the Company's reportable segments.

Cultivation and Gardening

GrowGeneration is a leading developer, marketer, retailer, and distributor of products for both indoor and outdoor hydroponic and organic gardening.

We are dedicated to providing best-in-class selection, service, and solutions to all types of cultivators.

The Company's main business strategy has been to consolidate assets within the fragmented hydroponics industry to leverage efficiencies of a centralized organization.

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.

GrowGeneration carries and sells thousands of products, including nutrients, additives, growing media, lighting, environmental control systems, and other products for indoor and outdoor cultivation.

Our products are capable of growing and maximizing yield and quality of a wide range of plants, from fruits and vegetables in backyards to cannabis and hemp in state-of-the-art commercial cultivation facilities.

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 the Company's growth strategy.

We make our products available to growers through a variety of channels, including hydroponic retail locations, a commercial sales teams serving commercial cultivators, an online platform for cultivators at growgeneration.com, and a wholesale business, HRG Distribution, that markets to resellers in both the hydroponic and traditional gardening markets.

Management believes that the Company has the largest chain of specialty retail hydroponic and organic garden centers in the U.S., with 50 retail locations across 18 states as of December 31, 2023.

The total physical footprint of our Cultivation and Gardening business spans over 942,000 square feet of retail and warehouse space, with garden centers and distribution and fulfillment centers strategically located throughout the U.S.

to deliver product and service to customers quickly and efficiently.

Storage Solutions

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.

Hydroponics and Gardening

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 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 and quality, regardless of the season or weather conditions.

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 yields and quality as compared to traditional soil-based growers.

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.

Plants are often grown using hydroponic methods in order to supply the proper amounts of water and nutrients to the root zone.

Production takes place within an enclosed growing structure, such as a greenhouse or building, which can produce crops regardless of the season or weather conditions in a controlled environment with increased yield and quality compared to traditional outdoor growers .

Plants are often grown using hydroponic methods in order to supply precise amounts of water and nutrients to the root zone.

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

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.

Indoor growing techniques and hydroponic products are being utilized in new and emerging industries or segments, including the growing of cannabis and hemp.

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.

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

1 unchanged sentence

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

We offer commercial customers volume pricing, terms and financing.

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.

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.

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

Our target customers include commercial and craft growers, as well as home growers, in the plant-based medicine market, and commercial and home gardeners who grow organic herbs, fruits, and vegetables.

We recently launched a new brand, The Harvest Company, specifically targeted at customers who grow organic herbs, fruits, and vegetables.

Additionally, through our brand HRG Distribution, we distribute many of our products, including our proprietary products, to wholesalers, resellers, and retailers in the specialty retail hydroponic and organic gardening industry, and we intend to expand such distribution to the traditional gardening industry in the near future.

Storage Solutions

Target customers for our Storage Solutions segment generally include small, mid-size, and large businesses in need of vertical space-saving solutions.

The majority of our customers seek a design that is 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 as well as 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 commercial cultivators needing benching and racking for indoor grow operations.

Cultivation and Gardening

The markets in which we sell our Cultivation and Gardening 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 and supplies, and online product resellers and large online marketplaces such as Amazon and eBay.

Our industry is highly fragmented, with hundreds of specialty hydroponic and organic gardening product retailers and distributors throughout the U.S.

by management's estimates.

Notwithstanding the foregoing, we believe we compete effectively in our industry by delivering a one-stop shopping experience that includes the widest selection of hydroponic 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.

In addition, as we continue increasing the scope of our operations, including distribution, as well as expanding our portfolio of proprietary brands, 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.

Storage Solutions

Our Storage Solutions segment faces competition from a variety of competitors.

Competitors vary by size, from large, broad-line distributors to small, local and regional competitors.

We believe we differentiate ourselves by supplying a range of shelving options, accessories, and services to any market in need of a vertical space-saving solution.

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.

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 and additives, MMI benching, racking, and storage solutions, The Harvest Company gardening tools and accessories, and other products.

We believe that building 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.

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, 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.

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 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, 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, 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.

Same-Store Sales

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

We believe that our assessment on a same-store basis represents an important indicator of comparative financial results and provides relevant information to assess our performance.

New and acquired stores become eligible for inclusion in the comparable store base if the store has been under our ownership for the entire period in the same-store base periods for which we are including the store.

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

Research and Development

The Company has not incurred any research and development expenses during the period covered by this report.

CUSTOMERS AND SUPPLIERS

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.

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 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.

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 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 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.

The total consideration for the purchase of Down River Hydro was approximately $4.4 million, including approximately $3.2 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.

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.

The total consideration for the purchase of Harvest was approximately $8.3 million, including approximately $5.6 million in cash and common stock valued at approximately $2.8 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.

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.

The total consideration for the purchase was approximately $11.7 million, including approximately $9.9 million in cash and common stock valued at approximately $1.8 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.

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.

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.

("CGS"), a hydroponic superstore located in Santa Clarita, California.

The total consideration for the purchase was approximately $7.2 million, including approximately $6.0 million in cash and common stock valued at approximately $1.3 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.

CGS is included in our Retail segment.

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

("Hoagtech"), a Washington -based corporation consisting of a hydroponic and garden supply center serving the Bellingham, Washington area.

The total consideration for the purchase was approximately $3.9 million in cash.

The Asset Purchase Agreement contains a contingent payment equal to $0.6 million to be settled in common stock of the Company if this garden supply center reaches $8.0 million in revenue within a 12-month calendar period from the date of close.

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%, 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.

All Seasons Gardening is the largest hydroponics retailer in New Mexico.

The total consideration for the purchase was approximately $0.9 million, including approximately $0.7 million in cash and common stock valued at approximately $0.2 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.

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 ("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.

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

On June 16, 2020, we acquired certain assets of H2O Hydroponics, LLC (“H2O Hydro”).

The total consideration for the purchase was approximately $2.0 million, including approximately $1.3 million in cash and common stock valued at approximately $0.7 million.

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

On August 10, 2020 we acquired certain assets of Benzakry Family Corp, d/b/a Emerald City Garden (“Emerald City”).

The total consideration for the purchase was approximately $1.0 million.

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

On October 12, 2020, the Company acquired the assets of Hydroponics Depot, LLC (“Hydro Depot”), a single store located in Phoenix, AZ.

The total consideration for the purchase was approximately $1.5 million, including approximately $1.0 million in cash and common stock valued at approximately $0.5 million.

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

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 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.

On November 17, 2020, the Company acquired the assets of The GrowBiz (“GrowBiz”), a five-store chain with four stores in California and one store in Oregon.

The total consideration for the purchase of GrowBiz was approximately $44.8 million, including approximately $17.5 million in cash and common stock valued at approximately $27.3 million.

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.

("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.

Acquired goodwill of approximately $4.5 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 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 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.

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, 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, 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.

We market our products primarily to customers located in the U.S.

and its territories.

We also occasionally transact with customers located outside the U.S.

and its territories, particularly with customers located in international markets where cannabis is legal for medicinal or non-medicinal use.

Our key customers vary by location and segment.

No single customer accounted for more than 10% of our net revenues for the years ended December 31, 2023, 2022, and 2021.

We source our products from numerous different manufacturers and distributors located both within and outside the U.S.

Although the Company generally expects to maintain relationships with its suppliers, the loss of any single supplier would not be expected to have a severe impact on our business because of the competitive nature of the products that we sell.

Certain components, ingredients, or other inputs for products we sell, however, may be limited source inputs, and a shortage, price shock, or other circumstance that disrupts our ability to source such inputs in the quantities we require, in a timely manner, and for a reasonable price may have an adverse impact on our business.

ACQUISITIONS AND OTHER GROWTH STRATEGIES

GrowGeneration's main growth strategy has been to consolidate assets within the fragmented hydroponics industry to leverage efficiencies of a centralized organization.

Since its founding in 2014, GrowGeneration has acquired or opened numerous specialty hydroponic and organic gardening center locations.

Today, management believes that the Company has the largest chain of specialty retail hydroponic and organic garden centers in the U.S., with 50 retail locations across 18 states as of December 31, 2023.

The Company has also acquired several other types of businesses within or complimentary to the hydroponic industry, such as online retailers, proprietary products, our distribution business, HRG Distribution, and our benching, racking, and storage solutions business, MMI.

Currently, the Company's main growth strategies for its Cultivation and Gardening segment include expanding its commercial sales to sell more products to commercial cultivators for large grow operations, expanding its distribution capabilities to sell more products to independent retail garden centers and other resellers for resale, and expanding and promoting its portfolio of proprietary brands to increase its market share, product offerings, and profitability.

The Company's main growth strategies for its Storage Solutions segment include expanding the types of customers and industries to which we sell our products, including greater penetration in agriculture and golf and country clubs.

In addition, the Company regularly seeks and evaluates accretive acquisition opportunities with similar or complimentary businesses to those businesses it already operates.

Refer to Note 12, Acquisitions, of the Consolidated Financial Statements for additional information regarding the Company's acquisitions.

Our Cultivation and Gardening business is subject to some seasonal influences.

Historically, our highest volume of Cultivation and Gardening 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.

Our Storage Solutions sales generally do not fluctuate seasonally because our Storage Solutions products are largely used indoors only.

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.

We also hold rights to website addresses related to our business including websites that are actively used in our day-to-day business such as www.GrowGeneration.com.

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

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.

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, 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 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.

We also hold rights to website addresses related to our business, including websites that are actively used in our day-to-day business such as www.GrowGeneration.com, www.MMIstorage.com, and www.HRGdist.com.

We own several federally registered trademarks, including for "GrowGeneration®", "Where the Pros Go to Grow®", "MMI®", and our proprietary brands.

SOCIAL ENGAGEMENT

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

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

GrowGeneration has also sponsored social impact organizations and programs, such as the Last Prisoner Project, a national, nonpartisan nonprofit dedicated to reforming the U.S.

criminal justice system through progressive drug policy, and the NEXTGEN Micro Cultivation competition, an education and training support program for social equity license applicants.

HUMAN CAPITAL RESOURCES

2 unchanged sentences

372 full-time employees, 28 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, 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.

Our workforce is diverse in all categories, from 34.5% ethnicity diversity, to 19.8% female staff with several in senior leadership positions, to 54.8% our workforce coming from the Millennial generation.

We have no employees subject to collective bargaining agreements, nor have we had any labor-related work stoppages.

We evaluate labor market conditions regularly and believe we offer competitive employment terms, benefits, and incentives to attract and retain employees, including employer contributions to health and welfare benefits, bonus programs, employee discounts, career development and training opportunities, and wellness programs to engage employees around mental, physical, financial, and overall wellness.

We also engaged a compensation consultant to conduct a compensation analysis, which the consultant delivered in 2022, to assess and improve our key employee compensation packages.

MARKET DEVELOPMENT AND GOVERNMENT REGULATION

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

Demand for our products depends on the uncertain acceptance and growth of these industries.

These new and emerging industries are also subject to varying, inconsistent, and rapidly changing laws, regulations, administrative practices, enforcement, judicial interpretations, and consumer perceptions.

For example, a majority of U.S.

states and territories 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 federal Controlled Substances Act and laws of other U.S.

states prohibit such activities and use.

Because demand for our products may be negatively impacted depending on how laws, regulations, administrative practices, enforcement, 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.

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.

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What changed 10-K

Item 1. Business