CANN 10-Q
TREES Corp (Colorado) (CANN)
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM
for the quarterly period ended
for the transition period from ____________ to ____________.
Commission file number:
(Exact name of registrant as specified in its charter)
| ||
(State of incorporation) | (IRS Employer Identification No.) | |
(Address of principal executive offices) (Zip Code) | ||
( | ||
(Registrant’s Telephone Number, Including Area Code) | ||
Securities registered pursuant to Section 12(b) of the Act:
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to the filing requirements for the past 90 days.
Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files).
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer”, “accelerated filer,” “smaller reporting company” and “emerging growth company” in rule 12b-2 of the Exchange Act.
Large accelerated filer | ☐ | Accelerated filer | ☐ |
☑ | Smaller reporting company | ||
Emerging growth company |
If an emerging growth company, indicate by check mark if the Registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards pursuant to Section 13(a) of the Exchange Act. ◻
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes
As of May 9, 2022, there were
GENERAL CANNABIS CORP
FORM 10-Q
TABLE OF CONTENTS
3 | ||
Management’s Discussion and Analysis of Financial Condition and Results of Operations | 20 | |
25 | ||
25 | ||
26 | ||
26 | ||
27 | ||
27 | ||
27 | ||
27 | ||
27 | ||
28 | ||
29 | ||
2
PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
GENERAL CANNABIS CORP
CONDENSED CONSOLIDATED BALANCE SHEETS
March 31, 2022 | December 31, 2021 | |||||
(unaudited) | ||||||
Assets |
|
|
|
| ||
Current assets |
|
|
|
| ||
Cash and cash equivalents | $ | | $ | | ||
Accounts receivable, net of allowance of $ |
| |
| | ||
Current portion of notes receivable, net of allowance of | — | |||||
Inventories, net | | | ||||
Prepaid expenses and other current assets |
| |
| | ||
Total current assets |
| |
| | ||
Right-of-use operating lease asset | | | ||||
Property and equipment, net | | | ||||
Intangible assets, net | | | ||||
Goodwill | | | ||||
Total assets | $ | | $ | | ||
Liabilities and Stockholders' Equity |
|
| ||||
Current liabilities |
|
|
| |||
| $ | | $ | | ||
Interest payable |
| |
| | ||
Operating lease liability, current | | | ||||
Accrued stock payable |
| |
| | ||
Warrant derivative liability |
| |
| | ||
Notes payable - current | | | ||||
Total current liabilities |
| |
| | ||
Operating lease liability, non-current | | | ||||
Notes payable - long-term (net of discount) | | | ||||
Related party long-term notes payable (net of discount) | | | ||||
Total liabilities | | | ||||
Commitments and contingencies (Note 9) | ||||||
Stockholders’ equity |
|
|
|
| ||
Preferred stock, | | | ||||
Common stock, $ | | | ||||
Additional paid-in capital |
| |
| | ||
Accumulated deficit |
| ( |
| ( | ||
Total stockholders’ equity |
| |
| | ||
Total liabilities and stockholders’ equity | $ | | $ | | ||
See Notes to condensed consolidated financial statements.
3
GENERAL CANNABIS CORP
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited)
Three months ended | |||||||
March 31, | |||||||
2022 | 2021 | ||||||
Revenue | |||||||
Retail sales | $ | | $ | — | |||
Cultivation sales | | | |||||
Interest | — | | |||||
Total revenue | | | |||||
Costs and expenses | |||||||
Cost of sales | | | |||||
Selling, general and administrative | | | |||||
Stock-based compensation | | | |||||
Professional fees | | | |||||
Depreciation and amortization | | | |||||
Total costs and expenses | | | |||||
Operating loss | ( | ( | |||||
Other expenses (income) | |||||||
Amortization of debt discount and equity issuance costs | | | |||||
Interest expense | | | |||||
Loss on derivative liability | | | |||||
Other expenses, net | — | | |||||
Total other expenses, net | | | |||||
Net loss from continuing operations before income taxes | ( | ( | |||||
Provision for income taxes | — | — | |||||
Loss from continuing operations | ( | ( | |||||
Income (loss) from discontinued operations, net of tax | | ( | |||||
Net loss | $ | ( | $ | ( | |||
Per share data - basic and diluted | |||||||
Net loss from continuing operations per share | ( | ( | |||||
Net loss from discontinued operations per share | |||||||
Net loss attributable to common stockholders per share | ( | ( | |||||
Weighted average number of common shares outstanding | | | |||||
See Notes to condensed consolidated financial statements.
4
GENERAL CANNABIS CORP
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
Three months ended March 31, | ||||||
2022 | 2021 | |||||
Cash flows from operating activities |
|
|
| |||
Net loss | $ | ( | $ | ( | ||
Adjustments to reconcile net loss to net cash used in operating activities: |
|
|
|
| ||
Amortization of debt discount and equity issuance costs |
| |
| | ||
Depreciation and amortization |
| |
| | ||
Non-cash lease expense | | | ||||
Bad debt expense | ( | ( | ||||
Loss on disposal of property and equipment | — | | ||||
Loss on warrant derivative liability |
| |
| | ||
Stock-based compensation |
| |
| | ||
Changes in operating assets and liabilities, net of acquisitions |
|
| ||||
Accounts receivable |
| |
| | ||
Prepaid expenses and other assets |
| ( |
| | ||
Inventories |
| ( |
| ( | ||
Accounts payable and accrued liabilities | | ( | ||||
Operating lease liabilities | ( | ( | ||||
Net cash provided by (used) in operating activities: |
| |
| ( | ||
Cash flows from investing activities |
|
|
|
| ||
Purchase of property and equipment |
| ( |
| ( | ||
Proceeds on notes receivable | | — | ||||
Acquisition of TREES MLK | ( | — | ||||
Proceeds from sale of investment | — | | ||||
Net cash used in investing activities |
| ( |
| ( | ||
Cash flows from financing activities |
|
|
| |||
Proceeds from exercise of stock options | — | | ||||
Proceeds from notes payable | — | | ||||
Payments on notes payable | ( | ( | ||||
Net cash provided by (used in) financing activities |
| ( |
| | ||
Net increase (decrease) in cash and cash equivalents |
| ( |
| | ||
Cash and cash equivalents, beginning of period |
| |
| | ||
Cash and cash equivalents, end of period | $ | | $ | | ||
| ||||||
Supplemental schedule of cash flow information |
|
|
|
| ||
Cash paid for interest | $ | | $ | | ||
Non-cash investing & financing activities |
|
|
|
| ||
Operating lease right-of-use asset/Operating lease liability | $ | | $ | — | ||
Issuance of accrued stock | $ | | $ | — | ||
Cashless warrant exercise | $ | — | $ | | ||
Beneficial conversion feature | $ | — | $ | | ||
$ | — | $ | | |||
Issuance of common stock to a consultant | $ | — | $ | | ||
See Notes to condensed consolidated financial statements.
5
GENERAL CANNABIS CORP
CONDENSED CONSOLIDATED STATEMENTS OF CHANGES
IN STOCKHOLDERS’ EQUITY (DEFICIT)
For the three months ended March 31, 2022 | |||||||||||||||||||
Preferred Stock | Common Stock | Additional | Accumulated | ||||||||||||||||
Shares |
| Amount | Shares | Amount | Paid-in Capital | Deficit | Total | ||||||||||||
January 1, 2022 |
| | $ | | |
| $ | |
| $ | |
| $ | ( |
| $ | | ||
Common stock issued for acquisition of Trees Waterfront LLC | — | — | | | | — | | ||||||||||||
Common stock issued for acquisition of Trees MLK LLC | — | — | | | | — | | ||||||||||||
Share-based compensation | — | — | — | — | | — | | ||||||||||||
Net loss |
| — | — | — |
| — |
| — |
| ( |
| ( | |||||||
March 31, 2022 |
| | $ | | | $ | | $ | | $ | ( | $ | | ||||||
For the three months ended March 31, 2021 | |||||||||||||||||||
Preferred Stock | Common Stock | Additional | Accumulated | ||||||||||||||||
Shares |
| Amount | Shares | Amount | Paid-in Capital | Deficit | Total | ||||||||||||
January 1, 2021 | — | $ | — | |
| $ | |
| $ | |
| $ | ( |
| $ | | |||
Common stock issued to a consultant | — | — | |
| |
| |
| — |
| | ||||||||
Common stock issued upon exercise of stock options | — | — | | | | — | | ||||||||||||
Warrants issued with | — | — | | — | | ||||||||||||||
Beneficial conversion feature | — | — | | — | | ||||||||||||||
Cashless exercise of warrants | | | | — | | ||||||||||||||
Share-based compensation | — | — | | — | | ||||||||||||||
Net loss | — | — | — |
| — |
| — |
| ( |
| ( | ||||||||
March 31, 2021 | — | $ | — | | $ | | $ | | $ | ( | $ | | |||||||
See Notes to condensed consolidated financial statements.
6
GENERAL CANNABIS CORP
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
NOTE 1. NATURE OF OPERATIONS, HISTORY, AND PRESENTATION
Nature of Operations
General Cannabis Corp, a Colorado Corporation (the “Company,” “we,” “us,” or “our,”) (formerly, Advanced Cannabis Solutions, Inc.), was incorporated on June 3, 2013, and provides services and products to the regulated cannabis industry. We currently trade on the OTCQB® Market under the trading symbol CANN. As of March 31, 2022, our operations are segregated into the following segments:
Retail (“Retail Segment”)
Through our acquisition of TDM, LLC (“TREES Englewood”) in September 2021, our acquisition of Trees Portland, LLC, Trees Waterfront, LLC in December 2021 and our acquisition of Trees MLK, LLC in January 2022, we operate a retail dispensary store in Englewood, Colorado and
Cultivation (“Cultivation Segment”)
Through our acquisition of SevenFive Farm ("SevenFive") in May 2020, we operate a
During the three months ended March 31, 2022 and 2021,
Discontinued Operations - Operations Consulting and Products (“Operations Segment”)
Through Next Big Crop (“NBC”), we delivered comprehensive consulting services to the cannabis industry that included obtaining licenses, compliance, cultivation, retail operations, logistical support, facility design and construction, and expansion of existing operations.
NBC oversaw our wholesale equipment and supply business, operating under the name “GC Supply,” which provided turnkey sourcing and stocking services to cultivation, retail, and infused products manufacturing facilities. Our products included building materials, equipment, consumables, and compliance packaging. NBC also provided operational support for our internal cultivation. On July 16, 2021, we entered into an Asset Purchase Agreement with an individual to sell substantially all the assets of NBC for a total of $
Basis of Presentation
The accompanying condensed consolidated financial statements include all accounts of the Company and its wholly owned subsidiaries. All inter-company accounts and transactions have been eliminated in consolidation. These unaudited condensed consolidated financial statements have been prepared following the requirements of the Securities and Exchange Commission for interim reporting. As permitted under those rules, certain footnotes and other financial information that are normally required by accounting principles generally accepted in the United States of America ("U.S. GAAP") can be condensed or omitted. The condensed consolidated balance sheet for the year ended December 31, 2021, was derived from audited financial statements but does not include all disclosures required by U.S. GAAP. The information included in this quarterly report on Form 10-Q should be read in conjunction with the consolidated
7
financial statements and notes thereto of the Company for the year ended December 31, 2021, which were included in the annual report on Form 10-K filed by the Company on March 25, 2022.
In the opinion of management, these condensed consolidated financial statements have been prepared on the same basis as the annual consolidated financial statements and notes thereto of the Company and include all adjustments, consisting only of normal recurring adjustments, considered necessary for the fair presentation of the Company's financial position and operating results. The results for the three months ended March 31, 2022, are not necessarily indicative of the operating results for the year ending December 31, 2022, or any other interim or future periods. Since the date of the Annual Report, there have been no material changes to the Company’s significant accounting policies.
Reclassifications
Certain prior year amounts have been reclassified for consistency with the current year presentation. These reclassifications had no effect on the reported results of operations.
Use of Estimates
The preparation of our condensed consolidated financial statements in conformity with U.S. GAAP requires management to make estimates and assumptions that affect the reported amounts of assets, liabilities, revenues, and expenses. Although these estimates are based on our knowledge of current events and actions we may undertake in the future, actual results may ultimately differ from these estimates and assumptions. Furthermore, when testing assets for impairment in future periods, if management uses different assumptions or if different conditions occur, impairment charges may result. In particular, the COVID-19 pandemic has adversely impacted and is likely to further adversely impact the Company's business and markets. The full extent to which the COVID-19 pandemic will directly or indirectly impact the Company's business, results of operations, and financial condition, including revenues, expenses, reserves and allowances, fair value measurements and asset impairment charges, will depend on future developments that are highly uncertain and difficult to predict. These developments include, but are not limited to, the duration and spread of the pandemic, its severity in our markets and elsewhere, governmental actions to contain the spread of the pandemic and respond to the reduction in global economic activity, and how quickly and to what extent normal economic and operating conditions can resume.
Discontinued Operations
On July 16, 2021, we entered into an Asset Purchase Agreement with an individual to sell substantially all of the assets of NBC for a total of $
On January 1, 2021, we discontinued our investments segment. As this is not a materially significant segment, we have not shown the effects of the discontinued segment in the financial statements.
The cash flows related to discontinued operations have not been segregated and are included in the consolidated statements of cash flows.
Going Concern
We incurred net losses of $
The accompanying consolidated financial statements have been prepared on the basis of continuity of operations, realization of assets, and the satisfaction of liabilities and commitments in the ordinary course of business. We have incurred recurring losses and negative cash flows from operations since inception and have primarily funded our
8
operations with proceeds from the issuance of convertible debt. We expect our operating losses to continue into the foreseeable future as we continue to execute our acquisition and growth strategy.
We believe that our cash and cash equivalents as of March 31, 2022, will be sufficient to fund our operating expenses and capital expenditure requirements for at least twelve months from the date of filing this Quarterly Report on Form 10-Q due to the receipt of an additional $
Summary of Significant Accounting Policies
See our Annual Report on Form 10-K for the year ended December 31, 2021, for discussion of the Company's significant accounting policies.
Recently Issued Accounting Standards
FASB ASU 2020-06 – “Debt-Debt with Conversion and Other Options (Subtopic 470-20) and Derivatives and Hedging-Contracts in Entity’s Own Equity (Subtopic 815-40): Accounting for Convertible Instruments and Contracts in an Entity’s Own Equity”- In June 2020, the Financial Accounting Standards Board (“FASB”) issued guidance which simplifies accounting for convertible instruments by removing major separation models required under current GAAP. Accounting Standards Updates (“ASU”) also removes certain settlement conditions that are required for equity contracts to qualify for the derivative scope exception and simplifies the diluted earnings per share calculation in certain areas. The amendments in this ASU are effective for annual and interim periods beginning after December 15, 2021, although early adoption is permitted. We adopted this ASU in the first quarter of 2022. This ASU did not have a material effect on our condensed consolidated financial statements.
FASB ASU 2019-12 – “Income Taxes (Topic 740)” – In December 2019, the FASB issued guidance which simplifies certain aspects of accounting for income taxes. The guidance is effective for interim and annual reporting periods beginning after December 15, 2020, and early adoption is permitted. We adopted this ASU in the first quarter of 2021. This ASU did not have a material effect on our condensed consolidated financial statements.
NOTE 2. BUSINESS ACQUISITION
On September 2, 2021, we completed the acquisition of substantially all of the assets of TREES Englewood, representing a portion of the overall Trees transaction (“Trees Transaction”) previously disclosed pursuant to that certain First Amended and Restated Agreement and Plan of Reorganization and Liquidation dated May 28, 2021, by and among the Company, seller and certain other sellers party thereto, that consists of the assets relating to the Trees dispensary located in Englewood, Colorado (“Englewood Closing”). We paid $
The table below reflects the Company’s estimates of the acquisition date fair values of the assets acquired:
Cash | $ | | |
Fixed assets |
| | |
Inventory | | ||
Tradename | | ||
Goodwill |
| | |
$ | |
9
The accompanying condensed consolidated financial statements include the results of Trees Englewood from the date of acquisition for financial reporting purposes, September 2, 2021. The pro-forma effects of the acquisition on the results of operations as if the transaction had been completed on January 1, 2020, are as follows:
| Three months ended | |||
March 31, | ||||
2021 | ||||
Total revenues | $ | | ||
Net income (loss) attributable to common stockholders | $ | | ||
Net income (loss) per common share | $ | | ||
Weighted average number of basic and diluted common shares outstanding | | |||
The unaudited pro-forma results of operations are presented for information purposes only. The unaudited pro-forma results are not intended to present actual results that would have been attained had the acquisition been completed as of January 1, 2020, or to project potential operating results as of any future date or for any future periods.
On December 30, 2021, we completed the acquisition of substantially all the assets of Trees Portland, LLC and Trees Waterfront, LLC, representing a portion of the overall Trees Transaction, which consists of the assets relating to certain Trees dispensaries located in Portland, Oregon ("Oregon Closing”). We paid cash in the amount of $
The table below reflects the Company’s estimates of the acquisition date fair values of the assets acquired:
Cash | $ | | |
Fixed assets |
| | |
Inventory | | ||
Tradename | | ||
Goodwill |
| | |
$ | |
The accompanying consolidated financial statements include the results of Trees Oregon from the date of acquisition for financial reporting purposes, December 30, 2021. The pro-forma effects of the acquisition on the results of operations as if the transaction had been completed on January 1, 2020, are as follows:
| Three months ended | |||
March 31, | ||||
2021 | ||||
Total revenues | $ | | ||
Net income (loss) attributable to common stockholders | $ | | ||
Net income (loss) per common share | $ | | ||
Weighted average number of basic and diluted common shares outstanding | | |||
The unaudited pro-forma results of operations are presented for information purposes only. The unaudited pro-forma results are not intended to present actual results that would have been attained had the acquisition been completed as of January 1, 2020, or to project potential operating results as of any future date or for any future periods.
On January 5, 2022, we completed the acquisition of substantially all of the assets of Trees MLK Inc. (“MLK”), representing the remaining Oregon dispensary in connection with the overall Trees transaction. We paid cash in the amount of $
10
common stock on January 5, 2022, the date of license transfer, was $
The table below reflects the Company’s estimates of the acquisition date fair values of the assets acquired:
Fixed assets |
| $ | |
Tradename | | ||
Goodwill |
| | |
$ | |
The accompanying consolidated financial statements include the results of Trees MLK from the date of acquisition for financial reporting purposes, January 5, 2022. The pro-forma effects of the acquisition on the results of operations as if the transaction had been completed on January 1, 2021, are as follows:
| Three months ended | |||||
March 31, | ||||||
2022 | 2021 | |||||
Total revenues | $ | — | $ | — | ||
Net income (loss) attributable to common stockholders | $ | ( | $ | ( | ||
Net income (loss) per common share | $ | ( | $ | ( | ||
Weighted average number of basic and diluted common shares outstanding | | | ||||
The unaudited pro-forma results of operations are presented for information purposes only. The unaudited pro-forma results are not intended to present actual results that would have been attained had the acquisition been completed as of January 1, 2021, or to project potential operating results as of any future date or for any future periods.
We have not completed the allocation of the purchase price for the Trees acquisition. As of March 31, 2022, the consolidated balance sheets include a preliminary allocation of fixed assets, inventory, intangible assets, and goodwill. Management anticipates completing the purchase price allocation as soon as possible, but no later than one year from the acquisition dates.
NOTE 3. DISCONTINUED OPERATIONS
On July 16, 2021, we entered into an Asset Purchase Agreement with an individual to sell substantially all of the assets of NBC for a total of $
11
Assets and liabilities of discontinued operations for the Operations Segment included the following:
March 31, | December 31, | |||||
| 2022 |
| 2021 | |||
Accounts receivable, net | $ | — | $ | — | ||
Prepaid expenses and other current assets |
| — |
| — | ||
Current assets discontinued operations | — | — | ||||
Property and equipment, net | — | — | ||||
Noncurrent assets discontinued operations | — | — | ||||
Accounts payable and accrued expenses | — | — | ||||
Customer deposits | — | — | ||||
Current liabilities discontinued operations | $ | — | $ | — | ||
A summary of the discontinued operations for the Operations Segment is presented as follows:
Three months ended March 31, | ||||||
2022 | 2021 | |||||
Product revenues |
| $ | |
| $ | |
Service revenues | ||||||
Total revenues | ||||||
Cost of sales | — | | ||||
Selling, general and administrative | ( | | ||||
Professional fees | — | | ||||
Depreciation and amortization | — | | ||||
Total costs and expenses | ( | | ||||
Income (loss) from discontinued operations | $ | | $ | ( | ||
The cash flows related to discontinued operations have not been segregated and are included in the consolidated statements of cash flows. The following table provides selected information on cash flows related to discontinued operations for the Operations Segment for the three months ended March 31, 2022 and 2021.
Three months ended | |||||||
March 31, | |||||||
| 2022 |
| 2021 | ||||
Accounts receivables | $ | — | $ | ( | |||
Prepaid expenses and other current assets | — | | |||||
Depreciation and amortization | — | | |||||
Capital expenditures | — | ( | |||||
Accounts payable and accrued expenses | — | ( | |||||
Customer deposits | — | ( | |||||
12
NOTE 4. INVENTORIES, NET
Our inventories consisted of the following:
March 31, | December 31, | |||||
| 2022 |
| 2021 | |||
Raw materials | $ | | $ | | ||
Work-in-progress and finished goods | | | ||||
Less: Inventory reserves | — | — | ||||
Inventories, net | $ | | $ | | ||
NOTE 5. LEASES
On September 2, 2021, we entered into a commercial real estate lease with a related party (see Note 11) for retail space for our dispensary in Englewood, CO, with an initial term of
Through the acquisition of Trees Englewood, we entered into a commercial real estate lease for office space in Denver, CO. This office space is our corporate office. The lease expires in November 2022. Rent is $
Through the acquisition of Trees Portland, we entered into a commercial real estate lease in Portland, OR. The lease expires in April 2027. Rent is $
Through the acquisition of Trees Waterfront, we entered into a commercial real estate lease in Portland, OR. The lease has an initial term of
Through the acquisition of Trees MLK, we entered into a commercial real estate lease in Portland, OR. The lease has an initial term of
13
Future remaining minimum lease payments were as follows:
Year ending December 31, |
| Amount | |
2022 (remaining nine months) | $ | | |
2023 |
| | |
2024 |
| | |
2025 |
| | |
2026 |
| | |
Thereafter |
| | |
Total |
| | |
Less: Present value adjustment |
| ( | |
Operating lease liability | $ | | |
NOTE 6. ACCRUED STOCK PAYABLE
The following tables summarize the changes in accrued common stock payable:
Number of | ||||||
| Amount |
| Shares | |||
Balance as of December 31, 2020 | $ | | | |||
Trees Waterfront acquisition stock accrual | | | ||||
Stock issued | ( | ( | ||||
Balance as of December 31, 2021 | $ | | | |||
Stock issued | ( | ( | ||||
Balance as of March 31, 2022 | $ | | | |||
In December 2021, we completed the acquisition of Trees Waterfront. As part of the transaction, we granted
NOTE 7. NOTES PAYABLE
Our notes payable consisted of the following:
| March 31, |
| December 31, | |||
2022 | 2021 | |||||
2020 | $ | | $ | | ||
Related party note payable | | | ||||
Trees Acquisition Notes | | | ||||
Unamortized debt discount | ( | ( | ||||
| | |||||
Less: Current portion | ( | ( | ||||
Long-term portion | $ | | $ | | ||
In December 2020, we entered into a Securities Purchase Agreement (the “Securities Purchase Agreement’) with certain accredited investors (the “
14
The relative fair value of the new funding on the
For purposes of determining the debt discount, the underlying assumptions used in the binomial lattice model to determine the fair value of the
Current stock price |
| $ | |
Exercise price | $ | ||
Risk-free interest rate | |||
Expected dividend yield | — | ||
Expected term (in years) | 5.0 | ||
Expected volatility |
On February 8, 2021, we entered into a Securities Purchase Agreement with an accredited
The relative fair value of the new funding on the
For purposes of determining the debt discount, the underlying assumptions used in the binomial lattice model to determine the fair value of the
Current stock price |
| $ | |
Exercise price | $ | ||
Risk-free interest rate | |||
Expected dividend yield | — | ||
Expected term (in years) | | ||
Expected volatility |
On April 20, 2021, we entered into a Securities Purchase Agreement with accredited
15
are part of an over-allotment approved by the existing noteholders in connection with the original convertible note offering of $
The relative fair value of the new funding on the
For purposes of determining the debt discount, the underlying assumptions used in the binomial lattice model to determine the fair value of the
Current stock price |
| $ | |
Exercise price | $ | ||
Risk-free interest rate | |||
Expected dividend yield | — | ||
Expected term (in years) | | ||
Expected volatility |
NOTE 8. WARRANT DERIVATIVE LIABILITY
On May 31, 2019, we received gross proceeds of $
During the first quarter of 2021 the warrant holders exercised
16
The following are the key assumptions that were used to determine the fair value of the 2019 Warrants
| December 31, | March 31, |
| |||||
| 2021 | 2022 |
| |||||
Number of shares underlying the warrants |
| | | |||||
Fair market value of stock | $ | | $ | | ||||
Exercise price | $ | | $ | | ||||
Volatility | | % | | % | ||||
Risk-free interest rate | | % | | % | ||||
Warrant life (years) | |
| | |||||
The following table sets forth a summary of the changes in the fair value of the warrant derivative liability, our Level 3 financial liabilities that are measured at fair value on a recurring basis:
Three months ended March 31, | |||||||
| 2022 |
| 2021 | ||||
Beginning balance | $ | | $ | | |||
Warrant exercise | — | ( | |||||
Change in fair value of warrants derivative liability | | | |||||
Ending balance | $ | | $ | | |||
NOTE 9. COMMITMENTS AND CONTINGENCIES
In July 2021, we were served with a Complaint in the District Court, County of Denver, Colorado, by plaintiff 2353 SB, LLC (“Plaintiff”). We entered into a lease with Plaintiff for the premises at 2353 South Broadway, Denver, CO with a term of (3) years to commence on November 1, 2020. Monthly lease payments were to be $
We have taken the position that our failure to take possession and make any further payments under the lease is directly related to the COVID-19 pandemic. We intend to vigorously defend this action and believe that the above-referenced force majeure clause presents a complete defense to Plaintiff’s claims. Both parties have filed motions for summary judgment, and the parties are currently awaiting the decision of the court in respect thereof.
In June 2020, Michael Feinsod resigned as our Executive Chairman, claiming that his resignation was for "Good Reason" under the terms of his employment agreement. If it is ultimately determined that his resignation was, in fact, for "Good Reason", rather than a voluntary act absent "Good Reason", it could enable certain potential claims for benefits under his employment agreement, including potential claims for severance, for the vesting of his unvested options and/or for the extension of the term within which he can exercise his options in the future. We do not believe that Mr. Feinsod's resignation was for "Good Reason." Accordingly, we believe that Mr. Feinsod's resignation was voluntary, and that any such potential claims, if asserted, would be without substantial merit. Although the outcome of legal proceedings is subject to uncertainty, the Company will vigorously defend any future claims made by Mr. Feinsod alleging a "Good Reason" resignation.
From time to time, we are a party to various litigation matters incidental to the conduct of its business. We are not presently a party to any legal proceedings that would have a material adverse effect on our business, operating results, financial condition, or cash flows.
17
NOTE 10. STOCKHOLDERS’ EQUITY
2021 Preferred stock offering
On September 10, 2021, we entered into a Securities Purchase Agreement (the “Securities Purchase Agreement”) with various accredited investors (the “2021 Investors), pursuant to which we issued and sold Units consisting of Series A Convertible Preferred Stock (“Series A Preferred”) and warrants (the “Preferred Warrants”) to purchase shares of our common stock with a par value of $
| ● | Authorized Number of Shares – |
| ● | Voting Rights – |
| ● | Dividends – |
| ● | Conversion – Each share of Series A Preferred is mandatorily convertible into |
| ● | Redemption – No rights of redemption by 2021 Investors, nor mandatory redemption |
The Preferred Warrants have a
The proceeds received in the sale of the Series A Preferred totaled $
Stock-based compensation
We use the fair value method to account for stock-based compensation. We recorded $
On September 3, 2021, we modified
During the three months ended March 31, 2022, we granted options to purchase
18
The following summarizes Employee Awards activity:
Weighted- | ||||||||||
Weighted- | Average | |||||||||
Average | Remaining | |||||||||
Number of | Exercise Price | Contractual | Aggregate | |||||||
| Shares |
| per Share |
| Term (in years) |
| Intrinsic Value | |||
Outstanding as of December 31, 2021 | | $ | | $ | | |||||
Granted | | |
|
| ||||||
Exercised |
| — |
| — |
|
|
|
| ||
Forfeited or expired |
| ( |
| |
|
|
|
| ||
Outstanding as of March 31, 2022 |
| |
| $ | |
| $ | | ||
Exercisable as of March 31, 2022 |
| | $ | |
| $ | | |||
As of March 31, 2022, there was approximately $
NOTE 11. RELATED PARTY TRANSACTIONS
On June 3, 2020, we entered into a consulting agreement with Adam Hershey, Interim Chief Executive Officer, board member and investor, pursuant to which he would act as a strategic consultant for the Company, including providing assistance with the sourcing and evaluation of merger and acquisition deals, strategic capital, and strategic partnerships or joint ventures. Mr. Hershey is paid an initial monthly rate of $
We currently have a lease agreement with Dalton Adventures, LLC in which we rent
We currently have a lease agreement with Bellewood Holdings, LLC in which we rent retail space for the Trees Englewood retail store in Englewood, Colorado for $
On December 23, 2020,
NOTE 12. SEGMENT INFORMATION
Our operations are organized into
19
Three months ended March 31
2022 |
| Retail |
| Cultivation |
| Eliminations | Total | |||||
Revenues | $ | | $ | | $ | ( | $ | | ||||
Costs and expenses | ( | ( | | ( | ||||||||
Segment operating income | $ | | $ | ( | $ | — | | |||||
Corporate expenses | ( | |||||||||||
Net loss from continuing operations before income taxes |
| $ | ( | |||||||||
2021 |
| Cultivation | Eliminations |
| Total | ||||
Revenues | $ | | $ | — | $ | | |||
Costs and expenses | ( | — | ( | ||||||
Segment operating income | $ | ( | $ | — | ( | ||||
Corporate expenses |
|
| ( | ||||||
Net loss from continuing operations before income taxes |
| $ | ( | ||||||
March 31, | December 31, | |||||
Total assets |
| 2022 |
| 2021 | ||
Retail | $ | | $ | | ||
Cultivation | | | ||||
Corporate |
| |
| | ||
Total assets - segments | | | ||||
Intercompany eliminations | — | — | ||||
Total assets - consolidated | $ | | $ | | ||
NOTE 13. SUBSEQUENT EVENTS
On April 5, 2022, we entered into an Amendment to Lease with Dalton Farms, LLC, the landlord of our grow facility. Pursuant to the Lease Amendment, commencing April 1, 2022, base rent is decreased to $
ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
This Management’s Discussion and Analysis (“MD&A”) is intended to provide an understanding of our financial condition, results of operations and cash flows by focusing on changes in certain key measures from year to year. This discussion should be read in conjunction with the Condensed Consolidated Unaudited Financial Statements contained in this Quarterly Report on Form 10-Q and the Consolidated Financial Statements and related notes and MD&A appearing in our Annual Report on Form 10-K as of and for the year ended December 31, 2021. The results of operations for an interim period may not give a true indication of results for future interim periods or for the year.
Cautionary Statement Regarding Forward Looking Statements
This Quarterly Report on Form 10-Q, including the financial statements and related notes, contains forward-looking statements that discuss, among other things, future expectations and projections regarding future developments, operations and financial conditions. All forward-looking statements are based on management’s existing beliefs about present and future events outside of management’s control and on assumptions that may prove to be incorrect. If any underlying assumptions prove incorrect, our actual results may vary materially from those anticipated, estimated, projected or intended. We undertake no obligation to publicly update or revise any forward-looking statements to reflect actual results, changes in expectations or events or circumstances after the date of this Quarterly Report on Form 10-Q.
20
When this report uses the words “we,” “us,” or “our,” and the “Company,” they refer to General Cannabis Corp (formerly, “Advanced Cannabis Solutions, Inc.”).
Our Products, Services, and Customers
Through our two reporting segments, Retail and Cultivation, we provide products to the regulated cannabis industry and its customers, which include the following:
Through our acquisition of TDM, LLC (“TREES Englewood”) in September 2021, our acquisition of Trees Portland, LLC, Trees Waterfront, LLC in December 2021, and our acquisition of Trees MLK, LLC in January 2022, we operate a retail dispensary store in Englewood, Colorado and three retail stores in Portland, Oregon. The Trees MLK location is currently not in operation. This location should be operational in the second quarter of 2022.
Cultivation (“Cultivation Segment”)
Through our acquisition of SevenFive Farm in May 2020, we operate a 17,000 square foot licensed light deprivation greenhouse cultivation facility.
During the three months ended March 31, 2022 and 2021, 45% and 18% of SevenFive’s revenue was with one customer, respectively.
Discontinued Operations - Operations Consulting and Products
Through Next Big Crop, we delivered comprehensive consulting services to the cannabis industry that included obtaining licenses, compliance, cultivation, retail operations, logistical support, facility design and construction, and expansion of existing operations.
NBC oversaw our wholesale equipment and supply business, operating under the name “GC Supply,” which provided turnkey sourcing and stocking services to cultivation, retail, and infused products manufacturing facilities. Our products included building materials, equipment, consumables, and compliance packaging. NBC also provided operational support for our internal cultivation. On July 16, 2021, we entered into an Asset Purchase Agreement with an individual to sell substantially all the assets of NBC for a total of $150,000 and 10% of profits generated by the buyer in the states of Michigan, Mississippi, and Massachusetts for a period of twelve months from the closing. On August 2, 2021, the sale of NBC was completed.
Results of Operations
The following tables set forth, for the periods indicated, statements of operations data. The tables and the discussion below should be read in conjunction with the accompanying condensed consolidated financial statements and the notes thereto in this report.
Three months ended March 31, | Percent |
| ||||||||||
2022 | 2021 | Change | Change |
| ||||||||
Revenues |
| $ | 3,573,308 |
| $ | 663,805 |
| $ | 2,909,503 |
| 438 | % |
Costs and expenses |
| (3,990,351) |
| (1,637,824) |
| (2,352,527) | 144 | % | ||||
Other expense |
| (449,296) |
| (1,371,597) |
| 922,301 | (67) | % | ||||
Net loss from continuing operations before income taxes |
| (866,339) |
| (2,345,616) |
| 1,479,277 | (63) | % | ||||
Loss from discontinued operations |
| 5,283 |
| (13,452) |
| 18,735 | (139) | % | ||||
Loss from operations before income taxes | $ | (861,056) | $ | (2,359,068) | $ | 1,498,012 | (64) | % | ||||
21
Revenues
The addition of our Retail segment contributed to the significant increase in revenues for the three months ended March 31, 2022. See Segment discussions below for further details.
Costs and expenses
Three months ended March 31, | Percent |
| ||||||||||
| 2022 |
| 2021 |
| Change |
| Change |
| ||||
Cost of sales | $ | 2,074,888 | $ | 555,205 | $ | 1,519,683 | 274 | % | ||||
Selling, general and administrative |
| 1,326,116 |
| 598,691 |
| 727,425 |
| 122 | % | |||
Stock-based compensation |
| 76,117 |
| 103,932 |
| (27,815) |
| (27) | % | |||
Professional fees |
| 281,384 |
| 262,315 |
| 19,069 |
| 7 | % | |||
Depreciation and amortization |
| 231,846 |
| 117,681 |
| 114,165 |
| 97 | % | |||
$ | 3,990,351 | $ | 1,637,824 | $ | 2,352,527 |
| 144 | % | ||||
Cost of sales increased year over year due to the addition of the Retail Segment in the third and fourth quarters of 2021. See Segment discussions below for further details.
Selling, general and administrative expense increased for the three months ended March 31, 2022, as compared to March 31, 2021, due to the acquisition of three dispensaries in the third and fourth quarter of 2021. This resulted in an increase in employees and an increase in rent expense.
Professional fees consist primarily of accounting and legal expenses and increased slightly for the three months ended March 31, 2022, as compared to the three months ended March 31, 2021, due to the growth of our retail segment.
Stock-based compensation included the following:
Three months ended March 31, | Percent |
| ||||||||||
2022 | 2021 | Change | Change |
| ||||||||
Employee awards |
| $ | 76,117 |
| $ | 103,932 |
| $ | (27,815) |
| (27) | % |
$ | 76,117 | $ | 103,932 | $ | (27,815) |
| (27) | % | ||||
Employee awards are issued under our 2020 Omnibus Incentive Plan, which was approved by shareholders on November 23, 2020, and our 2014 Equity Incentive Plan, which was approved by shareholders on June 26, 2015. Expense varies primarily due to the number of stock options granted and the share price on the date of grant. The decrease in expense for the three months ended March 31, 2022, as compared to March 31, 2021, is due to the decrease in the number of options we grant on a quarterly basis and an increase in forfeitures in 2021 due to the departure of our Chief Executive Officer in May 2021, and the departure of our Chief Financial Officer in September 2021.
Other Expense
Three months ended March 31, | Percent |
| ||||||||||
| 2022 |
| 2021 |
| Change |
| Change |
| ||||
Amortization of debt discount | $ | 214,281 | $ | 68,330 | $ | 145,951 | 214 | % | ||||
Interest expense |
| 174,351 |
| 103,056 |
| 71,295 | 69 | % | ||||
Loss (gain) on derivative liability |
| 60,664 |
| 1,198,744 |
| (1,138,080) | (95) | % | ||||
Other expenses, net |
| — |
| 1,467 |
| (1,467) | (100) | % | ||||
$ | 449,296 | $ | 1,371,597 | $ | (922,301) | (67) | % | |||||
Amortization of debt discount increased during the three months ended March 31, 2022, as compared to March 31, 2021, due to the senior convertible promissory notes with warrants (“10% Notes”) issued in December 2020, February 2021, and April 2021. Interest expense increased during the three months ended March 31, 2022, as compared to March 31,
22
2021, due to the addition of the 10% Notes with an interest rate of 10%. The gain on warrant derivative liability reflects the change in the fair value of the 2019 Warrants.
Retail
Three months ended March 31, | Percent |
| ||||||||||
| 2022 |
| 2021 |
| Change |
| Change |
| ||||
Revenues | $ | 3,297,544 | $ | — | $ | 3,297,544 |
| 100 | % | |||
Costs and expenses |
| (2,593,269) |
| — |
| (2,593,269) |
| 100 | % | |||
$ | 704,275 | $ | — | $ | 704,275 |
| 100 | % | ||||
With the addition of the TREES Englewood dispensary on September 2, 2021, Trees Portland and Trees Waterfront on December 30, 2021, and Trees MLK on January 5, 2022, we have established our retail footprint in the Colorado and Oregon markets and have become a vertically integrated company. The Retail Segment will provide consistent positive cash flows which will significantly contribute to our working capital position.
Cultivation
Three months ended March 31, | Percent |
| ||||||||||
| 2022 |
| 2021 |
| Change |
| Change |
| ||||
Revenues | $ | 518,280 | $ | 649,333 | $ | (131,053) |
| (20) | % | |||
Costs and expenses |
| (707,549) |
| (786,932) |
| 79,383 |
| (10) | % | |||
$ | (189,269) | $ | (137,599) | $ | (51,670) |
| 38 | % | ||||
The decrease in revenues for the three months ended March 31, 2022, over prior year is due to the decrease in overall market price of flower. The decrease in gross margin is due to overall increase in expenses due to inflation.
Liquidity
Sources of liquidity
Our sources of liquidity include cash generated from operations, the cash exercise of common stock options and warrants, debt, and the issuance of common stock or other equity-based instruments. We anticipate our significant uses of resources will include funding operations and developing infrastructure.
In September 2021, we received $1,180,000 in cash in a private placement with certain accredited investors pursuant to the Series A Convertible Preferred Stock to be used for the acquisition of dispensaries and for operating capital. (See Note 10 of the accompanying unaudited condensed consolidated financial statements).
In April 2021, we received $2,300,000 in cash in a private placement with certain accredited investors pursuant to the 10% Notes to be used for the acquisition of dispensaries (See Note 7 of the accompanying unaudited condensed consolidated financial statements).
In February 2021, we received $1,660,000 in cash in a private placement with certain accredited investors pursuant to the 10% Notes.
23
Sources and uses of cash
We had cash of $1,651,063 and $2,054,050 as of March 31, 2022, and December 31, 2021, respectively. Our cash flows from operating, investing and financing activities were as follows:
Three months ended March 31, | ||||||
2022 | 2021 | |||||
Net cash provided by (used in) operating activities |
| $ | 45,223 |
| $ | (1,449,925) |
Net cash used in investing activities | $ | (190,153) | $ | (55,353) | ||
Net cash provided by (used in) financing activities | $ | (258,057) | $ | 1,595,002 | ||
Net cash provided by (used in) operating activities decreased in 2022 due to the acquisition of TREES Englewood, Trees Portland and Trees Waterfront which provides positive operating cash flows and adjustments relating to non-cash activities.
Net cash used in investing activities for the three months ended March 31, 2022, increased from March 31, 2021, due to the purchase of, Trees MLK, Inc and the purchase of property and equipment, offset by the receipt of notes receivable.
Net cash provided by (used in) financing activities for the three months ended March 31, 2022, related to the payment on notes payable of $258,057.
Capital Resources
We had no material commitments for capital expenditures as of March 31, 2022. Part of our growth strategy, however, is to acquire operating businesses. We expect to fund such activity through cash on hand, the issuance of debt, common stock, warrants for our common stock or a combination thereof.
Non-GAAP Financial Measures
Adjusted EBITDA is a non-GAAP financial measure. We define Adjusted EBITDA as net income (loss) attributable to common stockholders calculated in accordance with GAAP, adjusted for the impact of stock-based compensation expense, acquisition or disposal-related transaction costs , non-recurring professional fees in relation to litigation and other non-recurring expenses, depreciation and amortization, amortization of debt discounts and equity issuance costs, loss on extinguishment of debt, interest expense, income taxes and certain other non-cash items. Below we have provided a reconciliation of Adjusted EBITDA per share to the most directly comparable GAAP measure, which is net income (loss) per share.
We believe that the disclosure of Adjusted EBITDA provides investors with a better comparison of our period-to-period operating results. We exclude the effects of certain items when we evaluate key measures of our performance internally and in assessing the impact of known trends and uncertainties on our business. We also believe that excluding the effects of these items provides a more comparable view of the underlying dynamics of our operations. We believe such information provides additional meaningful methods of evaluating certain aspects of our operating performance from period to period on a basis that may not be otherwise apparent on a GAAP basis. This supplemental financial information should be considered in addition to, not in lieu of, our condensed consolidated financial statements.
24
The following table reconciles Adjusted EBITDA to the most directly comparable GAAP measure, which is net loss.
Three months ended March 31, | ||||||
2022 | 2021 | |||||
Loss from operations before income taxes |
| $ | (866,339) |
| $ | (2,345,616) |
Adjustment for loss from discontinued operations |
| (5,283) |
| 13,452 | ||
Net loss from continuing operations before income taxes |
| (871,622) |
| (2,332,164) | ||
Adjustments: |
|
|
|
| ||
Stock-based compensation |
| 76,117 |
| 103,932 | ||
Depreciation and amortization | 231,846 | 117,681 | ||||
Amortization of debt discount and equity issuance costs |
| 214,281 |
| 68,330 | ||
Interest expense |
| 174,351 |
| 103,056 | ||
Gain on sale of assets | — | 1,467 | ||||
(Gain) loss on derivative liability |
| 60,664 |
| 1,198,744 | ||
Severance | 4,731 | — | ||||
Acquisition related expenses | 7,500 | 141,580 | ||||
Total adjustments |
| 769,490 |
| 1,734,790 | ||
Adjusted EBITDA | $ | (102,132) | $ | (597,374) | ||
Off-balance Sheet Arrangements
We currently have no off-balance sheet arrangements.
Critical Accounting Policies
Our unaudited condensed consolidated financial statements and accompanying notes have been prepared in accordance with U.S. GAAP. The preparation of these financial statements requires management to make estimates, judgments and assumptions that affect reported amounts of assets, liabilities, revenues, and expenses. We continually evaluate the accounting policies and estimates used to prepare the condensed financial statements. The estimates are based on historical experience and assumptions believed to be reasonable under current facts and circumstances. Actual amounts and results could differ from these estimates made by management. Certain accounting policies that require significant management estimates and are deemed critical to our results of operations or financial position are discussed in our Annual Report on Form 10-K for the year ended December 31, 2021, and Note 1 to the Unaudited Condensed Consolidated Financial Statements in this Form 10-Q.
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
As a “smaller reporting company” as defined by Item 10 of Regulation S-K, we are not required to provide information required by this Item.
ITEM 4. CONTROLS AND PROCEDURES
Evaluation of Disclosure Controls and Procedures
We maintain disclosure controls and procedures (as defined in Rules 13a-15(e) and 15d-15(e) under the Securities Exchange Act of 1934, as amended (the “Exchange Act”) that are designed to ensure that information required to be disclosed in our reports filed under the Exchange Act, is recorded, processed, summarized, and reported within the time periods specified in the Securities and Exchange Commission’s rules and forms, and that such information is accumulated and communicated to our management, including our Principal Executive Officer and Principal Financial and Accounting Officer, as appropriate to allow timely decisions regarding required disclosure.
We carried out an evaluation under the supervision and with the participation of management, including our Principal Executive Officer and Principal Financial and Accounting Officer, of the effectiveness of the design and operation of our disclosure controls and procedures as of March 31, 2022, the end of the period covered by this report. Based on that
25
evaluation, our Principal Executive Officer and Principal Financial and Accounting Officer have concluded that our disclosure controls and procedures were effective as of March 31, 2022.
Internal Control over Financial Reporting
Our management is responsible for establishing and maintaining adequate internal control over financial reporting as defined in Rules 13a-15(f) and 15d-15(f) promulgated under the Exchange Act as a process designed by, or under the supervision of, our principal executive officer and principal financial officer and effected by the Board, management, and other personnel, 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 those policies and procedures that:
| ● | Pertain to the maintenance of records that in reasonable detail accurately and fairly reflect the transactions and dispositions of the assets of the Company; |
| ● | Provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with GAAP, and that our receipts and expenditures of are being made only in accordance with authorizations of our management and directors; and |
| ● | Provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of our assets that could have a material effect on the financial statements. |
Because of inherent limitations, our internal control over financial reporting may not prevent or detect misstatements. Therefore, even those systems determined to be effective can provide only reasonable assurance with respect to financial statement preparation and presentation. 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.
Assessment of Internal Control over Financial Reporting
Our management assessed the effectiveness of our internal control over financial reporting as of March 31, 2022. In making this assessment, management used the criteria set forth by the Committee of Sponsoring Organizations of the Treadway Commission (“COSO”) in Internal Control - Integrated Framework (2013). Based on management’s assessment, management concluded that its internal control over financial reporting was effective as of March 31, 2022, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements in accordance with GAAP.
Changes in Internal Control over Financial Reporting
None.
PART II. OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
In July 2021, we were served with a Complaint in the District Court, County of Denver, Colorado, by plaintiff 2353 SB, LLC (“Plaintiff”). We entered into a lease with Plaintiff for the premises at 2353 South Broadway, Denver, CO with a term of three (3) years to commence on November 1, 2020. Monthly lease payments were to be $12,866.66. In 2020, we made initial payments (first month’s rent and security deposit) of $39,633.32; but subsequently did not take possession of the premises and have made no further payments in respect thereof, as a direct result of the COVID-19 pandemic. The lease contains a ‘force majeure’ clause which includes a provision that neither party is liable for failure to perform its obligations under the lease which have become practicably impossible because of circumstances beyond the reasonable control of the applicable party, including ‘pandemics or outbreak of communicable disease.’
We have taken the position that our failure to take possession and make any further payments under the lease is directly related to the COVID-19 pandemic. We intend to vigorously defend this action and believe that the above-referenced force majeure clause presents a complete defense to Plaintiff’s claims. Both parties have filed motions for summary judgment, and the parties are currently awaiting the decision of the court in respect thereof.
26
ITEM 1A. RISK FACTORS
As of the date of this report, there have been no material changes to the Risk Factors disclosed in our Annual Report on Form 10-K for the year ended December 31, 2021.
ITEM 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS
None.
ITEM 3. DEFAULTS UPON SENIOR SECURITIES
None.
ITEM 4. MINE SAFETY DISCLOSURES
Not applicable.
ITEM 5. OTHER INFORMATION
None.
27
ITEM 6. EXHIBITS
Exhibits |
|
|
|
Certification pursuant to Section 302 of the Sarbanes-Oxley Act of 2002. | |
Certification pursuant to Section 302 of the Sarbanes-Oxley Act of 2002. | |
Certification pursuant to Section 906 of the Sarbanes-Oxley Act of 2002. | |
101.INS | Inline XBRL Instance Document |
101.SCH | Inline XBRL Taxonomy Extension Schema Document |
101.CAL | Inline XBRL Taxonomy Extension Calculation Linkbase Document |
101.DEF | Inline XBRL Taxonomy Extension Definition Linkbase Document |
101.LAB | Inline XBRL Taxonomy Extension Label Linkbase Document |
101.PRE | Inline XBRL Taxonomy Extension Presentation Linkbase Document |
104 | Cover Page Interactive Data File (embedded within the Inline XBRL document) |
28
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.
GENERAL CANNABIS CORP | ||
|
| |
Date: May 13, 2022 | /s/ Adam Hershey | |
| Adam Hershey, Interim Chief Executive Officer | |
| Principal Executive Officer | |
| ||
| /s/ Jessica Bast | |
| Jessica Bast, Chief Financial Officer | |
| Principal Financial and Accounting Officer | |
29