GENERAL CANNABIS CORP
UNAUDITED PRO FORMA CONDENSED COMBINED FINANCIAL INFORMATION
Unaudited Pro Forma Condensed Combined Financial Information
The unaudited pro forma condensed combined balance sheet as of June 30, 2021 and the unaudited pro forma condensed combined statements of operations for each of the six months ended June 30, 2021 and for the year ended December 31, 2020 combine the financial statements of General Cannabis Corp (“General Cannabis”) and TDM, LLC (dba TREES Englewood (“TREES Colorado”) giving effect to the transaction described in the Asset Purchase Agreement, as if they had occurred on January 1, 2020 in respect of the unaudited pro forma condensed combined statements of operations and on June 30, 2021 in respect of the unaudited pro forma condensed combined balance sheet.
The unaudited pro forma condensed combined financial information should be read in conjunction with:
● | General Cannabis’s audited consolidated financial statements and accompanying notes as of and for the year ended December 31, 2020, as contained in the Form 10-K filed on April 1, 2021 with the United States Securities and Exchange Commission (the “SEC”) |
● | General Cannabis’s unaudited condensed consolidated financial statements and accompanying notes as of and for the six months ended June 30, 2021 |
● | TREES Colorado audited financial statements as of and for the year ended December 31, 2020, contained elsewhere herein. |
● | TREES Colorado unaudited condensed financial statements as of and for the six months ended June 30, 2021 and 2020, contained elsewhere herein. |
● | The other information contained in or incorporated by reference into this filing. |
The final purchase consideration and the allocation of the purchase consideration may materially differ from that reflected in the unaudited pro forma condensed combined financial information after final valuation procedures are performed and amounts are finalized following the completion of the acquisition.
The unaudited pro forma adjustments give effect to events that are directly attributable to the transaction and are based on available data and certain assumptions that management believes are factually supportable. In addition, with respect to the unaudited condensed combined statements of operations, the unaudited pro forma adjustments are expected to have a continuing impact on the combined results.
The unaudited pro forma condensed combined financial information is presented for informational purposes only and to aid you in your analysis of the financial aspects of the acquisition. The unaudited pro forma condensed combined financial information described above has been derived from the historical financial statements of General Cannabis and TREES Colorado and the related notes included elsewhere in this Form 8-K. The unaudited pro forma condensed combined financial information is based on General Cannabis’s accounting policies. Further review may identify additional differences between the accounting policies of General Cannabis and TREES Colorado. The unaudited pro forma adjustments and the pro forma condensed combined financial information don’t reflect the impact of synergies or post-transaction management actions and are not necessarily indicative of the financial position or results of operations that may have actually occurred had the transaction taken place on the dates noted, or of General Cannabis’s future financial position or operating results.
GENERAL CANNABIS CORP
Unaudited Pro Forma Condensed Combined Balance Sheet
June 30, 2021
| | | | | | | | | | | |
| | General | | TREES | Pro Forma | | Pro Forma | ||||
| | Cannabis | | Colorado | Adjustments | | Combined | ||||
Assets |
| |
|
| |
| |
|
| |
|
Current assets |
| |
|
| |
| |
|
| |
|
Cash and cash equivalents | | $ | 2,307,604 | | $ | 502,988 | $ | (470,047) | (A) | $ | 2,340,545 |
| | | — | | | — | | (1,155,256) | (B) | | (1,155,256) |
Accounts receivable, net | |
| 178,784 | |
| — |
| — | |
| 178,784 |
Inventories, net | | | 590,983 | | | 417,277 | | (417,277) | (A) | | 590,983 |
| | | | | | | | 586,495 | (C) | | 586,495 |
Prepaid expenses and other current assets | |
| 198,176 | |
| 11,086 |
| (11,086) | (A) |
| 198,176 |
Assets of discontinued operations - current portion | |
| 284,700 | |
| — |
| — | |
| 284,700 |
Total current assets | |
| 3,560,247 | |
| 931,351 |
| (1,467,171) | |
| 3,024,427 |
| | | | | | | | | | | |
Right-of-use operating lease asset | | | 1,816,632 | | | 396,194 | | — | | | 2,212,826 |
Property and equipment, net | | | 642,769 | | | 16,017 | | (16,017) | (A) | | 642,769 |
| | | | | | | | 59,335 | (D) | | 59,335 |
Intangible assets, net | | | 887,500 | | | — | | 5,000,000 | (E) | | 5,887,500 |
Goodwill | | | 2,484,200 | | | — | | 7,615,913 | (E) | | 10,100,113 |
Assets of discontinued operations | | | 35,178 | | | — | | — | | | 35,178 |
Other non-current assets | | | — | | | 7,500 | | (7,500) | (A) | | — |
Total assets | | $ | 9,426,526 | | $ | 1,351,062 | $ | 11,184,560 | | $ | 21,962,148 |
| | | | | | | | | | | |
Liabilities and Stockholders' Equity | |
| | |
| |
| | |
| |
| | | | | | | | | | | |
Current Liabilities | |
| | |
|
|
| | |
|
|
Accounts payable and accrued expenses | | $ | 856,093 | | $ | 1,030,509 | $ | (1,030,509) | (A) | $ | 856,093 |
Interest payable | |
| 296,207 | |
| — |
| — | |
| 296,207 |
Operating lease liability, current | | | 376,362 | | | 138,420 | | — | | | 514,782 |
Accrued stock payable | |
| 60,900 | |
| — |
| — | |
| 60,900 |
Warrant derivative liability | |
| 134,234 | |
| — |
| — | |
| 134,234 |
Liabilities of discontinued operations | |
| 138,461 | |
| — |
| — | |
| 138,461 |
Total current liabilities | |
| 1,862,257 | |
| 1,168,929 |
| (1,030,509) | |
| 2,000,677 |
| | | | | | | | | | | |
Operating lease liability, non-current | | | 1,495,394 | | | 250,909 | | — | | | 1,746,303 |
Long-term notes payable (net of discount) | | | 4,272,858 | | | — | | 1,732,884 | (B) | | 6,005,742 |
Related party long-term notes payable (net of discount) | | | 280,137 | | | — | | — | | | 280,137 |
Total Liabilities | | | 7,910,646 | | | 1,419,838 | | 702,375 | | | 10,032,859 |
Commitments and contingencies | | | — | | | — | | — | | | — |
| | | | | | | | | | | |
Stockholders’ Equity (Deficit) | |
|
| |
|
|
| | |
|
|
Preferred stock, no par value; 5,000,000 shares authorized; no shares issued and outstanding, respectively | | | — | | | — | | — | | | — |
Common stock, $0.001 par value; 200,000,000 shares authorized; 62,266,275 shares issued and outstanding | | | 62,264 | | | — | | — | | | 62,264 |
Additional paid-in capital | |
| 80,140,373 | |
| — |
| 10,406,844 | (B) |
| 90,547,217 |
Accumulated deficit | |
| (78,686,757) | |
| (68,776) |
| 75,341 | (A) |
| (78,680,192) |
Total Stockholders’ Equity | |
| 1,515,880 | |
| (68,776) |
| 10,482,185 | |
| 11,929,289 |
Total Liabilities and Stockholders’ Equity (Deficit) | | $ | 9,426,526 | | $ | 1,351,062 | $ | 11,184,560 | | $ | 21,962,148 |
GENERAL CANNABIS CORP
Unaudited Pro Forma Condensed Combined Statement of Operations
For the Six Months Ended June 30, 2021
| | | | | | | | | | | |
| General | | TREES | | Pro Forma | | Pro Forma | ||||
| Cannabis | | Colorado | | Adjustments | | Combined | ||||
Revenue | | |
| | |
| | | | | |
Cultivation sales | | 1,347,941 | | | — | | | — | | | 1,347,941 |
Retail sales | | — | | | 6,079,238 | | | — | | | 6,079,238 |
Interest | | 14,472 | | | — | | | — | | | 14,472 |
Total revenue | | 1,362,413 | | | 6,079,238 | | | — | | | 7,441,651 |
| | | | | | | | | | | |
Costs and expenses | | | | | | | | | | | |
Cost of sales | | 1,066,631 | | | 4,081,005 | | | — | | | 5,147,636 |
Selling, general and administrative | | 1,180,750 | | | 1,092,408 | | | — | | | 2,273,158 |
Stock-based compensation expense | | 62,284 | | | — | | | — | | | 62,284 |
Professional fees | | 616,148 | | | 266,815 | | | — | | | 882,963 |
Depreciation and amortization | | 190,469 | | | 2,788 | | | 253,146 | (A)(B) | | 446,403 |
Total costs and expenses | | 3,116,282 | | | 5,443,016 | | | 253,146 | | | 8,812,444 |
| | | | | | | | | | | |
Operating (loss) income | | (1,753,869) | | | 636,222 | | | (253,146) | | | (1,370,793) |
| | | | | | | | | | | |
Other expenses (income) | | | | | | | | | | | |
Amortization of debt discount and equity issuance costs | | 253,790 | | | — | | | — | | | 253,790 |
Interest expense | | 293,683 | | | — | | | — | | | 293,683 |
Loss on derivative liability | | 1,095,983 | | | — | | | — | | | 1,095,983 |
Loss on sale of assets | | 1,467 | | | — | | | — | | | 1,467 |
Other (income), net | | — | | | (2,501) | | | — | | | (2,501) |
Total other expenses (income), net | | 1,644,923 | | | (2,501) | | | — | | | 1,642,422 |
| | | | | | | | | | | |
Net (loss) income from continuing operations before income taxes | $ | (3,398,792) | | $ | 638,723 | | $ | (253,146) | | $ | (3,013,215) |
| | | | | | | | | | | |
Loss from discontinued operations | | (336,529) | | | — | | | — | | | (336,529) |
(Loss) income from operations before income taxes | $ | (3,735,321) | | $ | 638,723 | | $ | (253,146) | | $ | (3,349,744) |
| | | | | | | | | | | |
Provision for income taxes | | — | | | — | | | — | | | — |
Net (loss) income | $ | (3,735,321) | | $ | 638,723 | | $ | (253,146) | | $ | (3,349,744) |
| | | | | | | | | | | |
Deemed dividend | | — | | | — | | | — | | | — |
| | | | | | | | | | | |
Net (loss) income attributable to common stockholders | $ | (3,735,321) | | $ | 638,723 | | $ | (253,146) | | $ | (3,349,744) |
| | | | | | | | | | | |
| | | | | | | | | | | |
Per share data - Basic and diluted | | | | | | | | | | | |
Net loss from continuing operations per share | $ | (0.05) | | | — | | $ | (0.01) | | $ | (0.04) |
Net loss from discontinued operations per share | $ | (0.01) | | | — | | $ | 0.00 | | $ | (0.00) |
Net loss attributable to common stockholders per share | $ | (0.06) | | | — | | $ | (0.01) | | $ | (0.04) |
Weighted average number of common shares outstanding | | 62,183,748 | | | — | | | 22,380,310 | | | 84,564,058 |
GENERAL CANNABIS CORP
Unaudited Pro Forma Condensed Combined Statement of Operations
For the Year Ended December 31, 2020
| | | | | | | | | | | |
| General | | TREES | | Pro Forma | | Pro Forma | ||||
| Cannabis | | Colorado | | Adjustments | | Combined | ||||
Revenue | | |
| | |
| | | | | |
Cultivation sales | $ | 2,279,867 | | $ | — | | $ | — | | $ | 2,279,867 |
Retail sales | | — | | | 13,500,618 | | | — | | | 13,500,618 |
Interest | | 103,837 | | | — | | | — | | | 103,837 |
Total revenue | | 2,383,704 | | | 13,500,618 | | | — | | | 15,884,322 |
| | | | | | | | | | | |
Costs and expenses | | | | | | | | | | | |
Cost of sales | | 1,388,626 | | | 9,785,330 | | | — | | | 11,173,956 |
Selling, general and administrative | | 2,901,931 | | | 2,046,468 | | | — | | | 4,948,399 |
Stock-based compensation expense | | 1,504,389 | | | — | | | — | | | 1,504,389 |
Professional fees | | 2,263,717 | | | 383,825 | | | — | | | 2,647,542 |
Depreciation and amortization | | 199,683 | | | 2,807 | | | 509,060 | (A)(B) | | 711,550 |
Total costs and expenses | | 8,258,346 | | | 12,218,430 | | | 509,060 | | | 20,985,836 |
| | | | | | | | | | | |
Operating (loss) income | | (5,874,642) | | | 1,282,188 | | | (509,060) | | | (5,101,514) |
| | | | | | | | | | | |
Other expenses (income) | | | | | | | | | | | |
Amortization of debt discount and equity issuance costs | | 295,256 | | | — | | | — | | | 295,256 |
Interest expense | | 453,522 | | | — | | | — | | | 453,522 |
Loss on extinguishment of debt | | 1,638,009 | | | — | | | — | | | 1,638,009 |
(Gain) on derivative liability | | (735,796) | | | — | | | — | | | (735,796) |
Other (income), net | | (97,948) | | | (9,120) | | | — | | | (107,068) |
Total other expenses (income), net | | 1,553,043 | | | (9,120) | | | — | | | 1,543,923 |
| | | | | | | | | | | |
Net (loss) income from continuing operations before income taxes | $ | (7,427,685) | | $ | 1,291,308 | | $ | (509,060) | | $ | (6,645,437) |
| | | | | | | | | | | |
Loss from discontinued operations | | (252,007) | | | — | | | — | | | (252,007) |
(Loss) income from operations before income taxes | $ | (7,679,692) | | $ | 1,291,308 | | $ | (509,060) | | $ | (6,897,444) |
| | | | | | | | | | | |
Provision for income taxes | | — | | | — | | | — | | | — |
Net (loss) income | $ | (7,679,692) | | $ | 1,291,308 | | $ | (509,060) | | $ | (6,897,444) |
| | | | | | | | | | | |
Deemed dividend | | (830,494) | | | — | | | — | | | (830,494) |
| | | | | | | | | | | |
Net (loss) income attributable to common stockholders | $ | (8,510,186) | | $ | 1,291,308 | | $ | (509,060) | | $ | (7,727,938) |
| | | | | | | | | | | |
| | | | | | | | | | | |
Per share data - Basic and diluted | | | | | | | | | | | |
Net loss from continuing operations per share | $ | (0.15) | | | — | | $ | (0.02) | | $ | (0.09) |
Net loss from discontinued operations per share | $ | (0.00) | | | — | | $ | 0.00 | | $ | (0.00) |
Net loss attributable to common stockholders per share | $ | (0.17) | | | — | | $ | (0.02) | | $ | (0.11) |
Weighted average number of common shares outstanding | | 50,895,301 | | | — | | | 22,380,310 | | | 73,275,611 |
GENERAL CANNABIS CORP
NOTES TO UNAUDITED PRO FORMA CONDENSED COMBINED FINANCIAL INFORMATION
NOTE 1.BASIS OF PRESENTATION
The unaudited pro forma condensed combined financial information set forth herein is based upon the consolidated financial statements of General Cannabis Corp and TREES Colorado. The unaudited pro forma condensed combined financial information is presented as if the transaction had been completed on January 1, 2020 with respect to the unaudited pro forma condensed combined statements of operations for each of the six months ended June 30, 2021 and for the year ended December 31, 2020 and on June 30, 2021 in respect of the unaudited pro forma condensed combined balance sheet.
The unaudited pro forma condensed combined financial information is presented for informational purposes only and is not necessarily indicative of the combined financial position or results of operations had the transaction occurred as of the dates indicated, nor is it meant to be indicative of any anticipated combined financial position or future results of operations that the combined company will experience after the completion of the transactions.
We have accounted for the acquisition in this unaudited pro forma condensed combined financial information using the acquisition method of accounting, in accordance with Financial Accounting Standards Board Accounting Standards Codification Topic 805 “Business Combinations” (“ASC 805”). In accordance with ASC 805, we use our best estimates and assumptions to assign fair value to the tangible and intangible assets acquired and liabilities assumed at the acquisition date. Goodwill as of the acquisition date is measured as the excess of purchase consideration over the fair value of net tangible and identifiable intangible assets acquired.
Pro forma adjustments reflected in the unaudited pro forma condensed combined balance sheet are based on items that are factually supportable and directly attributable to the transaction. Pro forma adjustments reflected in the pro forma condensed combined statements of operations are based on items that are factually supportable, directly attributable to the transaction and expected to have a continuing impact on the combined results. The unaudited pro forma condensed combined financial information does not reflect the cost of any integration activities or benefits from the transaction, including potential synergies that may be generated in future periods.
NOTE 2. DESCRIPTION OF THE TRANSACTION
On September 2, 2021, General Cannabis completed the acquisition of substantially all of the assets of TREES Colorado, representing a portion of the overall Trees transaction previously disclosed pursuant to that certain First Amended and Restated Agreement and Plan of Reorganization and Liquidation dated May 28, 2021 by and among the Company, Seller and certain other sellers party thereto, that consists of the assets relating to the Trees dispensary located in Englewood, Colorado (“Englewood Closing”). The cash paid by the Company in connection with the Englewood Closing consisted of $1,154,956.09 and the stock consideration shall be 22,380,310 shares of the Company’s Common Stock. Further, cash equal to $1,732,884.14 will be paid to Seller in equal monthly installments over a period of 24 months from the Englewood Closing.
NOTE 3.PURCHASE PRICE ALLOCATION
The preliminary allocation for the consideration recorded for the acquisition is as follows:
| | |
Cash | $ | 32,941 |
Fixed assets | | 59,335 |
Inventory | | 586,495 |
Tradename | | 5,000,000 |
Goodwill | | 7,615,913 |
Total Purchase Price Consideration | $ | 13,294,684 |
The purchase price allocation is preliminary. The purchase price allocation will continue to be preliminary until a valuation is finalized and the fair value and useful life of the assets acquired is determined. The amounts from the final valuation may significantly differ from the preliminary allocation.
NOTE 4.PRO FORMA ADJUSTMENTS
The following pro forma adjustments give effect to the transaction:
Unaudited Pro Forma Condensed Combined Balance Sheet – As of June 30, 2021
Note ATo remove TREES Colorado assets, liabilities, and equity that were not acquired or assumed
Note BTo record cash, additional paid in capital, common stock, and promissory note as consideration
Note CTo record certain inventory from TREES Colorado
Note DTo record certain property, plant, and equipment acquired from TREES Colorado
Note ETo record goodwill and intangibles from acquisition
Unaudited Pro Forma Condensed Statement of Operations – For The Six Months Ended June 30, 2021
Note ATo adjust depreciation expense to remove depreciation for assets not acquired
Note BTo record amortization of intangibles acquired from TREES Colorado
Unaudited Pro Forma Condensed Statement of Operations – For The Year Ended December 31, 2020
Note ATo adjust depreciation expense to remove depreciation for assets not acquired
Note BTo record amortization of intangibles acquired from TREES Colorado