What changed in this filing

/stocks — the workspaceLOADING

Item 8. Financial Statements and Supplementary Data

2024-03-13 compared with 2023-03-16 · 561 added, 659 removed, 651 unchanged (65% of the section changed)

11 unchanged sentences

Opinion on the financial statements

We have audited the accompanying consolidated balance sheet of GrowGeneration Corp.

(the “Company”) as of December 31, 2022, the related consolidated statements of operations, stockholders’ equity, and cash flows for the year ended December 31, 2022, and the related notes (collectively referred to as the “financial statements”).

In our opinion, the financial statements present fairly, in all material respects, the financial position of the Company as of December 31, 2022, and the results of its operations and its cash flows for the year ended December 31, 2022, in conformity with accounting principles generally accepted in the United States of America.

We have audited the accompanying consolidated balance sheets of GrowGeneration Corp.

(a Colorado corporation) and subsidiaries (the “Company”) as of December 31, 2023 and 2022, the related consolidated statements of operations, stockholders’ equity, and cash flows for each of the two years in the period ended December 31, 2023, and the related notes (collectively referred to as the “financial statements”).

In our opinion, the financial statements present fairly, in all material respects, the financial position of the Company as of December 31, 2023 and 2022, and the results of its operations and its cash flows for each of the two years in the period ended December 31, 2023, in conformity with accounting principles generally accepted in the United States of America.

We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States) (“PCAOB”), the Company’s internal control over financial reporting as of December 31, 2023, based on criteria established in the 2013 Internal Control—Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (“COSO”), and our report dated March 13, 2024 expressed an adverse opinion.

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These financial statements are the responsibility of the Company’s management.

Our responsibility is to express an opinion on the Company’s financial statements based on our audit.

Our responsibility is to express an opinion on the Company’s financial statements based on our audits.

We are a public accounting firm registered with the PCAOB and are required to be independent with respect to the Company in accordance with the U.S.

federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.

We conducted our audit in accordance with the standards of the PCAOB.

We conducted our audits in accordance with the standards of the PCAOB.

Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement, whether due to error or fraud.

Our audit included performing procedures to assess the risks of material misstatement of the financial statements, whether due to error or fraud, and performing procedures that respond to those risks.

Our audits included performing procedures to assess the risks of material misstatement of the financial statements, whether due to error or fraud, and performing procedures that respond to those risks.

Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the financial statements.

Our audit also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the financial statements.

We believe that our audit provide a reasonable basis for our opinion.

Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the financial statements.

We believe that our audits provide a reasonable basis for our opinion.

Critical audit matter

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(the “Company”) as of December 31, 2023, based on criteria established in the 2013 Internal Control—Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (“COSO”).

In our opinion, because of the effect of the material weaknesses described in the following paragraphs on the achievement of the objectives of the control criteria, the Company has not maintained effective internal control over financial reporting as of December 31, 2022, based on criteria established in the 2013 Internal Control—Integrated Framework issued by COSO.

In our opinion, because of the effect of material weaknesses described in the following paragraphs on the achievement of the objectives of control criteria, the Company has not maintained effective internal control over financial reporting as of December 31, 2023, based on criteria established in the 2013 Internal Control—Integrated Framework issued by COSO.

A material weakness is a deficiency, or combination of control deficiencies, in internal control over financial reporting, such that there is a reasonable possibility that a material misstatement of the company’s annual or interim financial statements will not be prevented or detected on a timely basis.

The following material weaknesses has been identified and included in management’s assessment.

The following material weaknesses have been identified and included in management’s assessment.

• Control Environment:

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Opinion on the Financial Statements

We have audited the accompanying consolidated balance sheets of GrowGeneration Corp.

(the “Company”) as of December 31, 2021, the related consolidated statements of operations, stockholders' equity, and cash flows for each of the years in the two-year period ended December 31, 2021, and the related notes (collectively referred to as the “financial statements”).

In our opinion, the financial statements referred to above present fairly, in all material respects, the financial position of the Company as of December 31, 2021, and the results of its operations and its cash flows for each of the years in the two-year period ended December 31, 2021, in conformity with accounting principles generally accepted in the United States of America.

We have audited the accompanying consolidated statements of operations, stockholders' equity, and cash flows of GrowGeneration Corp.

(the “Company”) for the year ended December 31, 2021, and the related notes (collectively referred to as the “financial statements”).

In our opinion, the financial statements referred to above present fairly, in all material respects, the results of operations of the Company and its cash flows for the ended December 31, 2021, in conformity with accounting principles generally accepted in the United States of America.

Basis for Opinion

The Company's management is responsible for these financial statements.

Our responsibility is to express an opinion on the Company’s financial statements based on our audits.

We are a public accounting firm registered with the PCAOB and are required to be independent with respect to the Company in accordance with the U.S.

Our responsibility is to express an opinion on the Company’s financial statements based on our audit.

We are a public accounting firm registered with the Public Company Accounting Oversight Board (United States) (“PCAOB”) and are required to be independent with respect to the Company in accordance with the U.S.

federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.

We conducted our audits in accordance with the standards of the PCAOB.

We conducted our audit in accordance with the standards of the PCAOB.

Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement, whether due to error or fraud.

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Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the financial statements.

Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the financial statements.

We believe that our audits provide a reasonable basis for our opinion.

Our audit also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the financial statements.

We believe that our audit provides a reasonable basis for our opinion.

/s/ Plante & Moran, PLLC

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Marketable securities 35,212 31,852

Accounts receivable, net of allowance for doubtful accounts of $ 0.7 million and $ 0.6 million at December 31, 2022 and 2021

Notes receivable, current, net of allowance for doubtful accounts of $ 1,268 and $ 522 at December 31, 2022 and 2021

Accounts receivable, net of allowance for credit losses of $ 1.4 million and $ 0.7 million at December 31, 2023 and 2022, respectively

Notes receivable, long-term, net of allowance for credit losses of $ 1.7 million and $ 1.3 million at December 31, 2023 and 2022, respectively

Inventory 64,905 77,091

Prepaid income taxes 516 5,679

Prepaids and other current assets 6,455 16,116

Prepaid and other current assets 7,973 6,455

Total current assets 147,451 170,681

Property and equipment, net 27,052 28,669

Operating leases right-of-use assets 46,433 43,730

Operating leases right-of-use assets, net 39,933 46,433

Notes receivable, long-term 106 —

Intangible assets, net 16,180 30,878

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Total current liabilities 30,930 35,794

Deferred tax liability — 2,359

Operating lease liability, net of current maturities 34,448 40,659

Long-term debt, net of current portion — 66

Other long-term liabilities 317 593

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2023 2022 2021

Sales, net $ 278,166 $ 422,489 $ 193,365

Net sales $ 225,882 $ 278,166 $ 422,489

Cost of sales (exclusive of depreciation and amortization shown below) 164,624 207,903 304,248

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Selling, general, and administrative 29,799 36,758 39,469

Bad debt expense 1,737 1,428 580

Estimated credit losses 955 1,737 1,428

Depreciation and amortization 16,607 17,132 12,600

17,132 12,600 2,436

Impairment loss 15,659 127,831 —

Total operating expenses 111,102 238,138 103,239

238,138 103,239 42,611

Income (loss) from operations ( 49,844 ) ( 167,875 ) 15,002

Other income (expense):

Miscellaneous income (expense)

684 ( 216 ) 112

Other income (expense) 781 684 ( 216 )

Interest income 2,696 580 486

Interest expense ( 97 ) ( 21 ) ( 43 )

( 21 ) ( 43 ) ( 14 )

Total non-operating income (expense), net

1,243 227 142

Total other income (expense) 3,380 1,243 227

Net income (loss) before taxes ( 46,464 ) ( 166,632 ) 15,229

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CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY

FOR THE YEARS ENDED DECEMBER 31, 2022, 2021, and 2020

(in thousands)

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Balances, December 31, 2020 57,152 $ 57 $ 319,582 $ ( 2,642 ) $ 316,997

Sale of common stock, net of fees 14,375 14 207,120 — 207,134

Common stock issued upon warrant exercise 256 — 335 — 335

3 unchanged sentences

Common stock issued in connection with business combinations 807 1 37,271 — 37,272

Common stock issued for assets 20 — 136 — 136

Common stock issued for services 50 — — — —

Common stock issued for accrued payroll 325 — 717 — 717

Common stock issued for accrued share-based compensation 729 1 3,797 — 3,798

Share based compensation, net of shares withheld for employee tax liability ( 8 ) — 3,856 — 3,856

Net income (loss) — — — 5,328 5,328

Balances, December 31, 2020 57,152 $ 57 $ 319,582 $ ( 2,642 ) $ 316,997

Common stock issued upon warrant exercise 256 — 335 — 335

Common stock issued upon cashless exercise of warrants 657 1 ( 1 ) — —

Common stock issued upon exercise of options 469 1 1,757 — 1,758

Common stock issued upon cashless exercise of options 325 — — — —

Common stock issued in connection with business combinations 807 1 37,271 — 37,272

Common stock issued in connection with purchase of intangible assets 4 — 168 — 168

2 unchanged sentences

Common stock redeemed in litigation settlement ( 90 ) — — — —

Share based compensation, net of shares withheld for employee tax liability — — 1,258 — 1,258

Share-based compensation — — 1,258 — 1,258

Net income (loss) — — — 12,786 12,786

4 unchanged sentences

Share-based compensation — — 4,514 — 4,514

Common stock redemption — — ( 1,618 ) — ( 1,618 )

Common stock withheld for employee payroll taxes — — ( 1,618 ) — ( 1,618 )

Common stock issued upon exercise of options 8 — 33 — 33

4 unchanged sentences

Balances, December 31, 2022 61,010 $ 61 $ 369,938 $ ( 153,603 ) $ 216,396

Common stock issued for share based compensation 439 — — — —

Common stock withheld for employee payroll taxes — — ( 263 ) — ( 263 )

Share-based compensation — — 2,985 — 2,985

Non-cash repurchase of liability awards — — 653 — 653

Liability redemption associated with business acquisition 35 — 120 — 120

Net income (loss) — — — ( 46,496 ) ( 46,496 )

Balances, December 31, 2023 61,484 $ 61 $ 373,433 $ ( 200,099 ) $ 173,395

The accompanying notes are an integral part of these audited Consolidated Financial Statements.

9 unchanged sentences

Depreciation and amortization 16,607 17,132 12,600

Bad debt expense, net of recoveries 1,737 1,428 580

Stock based compensation 4,967 6,585 7,856

Impairment loss 127,831 — —

Estimated credit losses 955 1,737 1,428

Share-based compensation 3,171 4,967 6,585

Impairment loss related to goodwill and intangible assets 15,526 127,831 —

Impairment loss on operating lease right-of-use assets 133 — —

Provision for deferred income taxes — ( 2,359 ) 1,609

Loss on disposal of fixed assets 218 568 198

Other — — ( 127 )

Changes in operating assets and liabilities:

Change in value of marketable securities ( 1,438 ) — —

Changes in operating assets and liabilities (net of the effect of acquisitions):

(Increase) decrease in:

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Prepaid expenses and other assets 3,898 10,827 ( 9,937 )

Increase (decrease) in:

Accounts payable and accrued liabilities ( 3,035 ) ( 3,359 ) 3,285

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Cash flows from investing activities:

Assets acquired in business combinations, net of cash acquired ( 7,230 ) ( 80,784 ) ( 41,402 )

Acquisitions, net of cash acquired ( 3,050 ) ( 7,230 ) ( 80,784 )

Purchase of property and equipment ( 6,698 ) ( 12,896 ) ( 18,740 )

1 unchanged sentence

Maturities of marketable securities 96,758 46,633 35,207

Disposal of assets 612 — —

Purchase of intangibles — — ( 1,027 )

Net Cash and Cash Equivalents (Used In) Investing Activities ( 11,573 ) ( 139,317 ) ( 45,830 )

Proceeds from disposals of assets 265 612 —

Net cash and cash equivalents provided by (used in) investing activities ( 11,405 ) ( 11,573 ) ( 139,317 )

Cash flows from financing activities:

Principal payments on long term debt ( 50 ) ( 108 ) ( 83 )

Payments to tax authorities for stock-based compensation ( 1,618 ) ( 4,391 ) ( 119 )

Common stock withheld for employee payroll taxes ( 263 ) ( 1,618 ) ( 4,391 )

Proceeds from the sales of common stock and exercise of warrants and options, net of expenses — 33 2,092

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Supplemental Information:

Common stock issued for intangible assets $ 173 $ 168 $ —

Common stock issued for accrued payroll liability $ — $ — $ 718

Assets acquired by issuance of stock $ 5,710 $ 37,272 $ 39,282

Cash paid for interest $ 98 $ 21 $ 43

Right to use assets acquired under new operating leases $ 9,607 $ 32,875 $ 7,887

Cash paid for income taxes $ 93 $ — $ 6,072

Right to use assets acquired under new operating leases $ 4,289 $ 9,607 $ 32,875

Indemnity holdback from business acquisition $ — $ 875 $ —

Non-cash repurchase of liability awards $ 653 $ — $ —

Non-cash issuance of a note receivable $ 299 $ — $ —

Common stock issued for business combinations $ — $ 5,710 $ 37,272

Liability redemption associated with business acquisition $ 120 $ — $ —

Common stock issued for intangible assets $ — $ 173 $ 168

The accompanying notes are an integral part of these audited Consolidated Financial Statements.

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GrowGeneration Corp.

(the “Company”, "we", "us", and "our") was incorporated on March 6, 2014 in Colorado under the name of Easylife Corp and changed its name to GrowGeneration Corp.

It maintains its principal office in Denver, Colorado.

GrowGeneration is the largest chain of hydroponic garden centers in the U.S.

by management's estimates and is a marketer and distributor of nutrients, growing media, lighting, ventilation systems and other products for hydroponic and organic gardening.

The Company also engages in the distribution of private label products and commercial benching.

Currently, the Company owns and operates a chain of 59 retail hydroponic/gardening stores across 16 states, an online e-commerce platform, and propriety businesses that market grow solutions through our platforms and other wholesale customers.

The Company’s plan is to continue to acquire, open and operate hydroponic/gardening stores and related businesses throughout the United States.

(together with 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.

As of December 31, 2023, GrowGeneration has 50 retail locations across 18 states in the U.S.

The Company also operates an online superstore for cultivators at growgeneration.com, as well as a wholesale business for resellers, HRG Distribution, and a benching, racking, and storage solutions business, Mobile Media or MMI.

SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

Basis of Presentation and Consolidation

The consolidated financial statements are prepared under the Financial Accounting Standards Board (“FASB”) Accounting Standards Codification (“ASC”) Topic 105-10, Generally Accepted Accounting Principles , in accordance with accounting principles generally accepted in the U.S.

The consolidated financial statements include the Company and its wholly-owned subsidiaries.

All intercompany balances and transactions are eliminated in consolidation.

The Consolidated Financial Statements have been prepared under the Financial Accounting Standards Board ("FASB") Accounting Standards Codification ("ASC") 105-10, Generally Accepted Accounting Principles , in accordance with accounting principles generally accepted in the U.S.

The Consolidated Financial Statements include the accounts of GrowGeneration Corp.

and its direct and indirect wholly-owned subsidiaries.

All intercompany balances and transactions have been eliminated in consolidation.

All amounts included in the accompanying notes to the Consolidated Financial Statements, except per share data, are in thousands (000).

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Certain amounts in the prior period consolidated financial statements have been reclassified to conform to the current period presentation.

These reclassifications had no effect on reported consolidated net income.

These reclassifications had no effect on reported Consolidated Statements of Operations.

Use of Estimates

Management uses estimates and assumptions in preparing these consolidated financial statements in accordance with generally accepted accounting principles.

These estimates and assumptions affect the reported amounts of assets and liabilities, the disclosure of contingent assets and liabilities at the date of the consolidated financial statements, and the reported revenues and expenses during the reporting period.

The preparation of consolidated financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities, the disclosure of contingent assets and liabilities at the date of the consolidated financial statements, and the reported revenues and expenses during the reporting period.

Actual results could vary from the estimates that were used.

Risks and Uncertainties

The COVID-19 pandemic has created significant public health concerns as well as economic disruption, uncertainty, and volatility which may negatively affect our business operations.

As a result, if the pandemic or its effects persist or worsen, our accounting estimates and assumptions could be impacted in subsequent interim reports and upon final determination at year-end, and it is reasonably possible such changes could be significant (although the potential effects cannot be estimated at this time).

Although the COVID-19 pandemic to date has resulted in supply chain delays of our inventory, higher operating costs and increased shipping costs, among other impacts, we have experienced minimal business interruption as a result of the COVID-19 pandemic.

Although many impacts of the COVID-19 pandemic appear to have alleviated, the pandemic has not yet been eliminated, and we cannot predict future impacts of the COVID-19 pandemic, if any, on markets generally or on our operations or the operations of our customers and suppliers.

It is possible that some impacts of the pandemic on markets will persist for some time.

These measures have negatively impacted, and may continue to impact, our business and financial condition as the responses to control COVID-19 continue.

Segment Reporting

The Company continually monitors and reviews its segment reporting structure in accordance with authoritative guidance for changes in management's approach or changes in other facts and circumstances that might result in different segment reporting.

During the fourth quarter of 2023, the Company realigned its 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 operating decision maker ("CODM") 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, composed of the Company's hydroponic and organic gardening business;

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

Comparative prior period disclosures have been recast to conform to the current segment presentation.

Refer to Note 14, Segments, for additional information regarding the Company's reportable segments.

GROWGENERATION CORP.

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Immaterial out-of-period adjustments

During the year ended December 31, 2022, the Company recorded an immaterial out-of-period adjustment that impacted the prior year Consolidated Balance Sheets.

The adjustment related to a change in the calculation of operating lease right-of-use assets and operating lease liabilities.

This adjustment corrected an understatement of operating lease right-of-use assets of $ 1.3 million and an understatement of operating lease liabilities of $ 1.3 million as of December 31, 2021.

The Company assessed the materiality of this adjustment on the previously issued annual financial statements in accordance with SEC Staff Accounting Bulletin No.

The Company concluded that the changes were not material to any of the previously issued consolidated financial statements.

During the year ended December 31, 2022, the Company recorded an immaterial out-of-period adjustment that impacted the prior year Consolidated Balance Sheet related to the accumulation of errors that occurred over several periods.

This adjustment corrected an understatement of operating lease right-of-use assets of $ 1.4 million and an understatement of operating lease liabilities of $ 1.4 million as of December 31, 2021.

The Company assessed the materiality of this adjustment on the previously issued annual financial statements in accordance with SEC Staff Accounting Bulletin No.

The Company concluded that the changes were not material to any of the previously issued consolidated financial statements.

Segment Reporting

During the year ended December 31, 2022, the Company identified an omission regarding the disclosure of reportable segments under ASC 280 related to the year ended December 31, 2021.

During the year ended December 31, 2021 the Company inappropriately reported a single segment, aggregating multiple operating segments.

The impact at December 31, 2021 was that $ 17.1 million of revenue, $ 7.0 million of gross margin, and $ 2.9 million of operating income should have been reported as a separate “Distribution and other segment.

” The Company assessed the materiality of this omission on the previously issued interim and annual consolidated financial statements in accordance with SEC Staff Accounting Bulletin No.

The Company concluded that the omission was not material to any of the previously issued consolidated financial statements and began reporting segments results in accordance with ASC 280 on a prospective basis starting with the quarter ended March 31, 2022.

Revenue Recognition

The Company’s revenue is primarily generated from sales of branded and non-branded products through our retail locations, e-commerce platforms, and distribution centers.

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.

The Company's revenue is primarily generated from sales of its hydroponic and organic gardening proprietary brand products and non-proprietary brand products through its retail locations, e-commerce platforms, wholesale distribution, and commercial sales organization.

In addition to its hydroponic and organic gardening product sales, the Company sells and installs commercial fixtures through its benching, racking, and storage solutions business .

The Company recognizes revenue when performance obligations under the terms of a contract with its customer are satisfied.

Revenue is recognized at the point in time when the Company has satisfied its performance obligation and the customer has obtained control of the products or when services have been completed.

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, and installation is not complex and can be performed by other vendors.

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

The Company has applied the practical expedient to exclude the value of remaining performance obligations for contracts with an original term of one year or less.

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

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

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

Installation revenue is recognized upon completion of the installation services.

Revenues are measured as the amount of consideration that the Company expects to receive, which is derived from a list price reduced by variable consideration, which includes applicable sales discounts and estimated expected sales returns.

The majority of the Company's returns come from retail sales.

Estimating future returns requires judgment based on current and historical trends, and actual returns may vary from management's estimates.

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

The Company provides standard assurance type warranties that its products and installation services will comply with all agreed-upon specifications.

No services beyond an assurance type warranty are provided to customers.

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

Under certain circumstances, the Company does provide goods and services to customers on a credit basis (see Accounts Receivable,

GROWGENERATION CORP.

AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Notes Receivable and Concentration of Credit Risk below).

The Company accounts for shipping and handling activities as a fulfillment cost rather than as a separate performance obligation.

As such, the Company classifies such costs as a component of cost of sales on the consolidated statements of operations.

Under certain circumstances, the Company does provide goods and services to customers on a credit basis (see Accounts Receivable, Notes Receivable and Concentration of Credit Risk below).

When the Company receives payment from customers before the customer obtains control of the merchandise or the service has been performed, the amount received is recorded as a customer deposit in the accompanying Consolidated Balance Sheets until the sale or service is complete.

In accordance with ASC 606, Revenue from Contracts with Customers , the Company has elected the practical expedient to exclude the value of remaining performance obligations for contracts with an original term of one year or less and the practical expedient for shipping and handling costs.

Shipping and handling costs incurred to deliver products to customers are accounted for as fulfillment activities, rather than a promised service, and as such are included in Cost of sales in the Consolidated Statements of Operations.

Cost of Sales

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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.

Cash Equivalents

Occupancy expenses of the Company's retail locations and distribution centers, which consist of payroll, rent, and other lease required costs, including common area maintenance and utilities, are included as a component of Store operations and other operational expenses on the Consolidated Statements of Operations.

The Company does not consider these occupancy expenses to be part of the costs to bring its products to the finished condition and therefore records such costs as Store operations and other operational expenses rather than Cost of sales.

Cash and Cash Equivalents

The Company considers all highly liquid investments purchased with original maturities of three months or less to be cash equivalents.

The Company's cash equivalents consist primarily of money market funds.

Financial instruments that potentially expose us to concentrations of risk consist primarily of cash and cash equivalents and accounts receivable, which are generally not collateralized.

Our policy is to place our cash and cash equivalents with high quality financial institutions, in order to limit the amount of credit exposure.

Financial instruments that potentially expose the Company to concentrations of risk consist primarily of cash and cash equivalents and accounts receivable, which are generally not collateralized.

The Company's policy is to place its cash and cash equivalents with high-quality financial institutions in order to limit the amount of credit exposure.

Accounts at each institution are insured by the Federal Deposit Insurance Corporation ("FDIC") up to $ 250,000 .

At December 31, 2022 and 2021, the Company had approximately $ 37 million and $ 38 million, respectively, in excess of the FDIC insurance limit.

The Company classifies its commercial paper and debt securities as marketable securities.

Marketable securities with available fair market values are stated at fair market values.

Realized gains or losses on sale of marketable securities are computed using primarily the moving average cost and reported in net income.

For the year ended December 31, 2022, 2021, and 2020, there were no significant unrealized gains or losses incurred.

Accounts Receivable, Notes Receivable and Concentration of Credit Risk

Accounts receivable are stated at the amount the Company expects to collect from balances outstanding at period-end, based on the Company’s assessment of the credit history with customers having outstanding balances and current relationships with them.

A reserve for uncollectible receivables is established when collection of amounts due is deemed improbable.

Indicators of improbable collection include client bankruptcy, client litigation, client cash flow difficulties or ongoing service or billing disputes.

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

Additionally, certain cash equivalents maintained with investment institutions are insured by a combination of the Securities Investor Protection

GROWGENERATION CORP.

AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Corporation ("SIPC") up to $ 500,000 , which includes a $ 250,000 limit for cash, and additional private insurance, which mitigates the Company's exposure.

At December 31, 2023 and 2022, the Company had approximately $ 20.8 million and $ 34.3 million, respectively, in excess of the FDIC, SIPC, and other insurance limits.

Marketable Securities

Marketable securities investments primarily consist of fixed-income securities with short-term maturities, which are not actively traded by the Company.

The marketable securities are classified as available-for-sale and are carried at fair value based on quoted market prices.

Changes in fair value of marketable securities, principally derived from accretion of discounts, was $ 1.4 million for the year ended December 31, 2023 and immaterial for the years ended December 31, 2022 and 2021, and included in Interest income on the Consolidated Statements of Operations.

Changes in fair value of marketable securities related to unrealized gains and losses were immaterial for the years ended December 31, 2023, 2022, and 2021.

Accounts Receivable

Accounts receivable consist primarily of trade receivables stated at the amount of consideration that the Company expects to collect from balances outstanding at period-end, net of allowances for credit losses.

The Company estimates its allowance for credit losses and the related expected credit loss based upon the Company's historical credit loss experience and the age of the account adjusted for asset-specific risk characteristics, current economic conditions, relationship with the customer, and reasonable forecasts.

Accounts receivable are written off or fully reserved when collection of amounts due is deemed improbable.

Indicators of improbable collection include client bankruptcy, client litigation, client cash flow difficulties, and ongoing service or billing disputes.

Credit is generally extended on a short-term basis, thus current receivables do not bear interest.

Interest on past due balances are subject to an interest charge of 1.5 % per month.

Notes receivable are stated at the amount the Company expects to collect from balances outstanding at period-end, based on the Company’s assessment of the credit history with customers having outstanding balances and current relationships with them.

A reserve for uncollectible receivables is established when collection of amounts due is deemed improbable.

Indicators of improbable collection include client bankruptcy, client litigation, client cash flow difficulties or ongoing service or billing disputes.

A note is placed on non-accrual status when management determines, after considering economic and business conditions and collection efforts, that the note is impaired or collection of interest is doubtful.

The accrual of interest on the instrument ceases when there is concern that principal or interest due according to the note agreement will not be collected.

Any payment received on such non-accrual notes are recorded as interest income when the payment is received.

The note is reclassified as accrual-basis once interest and principal payments become current.

Notes Receivable

From time-to-time, the Company has executed notes receivables to third parties secured by collateral.

Notes receivable generally have terms of 12 months to 18 months and bear interest from 6 to 12 % per annum.

Generally, the underlying collateral is product or equipment financed by the note receivable.

Notes receivable are stated at the amount the Company expects to collect from balances outstanding at period-end, net of allowances for credit losses.

A reserve for uncollectible notes receivable is established when collection of amounts due is deemed improbable.

Indicators of improbable collection include client bankruptcy, client litigation, client cash flow difficulties, and ongoing service or billing disputes.

When management determines, after considering economic and business conditions and collection efforts, that an allowance for credit losses is necessary for a note receivable or collection of interest on the note is improbable, the accrual of interest on the instrument ceases.

Any payment received on such non-accrual note receivable is recorded as interest income when the payment is received.

Once payments of principal and interest are current, the Company resumes accruing interest on the note receivable.

The Company periodically reviews the value of the underlying collateral for the note receivable and evaluates whether the value of the collateral continues to provide adequate security for the note.

Should the value of the underlying collateral become less than the outstanding principal and interest, the Company will determine whether an allowance is necessary.

Any uncollectible interest previously accrued is also charged off.

As of December 31, 2022 and 2021, the Company believes the value of the underlying collateral for each of the notes to be sufficient and in excess of the respective outstanding principal and accrued interest, net of recognized allowance.

Should the value of the underlying collateral become less than the outstanding principal and interest, the Company will determine whether an allowance or impairment of the note receivable and related accrued interest is necessary.

As of December 31, 2023 and 2022, the Company believes the value of the underlying collateral to be sufficient and in excess of the respective outstanding principal and accrued interest, net of recognized allowance for doubtful accounts.

Concentration of Credit Risk

The Company is exposed to credit risk in the normal course of business, primarily related to accounts receivable and notes receivable.

The Company is affected by general economic conditions in the U.S.

To limit credit risk, management periodically reviews and evaluates the financial condition of customers and maintains an allowance for credit losses.

As of December 31, 2023 and 2022, the Company does not believe that it has significant credit risk.

GROWGENERATION CORP.

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Notes receivable generally have terms of 12 months to 18 months and bear interest from 6 - 12 % per annum.

Generally, product sales that are the basis for the note receivable are collateral on the note receivable until the note is paid off.

We are exposed to credit risk in the normal course of business, primarily related to accounts and notes receivable.

We are affected by general economic conditions in the U.S.

To limit credit risk, management periodically reviews and evaluates the financial condition of its customers and maintains an allowance for doubtful accounts.

As of December 31, 2022 and 2021, we do not believe that we have significant credit risk.

Inventory consists primarily of gardening supplies and materials, fixtures, and equipment and is recorded at the lower of cost (weighted average cost method) or net realizable value.

Inventory consists predominantly of finished goods, including gardening supplies and materials, fixtures, and equipment, and is recorded at the lower of cost (weighted average cost method) or net realizable value.

The Company periodically reviews the value of items in inventory and provides write-downs or write-offs of inventory based on its assessment of market conditions.

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

During the years ended December 31, 2022, 2021, and 2020, the Company recorded $ 7.8 million, $ 5.3 million, and $ 1.7 million to inventory write-downs due to shrink and obsolescence.

During the years ended December 31, 2023, 2022, and 2021, the Company recorded $ 4.8 million, $ 7.8 million, and $ 5.3 million, respectively, to inventory write-downs due to shrink and obsolescence.

Property and Equipment

Property and equipment are carried at cost.

Leasehold improvements are amortized using the straight-line method over the original term of the lease or the useful life of the improvement, whichever is shorter.

Property and equipment are recorded at cost, or at the allocated fair value for assets acquired in accordance with ASC 805, Business Combinations , and depreciated on a straight-line basis over their estimated useful lives.

Leasehold improvements are amortized on a straight-line basis over the shorter of the remaining term of the lease or the useful life of the improvement.

Renewals and betterment that materially extend the life of the asset are capitalized.

With respect to constructed assets, all materials, direct labor, contract services as well as certain indirect costs are capitalized.

With respect to constructed assets, all materials, direct labor, and contract services, as well as certain indirect costs, are capitalized.

Expenditures for maintenance and repairs are charged against operations.

Depreciation of property and equipment is provided on the straight-line method for financial reporting purposes at rates based on the following estimated useful lives:

Computer software development costs and website development costs are expensed as incurred, except for internal-use software or website development costs that qualify for capitalization in accordance with ASC 350, Intangibles—Goodwill and Other , and include certain employee related expenses, including salaries, bonuses, benefits, and share-based compensation expenses;

costs of computer hardware and software;

and costs incurred in developing features and functionality.

The Company expenses costs incurred in the preliminary project and post-implementation stages of software development and capitalizes costs incurred in the application development stage and costs associated with significant enhancements to existing internal use software applications.

Costs incurred related to less significant modifications and enhancements as well as maintenance are expensed as incurred.

These capitalized software costs are amortized on a straight-line basis over an estimated useful life commencing when the software project is ready for its intended use.

The general range of estimated useful lives for property and equipment are as follows:

Estimated Lives

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Computers and equipment 3 - 5 years

Capitalized software 3 - 8 years

Leasehold improvements 5 years, not to exceed lease term

Software and Website Development Costs

The Company accounts for the costs of computer software obtained or developed for internal use in accordance with FASB ASC 350, Intangibles—Goodwill and Other .

Computer software development costs and website development costs are expensed as incurred, except for internal use software or website development costs that qualify for capitalization as described below, and include certain employee related expenses, including salaries, bonuses, benefits and stock-based compensation expenses;

costs of computer hardware and software;

and costs incurred in developing features and functionality.

These capitalized costs are included in property and equipment on the consolidated balance sheets.

• The Company expenses costs incurred in the preliminary project and post-implementation stages of software development and capitalizes costs incurred in the application development stage and costs associated with significant enhancements to existing internal use software applications.

• Software costs are amortized using the straight-line method over an estimated useful life of three years commencing when the software project is ready for its intended use.

• Costs incurred related to less significant modifications and enhancements as well as maintenance are expensed as incurred.

The Company reviews for impairment indicators and recoverability of long-lived assets, including property and equipment, when circumstances indicate that the carrying value of the asset may not be recoverable.

Refer to the Recoverability of long-lived assets significant accounting policy.

Intangible Assets

Intangible assets primarily include trade names, customer relationships, non-compete agreements, and intellectual property with finite lives identified in connection with acquisitions in accordance to ASC 805, Business Combinations .

For each acquisition, the Company allocates the purchase price to the identifiable assets acquired and liabilities assumed, including intangible assets, based on estimated fair values.

The Company determines the appropriate useful life of intangible assets by performing an analysis of cash flows based on historical experience of the acquired businesses.

Intangible assets are amortized over their estimated useful lives on a straight-line basis, which approximates the pattern in which the economic benefits associated with the asset are expected to be consumed.

The estimated useful lives for trade names, customer relationships, non-compete agreements, and intellectual property are generally five to six years .

GROWGENERATION CORP.

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Intangible Assets Acquired in Business Combinations

The Company values assets acquired and liabilities assumed on each acquisition accounted for as a business combination, and allocates the purchase price to the tangible and intangible assets acquired and liabilities assumed based on its best estimate of fair value.

Acquired intangible assets include trade names, customer relationships, non-compete agreements, and intellectual property.

The Company determines the appropriate useful life of intangible assets by performing an analysis of cash flows based on historical experience of the acquired businesses.

Intangible assets are amortized over their estimated useful lives based on the pattern in which the economic benefits associated with the asset are expected to be consumed, which to date has approximated the straight-line method of amortization.

The estimated useful lives for trade names, customer relationships, non-compete agreements, and intellectual property are generally five years .

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

Goodwill is not amortized but is reviewed for potential impairment on an annual basis, or if events or circumstances indicate a potential impairment, at the reporting unit level.

The Company’s review for impairment includes an assessment of qualitative factors to determine whether it is more likely than not that the fair value of a reporting unit is less than its carrying value, including goodwill.

If it is determined that it is more likely than not that the fair value of a reporting unit is less than its carrying value, including goodwill, a quantitative goodwill impairment test is performed, which compares the fair value of the reporting unit with its carrying amounts, including goodwill.

If the fair value of the reporting unit exceeds its carrying amount, goodwill of the reporting unit is considered not impaired.

However, if the carrying amount of the reporting unit exceeds its fair value, additional procedures must be performed.

An impairment loss is recorded to the extent that the carrying amount of goodwill exceeds its fair value.

Long-lived assets

The Company reviews the recoverability of long-lived assets, including buildings, furniture and fixtures, computers and equipment, leasehold improvements, right-of-use assets, and other intangible assets, when events or changes in circumstances occur that indicate the carrying value of the asset may not be recoverable.

Goodwill represents the excess purchase price over the fair value of identifiable assets acquired and liabilities assumed in connection with acquisitions in accordance to ASC 805, Business Combinations .

Goodwill is not amortized but instead is tested for impairment at the reporting unit level at least annually, or more frequently if indicators of impairment exist.

Goodwill is assessed using either a qualitative or quantitative approach to determine whether it is more likely than not that the fair value of a reporting unit is less than its carrying amount.

The qualitative assessment evaluates factors including macro-economic conditions, industry-specific and company-specific considerations, legal and regulatory environments, and historical performance.

If the Company determines that it is more likely than not that the fair value of a reporting unit is less than its carrying value, a quantitative assessment is performed.

Otherwise, no further assessment is required.

The quantitative approach compares the estimated fair value of the reporting unit, including goodwill, to its carrying amount.

Impairment is indicated if the estimated fair value of the reporting unit is less than the carrying amount, and an impairment charge is recognized for the differential.

Companies also have the unconditional option to bypass the qualitative assessment for any reporting unit in any period and proceed directly to performing the quantitative goodwill impairment test.

Effective the fourth quarter of 2023 and prospectively, the Company performed its required annual goodwill impairment test as of December 1 rather than on December 31, which was the Company's previous practice.

This change represented a change in method of applying an accounting principle, and it was determined to be preferable as it more closely aligned the annual goodwill impairment assessment date with the Company's annual planning, forecasting, and budgeting processes.

The change in accounting principle did not result in any, nor does the Company expect the change in accounting principle to result in any, delay, acceleration, or avoidance of an impairment cha rge.

This change was not applied retrospectively, as it would be impracticable to do so because retrospective application would require application of significant estimates and assumptions with the use of hindsight.

For the goodwill impairment test performed on December 1, 2023, the Company completed a quantitative goodwill impairment assessment for each reporting unit.

As a result of changes to the business and future projections, the Company identified a $ 9.3 million impairment related to its goodwill.

Additionally, for the year ended December 31, 2022, the Company recorded a goodwill impairment loss of $ 116.7 million.

These impairment losses related to goodwill are included in Impairment loss on the Consolidated Statements of Operations.

Refer to Note 6, Goodwill and Intangible Assets, for additional information regarding the Company's impairment assessments.

Recoverability of Long-Lived Assets

The Company reviews the recoverability of long-lived assets, including property and equipment, operating leases right-of-use assets, and intangible assets, when events or changes in circumstances occur that indicate the carrying value of the asset may not be recoverable.

The assessment of possible impairment is based on the ability to recover the carrying value of the asset from the expected future pretax cash flows (undiscounted and without interest charges) of the related operations.

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The measurement of impairment requires management to make estimates of these cash flows related to long-lived assets, as well as other fair value determinations.

As of December 31, 2022, there were no indicators of impairment.

See Note 6, Goodwill and Intangible Assets , for discussion of current year impairment.

We account for leases in accordance with the FASB ASC 842, Leases .

We assess whether an arrangement is a lease at inception.

Leases with an initial term of 12 months or less are not recorded on the balance sheet.

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

Operating lease assets and operating lease liabilities are calculated based on the present value of the future minimum lease payments over the lease term at the lease start date.

As most of our leases do not provide an implicit rate, we use our incremental borrowing rate based on the information available at the lease start date in determining the present value of future payments.

The operating lease asset is increased by any lease payments made at or before the lease start date and reduced by lease incentives and initial direct costs incurred.

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

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

The depreciable life of lease assets and leasehold improvements are limited by the lease term.

Lease expense for operating leases is recognized on a straight-line basis over the lease term.

Fair Value Measurements

Fair value is defined as the exchange price that would be received for an asset or paid to transfer a liability (an exit price) in the principal or most advantageous market for the asset or liability in an orderly transaction between market participants on the measurement date.

Valuation techniques used to measure fair value must maximize the use of observable inputs and

During the fourth quarter of 2023, the Company quantitatively evaluated the recoverability of its long-lived assets, including its finite-lived intangible assets, for impairment in conjunction with its annual goodwill impairment assessment.

As a result, the Company identified a $ 6.2 million impairment related to its finite-lived intangible assets.

Additionally, the Company identified a $ 0.1 million impairment related to its operating lease right-of-use assets for the year ended December 31, 2023.

For the year ended December 31, 2022, the Company recorded an impairment loss of $ 11.2 million related to its finite-lived intangible assets.

These impairment losses related to long-lived assets are included in Impairment loss on the Consolidated Statements of Operations.

Refer to Note 6, Goodwill and Intangible Assets, for additional information regarding the Company's intangible asset impairment assessments.

Leases are accounted for in accordance with ASC 842, Leases .

Contracts are evaluated to determine whether the arrangement contains a lease at inception.

Leases are classified as either finance leases or operating leases based on criteria in ASC 842, Leases .

The Company's operating leases primarily consist of real estate leases for its retail stores, distribution centers, warehouses, and offices.

The Company does not have finance leases.

GROWGENERATION CORP.

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

minimize the use of unobservable inputs.

Right-of-use assets and lease liabilities are recognized at the lease commencement date based on the present value of the future minimum lease payments over the lease term.

The lease liabilities represent the present value of remaining lease payments over the lease term.

The right-of-use assets represent the Company's right to use an underlying asset and are based upon the lease liabilities adjusted for prepayments or accrued lease payments, initial direct costs, lease incentives, and impairment of right-of-use assets.

The majority of the Company's leases do not provide an implicit rate;

therefore, the Company uses its incremental borrowing rate based on the information available at the lease commencement date in determining the present value of future payments for those leases.

The Company's incremental borrowing rate for a lease is the rate of interest it would pay to borrow on a collateralized basis over a similar term to the lease in a similar economic environment.

The lease term includes the non-cancelable period of the lease and may include options to extend or terminate the lease when it is reasonably certain that the Company will exercise that option.

The exercise of lease renewal options is at the Company's sole discretion.

The Company has elected not to recognize right-of-use assets and lease liabilities for short-term operating leases that have a lease term of one year or less and that do not include an option to purchase the underlying asset that the Company is reasonably certain to exercise.

Short-term lease costs include expenses related to leases with terms greater than one month but less than 12 months, and the expense is recognized on a straight-line basis over the lease term.

The Company has elected the practical expedient to account for lease and non-lease components as a single component for all leases.

The Company monitors for triggering events or conditions that require a reassessment of its leases.

When the reassessment requires a re-measurement of the lease liability, a corresponding adjustment is made to the carrying amount of the right-of-use asset.

Additionally, the Company reviews for impairment indicators of its right-of-use assets and other long-lived assets as described in the Recoverability of long-lived assets significant accounting policy.

Fair Value Measurements

Fair value is defined as the exchange price that would be received to sell an asset or paid to transfer a liability (an exit price) in the principal or most advantageous market for the asset or liability in an orderly transaction between market participants on the measurement date.

Valuation techniques used to measure fair value must maximize the use of observable inputs and minimize the use of unobservable inputs.

Financial assets and liabilities carried at fair value are to be classified and disclosed in one of the following three levels of the fair value hierarchy, of which the first two are considered observable and the last is considered unobservable:

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A financial instrument's level within the fair value hierarchy is based on the lowest level of any input that is significant to the fair value measurement.

GROWGENERATION CORP.

AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

The carrying amounts of cash and cash equivalents, accounts receivable, accounts payable and all other current liabilities approximate fair values due to their short-term nature.

The fair value of notes receivable approximates the outstanding balance and are reviewed for impairment at least annually.

The fair value of impaired notes receivable are determined based on estimated future payments discounted back to present value using the notes effective interest rate.

The fair value of notes receivable approximates the outstanding balance net of recognized allowance for doubtful accounts.

Level December 31, 2023 December 31, 2022

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Marketable securities 2 $ 35,212 $ 31,852

Business Combinations

The Company accounts for acquisitions in accordance with ASC 805, Business Combinations .

Assets acquired and liabilities assumed are recognized at their estimated fair values in accordance with ASC 820, Fair Value Measurements , as of the acquisition date.

For all acquisitions, the preliminary allocation of the purchase price was based upon a preliminary valuation, and the Company's estimates and assumptions are subject to change as valuations are finalized within the measurement period, which cannot extend beyond one year from the acquisition date.

Measurement period adjustments are recognized in the reporting period in which the adjustments were determined and calculated as if the accounting had been completed at the acquisition date.

The process for estimating fair values requires the use of significant estimates, assumptions and judgments, including determining the timing and estimates of future cash flows and developing appropriate discount rates.

Any changes to these estimates may have a material impact on the Company's operating results or financial position.

All acquisition costs are expensed as incurred and recorded in Selling, general and administrative expense in the Consolidated Statements of Operations.

Refer to Note 12, Acquisitions, for additional information regarding the Company's business combinations.

The Company accounts for income taxes in accordance with FASB ASC 740, Income Taxes , which requires the recognition of deferred tax assets and liabilities for future tax consequences attributable to differences between the financial statement carrying amounts of existing assets and liabilities and their respective tax basis and tax credit carry forwards.

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In determining the Company's income tax provision for financial reporting purposes, the Company establishes a reserve for uncertain income tax positions unless such positions are determined to be more likely than not of being sustained upon examination, based on their technical merits.

That is, for financial reporting purposes, the Company only recognizes tax benefits taken on the tax return that the Company believes are more likely than not of being sustained upon examination.

The Company only recognizes tax benefits taken on the tax return that the Company believes are more likely than not of being sustained upon examination.

There is considerable judgment involved in determining whether a position taken on the tax return is more likely than not of being sustained.

The Company adjusts its tax reserve estimates periodically because of ongoing examinations by, and settlements with, the various taxing authorities, as well as changes in tax laws, regulations and interpretations.

The consolidated income tax provision of any given year includes adjustments to prior year income tax accruals that are considered appropriate and any

The consolidated income tax provision of any given year includes adjustments to prior year income tax accruals that are considered appropriate and any related estimated interest and penalties.

The Company's policy is to recognize, when applicable, interest and penalties on uncertain income tax positions as part of its income tax provision.

The Company expenses advertising and promotional costs when incurred.

Advertising and promotional expenses for the years ended December 31, 2023, 2022, and 2021 amounted to $ 1.8 million, $ 4.0 million, and $ 4.0 million, respectively.

GROWGENERATION CORP.

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

related estimated interest and penalties.

The Company’s policy is to recognize, when applicable, interest and penalties on uncertain income tax positions as part of its income tax provision.

The Company expenses advertising and promotional costs when incurred.

Advertising and promotional expenses for the years ended December 31, 2022, 2021, and 2020 amounted to $ 4.0 million, $ 4.0 million, and $ 996 thousand respectively.

Earnings Per Share

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Diluted EPS is computed by dividing net income (loss) by the weighted average of all potentially dilutive shares of common stock that were outstanding during the periods presented.

The treasury stock method is used in calculating diluted EPS for potentially dilutive stock options, restricted stock and share purchase warrants, which assumes that any proceeds received from the exercise of in-the-money stock options, restricted stock and share purchase warrants, would be used to purchase common shares at the average market price for the period.

Stock Based Compensation

The Company records stock-based compensation in accordance with FASB ASC 718, Compensation-Stock Compensation .

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

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

Stock-based compensation expense for all share-based payment awards is recognized using the straight-line single-option method.

The treasury stock method is used in calculating diluted EPS for potentially dilutive stock options, restricted stock and common stock warrants, which assumes that any proceeds received from the exercise of in-the-money stock options, restricted stock and common stock warrants, would be used to purchase common shares at the average market price for the period.

Share-Based Compensation

The Company uses share-based compensation, including stock options, restricted stock units, and common stock warrants, to provide long-term performance incentives for its employees, non-employee members of its Board of Directors, and consultants.

The Company records share-based compensation in accordance with ASC 718, Compensation-Stock Compensation .

The Company estimates the fair value of stock options and common stock warrants on the grant date using the Black-Scholes option pricing model.

The fair value of stock options and common stock warrants granted is recognized as an expense over the requisite service period.

Share-based compensation expense for all share-based payment awards is recognized using the straight-line single-option method and is included in Selling, general, and administrative expense in the Consolidated Statements of Operations.

Forfeitures are recognized as they occur.

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The expected term of options granted is derived from historical data on employee exercises and post-vesting employment termination behavior.

The risk-free rate selected to value any particular grant is based on the U.S.

The risk-free rate used in the option pricing model is based on the U.S.

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

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

These factors could change in the future, affecting the determination of stock-based compensation expense in future periods.

The Company also issued certain stock awards classified as liabilities based on the guidance set forth at ASC 480-10-25 and ASC 718-10-25.

These awards entitle the employees to receive a specified dollar value of common stock on future dates ranging from June 15, 2023 through June 15, 2025.

The awards generally vest over three years subject to the employee’s continued employment and are expensed using the straight-line method over the life of the award.

For additional information see Note 9, Share Based Payments .

These factors could change in the future, affecting the determination of share-based compensation expense in future periods.

Periodically, the Company has issued certain stock awards classified as liabilities based on the guidance set forth at ASC 480, Distinguishing Liabilities from Equity , and ASC 718, Compensation-Stock Compensation .

These awards generally entitle the employees to receive a specified dollar value of common stock on future dates and vest over time subject to the employee's continued employment.

The Company recognizes compensation expense for these awards over the requisite service period.

Refer to Note 9, Share-Based Payments, for additional information regarding the Company's share-based compensation and share-based awards.

RECENT ACCOUNTING PRONOUNCEMENTS

From time to time, the Financial Accounting Standards Board (“FASB”) or other standard setting bodies issue new accounting pronouncements.

From time to time, the FASB or other standard setting bodies issue new accounting pronouncements.

Updates to the FASB Accounting Standards Codification are communicated through issuance of an Accounting Standards Update ("ASU").

We have implemented all new accounting pronouncements that are in effect and that may impact our consolidated financial statements.

We have evaluated recently issued accounting pronouncements and determined that there is no material impact on our financial position or results of operations.

The Company has implemented all new accounting pronouncements that are in effect and that may impact its financial statements.

In addition to the accounting pronouncements discussed below, no other new accounting pronouncement issued or effective during the fiscal year had or is expected to have a material effect on the Company's Consolidated Financial Statements or disclosures.

Recently Adopted Accounting Pronouncements

In June 2016, the FASB issued ASU No.

2016-13, Financial Instruments—Credit Losses (Topic 326) , changing the impairment model for most financial instruments by requiring companies to recognize an allowance for expected losses, rather than incurred losses.

The ASU will apply to most financial assets measured at amortized cost and certain other instruments, including trade and other receivables, loans, available-for-sale and held-to-maturity debt securities, net investments in leases, and off-balance-sheet credit exposures.

The Company has adopted this standard effective January 1,

2016-13, Financial Instruments—Credit Losses (Topic 326) ("ASU 2016-13"), changing the impairment model for most financial instruments by requiring companies to recognize an allowance for expected losses based upon a company's historical credit loss experience, adjusted for asset-specific risk characteristics, current economic conditions, and reasonable forecasts, rather than incurred losses as required previously by the other-than-temporary impairment model.

ASU 2016-13 applies to most financial assets measured at amortized cost and certain other instruments, including trade and other receivables, loans, available-for-sale and held-to-maturity debt securities, net

GROWGENERATION CORP.

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

investments in leases, and off-balance sheet credit exposures.

ASU 2016-13 was effective January 1, 2020, and the Company adopted this standard effective January 1, 2023.

The adoption of this standard primarily applied to the valuation of the Company's accounts receivable.

Implementation of this standard did not have a material impact on our financial position.

The adoption of this standard did not have a material impact on the Company's Consolidated Financial Statements or disclosures, and the Company's estimate of expected credit losses as of January 1, 2023, using the expected credit loss evaluation process described above, resulted in no adjustments to the provision for credit losses and no cumulative-effect adjustment to Retained earnings (deficit) in the Consolidated Balance Sheets on the adoption date of the standard.

Recently Issued Accounting Pronouncements Not Yet Adopted

In November 2023, the FASB issued ASU No.

2023-07, Segment Reporting—Improvements to Reportable Segment Disclosures (Topic 280) ("ASU 2023-07"), which requires an enhanced disclosure of segments on an annual and interim basis, including the title of the chief operating decision maker, significant segment expenses, and the composition of other segment items for each segment's reported profit.

ASU 2023-07 is effective for fiscal years beginning after December 15, 2023, and interim periods within fiscal years beginning after December 15, 2024.

Early adoption is permitted, and adoption of ASU 2023-07 should be applied retrospectively to all prior periods presented in the financial statements.

The Company is currently evaluating the impact of this standard.

In December 2023, the FASB issued ASU No.

2023-09, Income Taxes (Topic 740) - Improvements to income tax disclosures ("ASU 2023-09"), expanding the disclosures requirement for income taxes primarily by requiring more detailed disclosure for income taxes paid and the effective tax rate reconciliation.

ASU 2023-09 is effective for annual periods beginning after December 15, 2024.

Early adoption is permitted, and adoption of ASU 2023-09 can be applied prospectively or retrospectively.

The Company is currently evaluating the impact of this standard.

REVENUE RECOGNITION

Disaggregation of Revenues

Sales are disaggregated by our segments, which represent our principal lines of business, as well as by our private label products versus distributed brands, or by commercial fixture revenue.

See Note 17, Segments , for disaggregated revenue by segment.

Contract Balances

Depending on the timing of when title of product transfers to a customer and when a customer makes payments for such product, the Company recognizes a accounts receivable (asset) or a customer deposit (liability).

Sales are disaggregated by the Company's segments, which represent its principal lines of business, as well as by major product line, including proprietary brands, non-proprietary brands, and commercial fixtures, and by product type, including consumable and durable products.

Refer to Note 14, Segments, for disaggregated revenue disclosures.

Contract Assets and Liabilities

Depending on the timing of when title of product transfers to a customer and when a customer makes payments for such product, the Company recognizes an accounts receivable (contract asset) or a customer deposit (contract liability).

The opening and closing balances of the Company's accounts receivables and customer deposits are as follows:

Accounts Receivable Customer Deposits

Accounts Receivable, Net Customer Deposits

Opening balance, January 1, 2023 $ 8,336 $ 4,338

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Increase (decrease) $ 2,595 $ ( 7,348 )

Of the total amount of customer deposit liability as of January 1, 2022, $ 11.1 million was reported as revenue during the year ended December 31, 2022.

Of the total amount of customer deposit liability as of January 1, 2021, $ 4.4 million was reported as revenue during the year ended December 31, 2021.

The Company also has notes receivables under longer term financing arrangements at interest rates typically ranging from 6 % to 12 % with repayment terms typically ranging for 12 to 18 months.

Of the total amount of customer deposits as of January 1, 2023, $ 3.4 million was reported as revenue during the year ended December 31, 2023.

Of the total amount of customer deposits as of January 1, 2022, $ 11.1 million was reported as revenue during the year ended December 31, 2022.

The Company also has notes receivable under longer term financing arrangements at interest rates typically ranging from 6 % to 12 % with repayment terms typically ranging for 12 to 18 months.

GROWGENERATION CORP.

AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Notes receivable at December 31, 2023 and 2022 are as follows:

December 31, 2022 December 31, 2021

Notes receivable $ 2,031 $ 2,464

Allowance for losses ( 1,250 ) ( 522 )

Allowance for credit losses ( 1,732 ) ( 1,250 )

Notes receivable, net $ 299 $ 1,214

The following table summarizes changes in notes receivable balances that have been deemed impaired.

2022 December 31,

Notes receivable $ 1,732 $ 1,500

Allowance for losses ( 1,250 ) ( 522 )

Allowance for credit losses ( 1,732 ) ( 1,250 )

Notes receivable, net $ — 250

GROWGENERATION CORP.

AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

PROPERTY AND EQUIPMENT

1 unchanged sentence

Vehicles $ 2,558 $ 2,176

Buildings 2,121 1,187

Buildings and land 2,121 2,121

Leasehold improvements 11,920 12,562

2 unchanged sentences

Construction-in-progress — 9,569

42,267 31,324

Property and equipment, gross 47,048 42,267

Accumulated depreciation and amortization ( 19,996 ) ( 13,598 )

Property and equipment, net $ 27,052 $ 28,669

Depreciation and amortization expense was $ 7.2 million, $ 3.7 million, and $ 1.6 million for the years ended December 31, 2022, 2021, and 2020, respectively.

Depreciation and amortization expense related to property and equipment was $ 7.9 million, $ 7.2 million, and $ 3.7 million for the years ended December 31, 2023, 2022, and 2021, respectively.

GOODWILL AND INTANGIBLE ASSETS

The Company performs its goodwill impairment testing annually during the fourth quarter, or more frequently if events or if circumstances were to occur that would more likely than not reduce the fair value of our reporting units below its carrying amount.

The Company would recognize an impairment charge for the amount by which the carrying amount exceeds the reporting unit’s fair value, not to exceed the total amount of goodwill.

The adjusted carrying amount of goodwill shall be its new accounting basis.

During the second quarter of 2022, the Company’s market capitalization fell below total net assets.

In addition, financial performance continued to weaken during the quarter, which was contrary to prior experience.

Management reassessed business performance expectations, following persistent adverse developments in equity markets, deterioration in the environment in which we operate, inflation, lower than expected sales, and an increase in operating expenses.

These indicators, in the aggregate, required impairment testing for finite-lived intangible assets at the asset group level and goodwill at the reporting unit level.

Under ASC 360, we performed a cash recoverability test on the following intangible assets:

customer relationships, trade name, and non-compete.

The carrying amounts of any assets that are not within the scope of ASC 360-10, other than goodwill, were adjusted for impairment, as necessary, prior to testing long-lived assets and goodwill.

The Company recognized impairment losses as disclosed in the table below.

For goodwill impairment testing purposes, the Company determined four reporting units, three of which were subject to a quantitative assessment.

We determined fair value using the income approach, where estimated future cash flows are discounted to present value at an appropriate rate of return.

The Company completed its interim goodwill impairment test as of June 30, 2022 and recognized impairment losses as disclosed in the table below.

The change in accounting principle did not result in any, nor does the Company expect the change in accounting principle to result in any, delay, acceleration, or avoidance of an impairment cha rge.

For the goodwill impairment test performed on December 1, 2023, the Company completed a quantitative goodwill impairment assessment for each of its four reporting units.

The fair value of each reporting unit was determined using the income approach, which discounts estimated future cash flows to present value using an appropriate rate of return.

The estimated fair value of each reporting unit, including goodwill, was compared to its carrying amount, and, as a result of changes to the business and future projections, the Company identified a $ 9.3 million impairment related to its goodwill for the year ended December 31, 2023.

GROWGENERATION CORP.

1 unchanged sentence

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

The changes in goodwill are as follows:

2022 December 31,

Balance, beginning of period $ 125,401 $ 62,951

Goodwill additions and measurement period adjustments 7,234 62,450

In conjunction with its annual goodwill impairment assessment on December 1, 2023, the Company quantitatively evaluated the recoverability of its long-lived assets, including its finite-lived intangible assets, for impairment.

The recoverability assessment compared the carrying value of long-lived asset groups to their expected future pretax cash flows (undiscounted and without interest charges).

If the undiscounted cash flows were less than the carrying values, an impairment loss was recognized for the difference between the estimated fair values using an income approach and the related carrying values.

As a result, the Company identified a $ 6.2 million impairment for the year ended December 31, 2023 related to its finite-lived intangible assets, including trade names, patents, customer relationships, non-competes, and intellectual property.

For the year ended December 31, 2022, the Company recorded a total impairment loss of $ 127.8 million related to goodwill and intangible assets.

During the second quarter of 2022, the Company's market capitalization fell below total net assets.

In addition, financial performance continued to weaken during the quarter, which was contrary to prior experience.

Management reassessed business performance expectations following persistent adverse developments in equity markets, deterioration in the environment in which the Company operates, inflation, lower than expected sales, and an increase in operating expenses.

These indicators, in the aggregate, required impairment testing for finite-lived intangible assets at the asset group level and goodwill at the reporting unit level as of June 30, 2022.

As a result, the Company performed a recoverability test on the following finite-lived intangible assets:

customer relationships, trade names, and non-competes.

For goodwill impairment testing purposes, the Company determined three of its four reporting units required quantitative assessment as it was more likely than not that the fair value of those reporting units were less than their carrying values.

The Company determined the fair value of its reporting units and finite-lived intangible assets using the income approach.

The Company recognized an impairment losses of $ 11.2 million related to its finite-lived intangibles and $ 116.7 million related to goodwill on June 30, 2022.

The changes in goodwill, including the impairments discussed above, by segment for the years ended December 31, 2023 and 2022 were as follows:

Cultivation and Gardening Storage Solutions Total

Balance at December 31, 2021 $ 124,199 $ 1,202 $ 125,401

Acquisitions and measurement period adjustments 6,831 403 7,234

Impairment ( 116,657 ) — ( 116,657 )

Balance, end of period $ 15,978 $ 125,401

The goodwill balance and impairment by segment are as follows:

Retail E-commerce Distribution and other Total

Gross carrying value December 31, 2020 $ 55,181 $ 2,911 $ 4,859 $ 62,951

Acquisitions & measurement period adjustments 46,630 8,748 7,072 62,450

Gross carrying value December 31, 2021 101,811 11,659 11,931 125,401

Acquisitions & measurement period adjustments 1,418 ( 341 ) 6,157 7,234

Gross carrying value, December 31, 2022 $ 103,229 $ 11,318 $ 18,088 $ 132,635

Accumulated impairment losses December 31, 2020 $ — $ — $ — $ —

Balance at December 31, 2022 $ 14,373 $ 1,605 $ 15,978

Acquisitions 830 — 830

Impairment ( 9,283 ) — ( 9,283 )

Accumulated impairment losses December 31, 2021 — — — —

Balance at December 31, 2023 $ 5,920 $ 1,605 $ 7,525

Accumulated impairment for goodwill was $ 125.9 million, $ 116.7 million, and zero as of December 31, 2023, 2022, and 2021, respectively.

The changes in intangible assets, including the impairments discussed above, by segment for the years ended December 31, 2023 and 2022 were as follows:

Cultivation and Gardening Storage Solutions Total

Balance as of December 31, 2021 $ 44,161 $ 4,241 $ 48,402

Amortization ( 8,981 ) ( 781 ) ( 9,762 )

Acquisitions and measurement period adjustments 3,412 — 3,412

Impairment ( 11,174 ) — ( 11,174 )

Accumulated impairment losses December 31, 2022 $ ( 103,094 ) $ ( 9,848 ) $ ( 3,715 ) $ ( 116,657 )

Net carrying value at December 31, 2021 $ 101,811 $ 11,659 $ 11,931 $ 125,401

Net carrying value at December 31, 2022 $ 135 $ 1,470 $ 14,373 $ 15,978

A summary of intangible assets as of follows:

Weighted-Average

Amortization Period

of Intangible Assets

as of December 31, 2022

Tradenames 3.18 years

Patents, trademarks 3.09 years

Customer relationships 4.50 years

Non-competes 1.90 years

Intellectual property 3.16 years

Total 3.37 years

Balance as of December 31, 2022 $ 27,418 $ 3,460 $ 30,878

Amortization ( 8,114 ) ( 781 ) ( 8,895 )

Acquisitions 440 — 440

Impairment ( 6,243 ) — ( 6,243 )

Balance as of December 31, 2023 $ 13,501 $ 2,679 $ 16,180

GROWGENERATION CORP.

7 unchanged sentences

Amortization Net

Tradenames $ 28,774 $ ( 10,693 ) $ 18,081 $ 28,300 $ ( 4,948 ) $ 23,352

Trade names $ 28,198 $ ( 16,488 ) $ 11,710 $ 29,062 $ ( 10,517 ) $ 18,545

Patents, trademarks 69 ( 69 ) — 100 ( 56 ) 44

3 unchanged sentences

Total $ 43,459 $ ( 27,279 ) $ 16,180 $ 49,261 $ ( 18,383 ) $ 30,878

Intangibles and impairment by segment are as follows:

Retail E-commerce Distribution and other Total

Gross carrying value December 31, 2020 $ 17,635 $ — $ 3,481 $ 21,116

Acquisitions & measurement period adjustments 20,190 2,501 13,217 35,908

Gross carrying value December 31, 2021 37,825 2,501 16,698 57,024

Acquisitions & measurement period adjustments 230 — 3,182 3,412

Gross carrying value, December 31, 2022 $ 38,055 $ 2,501 $ 19,880 $ 60,436

Accumulated amortization December 31, 2020 $ ( 540 ) $ — $ ( 27 ) $ ( 567 )

Amortization ( 5,745 ) ( 354 ) ( 1,956 ) ( 8,055 )

Accumulated amortization December 31, 2021 ( 6,285 ) ( 354 ) ( 1,983 ) ( 8,622 )

Amortization ( 5,897 ) ( 460 ) ( 3,580 ) ( 9,937 )

Accumulated amortization December 31, 2022 $ ( 12,182 ) $ ( 814 ) $ ( 5,563 ) $ ( 18,559 )

Accumulated impairment losses December 31, 2020 $ — $ — $ — $ —

Impairments — — — —

Accumulated impairment losses December 31, 2021 — — — —

Impairments ( 11,079 ) ( 95 ) — ( 11,174 )

Accumulated impairment losses December 31, 2022 $ ( 11,079 ) $ ( 95 ) $ — $ ( 11,174 )

Net carrying value at December 31, 2021 $ 31,540 $ 2,147 $ 14,715 $ 48,402

Net carrying value at December 31, 2022 $ 14,794 $ 1,592 $ 14,317 $ 30,703

GROWGENERATION CORP.

AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Amortization expense for the years ended December 31, 2022, 2021, and 2020 was $ 9.9 million, $ 8.9 million, and $ 789 thousand respectively.

Future amortization expense is as follows:

The weighted-average remaining amortization period for intangible assets as of December 31, 2023 is as follows:

Weighted-Average

Amortization Period

Trade names 2.21 years

Customer relationships 3.83 years

Non-competes 1.14 years

Total 2.64 years

Amortization expense for the years ended December 31, 2023, 2022, and 2021 was $ 8.7 million, $ 9.9 million, and $ 8.9 million respectively.

Future amortization expense as of December 31, 2023 is as follows:

Thereafter 25

1 unchanged sentence

The provision (benefit) for income taxes for the years ended December 31, 2023, 2022, and 2021 consisted of the following:

2022 December 31,

2021 December 31,

Income Tax Expense (benefit)

Current federal tax expense (benefit)

$ ( 471 ) $ ( 115 ) $ 1,732

Year Ended December 31,

2023 2022 2021

Current tax expense (benefit):

Federal $ ( 115 ) $ ( 471 ) $ ( 115 )

State 147 ( 55 ) 949

Deferred tax (benefit):

( 2,179 ) 1,473 1,706

( 180 ) 136 227

Federal — ( 2,179 ) 1,473

State — ( 180 ) 136

Valuation allowance — — —

$ ( 2,885 ) $ 2,443 $ 3,251

Provision (benefit) for income taxes $ 32 $ ( 2,885 ) $ 2,443

GROWGENERATION CORP.

1 unchanged sentence

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

A summary of deferred tax assets and liabilities as of December 31, 2022 and 2021 is as follows:

2022 December 31,

The tax effects of temporary differences that gave rise to the Company's deferred tax assets and liabilities as of December 31, 2023 and 2022 were as follows:

Deferred tax assets:

1 unchanged sentence

Deferred right to use lease liabilities 10,874 12,200

12,200 11,573

Stock based compensation

Share-based compensation 1,249 1,177

Accumulated depreciation and amortization 30,101 27,288

Inventory reserves

Warranty reserves

Accruals and other 2,421 2,007

50,328 14,180

Total deferred tax assets 59,742 50,327

Deferred tax liabilities:

Deferred right to use lease assets ( 10,224 ) ( 11,638 )

( 11,638 ) ( 11,147 )

Accumulated depreciation and amortization

( 11,638 ) ( 16,539 )

Total deferred tax liabilities ( 10,224 ) ( 11,638 )

Deferred tax asset (liability) 49,518 38,689

1 unchanged sentence

Deferred tax asset (liability), net $ — $ —

$ — $ ( 2,359 )

As of December 31, 2022, the Company had cumulative U.S.

Net Operating Losses ("NOLs") consisting of carryforwards for federal income tax of $ 30.0 million, which have an indefinite carryforward period.

As of December 31, 2022 and 2021 the Company had cumulative state net operating loss carryforwards of $ 28.0 million and $ 1.6 million.

As of December 31, 2023, the Company had cumulative federal net operating losses of $ 58.6 million, which have an indefinite carryforward period.

As of December 31, 2023 and 2022, the Company had cumulative state net operating loss carryforwards of $ 53.3 million and $ 28.0 million, respectively.

State net operating loss carryforwards will begin to expire in calendar year 2035.

NOL carryforwards may become subject to an annual limitation in the event of certain cumulative changes in the ownership interest of significant shareholders over a three-year period in excess of 50%, as defined under Sections 382 and 383 of the Internal Revenue Code, respectively, as well as similar state provisions.

Net operating loss carryforwards may become subject to an annual limitation in the event of certain cumulative changes in the ownership interest of significant shareholders over a three-year period in excess of 50%, as defined under Sections 382 and 383 of the Internal Revenue Code, respectively, as well as similar state provisions.

This could limit the amount of tax attributes that can be utilized annually to offset future taxable income or tax liabilities.

1 unchanged sentence

The Company has completed an analysis of any limitations on its tax attributes and has assigned a full valuation allowance against them as of December 31, 2023.

GROWGENERATION CORP.

AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

The differences between the U.S.

Federal statutory income tax rate and the Company’s effective tax rate were as follows for the years ended December 31, 2022 and 2021, and 2020:

A reconciliation of the U.S.

federal statutory income tax rate to the Company's effective income tax rate is as follows for the years ended December 31, 2023 and 2022, and 2021:

Years Ended December 31,

2023 2022 2021

Federal statutory tax rate 21 % 21 % 21 %

Federal statutory income tax rate 21 % 21 % 21 %

State and local income taxes (net of federal tax benefit) 4 % 5 % 7 %

26 % 28 % 27 %

Other — % — % 6 %

Stock-based compensation ( 1 ) % ( 8 ) % 7 %

Share-based compensation ( 1 ) % ( 1 ) % ( 8 ) %

Return to provision adjustments — % — % ( 4 ) %

Valuation allowance ( 24 ) % ( 23 ) % — %

2 % 16 % 38 %

Effective income tax rate 0 % 2 % 16 %

Uncertain Tax Benefits

2 unchanged sentences

There were no interest and penalties included in other long-term liabilities on the accompanying Consolidated Balance Sheets for years ended December 31, 2023 and 2022.

The Company did not expect any significant changes in its unrecognized tax benefits within 12 months of the reporting date.

The Company does not expect any significant changes in its unrecognized tax benefits within 12 months of the reporting date.

The Company files income tax returns in the U.S.

federal jurisdiction and various state jurisdictions.

No tax years for the Company are currently under examination by the IRS or state and local tax authorities for income tax purposes.

Generally, the Company’s 2019 through 2021 fiscal years remain open for examination and assessment.

For various states, the examination and assessment remain open for 2018 through 2021.

Years prior to 2018 remain open solely for purpose of examination of the Company’s loss and credit carryforwards.

We determine if a contract contains a lease at inception.

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

Our leases generally have remaining terms of 1 - 9 years, most of which include options to extend the leases for additional 3 to 5-year periods.

Generally, the lease term is the minimum of the non-cancelable period of the lease or the lease term inclusive of reasonably certain renewal periods.

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

Operating lease liabilities represent the present value of remaining lease payments over the lease term.

Operating lease assets represent our right to use an underlying asset and are based upon the operating lease liabilities adjusted for prepayments or accrued lease payments, initial direct costs, lease incentives, and impairment of operating lease assets.

Our leases typically contain rent escalations over the lease term.

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

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

Short-term expenses include only those leases with a term greater than one month and 12 months or less, and expense is recognized on a straight-line basis over the lease term.

Leases with an initial term of 12 months or less, that do not include an option to purchase the underlying asset that we are reasonably certain to exercise, are not recorded on the balance sheet.

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

Where assets are used to directly serve our customers, such as facilities dedicated to customer contracts, lease costs are recorded in “Store operations and other operating expenses.” Facilities and assets which serve management and support functions are

GROWGENERATION CORP.

1 unchanged sentence

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

expensed through "Selling, general, and administrative" expenses.

Cash paid for amounts included in the measurement of lease liabilities for operating leases were $ 10.3 million and $ 7.2 million for the years ended December 31, 2022 and 2021.

2022 December 31,

Right to use assets, operating lease assets $ 46,433 $ 43,730

Current lease liability $ 8,131 $ 6,858

Non-current lease liability 40,659 38,546

$ 48,790 $ 45,404

2022 December 31,

tax years for the Company are currently under examination by the IRS or state and local tax authorities for income tax purposes.

Generally, the Company's 2020 through 2022 fiscal years remain open for examination and assessment.

For various states, the examination and assessment remain open for 2019 through 2022.

Years prior to 2019 remain open solely for purpose of examination of the Company's loss and credit carryforwards.

The right-of-use assets and corresponding liabilities related to the Company's operating leases are as follow:

Operating leases right-of-use assets, net $ 39,933 $ 46,433

Current maturities of operating lease liability $ 8,021 $ 8,131

Operating lease liability, net of current maturities 34,448 40,659

Total lease liability $ 42,469 $ 48,790

The weighted-average remaining lease terms and weighted-average discount rates for operating leases were as follows:

Weighted average remaining lease term 6.0 years 6.5 years

Weighted average discount rate 6.1 % 5.8 %

Lease expense is recorded within the Company's Consolidated Statements of Operations based upon the nature of the operating lease right-of-use assets.

Where assets are used to directly serve our customers, such as retail locations and distribution centers, lease costs are recorded in Store operations and other operational expenses.

Facilities and assets that serve management and support functions are expensed through Selling, general, and administrative.

Additionally, the Company recorded sublease income of $ 1.1 million and $ 0.1 million for the years ended December 31, 2023 and 2022, respectively, within Store operations and other operational expenses related to the sublease of a closed retail location.

There was no sublease income for the year ended December 31, 2021.

The Company also identified a $ 0.1 million impairment related to its operating lease right-of-use assets for the year ended December 31, 2023, which is included in Impairment loss on the Consolidated Statements of Operations.

The components of lease expense are as follows:

Year Ended December 31,

4 unchanged sentences

Total operating lease costs $ 14,075 $ 13,815 $ 10,540

The following table presents the maturity of the Company’s operating lease liabilities as of December 31, 2022:

GROWGENERATION CORP.

AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Future maturities of the Company's operating lease liabilities as of December 31, 2023:

2024 $ 10,308

2 unchanged sentences

imputed interest ( 8,143 )

Lease Liability at December 31, 2022 $ 48,790

Operating lease liability at December 31, 2023 $ 42,469

Supplemental and other information related to leases is as follows:

Year Ended December 31,

2023 2022 2021

Cash paid for amounts included in the measurement of lease liabilities:

Operating cash flow from operating leases $ 11,139 $ 10,328 $ 7,209

SHARE BASED PAYMENTS

The Company maintains long-term incentive plans for employee, non-employee members of our Board of Directors, and consultants.

The Plans allows us to grant equity-based compensation awards, including stock options, stock appreciation rights, performance share units, restricted stock units, restricted stock awards, or a combination of awards (collectively, share-based awards).

On March 6, 2014, the Company’s Board of Directors (the “Board”) approved the 2014 Equity Incentive Plan (“2014 Plan”) pursuant to which the Company may grant incentive, non-statutory options, stock appreciation rights, restricted stock, restricted stock units, performance shares, performance units and other stock or cash awards to employees, non-employee members of our Board, consultants and other independent advisors who provide services to the Company.

Equity Incentive Plans Overview

The Company maintains two long-term incentive plans for employees, non-employee members of its Board of Directors (the "Board"), and consultants:

the 2014 Equity Incentive Plan and the Amended and Restated 2018 Equity Incentive Plan.

The plans allow the Company to grant equity-based compensation awards, including stock options, stock appreciation rights, performance share units, restricted stock units, restricted stock awards, common stock warrants, or a combination of awards (collectively, "share-based awards").

On March 6, 2014, the Board approved the 2014 Equity Incentive Plan ("2014 Plan") pursuant to which the Company may grant incentive, non-statutory options, stock appreciation rights, restricted stock, restricted stock units, performance shares, performance units and other stock or cash awards to employees, non-employee members of the Board, consultants and other independent advisors who provide services to the Company.

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

GROWGENERATION CORP.

AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Awards under the 2014 Plan are made by the Board or a committee designated by the Board.

2 unchanged sentences

No option may be exercisable for more than ten years ( five years in the case of an incentive stock option granted to a 10% stockholder) from the date of grant.

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

On January 7, 2018, the Board adopted the 2018 Equity Incentive Plan (the "2018 Plan"), and on April 20, 2018, the shareholders approved the 2018 Plan.

On February 7, 2020, the Board approved the amendment and restatement of the 2018 Plan to increase the number of shares issuable thereunder from 2,500,000 to 5,000,000 , which amendment was approved by shareholders on May 11, 2020.

The 2018 Plan is administered by the Board.

The Board may grant options to purchase shares of common stock, stock appreciation rights, restricted stock units, restricted or unrestricted shares of common stock, performance shares, performance units, other cash-based awards and other stock-based awards.

The Board also has broad authority to determine the terms and conditions of each option or other kind of equity award, adopt, amend and rescind rules and regulations for the administration of the 2018 Plan and amend or modify outstanding options, grants and awards.

No options, stock purchase rights or awards may be made under the 2018 Plan on or after the ten-year anniversary of the adoption of the 2018 Plan by the Board, but the 2018 Plan will continue thereafter while previously granted options, stock appreciation rights or awards remain subject to the 2018 Plan.

Options granted under the 2018 Plan may be either "incentive stock options" that are intended to meet the requirements of Section 422 of the Internal Revenue Code of 1986, as amended (the "Code") or "non-statutory stock options" that do not meet the requirements of Section 422 of the Code.

Options granted under the 2018 Plan may be either "incentive stock options" that are intended to meet the requirements of Section 422 of the Internal Revenue Code of 1986,

GROWGENERATION CORP.

AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

as amended (the "Code") or "non-statutory stock options" that do not meet the requirements of Section 422 of the Code.

The Board will determine the exercise price of options granted under the 2018 Plan.

The exercise price of stock options may not be less than the fair market value, on the date of grant, per share of our common stock issuable upon exercise of the option (or 110 % of fair market value in the case of incentive options granted to a 10% stockholder).

The exercise price of stock options may not be less than the fair market value, on the date of grant, per share of the Company's common stock issuable upon exercise of the option (or 110 % of fair market value in the case of incentive options granted to a 10% stockholder).

No option may be exercisable for more than ten years ( five years in the case of an incentive stock option granted to a 10% stockholder) from the date of grant.

The Company accounts for share-based payments through the measurement and recognition of compensation expense for share-based payment awards made to employees and directors of the Company, including stock options and restricted shares.

The Company also issues share based payments in the form of common stock warrants to non-employees.

The following table presents share-based payment expense for the years ended December 31, 2022, 2021, and 2020.

As of December 31, 2023, there were 0.3 million shares available for issuance under the 2014 Plan and 2018 Plan, collectively.

Share-Based Compensation

The Company accounts for share-based payments through the measurement and recognition of compensation expense for share-based awards made to employees, non-employee members of the Board, and consultants of the Company, including stock options, restricted stock, and common stock warrants.

The following table presents share-based compensation expense for the years ended December 31, 2023, 2022, and 2021.

2023 2022 2021

1 unchanged sentence

Stock options — 59 781

Warrants 1,019 1,455 441

Common stock warrants — 1,019 1,455

Total $ 3,171 $ 4,967 $ 6,585

As of December 31, 2022, the Company had approximately $ 9.8 million of unamortized share-based compensation for option awards and restricted stock awards, which is expected to be recognized over a weighted average period of 2.6 years.

As of December 31, 2023, the Company had approximately $ 3.7 million of unamortized share-based compensation for share-based awards, which are expected to be recognized over a weighted average period of 2.5 years.

Restricted Stock

The Company issues shares of restricted stock to eligible employees, which are subject to forfeiture until the end of an applicable vesting period.

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

Restricted stock is valued using the Company's stock price on the grant date.

GROWGENERATION CORP.

AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

The awards generally vest on the first, second, third, or fourth anniversary of the date of grant, subject to the employee's continuing employment as of that date.

Restricted stock is valued using market value on the grant date.

Restricted stock activity for the years ended December 31, 2023 and 2022 is presented in the following table:

Shares Weighted Average Grant Date Fair Value

Nonvested, January 1, 2021 630 $ 4.51

Nonvested, December 31, 2021 484 $ 20.19

Granted 1,044 8.85

6 unchanged sentences

Nonvested, December 31, 2023 905 $ 5.23

Awards issued under the 2014 and 2018 Plan as of December 31, 2022 are summarized below:

Total shares available for issuance pursuant to the 2014 Plan 2,500

Options outstanding, December 31, 2022 —

Total options exercised under 2014 Plan ( 2,109 )

Total shares issued pursuant to the 2014 Plan ( 382 )

Awards available for issuance under the 2014 Plan, December 31, 2022 9

Total shares available for issuance pursuant to the 2018 Plan, as amended 5,000

Options outstanding, December 31, 2022 ( 604 )

Total options exercised under 2018 Plan ( 999 )

Total shares issued pursuant to the 2018 Plan ( 1,765 )

Awards available for issuance under the 2018 Plan, December 31, 2022 1,632

The fair value of each stock option and warrant granted is estimated on the grant date using the Black-Scholes option valuation model.

The assumptions used to calculate the fair value of options and warrants granted are evaluated and revised, as necessary, to reflect market conditions and the Company’s experience.

Stock options and warrants are expensed on a straight-line basis over the vesting period, which is considered to be the requisite service period.

There were no options or warrants issued during 2022.

The following table provides the assumptions used for stock option awards.

GROWGENERATION CORP.

1 unchanged sentence

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

2022 2021 2020

Expected volatility N/A N/A 77.8 - 80.70 %

Expected dividends N/A N/A N/A

Expected term N/A N/A 2 - 5 years

Risk-free rate N/A N/A 1.64 % - 1.75 %

Options outstanding pursuant to 2014 Plan —

Options outstanding pursuant to 2018 Plan 604

Options issued outside of 2014 and 2018 Plans —

Total options outstanding December 31, 2022 604

The table below summarizes all the options granted by the Company during years ended December 31, 2022 and 2021:

Stock Options

The table below summarizes all option activity under all plans during the years ended December 31, 2023 and 2022:

Options Shares Weighted-

3 unchanged sentences

Average Grant Date Fair Value

Outstanding at January 1, 2021 1,803 $ 3.92 3.47 years $ 2.38

Outstanding at December 31, 2021 906 $ 4.38 2.85 years $ 2.45

Granted — $ — $ —

3 unchanged sentences

Vested and exercisable at December 31, 2022 604 $ 3.97 1.87 years $ 2.24

Outstanding at January 1, 2022 906 $ 4.38 2.85 years $ 2.45

Outstanding at December 31, 2022 604 $ 3.97 1.87 years $ 2.24

Granted — $ — $ —

3 unchanged sentences

Vested and exercisable at December 31, 2023 577 $ 4.01 0.95 years $ 2.25

Liability Awards

In August 2022, the Company issued certain stock awards classified as liabilities based on the guidance set forth at ASC 480-10-25 and ASC 718-10-25.

These awards entitle the employees to receive a specified dollar value of common stock on future dates ranging from June 15, 2023, through June 15, 2025.

The awards generally vest over three years subject to the employee’s continued employment.

The aggregate face value of these awards as of December 31, 2022 amounted to $ 5.3 million.

During 2021, the Company issued stock awards classified as liabilities based on guidance set forth at ASC 480-10-25 and ASC 718-10-25.

These awards entitled the employees to receive a specified dollar value of common stock on the vesting date and generally vested between 8 and 14 months, subject to the employee’s continuing employment as of that date.

Due to their short-term nature these awards were all valued at the face value of the award.

All liability awards vested at December 31, 2021 and resulted in the issuance of 34,538 shares of common stock.

GROWGENERATION CORP.

AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

The Company recognizes compensation expense for these awards over the requisite service period.

The expense related to liability awards for the years ended December 31, 2022, 2021, and 2020 was $ 0.5 million, $ 0.7 million, and $ 29.9 thousand.

STOCK PURCHASE WARRANTS

A summary of the status of the Company’s outstanding stock warrants as of December 31, 2022 and 2021 is as follows:

Weighted Average

Outstanding January 1, 2021 1,300 $ 8.03

Granted/issued — $ —

The aggregate intrinsic value of stock options is calculated as the amount by which the fair value of the underlying stock exceeds the exercise price of the stock options.

For the years ended December 31, 2023, 2022, and 2021, the aggregate intrinsic value of stock options outstanding, vested, and exercisable was less than $ 0.1 million, $ 0.1 million, and $ 7.9 million, respectively.

Common Stock Warrants

A summary of the status of the Company's outstanding common stock warrants for the years ended December 31, 2023 and 2022 is as follows:

Warrants Weighted Average Exercise Price

Outstanding December 31, 2021 331 $ 22.14

Exercised ( 48 ) 3.50

1 unchanged sentence

Outstanding December 31, 2022 33 $ 10.61

Granted/issued

( 48 ) $ 3.50

Forfeited and settled ( 250 ) $ 26.57

Exercised — —

Forfeited ( 33 ) $ 10.61

Outstanding December 31, 2023 — $ —

On November 17, 2022, the Company settled 250,000 warrants for a cash payment of $ 10 thousand and 10,000 shares of common stock.

GROWGENERATION CORP.

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Liability Awards

In August 2022, the Company issued certain stock awards classified as liabilities based on the guidance set forth at ASC 480, Distinguishing Liabilities from Equity , and ASC 718, Compensation-Stock Compensation .

These awards entitled the employees to receive an equity award with a specified dollar value of common stock on future dates ranging from June 15, 2023, through June 15, 2025.

The awards generally vested over three years subject to the employee's continued employment.

On June 15, 2023, the three employees subject to these awards entered into new employment agreements which superseded the prior agreements and removed the liability awards from their compensation package.

In accordance with ASC 718-20-35-2A through 718-20-35-9, these awards were evaluated and accounted for as modified awards.

The liability of $ 0.7 million was relieved to additional paid-in capital, and the incremental expense of $ 0.1 million will be recognized over the remaining term of the modified awards.

The expense related to liability-classified stock awards for the years ended December 31, 2023, 2022 and 2021 was $ 0.2 million, $ 0.5 million, and $ 0.7 million, respectively.

As of December 31, 2023, the Company did not have any outstanding liability-classified stock awards.

As of December 31, 2022, the aggregate face value of the outstanding liability-classified stock awards was $ 5.3 million.

EARNINGS PER SHARE

6 unchanged sentences

Weighted average shares outstanding, dilutive 61,181 60,813 60,464

Basic income per share $ ( 2.69 ) $ 0.22 $ 0.12

Dilutive income per share $ ( 2.69 ) $ 0.21 $ 0.11

The following potentially outstanding restricted stock and stock options were excluded from the computation of diluted earnings per share because the effect would have been antidilutive:

2022 2021 2020

Restricted stock 1,480 — —

Stock options and warrants 204 — —

Total 1,684 — —

GROWGENERATION CORP.

AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Basic earnings (loss) per share $ ( 0.76 ) $ ( 2.69 ) $ 0.22

Diluted earnings (loss) per share $ ( 0.76 ) $ ( 2.69 ) $ 0.21

Diluted earnings per share calculations for the year ended December 31, 2023 excluded 0.6 million shares of common stock issuable upon exercise of stock options and 0.9 million shares of non-vested restricted stock that would have been anti-dilutive.

Diluted earnings per share calculations for the year ended December 31, 2022 excluded 0.6 million shares of common stock issuable upon exercise of stock options, 0.6 million shares of non-vested restricted stock, and 33 thousand shares of common stock issuable upon exercise of the stock purchase warrants that would have been anti-dilutive.

For the year ended December 31, 2021, there were no anti-dilutive shares outstanding that were excluded from the dilutive earnings per share calculation.

EMPLOYEE BENEFIT PLAN

The Company has a 401(k) Savings Retirement Plan that covers substantially all full-time employees who meet the plan's eligibility requirements and provides for an employee elective contribution.

The Company made matching contributions to the plan of $ 601 thousand, $ 419 thousand, and $ 169 thousand for the years ended December 31, 2022, 2021, and 2020, respectively.

VENDOR AND CUSTOMER CONCENTRATIONS

One supplier represented 24 % and 28 % of our total vendor purchases for the years ended December 31, 2022 and 2021, and two 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.

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.

The Company made matching contributions to the plan of $ 0.6 million, $ 0.6 million, and $ 0.4 million for the years ended December 31, 2023, 2022, and 2021, respectively.

The Company's acquisition strategy has been primarily to acquire (i) well-established, profitable hydroponic garden centers in markets where the Company does not have a market presence or in markets where it is increasing its market presence;

and (ii) proprietary brands.

The Company accounts for acquisitions in accordance with ASC 805, Business Combinations .

Assets acquired and liabilities assumed are recorded in the accompanying consolidated balance sheets at their estimated fair values, as of the acquisition date.

For all acquisitions, the preliminary allocation of the purchase price was based upon a preliminary valuation, and the Company’s estimates and assumptions are subject to change within the measurement period as valuations are finalized.

Assets acquired and liabilities assumed are recognized at their estimated fair values in accordance with ASC 820, Fair Value Measurements , as

GROWGENERATION CORP.

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

of the acquisition date.

Measurement period adjustments are recognized in the reporting period in which the adjustments were determined and calculated as if the accounting had been completed at the acquisition date.

Any changes to these estimates may have a material impact on the Company's operating results or financial position.

The Company has made adjustments to the preliminary valuations of the acquisition based on valuation analysis prepared by independent third-party valuation consultants.

During the year ended December 31, 2022, our measurement period adjustments included increasing goodwill by $ 1.3 million offset with intangible assets.

As a result of these measurement period adjustments, we made an insignificant reduction in amortization expense.

All acquisition costs are expensed as incurred and recorded in general and administrative expenses in the consolidated statements of operations.

Acquisition costs were approximately $ 0.2 million, $ 0.7 million, and $ 0.2 million for the years ended December 31, 2022, 2021, and 2020.

There were no measurement period adjustments during the year ended December 31, 2023.

During the year ended December 31, 2022, the Company's measurement period adjustments included a $ 1.3 million reduction to estimated fair value of acquired intangible assets with the offset to goodwill.

As a result of these measurement period adjustments, the Company made an insignificant reduction in amortization expense.

All acquisition costs are expensed as incurred and recorded in Selling, general and administrative expense in the Consolidated Statements of Operations.

Acquisition costs were less than $ 0.1 million for the years ended December 31, 2023 and were $ 0.2 million and $ 0.7 million for the years ended December 31, 2022 and 2021, respectively.

2023 Acquisitions

On February 1, 2022, the Company purchased certain net assets of Horticultural Rep Group, Inc.

On May 23, 2023, the Company purchased substantially all of the assets of Southside Garden Supply ("SGS"), a two-store chain of indoor/outdoor garden centers in Alaska.

The total consideration for the purchase of the SGS assets was approximately $ 2.0 million, including $ 1.9 million in cash and an indemnity holdback of $ 0.1 million.

The SGS asset acquisition also included acquired goodwill of approximately $ 0.6 million, which represents the value expected to rise from organic growth and an opportunity for the Company to expand into a new market.

SGS is included in the Company's Cultivation and Gardening segment.

Additionally, the Company made other, individually immaterial acquisitions during the year ended December 31, 2023.

Total consideration for these purchases was approximately $ 1.2 million, including $ 1.1 million paid in cash and indemnity holdbacks of less than $0.1 million.

These individually immaterial acquisitions also included aggregate acquired goodwill of approximately $ 0.3 million, which represents the value expected to rise from organic growth and an opportunity for the Company to expand into a new market.

These acquisitions are included in the Company's Cultivation and Gardening segment.

The table below represents the allocation of the purchase price to the acquired net assets during the year ended December 31, 2023.

SGS Other Total

Inventory $ 720 $ 867 $ 1,587

Prepaids and other current assets 292 1 293

Furniture and equipment — 47 47

Operating lease right-of-use asset 612 620 1,232

Operating lease liability ( 612 ) ( 620 ) ( 1,232 )

Customer relationships 440 — 440

Goodwill 577 253 830

Total $ 2,029 $ 1,168 $ 3,197

The table below represents the consideration paid for the net assets acquired in business combinations during the year ended December 31, 2023.

SGS Other Total

Cash $ 1,922 $ 1,128 $ 3,050

Indemnity holdback 107 40 147

Total $ 2,029 $ 1,168 $ 3,197

GROWGENERATION CORP.

AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

The following table discloses the date of the acquisitions noted above and the revenue and earnings included in the Consolidated Statement of Operations for the year ended December 31, 2023.

SGS Other Total

Acquisition date May 23, 2023

Net sales $ 2,040 $ 3,167 $ 5,207

Net income (loss) $ 41 $ ( 40 ) $ 1

The following represents the pro forma Consolidated Statement of Operations as if the acquisitions had been included in the consolidated results of the Company for the entire period for the years ended December 31, 2023, 2022, and 2021.

December 31, 2023 (Unaudited) December 31, 2022 (Unaudited) December 31, 2021 (Unaudited)

Net sales $ 228,032 $ 285,524 $ 429,846

Net income (loss) $ ( 46,524 ) $ ( 163,712 ) $ 12,820

2022 Acquisitions

On February 1, 2022, the Company purchased all of the assets of Horticultural Rep Group, Inc.

("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 also provides for an indemnity holdback to be settled in common stock of the Company valued at approximately $ 0.9 million.

The asset purchase agreement also provided for an indemnity holdback to be settled in common stock of the Company valued at approximately $ 0.9 million.

Acquired goodwill of approximately $ 5.8 million 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.

HRG is included in the Company's Cultivation and Gardening segment.

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

1 unchanged sentence

Louis, Missouri.

The total consideration for the purchase of the assets of STL was approximately $ 0.4

GROWGENERATION CORP.

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

million in cash.

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.

STL is included in the Company's Cultivation and Gardening segment.

The table below represents the allocation of the purchase price to the acquired net assets during the year ended December 31, 2022.

10 unchanged sentences

Total $ 13,391 $ 424 $ 13,815

GROWGENERATION CORP.

AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

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

12 unchanged sentences

2022 (Unaudited) December 31,

2021 (Unaudited) December 31,

2021 (Unaudited)

1 unchanged sentence

Net income (loss) $ ( 162,156 ) $ 12,198

GROWGENERATION CORP.

AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

2021 Acquisitions

2 unchanged sentences

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

Indoor Garden is included in our Retail segment.

Indoor Garden is included in the Company's Cultivation and Gardening 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.

1 unchanged sentence

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.

Grow Depot Maine is included in the Company's Cultivation and Gardening 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 ).

1 unchanged sentence

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.

Grow Warehouse is included in the Company's Cultivation and Gardening 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.

Acquired goodwill of approximately $ 5.7 million represents the value expected to

GROWGENERATION CORP.

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

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

San Diego Hydro is included in the Company's Cultivation and Gardening 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.

1 unchanged sentence

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.

Charcoir is included in the Company's Cultivation and Gardening 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.

1 unchanged sentence

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.

55 Hydro is included in the Company's Cultivation and Gardening segment.

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

1 unchanged sentence

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.

Aquarius is included in the Company's Cultivation and Gardening segment.

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

1 unchanged sentence

Acquired goodwill of approximately $ 8.7 million represents the value expected to rise from organic growth and an opportunity to expand into a well-established e-commerce market for the Company targeting the commercial customer.

Agron is included in our E-commerce segment.

GROWGENERATION CORP.

AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Agron is included in the Company's Cultivation and Gardening 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.

1 unchanged sentence

Acquired goodwill of approximately $ 2.1 million 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.

Down River Hydro is included in the Company's Cultivation and Gardening 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.

1 unchanged sentence

Acquired goodwill of approximately $ 4.6 million 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.

Harvest is included in the Company's Cultivation and Gardening 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.

1 unchanged sentence

Acquired goodwill of approximately $ 7.0 million 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.

Aqua Serene is included in the Company's Cultivation and Gardening 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.

2 unchanged sentences

Acquired goodwill of approximately $ 2.1 million 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.

Mendocino is included in the Company's Cultivation and Gardening segment.

GROWGENERATION CORP.

AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

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

2 unchanged sentences

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.

CGS is included in our Retail segment.

CGS is included in the Company's Cultivation and Gardening segment.

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

5 unchanged sentences

Acquired goodwill of approximately $ 4.6 million 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.

Hoagtech is included in the Company's Cultivation and Gardening 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.

2 unchanged sentences

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 market for the Company.

All Seasons is included in our Retail segment.

All Seasons is included in the Company's Cultivation and Gardening segment.

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

1 unchanged sentence

Acquired goodwill of approximately $ 1.2 million 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.

GROWGENERATION CORP.

AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

MMI is included in the Company's Storage Solutions segment.

The table below represents the allocation of the purchase price to the acquired net assets during the year ended December 31, 2021:

12 unchanged sentences

Total $ 11,249 $ 3,558 $ 6,479 $ 16,368 $ 9,282 $ 17,779 $ 2,149 $ 1,692 $ 4,351

GROWGENERATION CORP.

AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Harvest Aquaserene Mendocino CGS Hoagtech All Seasons MMI Total

16 unchanged sentences

Total $ 11,249 $ 3,558 $ 6,479 $ 16,368 $ 9,282 $ 17,779 $ 2,149 $ 1,692 $ 4,351

GROWGENERATION CORP.

AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Harvest Aquaserene Mendocino CGS Hoagtech All Seasons MMI Total

12 unchanged sentences

Net Income (loss) $ 924 $ 445 $ 106 $ 15 $ 141 $ 52 $ — $ 10,093

The following represents the pro forma consolidated income statement as if the acquisitions had been included in the consolidated results of the Company for the entire period for the years ended December 31, 2021 and 2020.

2021 (Unaudited) December 31,

2020 (Unaudited)

Revenue $ 452,126 $ 310,947

Net income $ 13,511 $ 18,480

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 $ 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.

GROWGENERATION CORP.

1 unchanged sentence

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

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.

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, 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.

The table below represents the allocation of the purchase price to the acquired net assets during the year ended December 31, 2020:

Canopy Grassroots GrowBiz BGT Hydro Depot Emerald

Hydro Health &

Harvest Total

Inventory $ 899 $ 2,348 $ 6,286 $ 1,595 $ 333 $ 150 $ 498 $ 1,054 $ 13,163

Prepaids and other current assets — — — — — — 4 — 4

Building — — — 477 — — — — 477

Furniture and equipment — 150 200 250 25 10 50 51 736

Operating lease right to use asset — 1,437 3,641 246 — 140 906 324 6,694

Operating lease liability — ( 1,437 ) ( 3,641 ) ( 246 ) — ( 140 ) ( 906 ) ( 324 ) ( 6,694 )

Customer relationships 2,274 768 1,969 634 148 212 150 255 6,410

Trade name 1,094 2,140 7,483 1,953 212 — 234 357 13,473

Non-compete 113 133 372 96 19 14 43 6 796

Goodwill 4,860 4,461 28,476 4,039 799 614 1,008 1,131 45,388

Total $ 9,240 $ 10,000 $ 44,786 $ 9,044 $ 1,536 $ 1,000 $ 1,987 $ 2,854 $ 80,447

The table below represents the consideration paid for the net assets acquired in business combinations during 2020:

Canopy Grassroots GrowBiz BGT Hydro Depot Emerald

Hydro Health &

Harvest Total

Cash $ 5,424 $ 7,499 $ 17,487 $ 5,972 $ 988 $ 1,000 $ 1,282 $ 1,750 $ 41,402

Common stock 3,816 2,501 27,299 3,072 548 — 705 1,104 39,045

Total $ 9,240 $ 10,000 $ 44,786 $ 9,044 $ 1,536 $ 1,000 $ 1,987 $ 2,854 $ 80,447

GROWGENERATION CORP.

AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

The following table discloses the date of the acquisitions noted above and the revenue and earnings included in the consolidated income statement from the date of acquisition to the period ended December 31, 2020:

Canopy Grassroots GrowBiz BGT Hydro Depot Emerald

Hydro Health &

Harvest Total

Acquisition date 12/23/2020 12/14/2020 11/17/2020 10/20/2020 10/12/2020 8/10/2020 6/16/2020 2/26/2020

Revenue $ 301 $ 532 $ 3,852 $ 1,859 $ 1,245 $ 5,635 $ 2,418 $ 8,995 $ 24,837

Net Income $ 141 $ 74 $ 736 $ 188 $ 149 $ 1,005 $ 562 $ 1,066 $ 3,921

The following represents the pro forma Consolidated Income Statement as if the acquisitions had been included in the consolidated results of the Company for the entire period for the years ended December 31, 2021.

2021 (Unaudited)

Revenue $ 452,126

Earnings $ 18,308

STOCKHOLDERS EQUITY

On December 11, 2020, the Company consummated an underwritten public offering of 5,750,000 shares of its common stock (the “Shares”), which included the exercise in full of the underwriters’ option to purchase an additional 750,000 shares of common stock to cover over-allotments.

The Shares were sold at a public offering price of $ 30 per share, generating gross proceeds of $ 172.5 million, before deducting the underwriting discounts and commissions and other offering expenses.

Net proceeds from the sales of common stock, net of all offering costs and expenses, was approximately $ 162.5 million.

On July 2, 2020, the Company consummated an underwritten public offering of 8,625,000 shares of its common stock (the “Shares”), which included the exercise in full of the underwriters’ option to purchase an additional 1,125,000 shares of common stock to cover over-allotments.

The Shares were sold at a public offering price of $ 5.60 per share, generating gross proceeds of $ 48.3 million, before deducting the underwriting discounts and commissions and other offering expenses.

Net proceeds from the sales of common stock, net of all offering costs and expenses, was approximately $ 44.6 million.

Net income $ 13,511

RELATED PARTIES

1 unchanged sentence

The firm provides certain legal services.

Amounts paid to that firm in total were approximately $ 0.3 million for the year ended December 31, 2022.

As of December 31, 2022, there was an outstanding balance of $ 26 thousand due.

As discussed in Note 2, at December 31, 2021, the Company had two reportable segments which increased to three at March 31, 2022, based on quantitative and qualitative analyses.

The Company now also reports E-commerce as a reportable segment.

The Company has three primary reportable segments including retail operations, e-commerce and all other which includes the distribution of proprietary brands to wholesale accounts.

The Company has segmented its operations to reflect the manner in which management reviews and evaluates the results of its operations.

The structure reflects the manner in which the chief operating decision maker regularly assesses information for decision-making purposes, including the allocation of resources.

Shared services and other corporate costs are allocated to individual segments based on that segment's profitability.

GROWGENERATION CORP.

AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

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 a 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 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 through its distribution website, HRGdist.com, and online marketplaces such as Amazon and Walmart.

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.

GROWGENERATION CORP.

AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Disaggregated revenue by segment is presented in the following table:

2022 2021 2020

Private label sales $ 24,712 $ 22,077 $ 1,786

Non-private label sales 180,807 347,109 176,797

Total retail 205,519 369,186 178,583

Private label sales 1,168 802 —

Non-private label sales 13,903 35,410 14,482

Total e-commerce 15,071 36,212 14,482

Distribution and other

Private label sales 11,026 17,091 300

Non-private label sales 14,065 — —

Amounts paid to that firm in total were approximately $ 0.2 million, $ 0.3 million, and $ 0.8 million for the years ended December 31, 2023, 2022, and 2021, respectively.

As of December 31, 2023 and 2022, there was an immaterial amount outstanding due to the firm.

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 CODM 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, composed of the Company's hydroponic and organic gardening business;

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

Comparative prior period disclosures have been recast to conform to the current segment presentation.

In addition to sales by operating segment, which represent the Company's principal lines of business, the CODM evaluates the Company's operations by regularly reviewing sales by major product line, including proprietary brands, non-proprietary brands, and commercial fixtures, and by product type, including consumable and durable products.

Disaggregated revenue by segment is presented in the following tables:

Net sales 2023 2022 2021

Cultivation and Gardening

Proprietary brand sales $ 36,473 $ 36,906 $ 39,970

Non-proprietary brand sales 157,991 208,775 382,519

Total Cultivation and Gardening 194,464 245,681 422,489

Storage Solutions

Commercial fixture sales 31,418 32,485 —

Total distribution and other 57,576 17,091 300

Total $ 278,166 $ 422,489 $ 193,365

Selected information by segment is presented in the following tables:

2022 2021 2020

Retail $ 205,519 $ 369,186 $ 178,583

E-Commerce 15,071 36,212 14,482

Distribution and other 57,576 17,091 300

Total Storage Solutions 31,418 32,485 —

Total $ 225,882 $ 278,166 $ 422,489

2022 2021 2020

Retail $ 48,804 $ 101,384 $ 47,127

E-Commerce 3,851 9,876 3,728

Distribution and other 17,608 6,981 193

Net sales 2023 2022 2021

Cultivation and Gardening

Consumables $ 139,431 $ 161,012 $ 243,626

Durables 55,033 84,669 178,863

Total Cultivation and Gardening 194,464 245,681 422,489

Storage Solutions

Durables 31,418 32,485 —

Total Storage Solutions 31,418 32,485 —

Total $ 225,882 $ 278,166 $ 422,489

2 unchanged sentences

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Selected information by segment is presented in the following tables:

2023 2022 2021

Cultivation and Gardening $ 194,464 $ 245,681 $ 422,489

Storage Solutions 31,418 32,485 —

Total net sales 225,882 278,166 422,489

Cultivation and Gardening 47,404 58,837 118,241

Storage Solutions 13,854 11,426 —

Total gross profit 61,258 70,263 118,241

Segment operating profit

Cultivation and Gardening 4,265 8,475 68,499

Storage Solutions 8,911 7,108 —

Total segment operating profit 13,176 15,583 68,499

Corporate expenses

Selling, general, and administrative 29,799 36,758 39,469

Estimated credit losses 955 1,737 1,428

Depreciation and amortization 16,607 17,132 12,600

Impairment loss 15,659 127,831 —

Income (loss) from operations $ ( 49,844 ) $ ( 167,875 ) $ 15,002

Retail $ ( 149,122 ) $ 13,098 $ 9,264

E-Commerce ( 12,589 ) ( 975 ) ( 999 )

Distribution and other ( 6,164 ) 2,879 172

Total $ ( 167,875 ) $ 15,002 $ 8,437

The Company does not evaluate segments by assets as it is not practical and does not inform any of our decision making processes.

The chief operating decision maker in the Company neither reviews nor requests this information.

GROWGENERATION CORP.

AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

The Company does not evaluate segments by assets as it is not practical and does not inform any of its decision making processes.

The CODM neither reviews nor requests this information.

Customer and supplier concentrations

No customer accounted for more than 10% of the Company's sales for the years ended December 31, 2023, 2022, and 2021.

As of December 31, 2023, the loss of any supplier or vendor would not have a severe impact on the Company's business.

COMMITMENTS AND CONTINGENCIES

Legal Matters

We are involved in lawsuits and claims which arise in the normal course of our business, including the initiation and defense of proceedings related to contract and employment disputes.

In our opinion, these claims individually and in the aggregate are not expected to have a material adverse effect on our financial condition, results of operations or cash flows.

From time to time, the Company has been, and may again become involved in legal proceedings arising in the ordinary course of its business, including the initiation and defense of proceedings related to contract and employment disputes.

It is the Company's opinion that these claims individually and in the aggregate are not expected to have a material adverse effect on its financial condition, results of operations or cash flows.

In December 2021, the Company was sued in the U.S.

District Court for the Southern District of Texas related to a Promissory Note & Asset Acquisition Rights Option ("Note & Option") with TGC Systems, LLC ("Total Grow").

The Texas case has been dismissed and the parties are currently engaged in arbitration pursuant to the arbitration clause of the Note & Option.

Among other claims, Total Grow alleges that the Company is liable to Total Grow based on promissory estoppel and breach of contract for failing to consummate the acquisition of Total Grow by the Company.

The Company believes that the claims against it are without merit and is vigorously defending against them.

The Company is also counterclaiming for repayment of $ 1,500,000 principal plus interest loaned by the Company to Total Grow pursuant to the Note & Option.

The Company has accrued a reserve of $ 1.3 million against the Note & Option.

The case was dismissed and the parties submitted the matter to arbitration pursuant to the arbitration clause of the Note & Option.

Among other claims, Total Grow alleged that the Company was liable to Total Grow for failing to consummate the acquisition of Total Grow by the Company.

The Company asserted counterclaims for repayment of $ 1.5 million in principal loaned by the Company to Total Grow pursuant to the Note & Option, plus interest and certain costs.

In July 2023, the arbitrator rendered an arbitration award denying all of Total Grow's claims and defenses and awarding the Company more than $ 2.0 million in total, consisting of principal, interest, and certain costs.

Total Grow voluntarily filed for bankruptcy in October 2023.

As of December 31, 2023, the Company had accrued a reserve of $ 1.5 million against the Note & Option.

GROWGENERATION CORP.

AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

There can be no assurance that future developments related to pending claims or claims filed in the future, whether as a result of adverse outcomes or as a result of significant defense costs, will not have a material effect on the Company's financial condition, results of operations or cash flows.

We believe that our assessment of contingencies is reasonable and that the related accruals, in the aggregate, are adequate;

however, there can be no assurance that the final resolution of these matters will not have a material effect on our financial condition, results of operations or cash flows.

The Company believes that its assessment of contingencies is reasonable and that the related accruals, in the aggregate, are adequate;

however, there can be no assurance that the final resolution of these matters will not have a material effect on the Company's financial condition, results of operations or cash flows.

Indemnifications

1 unchanged sentence

As of December 31, 2023, the Company did not have any liabilities associated with indemnities.

In addition, the Company, as permitted under Colorado law and in accordance with its amended and restated certificate of incorporation and amended and restated bylaws, in each case, as amended to date, indemnifies its officers and directors for certain events or occurrences while the officer or director is or was serving at the Company’s request in such capacity.

In addition, the Company, as permitted under Colorado law and in accordance with its amended and restated certificate of incorporation and amended and restated bylaws, in each case, as amended to date, indemnifies its officers and directors for certain events or occurrences, subject to certain limits, while the officer or director is or was serving at the Company's request in such capacity.

The duration of these indemnifications varies.

2 unchanged sentences

No such losses have been recorded to date.

GROWGENERATION CORP.

AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE

See report on Form 8-K filed on March 28, 2022 regarding change in Accountants.

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 8. Financial Statements and Supplementary Data