TREES Corp (Colorado) 10-Q for FY2023 Q1

TREES Corp (Colorado) (CANN)

10-Q 2023-05-22 For: 2023-03-31

Added on April 06, 2026

About this 10-Q

TREES Corp (Colorado) filed this 10-Q on May 22, 2023, covering the quarter ended March 31, 2023 (FY2023 Q1).

Headline figures

Quarter ended March 31, 2023, as reported in this filing, compared with the same period a year earlier where the filing states it.

Revenue: $5.11M; up 43.0% from $3.57M a year earlier
Net loss: $1.89M; compared with a net loss of $861.06K a year earlier
Diluted EPS: -$0.02; compared with -$0.01 a year earlier

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Colorado		90-1072649
(State of incorporation)		(IRS Employer Identification No.)

215 Union Boulevard, Suite 415 Lakewood, CO 80228
(Address of principal executive offices) (Zip Code)

(303) 759-1300
(Registrant’s Telephone Number, Including Area Code)


Title of each class	Name of each exchange on which registered	Ticker symbol
N/A	N/A	N/A


Large accelerated filer	☐	Accelerated filer	☐
Non-accelerated filer	☑	Smaller reporting company	☑
		Emerging growth company	☐

PART I. FINANCIAL INFORMATION

Item 1.	Financial Statements	3
Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	23
Item 3.	Quantitative and Qualitative Disclosures about Market Risk	29
Item 4.	Controls and Procedures	29

PART II. OTHER INFORMATION		30

Item 1.	Legal Proceedings	30
Item 1A.	Risk Factors	30
Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	30
Item 3.	Defaults Upon Senior Securities	30
Item 4.	Mine Safety Disclosures	30
Item 5.	Other Information	30
Item 6.	Exhibits	31
	Signatures	32


	March 31, 2023		December 31, 2022
	(unaudited)
Assets
Current assets
Cash and cash equivalents	$	1,460,162	$	2,583,833
Accounts receivable, net of allowance of $42,000, respectively		62,841		41,373
Inventories		2,413,115		2,066,662
Prepaid expenses and other current assets		262,633		259,598
Total current assets		4,198,751		4,951,466

Right-of-use operating lease asset		4,029,769		3,866,406
Property and equipment, net		1,888,239		1,947,969
Intangible assets, net		2,925,631		2,543,898
Goodwill		18,384,974		18,384,974
Total assets	$	31,427,364	$	31,694,713

Liabilities and Stockholders' Equity

Current liabilities
Accounts payable and accrued expenses	$	2,627,318	$	1,899,450
Interest payable		909,699		488,813
Income tax payable		290,659		204,917
Operating lease liability, current		843,431		1,433,184
Finance lease liability, current		60,008		55,777
Accrued stock payable		60,900		60,900
Accrued dividends		106,200		88,500
Warrant derivative liability		4,201		5,508
Notes payable - current		1,879,173		1,903,344
Total current liabilities		6,781,589		6,140,393

Operating lease liability, non-current		3,314,127		2,541,590
Finance lease liability, non-current		689,497		706,653
Notes payable - non-current (net of unamortized discount)		16,112,500		15,899,588
Total liabilities		26,897,713		25,288,224

Commitments and contingencies (Note 10)

Stockholders’ equity
Preferred stock, no par value; 5,000,000 shares authorized; 1,180 issued and outstanding, respectively		1,073,446		1,073,446
Common stock, $0.001 par value; 200,000,000 shares authorized; 118,664,094 shares issued and outstanding, respectively		118,664		118,664
Additional paid-in capital		98,626,157		98,598,761
Accumulated deficit		(95,288,616)		(93,384,382)
Total stockholders’ equity		4,529,651		6,406,489
Total liabilities and stockholders’ equity	$	31,427,364	$	31,694,713


	Three months ended March 31,
	2023		2022
Revenue
Retail sales	$	5,110,619	$	3,297,546
Cultivation sales		—		275,762
Total revenue		5,110,619		3,573,308

Costs and expenses
Cost of sales		3,057,714		2,074,888
Selling, general and administrative		2,296,240		1,326,116
Stock-based compensation		27,396		76,117
Professional fees		607,544		281,384
Depreciation and amortization		292,842		231,846
Total costs and expenses		6,281,736		3,990,351

Operating loss		(1,171,117)		(417,043)

Other expenses (income)
Amortization of debt discount		181,677		214,281
Interest expense		449,311		174,351
(Gain) loss on derivative liability		(1,307)		60,664
Total other expenses, net		629,681		449,296

Net loss from continuing operations before income taxes		(1,800,798)		(866,339)

Provision for income taxes		85,736		—
Loss from continuing operations		(1,886,534)		(866,339)

Income from discontinued operations, net of tax		—		5,283
Net loss	$	(1,886,534)	$	(861,056)

Accrued preferred stock dividend		(17,700)		—

Net loss attributable to common stockholders	$	(1,904,234)	$	(861,056)


Per share data - basic and diluted
Net loss from continuing operations per share	$	(0.02)	$	(0.01)
Net loss from discontinued operations per share	$	0.00	$	0.00
Net loss attributable to common stockholders per share	$	(0.02)	$	(0.01)
Weighted average number of common shares outstanding		118,664,094		95,749,505


	For the three months ended March 31, 2023
	Preferred Stock			Common Stock			Additional		Accumulated
	Shares	Amount		Shares	Amount		Paid-in Capital		Deficit		Total
January 1, 2023	1,180	$	1,073,446	118,664,094	$	118,664	$	98,598,761	$	(93,384,382)	$	6,406,489
Share-based compensation	—		—	—		—		27,396		—		27,396
Dividends on preferred stock	—		—	—		—		—		(17,700)		(17,700)
Net loss	—		—	—		—		—		(1,886,534)		(1,886,534)
March 31, 2023	1,180	$	1,073,446	118,664,094	$	118,664	$	98,626,157	$	(95,288,616)	$	4,529,651

	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	1,180	$	1,073,446	89,551,993	$	89,550	$	92,265,392	$	(83,820,815)	$	9,607,573
Common stock issue for acquisition of Trees Waterfront LLC	—		—	1,669,537		1,670		382,324		—		383,994
Common stock issued for acquisition of Trees MLK LLC	—		—	4,970,654		4,971		1,337,105		—		1,342,076
Share-based compensation	—		—	—		—		76,117		—		76,117
Net loss	—		—	—		—		—		(861,056)		(861,056)
March 31, 2022	1,180	$	1,073,446	96,192,184	$	96,191	$	94,060,938	$	(84,681,871)	$	10,548,704


Cash	$	3,928
Inventory		1,588,454
Fixed assets		688,655
Tradename		950,000
Goodwill		3,255,679
	$	6,486,716


	Three months ended
	March 31,
	2023		2022
Total revenues	$	—	$	5,976,828
Net income (loss) attributable to Common Stockholders	$	—	$	(854,259)
Net income (loss) per common share	$	—	$	(0.01)
Weighted average number of basic and diluted common shares outstanding		—		113,727,033


Cash	$	8,594
Inventory		108,543
Fixed assets		23,500
Tradename		150,000
Goodwill		2,968,198
	$	3,258,835


	March 31,		December 31,
	2023		2022
Raw materials	$	8,883	$	8,883
Work-in-progress and finished goods		2,404,232		2,057,779
Inventories	$	2,413,115	$	2,066,662


For the three months ended March 31,	2023		2022
Straight-line operating lease expense	$	393,265	$	192,016
Variable lease cost		202,826		15,282
Total operating lease expense	$	596,091	$	207,298


Year ending December 31,	Operating leases		Finance lease
2023 (remaining nine months)	$	1,184,542	$	150,000
2024		1,617,657		205,400
2025		1,309,970		171,043
2026		846,823		136,940
2027		507,871		143,102
Thereafter		965,354		818,100
Total		6,432,217		1,624,585
Less: Present value adjustment		(2,274,659)		(875,080)
Lease liability		4,157,558		749,505
Less: Lease liability, current		(843,431)		(60,008)
Lease liability, non-current	$	3,314,127	$	689,497


			Number of
	Amount		Shares
Balance as of December 31, 2021	$	444,894		1,769,537
Stock issued		(383,994)		(1,669,537)
Balance as of December 31, 2022	$	60,900		100,000
Stock issued		—		—
Balance as of March 31, 2023	$	60,900		100,000


	March 31, 2023						December 31, 2022
	Third-party		Related-party		Total		Third-party		Related-party		Total
2022 12% Notes	$	13,167,796	$	332,204	$	13,500,000	$	13,167,796	$	332,204	$	13,500,000
2023 12% Notes		—		384,873		384,873		—		—		—
Trees Transaction Notes		—		864,977		864,977		—		1,191,865		1,191,865
Green Tree Acquisition Notes		774,750		2,725,250		3,500,000		774,750		2,725,250		3,500,000
Green Man Acquisition Notes		1,500,000		—		1,500,000		1,500,000		—		1,500,000
Unamortized debt discount		(1,399,890)		(358,287)		(1,758,177)		(1,527,346)		(361,587)		(1,888,933)
Total debt		14,042,656		3,949,017		17,991,673		13,915,200		3,887,732		17,802,932
Less: Current portion		(466,853)		(1,412,320)		(1,879,173)		(179,827)		(1,723,517)		(1,903,344)
Long-term portion	$	13,575,803	$	2,536,697	$	16,112,500	$	13,735,373	$	2,164,215	$	15,899,588


Current stock price	$	0.20
Exercise price	$	0.70
Risk-free interest rate		3.66%
Expected dividend yield		—
Expected term (in years)		5.0
Expected volatility		107%


Current stock price	$	0.53
Exercise price	$	0.56
Risk-free interest rate		0.38%
Expected dividend yield		—
Expected term (in years)		5.0
Expected volatility		115%


Current stock price	$	1.12
Exercise price	$	0.56
Risk-free interest rate		0.48%
Expected dividend yield		—
Expected term (in years)		5.0
Expected volatility		118%


Current stock price	$	0.83
Exercise price	$	0.56
Risk-free interest rate		0.81%
Expected dividend yield		—
Expected term (in years)		5.0
Expected volatility		115%


				Weighted-
		Weighted-		Average
		Average		Remaining
	Number of	Exercise Price		Contractual	Aggregate
	Shares	per Share		Term (in years)	Intrinsic Value
Outstanding as of December 31, 2022	4,936,825	$	1.08	4.4	$	22,000
Granted	—		—
Forfeited or expired	—		—
Outstanding as of March 31, 2023	4,936,825	$	1.08	4.4	$	22,000

Exercisable as of March 31, 2023	4,776,945	$	1.11	4.4	$	4,000


2023	Retail		Cultivation		Eliminations		Total
Revenues	$	5,110,619	$	684,017	$	(684,017)	$	5,110,619
Costs and expenses		(4,535,568)		(1,139,573)		684,017		(4,991,124)
Segment operating income	$	575,051	$	(455,556)	$	—		119,495
Corporate expenses								(1,920,293)
Net loss from continuing operations before income taxes							$	(1,800,798)


	Three months ended March 31,						Percent
	2023		2022		Change		Change
Revenues	$	5,110,619	$	3,573,308	$	1,537,311	43	%
Costs and expenses		(6,281,736)		(3,990,351)		(2,291,385)	57	%
Other expense		(629,681)		(449,296)		(180,385)	40	%
Net loss from continuing operations before income taxes		(1,800,798)		(866,339)		(934,459)	108	%
Loss from discontinued operations		—		5,283		(5,283)	(100)	%
Loss from operations before income taxes	$	(1,800,798)	$	(861,056)	$	(939,742)	109	%

Exhibits

31.1	Certification pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
31.2	Certification pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
32.1	Certification pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
99.1	Audited Financial Statements of TDM, LLC as of and for the years ended December 31, 2020 and 2019 (incorporated by reference to Exhibit 99.1 of our Form 8-K/A filed on August 26, 2022).
99.2	Audited Financial Statements of Trees Portland, LLC as of and for the years ended December 31, 2020 and 2019 (incorporated by reference to Exhibit 99.1 of our Form 8-K/A filed on August 26, 2022).
99.3	Audited Financial Statements of Trees Waterfront, LLC as of and for the years ended December 31, 2020 and 2019 (incorporated by reference to Exhibit 99.2 of our Form 8-K/A filed on August 26, 2022).
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)

	TREES CORPORATION

Date: May 22, 2023		/s/ Adam Hershey
		Adam Hershey, Interim Chief Executive Officer
		Principal Executive Officer

		/s/ Edward Myers
		Edward Myers, Interim Chief Financial Officer
		Principal Financial and Accounting Officer


May 22, 2023		/s/ Adam Hershey
		Adam Hershey, Interim Chief Executive Officer,
		Principal Executive Officer