UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

☑ Quarterly report pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934

for the quarterly period ended ~~September~~June 30, ~~2022.~~2023.

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

for the transition period from ____________ to ____________.

Commission file number: 000-54457

TREES CORPORATION

(Exact name of registrant as specified in its charter)


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

~~1901 S Navajo Street~~215 Union Boulevard, Suite 415 ~~Denver~~Lakewood, CO ~~80223~~80228
(Address of principal executive offices) (Zip Code)

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

Securities registered pursuant to Section 12(b) of the Act:


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

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to the filing requirements for the past 90 days. Yes þ No ☐

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). Yes þ No ☐

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer”, “accelerated filer,” “smaller reporting company” and “emerging growth company” in rule 12b-2 of the Exchange Act.


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

If an emerging growth company, indicate by check mark if the Registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards pursuant to Section 13(a) of the Exchange Act. ◻

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ☐ No þ

As of ~~November 7, 2022,~~August 9, 2023, there were ~~96,192,184~~118,664,094 issued and outstanding shares of the Company's common stock.

Table of Contents

TREES CORPORATION

FORM 10-Q

TABLE OF CONTENTS

Table of Contents

PART I. FINANCIAL INFORMATION

ITEM 1. FINANCIAL STATEMENTS

TREES CORPORATION

CONDENSED CONSOLIDATED BALANCE SHEETS

September 30, 2022

December 31, 2021

(unaudited)

Assets




Current assets




Cash and cash equivalents

$
1,964,660

$
2,054,050
Restricted cash

4,037,500

—
Accounts receivable, net of allowance of $38,000 and $61,000, respectively

165,217

80,188
Current portion of notes receivable, net of allowance of nil and $43,108, respectively

—

73,000
Inventories, net

1,201,293

1,123,083
Prepaid expenses and other current assets

168,553

149,075
Total current assets

7,537,223

3,479,396

Right-of-use operating lease asset

2,951,736

3,065,152
Property and equipment, net

606,474

680,327
Intangible assets, net

2,087,946

5,999,813
Goodwill

14,612,038

8,799,657
Total assets

$
27,795,417

$
22,024,345

Liabilities and Stockholders' Equity

Current liabilities


Accounts payable

$
2,195,532

$
1,170,708
Interest payable

63,000

621,085
Income tax payable

254,000

—
Operating lease liability, current

663,883

721,809
Accrued stock payable

60,900

444,894
Accrued dividends

70,800

—
Warrant derivative liability

13,358

28,317
Notes payable - current

1,307,569

1,094,398
Total current liabilities

4,629,042

4,081,211

Operating lease liability, non-current

2,343,362

2,427,762
Notes payable - long-term (net of discount)

12,146,691

5,619,570
Related party long-term notes payable (net of discount)

332,204

288,229
Total liabilities

19,451,299

12,416,772

Commitments and contingencies (Note 9)

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; 96,192,184 shares and 89,551,993 shares issued and outstanding, respectively

96,192

89,552
Additional paid-in capital

94,814,583

92,265,390
Accumulated deficit

(87,640,103)

(83,820,815)
Total stockholders’ equity

8,344,118

9,607,573
Total liabilities and stockholders’ equity

$
27,795,417

$
22,024,345


	June 30, 2023		December 31, 2022
	(unaudited)
Assets
Current assets
Cash and cash equivalents	$	643,968	$	2,583,833
Accounts receivable, net of allowance of $42,000, respectively		114,052		41,373
Inventories, net		2,329,236		2,066,662
Prepaid expenses and other current assets		280,070		259,598
Total current assets		3,367,326		4,951,466

Right-of-use operating lease asset		3,108,601		3,866,406
Property and equipment, net		1,809,732		1,947,969
Intangible assets, net		2,697,580		2,543,898
Goodwill		18,384,974		18,384,974
Total assets	$	29,368,213	$	31,694,713

Liabilities and Stockholders' Equity

Current liabilities
Accounts payable and accrued expenses	$	3,500,873	$	1,899,450
Interest payable		981,157		488,813
Income tax payable		290,659		204,917
Operating lease liability, current		1,238,647		1,433,184
Finance lease liability, current		64,455		55,777
Accrued stock payable		60,900		60,900
Accrued dividends		106,200		88,500
Warrant derivative liability		289		5,508
Accrued legal fees - current		90,000		—
Notes payable - current		1,879,173		1,903,344
Total current liabilities		8,212,353		6,140,393

Operating lease liability, non-current		2,016,117		2,541,590
Finance lease liability, non-current		671,468		706,653
Accrued legal fees, non-current		60,000		—
Notes payable - non-current (net of unamortized discount)		15,896,725		15,899,588
Total liabilities		26,856,663		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		98,644,211		98,598,761
Accumulated deficit		(97,324,771)		(93,384,382)
Total stockholders’ equity		2,511,550		6,406,489
Total liabilities and stockholders’ equity	$	29,368,213	$	31,694,713

See Notes to unaudited condensed consolidated financial statements.

Table of Contents

TREES CORPORATION

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS

(Unaudited)


	Three months ended				Nine months ended				Three months ended				Six months ended
	September 30,				September 30,				June 30,				June 30,
	2022		2021		2022		2021		2023		2022		2023		2022
Revenue
Retail sales	$	3,080,778	$	855,841	$	9,536,659	$	855,841	$	5,079,564	$	3,158,335	$	10,190,183	$	6,455,881
Cultivation sales		96,399		809,801		449,553		2,157,742		18,430		77,392		18,430		353,154
Interest		—		—		—		14,472
Total revenue		3,177,177		1,665,642		9,986,212		3,028,055		5,097,994		3,235,727		10,208,613		6,809,035

Costs and expenses
Cost of sales		2,036,532		1,473,209		5,856,995		2,539,840		3,230,777		1,745,575		6,288,491		3,820,463
Selling, general and administrative		1,462,902		672,981		4,001,816		1,853,731		2,485,751		1,212,796		4,781,991		2,538,914
Stock-based compensation		38,460		131,836		156,961		194,120		18,054		42,386		45,450		118,501
Professional fees		197,565		144,289		716,410		760,437		543,566		237,461		1,151,110		518,845
Depreciation and amortization		98,915		115,355		190,770		305,824		290,579		(139,991)		583,421		91,855
Total costs and expenses		3,834,374		2,537,670		10,922,952		5,653,952		6,568,727		3,098,227		12,850,463		7,088,578

Operating loss		(657,197)		(872,028)		(936,740)		(2,625,897)
Operating (loss) income										(1,470,733)		137,500		(2,641,850)		(279,543)

Other expenses (income)
Amortization of debt discount		1,285,392		216,516		1,716,334		470,306		220,077		216,661		401,754		430,942
Interest expense		213,833		150,503		564,229		444,186		716,728		176,045		1,166,039		350,396
Loss on extinguishment of debt		310,622		233,374		310,622		233,374
(Gain) loss on derivative liability		(16,365)		(52,452)		(14,959)		1,043,531		(3,912)		(59,258)		(5,219)		1,406
Gain on sale of assets		—		(132,979)		(13,000)		(131,512)
Loss (gain) on sale of assets										2,400		(13,000)		2,400		(13,000)
Other (income)										(369,871)		—		(369,871)		—
Total other expenses, net		1,793,482		414,962		2,563,226		2,059,885		565,422		320,448		1,195,103		769,744

Net loss from continuing operations before income taxes		(2,450,679)		(1,286,990)		(3,499,966)		(4,685,782)		(2,036,155)		(182,948)		(3,836,953)		(1,049,287)

Provision for income taxes		254,000		—		254,000		—		—		—		85,736		—
Loss from continuing operations		(2,704,679)		(1,286,990)		(3,753,966)		(4,685,782)		(2,036,155)		(182,948)		(3,922,689)		(1,049,287)

Income (loss) from discontinued operations, net of tax		195		(40,605)		5,478		(377,134)
Income from discontinued operations, net of tax										—		—		—		5,283
Net loss	$	(2,704,484)	$	(1,327,595)	$	(3,748,488)	$	(5,062,916)	$	(2,036,155)		(182,948)	$	(3,922,689)	$	(1,044,004)

Accrued preferred stock dividend		(70,800)		—		(70,800)		—		—		—		(17,700)		—

Net loss attributable to common stockholders	$	(2,775,284)	$	(1,327,595)	$	(3,819,288)	$	(5,062,916)	$	(2,036,155)		(182,948)	$	(3,940,389)	$	(1,044,004)


Per share data - basic and diluted
Net loss from continuing operations per share	$	(0.03)	$	(0.02)	$	(0.04)	$	(0.07)	$	(0.02)	$	(0.00)	$	(0.03)	$	(0.01)
Net loss from discontinued operations per share	$	0.00	$	0.00	$	0.00	$	(0.01)	$	0.00	$	0.00	$	0.00	$	0.00
Net loss attributable to common stockholders per share	$	(0.03)	$	(0.02)	$	(0.04)	$	(0.08)	$	(0.02)	$	(0.00)	$	(0.03)	$	(0.01)
Weighted average number of common shares outstanding		96,192,184		69,122,293		96,046,246		64,381,989		118,664,094		96,192,184		118,664,094		95,972,067

See Notes to unaudited condensed consolidated financial statements.

Table of Contents

TREES CORPORATION

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(Unaudited)


	Nine months ended September 30,				Six months ended June 30,
	2022		2021		2023		2022
Cash flows from operating activities
Net loss	$	(3,748,488)	$	(5,062,916)	$	(3,922,689)	$	(1,044,004)
Adjustments to reconcile net loss to net cash used in operating activities:
Adjustments to reconcile net loss to net cash (used in) provided by operating activities:
Amortization of debt discount and equity issuance costs		1,716,334		470,306		401,754		430,942
Depreciation and amortization		190,770		317,183		583,421		91,855
Loss on extinguishment of debt		310,622		233,374
Non-cash lease expense		670,685		364,520		40,829		447,766
Bad debt recovery		(10,280)		(44,163)
(Gain) loss on disposal of property and equipment		(13,000)		1,467
Loss on warrant derivative liability		(14,959)		1,043,531
Bad debt expense						—		1,156
Loss (gain) on disposal of property and equipment						2,400		(13,000)
(Gain) loss on derivative liability						(5,219)		1,406
Stock-based compensation		156,961		194,120		45,450		118,501
Changes in operating assets and liabilities, net of acquisitions
Accounts receivable		(76,749)		258,811		(72,679)		55,972
Prepaid expenses and other assets		(19,478)		559,073		(20,472)		(25,094)
Inventories		(78,210)		72,711		(262,574)		(207,701)
Income taxes		254,000		—		85,742		—
Accounts payable and accrued liabilities		466,744		(566,932)
Accounts payable, accrued liabilities, and interest payable						2,243,767		398,802
Operating lease liabilities		(699,595)		(330,215)		(3,035)		(502,090)
Net cash used in operating activities:		(894,643)		(2,489,130)
Net cash used in operating activities						(883,305)		(245,489)

Cash flows from investing activities
Purchase of property and equipment		(33,903)		(323,879)		(10,732)		(14,210)
Acquisition of Station 2 assets						(256,582)		—
Proceeds for sale of equipment		13,000		208,761		—		13,000
Proceeds on notes receivable		75,000		433,393		—		75,000
Acquisition of TDM, LLC		—		(1,122,015)
Acquisition of TREES MLK		(256,582)		—
Net proceeds from sale of Next Big Crop		—		(132,979)
Acquisition of Trees MLK						—		(256,582)
Net cash used in investing activities		(202,485)		(936,719)		(267,314)		(182,792)

Cash flows from financing activities
Proceeds from exercise of stock options		—		194,634
Proceeds from preferred stock offering		—		1,180,000
Proceeds from notes payable		9,912,250		3,960,000
Payments on notes payable		(4,867,012)		(200,000)
Net cash provided by financing activities		5,045,238		5,134,634
Payments on notes payable and finance lease						(789,246)		(552,873)
Net cash used in financing activities						(789,246)		(552,873)

Net increase in cash and cash equivalents		3,948,110		1,708,785
Net decrease in cash and cash equivalents						(1,939,865)		(981,154)
Cash and cash equivalents, beginning of period		2,054,050		755,769		2,583,833		2,054,050
Cash and cash equivalents, end of period	$	6,002,160	$	2,464,554	$	643,968	$	1,072,896

Supplemental schedule of cash flow information
Cash paid for interest	$	1,122,314	$	16,224	$	673,695	$	175,670
Cash paid for taxes					$	6	$	—

Non-cash investing & financing activities
Operating lease right-of-use asset/Operating lease liability	$	172,053	$	700,351
Issuance of accrued stock	$	383,994	$	—
12% Warrants recorded as a debt discount and additional paid-in capital	$	569,223	$	—
12% Warrants recorded as a loss on extinguishment of debt and additional paid-in capital	$	103,577	$	—
Accrued dividends on preferred stock	$	70,800	$	—
Cashless warrant exercise	$	—	$	1,557,078
Beneficial conversion feature	$	—	$	1,110,039
10% Warrants recorded as a loss on extinguishment of debt and additional paid-in capital	$	—	$	1,239,300
Issuance of common stock to a consultant	$	—	$	120,142
Operating lease right-of-use asset obtained in exchange for new operating lease liabilities					$	348,825	$	172,053
Non-cash debt issuance for acquisition of Station 2 assets					$	333,953	$	—
Accrued dividends					$	17,700	$	383,994

See Notes to unaudited condensed consolidated financial statements.

Table of Contents

TREES CORPORATION

CONDENSED CONSOLIDATED STATEMENTS OF CHANGES

IN STOCKHOLDERS’ EQUITY ~~(DEFICIT)~~


	For the three months ended June 30, 2023
	Preferred Stock			Common Stock			Additional		Accumulated
	Shares	Amount		Shares	Amount		Paid-in Capital		Deficit		Total
April 1, 2023	1,180	$	1,073,446	118,664,094	$	118,664	$	98,626,157	$	(95,288,616)	$	4,529,651
Share-based compensation	—		—	—		—		18,054		—		18,054
Net loss	—		—	—		—		—		(2,036,155)		(2,036,155)
June 30, 2023	1,180	$	1,073,446	118,664,094	$	118,664	$	98,644,211	$	(97,324,771)	$	2,511,550

	For the three months ended June 30, 2022
	Preferred Stock			Common Stock			Additional		Accumulated
	Shares	Amount		Shares	Amount		Paid-in Capital		Deficit		Total
April 1, 2022	1,180		1,073,446	96,192,184		96,191		94,060,936		(84,681,871)		10,548,702
Share-based compensation								42,386				42,386
Net loss	—		—	—		—		—		(182,948)		(182,948)
June 30, 2022	1,180	$	1,073,446	96,192,184	$	96,191	$	94,103,322	$	(84,864,819)	$	10,408,140

For the three months ended September 30, 2022

Preferred Stock

Common Stock

Additional

Accumulated

Shares

Amount

Shares

Amount

Paid-in Capital

Deficit

Total
July 1, 2022

1,180

$
1,073,446

96,192,184

$
96,192

$
94,103,321

$
(84,864,819)

$
10,408,140
Warrants issued with 12% Notes

—

—

—

—

672,802

—

672,802
Share-based compensation

—

—

—

—

38,460

—

38,460
Dividends on preferred stock

—

—

—

—

—

(70,800)

(70,800)
Net loss

—

—

—

—

—

(2,704,484)

(2,704,484)
September 30, 2022

1,180

$
1,073,446

96,192,184

$
96,192

$
94,814,583

$
(87,640,103)

$
8,344,118

For the three months ended September 30, 2021

Preferred Stock

Common Stock

Additional

Accumulated

Shares

Amount

Shares

Amount

Paid-in Capital

Deficit

Total
July 1, 2021

—

$
—

62,266,275

$
62,264

$
80,140,373

$
(78,686,757)

$
1,515,880
Common stock issued upon exercise of stock options

—

—

33,140

33

12,892

—

12,925
Common stock issued to a consultant

—

—

34,140

34

20,108

—

20,142
Common stock issued for acquisition of TDM, LLC

—

—

22,380,310

22,380

10,384,464

—

10,406,844
Preferred shares issued

1,180

1,073,446

—

—

—

—

1,073,446
Warrants issued with preferred stock

—

—

—

—

106,554

—

106,554
Modification of Warrants

—

—

—

—

233,374

—

233,374
Modification of Options

—

—

—

—

21,525

—

21,525
Stock-based compensation

—

—

—

—

110,311

—

110,311
Net loss

—

—

—

—

—

(1,327,595)

(1,327,595)
September 30, 2021

1,180

$
1,073,446

84,713,865

$
84,711

$
91,029,601

$
(80,014,352)

$
12,173,406


													For the six months ended June 30, 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													—		—	—		—		45,450		—		45,450
Dividends on preferred stock													—		—	—		—		—		(17,700)		(17,700)
Net loss													—		—	—		—		—		(3,922,689)		(3,922,689)
June 30, 2023													1,180	$	1,073,446	118,664,094	$	118,664	$	98,644,211	$	(97,324,771)	$	2,511,550

	For the nine months ended September 30, 2022												For the six months ended June 30, 2022
	Preferred Stock			Common Stock			Additional		Accumulated				Preferred Stock			Common Stock			Additional		Accumulated
	Shares	Amount		Shares	Amount		Paid-in Capital		Deficit		Total		Shares	Amount		Shares	Amount		Paid-in Capital		Deficit		Total
January 1, 2022	1,180	$	1,073,446	89,551,993	$	89,551	$	92,265,391	$	(83,820,815)	$	9,607,573	1,180	$	1,073,446	89,551,993	$	89,550	$	92,265,392	$	(83,820,815)	$	9,607,573
Common stock issued for acquisition of Trees Waterfront LLC	—		—	1,669,537		1,670		382,324		—		383,994	—		—	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	—		—	4,970,654		4,971		1,337,105		—		1,342,076
Warrants issued with 12% Notes	—		—	—		—		672,802		—		672,802
Share-based compensation	—		—	—		—		156,961		—		156,961	—		—	—		—		118,501		—		118,501
Dividends on preferred stock	—		—	—		—		—		(70,800)		(70,800)
Net loss	—		—	—		—		—		(3,748,488)		(3,748,488)	—		—	—		—		—		(1,044,004)		(1,044,004)
September 30, 2022	1,180	$	1,073,446	96,192,184	$	96,192	$	94,814,583	$	(87,640,103)	$	8,344,118

	For the nine months ended September 30, 2021
	Preferred Stock			Common Stock			Additional		Accumulated
	Shares	Amount		Shares	Amount		Paid-in Capital		Deficit		Total
January 1, 2021	—	$	—	60,813,673	$	60,813	$	75,891,414	$	(74,951,436)	$	1,000,791
Common stock issued to a consultant	—		—	146,499		146		119,996		—		120,142
Common stock issued upon exercise of stock options	—		—	366,760		367		194,267		—		194,634
Common stock issued for acquisition of TDM, LLC	—		—	22,380,310		22,380		10,384,464		—		10,406,844
Warrants issued with 10% Notes	—		—	—		—		1,239,300		—		1,239,300
Beneficial conversion feature	—		—	—		—		1,110,039		—		1,110,039
Cashless exercise of warrants	—		—	1,006,623		1,005		1,556,073		—		1,557,078
Stock-based compensation	—		—	—		—		172,595		—		172,595
Preferred shares issued	1,180		1,073,446	—		—		—		—		1,073,446
Warrants issued with preferred stock	—		—	—		—		106,554		—		106,554
Modification of Warrants	—		—	—		—		233,374		—		233,374
Modification of Options	—		—	—		—		21,525		—		21,525
Net loss	—		—	—		—		—		(5,062,916)		(5,062,916)
September 30, 2021	1,180	$	1,073,446	84,713,865	$	84,711	$	91,029,601	$	(80,014,352)	$	12,173,406
June 30, 2022													1,180	$	1,073,446	96,192,184	$	96,191	$	94,103,322	$	(84,864,819)	$	10,408,140

See Notes to unaudited condensed consolidated financial statements.

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TREES CORPORATION

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

NOTE 1. NATURE OF OPERATIONS, HISTORY, AND PRESENTATION

Nature of Operations

TREES Corporation, a Colorado Corporation (the “Company,” “we,” “us,” or “our,”) ~~(formerly, General Cannabis Corp), was incorporated on June~~ ~~3, 2013,~~is a cannabis retailer and ~~provides services and products to~~cultivator in the regulated cannabis industry. On June 8, 2022, our shareholders, upon recommendation of the Board, approved an amendment to our Amended and Restated Articles of Incorporation at our 2022 Annual Meeting of Stockholders. The amendment to our Amended and Restated Articles of Incorporation was filed with the Secretary of State of the StateStates of Colorado ~~on June 8, 2022~~ and ~~formally changed the name of the Company to TREES Corporation. As of September 30, 2022, our operations are segregated into the following segments:~~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

~~Retail (“Retail Segment”)~~

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We also operate three (3) cultivation facilities in Colorado as follows:


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

~~Through~~


	●	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 retail and cultivation segments utilizing the combined experience of entrepreneurs and synergistic operations of our acquisition of TDM, LLC (“TREES Englewood”) in September 2021, our acquisition of Trees Portland, LLC, Trees Waterfront, LLC in December 2021 and our acquisition of Trees MLK, LLC in January 2022, we operate a retail dispensary store in Englewood, Colorado and three ~~retail stores in Portland, Oregon.~~

~~Cultivation (“Cultivation Segment”)~~

~~Through our acquisition of SevenFive Farm ("SevenFive") in May 2020, we operate a 17,000 square foot licensed light deprivation greenhouse cultivation facility.~~vertically integrated network.

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

Through Next Big Crop (“NBC”), we delivered comprehensive consulting services to the cannabis industry that included obtaining licenses, compliance, cultivation, retail operations, logistical support, facility design and construction, and expansion of existing operations.

NBC oversaw our wholesale equipment and supply business, operating under the name “GC Supply,” which provided turnkey sourcing and stocking services to cultivation, retail, and infused products manufacturing facilities. Our products included building materials, equipment, consumables, and compliance packaging. NBC also provided operational support for our internal cultivation. On July 16, 2021, we entered into an Asset Purchase Agreement with an individual to sell substantially all the assets of NBC for a total of $150,000 and 10% of profits generated by the buyer in the states of Michigan, Mississippi, and Massachusetts for a period of twelve months from the closing. On August 2, 2021, the sale of NBC was completed. Pursuant to amendment, the buyer paid the additional ~~$75,000~~$75,000 in March 2022, and the 10% profit share described above was eliminated.

Basis of Presentation

The accompanying 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 for the year ended December 31, ~~2021,~~2022, was derived from audited financial statements but does not include all disclosures required by U.S. GAAP. The information included in this quarterly report on Form 10-Q should be read in conjunction with the audited consolidated financial statements and notes thereto of the Company for the year ended December 31, ~~2021,~~2022, which were included in the annual report on Form 10-K filed by the Company on ~~March 25, 2022.~~April 17, 2023.

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In the opinion of management, these unaudited condensed consolidated financial statements have been prepared on the same basis as the annual consolidated financial statements and notes thereto of the Company and include all adjustments, consisting only of normal recurring adjustments, considered necessary for the fair presentation of the Company's financial position and operating results. The results for the three and ~~nine~~six months ended ~~September~~June 30, ~~2022,~~2023, are not necessarily indicative of the operating results for the year ending December 31, ~~2022,~~2023, or any other interim or future periods. Since the date of the Annual Report, there have been no material changes to the Company’s significant accounting policies.

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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 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 if different conditions occur, impairment charges may result. In particular, the COVID-19 pandemic has adversely impacted and is likely to further adversely impact the Company's business and markets. The full extent to which the COVID-19 pandemic will directly or indirectly impact the Company's business, results of operations, and financial condition, including revenues, expenses, reserves and allowances, fair value measurements and asset impairment charges, will depend on future developments that are highly uncertain and difficult to predict. These developments include, but are not limited to, the duration and spread of the pandemic, its severity in our markets and elsewhere, governmental actions to contain the spread of the pandemic and respond to the reduction in global economic activity, and how quickly and to what extent normal economic and operating conditions can resume.

Concentrations of Credit Risk

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

Customer and Revenue Concentrations – Cultivation Segment

During the three months ended ~~September~~June 30, 2023 and 2022, ~~and 2021, 79% and 24%~~81% of SevenFive’s revenue was with two customers and 78% was with one ~~and two~~ ~~customers,~~customer, respectively. During the ~~nine~~six months ended ~~September~~June 30, 2023 and 2022, ~~and 2021,~~ ~~66% and 12%~~77% of SevenFive’s revenue was with two customers and 59% was with one customer, respectively. ~~The customer in 2022 is a~~These customers are related party ~~dispensary~~dispensaries and the revenues associated with ~~this customer is~~these customers are eliminated in consolidation.

~~Discontinued Operations~~

~~On July 16, 2021, we entered into an Asset Purchase Agreement~~During the three months ended June 30, 2023, 90% of Green Tree’s revenue was with ~~an individual to sell substantially all~~four customers. During the six months ended June 30, 2023, 83% of ~~the assets of NBC for a total of $150,000 and 10% of profits generated by the buyer~~Green Tree’s revenue was with three customers. The customers 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 amendment, the buyer paid the additional~~ ~~$75,000 in March 2022,~~2023 are related party dispensaries and the ~~10%~~ ~~profit share described above was eliminated.~~

~~On January 1, 2021, we discontinued our investments segment. As this is not a materially significant segment, we have not shown the effects of the discontinued segment separately~~revenues associated with these customers are eliminated in ~~the financial statements.~~consolidation.

~~The cash flows related to discontinued operations have not been segregated and are included in the consolidated statements of cash flows.~~

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Going Concern

We incurred net losses of ~~$2,704,484~~$2,036,155 and ~~$3,748,488~~$3,922,689 during the three and ~~nine~~six months ended ~~September~~June 30, ~~2022,~~2023, respectively and ~~$1,327,595~~$182,948 and ~~$5,062,916~~$1,044,004 for the three and ~~nine~~six months ended ~~September~~June 30, ~~2021,~~2022, respectively, and had an accumulated deficit of ~~$87,640,103~~$97,324,771 as of ~~September~~June 30, ~~2022.~~2023. We had cash and cash equivalents of ~~$1,964,660~~$643,968 and ~~$2,054,050~~$2,583,833 as of ~~September~~June 30, ~~2022,~~2023, and December 31, ~~2021,~~2022, respectively.

The accompanying unaudited condensed consolidated financial statements have been prepared on the basis of continuity of operations, realization of assets, and the satisfaction of liabilities and commitments in the ordinary course of business. We have incurred recurring losses and negative cash flows from operations since inception and have primarily funded our 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. Our unaudited condensed consolidated financial statements do not include any adjustments that might result from the outcome of this uncertainty.

Our ability to continue as a going concern is dependent upon our ability to raise additional capital to fund operations, support our planned investing ~~activities.~~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.

Summary of Significant Accounting Policies

See our Annual Report on Form 10-K for the year ended December 31, ~~2021,~~2022, for discussion of the Company's significant accounting policies.

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Recently Issued Accounting Standards

FASB ASU 2020-06 – “Debt-Debt with Conversion and Other Options (Subtopic 470-20) and Derivatives and Hedging-Contracts in Entity’s Own Equity (Subtopic 815-40): Accounting for Convertible Instruments and Contracts in an Entity’s Own Equity”- In June 2020, the Financial Accounting Standards Board (“FASB”) issued guidance which simplifies accounting for convertible instruments by removing major separation models required under current GAAP. Accounting Standards Updates (“ASU”) also removes certain settlement conditions that are required for equity contracts to qualify for the derivative scope exception and simplifies the diluted earnings per share calculation in certain areas. The amendments in this ASU are effective for annual and interim periods beginning after December 15, 2023, although early adoption is permitted. ~~The Company is currently evaluating the impact of the adoption of the standard on the consolidated financial statements.~~

~~FASB ASU 2019-12 – “Income Taxes (Topic 740)”~~ –In December 2019, the FASB issued guidance which simplifies certain aspects of accounting for income taxes. The guidance is effective for interim and annual reporting periods beginning after December 15, 2020, and early adoption is permitted. We adopted this ASU in the first quarter of ~~2021. This ASU~~2022, and the adoption did not have a material effect on our ~~condensed consolidated~~ financial statements.

NOTE 2. BUSINESS ACQUISITION

On ~~September 2, 2021,~~December 12, 2022, we completed the Green Tree Acquisition which consisted of the acquisition of substantially all of the assets of ~~TREES Englewood, representing~~Ancient Alternatives LLC, Natural Alternatives For Life, LLC, Mountainside Industries, LLC, Hillside Enterprises, LLC, and GT Creations, LLC, each a ~~portion~~Colorado limited liability company (collectively, the "Green Tree Entities”). We assumed certain operating obligations at closing, including certain manufacturing agreements between GT Creations and affiliates of the overall Trees transaction (“Trees Transaction”) previously disclosed pursuant to that certain First Amended and Restated Agreement and Plan of Reorganization and Liquidation dated May 28, 2021, by and among the Company, seller and certain other sellers party thereto, that consistsGreen Tree Entities. Allyson Feiler, a principal owner of the ~~assets relating~~Green Tree Entities, was also elected to our Board of Directors effective the ~~Trees dispensary located in Englewood, Colorado (“Englewood Closing”).~~ date of acquisition.

We paid ~~$1,155,256 in~~ cash in ~~connection with~~ the ~~Englewood Closing~~amount of $500,000 and stock consideration of ~~22,380,310~~17,977,528 shares of our Common Stock. The closing price of our ~~common stock~~Common Stock on ~~September 2, 2021,~~December 12, 2022, the date of license transfer, was ~~$0.47~~$0.165 per share, as such, fair value of the equity consideration is ~~$10,518,746. Further,~~$2,966,292. An additional $3,500,000 in cash ~~equal to $1,732,884~~ will be paid to the ~~seller~~sellers infifteen (15) equal monthly ~~installments over a period of 24 months~~ ~~from~~payments commencing on the ~~Englewood Closing. As of September 30, 2022, we have completed the allocation~~9-month anniversary of the ~~purchase price.~~closing. Based on a discount rate of 12%, the ~~completed purchase price, there was an adjustment from the tradename to goodwill~~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 ~~amount of~~

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~~$3,601,000. As of September 30, 2022, the unaudited condensed~~accompanying consolidated balance ~~sheet includes an allocation of cash, fixed assets, inventory, intangible assets and goodwill.~~sheets.

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


Cash	$	32,941	$	3,928
Inventory				1,588,454
Fixed assets		59,335		688,655
Inventory		586,495
Tradename		1,399,000		950,000
Goodwill		11,216,913		3,255,679
	$	13,294,684	$	6,486,716

The accompanying unaudited condensed consolidated financial statements include the results of Trees Englewood from the date of acquisition for financial reporting purposes, September 2, 2021. The pro-forma effects of the acquisition on the results of operations as if the transaction had been completed on January 1, 2020, are as follows:

Three months ended

Nine months ended

September 30,

September 30,

2021

2021

Total revenues

$
2,766,183

$
8,847,507

Net income (loss) attributable to common stockholders

$
254,862

$
749,341

Net income (loss) per common share

$
0.00

$
0.01

Weighted average number of basic and diluted common shares outstanding

84,691,204

84,384,904

~~The unaudited pro-forma results of operations are presented for information purposes only. The unaudited pro-forma results are~~We have not intended to present actual results that would have been attained had the acquisition been completed as of January 1, 2020, or to project potential operating results as of any future date or for any future periods.

On December 30, 2021, we completed the acquisition of substantially all the assets of Trees Portland, LLC and Trees Waterfront, LLC, representing a portion of the overall Trees Transaction, which consists of the assets relating to certain Trees dispensaries located in Portland, Oregon ("Oregon Closing”). We paid cash in the amount of $331,581 in connection with the Oregon Closing and stock consideration of 6,423,575 shares of our Common Stock. The closing price of our common stock on December 30, 2021, the date of license transfer, was $0.23 per share, as such, fair value of consideration is $1,477,422. Further, cash equal to $497,371 will be paid to the sellers in equal monthly installments over a period of 24 months ~~from the Oregon Closing. As of September 30, 2022, we have~~ completed the allocation of the purchase ~~price. Based on~~price for the ~~purchase price, there was an adjustment from the tradename to goodwill in the amount of~~ ~~$341,000~~.Green Tree Acquisition. As of ~~September~~June 30, ~~2022,~~2023, the ~~condensed~~ consolidated balance sheet includes ana preliminary allocation of ~~cash,~~ fixed assets, inventory, intangible assets, and goodwill.

~~The table below reflects~~ Management anticipates completing the ~~Company’s estimates of~~purchase price allocation as soon as possible, but no later than one year from the acquisition ~~date fair values of the assets acquired:~~

Cash

$
14,568
Fixed assets

56,015
Inventory

202,046
Tradename

509,000
Goodwill

1,524,744

$
2,306,373

date.

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The accompanying ~~unaudited condensed~~ consolidated financial statements include the results of ~~Trees Oregon~~the Green Tree Entities from the date of acquisition for financial reporting purposes, December ~~30, 2021.~~12, 2022. The ~~pro-forma~~pro forma effects of the acquisition on the results of operations as if the transaction had been completed on January 1, ~~2020,~~2022, are as follows:


	Three months ended		Nine months ended		Three months ended		Six months ended
	September 30,		September 30,		June 30,		June 30,
	2021		2021		2022		2022
Total revenues	$	450,296	$	1,190,985	$	2,898,973	$	5,302,493
Net income (loss) attributable to common stockholders	$	93,796	$	153,612
Net income (loss) attributable to Common Stockholders					$	511,727	$	518,524
Net income (loss) per common share	$	0.00	$	0.00	$	0.00	$	0.00
Weighted average number of basic and diluted common shares outstanding		75,545,868		70,805,564		113,727,033		113,727,033

The unaudited pro-forma results of operations are presented for information purposes only. The unaudited pro-forma results are not intended to present actual results that would have been attained had the acquisition been completed as of January 1, ~~2020,~~2022, or to project potential operating results as of any future date or for any future periods.

On ~~January 5,~~December 19, 2022, we completed the Green Man Acquisition, consisting of the acquisition of substantially all of the assets of ~~Trees MLK Inc. (“MLK”), representing the remaining Oregon dispensary in connection with the overall Trees transaction.~~Green Man. We paid cash in the amount of ~~$256,582~~$1,225,000 and stock consideration of ~~4,970,654~~4,494,382 shares of ~~our~~ Common Stock. The closing price of our ~~common stock~~Common Stock on ~~January 5,~~December 19, 2022, the date of license transfer, was ~~$0.27~~$0.18 per share, as such, fair value of the equity consideration is ~~$1,342,076. Further,~~$808,989. An additional $1,500,000 in cash ~~equal to~~ ~~$384,873~~ will be paid to the sellers in eighteen (18) equal monthly ~~installments over~~payments commencing on the 12-month anniversary of the closing. Based on a ~~period~~discount rate of ~~24 months~~ ~~from~~12%, the ~~MLK closing. When we closed on MLK it was a non-operating dispensary. We opened the dispensary~~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 ~~second quarter of 2022.~~ ~~As of September 30, 2022, we have completed the allocation of the purchase price. Based on the purchase price, there was an adjustment from the tradename to goodwill in the amount of~~ ~~$912,000. As of September 30, 2022, the unaudited condensed~~accompanying consolidated balance ~~sheet includes an allocation of fixed assets, intangible assets and goodwill.~~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	$	25,150		23,500
Tradename		88,000		150,000
Goodwill		1,870,381		2,968,198
	$	1,983,531	$	3,258,835

We have not completed the allocation of the purchase price for the Green Man Acquisition. As of June 30, 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 ~~unaudited condensed~~ consolidated financial statements include the results of ~~Trees MLK~~Green Man from the date of acquisition for financial reporting purposes, ~~January 5,~~December 19, 2022. The ~~pro-forma~~pro forma effects of the acquisition on the results of operations as if the transaction had been completed on January 1, ~~2021,~~2022, are as follows:


	Three months ended				Nine months ended				Three months ended		Six months ended
	September 30,				September 30,				June 30,		June 30,
	2022		2021		2022		2021		2022		2022
Total revenues	$	69,161	$	—	$	91,579	$	—	$	1,383,551	$	2,820,461
Net income (loss) attributable to common stockholders	$	(51,105)	$	(29,022)	$	(94,693)	$	(106,691)
Net income (loss) attributable to Common Stockholders									$	(545,791)	$	(456,360)
Net income (loss) per common share	$	(0.00)	$	(0.00)	$	(0.00)	$	(0.00)	$	(0.01)	$	0.00
Weighted average number of basic and diluted common shares outstanding		96,192,184		74,092,947		96,155,491		69,352,643		100,243,887		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, ~~2021,~~2022, or to project potential operating results as of any future date or for any future periods.

NOTE 3. ASSET ACQUISITION

~~Table~~

In February 2023, we completed the acquisition of ~~Contents~~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 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 note equal to $384,873. As the 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 June 30, 2023, the balance of the license was $565,931, which is recorded within Intangible assets, net in our condensed consolidated balance sheets.

NOTE 3.4. DISCONTINUED OPERATIONS

On July 16, 2021, we entered into an Asset Purchase Agreement with an individual to sell substantially all of the assets of NBC for a total of $150,000 and 10% of profits generated by the buyer in the states of Michigan, Mississippi, and Massachusetts for a period of twelve months from the closing. On August 2, 2021, the sale of NBC was completed. Pursuant to amendment, the buyer paid the additional ~~$75,000~~$75,000 in March 2022, and the 10% profit share described above was eliminated.

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

Three months ended

Nine months ended

September 30,

September 30,


2022

2021

2022

2021
Product revenues

$
—

$
463

$
3,438

$
614,764
Service revenues

—

4,116

—

523,994
Total revenues

—

4,579

3,438

1,138,758

Cost of sales

—

29,480

—

1,157,035
Selling, general and administrative

(195)

12,721

(2,040)

342,554
Professional fees

—

143

—

4,944
Depreciation and amortization

—

2,840

—

11,359
Total costs and expenses

(195)

45,184

(2,040)

1,515,892
Income (loss) from discontinued operations

$
195

$
(40,605)

$
5,478

$
(377,134)

The cash flows related to discontinued operations have not been segregated and are included in the consolidated statements of cash flows. The following table provides selected information on cash flows related to discontinued operations for the Operations Segment for the nine months ended September 30, 2022 and 2021.


	Nine months ended				Three months ended				Six months ended
	September 30,				June 30,				June 30,
	2022		2021		2023		2022		2023		2022
Accounts receivables	$	—	$	183,364
Prepaid expenses and other current assets		—		519,274
Product revenues					$	—	$	—	$	—	$	3,438
Service revenues						—		—		—		—
Total revenues						—		—		—		3,438

Cost of sales						—		—		—		—
Selling, general and administrative						—		—		—		(1,845)
Professional fees						—		—		—		—
Depreciation and amortization		—		231		—		—		—		—
Capital expenditures		—		—
Accounts payable and accrued expenses		—		—
Customer deposits		—		—
Total costs and expenses						—		—		—		(1,845)
Income from discontinued operations					$	—	$	—	$	—	$	5,283

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NOTE 4.5. INVENTORIES, NET

Our inventories consisted of the following:


	September 30,		December 31,		June 30,		December 31,
	2022		2021		2023		2022
Raw materials	$	12,127	$	13,343	$	8,883	$	8,883
Work-in-progress and finished goods		1,189,166		1,109,740		2,373,493		2,057,779
Less: Inventory reserves		—		—		(53,140)		—
Inventories, net	$	1,201,293	$	1,123,083	$	2,329,236	$	2,066,662

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NOTE 5.6. LEASES

~~On September 2, 2021, we entered into a commercial~~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 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 readily determinable, we used an estimated incremental borrowing rate of 20% in determining the present value of lease payments.

The operating lease expense for the three and six months ended June 30, 2023, and June 30, 2022, is as follows:


	For the three months ended June 30,				For the six months ended June 30,
	2023		2022		2023		2022
Straight-line operating lease expense	$	338,463	$	192,016	$	731,728	$	384,032
Variable lease cost		255,348		141,455		458,174		156,737
Total operating lease expense	$	593,811	$	333,471	$	1,189,902	$	540,769

The finance lease expense for the three months ended June 30, 2023, and June 30, 2022, was approximately $41,823 and nil, respectively. The finance lease expense for the six months ended June 30, 2023, and June 30, 2022, was approximately $83,647 and nil, respectively.

Related party leases

As of June 30, 2023, three of the Company’s operating leases, one retail dispensary lease, one cultivation facility lease, and 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 six months ended June 30, 2022, the related party operating leases consisted of one dispensary and one cultivation facility. During the three months ended June 30, 2022, the related party operating leases consisted of one dispensary and one cultivation facility. The retail dispensary lease was with a related party ~~(see Note 11) for retail space for our dispensary in Englewood, CO, with~~through May 2022, when the building was sold to an ~~initial term~~unaffiliated third-party. As of ~~5 years~~June 30, 2023, the ROU asset, operating lease liability, current, and ~~at our option, two additional terms of 3 years each. Rent is $10,000 per month with 3% annual escalations during the initial term and 4%~~ ~~annual escalations during the option term. We also pay our portion of real estate taxes. In June 2022, we amended the~~operating lease ~~to amend the option to renew for~~ ~~two additional terms of~~ ~~3 years~~ ~~each, amended to one additional term of 5 years. No other changes to the lease were made. We accounted~~liability, non-current for the ~~amendment as a lease modification~~related party leases were $925,826, $532,221, and ~~remeasured~~$456,033, respectively. For the ~~lease with an incremental borrowing rate of~~ ~~20% which resulted in a decrease of $25,805~~ ~~to the right-of-use operating lease asset~~three months ended June 30, 2023 and ~~lease liability from the initial lease valued on September 2, 2021. We determined the present value of the future lease payments using a discount rate of~~ ~~20% over a 9.25 remaining year term, resulting in a right-of-use asset and~~ ~~lease liability~~ ~~of $576,335 which are being applied ratably over the remaining term of the lease. As of September 30,~~ 2022, the ~~balance of~~total lease expense for related party leases was $127,790 and $75,849, respectively. For the ~~right-of-use asset~~six months ended June 30, 2023 and ~~lease liability was $557,556 and $564,624, respectively.~~

Through the acquisition of Trees Englewood, we entered into a commercial real estate lease for office space in Denver, CO. This office space is our corporate office. The lease expires in November 2022. Rent is $7,150 per month with a 3% escalation beginning in November 2021. We also pay our portion of real estate taxes. We determined the present value of the future lease payments using a discount rate of 20% over a 15-month term, resulting in a right-of-use asset and ~~lease liability~~ ~~of $98,211 which are being applied ratably over the term of the lease. As of September 30,~~ 2022, the ~~balance of the right-of-use asset~~total lease expense for related party leases was $255,580 and ~~lease liability was $14,311 and $14,367, respectively.~~

Through the acquisition of Trees Portland, we entered into a commercial real estate lease in Portland, OR. The lease expires in April 2027. Rent is $5,124 per month with a 5% annual escalation beginning in May 2022. The rent includes payment of property taxes. We determined the present value of the future lease payments using a discount of 20% over a 5.5-year term, resulting in a right-of-use asset and lease liability of $229,501. As of ~~September 30, 2022, the balance of the right-of-use asset and lease liability was $205,660 and $211,313, respectively.~~

~~Through the acquisition of Trees Waterfront, we entered into a commercial real estate lease in Portland, OR. The lease has an initial term of 5 years and, at our option an additional term of 5 years. The lease expires in March 2031. Rent is~~ $6,683 per month with a 3% annual escalation. The rent includes payment of property taxes. We determined the present value of the future lease payments using a discount rate of 20% over a 10-year term, resulting in a right-of-use asset and lease liability of $381,272. As of ~~September 30, 2022, the balance of the right-of-use asset and lease liability was $361,287 and $369,604, respectively.~~

~~Through the acquisition of Trees MLK, we entered into a commercial real estate lease in Portland, OR. The lease has an initial term of~~ ~~3 years and at our option two additional terms of 3 years~~ ~~each. The lease expires in July 2029. Rent is~~ ~~$3,150 per month with a 5%~~ ~~annual escalation. The rent includes payment of property taxes. We determined the present value of the future lease payments using a discount rate of~~ ~~20% over a 10-year term, resulting in a right-of-use asset and lease liability of $172,053. As of~~ ~~September 30, 2022, the balance of the right-of-use asset and lease liability was $160,267 and $165,744, respectively.~~

~~In April 2022, we entered into an Amendment to Lease with Dalton Farms, LLC, the landlord of our grow facility. Pursuant to the Lease Amendment, commencing April 1, 2022, base rent decreases to~~ ~~$27,000~~ per month for the remainder of 2022. Increases in base rent become effective January 1, 2023 and are as otherwise provided for in the original lease. We accounted for the amendment as a lease modification and remeasured the lease with an incremental borrowing rate of ~~20% which resulted in a decrease of $173,716 to the right-of-use operating lease asset and lease liability~~ ~~from the first amended lease valued in December 2021. We determined the present value of the future lease payments using a discount rate of~~ ~~20% over a 13 remaining year term, resulting in a right-of-use asset and~~ ~~lease liability~~ ~~of $1,703,707 which are being applied ratably over the remaining term of the lease. As of September 30, 2022, the balance of the right-of-use asset and lease liability was $1,652,655 and $1,681,593,~~$75,849, respectively.

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Lease Maturities

Future remaining minimum lease payments were as follows:


Year ending December 31,	Amount		Operating leases		Finance lease
2022 (remaining three months)	$	173,339
2023		656,415
2023 (remaining six months)			$	614,541	$	100,000
2024		685,056		1,252,825		205,400
2025		702,501		1,033,857		171,043
2026		720,840		764,190		136,940
2027				507,871		143,102
Thereafter		4,632,898		965,358		818,100
Total		7,571,049		5,138,642		1,574,585
Less: Present value adjustment		(4,563,804)		(1,883,878)		(838,662)
		3,007,245
Less: Current portion		(663,883)
Long-term operating lease liability	$	2,343,362
Lease liability				3,254,764		735,923
Less: Lease liability, current				(1,238,647)		(64,455)
Lease liability, non-current			$	2,016,117	$	671,468

The total remaining lease payments in the table above include $1,219,188 related to renewal option periods that management is reasonably certain will be exercised. The majority of this amount relates to the 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.

As of June 30, 2023, the weighted average remaining term of the Company’s operating leases is 4.71 years, and the remaining term on the finance lease is 9.50 years.

None of the Company’s leases contain residual value guarantees or restrictive covenants.

Supplemental cash flow information


For the six months ended June 30,	2023		2022
Supplemental cash flow information
Cash paid for amounts included in operating lease liability	$	701,661	$	170,276
Cash paid for amounts included in finance lease liability	$	100,000	$	—
Supplemental lease disclosures of non-cash transactions:
ROU assets obtained in exchange for operating lease liabilities	$	348,825	$	172,053

NOTE 6.7. ACCRUED STOCK PAYABLE

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


			Number of				Number of
	Amount		Shares		Amount		Shares
Balance as of December 31, 2020	$	94,861		359,415
Trees Waterfront acquisition stock accrual		383,994		1,669,537
Stock issued		(33,961)		(259,415)
Balance as of December 31, 2021	$	444,894		1,769,537	$	444,894		1,769,537
Stock issued		(383,994)		(1,669,537)		(383,994)		(1,669,537)
Balance as of September 30, 2022	$	60,900		100,000
Balance as of December 31, 2022					$	60,900		100,000
Stock issued						—		—
Balance as of June 30, 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.

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The outstanding balance of accrued stock payable as of June 30, 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 date of grant, the consultant will receive $60,900 worth of our Common Stock. As of June 30, 2023, none of the stock has been issued.

NOTE 7.8. NOTES PAYABLE

Our notes payable consisted of the following:


	September 30,		December 31,		June 30, 2023						December 31, 2022
	2022		2021		Third-party		Related-party		Total		Third-party		Related-party		Total
2022 12% Notes	$	13,167,795	$	—	$	13,167,796	$	332,204	$	13,500,000	$	13,167,796	$	332,204	$	13,500,000
2020 10% Notes		—		6,580,000
Related party note payable		332,204		320,000
Trees Acquisition Notes		1,518,755		2,013,644
2023 12% Notes						—		384,873		384,873		—		—		—
Trees Transaction Notes						—		429,125		429,125		—		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		(1,232,290)		(1,911,447)		(1,263,191)		(274,909)		(1,538,100)		(1,527,346)		(361,587)		(1,888,933)
		13,786,464		7,002,197
Total debt						14,179,355		3,596,543		17,775,898		13,915,200		3,887,732		17,802,932
Less: Current portion		(1,307,569)		(1,094,398)		(466,853)		(1,412,320)		(1,879,173)		(179,827)		(1,723,517)		(1,903,344)
Long-term portion	$	12,478,895	$	5,907,799	$	13,712,502	$	2,184,223	$	15,896,725	$	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 $184,902 and nil for the six months ended June 30, 2023 and June 30, 2022, respectively, and $93,831 and nil for the three months ended June 30, 2023 and June 30, 2022, respectively.

In December 2022, with the completion of the Green Man Acquisition, we are 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 $75,629 and nil for the six months ended June 30, 2023 and June 30, 2022, respectively, and $38,379 and nil for the three months ended June 30, 2023 and June 30, 2022, respectively.

12% Notes

On September 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. ~~Of the~~

~~$10,587,250, $4,037,500~~ ~~is held in restricted cash. These amounts are to be used for the acquisitions discussed in Note 13, subsequent events. In connection with the~~ ~~12%~~

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In connection with the 12% Notes, 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~~$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 was recorded as a debt discount and additional paid-in capital of ~~$569,223~~.$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~~.$103,577. We recorded amortization of debt discount expense from the 12% Notes of ~~$11,931~~$154,250 and nil for the six months ended June 30, 2023 and 2022, respectively, and $77,551 and nil for the three ~~and nine~~ months ended ~~September~~June 30, ~~2022~~2023 and ~~2021,~~June 30, 2022, respectively. We determined there was no beneficial conversion feature on the 12% Notes issued. The 12% Notes are treated as conventional debt.

For purposes of determining the debt discount, the underlying assumptions used in the ~~black-scholes~~Black-Scholes model to determine the fair value of the 12% Warrants as of September 15, 2022, were:


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

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 $384,873. 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 $16,552 for the six months ended June 30, 2023, and $9,840 for the three months ended June 30, 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 aggregate amount of ~~$1,000,000~~.$1,000,000. In connection with the issuance of the 10% Notes, the holders of the 10% Notes received warrants (the “10% 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 1,050,011 shares of our common stock. The 10% Notes bear interest at an annual rate of 10% and 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 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 $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 ~~$41,352~~nil and ~~$21,868~~$43,023 for the six months ended June 30, 2023 and 2022, and nil and $2,630 for the three months ended ~~September~~June 30, ~~2022~~2023 and ~~2021, respectively and $84,375 and $64,891~~ ~~during the nine months ended September~~June 30, 2022, ~~and 2021,~~ respectively. We determined there was no beneficial conversion feature on the 10% Notes issued in December 2020. The 10% Notes are treated as conventional debt.

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


Current stock price	$	0.53	$	0.53
Exercise price	$	0.56	$	0.56
Risk-free interest rate		0.38 %		0.38%
Expected dividend yield		—		—
Expected term (in years)		5.0		5.0
Expected volatility		115%		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~~.$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 ~~issued in February 2021~~ of ~~$454,741~~nil and ~~$71,150~~$139,980 for the six months ended June 30, 2023 and 2022, respectively, and nil and $70,377 for the three months ended ~~September~~June 30, 2023 and June 30, 2022, ~~and 2021, respectively and $594,721 and $180,968~~ ~~during the nine months ended September 30, 2022 and 2021,~~ respectively. The 10% Notes are treated as conventional debt.


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

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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~~.$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 ~~issued in April 2021~~ of ~~$775,638~~nil and ~~$126,025~~$247,939 for the six months ended June 30, 2023 and 2022, respectively, and nil and $124,654 for the three months ended ~~September~~June 30, ~~2022~~2023 and ~~2021, respectively and $1,023,577 and $224,446~~ ~~for the nine months ended September 30,~~ 2022, ~~and 2021,~~ respectively. The 10% Notes are treated as conventional debt.

For purposes of determining the debt discount, the underlying assumptions used in the ~~black-scholes~~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~~$207,045 was expensed to extinguishment of debt and $1,125,844 was expensed to amortization of debt discount.

NOTE 8.9. WARRANT DERIVATIVE LIABILITY

On May 31, 2019, we received gross proceeds of $3 million by issuing three million shares of our common stock and three million warrants (“2019 Warrants”) to purchase 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 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 ~~booked~~recorded an adjustment to the derivative liability of ~~$1,523,117~~$1,523,117 as a result.

During the six months ended June 30, 2023, and 2022, we recognized a $5,219 gain and $1,406 loss on the change in fair value of the derivative liability, respectively. During the three months ended June 30, 2023, and 2022, we recognized a $3,912 gain and $59,258 gain on the change in fair value of the derivative liability, respectively. As of ~~September~~June 30, ~~2022,~~2023, there were 322,807 of the 2019 Warrants outstanding.

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


	December 31,			September 30,			June 30,			December 31,
	2021			2022			2023			2022
Number of shares underlying the warrants		322,807			322,807			322,807			322,807
Fair market value of stock	$	0.22		$	0.19		$	0.09		$	0.15
Exercise price	$	0.40		$	0.40		$	0.40		$	0.40
Volatility		94	%		82	%		73	%		78	%
Risk-free interest rate		1.26	%		4.06	%		5.40	%		3.99	%
Warrant life (years)		2.41			1.66			0.92			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:


	Three months ended September 30,				Nine months ended September 30,				Three months ended June 30,				Six months ended June 30,
	2022		2021		2022		2021		2023		2022		2023		2022
Beginning balance	$	29,723	$	134,234	$	28,318	$	561,368	$	4,201	$	88,981	$	5,508	$	28,317
Warrant exercise		—		—		—		(1,523,118)		—		—		—		—
Change in fair value of warrants derivative liability		(16,364)		(52,453)		(14,959)		1,043,531		(3,912)		(59,258)		(5,219)		1,406
Ending balance	$	13,359	$	81,781	$	13,359	$	81,781	$	289	$	29,723	$	289	$	29,723

NOTE 9.10. 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 ~~$12,866.66.~~$12,867. In 2020, we made initial payments (first month’s rent and security deposit) of ~~$39,633.32;~~$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~~took 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~~

In June 2023, via mediation conducted through the Judicial Arbiter Group and a duly executed settlement agreement, we settled this ~~action~~litigation. As part of the settlement, Plaintiff agreed to waive and ~~believe~~release the Company et. al from all claims relating to the litigation; and in exchange, the Company has agreed to pay to Plaintiff an aggregate amount of $150,000, payable as follows: (i) one initial installment payment of $30,000 payable on August 1, 2023; and (ii) twenty (20) subsequent monthly payments of $6,000 each. In the event of default under the settlement agreement, the non-defaulting party must provide written notice and the defaulting party has a 7-day right of cure. The settlement agreement also provides for a ‘paper judgment’ in the event of an uncured default by the Company; in which event the full amount of $345,000 becomes due and payable. The parties will file a stipulated motion to administratively close the case and request that the ~~above-referenced force majeure clause presents a complete defense to Plaintiff’s claims.~~court retain jurisdiction until completion of the settlement payments.

In June 2020, our former Executive Chairman resigned, claiming the resignation was for "Good Reason" under the terms of his employment agreement. An ultimate determination that such resignation was, in fact, for "Good Reason", rather than a voluntary act absent "Good Reason," could enable certain potential claims for benefits under his employment agreement, including for severance, vesting of unvested options and/or for the extension of the term within which options could be exercised in the future. We do not believe that the resignation was for "Good Reason" but rather voluntary, and consequently, that any such potential claims, if asserted, would be without substantial merit. Although the outcome of legal proceedings is subject to uncertainty, the Company will vigorously defend any future claims relating to this matter.

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From time to time, we are a party to various litigation matters incidental to the conduct of its business. We are not presently a party to any legal proceedings that would have a material adverse effect on our business, operating results, financial condition, or cash flows.

NOTE ~~10.~~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 which we issued and sold Units consisting of Series A Convertible Preferred Stock (“Series A Preferred”) and warrants (the “Preferred Warrants”) to purchase shares of our common stock with a par value of $0.001 per share. The total number of Units sold was ~~1,180~~.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,~~$1,000, for an aggregate amount sold of ~~$1,180,000~~.$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~~.$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 ~~$1.05~~.$1.05. The warrants contain an anti-dilution provision pursuant to which upon ~~we do~~ a future capital raise at less than ~~$1.00~~$1.00 per share, each Preferred Investor will be granted additional Preferred Warrants on a ‘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~~$117,131 and per the relative fair value allocation, $1,073,446 was allocated to the Series A proceeds.

~~On September 10, 2022~~As of June 30, 2023 we have recorded an accrued ~~dividend~~dividends of ~~$70,800.~~$106,200.

Stock-based compensation

We use the fair value method to account for stock-based compensation on the grant date. We recorded ~~$24,958~~$18,054 and ~~$131,836~~$28,886 in compensation expense for the three months ended ~~September~~June 30, ~~2022~~2023 and ~~2021,~~2022, respectively and ~~$129,959~~$45,450 and ~~$194,120~~$105,001 for the ~~nine~~six months ended ~~September~~June 30, ~~2022~~2023 and ~~2021,~~2022, respectively. This includes expense related to options issued in prior years for which the requisite service period for those options includes the current period as well as options issued in the current period. Forfeited options result in a reversal in the period forfeited. The fair value of these instruments was calculated using the Black-Scholes option pricing method.

~~On September 3, 2021,~~During the year ended December 31, 2022, we ~~modified two~~ ~~employees stock~~granted options ~~in conjunction with revised employment agreements. As~~to purchase 250,000 common shares to directors. The options expire five years from the date of grant and vest over a ~~result~~period of one year. Fair value of the ~~modification, we recognized an additional~~ ~~$21,525 in compensation expense during~~awards at the ~~third quarter~~date of ~~2021.~~grants totaled $56,348.

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~~During the nine months ended September 30, 2022, we granted options to purchase 250,000~~ ~~common shares to directors. The options expire~~ ~~five years from the date of grant and vest over a period of one year. Fair value of the awards at the date of grants totaled~~ ~~$56,348.~~

The following summarizes Employee Awards activity:


				Weighted-						Weighted-
		Weighted-		Average				Weighted-		Average
		Average		Remaining				Average		Remaining
	Number of	Exercise Price		Contractual	Aggregate		Number of	Exercise Price		Contractual	Aggregate
	Shares	per Share		Term (in years)	Intrinsic Value		Shares	per Share		Term (in years)	Intrinsic Value
Outstanding as of December 31, 2021	4,903,545	$	1.09	5.3	$	22,000
Outstanding as of December 31, 2022							4,936,825	$	1.08	4.4	$	22,000
Granted	250,000		0.34				—		—
Exercised	—		—
Forfeited or expired	(216,720)		0.87				—		—
Outstanding as of September 30, 2022	4,936,825	$	1.08	4.7	$	22,000
Outstanding as of June 30, 2023							4,936,825	$	1.08	4.4	$	22,000

Exercisable as of September 30, 2022	4,314,445	$	1.16	4.7	$	4,000
Exercisable as of June 30, 2023							4,936,825	$	1.08	4.4	$	22,000

As of ~~September~~June 30, ~~2022,~~2023, there was ~~approximately $31,039 of total~~no unrecognized compensation expense related to unvested employee ~~awards, which is expected to be recognized over a weighted-average period of one month.~~awards.

On April 1, 2022 we entered into a Restricted Stock Unit Agreement with four participants. The Restricted Stock Unit’s (“RSU”) were granted pursuant to our 2020 Omnibus Incentive Plan. Four separate executives were each granted 300,000 RSU’s, for a total grant of 1,200,000 RSU’s. The 300,000 RSU’s are divided into three equal tranches of 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,~~$1.00, $2.00 and ~~$3.00~~.$3.00. Upon the RSU’s vesting, the participant will be promptly issued shares of our common stock. If there is a change in control, all unvested RSU’s granted under this agreement will become fully vested and the vested RSU’s will be paid out or settled. The fair value of these instruments is ~~$535,976~~$535,976 and was calculated using the Monte Carlo model. The fair value of 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~~.years. We recorded ~~$13,502~~$26,799 and ~~nil~~$13,500 in compensation expense for the six months ended June 30, 2023 and 2022, respectively, and $12,905 and $13,500 for the three months ended ~~September~~June 30, ~~2022~~2023 and ~~2021, respectively and $27,004 and nil~~ ~~for the nine months ended September 30,~~ 2022, ~~and 2021,~~ respectively. As of ~~September~~June 30, ~~2022,~~ 2023, none of the RSU’s have vested.

NOTE ~~11.~~12. RELATED PARTY TRANSACTIONS

On June 3, 2020, we entered into a consulting agreement with Adam Hershey, Interim Chief Executive Officer, board member and investor, pursuant to which he would act as a strategic consultant for the Company, including providing assistance with the sourcing and evaluation of merger and acquisition deals, strategic capital, and strategic partnerships or joint ventures. Mr. Hershey is paid an initial monthly rate of $8,333 ~~for the services, subject to certain adjustments. On~~ September 16, 2022, wethe Company entered into a new consulting agreement with Adam Hershey, inits Interim Chief Executive Officer, pursuant to which Mr. Hershey will continue to serve as ~~our~~the Company’s Interim Chief Executive Officer with compensation equal to ~~$200,000~~$200,000 per annum, payable by the Company, monthly. The term of the ~~Consulting Agreement~~consulting agreement is for a period of one year, with automatic six-month ~~renewals. In addition to the Consulting Agreement, we~~ renewals thereafter unless terminated by either party. The Company has also agreed to extend ~~Mr. Hershey’s~~ warrants to purchase 7,280,007 shares of Common Stock, held by an affiliate of Mr. Hershey, for an additional two years~~, with an expiration date of~~ until, May 29, 2027. The ~~modification~~exercise price and all other terms and conditions of such warrants ~~were recorded as equity and equity issuance costs in the amount of~~ ~~$367,445~~.remain unchanged. We paid ~~$24,999~~$50,000 and $24,999 for the three months ended ~~September~~June 30, 2023 and 2022, respectively, and ~~2021~~$100,000 and ~~$74,997~~$49,998 for the ~~nine~~six months ended ~~September~~June 30, 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 ~~2021.~~executive level employee of the Company. See Note 3 for additional information regarding the Station 2 asset acquisition.

~~On September 16, 2022, we entered into a consulting agreement with Ed Myers in which Mr. Myers will serve as our Chief Operating Officer. Mr. Myers will receive compensation expense equal to~~ ~~$200,000~~ ~~per annum, payable monthly. Payments are to start October 1, 2022.~~

~~Table of Contents~~

WeThe Company currently ~~have~~has a lease agreement with Dalton Adventures, LLC in which ~~we rent~~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 ~~paid approximately~~ ~~$89,073 and $115,000~~incurred $75,849 in ~~rent~~related party lease expense for the three months ended ~~September~~June 30, ~~2022~~2023 and ~~2021,~~2022, respectively, and ~~$267,219~~$151,698 and ~~$344,000 in rent~~$75,849 for the ~~nine~~six months ended ~~September~~June 30, 2023 and 2022, respectively. See Note 6 for further discussion of the Company’s obligations associated with related party leases.

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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 ~~2021,~~an executive level employee of the Company are owners of 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 June 30, 2023 and 2022, respectively, and $103,883 and nil for the six months ended June 30, 2023 and 2022, respectively. See Note 6 for further discussion of the Company’s obligations associated with related party leases.

WeThe Company had a lease agreement with Bellewood Holdings, LLC in which ~~we rented~~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 ~~paid approximately~~ incurred nil and $22,574 of ~~rent~~related party lease expense for the three months ended ~~September~~June 30, ~~2022~~2023 and ~~2021,~~2022, respectively, and ~~$52,287~~nil and ~~nil~~$52,287 for the ~~nine~~six months ended ~~September~~June 30, 2023 and 2022, ~~and 2021,~~ respectively. See Note 6 for further discussion of the Company’s obligations associated with related-party leases.

~~On December 23, 2020, four of our current board members purchased senior convertible promissory notes from the Company for an aggregate amount of $320,000. These notes are included in the 10%~~ ~~Notes discussed in Note 7. On September 15, 2022, all~~ ~~four of our current board members transferred a portion of their 10% Note amounts and some accrued interest into the 12%~~ ~~Notes discussed in Note 7. The total amount rolled was~~ ~~$332,204. Accrued interest earned and owed to the board members was~~ ~~$1,292 as of September 30, 2022.~~

NOTE ~~12.~~13. SEGMENT INFORMATION

Our operations are organized into two segments: Retail and Cultivation. All revenue originates, and all assets are located in the United States. 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 run the business, including internal profit and loss statements prepared on a basis not consistent with GAAP. ~~The following information is presented net of discontinued operations.~~

Three months ended ~~September~~June 30,


2022	Retail		Cultivation		Eliminations		Total
2023									Retail		Cultivation		Eliminations		Total
Revenues	$	3,080,778	$	448,623	$	(352,224)	$	3,177,177	$	5,079,564	$	944,830	$	(926,400)	$	5,097,994
Costs and expenses		(2,413,190)		(849,269)		352,224		(2,910,235)		(5,347,268)		(1,046,274)		926,400		(5,467,142)
Segment operating income	$	667,588	$	(400,646)	$	—		266,942
Segment operating loss									$	(267,704)	$	(101,444)	$	—		(369,148)
Corporate expenses								(2,971,621)								(1,667,007)
Net loss from continuing operations before income taxes							$	(2,704,679)							$	(2,036,155)


2021	Retail		Cultivation		Eliminations		Total
2022									Retail		Cultivation		Eliminations		Total
Revenues	$	855,841	$	835,719	$	(25,918)	$	1,665,642	$	3,158,335	$	349,338	$	(271,946)	$	3,235,727
Costs and expenses		(891,126)		(865,490)		9,048		(1,747,568)		(2,162,644)		(414,732)		271,946		(2,305,430)
Segment operating income	$	(35,285)	$	(29,771)	$	(16,870)		(81,926)
Segment operating income (loss)									$	995,691	$	(65,394)	$	—		930,297
Corporate expenses								(1,205,064)								(1,113,245)
Net loss from continuing operations before income taxes							$	(1,286,990)							$	(182,948)

~~Nine~~Six months ended ~~September~~June 30,


2022	Retail		Cultivation		Eliminations		Total
2023									Retail		Cultivation		Eliminations		Total
Total revenues	$	9,536,657	$	1,316,241	$	(866,686)	$	9,986,212	$	10,190,183	$	1,628,847	$	(1,610,417)	$	10,208,613
Costs and expenses		(7,169,103)		(1,971,550)		866,686		(8,273,967)		(9,882,836)		(2,185,847)		1,610,417		(10,458,266)
Operating (loss) income	$	2,367,554	$	(655,309)	$	0		1,712,245
Segment operating income (loss)									$	307,347	$	(557,000)	$	—		(249,653)
Corporate expenses								(5,466,211)								(3,587,300)
Net loss from continuing operations before income taxes							$	(3,753,966)							$	(3,836,953)

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2021

Retail

Cultivation

Eliminations

Total
Total revenues

$
855,841

$
2,183,660

(25,918)

$
3,013,583
Costs and expenses

(891,126)

(2,340,913)

25,918

(3,206,121)
Operating income

$
(35,285)

$
(157,253)

$
—

(192,538)
Corporate expenses





(4,493,244)
Net loss from continuing operations before income taxes

$
(4,685,782)

September 30,

December 31,
Total assets

2022

2021
Retail

$
18,991,886

$
16,831,580
Cultivation

3,084,202

3,634,406
Corporate

5,775,358

1,709,496
Total assets - segments

27,851,446

22,175,482
Intercompany eliminations

(56,029)

(151,137)
Total assets - consolidated

$
27,795,417

$
22,024,345


2022	Retail		Cultivation		Eliminations		Total
Total revenues	$	6,455,881	$	867,616		(514,462)	$	6,809,035
Costs and expenses		(4,755,913)		(1,122,281)		514,462		(5,363,732)
Segment operating income (loss)	$	1,699,968	$	(254,665)	$	—		1,445,303
Corporate expenses								(2,494,590)
Net loss from continuing operations before income taxes							$	(1,049,287)


	June 30,		December 31,
Total assets	2023		2022
Retail	$	25,047,473	$	25,212,245
Cultivation		4,475,373		4,628,452
Corporate		673,465		1,985,455
Total assets - segments		30,196,311		31,826,152
Intercompany eliminations		(828,098)		(131,439)
Total assets - consolidated	$	29,368,213	$	31,694,713

NOTE ~~13.~~14. SUBSEQUENT EVENTS

The Company evaluated subsequent events through the date that the accompanying financial statements were issued and has determined that the events below occurred subsequent to June 30, 2023.

On ~~September 13, 2022, we entered into an Asset Purchase Agreement (“APA”) with Ancient Alternatives~~July 1, 2023, the Company and its subsidiaries Green Tree Colorado, LLC, ~~(“Ancient”), Natural Alternatives For Life,~~Green Tree Cultivation LLC, ~~(“Natural”), Mountainside Industries,~~GT Retail LLC, ~~(“Mountainside”), Hillside Enterprises,~~and Green Tree MIP LLC, ~~(“Hillside”), and GT Creations, LLC (“GT Creations”),~~ each a Colorado limited liability company, entered into a settlement agreement (“~~Green~~Settlement Agreement”) with Allyson Feiler Downing (“Downing”) and Loree Schwartz (“Schwartz” and together with Downing, “Green Tree ~~Entities”~~Parties”), pursuant to which wethe Company and the Green Tree Parties agreed to ~~purchase substantially all~~transfer and assign to new entities controlled by the Green Tree Parties, cannabis licenses and related assets owned by (i) GT Retail relating to a cultivation facility and a retail dispensary located in Berthoud, Colorado; (ii) GT MIP relating to a ‘marijuana infused product’ dispensary located in Boulder County, Colorado; and (iii) certain intellectual property in respect thereof (collectively, the “Transferred Assets”). The Company retained accounts payable and certain cannabis inventory in respect of the ~~assets~~Transferred Assets. Closing of the transaction is subject to approval of the license transfers by the Colorado Marijuana Enforcement Division as well as local regulatory authorities.

In exchange for the transfer to the Green Tree Parties of the Transferred Assets, the Company and the Green Tree Parties agreed that upon closing, the Green Tree Parties shall transfer and assign to the Company, and the Company shall redeem, 9,917,574 shares of the Company’s Common Stock owned by the Green Tree Parties and originally issued to the Green Tree Parties in the acquisition consummated in December 2022 pursuant to that certain Asset Purchase Agreement dated September 13, 2022, as amended, by and among the Company, Downing, Schwartz and various other parties thereto (the “APA”). Further, other than payments due Michael Abrams, no further payments shall be due either of the Green Tree ~~Entities~~Parties or any affiliate thereof under the APA or otherwise.

On July 1, 2023, the Company terminated the employment of each of Downing and Schwartz and each of Downing and Schwartz entered into a Termination of Employment Agreement and Mutual General Release with the Company (“~~Green Tree Acquisition”~~Termination Agreements”). The ~~purchase price in connection~~Termination Agreements provide for the termination of employment by the Company of each of Downing and Schwartz, including a termination of their respective Employment Agreements with the Green Tree Acquisition consists of cash equal to $500,000 payable at closing; 17,977,528 shares (“Buyer Shares”) of our common stock, par value $0.01 per share (“Common Stock”), deliverable at closing;Company dated December 12, 2022, mutual releases, and ~~an additional $3,500,000 in cash in fifteen (15) equal monthly payments commencing on the~~ ~~9-month~~ ~~anniversary~~a waiver of the ~~closing. The number of Buyer Shares is subject to adjustment based upon a formula specified~~non-compete and non-solicitation agreements contained in the APA. The ~~APA provides that we will assume certain liabilities at closing, including certain manufacturing agreements between GT Creations~~parties also executed a separate waiver in respect thereof (“Waiver”).

Furthermore, also on July 1, 2023, the Company and ~~affiliates of~~a newly-formed entity controlled by the Green Tree ~~Entities. The Green Tree Acquisition is~~Parties entered into a consulting agreement pursuant to which such entity together with Downing agreed to pay consulting fees to the Company in an aggregate amount equal to $289,452, subject to ~~certain conditions, including regulatory approval~~and conditioned upon the Company’s completion of payments under the ~~Colorado Marijuana Enforcement Division.~~APA to Michael Abrams of $562,381 (“Consulting Agreement”).

As part of the Green Tree Acquisition, we have agreed, upon the closing, to enter into two-year employment agreements with each of Allyson Feiler and Loree Schwartz, equity principals of the Green Tree Entities (“Employment Agreements”). Ms. Feiler will be employed by us as its Chief Marketing Officer at an annual base salary of $225,000, with an agreed one-time bonus equal to $383,071.43, payable within 30 business days following the completion of the cannabis license transfers held by Ancient, Natural, Mountainside and GT Creations. Ms. Schwartz will be employed by us as its Chief Compliance Officer at an annual base salary of $150,000, also with an agreed one-time bonus equal to $383,071.43, payable within 30 business days following the completion of the cannabis license transfers held by Ancient, Natural, Mountainside and GT Creations. Both Employment Agreements also provide for severance payouts up to the full initial two-year term in the event of a termination without ‘Cause’ or for ‘Good Reason’ (as such terms are defined therein) during the initial term. In addition, we have agreed, upon the closing, to enter into consulting agreements (“Consulting Agreements”) with each of (i) CMD Consulting Services, Inc., pursuant to which consultant will be paid a one-time consulting fee equal to $47,619.05 within 30 days following the closing of each of Ancient, Natural and Hillside; and (ii) Silverfox LLC pursuant to which consultant will be paid a one-time consulting fee equal to $186,238.09 within 30 days following the closing of each of Ancient and Natural.

On October 14, 2022, we entered into an Asset Purchase Agreement with Station 2 LLC (“Station 2”) and Timothy Brown (“Brown”), pursuant to which we agreed to purchase substantially all of the assets of Station 2 (“Station 2 Acquisition”). The purchase price in connection with the Station 2 Acquisition consists of cash equal to $641,454.27, payable as follows: Cash at closing of $256,581.71; and a cash amount equal to $16,036.36 per month for each of the ~~twenty-four~~ (24) months commencing on the first full calendar month following the closing, for an additional total of $384,872.56. The Station 2 Acquisition was originally disclosed as part of the ‘Trees Acquisition’ in the Company’s Form 8-K filed on April 21, 2021 (“April 2021 Form 8-K”). The Station 2 Acquisition as disclosed herein constitutes a

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material modification to the original terms disclosed in the April 2021 Form 8-K. The Station 2 Acquisition is subject to certain conditions, including regulatory approval of the Colorado Marijuana Enforcement Division.

On ~~October 28, 2022, we~~July 1, 2023, the parties also entered into ~~an Asset Purchase~~a Transition Services Agreement ~~with GMC, LLC (“GMC”) and certain equity holders of GMC party thereto,~~ pursuant to which ~~we agreed~~the Green Tree Parties will provide certain administrative and management services on a transition basis to ~~purchase substantially all~~the Company in respect of the ~~assets of GMC, including two cannabis licenses held by GMC, certain inventory, contracts and other related assets (“GMC Acquisition”). The purchase price~~Transferred Assets in ~~connection with~~exchange for retaining all revenue generated from the ~~GMC Acquisition consists of cash equal to $1,200,000 payable at closing; 4,494,382 shares of our common stock, issuable~~businesses relating to the ~~GMC members upon closing; and an amount equal to $83,333.33 per month, commencing on~~Transferred Assets; until such time as the ~~12-month anniversary of~~transfer under the ~~closing, and continuing each month thereafter for a total of 18 months, for a total additional consideration of $1,500,000. The GMC Acquisition~~Settlement Agreement is ~~subject to certain conditions, including regulatory approval of the Colorado Marijuana Enforcement Division.~~consummated.

ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

This Management’s Discussion and Analysis (“MD&A”) is intended to provide an understanding of our financial condition, results of operations and cash flows by focusing on changes in certain key measures from year to year. This discussion should be read in conjunction with the Condensed Consolidated Unaudited Financial Statements contained in this Quarterly Report on Form 10-Q and the Consolidated Financial Statements and related notes and MD&A appearing in our Annual Report on Form 10-K as of and for the year ended December 31, ~~2021.~~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, including the financial statements and related notes, contains forward-looking statements that discuss, among other things, future expectations and projections regarding future developments, operations and financial conditions. All forward-looking statements are based on management’s existing beliefs about present and future events outside of management’s control and on assumptions that may prove to be incorrect. If any underlying assumptions prove incorrect, our actual results may vary materially from those anticipated, estimated, projected or intended. We undertake no obligation to publicly update or revise any forward-looking statements to reflect actual results, changes in expectations or events or circumstances after the date of this Quarterly Report on Form 10-Q.

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

~~Our Products, Services, and Customers~~

~~Through our two reporting segments, Retail and Cultivation, we provide products to the regulated cannabis industry and its customers, which include the following:~~

Through our acquisition of TDM, LLC (“TREES Englewood”) in September 2021, our acquisition of Trees Portland, LLC, Trees Waterfront, LLC in December 2021, and our acquisition of Trees MLK, LLC in January 2022, we operate a retail dispensary store in Englewood, Colorado and three retail stores in Portland, Oregon.

~~Cultivation (“Cultivation Segment”)~~

~~Through our acquisition of SevenFive Farm in May 2020, we operate a 17,000 square foot licensed light deprivation greenhouse cultivation facility.~~

2324

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 eight (8) cannabis dispensaries as follows:

●

Englewood, Colorado

5005 S. Federal Boulevard – Recreational license only

●

Two (2) in Denver, Colorado

468 S. Federal Boulevard – Recreational license only

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

●

Longmont, Colorado

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

●

Berthoud, Colorado

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

●

Three (3) in Oregon

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

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

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

We also operate three (3) cultivation facilities in Colorado as follows:

●

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

●

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 retail and cultivation segments utilizing the combined experience of entrepreneurs and synergistic operations of our vertically integrated network. During the three months ended ~~September~~June 30, 2023, 81% of SevenFive’s revenue was with two customers. During the three months ended June 30, 2022, ~~and 2021, 79% and 24%~~78 % of SevenFive’s revenue was with one ~~and two customers, respectively.~~customer. During the ~~nine~~six months ended ~~September~~June 30, 2023, 77% of SevenFive’s revenue was with two customers. During the six months ended June 30, 2022, ~~and 2021, 66% and 12%~~59% of SevenFive’s revenue was with one ~~customer, respectively.~~customer. The ~~customer~~customers in both 2023 and 2022 ~~is a~~are related party ~~dispensary~~dispensaries and the revenues associated with ~~this customer is~~these customers are eliminated in consolidation.

~~Discontinued Operations - Operations Consulting~~During the three months ended June 30, 2023, 90% of Green Tree’s revenue was with four customers. During the six months ended June 30, 2023, 83% of Green Tree’s revenue was with three customers. The customers in 2023 are related party dispensaries and ~~Products~~

~~Through Next Big Crop, we delivered comprehensive consulting services to~~ the ~~cannabis industry that included obtaining licenses, compliance, cultivation, retail operations, logistical support, facility design and construction, and expansion~~revenues associated with these customers are eliminated in consolidation.

Table of ~~existing operations.~~Contents

Results of Operations

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


	Three months ended June 30,						Percent
	2023		2022		Change		Change
Revenues	$	5,097,994	$	3,235,727	$	1,862,267	58	%
Costs and expenses		(6,568,727)		(3,098,227)		(3,470,500)	112	%
Other expense		(565,422)		(320,448)		(244,974)	76	%
Net loss from continuing operations before income taxes		(2,036,155)		(182,948)		(1,853,207)	1,013	%
Loss from discontinued operations		—		—		—	—	%
Loss from operations before income taxes	$	(2,036,155)	$	(182,948)	$	(1,853,207)	1,013	%

Three months ended September 30,

Percent

2022

2021

Change

Change

Revenues

$
3,177,177

$
1,665,642

$
1,511,535

91
%
Costs and expenses

(3,834,374)

(2,537,670)

(1,296,704)

51
%
Other expense

(1,793,482)

(414,962)

(1,378,520)

332
%
Net loss from continuing operations before income taxes

(2,450,679)

(1,286,990)

(1,163,689)

90
%
Loss from discontinued operations

195

(40,605)

40,800

(100)
%
Loss from operations before income taxes

$
(2,450,484)

$
(1,327,595)

$
(1,122,889)

85
%


	Nine months ended September 30,						Percent		Six months ended June 30,						Percent
	2022		2021		Change		Change		2023		2022		Change		Change
Revenues	$	9,986,212	$	3,028,055	$	6,958,157	230	%	$	10,208,613	$	6,809,035	$	3,399,578	50	%
Costs and expenses		(10,922,952)		(5,653,952)		(5,269,000)	93	%		(12,850,463)		(7,088,578)		(5,761,885)	81	%
Other expense		(2,563,226)		(2,059,885)		(503,341)	24	%		(1,195,103)		(769,744)		(425,359)	55	%
Net loss from continuing operations before income taxes		(3,499,966)		(4,685,782)		1,185,816	(25)	%		(3,836,953)		(1,049,287)		(2,787,666)	266	%
Loss from discontinued operations		5,478		(377,134)		382,612	(101)	%
Gain (loss) from discontinued operations										—		5,283		(5,283)	(100)	%
Loss from operations before income taxes	$	(3,494,488)	$	(5,062,916)	$	1,568,428	(31)	%	$	(3,836,953)	$	(1,044,004)	$	(2,792,949)	268	%

Revenues

The ~~addition of our Retail segment~~activity driven by Green Tree and Green Man, which we acquired in Q4 2022, contributed to the ~~significant~~ increase in revenues for the three ~~and nine~~ months ended ~~September~~June 30, ~~2022. See Segment discussions below~~2023 compared to June 30, 2022, and for ~~further details.~~the six months ended June 30, 2023 and June 30, 2022, respectively.

Costs and expenses


	Three months ended June 30,						Percent
	2023		2022		Change		Change
Cost of sales	$	3,230,777	$	1,745,575	$	1,485,202	85	%
Selling, general and administrative		2,485,751		1,212,796		1,272,955	105	%
Stock-based compensation		18,054		42,386		(24,332)	(57)	%
Professional fees		543,566		237,461		306,105	129	%
Depreciation and amortization		290,579		(139,991)		430,570	(308)	%
	$	6,568,727	$	3,098,227	$	3,470,500	112	%


	Six months ended June 30,						Percent
	2023		2022		Change		Change
Cost of sales	$	6,288,491	$	3,820,463	$	2,468,028	65	%
Selling, general and administrative		4,781,991		2,538,914		2,243,077	88	%
Stock-based compensation		45,450		118,501		(73,051)	(62)	%
Professional fees		1,151,110		518,845		632,265	122	%
Depreciation and amortization		583,421		91,855		491,566	535	%
	$	12,850,463	$	7,088,578	$	5,761,885	81	%

Cost of sales increased three and six months ended June 30, 2023, as compared to June 30, 2022 due to the additional sales driven from the Green Tree and Green Man acquisitions.

Selling, general and administrative expense increased for the three and six months ended June 30, 2023, as compared to June 30, 2022, due to the increased expenses resulting from the acquisition of three dispensaries in the fourth quarter of

2426

Table of Contents

~~Costs and expenses~~

Three months ended September 30,

Percent

2022

2021

Change

Change

Cost of sales

$
2,036,532

$
1,473,209

$
563,323

38
%
Selling, general and administrative

1,462,902

672,981

789,921

117
%
Stock-based compensation

38,460

131,836

(93,376)

(71)
%
Professional fees

197,565

144,289

53,276

37
%
Depreciation and amortization

98,915

115,355

(16,440)

(14)
%

$
3,834,374

$
2,537,670

$
1,296,704

51
%

Nine months ended September 30,

Percent


2022

2021

Change

Change

Cost of sales

$
5,856,995

$
2,539,840

$
3,317,155

131
%
Selling, general and administrative

4,001,816

1,853,731

2,148,085

116
%
Stock-based compensation

156,961

194,120

(37,159)

(19)
%
Professional fees

716,410

760,437

(44,027)

(6)
%
Depreciation and amortization

190,770

305,824

(115,054)

(38)
%

$
10,922,952

$
5,653,952

$
5,269,000

93
%

~~Cost of sales increased for the three and nine months ended September 30,~~ 2022 ~~due to the addition of the Retail Segment in the third and fourth quarters of 2021. See Segment discussions below for further details.~~

Selling, general and administrative expense increased for the three and nine months ended September 30, 2022, as compared to September 30, 2021, due to the acquisition of three dispensaries in the third and fourth quarter of 2021 and one additional dispensary license in the first quarter of ~~2022.~~2023. This resulted in an increase in employees and an increase in rent expense.

Professional fees consist primarily of accounting and legal expenses. Professional fees increased ~~slightly~~ for the three and six months ended ~~September~~June 30, ~~2022~~2023 as compared to ~~September~~June 30, ~~2021~~2022 due to the ~~increased~~ acquisition activity in the ~~third~~first quarter of ~~2022. Professional fees decreased slightly~~2023, as well as the accrued legal expenses for the ~~nine months ended September 30, 2022, as compared to~~settlement reached in the ~~nine months ended September 30, 2021, due to a concentrated effort on reduction~~second quarter of ~~expenses.~~2023.

Stock-based compensation included the following:


	Three months ended September 30,						Percent		Three months ended June 30,						Percent
	2022		2021		Change		Change		2023		2022		Change		Change
Employee awards	$	38,460	$	131,836	$	(93,376)	(71)	%	$	18,054	$	42,386	$	(24,332)	(57)	%
	$	38,460	$	131,836	$	(93,376)	(71)	%	$	18,054	$	42,386	$	(24,332)	(57)	%


	Nine months ended September 30,						Percent		Six months ended June 30,						Percent
	2022		2021		Change		Change		2023		2022		Change		Change
Employee awards	$	156,961	$	194,120	$	(37,159)	(19)	%	$	45,450	$	118,501	$	(73,051)	(62)	%
	$	156,961	$	194,120	$	(37,159)	(19)	%	$	45,450	$	118,501	$	(73,051)	(62)	%

Employee awards are issued under our 2020 Omnibus Incentive Plan, which was approved by shareholders on November 23, 2020, and our 2014 Equity Incentive Plan, which was approved by shareholders on June 26, 2015. Expense varies primarily due to the number of stock options granted and the share price on the date of grant. The decrease in expense for the three and ~~nine~~six months ended ~~September~~June 30, ~~2022,~~2023, as compared to ~~September 30, 2021,~~2022, is due to not issuing options in the ~~third~~second quarter of ~~2022.~~2023.

~~Table of Contents~~

Other Expense


	Three months ended September 30,						Percent		Three months ended June 30,						Percent
	2022		2021		Change		Change		2023		2022		Change		Change
Amortization of debt discount	$	1,285,392	$	216,516	$	1,068,876	494	%	$	220,077	$	216,661	$	3,416	2	%
Interest expense		213,833		150,503		63,330	42	%		716,728		176,045		540,683	307	%
Loss on extinguishment of debt		310,622		233,374		77,248	33	%
(Gain) loss on derivative liability		(16,365)		(52,452)		36,087	(69)	%		(3,912)		(59,258)		55,346	(93)	%
Gain on sale of assets		—		(132,979)		132,979	(100)	%		2,400		(13,000)		15,400	(118)	%
Other income										(369,871)		—		(369,871)	100	%
	$	1,793,482	$	414,962	$	1,378,520	332	%	$	565,422	$	320,448	$	244,974	76	%


	Nine months ended September 30,						Percent		Six months ended June 30,						Percent
	2022		2021		Change		Change		2023		2022		Change		Change
Amortization of debt discount	$	1,716,334	$	470,306	$	1,246,028	265	%	$	401,754	$	430,942	$	(29,188)	(7)	%
Interest expense		564,229		444,186		120,043	27	%		1,166,039		350,396		815,643	233	%
Loss on extinguishment of debt		310,622		233,374		77,248	33	%
Loss (gain) on derivative liability		(14,959)		1,043,531		(1,058,490)	(101)	%
Gain on sale of assets		(13,000)		(131,512)		118,512	(90)	%
Gain (loss) on derivative liability										(5,219)		1,406		(6,625)	(471)	%
(Gain) loss on sale of assets										2,400		(13,000)		15,400	(118)	%
Other income										(369,871)		—		(369,871)	100	%
	$	2,563,226	$	2,059,885	$	503,341	24	%	$	1,195,103	$	769,744	$	425,359	55	%

Amortization of debt discount ~~and loss on extinguishment of debt~~ increased during the three ~~and nine~~ months ended ~~September~~June 30, ~~2022,~~2023, as compared to ~~September~~June 30, ~~2021,~~2022 due to the ~~senior convertible promissory notes with warrants (“~~issuance of 12% ~~Notes”) issued in September~~Notes related to the asset acquisition that occurred during Q1 2023. Amortization of debt discount decreased during the six months ended June 30, 2023, as compared to June 30, 2022, ~~and~~due to the rollover and repayment of the 10% Notes. Interest expense increased during the three and ~~nine~~six months ended ~~September~~June 30, ~~2022,~~2023, as compared to ~~September~~June 30, ~~2021,~~2022, due to the addition of the ~~10%~~12% Notes with an interest rate of ~~10%~~12% in ~~2021.~~Q3 2022. The gain on warrant derivative liability reflects the change in the fair value of the 2019 Warrants.

~~Retail~~

Three months ended September 30,

Percent


2022

2021

Change

Change

Revenues

$
3,080,778

$
855,841

$
2,224,937

260
%
Costs and expenses

(2,413,190)

(891,126)

(1,522,064)

171
%

$
667,588

$
(35,285)

$
702,873

(1,992)
%

Nine months ended September 30,

Percent

2022

2021

Change

Change

Revenues

$
9,536,657

$
855,841

$
8,680,816

1,014
%
Costs and expenses

(7,169,103)

(891,126)

(6,277,977)

704
%
Segment operating income

$
2,367,554

$
(35,285)

$
2,402,839

(6,810)
%

With the addition of the TREES Englewood dispensary on September 2, 2021, Trees Portland and Trees Waterfront on December 30, 2021, and Trees MLK on January 5, 2022, we have established our retail footprint in the Colorado and Oregon markets and have become a vertically integrated company. The Retail Segment will provide consistent positive cash flows which will significantly contribute to our working capital position.

2627

Table of Contents

~~Cultivation~~Retail

Three months ended September 30,

Percent


2022

2021

Change

Change

Revenues

$
448,623

$
835,719

$
(387,096)

(46)
%
Costs and expenses

(849,269)

(865,490)

16,221

(2)
%

$
(400,646)

$
(29,771)

$
(370,875)

1,246
%


	Nine months ended September 30,						Percent		Three months ended June 30,						Percent
	2022		2021		Change		Change		2023		2022		Change		Change
Revenues	$	1,316,241	$	2,183,660	$	(867,419)	(40)	%	$	5,079,564	$	3,158,335	$	1,921,229	61	%
Costs and expenses		(1,971,550)		(2,340,913)		369,363	(16)	%		(5,347,268)		(2,162,644)		(3,184,624)	147	%
	$	(655,309)	$	(157,253)	$	(498,056)	317	%
Segment operating (loss) income									$	(267,704)	$	995,691	$	(1,263,395)	(127)	%


	Six months ended June 30,						Percent
	2023		2022		Change		Change
Revenues	$	10,190,183	$	6,455,881	$	3,734,302	58	%
Costs and expenses		(9,882,836)		(4,755,913)		(5,126,923)	108	%
Segment operating income	$	307,347	$	1,699,968	$	(1,392,621)	(82)	%

With the acquisition of Green Tree on December 12, 2022, and the acquisition of Green Man on December 19, 2022, as well as the acquisition of the dispensary license for 468 Federal Street, retail revenue increased for the three and six months ended June 30, 2023, compared to June 30, 2022. Costs and expenses also increased as a result of the acquisitions.

Cultivation


	Three months ended June 30,						Percent
	2023		2022		Change		Change
Revenues	$	944,830	$	349,338	$	595,492	170	%
Costs and expenses		(1,046,274)		(414,732)		(631,542)	152	%
Segment operating loss	$	(101,444)	$	(65,394)	$	(36,050)	55	%


	Six months ended June 30,						Percent
	2023		2022		Change		Change
Revenues	$	1,628,847	$	867,616	$	761,231	88	%
Costs and expenses		(2,185,847)		(1,122,281)		(1,063,566)	95	%
Segment operating loss	$	(557,000)	$	(254,665)	$	(302,335)	119	%

The ~~decrease~~increase in revenues for the three and ~~nine~~six months ended ~~September~~June 30, 2023 compared to June 30, 2022 ~~over prior year~~ is ~~due~~attributed to the ~~decrease in overall market price of flower. The decrease in gross margin is due to overall~~ increase in sales made to our dispensaries which are eliminated in consolidation. The increase in cost and expenses ~~due~~for the three and six months ended June 30, 2023 compared to ~~inflation.~~June 30, 2022 is attributed to the acquisitions of Green Tree and Green Man that occurred during December of 2022, as well as the increase in sales made to our dispensaries. The costs and expense incurred between our dispensaries and cultivation locations are eliminated in consolidation.

Liquidity

Sources of liquidity

Our sources of liquidity ~~include cash generated from operations,~~historically have included 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.~~operations.

In September 2022, we received $10,587,250 in ~~cash, of which $4,037,500 is held in restricted cash for future acquisitions. We received the~~ cash in a private placement with certain accredited investors pursuant to the 12% Notes to be used for acquisition of dispensaries and operating capital.

~~In September 2021, we received $1,180,000 in cash in a private placement with certain accredited investors pursuant to the Series A Convertible Preferred Stock to be used for the acquisition~~Table of ~~dispensaries and for operating capital. (See Note 10 of the accompanying unaudited condensed consolidated financial statements).~~Contents

In April 2021, we received $2,300,000 in cash in a private placement with certain accredited investors pursuant to the 10% Notes to be used for the acquisition of dispensaries (See Note 7 of the accompanying unaudited condensed consolidated financial statements).

In February 2021, we received $1,660,000 in cash in a private placement with certain accredited investors pursuant to the 10% Notes (See Note 7 of the accompanying unaudited condensed consolidated financial statements).

Sources and uses of cash

We had cash of ~~$1,964,660~~$643,968 and ~~$2,054,050~~$2,583,833 as of ~~September~~June 30, ~~2022,~~2023 and December 31, ~~2021,~~2022, respectively. Our cash flows from operating, investing and financing activities were as follows:


	Nine months ended September 30,				Six months ended June 30,
	2022		2021		2023		2022
Net cash used in operating activities	$	(894,643)	$	(2,489,130)	$	(883,305)	$	(245,489)
Net cash used in investing activities	$	(202,485)	$	(936,719)	$	(267,314)	$	(182,792)
Net cash provided by financing activities	$	5,045,238	$	5,134,634
Net cash used in financing activities					$	(789,246)	$	(552,873)

Net cash used in operating activities ~~decreased~~increased in ~~2022~~2023 due to the ~~acquisition of TREES Englewood, Trees Portland, Trees Waterfront and Trees MLK which provides positive operating cash flows and adjustments relating to non-cash activities.~~increased net loss driven from the expenses described above.

Net cash used in investing activities for the ~~nine~~six months ended ~~September~~June 30, 2023 increased from June 30, 2022, ~~increased from September 30, 2021, due to~~as a result of the purchase price of ~~Trees MLK, Inc and~~ the ~~purchase of property and equipment, offset by~~additional license acquired in February 2023 exceeding the ~~receipt of notes receivable.~~acquisition activity in the six month prior period.

~~Table of Contents~~

Net cash ~~provided by~~used in financing activities for the ~~nine~~three and six months ended ~~September~~June 30, 2023 increased from June 30, 2022 ~~related~~due to ~~the cash proceeds of the new debt of $10,587,250, offset by payment~~an increase in payments on notes payable ~~of $3,987,250.~~and finance leases.

Capital Resources

We had no material commitments for capital expenditures as of ~~September~~June 30, ~~2022.~~2023. Part of our growth strategy, however, is to acquire operating businesses. We expect to fund such activity through cash on hand, the issuance of debt, common stock, warrants for our common stock or a combination thereof.

Table of Contents

Non-GAAP Financial Measures

Adjusted EBITDA is a non-GAAP financial measure. We define Adjusted EBITDA as net income (loss) attributable to common stockholders calculated in accordance with GAAP, adjusted for the impact of stock-based compensation expense, acquisition or disposal-related transaction costs , non-recurring professional fees in relation to litigation and other non-recurring expenses, depreciation and amortization, amortization of debt discounts and equity issuance costs, loss on extinguishment of debt, interest expense, income taxes and certain other non-cash items. Below we have provided a reconciliation of Adjusted EBITDA per share to the most directly comparable GAAP measure, which is net ~~income (loss)~~loss per share.

We believe that the disclosure of Adjusted EBITDA provides investors with a better comparison of our period-to-period operating results. We exclude the effects of certain items when we evaluate key measures of our performance internally and in assessing the impact of known trends and uncertainties on our business. We also believe that excluding the effects of these items provides a more comparable view of the underlying dynamics of our operations. We believe such information provides additional meaningful methods of evaluating certain aspects of our operating performance from period to period on a basis that may not be otherwise apparent on a GAAP basis. This supplemental financial information should be considered in addition to, not in lieu of, our 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,				Three months ended June 30,				Six months ended June 30,
	2022		2021		2022		2021		2023		2022		2023		2022
Net loss from continuing operations	$	(2,704,679)	$	(1,327,595)	$	(3,753,966)	$	(5,062,916)	$	(2,036,155)	$	(182,948)	$	(3,922,689)	$	(1,049,287)
Adjustment for loss from discontinued operations		195		40,605		(5,478)		377,134		—		—		—		5,283
Net loss		(2,704,484)		(1,286,990)		(3,759,444)		(4,685,782)		(2,036,155)		(182,948)		(3,922,689)		(1,044,004)
Adjustments:
Stock-based compensation		38,460		131,836		156,961		194,120		18,054		42,386		45,450		118,501
Depreciation and amortization		98,915		115,355		190,770		305,824		290,579		(139,991)		583,421		91,855
Amortization of debt discount and equity issuance costs		1,285,392		216,516		1,716,334		470,306		220,077		216,661		401,754		430,942
Loss on extinguishment of debt		310,622		233,374		310,622		233,374
Interest expense		213,833		150,503		564,229		444,186		716,728		176,045		1,166,039		350,396
Gain on sale of assets		—		(132,979)		(13,000)		(131,512)
Loss (gain) on sale of assets										2,400		(13,000)		2,400		(13,000)
(Gain) loss on derivative liability		(16,365)		(52,452)		(14,959)		1,043,531		(3,912)		(59,258)		(5,219)		1,406
Severance		—		—		4,731		—		—		—		—		4,731
Acquisition related expenses		162,634		35,360		193,956		98,243		—		19,563		—		27,063
Provision for income taxes		254,000		—		254,000		—		—		—		85,736		—
Other income										(369,871)		—		(369,871)		—
Total adjustments		2,347,491		697,513		3,363,644		2,658,072		874,055		242,406		1,909,710		1,011,894
Adjusted EBITDA	$	(356,993)	$	(589,477)	$	(395,800)	$	(2,027,710)	$	(1,162,100)	$	59,458	$	(2,012,979)	$	(32,110)

Off-balance Sheet Arrangements

We currently have no off-balance sheet arrangements.

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Critical Accounting Policies

Our unaudited condensed consolidated financial statements and accompanying notes have been prepared in accordance with U.S. GAAP. The preparation of these financial statements requires management to make estimates, judgments and assumptions that affect reported amounts of assets, liabilities, revenues, and expenses. We continually evaluate the accounting policies and estimates used to prepare the condensed financial statements. The estimates are based on historical experience and assumptions believed to be reasonable under current facts and circumstances. Actual amounts and results could differ from these estimates made by management. Certain accounting policies that require significant management estimates and are deemed critical to our results of operations or financial position are discussed in our Annual Report on Form 10-K for the year ended December 31, ~~2021,~~2022, and Note 1 to the Unaudited Condensed Consolidated Financial Statements in this Form 10-Q.

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ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

As a “smaller reporting company” as defined by Item 10 of Regulation S-K, we are not required to provide information required by this Item.

ITEM 4. CONTROLS AND PROCEDURES

Evaluation of Disclosure Controls and Procedures

We maintain disclosure controls and procedures (as defined in Rules 13a-15(e) and 15d-15(e) under the Securities Exchange Act of 1934, as amended (the “Exchange Act”) that are designed to ensure that information required to be disclosed in our reports filed under the Exchange Act, is recorded, processed, summarized, and reported within the time periods specified in the Securities and Exchange Commission’s rules and forms, and that such information is accumulated and communicated to our management, including our Principal Executive Officer and Principal Financial and Accounting Officer, as appropriate to allow timely decisions regarding required disclosure.

We carried out an evaluation under the supervision and with the participation of management, including our Principal Executive Officer and Principal Financial and Accounting Officer, of the effectiveness of the design and operation of our disclosure controls and procedures as of ~~September~~June 30, ~~2022,~~2023, the end of the period covered by this report. Based on that evaluation, our Principal Executive Officer and Principal Financial and Accounting Officer have concluded that our disclosure controls and procedures were effective as of ~~September~~June 30, ~~2022.~~2023.

Internal Control over Financial Reporting

Our management is responsible for establishing and maintaining adequate internal control over financial reporting as defined in Rules 13a-15(f) and 15d-15(f) promulgated under the Exchange Act as a process designed by, or under the supervision of, our principal executive officer and principal financial officer and effected by the Board, management, and other personnel, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with GAAP and includes those policies and procedures that:

●

Pertain to the maintenance of records that in reasonable detail accurately and fairly reflect the transactions and dispositions of the assets of the Company;

●

Provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with GAAP, and that our receipts and expenditures of are being made only in accordance with authorizations of our management and directors; and

●

Provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of our assets that could have a material effect on the financial statements.

Because of inherent limitations, our internal control over financial reporting may not prevent or detect misstatements. Therefore, even those systems determined to be effective can provide only reasonable assurance with respect to financial statement preparation and presentation. Projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.

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Changes in Internal Control over Financial Reporting

There were no changes in our internal controls over financial reporting during the ~~third~~second quarter of ~~2022,~~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.

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PART II. OTHER INFORMATION

ITEM 1. LEGAL PROCEEDINGS

We ~~have taken~~took 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~~

In June 2023, via mediation conducted through the Judicial Arbiter Group and a duly executed settlement agreement, we settled this ~~action~~litigation. As part of the settlement, Plaintiff agreed to waive and ~~believe that~~release the ~~above-referenced force majeure clause presents a complete defense to Plaintiff’s claims.~~

We filed a motion to dismiss; both parties also filed motions for summary judgment. In October 2022, the court denied our motion to dismiss on the basis that Plaintiff sufficiently pled facts that raise a plausible claim for relief, notwithstanding our possible defenses. The court did not rule on either motion for summary judgment. On November 14, 2022, we timely filed a formal answerCompany et. al from all claims relating to the ~~complaint, denying each~~litigation; and in exchange, the Company has agreed to pay to Plaintiff an aggregate amount of ~~Plaintiff’s substantive claims. We also asserted appropriate affirmative defenses, including~~$150,000, payable as follows: (i) one initial installment payment of $30,000 payable on August 1, 2023; and (ii) twenty (20) subsequent monthly payments of $6,000 each. In the ~~force majeure clause~~event of ~~the lease, which provides that we are not liable~~default under the ~~lease~~settlement agreement, the non-defaulting party must provide written notice and the defaulting party has a 7-day right of cure. The settlement agreement also provides for a ‘paper judgment’ in the event of an uncured default by the Company; in which event the full amount of $345,000 becomes due and payable. The parties will file a ~~variety~~stipulated motion to administratively close the case and request that the court retain jurisdiction until completion 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.~~settlement payments.

ITEM 1A. RISK FACTORS

As of the date of this report, there have been no material changes to the Risk Factors disclosed in our Annual Report on Form 10-K for the year ended December 31, ~~2021.~~2022.

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

None.

ITEM 3. DEFAULTS UPON SENIOR SECURITIES

None.

ITEM 4. MINE SAFETY DISCLOSURES

Not applicable.

ITEM 5. OTHER INFORMATION

None.

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ITEM 6. EXHIBITS

Exhibits

10.1	~~Asset Purchase~~Settlement Agreement dated ~~September 13, 2022~~July 1, 2023 by and among the Company, Allyson Feiler Downing, Loree Schwartz and ~~the Green Tree Entities party~~certain other parties thereto ~~(incorporated~~(incoporated by reference to Exhibit 10.1 of our Form 8-K filed on ~~September 19,2022).~~July 7, 2023)
10.2	~~Form~~Termination of Employment Agreement and Mutual General Release dated July 1, 2023 by and between the Company and Allyson Feiler Downing (incorporated by reference to Exhibit 10.2 of our Form 8-K filed on ~~September 19, 2022)~~July 7, 2023).
10.3	~~Form~~Termination of Employment Agreement and Mutual General Release dated July 1, 2023 by and between the Company and Loree Schwartz (incorporated by reference to Exhibit 10.3 of our Form 8-K filed on ~~September 19, 2022)~~July 7, 2023).
10.4	~~Form of Consulting Agreement between the Company and CMD Consulting Services, Inc.~~Waiver dated July 1, 2023 (incorporated by reference to Exhibit 10.4 of our Form 8-K filed on ~~September 19, 2022)~~July 7, 2023).
10.5	~~Form of~~ Consulting Agreement ~~between~~dated July 1, 2023 by and among the Company, Allyson Feiler Downing and ~~SilverFox,~~Green Tree Berthoud, LLC (incorporated by reference to Exhibit 10.5 ifof our Form 8-K filed ~~September 19, 2022)~~on July 7, 2023).
10.6	~~Form of Securities Purchase~~Transition Services Agreement dated ~~September 15, 2022~~July 1, 2023 by and among the Company, Green Tree Colorado LLC, Allyson Feiler Downing and ~~Investors party thereto~~Loree Schwartz (incorporated by reference to Exhibit 10.6 of our Form 8-K filed on ~~September 19, 2022).~~
~~10.7~~	~~Form of Senior Secured Convertible Promissory Note of the Company (incorporated by reference to Exhibit 10.7 of our Form 8-K filed on September 19, 2022).~~
~~10.8~~	~~Form of Warrant of the Company (incorporated by reference to Exhibit 10.8 of our Form 8-K filed on September 19, 2022).~~
~~10.9~~	~~Form of Security Agreement by and among the Company and Investors (incorporated by reference to Exhibit 10.9 of our Form 8-K file don September 19, 2022).~~
~~10.10~~	Form of First Escrow Agreement by and among the Company, Lead Investor and Day & Associates, LLC, as escrow agent (incorporated by reference to Exhibit 10.10 of our Form 8-K filed on September 19, 2022).
~~10.11~~	~~Form of Second Escrow Agreement by and among the Company, Investors and Day & Associates, LLC, as escrow agent (incorporated by reference to Exhibit 10.11 of our Form 8-K filed on September 19, 2022).~~
~~10.12~~	~~Consulting Agreement dated September 16, 2022, by and between the Company and Hershey Management 1, LLC (incorporated by reference to Exhibit 10.12 of our Form 8-K filed on September 19, 2022).~~
~~10.13~~	~~Consulting Agreement dated September 16, 2022, by and between the Company and CRM LLC (incorporated by reference to Exhibit 10.13 of our Form 8-K filed on September 19, 2022).~~
~~10.14~~	Asset Purchase Agreement dated October 14, 2022 by and among the Company, Trees Colorado LLC, Station 2 LLC and Timothy Brown (incorporated by reference to Exhibit 10.1 of our Form 8-K filed on October 19, 2022).
~~10.15~~	Amendment to First Amended and Restated Agreement and Plan of Reorganization and Liquidation dated October 14, 2022 by and among the Company, Trees Colorado LLC, TDM LLC, Station 2 LLC and Timothy Brown (incorporated by reference to Exhibit 10.2 of our Form 8-K filed on October 19, 2022).
~~10.16~~	Asset Purchase Agreement dated October 28, 2022 by and among the Company, Green Man Colorado LLC, GMC, LLC and certain equity holders of GMC party thereto (incorporated by reference to Exhibit 10.1 of our Form 8-K filed on November 3, 2022)July 7, 2023).
31.1	Certification pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
31.2	Certification pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
32.1	Certification pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
~~99.1~~	~~Audited Financial Statements of TDM, LLC as of and for the years ended December 31, 2020 and 2019 (incorporated by reference to Exhibit 99.1 of our Form 8-K/A filed on August 26, 2022).~~
~~99.2~~	~~Audited Financial Statements of Trees Portland, LLC as of and for the years ended December 31, 2020 and 2019 (incorporated by reference to Exhibit 99.1 of our Form 8-K/A filed on August 26, 2022).~~
~~99.3~~	~~Audited Financial Statements of Trees Waterfront, LLC as of and for the years ended December 31, 2020 and 2019 (incorporated by reference to Exhibit 99.2 of our Form 8-K/A filed on August 26, 2022).~~
101.INS	Inline XBRL Instance Document
101.SCH	Inline XBRL Taxonomy Extension Schema Document
101.CAL	Inline XBRL Taxonomy Extension Calculation Linkbase Document
101.DEF	Inline XBRL Taxonomy Extension Definition Linkbase Document
101.LAB	Inline XBRL Taxonomy Extension Label Linkbase Document

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101.PRE	Inline XBRL Taxonomy Extension Presentation Linkbase Document
104	Cover Page Interactive Data File (embedded within the Inline XBRL document)

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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.

	TREES CORPORATION

Date: ~~November~~August 14, ~~2022~~2023		/s/ Adam Hershey
		Adam Hershey, Interim Chief Executive Officer
		Principal Executive Officer

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

3334

PART I. FINANCIAL INFORMATION

Item 1.	Financial Statements	3
Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	2324
Item 3.	Quantitative and Qualitative Disclosures about Market Risk	2931
Item 4.	Controls and Procedures	2931

PART II. OTHER INFORMATION		3032

Item 1.	Legal Proceedings	3032
Item 1A.	Risk Factors	3032
Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	3032
Item 3.	Defaults Upon Senior Securities	3032
Item 4.	Mine Safety Disclosures	3032
Item 5.	Other Information	3032
Item 6.	Exhibits	3133
	Signatures	3334



	September 30, 2022		December 31, 2021
	(unaudited)
Assets
Current assets
Cash and cash equivalents	$	1,964,660	$	2,054,050
Restricted cash		4,037,500		—
Accounts receivable, net of allowance of $38,000 and $61,000, respectively		165,217		80,188
Current portion of notes receivable, net of allowance of nil and $43,108, respectively		—		73,000
Inventories, net		1,201,293		1,123,083
Prepaid expenses and other current assets		168,553		149,075
Total current assets		7,537,223		3,479,396

Right-of-use operating lease asset		2,951,736		3,065,152
Property and equipment, net		606,474		680,327
Intangible assets, net		2,087,946		5,999,813
Goodwill		14,612,038		8,799,657
Total assets	$	27,795,417	$	22,024,345

Liabilities and Stockholders' Equity

Current liabilities
Accounts payable	$	2,195,532	$	1,170,708
Interest payable		63,000		621,085
Income tax payable		254,000		—
Operating lease liability, current		663,883		721,809
Accrued stock payable		60,900		444,894
Accrued dividends		70,800		—
Warrant derivative liability		13,358		28,317
Notes payable - current		1,307,569		1,094,398
Total current liabilities		4,629,042		4,081,211

Operating lease liability, non-current		2,343,362		2,427,762
Notes payable - long-term (net of discount)		12,146,691		5,619,570
Related party long-term notes payable (net of discount)		332,204		288,229
Total liabilities		19,451,299		12,416,772

Commitments and contingencies (Note 9)

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; 96,192,184 shares and 89,551,993 shares issued and outstanding, respectively		96,192		89,552
Additional paid-in capital		94,814,583		92,265,390
Accumulated deficit		(87,640,103)		(83,820,815)
Total stockholders’ equity		8,344,118		9,607,573
Total liabilities and stockholders’ equity	$	27,795,417	$	22,024,345


Cash	$	14,568
Fixed assets		56,015
Inventory		202,046
Tradename		509,000
Goodwill		1,524,744
	$	2,306,373