Item 9A. Controls and Procedures
ITEM 9A. CONTROLS AND PROCEDURES
Evaluation of Disclosure Controls and Procedures
Disclosure controls and procedures (as defined in Rules 13a-15(e) and 15d-15(e) of the Securities Exchange Act of 1934, as amended (the "Exchange Act")) are controls and other procedures designed to ensure that information required to be disclosed in our reports under the Exchange Act is recorded, processed, summarized, and reported within the time periods specified in the rules and forms of the SEC, and that such information is accumulated and communicated to our management to allow timely decisions regarding required disclosure.
As of December 31, 2024, an evaluation was conducted under the supervision and with the participation of our management, including our Chief Executive Officer and Chief Financial Officer, of the effectiveness of our disclosure controls and procedures (as defined in Rule 13a-15(e) and Rule 15d-15(e) of the Exchange Act). Management concluded that our disclosure controls and procedures were not effective as of December 31, 2024, due to the material weakness in our internal control over financial reporting described below.
Management’s Report on Internal Control Over Financial Reporting
The Company’s management is responsible for establishing and maintaining adequate internal control over financial reporting, as such term is defined in Rules 13a-15(f) and 15d-15(f) under the Exchange Act. The Company’s internal control over financial reporting is a process designed by or under the supervision of the Company’s Chief Executive Officer and Chief Financial Officer, and overseen by the Board of Directors, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with GAAP and includes policies and procedures that:
• Pertain to the maintenance of records that, in reasonable detail, accurately, and fairly reflect the transactions and dispositions of the Company’s assets;
• Provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with GAAP, and that the Company’s receipts and expenditures are being made only in accordance with the authorization of its management and directors; and
• Provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of the Company’s assets that could have a material effect on the financial statements.
Because of its inherent limitations, internal control over financial reporting is not intended to provide absolute assurance that a misstatement of the Company’s Consolidated Financial Statements would be prevented or detected. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.
A material weakness is a deficiency, or combination of deficiencies, in internal control over financial reporting, such that there is a reasonable possibility that a material misstatement of the annual or interim financial statements will not be prevented or detected on a timely basis.
Management conducted an evaluation of the effectiveness of the Company’s internal control over financial reporting using the criteria in Internal Control - Integrated Framework 2013 issued by the Committee of Sponsoring Organizations of the Treadway Commission (the "COSO Framework"). As a result of this evaluation, management concluded that the Company did not maintain effective internal control over financial reporting as of December 31, 2024, based on the criteria established in COSO framework, due to the material weakness in our internal control over financial reporting described below.
This material weakness did not result in any material misstatements to the consolidated financial statements and there were no changes to previously released financial statements. Notwithstanding our material weakness, we have concluded that the financial statements and other financial information included in this Annual Report fairly present in all material respects our financial condition, results of operations and cash flows for the periods presented in conformity with accounting principles generally accepted in the United States.
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The Company’s independent registered public accounting firm, Grant Thornton LLP, which audited the 2024 Consolidated Financial Statements and management’s assessment of the effectiveness of internal control over financial reporting included in this Form 10-K, has expressed an adverse opinion on the Company's internal control over financial reporting as of December 31, 2024.
Material Weakness in Internal Control over Financial Reporting - Storage Solutions Segment
Due to segregation of duties conflicts and the lack of precise manual monitoring controls over the system data, we did not maintain effective internal control over financial reporting within a separate enterprise resource planning (“ERP”) system, Navision, used exclusively for our storage solutions segment, branded as “MMI.” As such, information derived from the system could not be relied upon, resulting in management’s inability to assess control activities at a precision level to reasonably prevent or detect errors.
Plan to Remediate Material Weakness in Internal Control over Financial Reporting - MMI
The Company, with oversight by the Audit Committee of the Board, is actively developing and implementing a comprehensive remediation plan that will include the following initiatives:
• Transition MMI off the Navision system and onto NetSuite, our integrated ERP and general ledger system used by all our other business channels.
• Remove administrative capabilities within the ERP system from operational roles.
• Perform segregation of duties analysis over new integrated users and roles within NetSuite.
• Consolidate our enterprise-wide shared service processes with the migration of the MMI business’s accounts payable and accounts receivable functions onto the NetSuite system.
• Develop and/or enhance information technology general and application controls and business process controls specific to MMI.
Remediation of Prior Material Weaknesses in Internal Control over Financial Reporting
Management’s prior evaluations of the effectiveness of the Company’s internal control over financial reporting using the COSO Framework were that internal control over financial reporting were not effective as of December 31, 2023 and December 31, 2022 due to material weaknesses related to its control environment and various COSO Framework components. Management initiated various remediation efforts in fiscal year 2022, and these efforts continued throughout fiscal years 2023 and 2024. The following sections discuss these previously identified material weaknesses and their related remediation as of December 31, 2024.
Remediation of Material Weakness in Internal Control over Financial Reporting- Control Environment
Management had previously identified a material weakness due to the Company not maintaining an effective control environment based on the criteria established in the COSO framework. Contributing to the material weakness in the control environment were:
• Insufficient resources within the accounting and financial reporting department to review the accounting of complex financial reporting transactions including areas such as business combinations, share based compensation and the related income tax reporting.
• Ineffective controls over updating and distributing accounting policies and procedures across the organization.
The Company remediated the above material weakness related to the control environment as follows:
• Engaged a third-party CPA firm to consult with management in redesigning and documenting our internal control over financial reporting, including our entity-level controls, to be compliant with Sarbanes Oxley Act of 2002 (“SOX”).
• Hired a dedicated SOX compliance senior manager and analyst charged with monitoring and facilitating compliance with the Company’s SOX responsibilities and supervising the third-party specialists.
• Enhanced corporate oversight over entity and process level controls to ensure appropriate assignment of authority, responsibility, and accountability.
• Implemented global risk and compliance software to assist in monitoring and documenting compliance with SOX.
• Added personnel and leadership to the accounting and financial reporting department with technical accounting experience to act as internal resources for reviewing complex financial reporting transactions, including areas such as business combinations, share based compensation, and income tax reporting.
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• Implemented controls to evaluate, monitor, and review the work of third-party consultants with specialized expertise engaged for complex transactions, including financial advisory support, valuation specialists for impairment analyses, and tax professionals for sales/use and income taxes.
• Completed SOX compliance training to enhance the technical ability and competence of control owners across the organization.
• Updated and formalized policies over significant accounting, finance, information technology, and compliance areas.
Remediation of Material Weakness in Internal Control over Financial Reporting - Risk Assessment
Management previously identified a material weakness related to the failure to design and implement an effective risk assessment based on the criteria established in the COSO framework and related deficiencies in the principles associated with the risk assessment component of the COSO framework.
The Company remediated the above material weakness as follows:
• Performed a comprehensive risk analysis, incorporating quantitative and qualitative factors across the entire organization inclusive of all business segments, applicable systems, and third-party service providers.
• Established materiality thresholds to apply consistent and reliable review precision within applicable control activities.
• Established formal monitoring, review, and communication procedures for newly released accounting pronouncements to ensure appropriate and timely implementation.
• Assessed all critical systems, applications, databases, and interfaces for financial statement impact to ensure the proper design and implementation of related information technology general controls.
Remediation of Material Weakness in Internal Control over Financial Reporting- Information & Communication
Management previously identified a material weakness related to ineffective information and communication processes that could properly identify and assess the source of and controls necessary to ensure the reliability of information used in financial reporting and that communicate relevant information about roles and responsibilities for internal control over financial reporting.
The Company remediated the above material weakness as follows:
• Developed new and revised existing critical system and business process narratives and flowcharts.
• Enhanced the evaluation and review process related to third-parties providing services critical to financial reporting.
• Continued to hold regular Board of Directors meetings throughout the year, including periodic compliance reports to the Audit Committee of the Board of Directors.
• Developed effective communication plans to all parties responsible for remediation relating to, among other things, identification of deficiencies and recommendations for corrective actions.
• Identified and maintained a listing of key reports used in financial reporting.
• Continued to monitor segregation of duties for all key controls and systems related to internal control over financial reporting.
• Formalized financial statement close procedures to document the preparation and review of key processes.
• Enhanced contract management controls to ensure completeness of and proper approval of material contracts.
Remediation of Material Weakness in Internal Control over Financial Reporting- Monitoring Activities
Management previously identified a material weakness related to ineffective monitoring activities to assess the operation of internal control over financial reporting, including the continued appropriateness of control design and the level of documentation maintained to support control effectiveness.
The Company remediated the above material weakness as follows:
• Enhanced review precision definitions for reconciliation controls to ensure proper identification and resolution of variances.
• Incorporated quarterly business reviews into our internal control over financial reporting.
• Established a formal deficiency tracking process, ensuring proper remediation of recommended corrective action.
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Remediation of Material Weakness in Internal Control over Financial Reporting- Control Activities
Management previously identified a material weakness related to the design and operation of process-level controls and information technology general controls, which were determined to be pervasive throughout the Company’s financial reporting processes. Contributing to the material weakness over control activities were:
• Inadequate information and technology general controls, including segregation of duties, change management, and user access, which were inadequate to support financial reporting applications and support automated controls and functionality.
• Inadequate controls over physical inventory counts.
• Inadequate controls over valuations, inclusive of appropriate valuation model inputs and appropriate forecasting for prospective financial information.
• Inadequate segregation of duties within human resources, manual journal entry posting processes, and various bank accounts of the Company to prevent and detect unauthorized transactions in a timely manner.
The Company remediated the above material weakness as follows:
• Implemented new business systems, including an enterprise resource planning software system, to support information technology general controls, appropriate segregation of duties, appropriate journal entry posting processes, change management, and user access.
• Bolstered information technology general controls across change-management, computer operations, user access, system integrations, error monitoring, and password configuration.
• Implemented quarterly access reviews for in-scope systems.
• Updated and/or drafted significant information technology policies to ensure responsibilities and expectations are defined, communicated, and enforced.
• Significantly enhanced physical inventory count procedures through staggering count dates, adding resources, incorporating roll-forward procedures, and increasing corporate oversight.
• Designed controls specific to business combinations and significant events.
• Continued to engage third-party specialists to assist management with complex financial transactions and valuations, including valuation model techniques and inputs such as forecasted, prospective information.
• Restructured or consolidated certain business functions to align more closely with effective business operation as well as to enable appropriate segregation of duties.
• Performed comprehensive segregation of duties analyses for all key controls and systems related to internal control over financial reporting.
• Enhanced segment review controls to properly identify the Company’s reportable segments, operating segments, and reporting units.
• Strengthened and enhanced our procedures around the search for unrecorded liabilities and cash application controls.
Changes in Internal Control over Financial Reporting
Except for the remediation of the material weaknesses disclosed above, there were no changes in our internal control over financial reporting during the quarter ended December 31, 2024, that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.
Item 9B. Other Information.
None .
Item 9C. Disclosure Regarding Foreign Jurisdictions that Prevent Inspections
None.
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PART III
ITEM 10. DIRECTORS, EXECUTIVE OFFICERS AND CORPORATE GOVERNANCE
The information required by Items 401, 405, 406, and 407 (c)(3), (d)(4), and (d)(5) of Regulation S-K is incorporated into this Annual Report on Form 10-K by reference to the Company's Definitive Proxy Statement for its 2025 Annual Meeting of Shareholders to be filed within 120 days following December 31, 2024.
ITEM 11. EXECUTIVE COMPENSATION
The information required by Item 402 of Regulation S-K is incorporated into this Annual Report on Form 10-K by reference to the Company's Definitive Proxy Statement for its 2025 Annual Meeting of Shareholders to be filed within 120 days following December 31, 2024.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED STOCKHOLDER MATTERS
The information required by Item 201(d) and Item 403 of Regulation S-K is incorporated into this Annual Report on Form 10-K by reference to the Company's Definitive Proxy Statement for its 2025 Annual Meeting of Shareholders to be filed within 120 days following December 31, 2024.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS AND DIRECTOR INDEPENDENCE
The information required by Items 404 and 407(a) of Regulation S-K is incorporated into this Annual Report on Form 10-K by reference to the Company's Definitive Proxy Statement for its 2025 Annual Meeting of Shareholders to be filed within 120 days following December 31, 2024.
ITEM 14. PRINCIPAL ACCOUNTANT FEES AND SERVICES
The information required by Item 9(e) of Schedule 14A is incorporated into this Annual Report on Form 10-K by reference to the Company's Definitive Proxy Statement for its 2025 Annual Meeting of Shareholders to be filed within 120 days following December 31, 2024.
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PART IV
ITEM 15. EXHIBITS, FINANCIAL STATEMENT SCHEDULES
3.1 Certificate of Incorporation of GrowGeneration Corp. (Incorporated by reference to Exhibit 3.1 to the Registration Statement on Form S-1 as filed on November 9, 2015)
3.2 Amended and Restated Bylaws of GrowGeneration Corp. (Incorporated by reference to Exhibit 3(ii) to Form 8-K filed on March 11, 2020)
10.1 GrowGeneration Corp. Amended and Restated 2018 Equity Incentive Plan (Incorporated by reference to Exhibit 10.3 to the Annual Report on Form 10-K for fiscal year ended December 31, 2019 as filed on March 27, 2020)
10.2 Form of GrowGeneration Corp. Stock Option Agreement in connection with the Amended and Restated 2018 Equity Incentive Plan (Incorporated by reference to Exhibit 10.4 to the Annual Report on Form 10-K for fiscal year ended December 31, 2019 as filed on March 27, 2020)
10.3 Employment Agreement dated September 30, 2024, between GrowGeneration Corp. and Darren Lampert (Incorporated by reference to Exhibit 10.1 to the Current Report on Form 8-K as filed on September 30, 2024)
10.4 Employment Agreement dated September 30, 2024, between GrowGeneration Corp. and Michael Salaman (Incorporated by reference to Exhibit 10.2 to the Current Report on Form 8-K as filed on September 30, 2024)
10.5 Employment Agreement, dated August 12, 2022, between GrowGeneration Corp. and Gregory Sanders (Incorporated by reference to Exhibit 10.2 to the Current Report on Form 8-K as filed on August 12, 2022)
10.6 Form of Long-Term Incentive Agreement dated April 22, 2024 between GrowGeneration Corp and Darren Lampert (Incorporated by reference to Exhibit 10.1 to the Quarterly Report on Form 10-Q as filed on August 8, 2024)
10.7 Form of Long-Term Incentive Agreement dated April 22, 2024 between GrowGeneration Corp and Michael Salaman (Incorporated by reference to Exhibit 10.2 to the Quarterly Report on Form 10-Q as filed on August 8, 2024)
10.8 Form of Long-Term Incentive Agreement dated April 22, 2024 between GrowGeneration Corp and Gregory Sanders (Incorporated by reference to Exhibit 10.3 to the Quarterly Report on Form 10-Q as filed on August 8, 2024)
19.1 Insider Trading Polic y (Filed herewith.)
21.1 List of Subsidiaries of GrowGeneration Corp. (Filed herewith.)
23.1 Consent of Grant Thornton, LLP (Filed herewith)
31.1 Rule 13a-14(a)/15d-14(a) Certification of Principal Executive Officer (Filed herewith.)
31.2 Rule 13a-14(a)/15d-14(a) Certification of Principal Financial and Accounting Officer (Filed herewith.)
32.1 Section 1350 Certification of Principal Executive Officer (Filed herewith.)
32.2 Section 1350 Certification of Principal Financial and Accounting Officer (Filed herewith.)
97 Incentive Compensation Recovery Polic y (Filed herewith . )
101.INS XBRL Instance Document (Filed herewith.)
101.SCH XBRL Taxonomy Extension Schema Document (Filed herewith.)
101.CAL XBRL Taxonomy Extension Calculation Linkbase Document (Filed herewith.)
101.LAB XBRL Taxonomy Extension Label Linkbase Document (Filed herewith.)
101.PRE XBRL Taxonomy Extension Presentation Linkbase Document (Filed herewith.)
101.DEF XBRL Taxonomy Extension Definition Linkbase Definition (Filed herewith.)
ITEM 16. FORM 10-K SUMMARY
None.
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SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Exchange Act, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized, on March 13, 2025.
GROWGENERATION CORP.
By: /s/ Darren Lampert
Name: Darren Lampert
Title: Chief Executive Officer
(Principal Executive Officer)
By: /s/ Gregory Sanders
Name: Gregory Sanders
Title: Chief Financial Officer
(Principal Accounting Officer and Principal Financial Officer)
Each of the undersigned officers and directors of GrowGeneration Corp., a Colorado corporation (the "Registrant"), does hereby constitute and appoint Darren Lampert and Gregory Sanders, and each of them, as his/her true and lawful attorney-in-fact and agent, with full power of substitution and re-substitution, for him/her and in his/her name, place, and stead, in any and all capacities, to sign any and all amendments to this Annual Report on Form 10-K, and to file the same, with all exhibits thereto, and other documents in connection therewith, with the Securities and Exchange Commission, granting unto said attorneys-in-fact and agents, and each of them, full power and authority to do and perform each and every act and thing requisite and necessary to be done in connection therewith, as fully to all intents and purposes as he/she might or could do in person, hereby ratifying and confirming that all said attorneys-in-fact and agents, or any of them or their or his/her substitute or substitutes, may lawfully do or cause to be done by virtue hereof.
Pursuant to the requirements of the Securities Exchange Act of 1934, this Annual Report on Form 10-K has been signed below by the following persons on behalf of the Registrant in the capacities and on the dates indicated.
Person Capacity Date
/s/ Darren Lampert Chief Executive Officer and Director
(Principal Executive Officer)
March 13, 2025
Darren Lampert
/s/ Gregory Sanders Chief Financial Officer
(Principal Financial and Accounting Officer)
March 13, 2025
Gregory Sanders
/s/ Michael Salaman President and Director March 13, 2025
Michael Salaman
/s/ Stephen Aiello Director March 13, 2025
Stephen Aiello
/s/ Starlett Carter Director March 13, 2025
Starlett Carter
/s/ Eula Adams Director March 13, 2025
Eula Adams
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