TREES CORPORATION

FORM 10-Q

TABLE OF CONTENTS


PART I. FINANCIAL INFORMATION

Item 1.	Financial Statements	3
Item 2.
~~Item 1.~~	~~Financial Statements~~	3
~~Item 2.~~	Management’s Discussion and Analysis of Financial Condition and Results of Operations	1623
Item 3.	Quantitative and Qualitative Disclosures about Market Risk	2229
Item 4.	Controls and Procedures	2229

PART II. OTHER INFORMATION		2530

Item 1.	Legal Proceedings	2530
Item 1A.	Risk Factors	2530
Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	2530
Item 3.	Defaults Upon Senior Securities	2530
Item 4.	Mine Safety Disclosures	2530
Item 5.	Other Information	2530
Item 6.	Exhibits	2531
	Signatures
	~~Signatures~~	2632

2

Table of Contents

PART I. FINANCIAL INFORMATION

ITEM 1. FINANCIAL STATEMENTS

~~GENERAL CANNABIS CORP~~TREES CORPORATION

CONDENSED CONSOLIDATED BALANCE SHEETS


	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

September 30,
2017
(Unaudited)

December 31,
2016
ASSETS

Current Assets

Cash and cash equivalents
$
252,538
$
773,795
Accounts receivable, net

283,406

182,214
Note receivable – DB Arizona

–

77,202
Prepaid expenses and other current assets

173,908

76,493
Inventory

30,443

7,981
Total current assets

740,295

1,117,685

Notes receivable – DB Arizona

221,671

–
Property and equipment, net

1,706,035

1,714,803
Intangible assets, net

139,288

25,383
Total Assets
$
2,807,289
$
2,857,871

LIABILITIES & STOCKHOLDERS’ EQUITY (DEFICIT)

Current Liabilities

Accounts payable and accrued expenses
$
474,200
$
363,618
Interest payable

115,237

9,806
Deferred rental revenue and customer deposits

75,499

46,155
Accrued stock payable

330,000

–
Derivative warrant liability

5,239,000

23,120,000
Notes payable (net of discount)

1,280,932

–
Infinity Note – related party

1,370,126

–
Total current liabilities

8,884,994

23,539,579

Notes payable (net of discount)

–

815,250
Infinity Note – related party

–

1,370,126
Tenant deposits

8,854

8,854
Total Liabilities

8,893,848

25,733,809

Commitments and Contingencies

–

–

Stockholders’ Equity (Deficit)

Preferred stock, no par value; 5,000,000 share authorized; no shares issued and outstanding at September 30, 2017 and December 31, 2016

–

–
Common Stock, $0.001 par value; 100,000,000 shares authorized; 20,881,605 and 17,128,778 shares issued and outstanding on September 30, 2017 and December 31, 2016, respectively

20,883

17,129
Additional paid-in capital

38,894,416

26,333,988
Accumulated deficit

(45,001,858)

(49,227,055)
Total Stockholders’ Equity (Deficit)

(6,086,559)

(22,875,938)

Total Liabilities & Stockholders’ Equity (Deficit)
$
2,807,289
$
2,857,871

See Notes to unaudited condensed consolidated financial statements.

3

~~GENERAL CANNABIS CORP~~Table of Contents

TREES CORPORATION

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS

(Unaudited)

Three months ended
September 30,

Nine months ended
September 30,

2017

2016

2017

2016
REVENUES

Service
$
932,140
$
704,489
$
2,197,683
$
1,988,584
Rent and interest

32,902

25,565

99,251

93,398
Product Sales

14,949

80,326

235,767

122,452
Total revenues

979,991

810,380

2,532,701

2,204,434

COSTS AND EXPENSES

Cost of service revenues

752,154

564,687

1,757,241

1,547,474
Cost of goods sold

32,459

68,992

240,577

112,649
Selling, general and administrative

657,532

409,403

1,976,244

1,146,022
Share-based expense

839,322

872,217

2,995,251

1,974,191
Professional fees

126,303

95,520

454,591

276,706
Depreciation and amortization

39,885

97,988

88,788

292,329
Total costs and expenses

2,447,655

2,108,807

7,512,692

5,349,371

OPERATING LOSS

(1,467,664)

(1,298,427)

(4,979,991)

(3,144,937)

OTHER (INCOME) EXPENSE

Amortization of debt discount

284,900

111,837

1,134,432

327,455
Interest expense

81,563

5,276,550

240,380

5,381,125
Loss on extinguishment of debt

–

1,728,280

–

2,086,280
(Gain) loss on derivative warrant liability

(2,421,000)

6,032,000

(10,580,000)

6,032,000
Total other (income) expense,net

(2,054,537)

13,148,667

(9,205,188)

13,826,860

NET INCOME (LOSS)
$
586,873
$
(14,447,094)
$
4,225,197
$
(16,971,797)

PER SHARE DATA

Net income (loss) per share:

Basic
$
0.03
$
(0.93)
$
0.21
$
(1.11)
Diluted

(0.06)

(0.93)

(0.21)

(1.11)
Weighted average number of common shares outstanding:

Basic

20,654,502

15,495,421

19,883,329

15,270,968
Diluted

29,186,775

15,495,421

29,624,188

15,270,968


	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

See Notes to unaudited condensed consolidated financial statements.

4

~~GENERAL CANNABIS CORP~~Table of Contents

TREES CORPORATION

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(Unaudited)


	Three months ended March 31,
	2023		2022
Cash flows from operating activities
Net loss	$	(1,886,534)	$	(861,056)
Adjustments to reconcile net loss to net cash (used in) provided by operating activities:
Amortization of debt discount and equity issuance costs		181,677		214,281
Depreciation and amortization		292,842		231,846
Non-cash lease expense		19,421		298,484
Bad debt expense		—		(5,085)
(Gain) loss on derivative liability		(1,307)		60,664
Stock-based compensation		27,396		76,117
Changes in operating assets and liabilities, net of acquisitions
Accounts receivable		(21,468)		13,892
Prepaid expenses and other assets		(3,035)		(17,142)
Inventories		(346,453)		(59,278)
Income taxes		85,742		—
Accounts payable, accrued liabilities, and interest payable		1,148,754		370,074
Operating lease liabilities		—		(277,574)
Net cash (used in) provided by operating activities		(502,965)		45,223

Cash flows from investing activities
Purchase of property and equipment		(24,310)		(8,571)
Acquisition of Station 2 assets		(256,582)		—
Proceeds on notes receivable		—		75,000
Acquisition of Trees MLK		—		(256,582)
Net cash used in investing activities		(280,892)		(190,153)

Cash flows from financing activities
Payments on notes payable and finance lease		(339,814)		(258,057)
Net cash used in financing activities		(339,814)		(258,057)

Net decrease in cash and cash equivalents		(1,123,671)		(402,987)
Cash and cash equivalents, beginning of period		2,583,833		2,054,050
Cash and cash equivalents, end of period	$	1,460,162	$	1,651,063

Supplemental schedule of cash flow information
Cash paid for interest	$	28,425	$	1,851
Cash paid for taxes	$	6	$	—

Non-cash investing & financing activities
Non-cash debt issuance for acquisition of Station 2 assets	$	333,953	$	—
Issuance of accrued stock	$	17,700	$	383,994

Nine months ended
September 30,

2017

2016
OPERATING ACTIVITIES

Net income (loss)
$
4,225,197
$
(16,971,797)
Adjustments to reconcile net income (loss) to net cash (used in) provided by operating activities:

Amortization of debt discount

1,134,432

327,455
Loss on extinguishment of debt

–

2,086,280
Initial fair value of derivative warrant liability included as interest expense

–

5,189,000
(Gain) loss on derivative warrant liability

(10,580,000)

6,032,000
Depreciation and amortization expense

88,788

292,329
Share-based payments

2,995,251

1,974,191
Changes in operating assets and liabilities:

Accounts receivable

(101,192)

(143,141)
Prepaid expenses and other assets

(109,384)

(12,321)
Inventory

(22,462)

(11,627)
Accounts payable and accrued liabilities

245,357

174,948
Net cash used in operating activities:

(2,124,013)

(1,062,683)

INVESTING ACTIVITIES

Purchase of property and equipment

(38,925)

(11,615)
Lending on Note receivable – related party

(26,500)

–
Purchase of GC Finance Arizona LLC

(106,000)

–
Net cash used in investing activities

(171,425)

(11,615)

FINANCING ACTIVITIES

Proceeds from exercise of warrants and stock options

1,599,181

–
Proceeds from the sale of common stock – accrued stock payable

175,000

–
Borrowings under notes payable

–

2,500,000
Increase in Infinity Note – related party

–

497,500
Payments on notes payable

–

(917,307)
Net cash provided by financing activities

1,774,181

2,080,193

NET (DECREASE) INCREASE IN CASH

(521,257)

1,005,895
CASH, BEGINNING OF PERIOD

773,795

58,711
CASH, END OF PERIOD
$
252,538
$
1,064,606

SUPPLEMENTAL SCHEDULE OF CASH FLOW INFORMATION

Cash paid for interest
$
131,763
$
213,813

NON-CASH TRANSACTIONS

Portion of warrant derivative liability recorded as additional paid-in capital upon exercise of warrants
$
7,301,000
$
–
12% Note principal used to exercise 12% Warrants

668,750

–
Acquisition of MHPS – accrued stock payable

155,000

–
Issuance of common stock and warrants from accrued stock payable

–

1,069,775
Derivative warrant liability recorded as debt discount

–

2,450,000
Warrants issued in connection with debt recorded as debt discount

–

31,100
10% Notes and 14% Mortgage Note Payable converted to 12% Notes

–

550,000

See Notes to unaudited condensed consolidated financial statements.

5

Table of Contents

~~GENERAL CANNABIS CORP~~TREES CORPORATION

CONDENSED CONSOLIDATED STATEMENTS OF CHANGES

IN STOCKHOLDERS’ EQUITY


	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

See Notes to unaudited condensed consolidated financial statements.

6

Table of Contents

TREES CORPORATION

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

NOTE 1. NATURE OF OPERATIONS, HISTORY, AND PRESENTATION

Nature of Operations

~~General Cannabis Corp,~~TREES Corporation, a Colorado Corporation (the “Company,” “we,” “us,” or “our,” ~~or “GCC”~~) ~~(formerly, Advanced Cannabis Solutions, Inc.), was incorporated on June 3, 2013,~~is a cannabis retailer and ~~provides services~~cultivator in the States of Colorado and ~~products~~Oregon.

We presently operate eight (8) cannabis dispensaries as follows:

●

Englewood, Colorado

o

5005 S. Federal Boulevard – Recreational license only

●

Two (2) in Denver, Colorado

o

468 S. Federal Boulevard – Recreational license only

o

East Hampden Avenue (formerly Green Man) –Recreational license only

●

Longmont, Colorado

o

12626 N. 107^th Street (formerly Green Tree/Ancient Alternatives) – Medical and Recreational licenses

●

Berthoud, Colorado

o

1090 N. 2^nd Street (formerly Green Tree/Natural Alternatives for Life) – Medical and Recreational licenses

●

Three (3) in Oregon

o

SW Corbett Avenue, Portland, OR – Medical and Recreational licenses

o

NE 102^nd Avenue, Portland, OR – Medical and Recreational licenses

o

7050 NE MLK, Portland, OR – Medical and Recreational licenses

7

Table of Contents

We also operate five (5) cultivation facilities in Colorado as follows:

●

SevenFive Farm – 3705 N. 75^th Street, Boulder – Retail cultivation license only

●

6859 N. Foothills Highway D-300 (formerly Green Tree/Ancient Alternatives) – Medical and Retail cultivation licenses

●

6859 N. Foothills Highway C-100 (formerly Green Tree/Mountainside Industries) – Medical and Retail cultivation licenses

●

6859 N. Foothills Highway E-100 (formerly Green Tree/Hillside Enterprises) – Retail cultivation license only

●

1090 N. 2^nd Street (formerly Green Tree/Natural Alternatives for Life) – Medical cultivation license only

Our principal business model is to acquire, integrate and optimize cannabis companies in the ~~regulated cannabis industry. On April 28, 2015,~~retail and cultivation segments utilizing the combined experience of entrepreneurs and synergistic operations of our ~~common stock was uplisted and on May 6, 2015, resumed quotation on the OTC Market’s OTCQB. Our operations are segregated into the following four segments:~~vertically integrated network.

~~Security and Cash Transportation Services (“Security Segment”)~~

Iron Protection Group, or IPG, provides advanced security, including on-site professionals and cash transport, to licensed cannabis cultivators and retail shops. In August 2017, we acquired the operating assets of Mile High Protection Group, LLC, a Colorado limited liability company, which will continue to do business as “Mile High Protection Services,” or Mile High. Mile High has a diversified client roster, providing security services to hospitality companies, such as hotels, and to licensed cannabis retailers and cultivators in Colorado. We have also opened an IPG office in California.

~~Marketing Consulting and Apparel (“Marketing Segment”)~~

Chiefton Design provides design, branding and marketing strategy consulting services to the cannabis industry. We assist clients in developing a comprehensive marketing strategy, as well as designing and sourcing client-specific apparel and products. We now have the capacity of a full service marketing agency as well as the resources to expand our clothing lines. Chiefton Design also supports our other segments with marketing designs and apparel.

Chiefton’s apparel business, Chiefton Supply, strives to create innovative, unique t-shirts, hats, hoodies and accessories. Our apparel is sold through our on-line shop, cannabis retailers, and specialty t-shirt and gift shops. The apparel sold by Chiefton is purchased and screen printed by third parties, for which there are numerous suppliers.

Discontinued Operations - Operations Consulting and Products (“Operations Segment”)

Through Next Big Crop (“NBC”), we ~~deliver~~delivered comprehensive consulting services to the cannabis industry that ~~include~~included obtaining licenses, compliance, cultivation, retail operations, logistical support, facility design and construction, and expansion of existing operations. ~~Our business plan for NBC correlates to the future growth of the regulated cannabis market in the United States.~~

NBC ~~oversees~~oversaw our wholesale equipment and supply business, ~~operated~~operating under the name “GC Supply,” which ~~provides~~provided turnkey sourcing and stocking services to cultivation, retail, and infused products manufacturing facilities. Our products ~~include infrastructure,~~included building materials, equipment, consumables, and compliance packaging.

~~Finance~~ 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 ~~Real Estate (“Finance Segment”)~~

~~Real Estate Leasing~~

~~We own a cultivation property in a suburb~~10% of Pueblo, Colorado, consisting of approximately three acres of land, which currently includes a 5,000 square foot steel building and a parking lot. The property is zoned for cultivating cannabis and is leased to a medical cannabis grower until December 31, 2022.

~~Our real estate leasing business plan includes~~profits generated by the potential future acquisition and leasing of cultivation space and related facilities to licensed marijuana growers and dispensary owners for their operations. Management anticipates that these facilities would range in size from 5,000 to 50,000 square feet. These facilities would only be leased to tenants that possess the requisite state licenses to operate cultivation facilities. The leases with the tenants would include certain requirements that permit us to continually evaluate our tenants’ compliance with applicable laws and regulations.

~~Shared Office Space, Networking and Event Services~~

In October 2014, we purchased a former retail bank located at 6565 East Evans Avenue, Denver, Colorado 80224, which has been branded as “The Greenhouse”. The building is a 16,056 square foot facility, which we use as our corporate headquarters.

6

The Greenhouse has approximately 10,000 square feet of existing office space and 5,000 square feet on its ground floor that is dedicated to a consumer banking design. We continue to assess the opportunity to lease shared workspace for entrepreneurs, professionals and others serving the cannabis industry. Clients would be able to lease office, meeting, lecture, educational and networking space, and individual workstations. We expect to continue the renovation of The Greenhouse in 2017.

~~We plan to continue to acquire commercial real estate and lease office space to participants~~buyer in the ~~cannabis industry. These participants may include media, internet, packaging, lighting, cultivation supplies~~states of Michigan, Mississippi, and ~~financial services-related companies. In exchange~~Massachusetts for ~~certain services that may be provided to these tenants, we expect to receive rental income in~~a period of twelve months from the ~~form of cash. In certain cases, we may acquire equity interests or provide debt capital to these businesses.~~

~~Industry Finance~~

~~Our industry finance strategy includes evaluating opportunities to make direct term loans or to provide revolving lines of credit to businesses involved in~~closing. On August 2, 2021, the ~~cultivation and~~ sale of ~~cannabis~~NBC was completed. Pursuant to amendment, the buyer paid the additional $75,000 in March 2022, and ~~related products. These loans would generally be secured to~~ the maximum extent permitted by law. We believe there is a significant demand for this type of financing. We are assessing other finance services including customized finance, capital formation and banking, for participants in the cannabis industry.

~~DB Products Arizona, LLC~~

~~DB Products Arizona, LLC (“DB Arizona”) produces and distributes cannabis-infused elixirs and edible products in Arizona.~~

In June 2017, we purchased 100% of the ownership interests in GC Finance Arizona LLC (“GC Finance Arizona”) from Infinity Capital for $106,000 in cash. GC Finance Arizona holds a 50% ownership interest in DB Arizona, an $825,000 loan to DB Arizona, and no liabilities. We expect future positive cash flows, if any, will first go towards paying the holders of DB Arizona’s notes payable. Accordingly, we allocated the entire consideration of $106,000 to the note receivable from DB Arizona.

We have determined that DB Arizona is a variable interest entity. The other 50% owner owns the building in which DB Arizona operates, and holds the Arizona cannabis license required for DB Arizona to extract cannabis oil and sell cannabis oil-infused products. Accordingly, the other owner is the primary beneficiary, as they have the power to direct activities that most significantly impact the economic performance of DB Arizona. We will treat our 50% ownership in DB Arizona as an equity investment.

As of September 30, 2017, DB Arizona had total assets of $1,200,000, operating liabilities of $73,639, debt and accrued interest liabilities of $2,463,373, and for the nine months ended September 30, 2017, total revenues of $632,000 and a net loss of $611,000.

10% profit share described above was eliminated.

Basis of Presentation

The accompanying ~~(a)~~unaudited 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 atfor the year ended December 31, ~~2016, has been~~2022, was derived from audited financial statements and (b) condensed consolidated unaudited financial statements as of September 30, 2017 and 2016, have been prepared in accordance with generally accepted accounting principles for interim financial information and with the instructions to Form 10-Q and Article 8 of Regulation S-X. Accordingly, they dobut does not include all ~~of the information and footnotes~~disclosures required by ~~generally accepted accounting principles for complete financial statements, and~~U.S. GAAP. The information included in this quarterly report on Form 10-Q should be read in conjunction with the audited consolidated financial statements and ~~related footnotes included in our Annual Report on Form 10-K~~notes thereto of the Company for the year ended December 31, ~~2016 (the “2016 Annual Report”),~~2022, which were included in the annual report on Form 10-K filed ~~with~~by the ~~Securities and Exchange Commission (the “SEC”)~~Company on ~~March 31, 2017. It is management’s~~April 17, 2023.

In the opinion ~~however, that all material adjustments (consisting~~ of normal recurring adjustments), have been made which are necessary for a fair financial statements presentation. The condensed consolidated financial statements include all material adjustments (consisting of normal recurring accruals) necessary to make the condensed consolidated financial statements not misleading as required by Regulation S-X, Rule 10-01. Operating results for the three and nine months ended September 30, 2017, are not necessarily indicative of the results of operations expected for the year ending December 31, 2017.

The condensed consolidated financial statements include the results of GCC and its six wholly-owned subsidiary companies: (a) ACS Colorado Corp., a Colorado corporation formed in 2013; (b) Advanced Cannabis Solutions Corporation, a Colorado corporation formed in 2013; (c) 6565 E. Evans Avenue LLC, a Colorado limited liability company formed in 2014; (d) General Cannabis Capital Corporation, a Colorado corporation formed in 2015; (e) GC Security LLC (“GCS”), a Colorado limited liability company formed in 2015; and (f) GC Finance Arizona LLC (“GC Finance Arizona”), an Arizona limited liability company . Advanced Cannabis Solutions Corporation has one wholly-owned subsidiary company, ACS Corp., which was formed in Colorado on June 6, 2013. Intercompany accounts and transactions have been eliminated.

7

~~Reclassifications~~

Certain reclassifications have been made to the prior period segment reporting to conform to the current period presentation related to now including GC Supply in our Operations Segment. The reclassifications had no effect on net loss, total assets, or total stockholders’ equity (deficit).

~~Related Parties~~

~~Related parties are any entities or individuals that, through employment, ownership or other means, possess the ability to direct or cause the direction of the~~ management, and policies of the Company. We disclose related party transactions that are outside of normal compensatory agreements, such as salaries or board of director fees. We had related party transactions with the following individuals / companies:

·

~~Michael Feinsod~~ ~~– Chairman of our Board of Directors (“Board”).~~

·

~~Infinity Capital West, LLC (“Infinity Capital”)~~ ~~– An investment management company that was founded and is controlled by Michael Feinsod.~~

·

~~GC Finance Arizona~~~~– A company owned 100% by Infinity Capital prior to our purchase in June 2017.~~

·

DB Arizona– A company that borrowed $825,000 from GC Finance Arizona, which also holds a 50% ownership interest in DB Arizona. Prior to our purchase in June 2017, we did not possess the ability to influence DB Arizona and DB Arizona did not have the ability to influence us. We include DB Arizona as a related party due to our relationship with Michael Feinsod and Infinity capital, and their relationship with DB Arizona.

~~Going Concern~~

~~The~~these unaudited condensed consolidated financial statements have been prepared on ~~a going concern~~the same basis ~~which assumes we will be able to realize our assets~~as the annual consolidated financial statements and ~~discharge our liabilities in~~notes thereto of the Company and include all adjustments, consisting only of normal ~~course of business~~recurring adjustments, considered necessary for the ~~foreseeable future.~~fair presentation of the Company's financial position and operating results. The ~~ability~~results for the three months ended March 31, 2023, are not necessarily indicative of the operating results for the year ending December 31, 2023, or any other interim or future periods. Since the date of the Annual Report, there have been no material changes to ~~continue as a going concern is dependent upon~~the Company’s significant accounting policies.

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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 ~~generating profitable operations~~unaudited 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 ~~obtaining~~if different conditions occur, impairment charges may result. In particular, the ~~necessary financing to meet our obligations~~COVID-19 pandemic has adversely impacted and ~~repay our liabilities arising from normal business operations when they come due. Management believes that actions presently being taken~~is likely to further ~~implement~~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 ~~business plan~~markets and ~~generate additional~~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.

Concentrations of Credit Risk

Financial instruments that potentially subject us to significant concentrations of credit risk consisted primarily of cash, accounts receivable and revenue.

Customer and Revenue Concentrations

During the three months ended March 31, 2023, 88% of SevenFive’s revenue was with three customers. During the three months ended March 31, 2022, 45% of SevenFive’s revenue was with one customer. The customers in both 2023 and 2022 are related party dispensaries and the revenues ~~provide opportunity~~associated with these customers are eliminated in consolidation.

During the three months ended March 31, 2023, 88% of Green Tree’s revenue was with three customers. The customers in 2023 are related party dispensaries and the revenues associated with these customers are eliminated in consolidation.

Going Concern

We incurred net losses of $1,886,534 during the three months ended March 31, 2023, and $861,056 for the ~~Company to continue as a going concern. While we believe in the viability of our strategy to generate additional revenues~~three months ended March 31, 2022, and ~~our ability to raise additional funds, there can be no assurances to that effect.~~

We had an accumulated deficit of ~~$45,001,858~~$95,288,616 as of March 31, 2023. We had cash and ~~$49,227,055, respectively, at September 30, 2017~~cash equivalents of $1,460,162 and $2,583,833 as of March 31, 2023, and December 31, ~~2016,~~2022, respectively.

The accompanying unaudited condensed consolidated financial statements have been prepared on the basis of continuity of operations, realization of assets, and ~~further losses are anticipated~~the satisfaction of liabilities and commitments in the ~~development~~ordinary course of business. We have incurred recurring losses and negative cash flows from operations since inception and have primarily funded our ~~business. Accordingly,~~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. As a result, we have concluded that there is substantial doubt about our ability to continue as a going concern. ~~The accompanying~~Our unaudited condensed consolidated financial statements do not include any adjustments that might ~~be necessary if we are unable~~result from the outcome of this uncertainty.

Our ability to continue as a going ~~concern.~~concern is dependent upon our ability to raise additional capital to fund operations, support our planned investing activities, and repay our debt obligations as they become due. If we are unable to obtain additional funding, we would be forced to delay, reduce, or eliminate some or all of our acquisition efforts, which could adversely affect our growth plans.

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Summary of Significant Accounting Policies

See our Annual Report on Form 10-K for the year ended December 31, 2022, 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 ~~or FASB,~~(“FASB”) issued guidance which simplifies accounting for convertible instruments by removing major separation models required under current GAAP. Accounting Standards ~~Update, or FASB~~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 ~~2017-11 “Earnings Per Share (Topic 260), Distinguishing Liabilities from Equity (Topic 480) and Derivatives and Heding (Topic 815)”~~ – In July 2017, the FASB issued 2017-11. The guidance eliminates the requirement to consider “down round” features when determining whether certain equity-linked financial instruments or embedded features are indexed to an entity’s own stock. Our 12% Warrants are treated as derivative instruments, because they include a “down round” feature, whereby if we issue equity-based instruments at a price below the exercise price of the 12% Warrants, the exercise price of the 12% Warrants would be adjusted. The ASU is effective for annual and interim periods beginning after December 15, ~~2018, and for interim periods within those years, with~~2023, although early adoption permitted. Early adoption of this guidance could have a significant impact on our financial statements, as it would effectively eliminate the derivative liability and the gain or loss from changes in the fair value of the derivative. We are currently assessing whether to early adopt this standard.

~~FASB ASU 2017-09 “Scope of Modification Accounting (Topic 718)”~~ – In May 2017, the FASB issued 2017-09. The guidance clarifies the accounting for when the terms of a share-based award are modified. The ASU is effective for annual reporting periods beginning after December 15, 2017, and for interim periods within those years, with early adoption permitted. This new guidance would only impact our financial statements if, in the future, we modified the terms of any of our share-based awards.

~~FASB ASU 2017-04 “Simplifying the Test for Goodwill Impairment (Topic 350)”~~ – In January 2017, the FASB issued 2017-04. The guidance removes “Step Two” of the goodwill impairment test, which required a hypothetical purchase price allocation. A goodwill impairment will now be the amount by which a reporting unit’s carrying value exceeds its fair value, not to exceed the carrying amount of goodwill. The ASU is effective for annual reporting periods beginning after December 15, 2019, and for interim periods within those years, with early adoption permitted. We do not expect this ASU to have a significant impact on our consolidated financial statements and related disclosures.

8

~~FASB ASU 2017-01 “Clarifying the Definition of a Business (Topic 805)”~~ – In January 2017, the FASB issued 2017-01. The new guidance that changes the definition of a business to assist entities with evaluating when a set of transferred assets and activities is a business. The guidance requires an entity to evaluate if substantially all of the fair value of the gross assets acquired is concentrated in a single identifiable asset or a group of similar identifiable assets; if so, the set of transferred assets and activities is not a business. The guidance also requires a business to include at least one substantive process and narrows the definition of outputs by more closely aligning it with how outputs are described in ASC 606. The ASU is effective for annual reporting periods beginning after December 15, 2017, and for interim periods within those years. Adoption of this ASU is not expected to have a significant impact on our consolidated results of operations, cash flows and financial position.

~~FASB ASU 2016-15 “Statement of Cash Flows (Topic 230)” –~~In August 2016, the FASB issued 2016-15. Stakeholders indicated that there is a diversity in practice in how certain cash receipts and cash payments are presented and classified in the statement of cash flows. ASU 2016-15 addresses eight specific cash flow issues with the objective of reducing the existing diversity in practice. This ASU is effective for annual reporting periods beginning after December 15, 2017, and interim periods within those fiscal years. Early adoption is permitted. ~~Adoption of~~We adopted this ASU ~~will not have a significant impact on our statement~~in the first quarter of ~~cash flows.~~

~~FASB ASU 2016-12 “Revenue from Contracts with Customers (Topic 606)”~~ – In May 2016, the FASB issued 2016-12. The core principle of the guidance is that an entity should recognize revenue to depict the transfer of promised goods or services to customers in an amount that reflects the consideration to which the entity expects to be entitled in exchange for those goods or services. ASU 2016-12 provides clarification on assessing collectability, presentation of sales taxes, noncash consideration, and completed contracts and contract modifications. This ASU is effective for annual reporting periods beginning after December 15, 2017, with the option to adopt as early as December 15, 2016. We are currently assessing the impact of adoption of this ASU on our consolidated results of operations, cash flows and financial position.

~~FASB ASU 2016-11 “Revenue Recognition (Topic 605) and Derivatives and Hedging (Topic 815)”~~ – In May 2016, the FASB issued 2016-11, which clarifies guidance on assessing whether an entity is a principal or an agent in a revenue transaction. This conclusion impacts whether an entity reports revenue on a gross or net basis. This ASU is effective for annual reporting periods beginning after December 15, 2017, with the option to adopt as early as December 15, 2016. We are currently assessing the impact of adoption of this ASU on our consolidated results of operations, cash flows and financial position.

~~FASB ASU 2016-10 “Revenue from Contracts with Customers (Topic 606)”~~ ~~– In April 2016, the FASB issued ASU 2016-10, to clarify identifying performance obligations~~2022, and the licensing implementation guidance, while retaining the related principles for those areas. This ASU is effective for annual reporting periods beginning after December 15, 2017, with the option to adopt as early as December 15, 2016. We are currently assessing the impact of adoption ~~of this ASU on our consolidated results of operations, cash flows and financial position.~~

~~FASB ASU 2016-09 “Compensation – Stock Compensation (Topic 718)”~~ – In March 2016, the FASB issued ASU 2016-09, which includes multiple provisions intended to simplify various aspects of accounting for share-based payments. The new guidance will require entities to recognize all income tax effects of awards in the income statement when the awards vest or are settled. It also will allow entities to make a policy election to account for forfeitures as they occur. This ASU is effective for fiscal years beginning after December 15, 2016, including interim periods within those fiscal years. Adopting this ASU did not have a ~~significant impact on our consolidated financial statements and related disclosures.~~

~~FASB ASU 2016-02 “Leases (Topic 842)” –~~In February 2016, the FASB issued ASU 2016-02, which will require lessees to recognize almost all leases on their balance sheet as a right-of-use asset and a lease liability. For income statement purposes, the FASB retained a dual model, requiring leases to be classified as either operating or finance. Classification will be based on criteria that are largely similar to those applied in current lease accounting, but without explicit bright lines. Lessor accounting is similar to the current model, but updated to align with certain changes to the lessee model and the new revenue recognition standard. This ASU is effective for fiscal years beginning after December 18, 2018, including interim periods within those fiscal years. We are currently evaluating the potential impact this standard will have on our consolidated financial statements and related disclosures.

~~FASB ASU 2015-17”Income Taxes (Topic 740)” –~~In November 2015, the FASB issued ASU 2015-17, which simplifies the presentation of deferred tax assets and liabilities on the balance sheet. Previous GAAP required an entity to separate deferred income tax liabilities and assets into current and noncurrent amounts on the balance sheet. The amendment requires that deferred tax liabilities and assets be classified as noncurrent in a classified balance sheet. This ASU is effective for annual periods beginning after December 15, 2017, and interim periods within annual periods beginning after December 15, 2018. We are currently evaluating the potential impact this standard will have on our consolidated financial statements and related disclosures.

~~FASB ASU 2015-16 “Business Combinations (Topic 805),” or ASU 2015-16~~ - In September 2015, the FASB issued ASU 2015-16, which requires that an acquirer recognize adjustments to provisional amounts that are identified during the measurement period in the reporting period in which the adjustment amounts are determined. This ASU is effective for interim and annual reporting period beginning after December 15, 2016, including interim periods within those fiscal years, with the option to early adopt for financial statements that have not been issued. We will apply this guidance to any business combinations that may occur.

9

~~FASB ASU 2015-11 “Inventory (Topic 330): Simplifying the Measurement of Inventory,” or ASU 2015-11~~ - In July 2015, the FASB issued ASU 2015-11, which requires an entity to measure in scope inventory at the lower of cost and net realizable value. Net realizable value is the estimated selling prices in the ordinary course of business, less reasonably predictable costs of completion, disposal, and transportation. The amendments apply to inventory that is measured using first-in, first-out (FIFO) or average cost. This ASU is effective for interim and annual reporting periods beginning after December 15, 2016, with the option to early adopt as of the beginning of an annual or interim period. Adopting this ASU did not have a significant impactmaterial effect on our financial ~~position, results of operations and cash flows.~~statements.

NOTE 2. BUSINESS ACQUISITION

On ~~August 18, 2017,~~December 12, 2022, we ~~entered into an Asset Purchase Agreement (the “Mile High APA”) with Mile High Protection Services~~completed the Green Tree Acquisition which consisted of the acquisition of substantially all of the assets of Ancient Alternatives LLC, Natural Alternatives For Life, LLC, Mountainside Industries, LLC, Hillside Enterprises, LLC, and GT Creations, LLC, each a Colorado limited liability company (collectively, the "Green Tree Entities”). We assumed certain operating obligations at closing, including certain manufacturing agreements between GT Creations and ~~its sole member (together “Seller”) whereby we acquired the tradename, workforce, customer contracts, and other intangible assets~~affiliates of the ~~business. Pursuant~~Green Tree Entities. Allyson Feiler, a principal owner of the Green Tree Entities, was also elected to our Board of Directors effective the ~~Mile High APA, we agreed to deliver to Seller 224,359 restricted~~date of acquisition.

We paid cash in the amount of $500,000 and stock consideration of 17,977,528 shares of our ~~common stock.~~Common Stock. The ~~shares vest over~~closing price of our Common Stock on December 12, 2022, the date of license transfer, was $0.165 per share, as such, fair value of the equity consideration is $2,966,292. An additional $3,500,000 in cash will be paid to the sellers in fifteen (15) equal monthly payments commencing on the 9-month anniversary of the closing. Based on a ~~six month period. The Mile High APA contains certain provisions that require Seller to forfeit a portion~~discount rate of ~~such shares~~12%, the fair value of these additional monthly payments is approximately $3,017,510. This liability is included in Notes payable- current and Notes payable- non-current in the ~~event that Seller does not meet~~accompanying consolidated balance sheets.

The table below reflects the ~~obligations under the Mile High APA. In accordance with the terms~~Company’s preliminary estimates of the ~~Mile High APA,~~acquisition date fair values of the ~~number of shares to be delivered was reduced by 120,000, thus 104,359 shares of our common stock are due upon vesting. Seller also agreed to a three year non-compete agreement.~~assets acquired.


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

The 104,359 shares of restricted common stock were valued based on the closing price per share of our common stock on August 18, 2017, or $1.75 per share, reduced by a discount of 15% due to the vesting period and the restrictions on the Seller’s ability to immediately sell such shares. The $155,000 value of stock consideration was recorded as accrued stock payable on the September 30, 2017, condensed consolidated balance sheet, which will be reduced when the vesting requirements for the shares are met and we issue the common stock. We have not completed the allocation of the purchase ~~price. In~~price for the ~~September 30, 2017, condensed~~Green Tree Acquisition. As of March 31, 2023, the consolidated balance sheet ~~we have preliminarily recorded an~~includes a preliminary allocation of fixed assets, inventory, intangible ~~asset for Mile High of $155,000.~~assets, and goodwill. Management anticipates completing the purchase price allocation as soon as possible, but no later than one year from the acquisition date.

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The accompanying consolidated financial statements include the results of the Green Tree Entities from the date of acquisition for financial reporting purposes, December 12, 2022. The pro forma effects of the acquisition on the results of operations as if the transaction had been completed on January 1, 2022, are as follows:

~~NOTE 3.~~~~NOTES RECEIVABLE – DB ARIZONA~~


	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

~~Our notes receivable – DB Arizona include accrued interest~~The unaudited pro-forma results of ~~$14,171 and $2,202, respectively,~~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 ~~September 30, 2017~~January 1, 2022, or to project potential operating results as of any future date or for any future periods.

On December 19, 2022, we completed the Green Man Acquisition, consisting of the acquisition of substantially all of the assets of Green Man. We paid cash in the amount of $1,225,000 and stock consideration of 4,494,382 shares of Common Stock. The closing price of our Common Stock on December ~~31, 2016. The loans bear interest at 14%, with principal and interest due on May 30, 2017. The face~~19, 2022, the date of license transfer, was $0.18 per share, as such, fair value of the ~~notes includes $101,500 that we loaned directly~~equity consideration is $808,989. An additional $1,500,000 in cash will be paid to ~~DB Arizona and $825,000 that we acquired when we purchased GC Finance Arizona~~the sellers in ~~June 2017 for $106,000. At~~eighteen (18) equal monthly payments commencing on the ~~time~~12-month anniversary of the ~~purchase, we estimated~~closing. Based on a discount rate of 12%, the fair value of these additional monthly payments is approximately $1,224,846. This liability is included in Notes payable-current and Notes payable-non-current in the ~~$825,000 note,~~accompanying consolidated balance sheets.

The table below reflects the Company’s preliminary estimates of the acquisition date fair values of the assets acquired:


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

We have not completed the allocation of the purchase price for the Green Man Acquisition. As of March 31, 2023, the consolidated balance sheet includes 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 date.

The accompanying consolidated financial statements include the results of Green Man from the date of acquisition for financial reporting purposes, December 19, 2022. The pro forma effects of the acquisition on the results of operations as if the transaction had been completed on January 1, 2022, are as follows:


	Three months ended
	March 31,
	2023		2022
Total revenues	$	—	$	5,010,218
Net income (loss) attributable to Common Stockholders	$	—	$	(950,487)
Net income (loss) per common share	$	—	$	(0.01)
Weighted average number of basic and diluted common shares outstanding		—		100,243,887

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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, 2022, or to project potential operating results as of any future date or for any future periods.

NOTE 3. ASSET ACQUISITION

In February 2023, we completed the acquisition of the assets of Station 2, LLC. The assets consist of a medical and retail cannabis license for a dispensary located in Denver, CO. We also assumed responsibility of the operating lease for the dispensary and recorded the relating ROU asset which is ~~subordinate~~disclosed separately on the accompanying consolidated balance sheets. The consideration paid by the Company consists of cash at closing equal to $256,582 plus an additional $385,873 in twenty-four (24) equal monthly payments commencing May 2023. As the ~~$101,500 note,~~dispensary was not in operation and there was no assembled workforce at the time of acquisition, the acquisition was accounted for as an asset acquisition of a license. As of March 31, 2023, the balance of the license was $580,694, which is recorded within Intangible assets, net in our condensed consolidated balance sheets.

NOTE 4. DISCONTINUED OPERATIONS

On July 16, 2021, we entered into an Asset Purchase Agreement with an individual to ~~be $106,000.~~

~~DB Arizona is financed with significant debt~~sell substantially all of the assets of NBC for a total of $150,000 and ~~has yet~~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. Pursuant to ~~generate positive cash flows from operations. We have classified~~amendment, the ~~notes as long-term, because DB Arizona does not currently have sufficient resources to satisfy their obligation to us~~buyer paid the additional $75,000 in March 2022, and the ~~notes~~10% profit share described above was eliminated.

A summary of the discontinued operations for the Operations Segment is presented as follows:


	Three months ended
	March 31,
	2023		2022
Product revenues	$	—	$	3,438
Service revenues		—		—
Total revenues		—		3,438

Cost of sales		—		—
Selling, general and administrative		—		(1,845)
Professional fees		—		—
Depreciation and amortization		—		—
Total costs and expenses		—		(1,845)
Income from discontinued operations	$	—	$	5,283

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NOTE 5. INVENTORIES, NET

Our inventories consisted of the following:


	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

NOTE 6. LEASES

The Company’s leases consist primarily of real estate leases for retail, cultivation, and manufacturing facilities.

All but one of the Company’s leases are classified as operating leases. The lease for the retail dispensary acquired in ~~default. These conditions do~~the Green Man Transaction is classified as a finance lease. The current and non-current portions of the operating lease liabilities and finance lease liabilities are disclosed separately on the accompanying consolidated balance sheets. The finance lease ROU asset is included in property and equipment, net and the operating lease ROU asset is disclosed separately on the accompanying consolidated balance sheets. As the rate implicit in the Company’s leases is not ~~meet~~readily determinable, we used an estimated incremental borrowing rate of 20% in determining the ~~level~~present value of probable loss required to reduce the carrying value. In the future, however, they may be unable to generate sufficient cash flows from operations or to restructure their capital. Accordingly, there is a reasonable possibility that we may be unable to recover all or a portion of our notes receivable from DB Arizona.lease payments.

~~NOTE 4. LONG-LIVED ASSETS~~

~~Property and Equipment~~

~~Depreciation~~The operating lease expense ~~was $15,997 and $11,944, respectively,~~ for the three months ended ~~September 30, 2017~~March 31, 2023, and ~~2016, and $47,693 and $36,070, respectively, for the nine months ended September 30, 2017 and 2016. We have not recognized any impairment~~March 31, 2022, is as ~~of September 30, 2017.~~follows:


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

~~Intangible Assets~~

Intangible assets of $139,288 as of September 30, 2017, consisted of the preliminary purchase price allocation for Mile High of $155,000, net of accumulated amortization of $15,712, based on a preliminary estimated useful life of two years. The ~~intangible asset for Chiefton brand and graphic designs, with a gross value of $69,400, was fully amortized as of September 30, 2017.~~

~~Amortization~~finance lease expense ~~was $23,888 and $86,044, respectively,~~ for the three months ended ~~September 30, 2017~~March 31, 2023, and ~~2016,~~March 31, 2022, was approximately $50,000 and ~~$41,095~~nil, respectively.

Related party leases

As of March 31, 2023, three of the Company’s operating leases, one retail dispensary lease, one cultivation facility lease, and ~~$256,259, respectively,~~one lease that includes both cultivation and retail, are related party leases as the landlords are current, and former, board members, principal shareholders, or employees. During the three months ended Mach 31, 2022, the related party operating leases consisted of one dispensary and one cultivation facility. The retail dispensary lease was with a related party through May 2022, when the building was sold to an unaffiliated third-party. As of March 31, 2023, the ROU asset, operating lease liability, current, and operating lease liability, non-current for the ~~nine months~~related party leases were $1,002,335, $529,299, and $539,267, respectively. For the periods ended ~~September 30, 2017~~March 31, 2023 and ~~2016.~~

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~~NOTE 5. DEBT~~

~~Infinity Note – Related Party~~

~~In February 2015, we issued a senior secured note to Infinity Capital, as amended in April 2015, bearing interest at 5% payable monthly in arrears commencing June 30, 2015, until~~2022, the maturity date of August 31, 2015 (the “Infinity Note”). On December 31, 2016, the Infinity Note was amended to aggregate principal and interest, and extend the due date of principal and interest to September 21, 2018. No additional advances may be made after December 31, 2016. The Infinity Note is collateralized by a security interest in substantially all of our assets. Interesttotal lease expense for related party leases was $127,790 and $147,937, respectively.

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Lease Maturities

Future remaining minimum lease payments were as follows:


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

The total remaining lease payments in the ~~Infinity Note for the nine months ended September 30, 2017 and 2016, was $51,239 and $26,540, respectively, and $51,239 was accrued as~~table above include $2,995,100 related to renewal option periods that management is reasonably certain will be exercised. The majority of ~~September 30, 2017. The Infinity Note is subordinate~~this amount relates to the ~~12% Notes.~~flagship Trees location in Englewood, Colorado and the retail and certain cultivation facilities that were acquired in the Green Tree Acquisition and are eligible for renewal in 2023.

~~Notes Payable~~

September 30,
2017

December 31,
2016
12% Notes
$
2,081,250
$
2,750,000
Unamortized debt discount

(800,318)

(1,934,750)
Long-term portion
$
1,280,932
$
815,250

~~12% Notes~~

In September 2016, we completed a $3,000,000 private placement pursuant to a promissory note and warrant purchase agreement (the “12% Agreement”) with certain accredited investors, bearing interest at 12%, with principal due September 21, 2018, and interest payable quarterly (each such note, a “12% Note,” and collectively,As of March 31, 2023, the “12% Notes”). In the event of default, the interest rate increases to 18%. The 12% Notes are collateralized by a security interest in substantially all of our assets. We may prepay the 12% Notes at any time, but in any event must pay at least one year of interest.

~~Subject to the terms and conditions~~weighted average remaining term of the ~~12% Agreement, each investor was granted fully-vested warrants equal to their note principal times three (the “12% Warrants”), or nine million warrants, with a life of three years.~~Company’s operating leases is 4.5 ~~million warrants have an exercise price of $0.35 per share~~years, and the ~~other 4.5 million warrants have an exercise price of $0.70 per share. Should we issue any equity-based instruments at a price lower than~~remaining term on the ~~exercise price(s)~~finance lease is 9.75 years.

None of the 12% Warrants, other than under our Incentive Plan, the exercise price(s) of the 12% Warrants will be adjusted to the lower price. The 12% Warrants may be exercised at the option of the holder (a) by payingCompany’s leases contain residual value guarantees or restrictive covenants.

Supplemental cash (b) by applying the amount due under the 12% Notes as consideration, or (c) if there is no effective registration statement for the 12% Warrants within six months of being granted, the holder may exercise on a cashless basis. The registration statement related to the 12% Warrants was declared effective on December 23, 2016. If our common stock closes above $5.00 for ten consecutive days, we may call the warrants, giving the warrant holders 30 days to exercise. Since the 12% Warrants include a clause requiring repricing, the warrants are considered to be a derivative that is recorded as a liability at fair value.flow information


For the three months ended March 31,	2023		2022
Supplemental cash flow information
Cash paid for amounts included in operating lease liability	$	373,840	$	170,276
Cash paid for amounts included in finance lease liability	$	50,000	$	—
Supplemental lease disclosures of non-cash transactions:
ROU assets obtained in exchange for operating lease liabilities	$	348,825	$	172,053

We received $2,450,000 of cash for issuing the 12% Notes. $300,000 of 10% Notes and $250,000 of the 14% Greenhouse Mortgage were converted into 12% Notes. We concluded that these conversions met the criteria for a debt extinguishment and, accordingly, recorded a loss on extinguishment of $1,728,280 during the year ended December 31, 2016. The loss on extinguishment represents the fair value of the 12% Warrants issued to the previous 10% Note holders and the 14% Greenhouse Mortgage lender. The initial fair value of the 12% Warrants not associated with the conversions was recorded as a debt discount of $2,450,000 and interest expense of $5,189,000. The 12% Notes are otherwise treated as conventional debt.

~~The Infinity Note and the 12% Notes, totaling $3,451,376, are due and payable on September 21, 2018.~~

NOTE 6. 7. ACCRUED STOCK PAYABLE

The following tables summarize the changes in accrued common stock payable:


			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

In December 2021, we completed the acquisition of Trees Waterfront. As part of the transaction, we granted 1,669,537 shares of our common stock. The stock was issued on January 6, 2022.

14

Table of Contents

The outstanding balance of accrued stock payable ~~during~~as of March 31, 2023 relates to a February 18, 2020 grant of 100,000 fully vested shares for consulting services. Based on a stock price of $0.61 on the ~~nine~~date of grant, the consultant will receive $60,900 worth of our Common Stock. As of March 31, 2023, none of the stock has been issued.

NOTE 8. NOTES PAYABLE

Our notes payable consisted of the following:


	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

Trees Transaction Notes

In January 2022, with the completion of the Trees MLK acquisition, we are obligated to pay the Seller cash equal to $384,873 in equal month installments over a period of 24 months. The payments began on June 15, 2022 and the payment is equal to $16,036 per month.

In December 2022, with the completion of the Green Tree Acquisition, we are obligated to pay the Seller cash equal to $3,500,000 in equal month installments over a period of 15 months. The payments begin in September 2023, and the payment is equal to $233,333 per month. The relative fair value of this obligation resulted in a debt discount of $512,367. We recorded amortization of debt discount expense from this obligation of $61,016 and nil for the three months ended ~~September 30, 2017:~~March 31, 2023 and March 31, 2022, respectively.

Amount

Number of Shares
December 31, 2016
$
–
$
–
Acquisition of Mile High

155,000

104,359
Sale of common stock and warrants

175,000

175,000
September 30, 2017
$
330,000
$
279,359

~~The Mile High shares are issuable on February 27, 2018, if~~In December 2022, with the ~~terms~~completion of the ~~Mile High APA~~Green Man Acquisition, we are ~~met.~~obligated to pay the Seller cash equal to $1,500,000 in equal month installments over a period of 18 months. The payments begin in December 2023 and the payment is equal to $83,333 per month. The relative fair value of this obligation resulted in a debt discount of $275,154. We recorded amortization of debt discount expense from this obligation of $37,250 and nil for the three months ended March 31, 2023 and March 31, 2022, respectively.

11

~~The 175,000 shares were issued in October 2017. See Note 11 – Subsequent Events.~~

~~NOTE 7. DERIVATIVE WARRANT LIABILITY~~

12% Notes

On September ~~21, 2016,~~15, 2022, we entered into a Securities Purchase Agreement with certain accredited investors (the “12% Investors”), pursuant to which we agreed to issue and sell senior secured convertible notes (the “12% Notes”) with an aggregate principal amount of $13,500,000 to such 12% Investors, in exchange for payment by certain 12% Investors of an aggregate amount of $10,587,250 in cash, as well as cancellation of outstanding indebtedness in the aggregate amount of $2,912,750 represented by the 10% Notes discussed below.

15

Table of Contents

In connection with the 12% Notes, ~~we issued~~the 12% Investors received warrants (the “12% Warrants”) to purchase shares of our common stock equal to 20% coverage of the aggregate principal amount with an exercise price of $0.70 per share, which equals an aggregate of warrants to purchase 3,857,150 shares of Common Stock. The lead 12% Investor received an additional 10% warrant coverage on the aggregate principal amount of 12% Notes for total additional warrants to purchase 1,928,571 shares of Common Stock. The lead 12% Investor also will receive a five percent fee on the aggregate principal amount of the 12% Notes. This total fee in the amount of $675,000 was recorded as a debt discount and will be amortized over the life of the loan. The 12% Notes bear interest at an annual rate of 12% and will mature on September 16, 2026. The 12% Investors have the option to convert up to 50% of the outstanding unpaid principal and accrued interest of the 12% Notes into Common Stock at a fixed conversion price equal to $1.00 per share.

The relative fair value of the new funding on the 12% Warrants ~~which~~was recorded as a debt discount and additional paid-in capital of $569,223. The relative fair value of the cancellation of the outstanding indebtedness was recorded as an extinguishment of debt and additional paid-in capital of $103,577. We recorded amortization of debt discount expense from the 12% Notes of $76,699 and nil for the three months ended March 31, 2023 and 2022, respectively. We determined there was no beneficial conversion feature on the 12% Notes issued. The 12% Notes are treated as ~~a derivative liability and adjusted to fair value at~~conventional debt.

For purposes of determining the ~~end of each period. The~~debt discount, the underlying assumptions used in the ~~binomial~~Black-Scholes model to determine the fair value of the ~~derivative warrant liability~~12% Warrants as of September 15, 2022, were:


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%

Three months ended

September 30, 2017
June 30,
2017
March 31,
2017
Stock price on valuation date
$1.43
$1.37 – 2.20
$2.21 – 3.25
Risk-free interest rate
1.5%
1.3 – 1.4%
1.3 – 1.5%
Expected dividend yield
–
–
–
Expected term (in years)
2.0
2.2 – 2.5
2.5 – 2.7
Expected volatility
128%
131 – 134%
146 – 153%
Number of iterations
5
5
5

~~Changes~~In connection with the acquisition of Station 2, LLC in February 2023, we agreed to issue and sell an additional 12% Note with an aggregate principal amount of $385,873, payable in twenty-four equal monthly payments commencing in May 2023. The relative fair value of this 12% Note resulted in a debt discount of $50,918. We recorded amortization of debt discount expense from this Note of $6,712 for the three months ended March 31, 2023. This 12% Note is treated as conventional debt.

10% Notes

In December 2020, we entered into a Securities Purchase Agreement (the “Securities Purchase Agreement’) with certain accredited investors (the “10% Investors”), pursuant to which we issued and sold senior convertible promissory notes (the “10% Notes”) with an aggregate principal amount of $2,940,000 in exchange for payment to us by certain 10% Investors of an aggregate amount of $1,940,000 in cash, as well as cancellation of outstanding indebtedness of previously issued 15% notes in the ~~derivative warrant liability were as follows:~~

December 31, 2016
$
23,120,000
Decrease in fair value

(10,580,000)
Reclassification to additional paid-in capital upon exercise of warrants

(7,301,000)
September 30, 2017
$
5,239,000

~~NOTE 8. COMMITMENTS AND CONTINGENCIES~~

~~Legal~~

Toaggregate amount of $1,000,000. In connection with the ~~best~~issuance of the 10% Notes, the holders of the 10% Notes received warrants (the “10% Warrants”) to purchase shares of our ~~knowledge~~common stock equal to 20% coverage of the aggregate principal amount at $0.56 per share. In the aggregate, this equals 1,050,011 shares of our common stock. The 10% Notes bear interest at an annual rate of 10% and ~~belief,~~will mature on December 23, 2023. The 10% Investors have the option at any time to convert up to 50% of the outstanding unpaid principal and accrued interest of the 10% Notes into Common Stock at a variable price of 80% of the market price but no ~~material legal proceedings~~less than $0.65 per share and no more than $1.00 per share. The 10% Warrants are exercisable at an exercise price of ~~merit~~$0.56 per warrant.

The relative fair value of the new funding on the 10% Warrants was recorded as a debt discount and additional paid-in capital of $254,400. The relative fair value of the cancellation of the outstanding indebtedness was recorded as an extinguishment of debt and additional paid-in capital of $131,000. We recorded amortization of debt discount expense from the 10% Notes of nil and $21,393 for the three months ended March 31, 2023 and 2022. We determined there was no beneficial conversion feature on the 10% Notes issued in December 2020. The 10% Notes are ~~currently pending or threatened.~~treated as conventional debt.

16

Table of Contents

For purposes of determining the debt discount, the underlying assumptions used in the Black-Scholes model to determine the fair value of the 10% Warrants as of December 23, 2020, were:


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%

On February 8, 2021, we entered into a Securities Purchase Agreement with an accredited 10% Investor, pursuant to which we issued and sold 10% Notes with an aggregate principal amount of $1,660,000 to such 10% Investor. The 10% Notes are part of an over-allotment option exercised by us in connection with the convertible note offering consummated on December 23, 2020, as discussed above. In connection with the issuance of the 10% Notes, the holder received warrants to purchase shares of our common stock equal to 20% coverage of the aggregate principal amount at $0.56 per share. In the aggregate, this equals 592,858 shares of our common stock with a par value $0.001 per share. The 10% Notes bear interest at an annual rate of 10% and will mature on February 8, 2024. The 10% Investor has the option to convert up to 50% of the outstanding unpaid principal and accrued interest of the 10% Notes into Common Stock at a variable price of 80% of the market price but no less than $0.65 per share and no more than $1.00 per share. The 10% Warrants are exercisable at an exercise price of $0.56 per warrant.

The relative fair value of the new funding on the 10% Warrants was recorded as a debt discount and additional paid-in capital of $429,300. We determined that this 10% Note had a beneficial conversion feature and is calculated at its intrinsic value (that is, the difference between the effective conversion price of $0.66 at the date of the note issuance and the fair value of the common stock into which the debt is convertible at the commitment date, per share being $0.90, multiplied by the number of shares into which the debt is convertible). The valuation of the beneficial conversion feature recorded cannot be greater than the face value of the note issued. We recorded $417,539 as additional paid in capital and a debt discount and included in our consolidated statement of operations. We recorded amortization of debt discount expense from the February 2021 10% Notes of nil and $69,603 for the three months ended March 31, 2023 and 2022, respectively. The 10% Notes are treated as conventional debt.

For purposes of determining the debt discount, the underlying assumptions used in the Black-Scholes model to determine the fair value of the 10% Warrants as of February 8, 2021, were:


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%

On April 20, 2021, we entered into a Securities Purchase Agreement with accredited 10% Investors, pursuant to which we issued and sold 10% Notes with an aggregate principal amount of $2,300,000 to such 10% Investors. The 10% Notes are part of an over-allotment approved by the existing noteholders in connection with the original convertible note offering of $4,600,000 consummated on December 23, 2020, and February 8, 2021. In connection with the issuance of the 10% Notes, each holder received warrants to purchase shares of our common stock equal to 20% coverage of the aggregate principal amount at $0.56 per share, except that the warrants coverage to one Investor acting as lead investor in the raise received approximately 35.5% of the aggregate principal amount invested. The 10% Notes bear interest at an annual rate of 10% and will mature on April 20, 2024. The 10% Investors have the option to convert up to 50% of the outstanding unpaid principal and accrued interest of the 10% Notes into Common Stock at a variable price of 80% of the market price but no less than $0.65 per share and no more than $1.00 per share. The 10% Warrants are exercisable at an exercise price of $0.56 per warrant.

17

Table of Contents

The relative fair value of the new funding on the 10% Warrants was recorded as a debt discount and additional paid-in capital of $810,000. We determined that these 10% Notes had a beneficial conversion feature and is calculated at its intrinsic value (that is, the difference between the effective conversion price of $0.49 at the date of the note issuance and the fair value of the common stock into which the debt is convertible at the commitment date, per share being $0.83, multiplied by the number of shares into which the debt is convertible). The valuation of the beneficial conversion feature recorded cannot be greater than the face value of the note issued. We recorded $692,500 as additional paid in capital and a debt discount and included in our consolidated statement of operations. We recorded amortization of debt discount expense from the April 2021 10% Notes of nil and $123,285 for the three months ended March 31, 2023 and 2022. The 10% Notes are treated as conventional debt.

For purposes of determining the debt discount, the underlying assumptions used in the Black-Scholes model to determine the fair value of the 10% Warrants as of April 20, 2021, were:


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%

In September 2022, $2,912,750 of the 10% Notes were exchanged for the 12% Notes (see above) and the remaining $3,987,250 was paid in full. Of the remaining debt discount, $207,045 was expensed to extinguishment of debt and $1,125,844 was expensed to amortization of debt discount.

NOTE 9. ~~STOCKHOLDERS’ EQUITY~~

~~Share-based expense consisted of the following:~~

Three months ended
September 30,

Nine months ended
September 30,

2017

2016

2017

2016
Employee Awards
$
839,322
$
740,844
$
2,969,811
$
1,574,906
Consulting Awards

–

103,869

25,440

151,385
Feinsod Agreement

–

27,504

–

192,800
DB Option Agreement

–

–

–

55,100

$
839,322
$
872,217
$
2,995,251
$
1,974,191

~~Employee Stock Options~~

WARRANT DERIVATIVE LIABILITY

On ~~October 29, 2014, the Board authorized the adoption~~May 31, 2019, we received gross proceeds of ~~and on June 26, 2015, our stockholders ratified, our 2014 Equity Incentive Plan (the “Incentive Plan”). The Incentive Plan provides for the issuance of up to 10~~$3 million by issuing three million shares of our common stock and ~~is designed~~three million warrants (“2019 Warrants”) to provide an additional incentive to executives, employees, directors and key consultants, aligning our long term interests with participants. In April 2016, we filed a Registration Statement on Form S-8 (the “Registration Statement”), which automatically became effective in May 2016. The Registration Statement relates to 10,000,000purchase shares of our common stock (“2019 Units”) in a registered direct offering for $1.00 per 2019 Unit (collectively defined as the “2019 Capital Raise”). The 2019 Warrants, issued with the 2019 Capital Raise, are accounted for as a derivative liability. The 2019 Warrant agreements contain a cash settlement provision whereby the holders could settle the warrants for cash based on the Black-Scholes value, upon certain fundamental transactions, as defined in the 2019 Warrant agreement, which are ~~issuable~~considered outside of the control of management, such as a change of control. The original exercise price of the 2019 Warrants was $1.30 per share. The 2019 Warrants contain certain anti-dilution adjustment provisions with respect to subsequent issuances of securities by the Company at a price below the exercise price of such warrants. As a result of such subsequent issuances of securities by the Company during the fourth quarter 2019, the exercise price of the 2019 Warrants decreased to $0.45 per share and the number of shares subject to the 2019 Warrants increased to 8,666,666 shares of common stock as of December 31, 2019. In May 2020, we issued securities at a price lower than the $0.45 per share above. As a result, the exercise price of the 2019 Warrants decreased to $0.3983 per share and the number of shares subject to the 2019 Warrants increased to 9,591,614 shares of common stock.

During the first quarter of 2021 the warrant holders exercised 1,323,000 warrants into 747,208 shares of our common stock through cashless exercise. We recorded an adjustment to the derivative liability of $1,523,117 as a result.

During the three months ended March 31, 2023, and 2022, we recognized a $1,307 gain and $60,664 loss on the change in fair value of the derivative liability, respectively. As of March 31, 2023, there were 322,807 of the 2019 Warrants outstanding.

18

Table of Contents

The following are the key assumptions that were used to determine the fair value of the 2019 Warrants


	March 31,			December 31,
	2023			2022
Number of shares underlying the warrants		322,807			322,807
Fair market value of stock	$	0.16		$	0.15
Exercise price	$	0.40		$	0.40
Volatility		73	%		78	%
Risk-free interest rate		4.64	%		3.99	%
Warrant life (years)		1.16			1.41

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:


	March 31,
	2023		2022
Beginning balance	$	5,508	$	28,317
Warrant exercise		—		—
Change in fair value of warrants derivative liability		(1,307)		60,664
Ending balance	$	4,201	$	88,981

NOTE 10. COMMITMENTS AND CONTINGENCIES

From time to time, the Company is a party to various litigation matters incidental to the conduct of its business. The Company is not presently a party to any legal proceedings that would have a material adverse effect on its business, operating results, financial condition, or cash flows, except as set forth below.

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 $12,867. In 2020, we made initial payments (first month’s rent and security deposit) of $39,633; 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 are vigorously defending this action and believe that the above-referenced force majeure clause presents a complete defense to Plaintiff’s claims.

We filed a motion to dismiss or a motion for summary judgment in the alternative. Plaintiff filed a response and cross-motion for summary judgment thereafter. In October 2022, the court denied the motion to dismiss on the basis that Plaintiff sufficiently pled facts that raise a plausible claim for relief, notwithstanding our possible defenses, but has not specifically made any rulings on either party’s motion for summary judgment. On November 14, 2022, we timely filed a formal answer to the complaint, denying each of Plaintiff’s substantive claims. We also asserted appropriate affirmative defenses, including the force majeure clause of the lease, which provides that we are not liable under the lease in the event of a variety of events outside our control, including “pandemics.” In addition, we have asserted a counterclaim against the Plaintiff for breach of contract to recover the initial payments made under the lease as well as attorneys’ fees and costs. The trial is currently scheduled for September 2023.

19

Table of Contents

NOTE 11. 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 orwhich 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 $0.001 per share. The total number of Units sold was 1,180. Each Unit consists of one share of Series A Preferred and 354,000 Preferred Warrants. The purchase price of each Unit was $1,000, for an aggregate amount sold of $1,180,000. Each share of Series A Preferred is convertible into 1,000 shares of common stock upon the consummation of a capital raise of not less than $5,000,000. The Certificate of Designation of the Series A Preferred Stock (“Certificate of Designation”) was filed with the Secretary of the State of Colorado on September 14, 2021. The Certificate of Designations established the new preferred series entitled “Series A Convertible Preferred Stock” with no par value pers share, and sets forth the rights, restrictions, preferences and privileges of the Series A Preferred, summarized as follows:

●

Authorized Number of Shares – 5,000

●

Voting Rights – None

●

Dividends – 6% per annum, ‘paid in kind’ in shares of Series A Preferred

●

Conversion – Each share of Series A Preferred is mandatorily convertible into 1,000 shares of common stock upon a minimum capital raise of $5,000,000; sale, merger or business combination of the Company; or the Company listing on an exchange

●

Redemption – No rights of redemption by 2021 Investors, nor mandatory redemption

The Preferred Warrants have a five-year term and an exercise price per Preferred Warrant share of ~~options that have been granted or may~~$1.05. The warrants contain an anti-dilution provision pursuant to which upon a future capital raise at less than $1.00 per share, each Preferred Investor will be granted ~~under our Incentive Plan.~~

12

~~Share-based compensation costs for award grants to employees and directors (“Employee Awards”) are recognized~~additional Preferred Warrants on a ~~straight-line basis over~~‘full-ratchet’ basis.

The proceeds received in the sale of the Series A Preferred totaled $1,180,000, for the issuance of 1,180 Series A Preferred, plus 354,000 warrants. The warrants were valued using a Black Scholes model, at $117,131 and per the relative fair value allocation, $1,073,446 was allocated to the Series A proceeds.

As of March 31, 2023 we have recorded accrued dividends of $106,200.

Stock-based compensation

We use the fair value method to account for stock-based compensation on the grant date. We recorded $27,396 and $76,117 in compensation expense for the three months ended March 31, 2023 and 2022, respectively. This includes expense related to options issued in prior years for which the requisite service period for those options includes the ~~entire award, with~~current period as well as options issued in the ~~amount~~current period. Forfeited options result in a reversal in the period forfeited. The fair value of ~~compensation cost recognized at any~~these instruments was calculated using the Black-Scholes option pricing method.

During the year ended December 31, 2022, we granted options to purchase 250,000 common shares to directors. The options expire five years from the date ~~equaling at least the portion~~of grant and vest over a period of one year. Fair value of the ~~award that is vested. The following summarizes~~awards at the ~~Black-Scholes assumptions used for Employee Awards granted:~~date of grants totaled $56,348.

20

Three months ended

September 30, 2017
June 30,
2017
March 31,
2017
Exercise price
$1.34 – 2.07
$1.92
$2.41 – 3.00
Stock price on date of grant
$1.34 – 2.07
$1.92
$2.41 – 3.00
Volatility
140 – 142%
145%
148 – 153%
Risk-free interest rate
1.4 – 1.9%
1.8%
1.7 – 1.9%
Expected life (years)
3.0 – 5.0
5.0
4.0 – 5.0
Dividend yield
–
–
–

Table of Contents

The following summarizes Employee Awards activity:

Number of Shares

Weighted-average Exercise Price per Share

Weighted-average Remaining Contractual Term
(in years)

Aggregate Intrinsic Value
Outstanding at December 31, 2016

8,818,400
$
1.04

Granted

1,116,400

1.78

Exercised

(367,240)

1.09

Forfeited

(554,050)

0.75

Outstanding at September 30, 2017

9,013,510

1.14

2.2
$
6,211,944

Exercisable at September 30, 2017

7,984,960
$
1.00

1.9
$
5,726,885


				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

~~Based on our estimated forfeiture rates, we expect 1,007,181 Employee Awards will vest.~~ As of ~~September 30, 2017,~~March 31, 2023, there was approximately ~~$1,255,708~~$722 of total unrecognized compensation expense related to unvested ~~Employee Awards,~~employee awards, which is expected to be recognized over a weighted-average period of ~~eight~~fourteen months.

~~Warrants for Consulting Services~~

As needed, we may issue warrants to third parties in exchange for consulting services. Stock-based compensation costs for award grants to third parties for consulting services (“Consulting Awards”) are recognized on a straight-line basis over the service period for the entire award, with the amount of compensation cost recognized at any date equaling at least the portion of the award that is vested. Consulting Awards are revalued at each reporting date until fully vested, which may generate an expense or benefit.

~~No Consulting Award warrants were issued during the nine months ended September 30, 2017.~~

~~Stock for Consulting Services~~

~~During the nine months ended September 30, 2017, we issued 8,000 shares to a third party for marketing services.~~

~~Warrants with Debt~~

~~The following summarizes warrants issued with debt:~~

Number of Shares

Weighted-average Exercise Price per Share

Weighted-average Remaining Contractual Term
(in years)

Aggregate Intrinsic Value
Outstanding at December 31, 2016

9,025,843
$
0.63

Exercised

(3,377,587)
$
0.59

Forfeited

(28,126)

1.20

Outstanding and exercisable at September 30, 2017

5,620,130
$
0.69

2.1
$
4,573,359

13

~~NOTE 10. NET INCOME (LOSS) PER SHARE~~

Basic net income (loss) per share is computed by dividing net loss by the weighted-average number of common shares outstanding during the reporting period. Diluted net loss per share is computed similarly to basic loss per share, except that it includes the potential dilution that could occur if dilutive securities are exercised as of the first day of the reporting period, along with the impact of those dilutive securities on net income (loss).

Three months ended September 30,

Nine months ended
September 30,

2017

2016

2017

2016
Net income (loss)
$
586,873
$
(14,447,094)
$
4,225,197
$
(16,971,797)
Gain on derivative warrant liability

(2,421,000)

–

(10,580,000)

–

$
(1,834,127)
$
(14,447,094)
$
(6,354,803)
$
(16,971,797)

Weighted average outstanding shares of common stock

20,654,502

15,495,421

19,883,329

15,270,968
Warrants – Debt

4,778,627

–

4,960,848

–
Stock options

3,662,422

–

4,667,825

–
Other warrants

91,224

–

112,186

–
Common stock and equivalents

29,186,775

15,495,421

29,624,188

15,270,968

Net income (loss) per share

Basic
$
0.03
$
(0.93)
$
0.21
$
(1.11)
Diluted

(0.06)

(0.93)

(0.21)

(1.11)

~~In 2016, outstanding stock options and common stock warrants are considered anti-dilutive because we were in a net loss position.~~

~~NOTE 11. SUBSEQUENT EVENTS~~

On ~~October 9, 2017,~~April 1, 2022 we entered into a ~~securities purchase agreement~~Restricted Stock Unit Agreement with ~~several non-affiliated accredited investors in a private placement,~~four participants. The Restricted Stock Unit’s (“RSU”) were granted pursuant to ~~which~~our 2020 Omnibus Incentive Plan. Four separate executives were each granted 300,000 RSU’s, for ~~$1.00 we sold one share~~a total grant of 1,200,000 RSU’s. The 300,000 RSU’s are divided into three equaltranchesof 100,000 RSU’s. Each tranche of RSU will vest immediately if and upon the market price reaching a certain minimum market price of our common stock as reported on the OTCQB market. Each tranche will vest as the market price reaches $1.00, $2.00 and ~~one warrant to purchase one share of our common stock, at an exercise price of $0.50 per share with a two year life (together,~~$3.00. Upon the ~~“2017 Units”). We~~RSU’s vesting, the participant will be promptly issued 1,000,000 2017 Units. In consideration for issuing the 2017 Units, we received $975,000 in cash and extinguished $25,000 of 12% Notes. We received $175,000 in cash consideration in September 2017, see Note 6 – Accrued Stock Payable.

~~Subsequent to September 30, 2017, and up to the date of this filing, 600,000~~ shares of our common ~~stock were issued upon~~stock. If there is a change in control, all unvested RSU’s granted under this agreement will become fully vested and the ~~exercise~~vested RSU’s will be paid out or settled. The fair value of ~~12% Warrants for consideration~~these instruments is $535,976 and was calculated using the Monte Carlo model. The fair value of ~~$210,000~~the RSU’s is recognized over the requisite service period. As these RSU’s do not have a service period, we used the requisite service period derived from the valuation of 10 years. We recorded $13,894 and nil in ~~cash and $210,000~~compensation expense for the ~~extinguishment~~three months ended March 31, 2023 and 2022, respectively. As of ~~12% Notes.~~March 31, 2023, none of the RSU’s have vested.

NOTE 12. RELATED PARTY TRANSACTIONS

On September 16, 2022, the Company entered into a new consulting agreement with Adam Hershey, its Interim Chief Executive Officer, pursuant to which Mr. Hershey will continue to serve as the Company’s Interim Chief Executive Officer with compensation equal to $200,000 per annum, payable by the Company, monthly. The term of the consulting agreement is for a period of one year, with automatic six-month renewals thereafter unless terminated by either party. The Company has also agreed to extend warrants to purchase 7,280,007 shares of Common Stock, held by an affiliate of Mr. Hershey, for an additional two years until, May 29, 2027. The exercise price and all other terms and conditions of such warrants remain unchanged. We paid $50,000 and $24,999 for the three months ended March 31, 2023 and 2022, respectively.

In February 2023, the Company completed the acquisition of Station 2, LLC’s assets. Station 2, LLC is owned by a board member, who is also a shareholder and executive level employee of the Company. See Note 3 for additional information regarding the Station 2 asset acquisition.

The Company currently has a lease agreement with Dalton Adventures, LLC in which the Company leases 17,000 square feet of greenhouse space in Boulder, Colorado for $29,691 a month, of which $27,000 is base rent and $2,691 is property taxes. The base rent increased to $27,405 per month starting in January 2023. The owner of Dalton Adventures, LLC is a principal shareholder and former board member of the Company. We have incurred $75,848 and $112,325 in related party lease expense for the three months ended March 31, 2023 and 2022, respectively. See Note 6 for further discussion of the Company’s obligations associated with related party leases.

The Company currently has a lease agreement with JLA Enterprises, LLC in which the Company leases a retail dispensary in Longmont, Colorado. A board member and an executive level employee of the Company are owners of

21

Table of Contents

JLA Enterprises, LLC. The Company also has a lease agreement with ALJ 1090, LLC in which the Company leases a building that has a retail dispensary and cultivation facility in Berthoud, Colorado. The same board member is an owner of ALJ 1090, LLC. These leases were assumed as part of the Green Tree Acquisition on December 12, 2022. We have incurred $51,942 and nil in related party lease expense for the three months ended March 31, 2023 and 2022, respectively. See Note 6 for further discussion of the Company’s obligations associated with related party leases.

The Company had a lease agreement with Bellewood Holdings, LLC in which the Company leased retail space for the Trees Englewood retail store in Englewood, Colorado for $11,287 per month, of which $10,000 is base rent and $1,287 is property taxes. The owner of Bellewood Holdings, LLC is a principal shareholder and board member of the Company. In June 2022, the building was sold to an unrelated party. We incurred nil and $35,612 of related party lease expense for the three months ended March 31, 2023 and 2022, respectively. See Note 6 for further discussion of the Company’s obligations associated with related-party leases.

NOTE 13. SEGMENT INFORMATION

Our operations are organized into ~~four~~two segments: ~~Security~~Retail and ~~Cash Management Services; Marketing Consulting and Apparel; Operations Consulting and Products; and Finance and Real Estate.~~Cultivation. All revenue originates, and all assets are located in the United States. ~~We have revised~~Segment information is presented in accordance with ASC 280, "Segments Reporting." This standard is based on a management approach that requires segmentation based upon our internal organization and disclosure of revenue and certain expenses based upon internal accounting methods. Our financial reporting systems present various data for management to ~~correspond to~~run the ~~information provided to the chief operating decision maker.~~business, including internal profit and loss statements prepared on a basis not consistent with GAAP.

Three months ended ~~September 30~~March 31,


2017		Security		Marketing		Operations		Finance		Total

2023											Retail		Cultivation		Eliminations		Total
Revenues	$	533,065	$	49,394	$	364,629	$	32,903	$	979,991	$	5,110,619	$	684,017	$	(684,017)	$	5,110,619
Costs and expenses		(647,915)		(100,464)		(402,856)		(9,339)		(1,160,574)		(4,535,568)		(1,139,573)		684,017		(4,991,124)
	$	(114,850)	$	(51,070)	$	(38,227)	$	23,564		(180,583)
Corporate										767,456
								Net income	$	586,873
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)

2016

Security

Marketing

Operations

Finance

Total
Revenues
$
560,713
$
106,402
$
117,700
$
25,565
$
810,380
Costs and expenses

(528,916)

(91,342)

(235,605)

(13,352)

(869,215)
Other expense

–

–

–

(6,414)

(6,414)

$
31,797
$
15,060
$
(117,905)
$
5,799

(65,249)
Corporate

(14,381,845)

Net loss
$
(14,447,094)


2022	Retail		Cultivation		Eliminations		Total
Revenues	$	3,297,544	$	518,280	$	(242,516)	$	3,573,308
Costs and expenses		(2,593,269)		(707,549)		242,516		(3,058,302)
Segment operating income	$	704,275	$	(189,269)	$	—		515,006
Corporate expenses								(1,381,345)
Net loss from continuing operations before income taxes							$	(866,339)

14

~~Nine months ended September 30~~

2017

Security

Marketing

Operations

Finance

Total
Revenues
$
1,322,509
$
163,216
$
947,725
$
99,251
$
2,532,701
Costs and expenses

(1,615,694)

(381,439)

(1,018,655)

(37,113)

(3,052,901)

$
(293,185)
$
(218,223)
$
(70,930)
$
62,138

(520,200)
Corporate

4,745,397

Net income
$
4,225,197

2016

Security

Marketing

Operations

Finance

Total
Revenues
$
1,599,907
$
221,563
$
289,566
$
93,398
$
2,204,434
Costs and expenses

(1,604,932)

(216,443)

(439,389)

(36,731)

(2,297,495)
Other expense

–

–

–

(10,876)

(10,876)

$
(5,025)
$
5,120
$
(149,823)
$
45,791

(103,937)
Corporate

(16,867,860)

Net loss
$
(16,971,797)

Total assets

September 30,
2017

December 31,
2016
Security
$
363,757
$
141,140
Marketing

51,789

50,919
Operations

92,882

55,750
Finance

644,384

515,205
Corporate

1,654,477

2,094,857

$
2,807,289
$
2,857,871

15


	March 31,		December 31,
Total assets	2023		2022
Retail	$	25,691,073	$	25,212,245
Cultivation		4,925,079		4,628,452
Corporate		1,147,566		1,985,455
Total assets - segments		31,763,718		31,826,152
Intercompany eliminations		(336,354)		(131,439)
Total assets - consolidated	$	31,427,364	$	31,694,713

22

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NOTE 14. SUBSEQUENT EVENTS

The Company evaluated subsequent events through the date that the accompanying financial statements were issued and has determined that subsequent to March 31, 2023, the Company issued 201,250 restricted stock units. Each restricted stock unit will vest for a period of seven years from the respective grant date and upon vesting will convert into one share of common stock.

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 ~~of Financial Condition and Results of operations~~ appearing in our Annual Report on Form 10-K as of and for the ~~years~~year ended December 31, ~~2016 and 2015.~~2022. 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, ~~Financial Statements~~including the financial statements and ~~Notes to Financial Statements contain~~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 is filed.~~

10-Q.

When this report uses the words “we,” “us,” or “our,” ~~or “GCC”~~ and the “Company,” they refer to ~~General~~TREES Corporation (formerly, “General Cannabis ~~Corp (formerly, “Advanced Cannabis Solutions, Inc.”~~Corp”).

23

Table of Contents

Our Products, Services, and Customers

TREES Corporation is a cannabis retailer and cultivator in the States of Colorado and Oregon.

We presently operate ~~in a rapidly evolving and highly regulated industry that,~~eight (8) cannabis dispensaries as has been estimated by some, will exceed $30 billion in revenue by the year 2020. We have been and will continue to be aggressive in executing acquisitions and pursuing other opportunities that we believe will benefit us in the long-term.

~~Through our reporting segments, we provide products and services to the regulated cannabis industry, which include the following:~~

~~Security and Cash Transportation Services (“Security Segment”)~~follows:


	●	Englewood, Colorado


	o	5005 S. Federal Boulevard – Recreational license only

●

Two (2) in Denver, Colorado


	o	468 S. Federal Boulevard – Recreational license only

o

East Hampden Avenue (formerly Green Man) –Recreational license only

●

Longmont, Colorado

o

12626 N. 107^th Street (formerly Green Tree/Ancient Alternatives) – Medical and Recreational licenses

●

Berthoud, Colorado

o

1090 N. 2^nd Street (formerly Green Tree/Natural Alternatives for Life) – Medical and Recreational licenses

●

Three (3) in Oregon

o

SW Corbett Avenue, Portland, OR – Medical and Recreational licenses

o

NE 102^nd Avenue, Portland, OR – Medical and Recreational licenses

o

7050 NE MLK, Portland, OR – Medical and Recreational licenses

We provide advanced security, including on-site professionals and cash transport, to licensed cannabis cultivators and retail shops, under the business name Iron Protection Group (“IPG”), and security services to non-cannabis customers in the hospitality business, such as hotels, under the business name Mile High Protection Services (“Mile High”). The drop in wholesale prices in Colorado has negatively impacted security servicesalso operate five (5) cultivation facilities in Colorado as ~~grow facilities~~follows:

●

SevenFive Farm – 3705 N. 75^th Street, Boulder – Retail cultivation license only

●

6859 N. Foothills Highway D-300 (formerly Green Tree/Ancient Alternatives) – Medical and Retail cultivation licenses

●

6859 N. Foothills Highway C-100 (formerly Green Tree/Mountainside Industries) – Medical and Retail cultivation licenses

●

6859 N. Foothills Highway E-100 (formerly Green Tree/Hillside Enterprises) – Retail cultivation license only

●

1090 N. 2^nd Street (formerly Green Tree/Natural Alternatives for Life) – Medical cultivation license only

24

Table of Contents

Our principal business model is to acquire, integrate and ~~retailers seek cheaper alternatives or curtail services. We acquired Mile High~~optimize cannabis companies in ~~order to expand~~the retail and cultivation segments utilizing the combined experience of entrepreneurs and synergistic operations of our ~~Colorado security business into~~vertically integrated network. During the ~~non-cannabis space, as we believe that market provides an opportunity for growth. We have opened an IPG office~~three months ended March 31, 2023, 88% of SevenFive’s revenue was with three customers. During the three months ended March 31, 2022, 45% of SevenFive’s revenue was with one customer. The customers in ~~California, which recently legalized recreational cannabis in addition to previously legal medical marijuana.~~

~~In states that have recently legalized cannabis, whether medical, recreational or~~ both ~~license applications require a security plan~~2023 and ~~if approved, implementation of that security plan. Accordingly, we~~2022 are ~~assessing the opportunity to expand our security consulting business to assist companies with their application process~~related party dispensaries and the ~~subsequent implementation~~revenues associated with these customers are eliminated in consolidation.

During the three months ended March 31, 2023, 88% of ~~compliant security services.~~

~~Marketing Consulting~~Green Tree’s revenue was with three customers. The customers in 2023 are related party dispensaries and ~~Apparel (“Marketing Segment”)~~

~~Chiefton Design provides design, branding and marketing strategy consulting services to~~ the ~~cannabis industry. We assist clients~~revenues associated with these customers are eliminated in developing a comprehensive marketing strategy, as well as designing and sourcing client-specific apparel and products. We now have the capacity of a full service marketing agency. Chiefton Design also supports our other segments with marketing designs and apparel.

Chiefton’s apparel business, Chiefton Supply, strives to create innovative, unique t-shirts, hats, hoodies and accessories. Our apparel is sold through our on-line shop, cannabis retailers, and specialty t-shirt and gift shops. In August 2017, we added a separate managing director to focus solely on Chiefton Supply. We are planning a winter line for the 2017 holiday season and a spring / summer line for 2018.

16

~~Operations Consulting and Products (“Operations Segment”)~~

Through Next Big Crop (“NBC”), we deliver comprehensive consulting services to the cannabis industry that include obtaining licenses, compliance, cultivation, retail operations, logistical support, facility design and construction, and expansion of existing operations. Our business plan for NBC correlates to future growth of the regulated cannabis market in the United States.

NBC oversees our wholesale equipment and supply business, operated under the name “GC Supply,” which provides turnkey sourcing and stocking services to cultivation, retail and infused products manufacturing facilities. Our products include infrastructure, equipment, consumables and compliance packaging.

~~Finance and Real Estate (“Finance Segment”)~~

~~Real Estate Leasing~~

We own a cultivation property in a suburb of Pueblo, Colorado, consisting of approximately three acres of land, which currently includes a 5,000 square foot steel building and a parking lot. The property is zoned for cultivating cannabis and is leased to a medical cannabis grower until December 31, 2022.

Our real estate leasing business plan includes the potential future acquisition and leasing of cultivation space and related facilities to licensed marijuana growers and dispensary owners for their operations. Management anticipates that these facilities would range in size from 5,000 to 50,000 square feet. These facilities would only be leased to tenants that possess the requisite state licenses to operate cultivation facilities. The leases with the tenants would include certain requirements that permit us to continually evaluate our tenants’ compliance with applicable laws and regulations.

~~Shared Office Space, Networking and Event Services~~

In October 2014, we purchased a former retail bank located at 6565 East Evans Avenue, Denver, Colorado 80224, which has been branded as “The Greenhouse”. The building is a 16,056 square foot facility, which we use as our corporate headquarters.

The Greenhouse has approximately 10,000 square feet of existing office space and 5,000 square feet on its ground floor that is dedicated to a consumer banking design. We continue to assess the opportunity to lease shared workspace for entrepreneurs, professionals and others serving the cannabis industry. Clients would be able to lease office, meeting, lecture, educational and networking space, and individual workstations. We expect to continue the renovation of The Greenhouse in 2017.

We plan to continue to acquire commercial real estate and lease office space to participants in the cannabis industry. These participants may include media, internet, packaging, lighting, cultivation supplies and financial services-related companies. In exchange for certain services that may be provided to these tenants, we expect to receive rental income in the form of cash. In certain cases, we may acquire equity interests or provide debt capital to these businesses.

~~Industry Finance~~

Our industry finance strategy includes evaluating opportunities to make direct term loans or to provide revolving lines of credit to businesses involved in the cultivation and sale of cannabis and related products. These loans would generally be secured to the maximum extent permitted by law. We believe there is a significant demand for this type of financing. We are assessing other finance services including customized finance, capital formation and banking, for participants in the cannabis industry.

~~DB Arizona~~

DB Arizona produces and distributes cannabis-infused elixirs and edible products in Arizona. They previously were a licensee with a single national cannabis-infused product company, which also had significant control of operations. The relationship was terminated in September 2017. DB Arizona is currently negotiating with several new cannabis-infused product companies to become their producer and distributor of products for the medical cannabis market in Arizona. If successful, we believe working with additional brands would allow DB Arizona to better control costs and potentially lead to increased revenues and operating cash flows. We believe the physical plant can be best utilized by contract manufacturing and distributing for multiple brands rather than a single partner. During this transition phase we anticipate investing additional funds for working capital.

consolidation.

Results of Operations

The following tables set forth, for the periods indicated, ~~condensed~~ statements of operations data. The ~~table~~tables and the discussion below should be read in conjunction with the accompanying unaudited condensed consolidated financial statements and the notes thereto ~~appearing elsewhere~~ in this report.


	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	%

Revenues

17

~~Consolidated Results~~

Three months ended September 30,

Percent

2017

2016

Change

Change
Revenues
$
979,991
$
810,380
$
169,611

21%
Costs and expenses

(2,447,655)

(2,108,807)

(338,848)

16%
Other income (expense)

2,054,537

(13,148,667)

15,203,204

(116)%
Net income (loss)
$
586,873
$
(14,447,094)
$
15,033,967

(104)%

Nine months ended September 30,

Percent

2017

2016

Change

Change
Revenues
$
2,532,701
$
2,204,434
$
328,267

15%
Costs and expenses

(7,512,692)

(5,349,371)

(2,163,321)

40%
Other income (expense)

9,205,188

(13,826,860)

23,032,048

(167)%
Net income (loss)
$
4,225,197
$
(16,971,797)
$
21,196,994

(125)%

~~Revenues~~

~~Revenues increased primarily due~~The activity driven by Green Tree and Green Man, which we acquired in Q4 2022, contributed to anthe increase in ~~revenue in our Operations Segment and Chiefton Design, offset by a decrease in revenue~~revenues for ~~our Security Segment and Chiefton Supply.~~the three months ended March 31, 2023 compared to March 31, 2022.

Costs and expenses


		Three months ended September 30,					Percent
		2017		2016		Change	Change
Cost of service revenues	$	752,154	$	564,687	$	187,467	33%
Cost of goods sold		32,459		68,992		(36,533)	(53)%

								Three months ended March 31,						Percent
								2023		2022		Change		Change
Cost of sales								$	3,057,714	$	2,074,888	$	982,826	47	%
Selling, general and administrative		657,532		409,403		248,129	61%		2,296,240		1,326,116		970,124	73	%
Share-based expense		839,322		872,217		(32,895)	(4)%
Stock-based compensation									27,396		76,117		(48,721)	(64)	%
Professional fees		126,303		95,520		30,783	32%		607,544		281,384		326,160	116	%
Depreciation and amortization		39,885		97,888		(58,103)	(59)%		292,842		231,846		60,996	26	%
	$	2,447,655	$	2,108,807	$	338,848	16%
								$	6,281,736	$	3,990,351	$	2,291,385	57	%

Nine months ended September 30,

Percent

2017

2016

Change

Change
Cost of service revenues
$
1,757,241
$
1,547,474
$
209,767

14%
Cost of goods sold

240,577

112,649

127,928

114%
Selling, general and administrative

1,976,244

1,146,022

830,222

72%
Share-based expense

2,995,251

1,974,191

1,021,060

52%
Professional fees

454,591

276,706

177,885

64%
Depreciation and amortization

88,788

292,329

(203,541)

(70)%

$
7,512,692
$
5,349,371
$
2,163,321

40%

Cost of ~~service revenues typically fluctuates with~~sales increased three and months ended March 31, 2023, as compared to March 31, 2022 due to the ~~changes in revenue for our Operations~~additional sales driven from Green Tree and Security Segments, while these costs are relatively fixed for our Marketing Segment. Cost of goods sold varies with changes in product sales, including an increase in products sold by our Operations Segment, which have smaller margins than apparel sold by our Marketing Segment.Green Man.

Selling, general and administrative expense increased ~~in 2017 primarily~~for the three months ended March 31, 2023, as compared to March 31, 2022, due to ~~increases~~the increased expenses resulting from the acquisition of three dispensaries in the fourth quarter of 2022 and one additional dispensary in the first quarter of 2023. This resulted in an increase in employees and an increase in rent expense.

25

Table of Contents

Professional fees consist primarily of accounting and legal expenses. Professional fees increased for ~~(a) marketing and promotion; (b) premiums for liability, and directors and officers insurance; and (c) additional personnel added~~the three months ended March 31, 2023 as compared to ~~our corporate and segment teams.~~March 31, 2022 due to the acquisition activity in the first quarter of 2023.

~~Share-based expense~~Stock-based compensation included the following:

Three months ended
September 30,

Nine months ended
September 30,

2017

2016

2017

2016
Employee Awards
$
839,322
$
740,844
$
2,969,811
$
1,574,906
Consulting Awards

–

103,869

25,440

151,385
Feinsod Agreement

–

27,504

–

192,800
DB Option Agreement warrants

–

–

–

55,100

$
839,322
$
872,217
$
2,995,251
$
1,974,191


	Three months ended March 31,						Percent
	2023		2022		Change		Change
Employee awards	$	27,396	$	76,117	$	(48,721)	(64)	%
	$	27,396	$	76,117	$	(48,721)	(64)	%

18

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, and expense~~2015. Expense varies primarily due to the number of stock options ~~granted. Consulting Awards are~~ granted and the share price on the date of grant. The decrease in expense for the three months ended March 31, 2023, as compared to third parties in lieu of cash for services provided. On August 4, 2014, pursuant to an agreement with Michael Feinsod (“Feinsod”), our Board of Directors (the “Board”) appointed Feinsod Chairman of the Board and approved a compensatory agreement with Infinity Capital, LLC (“Infinity Capital”), an investment management company founded and controlled by him. Under the agreement, we issued 200,000 shares of our common stock in 2014 and committed to issuing an additional 150,000 shares in 2015 and 150,000 shares in 2016. The 200,000 shares were expensed immediately, while the additional shares were expensed ratably through their issue date. In March 2016, we extended the DB Option Agreement and issued 100,000 warrants for our common stock.

~~Professional fees consist primarily of accounting and legal expenses, and increased in 2017~~2022, is due to ~~our registration statements and general corporate matters.~~not issuing options in the first quarter of 2023.

Other Expense

~~Depreciation and amortization expense decreased because the intangibles from the IPG acquisition were fully impaired as of December 31, 2016, and are no longer being amortized.~~


	Three months ended March 31,						Percent
	2023		2022		Change		Change
Amortization of debt discount	$	181,677	$	214,281	$	(32,604)	(15)	%
Interest expense		449,311		174,351		274,960	158	%
(Gain) loss on derivative liability		(1,307)		60,664		(61,971)	(102)	%
	$	629,681	$	449,296	$	180,385	40	%

~~Other (Income) Expense~~

Three months ended
September 30,

Nine months ended
September 30,

2017

2016

2017

2016
Amortization of debt discount
$
284,900
$
111,837
$
1,134,432
$
327,455
Interest expense

81,563

5,276,550

240,380

5,381,125
Loss on extinguishment of debt

–

1,728,280

–

2,086,280
(Gain) loss on derivative warrant liability

(2,421,000)

6,032,000

(10,580,000)

6,032,000

$
(2,054,537)
$
13,148,667
$
(9,205,188)
$
13,826,860

Amortization of debt discount ~~is higher in 2017~~decreased during the three months ended March 31, 2023, as compared to ~~2016, because 2017 also includes amounts immediately expensed upon~~March 31, 2022, due to the ~~exercise~~rollover and repayment of ~~12% Warrants through~~ the ~~reduction of principal for the related 12%~~10% Notes. Interest expense ~~is higher in 2016~~increased during the three months ended March 31, 2023, as compared to ~~2017~~March 31, 2022, due to ~~immediately expensing $5,189,000~~the addition of the fair value of the derivative warrant liability in September 2016. Loss on extinguishment of debt includes (a) $1,715,000 of the fair value of the derivative warrant liability associated with converting a portion of the 10% Notes and 14% Mortgage Note Payable into 12% Notes with an interest rate of 12% in ~~September 2016, and (b) in June 2016 expensing warrants issued to extend~~Q3 2022. The gain on warrant derivative liability reflects the maturity date of the 10% Notes from April 2016 to January 2017. The (gain) loss on derivative warrant liability varies, primarily, due to changes in the fair value of our common stock. A (decrease) increasechange in the fair value of the ~~derivative warrant liability, associated~~2019 Warrants.

Retail


	Three months ended March 31,						Percent
	2023		2022		Change		Change
Revenues	$	5,110,619	$	3,297,544	$	1,813,075	55	%
Costs and expenses		(4,535,568)		(2,593,269)		(1,942,299)	75	%
	$	575,051	$	704,275	$	(129,224)	(18)	%

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 positive cash flows which we anticipate will contribute to our working capital position.

26

Table of Contents

Cultivation


	Three months ended March 31,						Percent
	2023		2022		Change		Change
Revenues	$	684,017	$	518,280	$	165,737	32	%
Costs and expenses		(1,139,573)		(707,549)		(432,024)	61	%
	$	(455,556)	$	(189,269)	$	(266,287)	141	%

The increase in revenues for the three months ended March 31, 2023 compared to March 31, 2022 is attributed to the revenue driven from the cultivation spaces acquired in Q4 2022. The steady decline in the wholesale pricing of flower going forward may lead to lower revenue and lower margins in the cultivation segment.

Liquidity

Sources of liquidity

Our sources of liquidity include 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 2022, we received $10,587,250 in cash in a private placement with ~~the warrants issued with~~certain accredited investors pursuant to the 12% Notes ~~in September 2016, results in a (gain) loss.~~

~~Security and Cash Transportation Services~~

Three months ended September 30,

Percent

2017

2016

Change

Change
Revenues
$
533,065
$
560,713
$
(27,648)

(5)%
Costs and expenses

(647,915)

(528,916)

(118,999)

22%

$
(114,850)
$
31,797
$
(146,647)

(461)%

Nine months ended September 30,

Percent

2017

2016

Change

Change
Revenues
$
1,322,509
$
1,599,907
$
(277,398)

(17)%
Costs and expenses

(1,615,694)

(1,604,932)

(10,762)

1%

$
(293,185)
$
(5,025)
$
(288,160)

5,735%

~~Revenues decreased in 2017 primarily from the loss of a significant customer due~~ to ~~the drop in wholesale cannabis prices in Colorado, partially offset in the third quarter of 2017 by organic growth and the~~be used for acquisition of ~~Mile High. Costs~~dispensaries and ~~expenses typically vary with changes in revenue, however, the increase in costs~~operating capital.

Sources and ~~expenses in the third quarter~~uses of 2017 compared to 2016, relates primarily to overtime and training time for guards as our customer base recovered from the decline experienced during the first six months of 2017. We are also incurring additional expenses in 2017 for our office in California and overhead from the Mile High acquisition.

19

~~Marketing Consulting and Apparel~~

Three months ended September 30,

Percent

2017

2016

Change

Change
Revenues
$
49,394
$
106,402
$
(57,008)

(54)%
Costs and expenses

(100,464)

(91,342)

(9,122)

10%

$
(51,070)
$
15,060
$
(66,130)

(439)%

Nine months ended September 30,

Percent

2017

2016

Change

Change
Revenues
$
163,216
$
221,563
$
(58,347)

(26)%
Costs and expenses

(381,439)

(216,443)

(164,996)

76%

$
(218,223)
$
5,120
$
(223,343)

(4,362)%

In 2017, we have been focusing on launching our design agency. This led to a drop in apparel sales and an increase in consulting revenue. Expenses for the design business during the first six months of 2017 were high, as we tried different approaches to establishing its operations, which negatively impacted costs and expenses. We believe we now have an efficient model for Chiefton Design, with manageable, moderate recurring expenses. In the third quarter of 2017, we added a new managing director to drive Chiefton Supply’s apparel business. We do not expect to see a corresponding increase in revenue until we launch our holiday and spring clothing lines.

~~Operations Consulting and Products~~

Three months ended September 30,

Percent

2017

2016

Change

Change
Revenues
$
364,629
$
117,700
$
246,929

210%
Costs and expenses

(402,856)

(235,605)

(167,251)

71%

$
(38,227)
$
(117,905)
$
79,678

(68)%

Nine months ended September 30,

Percent

2017

2016

Change

Change
Revenues
$
947,725
$
289,566
$
658,159

227%
Costs and expenses

(1,018,655)

(439,389)

(579,266)

132%

$
(70,930)
$
(149,823)
$
78,893

(53)%

Revenues in 2017 increased primarily from (a) assisting companies submitting applications to acquire licenses in states that recently legalized cannabis; (b) adding a significant two year contract in July 2017 to manage the cannabis grow facility for a customer; and (c) 2017 product sales of approximately $210,000; offset by (d) the completion in the second quarter of 2017 of two small contracts to manage customer grow facilities. Costs and expenses increased in 2017 primarily due to hiring new consultants to meet current and expected future demand for services, as well as the cost of the products sold.

~~Finance and Real Estate~~

Three months ended September 30,

Percent

2017

2016

Change

Change
Revenues
$
32,903
$
25,565
$
7,338

29%
Costs and expenses

(9,339)

(13,352)

4,013

(30)%
Interest expense

–

(6,414)

6,414

(100)%

$
23,564
$
5,799
$
17,765

306%

Nine months ended September 30,

Percent

2017

2016

Change

Change
Revenues
$
99,251
$
93,398
$
5,853

6%
Costs and expenses

(37,113)

(36,731)

(382)

1%
Interest expense

–

(10,876)

10,876

(100)%

$
62,138
$
45,791
$
16,347

36%

Revenue from leasing our Pueblo facility remained steady between 2017 and 2016. Revenue fluctuates in 2017 compared to 2016, due to lease revenue for The Greenhouse. Revenues in 2017 also include interest income from our note receivable with DB Arizona. Interest expense represents the interest for the mortgage on our Pueblo facility, which was paid off in September 2016.

20

~~Liquidity and Capital Resources~~

cash

We had cash of ~~$252,538~~$1,460,162 and ~~$773,795, respectively,~~$2,583,833 as of ~~September 30, 2017~~March 31, 2023 and December 31, ~~2016.~~2022, respectively. Our cash flows from operating, investing and financing activities were as follows:


	Three months ended March 31,
	2023		2022
Net cash (used in) provided by operating activities	$	(502,965)	$	45,223
Net cash used in investing activities	$	(280,892)	$	(190,153)
Net cash used in financing activities	$	(339,814)	$	(258,057)

Nine months ended
September 30,

2017

2016
Net cash used in operating activities
$
(2,124,013)
$
(1,062,683)
Net cash used in investing activities

(171,425)

(11,615)
Net cash provided by financing activities
$
1,774,181
$
2,080,193

Net cash used in operating activities increased in ~~2017 by $1,061,330 compared to 2016, primarily~~2023 due to a larger operating loss. We have added personnel to our Security, Operations and Marketing Segments in advance of growth opportunities. We also continue to add personnel to our corporate infrastructure and expanded our corporate marketing efforts. Where possible, we continue to use non-cash equity-based instruments to obtain consulting services and compensate employees.

the increased net loss driven from the expenses described above.

Net cash used in investing activities for the three months ended March 31, 2023 increased from March 31, 2022, as a result of the purchase price of the additional license acquired in ~~2017 relates primarily to our loan to DB Arizona and our purchase of GC Finance Arizona.~~

February 2023 exceeding the acquisition activity in the three months prior period, as well as a decrease in proceeds from notes receivable.

Net cash ~~provided by~~used in financing activities for the three months ended March 31, 2023 increased from March 31, 2022 due to an increase in ~~2017 was from~~payments on notes payable and finance leases.

Capital Resources

We had no material commitments for capital expenditures as of March 31, 2023. Part of our growth strategy, however, is to acquire operating businesses. We expect to fund such activity through cash on hand, the ~~exercise~~issuance of debt, common stock, warrants ~~and stock options, and the sale of common stock. In 2016, we borrowed $437,500 from Infinity Capital and $2,500,000 from non-affiliates.~~

~~On October 9, 2017, we entered into a securities purchase agreement with several non-affiliated accredited investors in a private placement, pursuant to which~~ for ~~$1.00 we sold one share of~~ our common stock ~~and one warrant to purchase one share~~or a combination thereof.

27

Table of our common stock, at an exercise price of $0.50 per share with a two year life (together, the “2017 Units”). We issued and sold 1,000,000 2017 Units. In consideration for issuing the 2017 Units, we received $975,000 in cash and extinguished $25,000 of 12% Notes.Contents

Non-GAAP Financial Measures

~~For the non-GAAP~~ Adjusted EBITDA ~~(Earnings~~is a non-GAAP financial measure. We define Adjusted EBITDA as net income (loss) ~~Before Interest, Taxes, Depreciation~~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 ~~Amortization) per share-basic~~other non-recurring expenses, depreciation and ~~diluted measures presented above,~~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 ~~(1)~~a reconciliation of Adjusted EBITDA per share to the most directly comparable GAAP ~~measure; (2) a reconciliation of the differences between the non-GAAP~~ measure, ~~and the most directly comparable GAAP measure; (3) an explanation of why our management believes this non-GAAP measure provides useful information to investors; and (4) additional purposes for~~ which ~~we use this non-GAAP measure.~~

is net loss per share.

We believe that the disclosure of Adjusted EBITDA ~~per share-basic and diluted~~ provides investors with a better comparison of our period-to-period operating results. We exclude the effects of certain items ~~from net loss per share-basic and diluted~~ 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 ~~balanced~~comparable view of the underlying dynamics of our business. Adjusted EBITDA per share-diluted excludes the impacts of interest expense, tax expense, depreciation and amortization, gain (loss) on its derivative liability, and share-based compensation. Weighted average number of common shares outstanding - basic and diluted (adjusted) excludes the impact of shares issued in connection with share-based compensation.

~~Tabular reconciliations of this supplemental non-GAAP financial information to our most comparable GAAP information are contained in this Quarterly Report on Form 10-Q.~~operations. We ~~present such non-GAAP supplemental financial information, as we~~ believe such information provides additional meaningful methods of evaluating certain aspects of our operating performance from ~~period-to-period~~period to period on a basis that may not be otherwise apparent on a ~~non-GAAP~~GAAP basis. This supplemental financial information should be considered in addition to, not in lieu of, our ~~Condensed Consolidated Financial Statements.~~unaudited condensed consolidated financial statements.

The following table reconciles Adjusted EBITDA to the most directly comparable GAAP measure, which is net loss.

Three months ended
September 30,

Nine months ended
September 30,

2017

2016

2017

2016
Net income (loss)
$
586,873
$
(14,447,094)
$
4,225,197
$
(16,971,797)
Adjustments:

Share-based expense

839,322

872,217

2,995,251

1,974,191
Depreciation and amortization

39,885

97,988

88,788

292,329
Amortization of debt discount

284,900

111,837

1,134,432

327,455
Interest expense

81,563

5,276,550

240,380

5,381,125
Loss on extinguishment of debt

–

1,728,280

–

2,086,280
(Gain) loss on derivative liability

(2,421,000)

6,032,000

(10,580,000)

6,032,000
Total adjustments

(1,175,330)

14,118,872

(6,121,149)

16,093,380
Adjusted EBITDA
$
(588,457)
$
(328,222)
$
(1,895,952)
$
(878,417)

Per share:

Net income (loss) – Basic
$
0.03
$
(0.93)
$
0.21
$
(1.11)
Net income (loss) – Diluted

(0.06)

(0.93)

(0.21)

(1.11)
Adjusted EBITDA – Basic and Diluted

(0.03)

(0.02)

(0.11)

(0.06)

Weighted-average shares outstanding:

Net income (loss) – Basic

20,654,502

15,495,421

19,883,329

15,270,968
Net income (loss) – Diluted

29,186,775

15,495,421

29,624,188

15,270,968
Adjusted EBITDA – Basic and Diluted

17,128,778

15,584,981

17,175,653

15,323,166


	Three months ended March 31,
	2023		2022
Net loss from continuing operations	$	(1,886,534)	$	(866,339)
Adjustment for loss from discontinued operations		—		5,283
Net loss		(1,886,534)		(861,056)
Adjustments:
Stock-based compensation		27,396		76,117
Depreciation and amortization		292,842		231,846
Amortization of debt discount and equity issuance costs		181,677		214,281
Interest expense		449,311		174,351
(Gain) loss on derivative liability		(1,307)		60,664
Severance		—		4,731
Acquisition related expenses		—		7,500
Provision for income taxes		85,736		—
Total adjustments		1,035,655		769,490
Adjusted EBITDA	$	(850,879)	$	(91,566)

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, ~~2016,~~2022, and Note 1 to the Unaudited Condensed Consolidated Financial Statements in this Form 10-Q.

~~Off-Balance Sheet Arrangements~~28

~~We did not have any off-balance sheet arrangements that are reasonably likely to have a current or future material effect on our financial condition, revenue or expenses, results~~Table of ~~operations, liquidity, capital expenditures or capital resources.~~Contents

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 ~~Chief~~Principal Executive Officer and ~~Chief~~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 ~~Chief~~Principal Executive Officer and ~~Chief~~Principal Financial and Accounting Officer, of the effectiveness of the design and operation of our disclosure controls and procedures as of ~~September 30, 2017,~~March 31, 2023, the end of the period covered by this report. Based on that evaluation, our ~~Chief~~Principal Executive Officer and ~~Chief~~Principal Financial and Accounting Officer have concluded that our disclosure controls and procedures were ~~not~~ effective ~~at the reasonable assurance level due to the material weaknesses discussed below.~~as of March 31, 2023.

22

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 generally accepted accounting principles, 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.~~

●

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 ~~our~~ 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.

~~Management identified the following material weaknesses:~~

·

~~We have not performed a risk assessment and mapped our processes to control objectives;~~

·

~~We have not implemented comprehensive entity-level internal controls;~~

·

~~We have not implemented adequate system and manual controls; and~~

·

~~We do not have sufficient segregation of duties.~~

~~Assessment of Internal Control over Financial Reporting~~

Our management assessed the effectiveness of our internal control over financial reporting as of September 30, 2017. 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 the above material weaknesses have not been remediated and, accordingly, our internal control over financial reporting was not effective as of September 30, 2017.

~~Remediation of Material Weaknesses~~

~~We have designed and plan to implement, or in some cases have already implemented, the specific remediation initiatives described below:~~

·

~~We intend to allocate resources to perform a risk assessment and map processes to control objectives and, where necessary, implement and document internal controls in accordance with COSO.~~

·

~~Our entity-level controls are, generally, informal and we intend to evaluate current processes, supplement where necessary, and document requirements.~~

·

~~While we have implemented procedures to identify, evaluate and record significant transactions, we need to formally document these procedures and evidence the performance of the related controls.~~

·

~~We plan to evaluate system and manual controls, identify specific weaknesses, and implement a comprehensive system of internal controls.~~

·

~~We are assessing our current staffing and evaluating our personnel requirements to improve our segregation of duties.~~

Management understands that in order to remediate the material weaknesses, additional segregation of duties, changes in personnel, and technologies are necessary. We do not expect to have fully remediated these material weaknesses until management has tested those internal controls and found them to have been remediated.

Our Annual Report on Form 10-K does not include an attestation report of our independent registered public accounting firm regarding internal control over financial reporting. Management’s report was not subject to such attestation pursuant to rules of the SEC that permits us to provide only management’s report in our Annual Report on Form 10-K.

23

Changes in Internal Control over Financial Reporting

There were no changes in our internal controls over financial reporting during the first quarter of 2023, which were identified in connection with management’s evaluation required by paragraph (d) of Rules 13a-15 and 15d-15 under the Exchange Act, which have materially affected, or are reasonable likely to materially affect, our internal control over financial reporting.

~~In September 2017, we appointed our Vice President~~

29

Table of Finance, a certified public accountant, as Chief Financial Officer, and hired a certified public accountant to serve as our corporate controller, a new position. We have implemented an informal process of preparation and review of balance sheet reconciliations, as well as informal procedures to identify, evaluate and record significant transactions; however, these changes do not meet the strict requirements to overcome the material weaknesses identified above.Contents

PART II. OTHER INFORMATION

ITEM 1. LEGAL PROCEEDINGS

From time to time, we may be involved in various claims and legal actions in the ordinary course of business. Other than as set forth below, we are not currently involved in any material legal proceedings outside the ordinary course of our business.

~~None.~~

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, last 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 are vigorously defending this action and believe that the above-referenced force majeure clause presents a complete defense to Plaintiff’s claims.

We filed a motion to dismiss; or a motion for summary judgment in the alternative. Plaintiff filed a response and cross-motion for summary judgement thereafter. In October 2022, the court denied the motion to dismiss on the basis that Plaintiff sufficiently pled facts that raise a plausible claim for relief, notwithstanding our possible defenses, but has not specifically made any rulings on either party’s motion for summary judgment. On November 14, 2022, we timely filed a formal answer to the complaint, denying each of Plaintiff’s substantive claims. We also asserted appropriate affirmative defenses, including the force majeure clause of the lease, which provides that we are not liable under the lease in the event of a variety of events outside our control, including “pandemics.” In addition, we have asserted a counterclaim against Plaintiff for breach of contract to recover the initial payments made under the lease as well as attorneys’ fees and costs. The trial is currently scheduled for September 2023.

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, ~~2016.~~2022.

ITEM 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS

None.

On July 27, 2017, we issued 196,874 shares of our common stock upon the exercise of warrants issued with debt in 2013 for consideration of $236,250 in cash. Such shares were exempt from registration pursuant to Section 4(a)(2) of the Securities Act of 1933, as amended.

ITEM 3. DEFAULTS UPON SENIOR SECURITIES

None.

ITEM 4. MINE SAFETY DISCLOSURES

Not applicable.

ITEM 5. OTHER INFORMATION

None.

Table of Contents

ITEM 6. EXHIBITS

Exhibits
~~Exhibits~~		~~Description~~
~~2.1~~31.1		Asset Purchase Agreement dated August 18, 2017, between General Cannabis Corp and Mile High Protection Services LLC (incorporated by reference to Exhibit 2.1 of the Form 8-K filed by General Cannabis Corp. on August 24, 2017).
~~10.1~~		~~Form of Securities Purchase Agreement (incorporated by reference to Exhibit 10.1 of the Form 8-K filed by General Cannabis Corp. on October 13, 2017).~~
~~10.2~~		~~Form of Warrant (incorporated by reference to Exhibit 10.2 of the Form 8-K filed by General Cannabis Corp. on October 13, 2017).~~
~~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.
~~101~~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	~~The following financial information from the Quarterly Report on Form 10-Q~~Audited Financial Statements of ~~General Cannabis Corp~~Trees Portland, LLC as of and for the ~~quarter~~years ended ~~September 30, 2017, formatted in XBRL (eXtensible Business Reporting Language): (i) Condensed Consolidated Balance Sheets (ii) Condensed Consolidated~~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 ~~Operations; (iii) Condensed Consolidated Statements~~Trees Waterfront, LLC as of ~~Cash Flows,~~ and ~~(iv) Notes~~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 ~~Condensed Consolidated Financial Statements.~~Inline XBRL document)

31

Table of Contents

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~~TREES CORPORATION

Date: ~~November 7, 2017~~May 22, 2023	~~By:~~	/s/~~Robert Frichtel~~ Adam Hershey
		~~Robert Frichtel,~~ Adam Hershey, Interim Chief Executive Officer
		Principal Executive Officer

		/s/ Edward Myers
	~~By:~~	~~/s/ Brian Andrews~~Edward Myers, Interim Chief Financial Officer
		~~Brian Andrews,~~ Principal Financial and Accounting Officer

26

32


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

~~6565 East Evans Avenue~~
~~Denver,~~ 215 Union Boulevard, Suite 415 Lakewood, CO ~~80224~~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 filero	☐	Accelerated filero	☐
Non-accelerated filero	☑	Smaller reporting companyþ	☑
		Emerging ~~Growth Company~~ ogrowth company	☐


þ	~~Quarterly report pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934 for quarterly period ended September 30, 2017.~~

o	~~Transition report pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934~~


		September 30, 2017 (Unaudited)		December 31, 2016
ASSETS
Current Assets
Cash and cash equivalents	$	252,538	$	773,795
Accounts receivable, net		283,406		182,214
Note receivable – DB Arizona		–		77,202
Prepaid expenses and other current assets		173,908		76,493
Inventory		30,443		7,981
Total current assets		740,295		1,117,685

Notes receivable – DB Arizona		221,671		–
Property and equipment, net		1,706,035		1,714,803
Intangible assets, net		139,288		25,383
Total Assets	$	2,807,289	$	2,857,871

LIABILITIES & STOCKHOLDERS’ EQUITY (DEFICIT)

Current Liabilities
Accounts payable and accrued expenses	$	474,200	$	363,618
Interest payable		115,237		9,806
Deferred rental revenue and customer deposits		75,499		46,155
Accrued stock payable		330,000		–
Derivative warrant liability		5,239,000		23,120,000
Notes payable (net of discount)		1,280,932		–
Infinity Note – related party		1,370,126		–
Total current liabilities		8,884,994		23,539,579

Notes payable (net of discount)		–		815,250
Infinity Note – related party		–		1,370,126
Tenant deposits		8,854		8,854
Total Liabilities		8,893,848		25,733,809

Commitments and Contingencies		–		–

Stockholders’ Equity (Deficit)
Preferred stock, no par value; 5,000,000 share authorized; no shares issued and outstanding at September 30, 2017 and December 31, 2016		–		–
Common Stock, $0.001 par value; 100,000,000 shares authorized; 20,881,605 and 17,128,778 shares issued and outstanding on September 30, 2017 and December 31, 2016, respectively		20,883		17,129
Additional paid-in capital		38,894,416		26,333,988
Accumulated deficit		(45,001,858)		(49,227,055)
Total Stockholders’ Equity (Deficit)		(6,086,559)		(22,875,938)

Total Liabilities & Stockholders’ Equity (Deficit)	$	2,807,289	$	2,857,871


		Three months ended September 30,				Nine months ended September 30,
		2017		2016		2017		2016
REVENUES
Service	$	932,140	$	704,489	$	2,197,683	$	1,988,584
Rent and interest		32,902		25,565		99,251		93,398
Product Sales		14,949		80,326		235,767		122,452
Total revenues		979,991		810,380		2,532,701		2,204,434

COSTS AND EXPENSES
Cost of service revenues		752,154		564,687		1,757,241		1,547,474
Cost of goods sold		32,459		68,992		240,577		112,649
Selling, general and administrative		657,532		409,403		1,976,244		1,146,022
Share-based expense		839,322		872,217		2,995,251		1,974,191
Professional fees		126,303		95,520		454,591		276,706
Depreciation and amortization		39,885		97,988		88,788		292,329
Total costs and expenses		2,447,655		2,108,807		7,512,692		5,349,371

OPERATING LOSS		(1,467,664)		(1,298,427)		(4,979,991)		(3,144,937)

OTHER (INCOME) EXPENSE
Amortization of debt discount		284,900		111,837		1,134,432		327,455
Interest expense		81,563		5,276,550		240,380		5,381,125
Loss on extinguishment of debt		–		1,728,280		–		2,086,280
(Gain) loss on derivative warrant liability		(2,421,000)		6,032,000		(10,580,000)		6,032,000
Total other (income) expense,net		(2,054,537)		13,148,667		(9,205,188)		13,826,860

NET INCOME (LOSS)	$	586,873	$	(14,447,094)	$	4,225,197	$	(16,971,797)

PER SHARE DATA
Net income (loss) per share:
Basic	$	0.03	$	(0.93)	$	0.21	$	(1.11)
Diluted		(0.06)		(0.93)		(0.21)		(1.11)
Weighted average number of common shares outstanding:
Basic		20,654,502		15,495,421		19,883,329		15,270,968
Diluted		29,186,775		15,495,421		29,624,188		15,270,968


		September 30, 2017		December 31, 2016
12% Notes	$	2,081,250	$	2,750,000
Unamortized debt discount		(800,318)		(1,934,750)
Long-term portion	$	1,280,932	$	815,250


		Amount		Number of Shares
December 31, 2016	$	–	$	–
Acquisition of Mile High		155,000		104,359
Sale of common stock and warrants		175,000		175,000
September 30, 2017	$	330,000	$	279,359


	Three months ended
	September 30, 2017	June 30, 2017	March 31, 2017
Stock price on valuation date	$1.43	$1.37 – 2.20	$2.21 – 3.25
Risk-free interest rate	1.5%	1.3 – 1.4%	1.3 – 1.5%
Expected dividend yield	–	–	–
Expected term (in years)	2.0	2.2 – 2.5	2.5 – 2.7
Expected volatility	128%	131 – 134%	146 – 153%
Number of iterations	5	5	5


December 31, 2016	$	23,120,000
Decrease in fair value		(10,580,000)
Reclassification to additional paid-in capital upon exercise of warrants		(7,301,000)
September 30, 2017	$	5,239,000


	Number of Shares		Weighted-average Exercise Price per Share	Weighted-average Remaining Contractual Term (in years)		Aggregate Intrinsic Value
Outstanding at December 31, 2016	8,818,400	$	1.04
Granted	1,116,400		1.78
Exercised	(367,240)		1.09
Forfeited	(554,050)		0.75
Outstanding at September 30, 2017	9,013,510		1.14	2.2	$	6,211,944

Exercisable at September 30, 2017	7,984,960	$	1.00	1.9	$	5,726,885


		Nine months ended September 30,					Percent
		2017		2016		Change	Change
Revenues	$	2,532,701	$	2,204,434	$	328,267	15%
Costs and expenses		(7,512,692)		(5,349,371)		(2,163,321)	40%
Other income (expense)		9,205,188		(13,826,860)		23,032,048	(167)%
Net income (loss)	$	4,225,197	$	(16,971,797)	$	21,196,994	(125)%