U.S. 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 Quarter Ended: ~~June 30, 2023~~March 31, 2024


☐			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: 333-207889

GROWGENERATION CORP.

(Exact name of registrant as specified in its charter)


Colorado						46-5008129
(State of other jurisdiction of incorporation)						(IRS Employer ID No.)

5619 DTC Parkway, Suite 900

Greenwood Village, Colorado 80111

(Address of principal executive offices)

(800) 935-8420

(~~Issuer’s~~Issuer's Telephone Number)

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

Title of each class

Trading symbol

Name of each exchange on which registered

Common Stock, par value $0.001 per share

GRWG

The NASDAQ Stock Market LLC

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 such filing requirements for the past 90 days: Yes ☒ No ☐

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted and posted 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 ☒ 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	☐
Non-accelerated filer	☐	Emerging growth company	☐
Accelerated filer	☒

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 provided 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 ☒

As of ~~July 31, 2023~~April 30, 2024 there were ~~61,231,786~~60,708,727 shares of the ~~registrant’s~~registrant's common stock issued and outstanding.

TABLE OF CONTENTS


		Page No.

	PART I FINANCIAL INFORMATION

Item 1.	~~Unaudited Condensed Consolidated~~ Financial ~~Statements~~Statement s (Unaudite d)	1
	Condensed Consolidated Balance Sheets	1
	Condensed Consolidated Statements of Operations	2
	Condensed Consolidated Statements of Stockholders' Equity	3
	Condensed Consolidated Statements of Cash Flows	54
	Notes to Condensed Consolidated Financial Statements	65
Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	2315
Item 3.	Quantitative and Qualitative Disclosures About Market Risk	2921
Item 4.	Controls and Procedures	2922

PART II OTHER INFORMATION

Item 1.	Legal Proceedings	3326
Item 1A.	Risk Factors	3326
Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	3326
Item 3.	Defaults Upon Senior Securities	3326
Item 4.	Mine Safety Disclosures	3326
Item 5.	Other Information	3326
Item 6.	Exhibits	3427
	Signatures	3528

PART I – FINANCIAL INFORMATION

ITEM 1. FINANCIAL STATEMENTS (UNAUDITED)

GROWGENERATION CORP. AND SUBSIDIARIES

CONDENSED CONSOLIDATED BALANCE SHEETS

(Unaudited)

(in thousands, except ~~shares and per share amounts)~~shares)


		June 30, 2023		December 31, 2022			March 31, 2024	December 31, 2023
ASSETS	ASSETS					ASSETS
Current assets:	Current assets:					Current assets:
Cash and cash equivalents	Cash and cash equivalents	$	29,587	$	40,054
Marketable securities	Marketable securities	40,986		31,852
Accounts receivable, net of allowance for credit losses of $0.8 million and $0.7 million at June 30, 2023 and December 31, 2022		7,318		8,336
Notes receivable, current, net of allowance for credit losses of $1.7 million and $1.3 million at June 30, 2023 and December 31, 2022		—		1,214
Accounts receivable, net of allowance for credit losses of $1.4 million and $1.4 million at March 31, 2024 and December 31, 2023
Notes receivable, current, net of allowance for credit losses of $0.2 million and $1.7 million at March 31, 2024 and December 31, 2023
Inventory	Inventory	76,689		77,091
Prepaid income taxes	Prepaid income taxes	477		5,679
Prepaids and other current assets		7,864		6,455
Prepaid and other current assets
Total current assets	Total current assets	162,921		170,681

Property and equipment, net	Property and equipment, net	30,682		28,669
Operating leases right-of-use assets		42,692		46,433
Property and equipment, net
Property and equipment, net
Operating leases right-of-use assets, net
Notes receivable, long-term
Intangible assets, net	Intangible assets, net	26,707		30,878
Goodwill	Goodwill	16,808		15,978
Other assets	Other assets	881		803
TOTAL ASSETS	TOTAL ASSETS	$	280,691	$	293,442

LIABILITIES & STOCKHOLDERS’ EQUITY
LIABILITIES & STOCKHOLDERS' EQUITY
LIABILITIES & STOCKHOLDERS' EQUITY
LIABILITIES & STOCKHOLDERS' EQUITY
Current liabilities:	Current liabilities:
Current liabilities:
Current liabilities:
Accounts payable
Accounts payable
Accounts payable	Accounts payable	$	17,905	$	15,728
Accrued liabilities	Accrued liabilities	2,575		1,535
Payroll and payroll tax liabilities	Payroll and payroll tax liabilities	2,828		4,671
Customer deposits	Customer deposits	3,746		4,338
Sales tax payable	Sales tax payable	1,473		1,341
Current maturities of lease liability		8,152		8,131
Current portion of long-term debt		17		50
Current maturities of operating lease liabilities
Total current liabilities	Total current liabilities	36,696		35,794
Commitments and contingencies (Note 12)
Operating lease liability, net of current maturities		37,191		40,659

Operating lease liabilities, net of current maturities
Operating lease liabilities, net of current maturities
Operating lease liabilities, net of current maturities
Other long-term liabilities	Other long-term liabilities	316		593
Total liabilities	Total liabilities	74,203		77,046

Stockholders’ equity:
Common stock; $0.001 par value; 100,000,000 shares authorized, 61,229,051 and 61,010,155 shares issued and outstanding as of June 30, 2023 and December 31, 2022		61		61
Commitments and contingencies (Note 12)						Commitments and contingencies (Note 12)
Stockholders' equity:
Common stock; $0.001 par value; 100,000,000 shares authorized, 61,507,259 and 61,483,762 shares issued and outstanding as of March 31, 2024 and December 31, 2023
Common stock; $0.001 par value; 100,000,000 shares authorized, 61,507,259 and 61,483,762 shares issued and outstanding as of March 31, 2024 and December 31, 2023
Common stock; $0.001 par value; 100,000,000 shares authorized, 61,507,259 and 61,483,762 shares issued and outstanding as of March 31, 2024 and December 31, 2023
Additional paid-in capital	Additional paid-in capital	371,863		369,938
Retained earnings (deficit)	Retained earnings (deficit)	(165,436)		(153,603)
Total stockholders’ equity		206,488		216,396
TOTAL LIABILITIES AND STOCKHOLDERS’ EQUITY		$	280,691	$	293,442
Total stockholders' equity
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY

The accompanying notes are an integral part of these unaudited Condensed Consolidated Financial Statements.

GROWGENERATION CORP. AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS

(Unaudited)

(in thousands, except ~~shares and~~ per share amounts)


		Three Months Ended June 30,				Six Months Ended June 30,
		2023		2022		2023		2022		Three Months Ended March 31,
										2024	2023
Net sales	Net sales	$	63,925	$	71,093	$	120,752	$	152,860
Cost of sales (exclusive of depreciation and amortization shown below)	Cost of sales (exclusive of depreciation and amortization shown below)	46,788		50,866		87,326		110,493
Gross profit	Gross profit	17,137		20,227		33,426		42,367

Operating expenses:	Operating expenses:
Operating expenses:
Operating expenses:
Store operations and other operational expenses
Store operations and other operational expenses
Store operations and other operational expenses	Store operations and other operational expenses	12,269		13,767		25,235		28,299
Selling, general, and administrative	Selling, general, and administrative	7,503		9,759		14,341		19,368
Bad debt expense		107		888		424		1,602
Estimated credit losses (recoveries)
Depreciation and amortization	Depreciation and amortization	3,824		4,783		7,756		9,289
Impairment loss		—		127,831		—		127,831

Total operating expenses	Total operating expenses	23,703		157,028		47,756		186,389
Total operating expenses
Total operating expenses

Income (Loss) from operations		(6,566)		(136,801)		(14,330)		(144,022)
Income (loss) from operations
Income (loss) from operations
Income (loss) from operations

Other income (expense):	Other income (expense):
Other income (expense):
Other income (expense):
Other income (expense)
Other income (expense)
Other income (expense)	Other income (expense)	1,391		104		2,595		513
Interest income	Interest income	—		45		—		47
Interest expense	Interest expense	(431)		(10)		(5)		(13)
Total non-operating income (expense), net		960		139		2,590		547
Total other income (expense)

Net income (loss) before taxes
Net income (loss) before taxes
Net income (loss) before taxes	Net income (loss) before taxes	(5,606)		(136,662)		(11,740)		(143,475)

Benefit (provision) for income taxes	Benefit (provision) for income taxes	(93)		283		(93)		1,919
Benefit (provision) for income taxes
Benefit (provision) for income taxes

Net income (loss)	Net income (loss)	$	(5,699)	$	(136,379)	$	(11,833)	$	(141,556)
Net income (loss)
Net income (loss)

Net income (loss) per share, basic
Net income (loss) per share, basic
Net income (loss) per share, basic	Net income (loss) per share, basic	$	(0.09)	$	(2.24)	$	(0.19)	$	(2.33)
Net income (loss) per share, diluted	Net income (loss) per share, diluted	$	(0.09)	$	(2.24)	$	(0.19)	$	(2.33)

Weighted average shares outstanding, basic	Weighted average shares outstanding, basic	61,077		60,756		61,053		60,742
Weighted average shares outstanding, basic
Weighted average shares outstanding, basic
Weighted average shares outstanding, diluted	Weighted average shares outstanding, diluted	61,077		60,756		61,053		60,742

The accompanying notes are an integral part of these unaudited Condensed Consolidated Financial Statements.

GROWGENERATION CORP. AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF ~~STOCKHOLDERS’~~STOCKHOLDERS' EQUITY

~~SIX MONTHS ENDED JUNE 30, 2023 AND 2022~~

(Unaudited)

(in ~~thousands, except shares and per share amounts)~~thousands)

Common Stock Additional
Paid-In Capital Retained
Earnings (Deficit) Total
Stockholders’ Equity
Shares Amount
Balances, March 31, 2023 61,035 $ 61 $ 370,379 $ (159,737) $ 210,703
Common stock issued for share based compensation 159 — — — —
Common stock withheld for employee payroll taxes — — (105) — (105)
Share based compensation — — 816 — 816
Noncash repurchase of liability awards — $ — $ 653 $ — $ 653
Liability redemption associated with business acquisition 35 $ — $ 120 $ — $ 120
Net income (loss) — — — (5,699) (5,699)
Balances, June 30, 2023 61,229 $ 61 $ 371,863 $ (165,436) $ 206,488


	Common Stock			Additional Paid-In Capital		Retained Earnings (Deficit)		Total Stockholders' Equity
	Shares	Amount
Balances, December 31, 2023	61,484	$	61	$	373,433	$	(200,099)	$	173,395
Common stock issued for share-based compensation	23	1		—		—		1
Common stock withheld for employee payroll taxes	—	—		(29)		—		(29)
Share-based compensation	—	—		778		—		778
Net income (loss)	—	—		—		(8,837)		(8,837)
Balances, March 31, 2024	61,507	$	62	$	374,182	$	(208,936)	$	165,308

Common Stock Additional
Paid-In Capital Retained
Earnings (Deficit) Total
Stockholders’ Equity
Shares Amount
Balances, March 31, 2022 60,728 $ 61 $ 367,064 $ 4,967 $ 372,092
Common stock issued for share-based compensation 28 — — — —
Common stock withheld for employee payroll taxes — — (93) — (93)
Share based compensation — — 1,106 — 1,106
Common stock issued upon cashless exercise of options 12 — — — —
Common stock issued upon cashless exercise of warrants 14 — — — —
Net income (loss) — — — (136,379) (136,379)
Balances, June 30, 2022 60,782 $ 61 $ 368,077 $ (131,412) $ 236,726


	Common Stock			Additional Paid-In Capital		Retained Earnings (Deficit)		Total Stockholders' Equity
	Shares	Amount
Balances, December 31, 2022	61,010	$	61	$	369,938	$	(153,603)	$	216,396
Common stock issued for share-based compensation	25	—		—		—		—
Common stock withheld for employee payroll taxes	—	—		(70)		—		(70)
Share-based compensation	—	—		511		—		511
Net income (loss)	—	—		—		(6,134)		(6,134)
Balances, March 31, 2023	61,035	$	61	$	370,379	$	(159,737)	$	210,703

Common Stock Additional
Paid-In Capital Retained
Earnings (Deficit) Total
Stockholders’ Equity
Shares Amount
Balances, December 31, 2022 61,010 61 369,938 (153,603) $ 216,396
Common stock issued for share based compensation 184 — — — $ —
Common stock withheld for employee payroll taxes — — (175) — $ (175)
Share based compensation — — 1,327 — $ 1,327
Noncash repurchase of liabilty awards — — 653 — $ 653
Liability redemption associated with business acquisition 35 — 120 — $ 120
Net income (loss) — $ — $ — $ (11,833) $ (11,833)
Balances, June 30, 2023 61,229 $ 61 $ 371,863 $ (165,436) $ 206,488

Common Stock Additional
Paid-In Capital Retained
Earnings (Deficit) Total
Stockholders’ Equity
Shares Amount
Balances, December 31, 2021 59,929 $ 60 $ 361,087 $ 10,144 $ 371,291
Common stock issued in connection with business combination 650 1 5,749 — 5,750
Common stock issued for share-based compensation 177 — — — —
Common stock withheld for employee payroll taxes — — (1,448) — (1,448)
Share based compensation — — 2,689 — 2,689
Common stock issued upon cashless exercise of options 12 — — — —
Common stock issued upon cashless exercise of warrants 14 — — — —
Net income (loss) — — — (141,556) (141,556)
Balances, June 30, 2022 60,782 $ 61 $ 368,077 $ (131,412) $ 236,726

The accompanying notes are an integral part of these unaudited Condensed Consolidated Financial Statements.

GROWGENERATION CORP. AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(Unaudited)

(in ~~thousands, except shares and per share amounts)~~thousands)


		Six Months Ended June 30,					Three Months Ended March 31,
		2023		2022			2024	2023
Cash flows from operating activities:	Cash flows from operating activities:					Cash flows from operating activities:
Net income (loss)	Net income (loss)	$	(11,833)	$	(141,556)
Adjustments to reconcile net income (loss) to net cash provided by operating activities:
Adjustments to reconcile net income (loss) to net cash provided by (used in) operating activities:
Depreciation and amortization	Depreciation and amortization	7,756		9,289
Stock-based compensation expense		1,514		2,689
Bad debt expense, net of recoveries		424		1,602
Gain (loss) on asset disposition		21		12
Impairment loss		—		127,831
Deferred taxes		—		(1,919)
Changes in operating assets and liabilities (net of the effect of acquisitions):
Depreciation and amortization
Depreciation and amortization
Share-based compensation
Estimated credit losses (recoveries)
Loss (gain) on disposal of fixed assets
Change in value of marketable securities
Changes in operating assets and liabilities:
Accounts and notes receivable
Accounts and notes receivable
Accounts and notes receivable	Accounts and notes receivable	1,808		(3,106)
Inventory	Inventory	1,989		10,616
Prepaid expenses and other assets	Prepaid expenses and other assets	4,008		7,482
Accounts payable and accrued liabilities	Accounts payable and accrued liabilities	3,526		(1,805)
Operating leases	Operating leases	469		299
Payroll and payroll tax liabilities	Payroll and payroll tax liabilities	(1,843)		(3,066)
Customer deposits	Customer deposits	(592)		(6,634)
Sales tax payable	Sales tax payable	132		(184)
Net cash provided by (used in) operating activities		7,379		1,550
Net cash and cash equivalents provided by (used in) operating activities
Cash flows from investing activities:	Cash flows from investing activities:					Cash flows from investing activities:
Acquisitions, net of cash acquired		(3,197)		(6,806)
Purchase of marketable securities	Purchase of marketable securities	(51,700)		—
Maturities from marketable securities		42,566		29,793
Maturities of marketable securities
Proceeds from notes receivable
Purchase of property and equipment	Purchase of property and equipment	(5,533)		(8,822)
Disposal of assets		226		—
Net cash provided by (used in) investing activities		(17,638)		14,165
Proceeds from disposals of assets
Net cash and cash equivalents provided by (used in) investing activities
Cash flows from financing activities:	Cash flows from financing activities:					Cash flows from financing activities:
Principal payments on long term debt	Principal payments on long term debt	(33)		(45)
Common stock withheld for employee payroll taxes	Common stock withheld for employee payroll taxes	(175)		(1,448)
Net cash provided by (used in) financing activities		(208)		(1,493)
Net change		(10,467)		14,222

Net cash and cash equivalents provided by (used in) financing activities
Net cash and cash equivalents provided by (used in) financing activities
Net cash and cash equivalents provided by (used in) financing activities
Net increase (decrease) in cash and cash equivalents
Cash and cash equivalents at the beginning of period	Cash and cash equivalents at the beginning of period	40,054		41,372
Cash and cash equivalents at the end of period	Cash and cash equivalents at the end of period	$	29,587	$	55,594

Supplemental disclosures of non-cash activities:	Supplemental disclosures of non-cash activities:
Supplemental disclosures of non-cash activities:
Supplemental disclosures of non-cash activities:
Cash paid for interest	Cash paid for interest	$	5	$	13
Common stock issued for business combination		$	—	$	5,750
Right of use assets acquired under new operating leases		$	2,748	$	6,221
Cash paid for income taxes
Right-of use assets obtained in exchange for new or modified operating lease liabilities

The accompanying notes are an integral part of these Condensed Consolidated Financial Statements.

GROWGENERATION CORP. AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

March 31, 2024

(Unaudited)

~~GrowGeneration Corp.~~

~~Notes To Condensed Consolidated Financial Statements~~

~~June 30, 2023~~1. GENERAL

~~(Unaudited)~~

1.~~GENERAL~~

GrowGeneration Corp. (together with its direct and indirect ~~wholly owned~~wholly-owned subsidiaries, collectively ~~“GrowGeneration”~~"GrowGeneration" or the ~~“Company”~~"Company") is a leading marketer and distributor of nutrients, growing media, lighting, benching and racking, environmental control systems, and other products for both indoor and outdoor hydroponic and organic gardening, including proprietary brands such as Charcoir, Drip Hydro, Power Si, MMI benching and racking, Ion lights, Durabreeze fans, and more. Incorporatedwas incorporated in Colorado in ~~2014,~~2014. Since then, GrowGeneration ~~is the largest~~has grown from a small chain of specialty retail hydroponic and organic garden centers into a multifaceted business with diverse assets. Today, GrowGeneration operates two major lines of business: its Cultivation and Gardening segment, composed of the ~~U.S.~~ Company's hydroponic and organic gardening business; and its Storage Solutions segment, composed of the Company's benching, racking, and storage solutions business.

As of ~~June 30, 2023,~~March 31, 2024, GrowGeneration has 6246 retail locations across 18 states in the U.S. The Company also operates an online superstore for cultivators at growgeneration.com, as well as a wholesale business for resellers, HRG Distribution, and a benching, racking, and storage solutions business, Mobile Media or MMI. ~~GrowGeneration also provides facility design services to commercial growers.~~

Basis of Presentation

The accompanying interim unaudited Condensed Consolidated Financial Statements have been prepared in accordance with accounting principles generally accepted in the United States of America (“("U.S. ~~GAAP”~~GAAP") and the rules and regulations of the Securities and Exchange Commission ~~(“SEC”~~("SEC"). Accordingly, they do not include all of the information and notes required by U.S. GAAP for complete financial statements. In the opinion of management, all adjustments (consisting of normal recurring adjustments) considered necessary for a fair presentation have been included. These statements should be read in conjunction with ~~our~~the Company's Annual Report on Form 10-K for the fiscal year ended December 31, ~~2022 (“2022~~2023 ("2023 Form ~~10-K”~~10-K"). There were no significant changes to ~~our~~the Company's significant accounting policies as disclosed in ~~our 2022~~the 2023 Form 10-K. The results ~~of operations for our interim periods~~reported in these unaudited Condensed Consolidated Financial Statements are not necessarily indicative of results for the full fiscal year.

All amounts included in the accompanying footnotes to the ~~consolidated financial statements,~~Condensed Consolidated Financial Statements, except ~~share and~~ per share data, are in thousands (000).

Reclassifications

Certain amounts in the prior period ~~consolidated financial statements~~Condensed Consolidated Financial Statements have been reclassified to conform to the current period presentation. These reclassifications had no effect on reported ~~consolidated~~ net ~~income.~~income (loss) within the Condensed Consolidated Statements of Operations.

Use of Estimates

~~Management uses estimates and assumptions in preparing these~~The preparation of consolidated financial statements in ~~accordance~~conformity with U.S. ~~GAAP. These~~GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities, the disclosure of contingent assets and liabilities at the date of the consolidated financial statements, and the reported revenues and expenses during the reporting period. Actual results could vary from the estimates that were used.

2. RECENT ACCOUNTING PRONOUNCEMENTS

From time to time, the Financial Accounting Standard Board ("FASB") or other standard setting bodies issue new accounting pronouncements. Updates to the FASB Accounting Standards Codification are communicated through issuance of an Accounting Standards Update ("ASU"). The Company has implemented all new accounting pronouncements that are in effect and that may impact its financial statements. In addition to the accounting pronouncements discussed below, no other new accounting pronouncement issued or effective during the fiscal year had or is expected to have a material effect on the Company's consolidated financial statements or disclosures.

Recently Issued Accounting Pronouncements Not Yet Adopted

In November 2023, the FASB issued ASU No. 2023-07, Segment Reporting—Improvements to Reportable Segment Disclosures (Topic 280) ("ASU 2023-07"), which requires an enhanced disclosure of segments on an annual and interim basis, including the title of the chief operating decision maker, significant segment expenses, and the composition of other segment items for each segment's reported profit. ASU 2023-07 is effective for fiscal years beginning after December 15, 2023, and

GROWGENERATION CORP. AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

March 31, 2024

(Unaudited)

interim periods within fiscal years beginning after December 15, 2024. Early adoption is permitted, and adoption of ASU 2023-07 should be applied retrospectively to all prior periods presented in the financial statements. The Company is currently evaluating the impact of this standard.

In December 2023, the FASB issued ASU No. 2023-09, Income Taxes (Topic 740) - Improvements to income tax disclosures ("ASU 2023-09"), expanding the disclosures requirement for income taxes primarily by requiring more detailed disclosure for income taxes paid and the effective tax rate reconciliation. ASU 2023-09 is effective for annual periods beginning after December 15, 2024. Early adoption is permitted, and adoption of ASU 2023-09 can be applied prospectively or retrospectively. The Company is currently evaluating the impact of this standard.

~~GrowGeneration Corp.~~

~~Notes To Unaudited Condensed Consolidated Financial Statements~~

~~June 30, 2023~~3. FAIR VALUE MEASUREMENTS

2.~~FAIR VALUE MEASUREMENTS~~

Fair Value Measurements

Fair value is defined as the exchange price that would be received ~~for~~to sell an asset or paid to transfer a liability (an exit price) in the principal or most advantageous market for the asset or liability in an orderly transaction between market participants on the measurement date. Valuation techniques used to measure fair value must maximize the use of observable inputs and minimize the use of unobservable inputs.

Financial assets and liabilities carried at fair value are to be classified and disclosed in one of the following three levels of the fair value hierarchy, of which the first two are considered observable and the last is considered unobservable:

•Level 1—Quoted prices in active markets for identical assets or liabilities.

•Level 2—Observable inputs (other than Level 1 quoted prices), such as quoted prices in active markets for similar assets or liabilities, quoted prices in markets that are not active for identical or similar assets or liabilities, or other inputs that are observable or can be corroborated by observable market data.

•Level 3—Unobservable inputs that are supported by little or no market activity and that are significant to determining the fair value of the assets or liabilities, including pricing models, discounted cash flow methodologies and similar techniques.

To the extent that the valuation is based on models or inputs that are less observable or unobservable in the market, the determination of fair value requires more judgement. Accordingly, the degree of judgement exercised by the Company in determining fair value is greatest for instruments categorized in Level 3. A financial ~~instrument’s~~instrument's level within the fair value hierarchy is based on the lowest level of any input that is significant to the fair value measurement.

The carrying amounts of cash and cash equivalents, accounts receivable, ~~available for sale securities,~~ accounts payable, and all other current liabilities approximate fair values due to their short-term nature. The fair value of notes receivable approximates the outstanding balance net of reserves for expected credit loss. The marketable securities are classified as available-for-sale and ~~is reviewed for impairment~~are carried at ~~least annually. The~~fair value based on quoted market prices. Changes in fair value of ~~impaired notes receivable is determined based~~marketable securities, principally derived from accretion of discounts, was $0.4 million and immaterial for the three months ended March 31, 2024 and 2023, respectively, and included in Interest income on ~~estimated future payments discounted back to present value using~~ the ~~notes' effective interest rate.~~Condensed Consolidated Statements of Operations.


		Level	June 30, 2023		December 31, 2022		Level	March 31, 2024	December 31, 2023
Cash equivalents	Cash equivalents	1	$	10,160	$	25,087
Marketable securities	Marketable securities	2	$	40,986	$	31,852

~~GrowGeneration Corp.~~

~~Notes To Unaudited Condensed Consolidated Financial Statements~~

~~June 30, 2023~~4. REVENUE RECOGNITION

3.~~RECENT ACCOUNTING PRONOUNCEMENTS~~

~~New Accounting Pronouncements~~

From time to time, the Financial Accounting Standards Board (“FASB”) or other standard setting bodies issue new accounting pronouncements. Updates to the FASB Accounting Standards Codification (“ASC”) are communicated through issuance of an Accounting Standards Update (“ASU”). We have implemented all new accounting pronouncements that are in effect and that may impact our financial statements. We have evaluated recently issued accounting pronouncements and determined that there is no material impact on our financial position or results of operations.

In June 2016, FASB issued ASU No. 2016-13, “Financial Instruments — Credit Losses (Topic 326),” changing the impairment model for most financial instruments by requiring companies to recognize an allowance for expected losses, rather than incurred losses as required previously by the other-than-temporary impairment model. The ASU applies to most financial assets measured at amortized cost and certain other instruments, including trade and other receivables, loans, available-for-sale and held-to-maturity debt securities, net investments in leases, and off-balance sheet credit exposures. ASU No. 2016-13 was effective January 1, 2020. The Company has adopted this standard effective January 1, 2023. The adoption of this standard primarily applied to the valuation of the Company’s accounts receivable. Based on the composition of the Company’s accounts receivable, investment portfolio, and other financial assets, including current market conditions and historical credit loss activity, the adoption of this standard did not have a material impact on the Company’s consolidated financial statements or disclosures. Specifically, the Company’s estimate of expected credit losses as of June 30, 2023, using the expected credit loss evaluation process described above, resulted in no adjustments to the provision for credit losses and no cumulative-effect adjustment to accumulated deficit on the adoption date of the standard.

4.~~REVENUE RECOGNITION~~

Disaggregation of Revenues

~~Sales~~Net sales are disaggregated by ~~our~~the Company's segments, which represent ~~our~~its principal lines of business, as well as by ~~our private label products versus distributed~~major product line, including proprietary brands, ornon-proprietary brands, and commercial fixtures, and by ~~commercial fixture revenue. See~~product type, including consumable and durable products. Refer to Note 13, Segments,, for disaggregated revenue ~~by segment.~~disclosures.

GROWGENERATION CORP. AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

March 31, 2024

(Unaudited)

Contract Assets and Liabilities

Depending on the timing of when title of product transfers to a customer and when a customer makes payments for such product, the Company recognizes an accounts receivable (contract asset) or a customer deposit (contract liability). The opening and closing balances of the ~~Company’s customer trade~~Company's accounts receivables and customer ~~deposit liability are~~deposits were as follows:


		Receivables		Customer Deposit Liability		Accounts Receivable, Net	Customer Deposits
Opening balance, January 1, 2023		$	8,336	$	4,338
Closing balance, June 30, 2023		7,318		3,746
Opening balance, January 1, 2024
Closing balance, March 31, 2024
Increase (decrease)	Increase (decrease)	$	(1,018)	$	(592)

Opening balance, January 1, 2022		$	5,741	$	11,686
Closing balance, June 30, 2022		8,313		6,294
Opening balance, January 1, 2023
Opening balance, January 1, 2023
Opening balance, January 1, 2023
Closing balance, March 31, 2023
Increase (decrease)	Increase (decrease)	$	2,572	$	(5,392)

Of the total amount of customer deposit liability as of January 1, ~~2023,~~2024, $2.9 million was reported as revenue during the ~~six~~three months ended ~~June 30, 2023.~~March 31, 2024. Of the total amount of customer deposit liability as of January 1, ~~2022, $11.1~~2023, $2.3 million was reported as revenue during the ~~six~~three months ended ~~June 30, 2022.~~March 31, 2023.

Notes receivable at March 31, 2024 and December 31, 2023 were as follows:


	March 31, 2024		December 31, 2023
Notes receivable	$	501	$	2,031
Allowance for credit losses	(232)		(1,732)
Notes receivable, net	$	269	$	299

The following table summarizes changes in notes receivable balances that have been deemed impaired.


	March 31, 2024		December 31, 2023
Notes receivable	$	232	$	1,732
Allowance for credit losses	(232)		(1,732)
Notes receivable, net	$	—	$	—

During the three months ended March 31, 2024, the Company received a $0.3 million settlement related to a $1.5 million note receivable, which had been fully reserved as of December 31, 2023. Refer to Note 12, Commitment and Contingencies, for additional information regarding the settlement.

~~GrowGeneration Corp.~~GROWGENERATION CORP. AND SUBSIDIARIES

~~Notes To Unaudited Condensed Consolidated Financial Statements~~NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

~~June 30, 2023~~March 31, 2024

(Unaudited)

5. PROPERTY AND EQUIPMENT

5.~~PROPERTY AND EQUIPMENT~~Property and equipment at March 31, 2024 and December 31, 2023 consisted of the following:


		June 30, 2023		December 31, 2022		March 31, 2024	December 31, 2023
Vehicles	Vehicles	$	2,603	$	2,176
Building		2,121		2,121
Building and land
Leasehold improvements	Leasehold improvements	12,341		12,562
Furniture, fixtures and equipment	Furniture, fixtures and equipment	14,334		13,195
Capitalized software	Capitalized software	2,761		2,644
Construction-in-progress	Construction-in-progress	13,267		9,569
Total property and equipment, gross	Total property and equipment, gross	47,427		42,267
Accumulated depreciation		(16,745)		(13,598)
Accumulated depreciation and amortization
Property and equipment, net	Property and equipment, net	$	30,682	$	28,669

Depreciation and amortization expense related to property and equipment was $2.1 million and $1.7 million for the three ~~and six~~ months ended ~~June 30,~~March 31, 2024 and 2023, ~~was $1.6 million and $3.3 million. Depreciation expense for the three and six months ended June 30, 2022 was $2.0 million and $3.7 million.~~respectively.

~~GrowGeneration Corp.~~

~~Notes To Unaudited Condensed Consolidated Financial Statements~~

~~June 30, 2023~~

6. GOODWILL AND INTANGIBLE ASSETS

The ~~Company performs its goodwill impairment testing annually during the fourth quarter, or more frequently if events or if circumstances were to occur that would more likely than not reduce the fair~~carrying value of ~~our reporting unit below its carrying amount. The Company would recognize an impairment charge for the amount~~goodwill at March 31, 2024 and December 31, 2023 by ~~which the carrying amount exceeds the reporting unit’s fair value, not to exceed the total amount of goodwill. The adjusted carrying amount of goodwill shall be its new accounting basis.~~segment was as follows:

During the second quarter of 2022, the Company’s market capitalization fell below total net assets. In addition, financial performance continued to weaken during the quarter, which was contrary to prior experience. Management reassessed business performance expectations following persistent adverse developments in equity markets, deterioration in the environment in which we operate, inflation, lower than expected sales, and an increase in operating expenses. These indicators, in the aggregate, required impairment testing for finite-lived intangible assets at the asset group level and goodwill at the reporting unit level.


	Cultivation and Gardening		Storage Solutions		Total



Balances, December 31, 2023	$	5,920	$	1,605	$	7,525


Balances, March 31, 2024	$	5,920	$	1,605	$	7,525

Under ASC 360, we performed a cash recoverability test on the following intangible assets: customer relationships, trade name, and non-compete. The carrying amounts of any assets that are not within the scope of ASC 360-10, other thanAccumulated impairment for goodwill ~~were adjusted for impairment, as necessary, prior to testing long-lived assets and goodwill. The Company recognized impairment losses as disclosed in the table below.~~

For goodwill impairment testing purposes, the Company determined four reporting units, three of which were subject to a quantitative assessment. We determined fair value using the income approach, where estimated future returns are discounted to present value at an appropriate rate of return. The Company completed its interim goodwill impairment testwas $125.9 million as of ~~June 30, 2022~~March 31, 2024 and ~~recognized impairment losses as disclosed in the table below. There were no goodwill impairments recognized during the six months ended June 30,~~December 31, 2023.

The changes in ~~goodwill are as follows:~~

June 30, 2023 December 31,
2022
Balance, beginning of period $ 15,978 $ 125,401
Goodwill additions and measurement period adjustments 830 7,234
Impairment — (116,657)
Balance, end of period $ 16,808 $ 15,978

~~The goodwill balance and impairment~~intangible assets by segment ~~are~~for the quarter ended March 31, 2024 and year ended December 31, 2023 were as follows:

Retail E-commerce Distribution Total
Gross carrying value at December 31, 2021 $ 101,811 $ 11,659 $ 11,931 $ 125,401
Acquisitions & measurement period adjustments 1,418 (341) 6,157 7,234
Gross carrying value at December 31, 2022 103,229 11,318 18,088 132,635
Acquisitions & measurement period adjustments 830 — — 830
Gross carrying value, at June 30, 2023 $ 104,059 $ 11,318 $ 18,088 $ 133,465
Accumulated impairment losses at December 31, 2021 $ — $ — $ — $ —
Impairment (103,094) (9,848) (3,715) (116,657)
Accumulated impairment losses at December 31, 2022 (103,094) (9,848) (3,715) (116,657)
Impairment — — — —
Accumulated impairment losses at June 30, 2023 $ (103,094) $ (9,848) $ (3,715) $ (116,657)
Net carrying value at December 31, 2022 $ 135 $ 1,470 $ 14,373 $ 15,978
Net carrying value at June 30, 2023 $ 965 $ 1,470 $ 14,373 $ 16,808

~~GrowGeneration Corp.~~

~~Notes To Unaudited Condensed Consolidated Financial Statements~~

~~June 30, 2023~~

~~A summary of intangible assets is as follows:~~


						~~Weighted-Average~~
						~~Amortization Period~~
						~~of Intangible Assets~~
						~~as of June 30, 2023~~
						~~(in years)~~
~~Trade names~~						~~2.71~~
~~Patents~~						~~2.50~~
~~Customer relationships~~						~~4.11~~
~~Non-competes~~						~~0.58~~
~~Intellectual property~~						~~2.67~~
~~Total~~						~~3.21~~


	Cultivation and Gardening		Storage Solutions		Total




Balance as of December 31, 2023	$	13,501	$	2,679	$	16,180
Amortization	(1,482)		(195)		(1,677)


Balance as of March 31, 2024	$	12,019	$	2,484	$	14,503

Intangible assets ~~consist~~on the Company's Consolidated Balance Sheets consisted of the following:

June 30, 2023
Gross
Carrying
Amount Accumulated
Amortization Net
Carrying
Amount
Trade names $ 29,063 $ (13,613) $ 15,450
Patents 100 (63) 37
Customer relationships 17,542 (7,686) 9,856
Non-competes 932 (669) 263
Intellectual property 2,065 (964) 1,101
Total $ 49,702 $ (22,995) $ 26,707

December 31, 2022
Gross
Carrying
Amount Accumulated
Amortization Net
Carrying
Amount
Trade names $ 29,062 $ (10,517) $ 18,545
Patents 100 (56) 44
Customer relationships 17,102 (6,501) 10,601
Non-competes 932 (551) 381
Intellectual property 2,065 (758) 1,307
Total $ 49,261 $ (18,383) $ 30,878


	March 31, 2024						December 31, 2023
	Gross Carrying Amount		Accumulated Amortization		Net Carrying Amount		Gross Carrying Amount		Accumulated Amortization		Net Carrying Amount
Trade names	$	28,198	$	(17,850)	$	10,348	$	28,198	$	(16,488)	$	11,710
Patents, trademarks	69		(69)		—		69		(69)		—
Customer relationships	13,192		(9,106)		4,086		13,192		(8,813)		4,379
Non-competes	864		(795)		69		864		(773)		91
Intellectual property	1,136		(1,136)		—		1,136		(1,136)		—
Total	$	43,459	$	(28,956)	$	14,503	$	43,459	$	(27,279)	$	16,180

118

~~GrowGeneration Corp.~~GROWGENERATION CORP. AND SUBSIDIARIES

~~Notes To Unaudited Condensed Consolidated Financial Statements~~NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

~~June 30, 2023~~March 31, 2024

(Unaudited)

~~Intangibles and impairment by segment are as follows:~~

Retail E-commerce Distribution Total
Gross carrying value at December 31, 2021 $ 37,825 $ 2,501 $ 16,698 $ 57,024
Acquisitions & measurement period adjustments 229 — 3,182 3,411
Gross carrying value at December 31, 2022 38,054 2,501 19,880 60,435
Acquisitions & measurement period adjustments 441 — — 441
Gross carrying value at June 30, 2023 $ 38,495 $ 2,501 $ 19,880 $ 60,876
Accumulated amortization at December 31, 2021 $ (6,285) $ (354) $ (1,983) $ (8,622)
Amortization (5,721) (460) (3,580) (9,761)
Accumulated amortization at December 31, 2022 (12,006) (814) (5,563) (18,383)
Amortization (2,572) (224) (1,816) (4,612)
Accumulated amortization at June 30, 2023 $ (14,578) $ (1,038) $ (7,379) $ (22,995)
Accumulated impairment losses at December 31, 2021 $ — $ — $ — $ —
Impairments (11,079) (95) — (11,174)
Accumulated impairment losses at December 31, 2022 (11,079) (95) — (11,174)
Impairments — — — —
Accumulated impairment losses June 30, 2023 $ (11,079) $ (95) $ — $ (11,174)
Net carrying value at December 31, 2022 $ 14,969 $ 1,592 $ 14,317 $ 30,878
Net carrying value June 30, 2023 $ 12,838 $ 1,368 $ 12,501 $ 26,707

Amortization expense for the three ~~and six~~ months ended ~~June 30,~~March 31, 2024 and 2023 was ~~$2.4~~$1.7 million and ~~$4.6 million. Amortization~~$2.2 million, respectively. Future amortization expense ~~for the three and six months ended June 30, 2022~~as of March 31, 2024 was ~~$2.8 million and $5.6 million.~~as follows:

~~Future amortization expense is as follows:~~



2023, remainder		$	4,470
2024		8,799
2024 (remainder of the year)
2024 (remainder of the year)
2024 (remainder of the year)
2025	2025	8,426
2026	2026	3,663
2027	2027	1,217
2028
Thereafter	Thereafter	132
Total	Total	$	26,707

7. INCOME TAXES

For the ~~six~~three months ended ~~June 30, 2023,~~March 31, 2024, the effective tax rate was ~~zero%~~(0.02)%, compared to ~~1.42%~~0.00% for the ~~six~~three months ended ~~June 30, 2022. The decrease in the effective tax rate is primarily due to the Company recording a valuation allowance against deferred tax assets.~~ March 31, 2023. The effective tax rate for each of the ~~six~~three months ended ~~June 30,~~March 31, 2024 and 2023 is lower than the U.S. federal statutory rate of 21.0%~~, which is also~~ primarily due to the ~~Company recording a~~Company's valuation allowance against deferred tax assets. ~~The~~As of March 31, 2024, the Company ~~has evaluated positive and negative evidence and has~~ concluded that its deferred tax assets are not expected to be realizable, based on positive and negative evidence, therefore it has ~~recorded~~assigned a full valuation allowance ~~in the current period.~~against them.

~~GrowGeneration Corp.~~

~~Notes To Unaudited Condensed Consolidated Financial Statements~~

~~June 30, 2023~~

8. LEASES

~~We determine if a contract contains a lease at inception. Our material~~The right-of-use assets and corresponding liabilities related to the Company's operating leases ~~consist of retail and warehouse locations~~were as well as office space. Our leases generally have remaining terms of 1 to 10 years, most of which include options to extend the leases for additional 3 to 5-year periods. Generally, the lease term is the minimum of the non-cancellable period of the lease or the lease term inclusive of reasonably certain renewal periods.follows:


	March 31, 2024		December 31, 2023
Operating leases right-of-use assets	$	40,408	$	39,933

Current maturities of operating lease liability	$	7,593	$	8,021
Operating lease liability, net of current maturities	35,431		34,448
Total lease liability	$	43,024	$	42,469

~~Operating lease assets and liabilities are recognized at the lease commencement date. Operating lease liabilities represent the present value of~~The weighted-average remaining lease ~~payments over the lease term. Operating lease assets represent our right to use an underlying asset~~terms and ~~are based upon the~~weighted-average discount rates for operating lease liabilities adjusted for prepayments or accrued lease payments, initial direct costs, lease incentives, and impairment of operating lease assets. To determine the present value of lease payments not yet paid, we estimate incremental secured borrowing rates corresponding to the maturities of the leases. Our leases ~~typically contain rent escalations over the lease term. We recognize expense for these leases on a straight-line basis over the lease term.~~were as follows:

~~We have elected the practical expedient to account for lease and non-lease components as a single component for our entire population of leases.~~

Short-term disclosures include only those leases with a term greater than one month and less than or equal to 12 months, and expense is recognized on a straight-line basis over the lease term. Leases with an initial term of 12 months or less that do not include an option to purchase the underlying asset that we are reasonably certain to exercise are not recorded on the balance sheet.


	Three Months Ended March 31,
	2024		2023
Weighted average remaining lease term	5.99 years		6.46 years
Weighted average discount rate	6.2	%	5.8	%

Lease expense is recorded within ~~our consolidated statements~~the Company's Condensed Consolidated Statements of ~~operations~~Operations based upon the nature of the operating lease right-of-use assets. Where assets are used to directly serve our customers, such as ~~facilities dedicated to customer contracts,~~retail locations and distribution centers, lease costs are recorded in ~~“store operating costs.”~~Store operations and other operational expenses. Facilities and assets which serve management and support functions are expensed through Selling, general, and ~~administrative expenses.~~

administrative. The Company recorded sublease income of
$0.3 million and $0.3 million for the three mo

June 30,
2023 December 31,
2022
Right of use assets, operating lease assets $ 42,692 $ 46,433
Current lease liability $ 8,152 $ 8,131
Non-current lease liability 37,191 40,659
Total lease liability $ 45,343 $ 48,790

June 30,
2023 June 30,
2022
Weighted average remaining lease term 6.26 years 6.60 years
Weighted average discount rate 5.8 % 5.6 %

nths ended

Three Months Ended June 30,
2023 2022
Operating lease costs $ 2,803 $ 2,783
Variable lease costs 570 477
Short-term lease costs 97 111
Total operating lease costs $ 3,470 $ 3,371

March 31, 2024 and 2023, respectively, within Store operations and other operational expenses related to the sublease of a closed retail location.

139

~~GrowGeneration Corp.~~GROWGENERATION CORP. AND SUBSIDIARIES

~~Notes To Unaudited Condensed Consolidated Financial Statements~~NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

~~June 30, 2023~~March 31, 2024

(Unaudited)

The components of lease expense were as follows:


		Six Months Ended June 30,				Three Months Ended March 31,
		2023		2022		2024	2023
Operating lease costs	Operating lease costs	$	5,696	$	5,445
Variable lease costs	Variable lease costs	1,169		1,340
Short-term lease costs	Short-term lease costs	264		237
Total operating lease costs	Total operating lease costs	$	7,129	$	7,022

~~The following table presents the maturity~~

Future maturities of the ~~Company’s~~Company's operating lease liabilities as of ~~June 30, 2023~~March 31, 2024 were as follows:

2023 (remainder of the year) $ 5,418
2024 9,923
2025 9,135
2026 7,562
2027 5,534
Thereafter 16,771
Total lease payments 54,343
Less: Imputed interest (9,000)
Lease Liability at June 30, 2023 $ 45,343

~~9. SHARE BASED PAYMENTS~~

The Company maintains long-term incentive plans for employees, non-employee members of our Board of Directors, and consultants. The plans allow us to grant equity-based compensation awards, including stock options, stock appreciation rights, performance share units, restricted stock units, restricted stock awards, or a combination of awards (collectively, "share-based awards").

The Company accounts for share-based payments through the measurement and recognition of compensation expense for share-based awards made to employees and directors of the Company, including stock options and restricted shares. The Company also issues share-based awards in the form of common stock warrants to non-employees.

~~The following table presents share-based award expense for the three and six months ended June 30, 2023 and 2022:~~

Three months ended June 30, Six months ended June 30,
2023 2022 2023 2022
Restricted stock $ 947 $ 750 $ 1,514 $ 1,951
Stock options — 16 — 59
Warrants — 340 — 679
Total $ 947 $ 1,106 $ 1,514 $ 2,689

As of June 30, 2023, the Company had approximately $5.4 million of unamortized share-based compensation for option awards and restricted stock awards, which are expected to be recognized over a weighted average period of approximately 3.1 years.

~~Restricted Stock~~

The Company issues shares of restricted stock to eligible employees, which are subject to forfeiture until the end of an applicable vesting period. The awards generally vest on the first, second, third, or fourth anniversary of the date of grant, subject to the employee’s continuing employment as of that date. Restricted stock is valued using market value on the grant date.

~~GrowGeneration Corp.~~

~~Notes To Unaudited Condensed Consolidated Financial Statements~~

~~June 30, 2023~~

~~Restricted stock activity for the six months ended June 30, 2023 is presented in the following table:~~

Shares Weighted Average Grant Date Fair Value
Nonvested, December 31, 2022 614,875 $ 9.41
Granted 1,000,000 $ 3.80
Vested (223,166) $ 6.51
Forfeited (318,750) $ 4.23
Nonvested, June 30, 2023 1,072,959 $ 5.64

~~The table below summarizes all option activity under all plans during the six months ended June 30, 2023:~~

Options Shares Weighted -
Average
Exercise
Price Weighted -
Average
Remaining
Contractual
Term Weighted -
Average
Grant Date
Fair Value
Outstanding at December 31, 2022 604,498 $ 3.97 1.87 $ 2.24
Granted — — — —
Exercised — — — —
Forfeited or expired — — — —
Outstanding at June 30, 2023 604,498 $ 3.97 1.38 $ 2.24
Vested at June 30, 2023 604,498 $ 3.97 1.38 $ 2.24

~~A summary of the status of the Company’s outstanding stock purchase warrants for the six months ended June 30, 2023 is as follows:~~

Warrants Weighted Average
Exercise Price
Outstanding at December 31, 2022 32,500 $ 15.82
Issued — —
Exercised — —
Forfeited — —
Outstanding at June 30, 2023 32,500 $ 15.82

~~Liability Awards~~


2024 (remainder of the year)	$	7,516
2025	9,658
2026	8,410
2027	6,420
2028	5,948
Thereafter	13,567
Total lease payments	51,519
Less: imputed interest	(8,495)
Operating lease liability at March 31, 2024	$	43,024

~~In August 2022, the Company issued certain stock awards classified~~Supplemental and other information related to leases was as liabilities based on the guidance set forth at ASC 480-10-25 and ASC 718-10-25. These awards entitled the employees to receive an equity award with a specified dollar value of common stock on future dates ranging from June 15, 2023, through June 15, 2025. The awards generally vested over three years subject to the employee’s continued employment. On June 15, 2023, the three employees subject to these awards entered into new employment agreements which superseded the prior agreements and removed the liability awards from their compensation package. In accordance with ASC 718-20-35-2A through 718-20-35-9, these awards were evaluated and accounted for as modified awards. The liability of $0.7 million was relieved to additional paid-in capital and the incremental expense of $0.1 million will be recognized over the remaining term of the modified awards.follows:


	Three Months Ended March 31,
	2024		2023
Cash paid for amounts included in the measurement of lease liabilities:
Operating cash flow from operating leases	$	2,580	$	2,826

~~GrowGeneration Corp.~~

~~Notes To Unaudited Condensed Consolidated Financial Statements~~

~~June 30, 2023~~

~~10.~~9. EARNINGS ~~(LOSS)~~ PER SHARE

The following table sets forth the composition of the weighted average shares (denominator) used in the basic and dilutive earnings per share computation for the three ~~and six~~ months ended ~~June 30, 2023~~March 31, 2024 and ~~2022:~~2023:


		Three Months Ended				Three Months Ended March 31,
		June 30, 2023		June 30, 2022		2024	2023
Net income (loss)	Net income (loss)	$	(5,699)	$	(136,379)
Weighted average shares outstanding, basic	Weighted average shares outstanding, basic	61,077		60,756
Effect of dilution		—		—
Effect of dilutive outstanding restricted stock units, stock options, and warrants
Adjusted weighted average shares outstanding, dilutive	Adjusted weighted average shares outstanding, dilutive	61,077		60,756
Basic earnings (loss) per share	Basic earnings (loss) per share	$	(0.09)	$	(2.24)
Dilutive earnings (loss) per share	Dilutive earnings (loss) per share	$	(0.09)	$	(2.24)

Diluted earnings per share calculations for the three months ended March 31, 2024 excluded 0.5 million shares of common stock issuable upon exercise of stock options and 0.8 million of non-vested restricted stock units that would have been anti-dilutive. Diluted earnings per share calculations for the three months ended March 31, 2023 excluded 0.6 million shares of common stock issuable upon exercise of stock options, 0.7 million shares of non-vested restricted stock units, and 33 thousand shares of common stock issuable upon exercise of the stock purchase warrants that would have been anti-dilutive.

Six Months Ended
June 30,
2023 June 30,
2022
Net income (loss) $ (11,833) $ (141,556)
Weighted average shares outstanding, basic 61,053 60,742
Effect of dilution — —
Adjusted weighted average shares outstanding, dilutive 61,053 60,742
Basic earnings (loss) per share $ (0.19) $ (2.33)
Dilutive earnings (loss) per share $ (0.19) $ (2.33)

GROWGENERATION CORP. AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

March 31, 2024

(Unaudited)

10. SHARE-BASED PAYMENTS

The Company maintains long-term incentive plans for employees, non-employee members of its Board of Directors (the "Board"), and consultants. The plans allow the Company to grant equity-based compensation awards, including stock options, stock appreciation rights, performance share units, restricted stock units, restricted stock awards, common stock warrants, or a combination of awards (collectively, "share-based awards").

The ~~following potentially outstanding~~Company accounts for share-based payments through the measurement and recognition of compensation expense for share-based awards made to employees, non-employee members of the Board, and consultants of the Company, including stock options and restricted stock units. The Company recorded share-based compensation expense of $0.8 million and ~~stock options were excluded from~~$0.6 million in the ~~computation of diluted earnings per share because the effect would have been antidilutive:~~three months ended March 31, 2024 and 2023, respectively.

Three Months Ended
June 30,
2023 June 30,
2022
Restricted stock 1,868 511
Stock options — 202
Total 1,868 713
Restricted Stock Units

The Company issues restricted stock units to eligible employees, which are subject to forfeiture until the end of an applicable vesting period. The awards generally vest annually or biannually over three to four years following the date of grant, subject to the employee's continuing employment as of that date. Restricted stock units are valued using the market value on the grant date.

Restricted stock unit activity for the three months ended March 31, 2024 is presented in the following table:


	Units	Weighted Average Grant Date Fair Value
Nonvested, December 31, 2023	904,834	$	5.23
Granted	—	$	—
Vested	(35,417)	$	10.75
Forfeited	(37,250)	$	2.65
Nonvested, March 31, 2024	832,167	$	5.12

As of March 31, 2024, the Company had approximately $2.9 million of unrecognized share-based compensation related to restricted stock units, which are expected to be recognized over a weighted average period of approximately 1.6 years.

Six Months Ended
June 30,
2023 June 30,
2022
Restricted stock 1,949 511
Stock options — 320
Total 1,949 831
Stock Options

~~GrowGeneration Corp.~~

~~Notes To Unaudited Condensed Consolidated Financial Statements~~

~~June 30, 2023~~

~~11. ACQUISITIONS~~Stock option activity for the three months ended March 31, 2024 is presented in the following table:

Our acquisition strategy is primarily to acquire (i) well-established, profitable hydroponic garden centers in markets where the Company does not have a market presence or in markets where it is increasing its market presence; and (ii) proprietary brands and private label brands. The Company accounts for acquisitions in accordance with ASC 805 “Business Combinations.” Assets acquired and liabilities assumed are recorded in the accompanying Condensed Consolidated Balance Sheets at their estimated fair values, as of the acquisition date. For all acquisitions, the preliminary allocation of purchase price was based upon the preliminary valuation, and the Company's estimates and assumptions are subject to change within the measurement period as valuations are finalized, not to exceed one year from the acquisition date. The Company has made adjustments to the preliminary valuations of the acquisitions based on valuation analyses prepared by independent third-party valuation consultants. There have been no measurement period adjustments during the current year. During the six months ended June 30, 2022, our measurement period adjustments included increasing goodwill by $1.3 million offset with intangible assets. As a result of these measurement period adjustments, we made an insignificant reduction in amortization expense. All acquisition costs are expensed as incurred and recorded in general and administrative expenses in the Condensed Consolidated Statements of Operations.

~~Acquisitions during the six months ended June 30, 2023~~

On May 23, 2023, the Company purchased substantially all of the assets of Southside Garden Supply ("Alaska"), a two-store chain of indoor/outdoor garden centers. The total consideration for the purchase of the Alaska assets was approximately $2.0 million, including $1.9 million in cash and an indemnity holdback of $0.1 million. The Alaska asset acquisition also included acquired goodwill of approximately $0.6 million, which represents the value expected to rise from organic growth and an opportunity for the Company to expand into a new market. Alaska is included in our Retail segment.


	Shares	Weighted Average Exercise Price		Weighted Average Remaining Contractual Term	Weighted Average Grant Date Fair Value
Outstanding at December 31, 2023	577,998	$	4.01	0.95	$	2.25
Granted	—	—		—	—
Exercised	—	—		—	—
Forfeited or expired	(68,332)	2.76		—	1.82
Outstanding at March 31, 2024	509,666	$	4.17	0.78	$	2.31
Vested and exercisable at March 31, 2024	509,666	$	4.17	0.78	$	2.31

Additionally, the Company made other, individually immaterial acquisitions during the six months ended June 30, 2023. Total consideration for these purchases was approximately $1.2 million, including $1.1 million paid in cash and indemnity holdbacks of less than $0.1 million. These individually immaterial acquisitions also included aggregate acquired goodwill of approximately $0.3 million, which represents the value expected to rise from organic growth and an opportunity for the Company to expand into a new market. These acquisitions are included in our Retail segment.

~~GrowGeneration Corp.~~

~~Notes To Unaudited Condensed Consolidated Financial Statements~~

~~June 30, 2023~~

~~The table below represents the allocation of the purchase price to the acquired net assets during the six months ended June 30, 2023.~~

Alaska Other Total
Inventory $ 720 $ 867 $ 1,587
Prepaids and other current assets 292 2 294
Furniture and equipment — 47 47
Operating lease right of use asset 630 648 1,278
Operating lease liability (630) (648) (1,278)
Customer relationships 440 — 440
Goodwill 577 252 829
Total $ 2,029 $ 1,168 $ 3,197

~~The table below represents the consideration paid for the net assets acquired in business combinations during the six months ended June 30, 2023.~~

Alaska Other Total
Cash $ 1,922 $ 1,128 $ 3,050
Indemnity holdback 107 40 147
Total $ 2,029 $ 1,168 $ 3,197

The following table discloses the date of the acquisitions noted above and the revenue and earnings included in the Condensed Consolidated Statement of Operations for the six months ended June 30, 2023.

Alaska Other Total
Acquisition date May 23, 2023
Revenue $ 392 $ 916 $ 1,308
Net income (loss) $ (83) $ (32) $ (114)

The following represents the pro forma Condensed Consolidated Statement of Operations as if the acquisition had been included in the consolidated results of the Company for the entire period for the three and six months ended June 30, 2023, and June 30, 2022.

Three Months Ended June 30, Six Months Ended June 30,
2023 2022 2023 2022
Revenue $ 122,966 $ 154,168 $ 122,966 154,168
Net income (loss) $ (11,491) $ (141,670) $ (11,491) (141,670)

~~Acquisitions during 2022~~11. STOCKHOLDERS' EQUITY

On ~~February 1, 2022,~~March 20, 2024, the Board authorized a share repurchase program, whereby the Company ~~purchased all~~could repurchase up to $6.0 million worth of its common stock in open market transactions pursuant to Rule 10b-18 of the ~~assets of Horticultural Rep Group, Inc. ("HRG"),~~Exchange Act and a ~~specialty marketing~~10b5-1 trading plan. The program began on April 1, 2024 and ~~sales organization of horticultural products based in Ogden, Utah.~~continues for up to one year. This share repurchase program is intended to enhance long-term shareholder value. The total consideration for the purchase of the assets of HRG was approximately $13.4 million, including $6.8 million in cash and common stock valued at $5.7 million. The Asset Purchase Agreement also provides for an indemnity holdback to be settled in common stock ofprogram does not obligate the Company ~~valued at $0.9 million. Acquired goodwill represents the value expected~~ to ~~rise from organic growth and an opportunity to expand into a well-established market for the Company. HRG is included in our Distribution and other segment.~~acquire any specific number of shares

1811

~~GrowGeneration Corp.~~GROWGENERATION CORP. AND SUBSIDIARIES

~~Notes To Unaudited Condensed Consolidated Financial Statements~~NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

~~June 30, 2023~~March 31, 2024

(Unaudited)

or to acquire any shares over any specific period of time. The timing and amount of any repurchases will depend on factors such as the stock price, trading volumes, market conditions, and regulatory requirements. The stock repurchase program may be amended, suspended, or discontinued at any time by the Company.

~~The table below represents the allocation of the purchase price to the acquired net assets during the six months ended June 30, 2022.~~

~~HRG~~

~~Inventory~~

~~4,170~~

~~Prepaids and other current assets~~

~~Furniture and equipment~~

~~148~~

~~Operating lease right of use asset~~

~~666~~

~~Operating lease liability~~

~~(666)~~

~~Customer relationships~~

~~2,430~~

~~Trademark~~

~~496~~

~~Non-compete~~

~~255~~

~~Goodwill~~

~~5,816~~

~~Total~~

~~13,391~~

~~The table below represents the consideration paid for the net assets acquired in business combinations during the six months ended June 30, 2022.~~


	~~HRG~~
~~Cash~~	$	~~6,806~~
~~Indemnity stock holdback~~	~~875~~
~~Common stock~~	~~5,710~~
~~Total~~	$	~~13,391~~

The following table discloses the date of the acquisition noted above and the revenue and earnings included in the Condensed Consolidated Statement of Operations for the six months ended June 30, 2022. Revenue and earnings amounts include other proprietary brands now being included under HRG for operations.


	~~HRG~~
~~Acquisition date~~	~~February 1, 2022~~
~~Revenue~~	$	~~8,086~~
~~Net Income (loss)~~	$	~~130~~

Three Months Ended June 30, 2022 Six Months Ended June 30, 2022
Revenue $ 70,939 $ 154,542
Net income (loss) $ (8,626) $ (13,802)

~~GrowGeneration Corp.~~

~~Notes To Unaudited Condensed Consolidated Financial Statements~~

~~June 30, 2023~~

12. COMMITMENTS AND CONTINGENCIES

Legal Matters

~~We are~~From time to time, the Company has been, and may again become involved in ~~lawsuits and claims which arise~~legal proceedings arising in the ~~normal~~ordinary course of ~~our~~its business, including the initiation and defense of proceedings related to contract and employment disputes. ~~In our~~It is the Company's opinion that these claims individually and in the aggregate are not expected to have a material adverse effect on ~~our~~its financial condition, results of operations or cash flows.

In December 2021, the Company was sued in the U.S. District Court for the Southern District of Texas related to a Promissory Note & Asset Acquisition Rights Option (“("Note & ~~Option”~~Option") with TGC Systems, LLC (“("Total ~~Grow”~~Grow"). The case was dismissed and the parties submitted the matter to arbitration pursuant to the arbitration clause of the Note & Option. Among other claims, Total Grow alleged that the Company was liable to Total Grow ~~based on promissory estoppel and breach of contract~~ for failing to consummate the acquisition of Total Grow by the Company. The Company ~~counterclaimed~~asserted counterclaims for repayment of $1.5 million in principal ~~plus interest~~ loaned by the Company to Total Grow pursuant to the Note & ~~Option. The Company accrued a reserve of $1.5 million against the Note & Option. As discussed in Note 14,~~ ~~Subsequent Events, on~~Option, plus interest and certain costs. In July ~~26,~~ 2023, the arbitrator ~~denied~~rendered an arbitration award denying all of Total Grow's claims and defenses ~~determined that~~and awarding the Company ~~prevailed~~more than $2.0 million in ~~its counterclaim,~~total, consisting of principal, interest, and ~~awarded~~certain costs. Total Grow voluntarily filed for bankruptcy in October 2023. In February 2024, the Company ~~an award in full settlement~~received $0.3 million from the bankruptcy proceedings, which it recorded as a recovery on the $1.5 million Note & Option. The remainder of the ~~matter.~~Note & Option, which were fully reserved, were written off during the three months ended March 31, 2024.

There can be no assurance that future developments related to pending claims or claims filed in the future, whether as a result of adverse outcomes or as a result of significant defense costs, will not have a material effect on the ~~Company’s~~Company's financial condition, results of operations or cash flows. ~~We believe~~The Company believes that ~~our~~its assessment of contingencies is reasonable and that the related accruals, in the aggregate, are adequate; however, there can be no assurance that the final resolution of these matters will not have a material effect on ~~our~~the Company's financial condition, results of operations or cash flows.

Indemnifications

In the ordinary course of its business, the Company makes certain indemnities under which it may be required to make payments in relation to certain transactions. As of ~~June 30, 2023,~~March 31, 2024, the Company did not have any liabilities associated with indemnities.

In addition, the Company, as permitted under Colorado law and in accordance with its amended and restated certificate of incorporation and amended and restated bylaws, in each case, as amended to date, indemnifies its officers and directors for certain events or occurrences, subject to certain limits, while the officer or director is or was serving at the ~~Company’s~~Company's request in such capacity. The duration of these indemnifications varies. The Company has a director and officer insurance policy that may enable it to recover a portion of any future amounts paid. The Company accrues for losses for any known contingent liability, including those that may arise from indemnification provisions, when future payment is probable. No such losses have been recorded to date.

13. SEGMENTS

~~The~~During the fourth quarter of 2023, the Company ~~has segmented~~realigned its ~~operations~~operating and reportable segments to ~~reflect the manner in which~~correspond with changes to its operating model, management ~~reviews~~structure, and ~~evaluates the results of its operations. The structure reflects the manner in which~~internal reporting and to better align with how the chief operating decision maker ~~regularly~~("CODM") makes operating decisions, allocates resources, and assesses ~~information for decision-making purposes, including~~performance. Accordingly, the ~~allocation of resources. Shared services and other corporate costs are allocated to an individual~~Company identified two operating segments, each its own reportable segment, based on ~~that segment's profitability.~~its major lines of business: the Cultivation and Gardening segment, composed of the Company's hydroponic and organic gardening business; and the Storage Solutions segment, composed of the Company's benching, racking, and storage solutions business. Comparative prior period disclosures have been recast to conform to the current segment presentation.

Retail – The core of our business strategy is to operate the largest chain of retail garden centers in the U.S. The hydroponic retail landscape is fragmented, which allows us to acquire “best of breed” hydroponic retail operations and leverage efficiencies of a centralized organization. Some of our garden centers have multi-functions, with added capabilities that include warehousing, distribution, and fulfillment for our online platforms and direct fulfillment to our commercial customers.

Our retail segment also includes our commercial sales organization, which is focused on selling products and services, including end-to-end solutions, for large commercial cultivators outside of the physical retail network. When commercial customers gain new cultivation licenses, they need lighting, benching, environmental control systems, irrigation, fertigation, and other products to outfit their facilities. Existing facilities also need consumable products for operations, as well as equipment updates from time to time. Commercial customers typically purchase large dollar amounts, quantities, and sizes of products. We offer commercial customers volume pricing, terms, and financing.

E-commerce – Our digital strategy is primarily focused on capturing the home, craft, and commercial grower online. GrowGeneration.com offers thousands of hydroponic products, all curated by our product team. GrowGeneration.com offers

2012

~~GrowGeneration Corp.~~GROWGENERATION CORP. AND SUBSIDIARIES

~~Notes To Unaudited Condensed Consolidated Financial Statements~~NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

~~June 30, 2023~~March 31, 2024

(Unaudited)

~~customers~~In addition to sales by operating segment, which represent the ~~option to have their orders shipped directly to their locations, anywhere in North America. GrowGeneration also sells its products through its distribution website, HRGdist.com,~~Company's principal lines of business, the CODM evaluates the Company's operations by regularly reviewing sales by major product line, including proprietary brands, non-proprietary brands, and ~~online marketplaces such as Amazon~~commercial fixtures, and ~~Walmart.~~

~~Distribution~~by product type, including consumable and ~~other – In December 2020, GrowGeneration purchased~~durable products. During the ~~business~~first quarter of ~~Canopy Crop Management Corp., the developer of the popular PowerSi line of monosilicic acid products, a widely used nutrient additive for plants. In March 2021,~~2024, the Company ~~purchased Charcoir, a line of premium coco pots, cubes~~reviewed and ~~medium. In December 2021,~~reclassified certain item level designations as consumable or durable products. Comparative prior period disclosures have been recast to conform to the Company purchased the assets of Mobile Media, Inc. ("MMI"), a mobile shelving and storage solutions developer and manufacturer. In February 2022, the Company purchased the assets of Horticultural Rep Group, Inc. ("HRG"), a specialty marketing and sales organization specializing in horticultural products. The Company is in the process of combining the operations and management of these non-retail enterprises. The products these companies provide are integrated into our retail, e-commerce, and direct sales activities, and we receive incremental revenue from the sale of these products.current presentation.

Disaggregated revenue by segment is presented in the following ~~table:~~tables:

Three Months Ended June 30, Six Months Ended June 30,
2023 2022 2023 2022
Sales, net
Retail
Private label sales $ 7,200 $ 6,000 $ 13,801 $ 13,096
Non-private label sales 39,717 49,354 72,517 106,554
Total retail 46,917 55,354 86,318 119,650
E-Commerce
Private label sales 400 300 661 700
Non-private label sales 3,334 3,395 6,334 8,263
Total e-commerce 3,734 3,695 6,995 8,963
Distribution and other
Private label sales 1,700 3,200 3,865 6,000
Non-private label sales 3,200 3,744 7,500 7,947
Commercial fixture sales 8,374 5,100 16,074 10,300
Total distribution and other 13,274 12,044 27,439 24,247
Total $ 63,925 $ 71,093 $ 120,752 $ 152,860


	Three Months Ended March 31,
Net sales	2024		2023
Cultivation and Gardening
Proprietary brand sales	$	9,726	$	9,027
Non-proprietary brand sales	33,382		40,100
Total Cultivation and Gardening	43,108		49,127
Storage Solutions
Commercial fixture sales	4,780		7,700
Total Storage Solutions	4,780		7,700
Total	$	47,888	$	56,827


	Three Months Ended March 31,
Net sales	2024		2023
Cultivation and Gardening
Consumables	$	30,181	$	32,352
Durables	12,927		$	16,775
Total Cultivation and Gardening	43,108		$	49,127
Storage Solutions
Durables	4,780		$	7,700
Total Storage Solutions	4,780		$	7,700
Total	$	47,888	$	56,827

GROWGENERATION CORP. AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

March 31, 2024

(Unaudited)

Selected information by segment is presented in the following tables:

Three Months Ended June 30, Six Months Ended June 30,
2023 2022 2023 2022
Net sales
Retail $ 46,917 $ 55,354 $ 86,318 $ 119,650
E-Commerce 3,734 3,695 6,995 8,963
Distribution and other 13,274 12,044 27,439 24,247
Total $ 63,925 $ 71,093 $ 120,752 $ 152,860


	Three Months Ended March 31,
	2024		2023
Net sales
Cultivation and Gardening	$	43,108	$	49,127
Storage Solutions	4,780		7,700
Total net sales	47,888		56,827
Gross profit
Cultivation and Gardening	10,325		13,229
Storage Solutions	2,039		3,060
Total gross profit	12,364		16,289
Segment operating profit
Cultivation and Gardening	1,064		1,803
Storage Solutions	666		1,864
Total segment operating profit	1,730		3,667
Corporate expenses
Selling, general, and administrative	7,908		6,838
Estimated credit losses	(488)		317
Depreciation and amortization	3,742		3,932

Income (loss) from operations	$	(9,432)	$	(7,420)

The Company does not evaluate segments by assets as it is not practical and does not inform any of its decision making processes. The CODM neither reviews nor requests this information.

~~GrowGeneration Corp.~~

~~Notes To Unaudited Condensed Consolidated Financial Statements~~

~~June 30, 2023~~

Three Months Ended June 30, Six Months Ended June 30,
2023 2022 2023 2022
Gross profit
Retail $ 11,521 $ 15,601 $ 22,258 $ 31,094
E-Commerce 819 709 1,681 2,454
Distribution and other 4,797 3,917 9,487 8,819
Total $ 17,137 $ 20,227 $ 33,426 $ 42,367

Three Months Ended June 30, Six Months Ended June 30,
2023 2022 2023 2022
Income (Loss) from operations
Retail $ (6,547) $ (107,103) $ (13,622) $ (114,286)
E-Commerce (444) (8,607) (928) (9,039)
Distribution and other 425 (21,091) 220 (20,697)
Total $ (6,566) $ (136,801) $ (14,330) $ (144,022)

~~14. SUBSEQUENT EVENTS~~

In December 2021, the Company was sued in the U.S. District Court for the Southern District of Texas related to a Promissory Note & Asset Acquisition Rights Option (“Note & Option”) with TGC Systems, LLC (“Total Grow”). The case was dismissed and the parties submitted the matter to arbitration pursuant to the arbitration clause of the Note & Option. Among other claims, Total Grow alleged that the Company was liable to Total Grow based on promissory estoppel and breach of contract for failing to consummate the acquisition of Total Grow by the Company. The Company counterclaimed for repayment of $1.5 million principal plus interest loaned by the Company to Total Grow pursuant to the Note & Option.

On July 26, 2023, the arbitrator denied all of Total Grow’s claims and defenses, determined that the Company prevailed in its counterclaim, and granted the Company an award of $1.5 million, with interest at the rate of 8% compounded annually beginning on March 15, 2021 until paid in full, and certain other costs. The Award is in full settlement of all claims and counterclaims related to the matter.

2214

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

The following discussion and analysis of our financial condition and results of operations should be read in conjunction with our ~~consolidated financial statements~~Condensed Consolidated Financial Statements and related notes that appear elsewhere in this report as well as our Annual Report on Form 10-K for the year ended December 31, ~~2022~~2023 filed with the SEC on March ~~16, 2023.~~13, 2024. We caution readers ~~regarding certain~~that this Quarterly Report of GrowGeneration Corp. on Form 10-Q contains forward-looking statements within the meaning of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended, which are subject to risks and uncertainties. Forward-looking statements generally can be identified through the ~~Private Securities Litigation Reform Act~~use of 1995, in the following discussion and elsewhere in this report. Forward looking statements are statements not based on historical information and which relate to future operations, strategies, financial results, or other developments. Forward looking statements, particularly those identified with the words such as “guidance,” “outlook,” “projected,” “may,” “likely,” “anticipates,” “believes,” “expects,” “estimates,” “plans,” “intends,” “objectives,” and similar ~~expressions, are necessarily~~expressions. These statements reflect management’s best judgment based ~~upon estimates and assumptions that are inherently subject to significant business, economic, and competitive uncertainties and contingencies, many~~on factors known at the time of ~~which are beyond our control and many of which, with respect to future business decisions, are subject to change. These uncertainties and contingencies can affect actual~~such statements. Actual events or results ~~and could cause actual results to~~may differ materially from those ~~expressed in any~~discussed herein. The forward-looking statements contained in this report have been compiled by our management on the basis of assumptions made by usmanagement and considered by management to be reasonable. Our future operating results, however, are impossible to predict and no representation, guaranty, or warranty is to be inferred from those forward-looking statements. The assumptions used for purposes of the forward-looking statements contained in this report represent estimates of future events and are subject to uncertainty as to possible changes in economic, legislative, industry, and other circumstances. As a result, the identification and interpretation of data and other information and their use in developing and selecting assumptions from and among reasonable alternatives require the exercise of judgment. To the extent that the assumed events do not occur, the outcome may vary substantially from anticipated or projected results, and, accordingly, no opinion is expressed on ~~our behalf. We disclaim~~the achievability of those forward-looking statements. No assurance can be given that any of the assumptions relating to the forward-looking statements specified in the following information are accurate, and we assume no obligation to update ~~forward looking~~any such forward-looking statements, except as required by ~~law.~~federal securities laws. There may be additional risks, uncertainties, and other factors that we do not currently view as material or that are not necessarily known.

OVERVIEW

GrowGeneration Corp. (together with all of its direct and indirect ~~wholly-owned~~wholly owned subsidiaries, collectively ~~“GrowGeneration”~~"GrowGeneration" or the ~~“Company”~~"Company") was incorporated in Colorado in 2014. Since then, GrowGeneration ~~is the largest~~has grown from a small chain of specialty retail hydroponic and organic garden centers into a multifaceted business with diverse assets. Today, GrowGeneration operates two major lines of business: its Cultivation and Gardening segment, composed of the ~~United States~~Company's hydroponic and ~~is a leading marketer~~organic gardening business; and ~~distributor~~its Storage Solutions segment, composed of nutrients, growing media, advanced indoor and greenhouse lighting, environmental control systems, and accessories for hydroponic gardening. GrowGeneration also owns and operates an e-commerce platform, www.growgeneration.com, Mobile Media, a verticalthe Company's benching, racking, and storage solutions business, Horticultural Rep Group, a horticultural products sales representative and distributor organization, and proprietary brands across multiple product categories, from lighting to nutrients and additives to environmental control systems.business.

Our business is driven by a wide selection of products, facility design services, solutions driven staff, and pick, pack and ship distribution and fulfillment capabilities. GrowGeneration carries and sells thousands of products, including nutrients, growing media, lighting, environmental control systems, vertical benching, and accessories for hydroponic gardening, as well as other indoor and outdoor growing products, that are capable of growing and maximizing yield and quality of a wide range of plants. Our products include proprietary brands such as Charcoir, Drip Hydro, Power Si, MMI benching and racking, Ion lights, Durabreeze fans, and more. GrowGeneration also provides facility design services to commercial growers. As of June 30, 2023, we employed approximately 481 employees, a majority of whom have been branded by us as “Grow Pros”, and our operations span over 953,000 square feet of retail and warehouse space.MARKETS AND BUSINESS SEGMENTS

~~Markets~~During the fourth quarter of 2023, we realigned our operating and ~~Business Segments~~

Our target customer segments include the commercial growers in the plant-based medicine market, the craft grower, and vertical and urban farmers who grow organic herbs, fruits, and vegetables. Additionally, we sell products from our distribution and other segment to wholesalers, resellers, and retailers. Unlike the traditional agricultural industry, these cultivators use innovative indoor and outdoor growing techniques to produce specialty crops in highly controlled environments. This enables them to produce crops at higher yields and quality, regardless of the season or weather conditions.

~~The Company has three primary~~ reportable segments ~~including retail operations, e-commerce,~~to correspond with changes to our operating model, management structure, and ~~all other. The Company has segmented its operations~~internal reporting and to ~~reflect the manner in which management reviews and evaluates the results of its operations. The structure reflects the manner in which~~better align with how the chief operating decision maker ~~regularly~~makes operating decisions, allocates resources, and assesses ~~information for decision-making purposes, including~~performance. Accordingly, we identified two operating segments, each its own reportable segment, based on our major lines of business: the ~~allocation of resources.~~Cultivation and Gardening segment and the Storage Solutions segment. Comparative prior period disclosures have been recast to conform to the current segment presentation.

We recognize specifically identifiable operating costs such as cost of sales, distribution expenses, and ~~selling~~store operations and ~~general administrative~~other operational expenses within each segment. ~~Certain~~Selling, general, and administrative expenses, such as administrative and management expenses, salaries, and benefits, share based compensation, director fees, legal expenses, accounting and consulting expenses, and technology costs, are not allocated to ~~the~~ specific segments and are reflected in the enterprise results.

Cultivation and Gardening Segment

We are a leading developer, marketer, retailer, and distributor of products for both indoor and outdoor hydroponic and organic gardening. Our main business strategy within the hydroponic and organic gardening sector has been to consolidate assets within the fragmented hydroponics industry to leverage efficiencies of a centralized organization.

We sell a variety of hydroponic and organic gardening related products, including nutrients, additives, growing media, lighting, environmental control systems, and other products for indoor and outdoor cultivation. Our products include proprietary brands such as Charcoir, Drip Hydro, Power Si, Ion lights, The Harvest Company, and more, the development and expansion of which are a key component of the Company's growth strategy. Our target customers include commercial and craft growers, as well as home growers, in the plant-based medicine market, and commercial and home gardeners who grow organic herbs, fruits, and vegetables. Additionally, through our brand HRG Distribution, we distribute many of our products, including our proprietary

2315

~~Competitive Advantages~~products, to customers that are wholesalers, resellers, and retailers in the specialty retail hydroponic and organic gardening industry.

~~The markets in which we sell~~We make our products ~~are highly competitive. Our key competitors include many local~~available to growers through a variety of channels, including hydroponic retail locations, a commercial sales teams serving commercial cultivators, an online platform for cultivators at growgeneration.com, and ~~national vendors of gardening supplies, local product~~a wholesale business, HRG Distribution, that markets to resellers ofin both the hydroponic and other specialty growing equipment, and online product resellers and large online marketplaces such as Amazon and eBay. Our industry is highly fragmented, with around 1,000 hydroponic retailers throughouttraditional gardening markets. Management believes that the ~~U.S. by management's estimates.~~

~~Notwithstanding the foregoing, we are~~Company has the largest chain of specialty retail hydroponic and organic garden centers in the U.S., with 46 retail locations across 18 states as of March 31, 2024.

Storage Solutions Segment

Our Storage Solutions business, branded as "Mobile Media" or "MMI," provides customized storage solutions designed to enhance profitability, productivity, and efficiency for our customers by ~~management's estimates,~~allowing them to save space and increase storage capacity. We cater to diverse markets with our ~~pricing, inventory~~products and ~~product availability,~~services, including agriculture, retail, warehousing, office and ~~overall customer~~administrative, food service, hospitality, golf and country clubs, and more. Our products include high-density mobile storage systems, static shelving, and other accessories such as desks, lockers, safes, and secured storage, offering a solution for every storage need. MMI also offers a wide variety of services, including site surveys, floor plan designs, capacity analysis, seismic calculations, permitting, and installation, in order to provide usa comprehensive, turnkey solution for customers. Based in the ~~ability~~Hudson Valley, New York, the MMI team has decades of experience successfully completing projects throughout the U.S., Canada, and Mexico.

Our target customers generally include small, mid-size, and large businesses seeking vertical space-saving solutions that are custom tailored to ~~compete~~their space and brand in ~~our industry. In addition, as we continue~~an effort to ~~increase the scope~~maximize storage capacity or gain space in their real estate footprint. Many of our operations, including both retail and distribution, we expect to be able to continue to purchase inventory at lower volume prices, which we expect will enable us to price competitively and deliver the products that our customers are ~~seeking. The Company competes by delivering a one-stop shopping experience that~~involved in the construction and design industries and include retailers, general contractors, and architects involved in new constructions and remodels for retail stores and fulfillment centers. Our customer base also includes the ~~widest selection of hydroponics products, end-to-end solutions for all types of cultivation environments, in-store sales~~golf industry, specifically country clubs needing to store more club bags and ~~product support, direct manufacturer pricing,~~optimize their existing space, as well as controlled environment agriculture (CEA) operators that cultivate indoors with vertical or rolling benching and ~~industry-leading expertise and customer service.~~racking.

Growth Strategy

~~Core to our~~GrowGeneration's main growth strategy has been to consolidate assets within the fragmented hydroponics industry to leverage efficiencies of a centralized organization. As a result, we have built a business that is ~~to expand~~driven by a wide selection of products, a strong portfolio of proprietary brands, a solutions-driven staff located in strategic markets around the ~~number~~country, and pick, pack, ship distribution and fulfillment capabilities.

Since its founding in 2014, GrowGeneration has acquired or opened numerous specialty hydroponic and organic gardening center locations. Today, management believes that the Company has the largest chain of ~~our~~specialty retail hydroponic and organic garden centers in the U.S., ~~especially~~with 46 retail locations across 18 states as of March 31, 2024.

Our plan is to continue to acquire, open, and operate garden centers in markets where we do not already have a physical presence or where our existing physical presence is limited. ~~During the first six months~~However, in light of difficult market conditions that persisted throughout 2023 and into 2024, the Company ~~acquired 5 new~~also reduced redundancies in cost structure by closing and consolidating retail locations where we were generally able to serve the same customer base through a single location. To date in 2024, the Company consolidated four additional stores and ~~expanded into two new states. Our plan is to continue to acquire, open, and operate garden centers.~~may consider additional store consolidations in the future.

GrowGeneration ~~will~~has also ~~pursue~~acquired several other types of businesses within or complimentary to the hydroponic industry, such as online retailers, proprietary products, our distribution business, HRG, and our benching, racking, and storage solutions business, MMI. The Company regularly seeks and evaluates accretive acquisition opportunities with similar or complimentary businesses to those businesses it already operates.

Currently, the Company's main growth ~~through expansion of~~strategies for its Cultivation and Gardening segment include expanding its commercial sales ~~and distribution capabilities~~ to sell more product to commercial cultivators for large grow operations, ~~and~~expanding its distribution capabilities to sell more product to independent retail garden centers and other resellers for resale, ~~as well as~~establishing itself in new markets where it believes regulation related to cannabis reform is progressing, especially with the potential cannabis rescheduling by ~~promoting~~the federal government, and expanding and promoting its portfolio of proprietary brands to increase its market share, product offerings, and profitability.

The Company's main growth strategies for its Storage Solutions segment include expanding the types of customers and industries to which it sells its products, including greater penetration in agriculture and golf and country clubs. In March 2024,

the Company announced it had engaged Lake Street Capital to advise and assist in exploring strategic opportunities for its benching, racking, and storage solutions business.

COMPONENTS OF RESULTS OF OPERATIONS

Net Sales

We primarily generate net sales from the selling and distribution of proprietary and non-proprietary brand hydroponic and organic gardening products. In addition to our hydroponic and organic gardening product sales, we sell and install commercial fixtures through our benching, racking, and storage solutions business. Net sales reflect the amount of consideration that we expect to receive, which is derived from a list price reduced by variable consideration, including applicable sales discounts and estimated expected sales returns.

These sales vary by the type of product: consumables, such as nutrients, additives, growing media, and supplies that are subject to regular replenishment; and durables, such as lighting, environmental control systems, and storage solutions. Generally, in new markets where legalization of plant-based medicines is recent and licensors are starting new grow operations, there is an initial increase of durable product purchases for facility build-outs, which decrease over time as growers establish their operations. Thereafter, we tend to observe cultivators focus their purchasing patterns to consumables as the primary source of product need. In more mature markets, the sales patterns tend to favor higher percentages of consumable purchasing in comparison to emerging markets.

We assess the organic growth of our Cultivation and Gardening segment net sales on a same-store basis. We believe that our assessment on a same-store basis represents an important indicator of comparative financial results and provides relevant information to assess our performance. New and acquired stores become eligible for inclusion in the comparable store base if the store has been under our ownership for the entire period in the same-store base periods for which we are including the store. Closed stores become ineligible for inclusion in the comparable store base in the month in which operations cease.

Cost of Sales

Cost of sales includes cost of goods and shipping costs. Cost of goods consists of cost of merchandise, inbound freight, and other inventory-related costs, such as shrinkage costs and lower of cost or market adjustments. Occupancy expenses of our retail locations and distribution centers, which consist of payroll, rent, and other lease required costs, including common area maintenance and utilities, are included as a component of operating expenses within Store operations and other operational expenses in the Condensed Consolidated Statements of Operations.

Gross Profit

We calculate gross profit as net sales less cost of sales. Gross profit excludes depreciation and amortization, which are presented separately as a component of operating expenses in the Condensed Consolidated Statements of Operations. Our gross profit as a percentage of net sales, or gross profit margin, varies with our product mix, in particular the percentage of sales of proprietary brand products compared to non-proprietary brand products and of consumable products compared to durable products. Proprietary products typically have higher gross margins compared to non-proprietary products, and consumable products typically have higher gross margins compared to durable products.

Operating Expenses

Operating expenses are comprised of the following components: store operations and other operational expenses; selling, general, and administrative; estimated credit losses; depreciation and amortization; and impairment losses. Store operations and other operational expenses consist primarily of payroll, rent and utilities, and allocated corporate overhead costs. Selling, general, and administrative expenses consist of corporate salaries, stock-based compensation, advertising and promotions, travel and entertainment, professional fees, insurance, and other corporate administrative costs. Selling, general, and administrative expenses as a percentage of net sales typically does not increase commensurate with an increase in net sales. Our largest expenses are generally related to employee compensation and leases, which are primarily fixed and not variable. Our advertising and marketing expenses are largely controllable and variable depending on the particular market.

RESULTS OF OPERATIONS

Comparison of the ~~three months ended June 30,~~Unaudited Results for the Three Months Ended March 31, 2024 and 2023 ~~and 2022~~

The following table presents, for the periods indicated, selected information from our unaudited Condensed Consolidated financial results, including information presented as a percentage of net sales:


	Three Months Ended March 31,
	2024				2023				Year-to-Year Variance
Net sales	$	47,888	100.0	%	$	56,827	100.0	%	$	(8,939)	(15.7)	%
Cost of sales	35,524		74.2	%	40,538		71.3	%	(5,014)		(12.4)	%
Gross profit	12,364		25.8	%	16,289		28.7	%	(3,925)		(24.1)	%
Operating expenses	21,796		45.5	%	23,709		41.7	%	(1,913)		(8.1)	%
Income (loss) from operations	(9,432)		(19.7)	%	(7,420)		(13.1)	%	(2,012)		27.1	%
Other income (expense)	593		1.2	%	1,286		2.3	%	(693)		(53.9)	%
Net income (loss) before taxes	(8,839)		(18.5)	%	(6,134)		(10.8)	%	(2,705)		44.1	%
Benefit (provision) for income taxes	2		—	%	—		—	%	2		—	%
Net income (loss)	$	(8,837)	(18.5)	%	$	(6,134)	(10.8)	%	$	(2,703)	44.1	%

Net Sales

Net sales for the three months ended ~~June 30, 2023 was approximately $63.9~~March 31, 2024 were $47.9 million, a decrease of $8.9 million or 15.7% as compared to ~~$71.1~~net sales of $56.8 million for the three months ended ~~June 30, 2022, a decrease of approximately $7.2 million or 10.1%.~~ March 31, 2023.

The decrease in net sales was primarily ~~attributed to a decrease of approximately $7.9 million~~ related to ~~same store~~our Cultivation and Gardening segment, which had net sales ~~which represented an approximate 15.1% decrease year over year. Overall sales in our retail segment declined from $55.4~~of $43.1 million for the three months ended ~~June 30, 2022~~March 31, 2024 compared to ~~$46.9 million for the same period in 2023. Distributed sales increased to $13.3~~$49.1 million for the three months ended ~~June 30,~~March 31, 2023. This decrease in net sales was primarily due to the fiscal 2023 consolidation of 13 retail locations after March 31, 2023 as well as the four additional retail store consolidations during the three months ended March 31, 2024. Same-store sales decreased approximately $0.4 million, or 1%, primarily due to decreased e-commerce retail sales volume which was partially offset by same-store sales growth in our brick-and-mortar retail locations. Proprietary brand sales as a percentage of Cultivation and Gardening net sales for the three months ended March 31, 2024 was approximately 23% as compared to ~~$12.0~~approximately 18% for the three months ended March 31, 2023, largely driven by our strategic initiatives to increase sales volume with our expanded portfolio of proprietary brands and various proprietary product launches. The percentage of Cultivation and Gardening net sales related to consumable products for the three months ended March 31, 2024 was approximately 70%, which was an increase from approximately 66% for the three months ended March 31, 2023. The increase in consumable sales as a percentage of net sales was driven mainly by increased brand adoption of proprietary growing media and nutrient products.

Additionally, net sales of commercial fixtures within our Storage Solutions segment decreased to $4.8 million for the three months ended ~~June 30, 2022. E-commerce sales were relatively flat from $3.7~~March 31, 2024 compared to $7.7 million for the three months ended ~~June 30, 2022, to $3.7 million for the same period in~~March 31, 2023.

Cost of Sales

Cost of sales for the three months ended ~~June 30, 2023~~March 31, 2024 was ~~approximately $46.8~~$35.5 million, a decrease of $5.0 million or 12.4% compared to ~~approximately $50.9~~$40.5 million for the three months ended ~~June 30, 2022, a decrease of approximately $4.1 million or 8.0%.~~March 31, 2023. The decrease in cost of sales was primarily due to the ~~10.1%~~15.7% decrease in sales, ~~comparing~~as previously discussed, partially offset by reduced inventory discounts from vendors and non-recurring costs associated with store consolidations in the three months ended ~~June 30, 2023~~March 31, 2024 compared to the three months ended ~~June 30, 2022.~~March 31, 2023.

Gross Profit

Gross profit was ~~approximately $17.1~~$12.4 million for the three months ended ~~June 30, 2023,~~March 31, 2024 compared to ~~approximately $20.2~~$16.3 million for the three months ended ~~June 30, 2022,~~March 31, 2023, a decrease of ~~approximately $3.1~~$3.9 million or ~~15.3%~~24.1%. The decrease in gross profit is primarily related to the ~~10.1% decrease in net sales comparing~~Gardening and Cultivation segment, which decreased $2.9 million, or 22.0%, for the three months ended ~~June 30, 2023~~March 31, 2024 as compared to the three months ended ~~June 30, 2022. Gross profit~~March 31, 2023, largely as a ~~percentage~~result of ~~net~~the decrease in sales ~~was 26.8% for~~volume due to store consolidations as previously discussed. Additionally, gross profit from our Storage Solutions segment decreased $1.0 million, or 33.4%, in the three months ended ~~June 30, 2023,~~March 31, 2024 compared to ~~28.5% for~~ the three months ended ~~June 30, 2022. Gross profit in our retail segment declined from $15.6 million for the three months ended June 30, 2022, to $11.5 million for the same period in~~March 31, 2023. Gross profit from distributed sales increased to $4.8 million for the three months ended June 30, 2023, compared to $3.9 million for the three months ended June 30, 2022. Gross profit from our e-commerce segment was $0.8 million for the three months ended June 30, 2023, compared to $0.7 million for the three months ended June 30, 2022.

2418

~~Operating Expenses~~

~~Operating expenses are comprised of store operations, selling, general, and administrative, and depreciation and amortization. Operating costs were approximately $23.7 million~~Gross profit margin was 25.8% for the three months ended ~~June 30, 2023 and approximately $157.0 million~~March 31, 2024, a decrease of 290 basis points from a gross profit margin of 28.7% for the three months ended June 30, 2022, a decrease of approximately $133.3 million or 85%. The decrease in operating expenses is primarily attributable the impairment loss of $127.8 million recorded during the three months ended June 30, 2022.

Store operating costs were approximately $12.3 million for the three months ended June 30, 2023, compared to $13.8 million for the three months ended June 30, 2022, a decrease of $1.5 million or 11%. The decrease in store operating costs was directly attributable to payroll reductions and expense savings recognized from store consolidations.

Total corporate overhead, which is comprised of selling, general, and administrative expense and depreciation and amortization expense, was approximately $11.4 million for the three months ended June 30, 2023, compared to $15.4 million for the three months ended June 30, 2022, a decrease of $4.0 million or 26%. Selling, general, and administrative costs were approximately $7.5 million for the three months ended June 30, 2023, compared to approximately $9.8 million for the three months ended June 30, 2022. Salaries expense decreased to $3.4 million for the three months ended June 30, 2023, from $5.4 million for the same period in 2022. General and administrative expenses decreased to $3.2 million for the three months ended June 30, 2023, from $4.1 million for the same period in 2022.

~~Other Income/Expense~~

Total other income was approximately $1.0 million for the three months ended June 30, 2023, compared to expense of $0.1 million for the three months ended June 30, 2022. This increase is primarily attributable to interest income driven from capital investments.

~~Segment Operating Income~~

Operating loss in our retail segment dropped from $107.1 million to an operating loss of $6.5 million. The operating loss for our e-commerce segment decreased from $8.6 million for the three months ended June 30, 2022 to a loss of $0.4 million for the same period inMarch 31, 2023. Operating income in the distribution and other segment other increases to a loss of $0.4 million in the three months ended June 30, 2023, compared to a loss of of $21.1 million in the three months ended June 30, 2022.

~~Income Taxes~~

Income tax benefit was $0.1 million for the three months ended June 30, 2023, compared to income tax expense of $0.3 million for the three months ended June 30, 2022. The effective tax rate for the six months ended June 30, 2023 is lower than the U.S. federal statutory rate of 21.0%, which is also primarily due to the Company recording a valuation allowance against deferred tax assets. The Company has evaluated positive and negative evidence and has concluded that its deferred tax assets are not expected to be realizable and has recorded a valuation allowance in the current period.

~~Net Income~~

Net loss for the three months ended June 30, 2023 was approximately $5.7 million, compared to net loss of approximately $136.4 million for the three months ended June 30, 2022, an increase of approximately $130.7 million.

~~Comparison of the six months ended June 30, 2023 and 2022~~

~~Net Sales~~

Net sales for the six months ended June 30, 2023 was approximately $120.8 million, compared to $152.9 million for the six months ended June 30, 2022, a decrease of approximately $32.1 million or 21%. The decrease was primarily ~~attributed~~attributable to ~~a decrease of approximately $29.7 million related to same store sales, which represented~~ an ~~approximate 26.5% decrease year over year. Overall sales in our retail segment declined from $119.7 million~~290 basis point gross profit margin decline for the six months ended June 30, 2022, to $86.3 million for the same period in 2023. Distributed sales increased to $27.4 million for the six months ended June 30, 2023 compared to $24.2 million for the six months ended June 30, 2022. E-commerce sales decreased from $9.0 million for the six months ended June 30, 2022, to $7.0 million for the same period in 2023.

~~Cost of Sales~~

~~Cost of sales for the six months ended June 30, 2023~~Cultivation and Gardening segment, which was ~~approximately $87.3 million, compared to approximately $110.5 million for the six months ended June 30, 2022, a decrease of approximately $23.2 million or 21%.~~primarily driven by industry pricing compression on distributed products and non-recurring costs associated with store consolidations discussed previously. The decrease in ~~cost of sales~~the total gross profit margin was ~~primarily due to the 21% decrease in sales comparing the six months ended June 30, 2023 to the six months ended June 30, 2022.~~

~~Gross Profit~~

~~Gross~~partially offset by a 300 basis point gross profit ~~was approximately $33.4 million~~margin improvement for the six months ended June 30, 2023, compared to approximately $42.4 million for the six months ended June 30, 2022, a decrease of approximately $8.9 million or 21%. The decrease in gross profit is primarily related to the 21% decrease in net sales comparing the six months ended June 30, 2023 to the six months ended June 30, 2022. Gross profit as a percentage of net sales was 27.7% for the six months ended June 30, 2023, compared to 27.7% for the six months ended June 30, 2022. Gross profit in our retail segment declined from $31.1 million for the six months ended June 30, 2022, to $22.3 million for the same period in 2023. Gross profit from distributed sales increased to $9.5 million for the six months ended June 30, 2023, compared to $8.8 million for the six months ended June 30, 2022. Gross profit from our e-commerce segment was $1.7 million for the six months ended June 30, 2023, compared to $2.5 million for the six months ended June 30, 2022.Storage Solutions segment.

Operating Expenses

Operating expenses are comprised of store operations and other operational expenses, selling, general, and administrative, estimated credit losses, and depreciation and amortization. Operating ~~costs~~expenses were ~~approximately $47.8~~$21.8 million for the ~~six~~three months ended ~~June 30, 2023~~March 31, 2024 and ~~approximately $186.4~~$23.7 million for the ~~six~~three months ended ~~June 30, 2022,~~March 31, 2023, a decrease of ~~approximately $138.6~~$1.9 million or ~~74%~~8.1%. ~~The decrease in operating expenses is primarily attributable to a $127.8 million impairment loss recognized in the prior year.~~

Store operating costs and other operational expenses, which consisted primarily of payroll, rent and utilities, and allocated corporate overhead costs, were ~~approximately $25.2~~$10.6 million for the ~~six~~three months ended ~~June 30, 2023,~~March 31, 2024, compared to ~~$28.3~~$12.6 million for the ~~six~~three months ended ~~June 30, 2022,~~March 31, 2023, a decrease of ~~$3.1~~$2.0 million or ~~11%~~15.8%. The decrease in store operating costs was ~~directly~~primarily attributable to ~~payroll reductions and expense savings recognized from~~the fiscal 2023 consolidation of 13 retail locations after March 31, 2023 as well as the four additional retail store ~~consolidations.~~consolidations during the three months ended March 31, 2023. Additionally, as part of our 2023 charitable initiatives, we had approximately $0.4 million more charitable donations in the three months ended March 31, 2023 as compared to the three months ended March 31, 2024.

Total corporate overhead, which is comprised of selling, general, and administrative expense, estimated credit losses, and depreciation and amortization expense, was ~~approximately $22.5~~relatively flat with $11.2 million for the ~~six~~three months ended ~~June 30, 2023,~~March 31, 2024 compared to ~~$30.3~~$11.1 million for the ~~six~~three months ended ~~June 30, 2022, a decrease of $7.7 million or 26%.~~March 31, 2023. Selling, general, and administrative costs ~~were approximately $14.3~~increased by $1.1 million or 15.6% for the ~~six~~three months ended ~~June 30, 2023,~~March 31, 2024 primarily as a result of one-time severances and related professional fees and increased share-based compensation. This increase was largely offset by the estimated credit recoveries of $0.5 million in the three months ended March 31, 2024, primarily due to a $0.3 million settlement received in bankruptcy proceedings related to a note receivable, as compared to ~~approximately $19.4~~the estimated credit loss of $0.3 million ~~for~~in the ~~six~~three months ended June 30, 2022. Salaries expense decreased to $6.9 million for the six months ended June 30, 2023, from $10.6 million for the same period in 2022. General and administrative expenses decreased to $6.4 million for the six months ended June 30, 2023, from $7.7 million for the same period in 2022.March 31, 2023.

Other ~~Income/Expense~~Income (Expense)

~~Total other~~Other income (expense) was ~~approximately $2.6~~$0.6 million for the ~~six~~three months ended ~~June 30, 2023,~~March 31, 2024 compared to ~~expense of $0.5~~$1.3 million for the ~~six~~three months ended ~~June 30, 2022.~~March 31, 2023. This ~~increase~~decrease is primarily attributable to ~~income generated from capital investments.~~

~~Segment Operating Income~~

~~Operating loss~~the $0.9 million gain recognized in ~~our retail segment decreased from $114.3 million to an operating loss of $13.6 million. The operating loss for our e-commerce segment decreased from $9.0 million for~~ the ~~six~~three months ended ~~June 30, 2022~~March 31, 2023 related to a loss of $0.9 million for the same period in 2023. Operating income in the distribution and other segment decreased to income of $0.2 million in the six months ended June 30, 2023, compared to income of $20.7 million in the six months ended June 30, 2022.

~~Income Taxes~~

Income tax expense was $0.1 million for the six months ended June 30, 2023, compared to income tax benefit of $1.9 million for the six months ended June 30, 2022. The effective tax rate for the six months ended June 30, 2023 is lower than the U.S. federal statutory rate of 21.0%, which is also primarily due to the Company recording a valuation allowance against deferred tax assets. The Company has evaluated positive and negative evidence and has concluded that its deferred tax assets are not expected to be realizable and has recorded a valuation allowance in the current period.prior acquisition indemnity holdback.

2619

~~Net Income~~

Net loss for the six months ended June 30, 2023 was approximately $11.8 million, compared to net loss of approximately $141.6 million for the six months ended June 30, 2022, an increase of approximately $129.7 million.

~~Operating Activities~~

Net cash provided by operating activities for the six months ended June 30, 2023 was approximately $7.4 million, compared to $1.6 million used for the six months ended June 30, 2022. The Company continued to decrease inventory and improve on receivable collection, partially offset by reductions to customer deposits and payroll and payroll tax liabilities.

Net cash used by investing activities was approximately $17.6 million for the six months ended June 30, 2023, compared to cash provided by investing activities of approximately $14.2 million for the six months ended June 30, 2022. Investing activities in 2023 were primarily attributable to investment of excess cash into marketable securities of $51.7 million, partially offset by maturity of marketable securities of $42.6 million. The Company also had vehicle and store equipment purchases of $5.5 million and business acquisitions of $3.2 million. Investing activities for the six months ended June 30, 2022 were primarily related to maturities of marketable securities of $29.8 million, partially offset by store acquisitions of $6.8 million and the purchase of vehicles and store equipment to support new store operations of $8.8 million.

Net cash used in financing activities for the six months ended June 30, 2023 was approximately $0.2 million and was primarily attributable to common stock withheld for employee payroll taxes. Net cash used by financing activities for the six months ended June 30, 2022 was $1.5 million and was primarily attributable to stock withheld to cover payroll taxes.

Use of Non-GAAP Financial Information

~~The Company believes that the presentation~~EBITDA and Adjusted EBITDA are non-GAAP financial measures commonly used in our industry and should not be construed in isolation as substitutions to net income (loss) as indicators of ~~results excluding~~operating performance or as alternatives to cash flow provided by operating activities as a measure of liquidity (each as determined in accordance with GAAP). GrowGeneration defines EBITDA as net income (loss) before interest income, interest expense, income tax expense, depreciation and amortization, and Adjusted EBITDA as further adjusted to exclude certain items ~~in “Adjusted EBITDA,”~~ such as ~~non-cash equity~~stock-based compensation, ~~charges, provides~~impairment losses, restructuring and corporate rationalization costs, and other non-core or non-recurring expenses and to include income from our marketable securities as these investments are part of our operational business strategy and increase the cash available to us. We believe these non-GAAP measures, when used in conjunction with net income (loss), provide meaningful supplemental information to both management and investors, facilitating the evaluation of performance across reporting periods. ~~The Company~~Management uses these non-GAAP measures for internal planning and reporting purposes. These non-GAAP measures are not in accordance with, or an alternative for, ~~U.S. GAAP~~generally accepted accounting principles and may be different from non-GAAP measures used by other companies. ~~The presentation~~We believe that these non-GAAP financial measures may be useful to investors in their assessment of our operating performance and valuation. In addition, these non-GAAP financial measures address questions routinely received from analysts and investors and, in order to ensure that all investors have access to the same data, we have determined that it is appropriate to make this ~~additional information is not meant~~data available to ~~be considered in isolation or as a substitute for net income or net income per share prepared in accordance with generally accepted accounting principles.~~

all investors.

Set forth below is a reconciliation of EBITDA and Adjusted EBITDA to net income (loss) (in thousands):

Three Months Ended June 30,
2023 2022
(000) (000)
Net income (loss) $ (5,699) $ (136,379)
Income taxes 93 (283)
Interest income — (45)
Interest expense 431 10
Depreciation, and amortization 3,824 4,783
EBITDA $ (1,351) $ (131,914)
Impairment loss — 127,831
Share based compensation (option compensation, warrant compensation, stock issued for services) 947 1,106
Restructuring charges 1,220 —
Fixed asset disposal 40 (12)
Adjusted EBITDA $ 856 $ (2,989)
Adjusted EBITDA per share, basic $ 0.01 $ (0.05)
Adjusted EBITDA per share, diluted $ 0.01 $ (0.05)

Six Months Ended
June 30,
2023 2022
(000) (000)
Net income (loss) $ (11,833) $ (141,556)
Income taxes 93 (1,919)
Interest income — (47)
Interest expense 5 13
Depreciation, and amortization 7,756 9,289
EBITDA $ (3,979) $ (134,220)
Impairment loss — 127,831
Share based compensation (option compensation, warrant compensation, stock issued for services) 1,514 2,689
Restructuring charges 1,498 —
Fixed asset disposal 21 (84)
Adjusted EBITDA $ (946) $ (3,784)
Adjusted EBITDA per share, basic $ (0.02) $ (0.06)
Adjusted EBITDA per share, diluted $ (0.02) $ (0.06)


	Three Months Ended March 31,
	2024		2023
Net income (loss)	$	(8,837)	$	(6,134)
Benefit (provision) for income taxes	(2)		—
Interest income	(602)		(428)
Interest expense	56		2
Depreciation and amortization	3,742		3,932
EBITDA	$	(5,643)	$	(2,628)
Share-based compensation	778		567
Investment income	580		—
Restructuring and other charges (1)	1,414		259
Adjusted EBITDA	$	(2,871)	$	(1,802)
(1) Consists primarily of expenditures related to the activity of store and distribution consolidation and one-time severances

~~Liquidity and Capital Resources~~LIQUIDITY AND CAPITAL RESOURCES

Overview

As of ~~June 30, 2023,~~March 31, 2024, we had working capital of ~~approximately $126.2~~$112.4 million compared to working capital of ~~approximately $134.9~~$116.5 million as of December 31, ~~2022,~~2023, a decrease of ~~approximately $8.7~~$4.1 million. The decrease in working capital from December 31, ~~2022~~2023 to ~~June 30, 2023~~March 31, 2024 was due primarily to a net decrease in ~~accounts receivable~~cash, cash equivalents, and ~~income taxes receivable, partially offset by an increase~~marketable securities as a result of net cash used in ~~current liabilities. At June 30, 2023,~~operating activities.

As of March 31, 2024, we had cash, ~~and~~ cash equivalents, and marketable securities of ~~approximately $29.6~~$61.3 million. Currently, we ~~have no~~are not aware of any extraordinary demands, commitments, or uncertainties that would materially reduce our current working capital. Our ~~core strategy continues~~material future cash requirements from contractual and other obligations relate primarily to ~~focus on expanding~~ our ~~geographic reach across~~operating leases. Refer to Note 8, Leases, of the United States and building our store and brand portfolio through organic growth and acquisitions. We believe that some of our store acquisitions and new store openings can come from cash flow from operations.Condensed Consolidated Financial Statements for additional information regarding leases.

We ~~anticipate that we~~ may need additional financing through equity offerings and/or debt financings in the future to continue to ~~acquire~~expand our business consistent with our growth strategies. However, management believes that the Company is adequately funded to support current and ~~open new stores and related businesses.~~future operations in the next twelve months. To date we have financed our operations through the issuance ~~and sale~~ of common stock, convertible notes, and ~~warrants.~~warrants, as well as cash generated from operations.

Share Repurchase Program

On March 20, 2024, the Board of Directors of the Company authorized a share repurchase program, whereby the Company could repurchase up to $6.0 million worth of its common stock in open market transactions pursuant to Rule 10b-18 of the Exchange Act and a 10b5-1 trading plan. The program began on April 1, 2024 and continues for up to one year. This share repurchase program is intended to enhance long-term shareholder value. The program does not obligate the Company to acquire any specific number of shares or to acquire any shares over any specific period of time. The timing and amount of any repurchases will depend on factors such as the stock price, trading volumes, market conditions, and regulatory requirements. The stock repurchase program may be amended, suspended, or discontinued at any time by the Company. Except for the Company's generally applicable insider trading policies, the Company does not maintain any policies or procedures relating to purchases and sales of its securities by its officers and directors during a repurchase program.

Cash Flows

The following discussion sets forth the major sources and uses of cash for the three months ended March 31, 2024 and 2023.

Operating Activities

Net cash and cash equivalents used in operating activities for the three months ended March 31, 2024 was $3.7 million compared to net cash provided by operating activities of $3.5 million for the three months ended March 31, 2023. The changes in operating cash were primarily driven by the decreased in income (loss) from operations as previously discussed.

Investing Activities

Net cash and cash equivalents provided by investing activities was $5.0 million and $19.3 million for the three months ended March 31, 2024 and March 31, 2023, respectively. Investing activities for the three months ended March 31, 2024 were primarily attributable to investment of excess cash into marketable securities of $21.1 million, offset by maturity of marketable securities of $26.5 million. We also had purchases of property and equipment of $0.4 million during the three months ended March 31, 2024. Investing activities for the three months ended March 31, 2023 were primarily attributable to investment of excess cash into marketable securities of $10.7 million, offset by maturity of marketable securities of $33.5 million, and purchases of property and equipment of $3.5 million, which was primarily related to the implementation and design of a new enterprise resource planning software system.

Financing Activities

Net cash and cash equivalents used in financing activities for the three months ended March 31, 2024 and March 31, 2023 was less than $0.1 million and $0.1 million, respectively, and was primarily attributable to common stock withheld for employee payroll taxes.

Critical Accounting Policies, Judgements, and Estimates

For a summary of the ~~Company’s~~Company's critical accounting policies, judgements, and estimates, please refer to Item 7 of our Annual Report on Form 10-K for the year ended December 31, ~~2022.~~2023.

Off Balance-Sheet Arrangements

We do not have any off-balance sheet arrangements (as that term is defined in Item 303 of Regulation S-K) that are reasonably likely to have a current or future material effect on our financial condition, revenue or expenses, results of operations, liquidity, capital expenditures, or capital resources.

ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

For a summary of the ~~Company’s~~Company's quantitative and qualitative disclosures about market risk, please refer to Item 7A of our Annual Report on Form 10-K for the year ended December 31, ~~2022.~~2023.

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) of the Securities Exchange Act of 1934, as amended (the "Exchange Act")) that are designed to be effective in providing reasonable assurance that information required to be disclosed in our reports under the Exchange Act is recorded, processed, summarized, and reported within the time periods specified in the rules and forms of the SEC, and that such information is accumulated and communicated to our management to allow timely decisions regarding required disclosure.

Management does not expect that our disclosure controls and procedures or our internal control over financial reporting will prevent all errors and all fraud. A control system, no matter how well conceived and operated, can provide only reasonable, not absolute, assurance that the objectives of the control system are met. Further, the design of a control system must reflect the fact that there are resource constraints, and the benefits of controls must be considered relative to their costs. Because of the inherent limitations in all control systems, including the possibility of human error, the circumvention or overriding of controls, or fraud, no evaluation of controls can provide absolute assurance that all control issues, misstatements, errors, and instances of fraud, if any, within our organization have been or will be prevented or detected.

As of the period covered by this Quarterly Report on Form 10-Q, an evaluation was conducted under the supervision and with the participation of our management, including our Chief Executive Officer and Chief Financial Officer, of the effectiveness of our disclosure controls and procedures (as defined in Rule 13a-15(e) and Rule 15d-15(e) of the Exchange Act). Our management concluded that as of ~~June 30, 2023,~~March 31, 2024, our disclosure controls and procedures were not effective because of the material weaknesses in our internal control over financial reporting identified by management as of December 31, ~~2021~~2023 (described below). A material weakness is a deficiency, or a combination of deficiencies, in internal control over financial reporting such that a reasonable possibility exists that a material misstatement of our annual or interim financial statements would not be prevented or detected on a timely basis.

Material Weaknesses in Control Activities

Evaluation of Disclosure Controls and Procedures

Disclosure controls and procedures (as defined in Rules 13a-15(e) and 15d-15(e) of the Exchange Act are controls and other procedures designed to ensure that information required to be disclosed in our reports under the Exchange Act is recorded, processed, summarized, and reported within the time periods specified in the rules and forms of the SEC, and that such information is accumulated and communicated to our management to allow timely decisions regarding required disclosure.

As of ~~December~~March 31, ~~2022,~~2024, an evaluation was conducted under the supervision and with the participation of our management, including our Chief Executive Officer and Chief Financial Officer, of the effectiveness of our disclosure controls and procedures (as defined in Rule 13a-15(e) and Rule 15d-15(e) of the Exchange Act). Our management concluded that as of

~~June 30, 2023,~~ March 31, 2024, our disclosure controls and procedures were not effective because of the material weaknesses in our internal control over financial reporting described below.

~~Management’s~~Management's Report on Internal Control Over Financial Reporting

The ~~Company’s~~Company's management is responsible for establishing and maintaining adequate internal control over financial reporting, as such term is defined in Rules 13a-15(f) and 15d-15(f) under the Exchange Act. The ~~Company’s~~Company's internal control over financial reporting is a process designed by or under the supervision of the ~~Company’s~~Company's Chief Executive Officer and Chief Financial Officer, and overseen by the Board of Directors, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with GAAP and includes policies and procedures that:

•Pertain to the maintenance of records that, in reasonable detail, accurately, and fairly reflect the transactions and dispositions of the ~~Company’s~~Company's assets;

•Provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with GAAP, and that the ~~Company’s~~Company's receipts and expenditures are being made only in accordance with the authorization of its management and directors; and

•Provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of the ~~Company’s~~Company's assets that could have a material effect on the financial statements.

Because of its inherent limitations, internal control over financial reporting is not intended to provide absolute assurance that a misstatement of the ~~Company’s consolidated financial statements~~Company's Consolidated Financial Statements would be prevented or detected. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.

A material weakness is a deficiency, or combination of deficiencies, in internal control over financial reporting, such that there is a reasonable possibility that a material misstatement of the annual or interim financial statements will not be prevented or detected on a timely basis.

Management conducted an evaluation of the effectiveness of the ~~Company’s~~Company's internal control over financial reporting using the criteria in Internal Control - Integrated Framework 2013 issued by the Committee of Sponsoring Organizations of the Treadway Commission (the “COSO Framework”). As a result of this evaluation, management concluded that the ~~Company’s~~Company's internal control over financial reporting was not effective as of ~~June 30, 2023~~March 31, 2024 because of the material weaknesses in internal control over financial reporting discussed below.

•Control Environment: The Company did not maintain an effective control environment based on the criteria established in the COSO framework, which resulted in deficiencies in principles associated with the control environment.

In addition, the following material weaknesses were previously identified and contributed to the material weakness in the control environment:

•Insufficient resources within the accounting and financial reporting department to review the accounting of complex financial reporting transactions including areas such as business combinations, share based compensation, and the related income tax reporting

•Ineffective controls over updating and distributing accounting policies and procedures across the organization.

The control environment material weaknesses contributed to other material weaknesses within our system of internal controls over financial reporting related to the following COSO components:

•Risk Assessment: The Company did not design and implement an effective risk assessment based on the criteria established in the COSO framework and identified deficiencies in the principles associated with the risk assessment component of the COSO framework.

•Information and Communication: The Company did not have an effective information and communication process that identified and assessed the source of and controls necessary to ensure the reliability of information used in financial reporting and that communicates relevant information about roles and responsibilities for internal control over financial reporting.

•Monitoring Activities: The Company did not have effective monitoring activities to assess the operation of internal control over financial reporting, including the continued appropriateness of control design and level of documentation maintained to support control effectiveness.

•Control Activities: As a consequence of the material weaknesses described above, internal control deficiencies related to the design and operation of process-level controls and general information technology controls were determined to be pervasive throughout the ~~Company’s~~Company's financial reporting processes.

In addition, the following material weaknesses were previously identified and contributed to the material weakness in control activities:

•Inadequate information and technology general controls, including segregation of duties, change management, and user access, which were inadequate to support financial reporting applications and support automated controls and functionality.

•Inadequate controls over physical inventory counts.

•Inadequate controls over valuations, inclusive of appropriate valuation model inputs and appropriate forecasting for prospective financial information.

•Inadequate segregation of duties within human resources, manual journal entry posting processes, and various bank accounts of the Company to prevent and detect unauthorized transactions in a timely manner.

While these material weaknesses did not result in material misstatements of the ~~Company’s consolidated financial statements~~Company's Condensed Consolidated Financial Statements as of and for the year ended December 31, ~~2022,~~2023, and management does not believe that these material weaknesses resulted in material misstatements as of March 31, 2024, these material weaknesses create a reasonable possibility that a

material misstatement of account balances or disclosures in annual or interim consolidated financial statements may not be prevented or detected in a timely manner.

The ~~Company’s~~Company's independent registered public accounting firm, Grant Thornton LLP, which audited the ~~2022~~2023 consolidated financial statements included in the Form 10-K, has expressed an adverse opinion on the Company's internal control over financial reporting.

Remediation Plan and Status

Our management is committed to remediating identified control deficiencies (including both those that rise to the level of a material weakness and those that do not), fostering continuous improvement in our internal controls, and enhancing our overall internal controls environment.

~~Through the full year~~We initiated many of ~~2023, the Company initiated~~our control remediation efforts in fiscal 2022, and ~~will continue~~these efforts ~~toward implementation of certain steps in its remediation plan,~~have continued through 2024, including:

•Engaged a third-party specialist CPA firm to ~~assist~~consult with ~~the redesign~~management in redesigning and documenting of ~~the Sarbanes-Oxley program inclusive~~our internal controls over financial reporting, including our entity-level controls, to be compliant with Sarbanes Oxley Act of ~~entity-level controls.~~2002 ("SOX").

•~~Created and staffed~~Hired a dedicated controls compliance ~~analyst~~manager charged with monitoring and facilitating compliance with the ~~Company’s~~Company's responsibilities under SOX in coordination with the ~~Sarbanes Oxley Act of 2002 (“SOX”).~~third-party specialist.

•Implemented a global risk and compliance software to assist in monitoring and documenting compliance with SOX.

•Made significant progress related to our control design and assessment, including the identification of risks arising from inappropriate segregation of duties and fraud risks and the development of new controls and revised the design of existing controls to mitigate the aforementioned risks, inclusive of entity-level controls.

•For certain processes, developed new and revised existing process narratives and flowcharts and identified risks inherent to those processes.

•Developed new controls and revised the design of existing controls for a significant number of relevant key controls to mitigate the aforementioned risks, inclusive of general information technology controls and entity-level controls.Conducted training sessions with control owners.

•~~Certain~~Restructured or consolidated certain business functions ~~have been restructured or consolidated~~ to align more closely with effective business operation as well as to enable appropriate segregation of duties.

•Implemented new business systems, including an enterprise resource planning software system, to support information technology general controls, appropriate segregation of duties, appropriate journal entry posting processes, change management, and user access.

•Added personnel to the accounting and financial reporting department with technical accounting experience to act as internal resources for reviewing complex financial reporting transactions, including areas such as business combinations, share based compensation, and income tax reporting.

•Continue to engage third party specialists to assist management with complex financial transactions and valuations, including valuation model techniques and inputs such as forecasted, prospective financial information.

The following remaining activities are scheduled to occur ~~in the first half of 2023 in anticipation of conducting management’s testing that will begin in the first half of 2023~~during our fiscal year 2024 in support of issuing ~~management’s~~management's assessment of internal control over financial reporting as of December 31, ~~2023:~~2024:

•~~Conduct initial organization-wide training sessions with all control owners.~~

•~~Implementation~~Testing design and operating effectiveness of ~~new business systems to support information technology general controls.~~

•~~Completion of the identification of risks arising from inappropriate segregation of duties and fraud risks.~~

•~~Completion of risk assessment and control design for the remaining populations of processes and controls.~~

•~~Implementation of~~newly implemented controls across all financial reporting processes and information technology environments.

•~~Development~~Finalization of risk assessments, control design, and implementation of new and revised controls, inclusive of general information technology controls and entity-level controls, as necessary.

•Ongoing training with control owners.

•Developing effective communication plans to all parties responsible for remediation relating to, among other things, identification of deficiencies and recommendations for corrective actions. ~~These plans will apply to all parties responsible for remediation.~~

•~~Implement~~Providing periodic compliance reports ~~are made~~ to the ~~Nominating and Governance~~Audit Committee of the Board of Directors.

•~~Ongoing training with control owners, as necessary.~~

•Ongoing migration of certain components of a legacy information technology system onto a common information technology environment, including risk assessment, control design and implementation of new and revised controls.

Our management believes that these remediation actions, when fully implemented, will remediate the material weaknesses we have identified and strengthen our internal control over financial reporting. ~~Our~~However, our remediation efforts are ongoing and additional remediation initiatives may be necessary. We will continue ~~our initiatives~~ to implement and document the strengthening of existing and the development of new policies, procedures, and internal controls.

Remediation of the identified material weaknesses and strengthening our internal control environment has required and will continue to require a substantial effort throughout ~~2023.~~2024. We will test the ongoing operating effectiveness of the new and existing controls in future periods. The material weaknesses cannot be considered completely remediated until the applicable

controls have operated for a sufficient period of time and management has concluded, through testing, that these controls are operating effectively.

While we believe the steps taken to date and those planned for implementation will remediate the ineffectiveness of our internal control over financial reporting, we have not completed all remediation efforts identified herein. Accordingly, as we continue to monitor the effectiveness of our internal control over financial reporting in the areas affected by the material weaknesses described above, we have and will continue to perform additional procedures prescribed by management, including the use of manual mitigating control procedures and employing any additional tools and resources deemed necessary, to ensure that our ~~consolidated financial statements~~Consolidated Financial Statements are fairly stated in all material respects.

Changes in Internal Control Over Financial Reporting

There were no changes in our internal control over financial reporting, except for the implementation of remediation plans to address the material weaknesses discussed above, during the most recent fiscal quarter that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.

3225

PART II – OTHER INFORMATION

ITEM 1. LEGAL PROCEEDINGS

None.

ITEM 1A. RISK FACTORS

For a summary of the ~~Company’s~~Company's risk factors, please refer to Item 9A of our Form 10-K for the year ended December 31, ~~2022.~~2023.

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

Share Repurchase Program

On ~~October 12, 2022,~~March 20, 2024, the ~~Company purchased certain assets from V&W Ag Consulting, LLC (“VW”). The total consideration for the purchase was common stock~~Board of Directors of the Company authorized a share repurchase program, whereby the Company could repurchase up to $6.0 million worth ~~approximately $0.3 million, including an indemnity holdback~~of its common stock in open market transactions pursuant to Rule 10b-18 of the Exchange Act and a 10b5-1 trading plan. The program began on April 1, 2024 and continues for up to one year. No purchases of common stock ~~worth approximately $0.1 million. 35,000 shares of common stock for~~were made pursuant to the ~~indemnity holdback payment were issued on June 1, 2023. These shares were issued in reliance on~~program during the ~~exemption from registration under Section 4(a)(2) of the Securities Act.~~three months ended March 31, 2024.

ITEM 3. DEFAULTS UPON SENIOR SECURITIES

None.

ITEM 4. MINE SAFETY DISCLOSURES

Not applicable.

ITEM 5. OTHER INFORMATION

During the three months ended June 30, 2023, no director or officer of the Company adopted or terminated any contract, instruction, or written plan for the purchase or sale of securities of the Company intended to satisfy the affirmative defense conditions of SEC Rule 10b5–1(c) or any “non-Rule 10b5–1 trading arrangement,” as defined in Item 408(c) of Regulation S-K.None.

3326

ITEM 6. EXHIBITS

The following exhibits are included and filed with this report.


Exhibit						Exhibit Description
3.1						Certificate of Incorporation of GrowGeneration Corp. (Incorporated by reference to Exhibit 3.1 to the Registration Statement on Form S-1 as filed on November 9, 2015)
3.2						Bylaws of GrowGeneration Corp. (Incorporated by reference to Exhibit 3.2 to the Registration Statement on Form S-1 as filed on November 9, 2015)
31.1						Rule 13a-14(a)/15d-14(a) certification of Chief Executive Officer
31.2						Rule 13a-14(a)/15d-14(a) certification of principal financial and accounting officer
32.1						Section 1350 certification of Chief Executive Officer*
32.2						Section 1350 certification of principal financial and accounting officer*
101						Interactive Data Files
101.INS						XBRL Instance Document
101.SCH						XBRL Taxonomy Extension Schema Document
101.CAL						XBRL Taxonomy Extension Calculation Linkbase Document
101.LAB						XBRL Taxonomy Extension Label Linkbase Document
101.PRE						XBRL Taxonomy Extension Presentation Linkbase Document
101.DEF						XBRL Taxonomy Extension Definition Linkbase Definition


			*			Furnished and not filed.

3427

SIGNATURES

Pursuant to the requirements of the Securities and Exchange Act of 1934, the Registrant has duly caused this Report to be signed on its behalf by the undersigned, thereunto duly authorized on ~~August~~May 8, ~~2023.~~2024.


			GrowGeneration Corp.


			By:			/s/ Darren Lampert
						Darren Lampert, Chief Executive Officer (Principal Executive Officer)


			By:			/s/ Gregory Sanders
						Gregory Sanders, Chief Financial Officer (Principal Accounting Officer and Principal Financial Officer)

3528


	June 30, 2023		December 31, 2022
Balance, beginning of period	$	15,978	$	125,401
Goodwill additions and measurement period adjustments	830		7,234
Impairment	—		(116,657)
Balance, end of period	$	16,808	$	15,978


	Retail		E-commerce		Distribution		Total
Gross carrying value at December 31, 2021	$	101,811	$	11,659	$	11,931	$	125,401
Acquisitions & measurement period adjustments	1,418		(341)		6,157		7,234
Gross carrying value at December 31, 2022	103,229		11,318		18,088		132,635
Acquisitions & measurement period adjustments	830		—		—		830
Gross carrying value, at June 30, 2023	$	104,059	$	11,318	$	18,088	$	133,465

Accumulated impairment losses at December 31, 2021	$	—	$	—	$	—	$	—
Impairment	(103,094)		(9,848)		(3,715)		(116,657)
Accumulated impairment losses at December 31, 2022	(103,094)		(9,848)		(3,715)		(116,657)
Impairment	—		—		—		—
Accumulated impairment losses at June 30, 2023	$	(103,094)	$	(9,848)	$	(3,715)	$	(116,657)

Net carrying value at December 31, 2022	$	135	$	1,470	$	14,373	$	15,978
Net carrying value at June 30, 2023	$	965	$	1,470	$	14,373	$	16,808


	December 31, 2022
	Gross Carrying Amount		Accumulated Amortization		Net Carrying Amount
Trade names	$	29,062	$	(10,517)	$	18,545
Patents	100		(56)		44
Customer relationships	17,102		(6,501)		10,601
Non-competes	932		(551)		381
Intellectual property	2,065		(758)		1,307
Total	$	49,261	$	(18,383)	$	30,878


	June 30, 2023		December 31, 2022
Right of use assets, operating lease assets	$	42,692	$	46,433

Current lease liability	$	8,152	$	8,131
Non-current lease liability	37,191		40,659
Total lease liability	$	45,343	$	48,790


2023 (remainder of the year)	$	5,418
2024	9,923
2025	9,135
2026	7,562
2027	5,534
Thereafter	16,771
Total lease payments	54,343
Less: Imputed interest	(9,000)
Lease Liability at June 30, 2023	$	45,343


	Shares	Weighted Average Grant Date Fair Value
Nonvested, December 31, 2022	614,875	$	9.41
Granted	1,000,000	$	3.80
Vested	(223,166)	$	6.51
Forfeited	(318,750)	$	4.23
Nonvested, June 30, 2023	1,072,959	$	5.64


Options	Shares	Weighted - Average Exercise Price		Weighted - Average Remaining Contractual Term	Weighted - Average Grant Date Fair Value
Outstanding at December 31, 2022	604,498	$	3.97	1.87	$	2.24
Granted	—	—		—	—
Exercised	—	—		—	—
Forfeited or expired	—	—		—	—
Outstanding at June 30, 2023	604,498	$	3.97	1.38	$	2.24
Vested at June 30, 2023	604,498	$	3.97	1.38	$	2.24


	Warrants	Weighted Average Exercise Price
Outstanding at December 31, 2022	32,500	$	15.82
Issued	—	—
Exercised	—	—
Forfeited	—	—
Outstanding at June 30, 2023	32,500	$	15.82


	Six Months Ended
	June 30, 2023		June 30, 2022
Net income (loss)	$	(11,833)	$	(141,556)
Weighted average shares outstanding, basic	61,053		60,742
Effect of dilution	—		—
Adjusted weighted average shares outstanding, dilutive	61,053		60,742
Basic earnings (loss) per share	$	(0.19)	$	(2.33)
Dilutive earnings (loss) per share	$	(0.19)	$	(2.33)


	Alaska		Other		Total
Inventory	$	720	$	867	$	1,587
Prepaids and other current assets	292		2		294
Furniture and equipment	—		47		47
Operating lease right of use asset	630		648		1,278
Operating lease liability	(630)		(648)		(1,278)
Customer relationships	440		—		440
Goodwill	577		252		829
Total	$	2,029	$	1,168	$	3,197


	Three Months Ended June 30, 2022		Six Months Ended June 30, 2022
Revenue	$	70,939	$	154,542
Net income (loss)	$	(8,626)	$	(13,802)