Trees 10Q 2023 Q3 Quarterly report

Table of Contents

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

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

for the quarterly period ended September 30, 2023.

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

for the transition period from ____________ to ____________.

Commission file number: 000-54457

TREES CORPORATION

(Exact name of registrant as specified in its charter)


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

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

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

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


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

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

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

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


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

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

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

As of November 14, 2023, there were 118,664,094 issued and outstanding shares of the Company's common stock.

Table of Contents

PART I. FINANCIAL INFORMATION

ITEM 1. FINANCIAL STATEMENTS

TREES CORPORATION

CONDENSED CONSOLIDATED BALANCE SHEETS


	September 30, 2023		December 31, 2022
	(unaudited)
Assets
Current assets
Cash and cash equivalents	$	251,691	$	2,583,833
Accounts receivable, net of allowance of $42,000 and $42,000, respectively		205,178		41,373
Inventories, net		1,578,253		2,066,662
Prepaid expenses and other current assets		441,728		259,598
Total current assets		2,476,850		4,951,466

Right-of-use operating lease asset		2,957,548		3,866,406
Property and equipment, net		1,734,375		1,947,969
Intangible assets, net		1,947,887		2,543,898
Goodwill		18,384,974		18,384,974
Total assets	$	27,501,634	$	31,694,713

Liabilities and Stockholders' Equity

Current liabilities
Accounts payable and accrued expenses	$	2,594,173	$	1,899,450
Interest payable		1,275,617		488,813
Income tax payable		290,659		204,917
Operating lease liability, current		1,245,724		1,433,184
Finance lease liability, current		50,000		55,777
Accrued stock payable		60,900		60,900
Accrued dividends		106,200		88,500
Warrant derivative liability		3,149		5,508
Accrued legal fees		114,000		—
Notes payable - current		4,414,157		1,903,344
Total current liabilities		10,154,579		6,140,393

Operating lease liability, non-current		1,860,192		2,541,590
Finance lease liability, non-current		671,285		706,653
Notes payable - non-current (net of unamortized discount)		13,110,406		15,899,588
Total liabilities		25,796,462		25,288,224

Commitments and contingencies (Note 12)

Stockholders’ equity
Preferred stock, no par value; 5,000,000 shares authorized; 1,180 issued and outstanding		1,073,446		1,073,446
Common stock, $0.001 par value; 200,000,000 shares authorized; 118,664,094 shares issued and outstanding		118,664		118,664
Additional paid-in capital		98,652,956		98,598,761
Accumulated deficit		(98,139,894)		(93,384,382)
Total stockholders’ equity		1,705,172		6,406,489
Total liabilities and stockholders’ equity	$	27,501,634	$	31,694,713

See Notes to unaudited condensed consolidated financial statements.

Table of Contents

TREES CORPORATION

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS

(Unaudited)


	Three months ended				Nine months ended
	September 30,				September 30,
	2023		2022		2023		2022
Revenue
Retail sales	$	4,038,019	$	3,080,778	$	14,228,202	$	9,536,659
Cultivation sales		73,564		96,399		91,994		449,553
Total revenue		4,111,583		3,177,177		14,320,196		9,986,212

Costs and expenses
Cost of sales		2,442,541		2,036,532		8,731,032		5,856,995
Selling, general and administrative		1,962,641		1,462,902		6,744,632		4,001,816
Stock-based compensation		8,745		38,460		54,195		156,961
Professional fees		53,259		197,565		1,204,369		716,410
Depreciation and amortization		251,605		98,915		835,026		190,770
Total costs and expenses		4,718,791		3,834,374		17,569,254		10,922,952

Operating loss		(607,208)		(657,197)		(3,249,058)		(936,740)

Other expenses (income)
Amortization of debt discount		219,785		1,285,392		621,539		1,716,334
Interest expense		296,242		213,833		1,462,281		564,229
Loss on extinguishment of debt		218,237		310,622		218,237		310,622
Loss (gain) on derivative liability		2,860		(16,365)		(2,359)		(14,959)
Loss (gain) on sale of assets		(2,400)		—		—		(13,000)
Other income and expense, net		(526,809)		—		(896,680)		—
Total other expenses, net		207,915		1,793,482		1,403,018		2,563,226

Net loss from continuing operations before income taxes		(815,123)		(2,450,679)		(4,652,076)		(3,499,966)

Provision for income taxes		—		254,000		85,736		254,000
Loss from continuing operations		(815,123)		(2,704,679)		(4,737,812)		(3,753,966)

Income from discontinued operations, net of tax		—		195		—		5,478
Net loss	$	(815,123)		(2,704,484)	$	(4,737,812)	$	(3,748,488)

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

Net loss attributable to common stockholders	$	(815,123)		(2,775,284)	$	(4,755,512)	$	(3,819,288)


Per share data - basic and diluted
Net loss from continuing operations per share	$	(0.01)	$	(0.03)	$	(0.04)	$	(0.04)
Net loss from discontinued operations per share	$	0.00	$	0.00	$	0.00	$	0.00
Net loss attributable to common stockholders per share	$	(0.01)	$	(0.03)	$	(0.04)	$	(0.04)
Weighted average number of common shares outstanding		118,664,094		96,192,184		118,664,094		96,046,246

See Notes to unaudited condensed consolidated financial statements.

Table of Contents

TREES CORPORATION

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(Unaudited)


	Nine months ended September 30,
	2023		2022
Cash flows from operating activities
Net loss	$	(4,737,812)	$	(3,748,488)
Adjustments to reconcile net loss to net cash (used in) provided by operating activities:
Amortization of debt discount		621,539		1,716,334
Depreciation and amortization		835,026		190,770
Loss on extinguishment of debt		202,397		310,622
Non-cash lease expense		42,762		670,685
Bad debt recovery		—		(10,280)
Loss (gain) on disposal of property and equipment		15,840		(13,000)
Gain on derivative liability		(2,359)		(14,959)
Stock-based compensation		54,195		156,961
Changes in operating assets and liabilities, net of acquisitions
Accounts receivable		(163,805)		(76,749)
Prepaid expenses and other assets		(182,130)		(19,478)
Inventories		488,409		(78,210)
Income taxes		85,742		254,000
Accounts payable, accrued liabilities, and interest payable		1,595,527		466,744
Operating lease liabilities		(2,763)		(699,595)
Net cash used in operating activities		(1,147,432)		(894,643)

Cash flows from investing activities
Purchase of property and equipment		(9,277)		(33,903)
Acquisition of Station 2 assets		(256,581)		—
Proceeds for sale of equipment		—		13,000
Proceeds on notes receivable		—		75,000
Acquisition of Trees MLK		—		(256,582)
Net cash used in investing activities		(265,858)		(202,485)

Cash flows from financing activities
Proceeds from notes payable		—		9,912,250
Payments on notes payable and finance lease		(918,852)		(4,867,012)
Net cash (used in) provided by financing activities		(918,852)		5,045,238

Net (decrease) increase in cash and cash equivalents		(2,332,142)		3,948,110
Cash and cash equivalents, beginning of period		2,583,833		2,054,050
Cash and cash equivalents, end of period	$	251,691	$	6,002,160

Supplemental schedule of cash flow information
Cash paid for interest	$	675,477	$	1,122,314
Cash paid for taxes	$	6	$	—

Non-cash investing & financing activities
Operating lease right-of-use asset obtained in exchange for new operating lease liabilities	$	348,825	$	172,053
Issuance of accrued stock	$	—	$	383,994
Non-cash debt issuance for acquisition of Station 2 assets	$	333,953	$	—
Non-cash extinguishment of debt for the surrender of Station 2 assets	$	(356,152)	$	—
Accrued dividends on preferred stock	$	17,700	$	70,800
12% Warrants recorded as a debt discount and additional paid-in capital	$	—	$	569,223
12% Warrants recorded as a loss on extinguishment of debt and additional paid-in capital	$	—	$	103,577

See Notes to unaudited condensed consolidated financial statements.

Table of Contents

TREES CORPORATION

CONDENSED CONSOLIDATED STATEMENTS OF CHANGES

IN STOCKHOLDERS’ EQUITY


	For the three months ended September 30, 2023
	Preferred Stock			Common Stock			Additional		Accumulated
	Shares	Amount		Shares	Amount		Paid-in Capital		Deficit		Total
July 1, 2023	1,180	$	1,073,446	118,664,094	$	118,664	$	98,644,211	$	(97,324,771)	$	2,511,550
Share-based compensation	—		—	—		—		8,745		—		8,745
Net loss	—		—	—		—		—		(815,123)		(815,123)
September 30, 2023	1,180	$	1,073,446	118,664,094	$	118,664	$	98,652,956	$	(98,139,894)	$	1,705,172

	For the three months ended September 30, 2022
	Preferred Stock			Common Stock			Additional		Accumulated
	Shares	Amount		Shares	Amount		Paid-in Capital		Deficit		Total
July 1, 2022	1,180		1,073,446	96,192,184		96,192		94,103,321		(84,864,819)		10,408,140
Warrants issued with 12% Notes	—		—	—		—		672,802		—		672,802
Share-based compensation	—		—	—		—		38,460		—		38,460
Dividends on preferred stock	—		—	—		—		—		(70,800)		(70,800)
Net loss	—		—	—		—		—		(2,704,484)		(2,704,484)
September 30, 2022	1,180	$	1,073,446	96,192,184	$	96,192	$	94,814,583	$	(87,640,103)	$	8,344,118


	For the nine months ended September 30, 2023
	Preferred Stock			Common Stock			Additional		Accumulated
	Shares	Amount		Shares	Amount		Paid-in Capital		Deficit		Total
January 1, 2023	1,180	$	1,073,446	118,664,094	$	118,664	$	98,598,761	$	(93,384,382)	$	6,406,489
Share-based compensation	—		—	—		—		54,195		—		54,195
Dividends on preferred stock	—		—	—		—		—		(17,700)		(17,700)
Net loss	—		—	—		—		—		(4,737,812)		(4,737,812)
September 30, 2023	1,180	$	1,073,446	118,664,094	$	118,664	$	98,652,956	$	(98,139,894)	$	1,705,172

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

See Notes to unaudited condensed consolidated financial statements.

Table of Contents

TREES CORPORATION

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

NOTE 1. NATURE OF OPERATIONS, HISTORY, AND PRESENTATION

Nature of Operations

TREES Corporation, a Colorado Corporation (the “Company,” “we,” “us,” or “our,”) is a cannabis retailer and cultivator in the States of Colorado and Oregon.

We presently operate six (6) cannabis dispensaries as follows:


	●	Englewood, Colorado


	o	5005 S. Federal Boulevard – Recreational license only


	●	Denver, Colorado


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


	●	Longmont, Colorado


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


	●	Three (3) in Oregon


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


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


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

Table of Contents

We also operate two (2) cultivation facilities in Colorado as follows:


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


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

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

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

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

Basis of Presentation

The accompanying unaudited condensed consolidated financial statements include all accounts of the Company and its wholly owned subsidiaries. All inter-company accounts and transactions have been eliminated in consolidation. These unaudited condensed consolidated financial statements have been prepared following the requirements of the Securities and Exchange Commission for interim reporting. As permitted under those rules, certain footnotes and other financial information that are normally required by accounting principles generally accepted in the United States of America ("U.S. GAAP") can be condensed or omitted. The condensed consolidated balance sheet for the year ended December 31, 2022, was derived from audited financial statements but does not include all disclosures required by U.S. GAAP. The information included in this quarterly report on Form 10-Q should be read in conjunction with the audited consolidated financial statements and notes thereto of the Company for the year ended December 31, 2022, which were included in the annual report on Form 10-K filed by the Company on April 17, 2023.

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

Reclassifications

Certain prior year amounts have been reclassified for consistency with the current year presentation. These reclassifications had no effect on the reported results of operations.

Use of Estimates

The preparation of our unaudited condensed consolidated financial statements in conformity with U.S. GAAP requires management to make estimates and assumptions that affect the reported amounts of assets, liabilities, revenues, and

Table of Contents

expenses. Although these estimates are based on our knowledge of current events and actions we may undertake in the future, actual results may ultimately differ from these estimates and assumptions. Furthermore, when testing assets for impairment in future periods, if management uses different assumptions or if different conditions occur, impairment charges may result.

Concentrations of Credit Risk

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

Customer and Revenue Concentrations – Cultivation Segment

During the three months ended September 30, 2023 and 2022, 89% of SevenFive’s revenue was with five customers and 79% was with one customer, respectively. During the nine months ended September 30, 2023 and 2022, 50% of SevenFive’s revenue was with one customer and 66% was with one customer, respectively. Two of the customers with sales in the three months ended September 30, 2023 are related party dispensaries and the revenues associated with these customers are eliminated in consolidation.

During the three months ended September 30, 2023, 84% of Green Tree’s revenue was with four customers. During the nine months ended September 30, 2023, 78% of Green Tree’s revenue was with three customers. The customers in 2023 are related party dispensaries and the revenues associated with these customers are eliminated in consolidation.

Going Concern

We incurred net losses of $815,123 and $4,737,812 during the three and nine months ended September 30, 2023, respectively and $2,704,484 and $3,748,488 for the three and nine months ended September 30, 2022, respectively, and had an accumulated deficit of $98,139,894 as of September 30, 2023. We had cash and cash equivalents of $251,691 and $2,583,833 as of September 30, 2023, and December 31, 2022, respectively.

The accompanying unaudited condensed consolidated financial statements have been prepared on the basis of continuity of operations, realization of assets, and the satisfaction of liabilities and commitments in the ordinary course of business. We have incurred recurring losses and negative cash flows from operations since inception and have primarily funded our operations with proceeds from the issuance of debt and equity. We expect our operating losses to continue into the foreseeable future as we continue to execute our acquisition and growth strategy. As a result, we have concluded that there is substantial doubt about our ability to continue as a going concern. Our unaudited condensed consolidated financial statements do not include any adjustments that might result from the outcome of this uncertainty.

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

Summary of Significant Accounting Policies

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

Recently Issued Accounting Standards

FASB ASU 2020-06 – “Debt-Debt with Conversion and Other Options (Subtopic 470-20) and Derivatives and Hedging-Contracts in Entity’s Own Equity (Subtopic 815-40): Accounting for Convertible Instruments and Contracts in an Entity’s Own Equity”- In June 2020, the Financial Accounting Standards Board (“FASB”) issued guidance which simplifies accounting for convertible instruments by removing major separation models required under current GAAP. Accounting Standards Updates (“ASU”) also removes certain settlement conditions that are required for equity contracts to qualify for

Table of Contents

the derivative scope exception and simplifies the diluted earnings per share calculation in certain areas. The amendments in this ASU are effective for annual and interim periods beginning after December 15, 2023, although early adoption is permitted. We adopted this ASU in the first quarter of 2022, and the adoption did not have a material effect on our financial statements.

FASB ASU 2016-13 – “Financial Instruments – Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments”- In June 2016, the FASB issued guidance that replaces the incurred loss methodology with an expected loss methodology that is referred to as the current expected credit loss (“CECL”) methodology. The measurement of expected credit losses under the CECL methodology is applicable to financial assets measured at amortized cost, including loan receivables and held-to-maturity debt securities. It also applies to off-balance sheet credit exposures not accounted for as insurance (loan commitments, standby letters of credits, financial guarantees, and other similar instruments) and net investments in leases recognized by a lessor in accordance with Topic 842 on leases. ASC 326 requires enhanced disclosures related to the significant estimates and judgments used in estimating credit losses as well as the credit quality and underwriting standards of a company’s portfolio. In addition, ASC 326 made changes to the accounting for available-for-sale debt securities. One such change is to require credit losses to be presented as an allowance rather than as a write-down on available-for-sale debt securities the Company does not intend to sell or believes that it is more likely than not they will be required to sell. The ASU can be adopted no later than January 1, 2020 for SEC filers and January 1, 2023 for private companies and smaller reporting companies. The adoption of the new standard did not have a material effect on our consolidated financial statements.

FASB ASU 2017-04 – “Intangibles – Goodwill and Other (Topic 350): Simplifying the Test for Goodwill Impairment” - In January 2017, the FASB issued ASU No. 2017-04, Intangibles - Goodwill and Other (Topic 350): Simplifying the Test for Goodwill Impairment (“ASU 2017-04”), which simplifies how an entity is required to test goodwill for impairment by eliminating Step 2 from the goodwill impairment test. Under ASU 2017-04, goodwill impairment will be tested by comparing the fair value of a reporting unit with its carrying amount, and recognizing an impairment charge for the amount by which the carrying amount exceeds the reporting unit’s fair value. The new guidance must be applied on a prospective basis and is effective for periods beginning after December 15, 2022, with early adoption permitted. The adoption of the new standard did not have a material effect on our financial statements.

NOTE 2. BUSINESS ACQUISITION

On December 12, 2022, we completed the Green Tree Acquisition which consisted of the acquisition of substantially all of the assets of Ancient Alternatives LLC, Natural Alternatives For Life, LLC, Mountainside Industries, LLC, Hillside Enterprises, LLC, and GT Creations, LLC, each a Colorado limited liability company (collectively, the "Green Tree Entities”). We assumed certain operating obligations at closing, including certain manufacturing agreements between GT Creations and affiliates of the Green Tree Entities. Allyson Feiler, a principal owner of the Green Tree Entities, was also elected to our Board of Directors effective the date of acquisition.

We paid cash in the amount of $500,000 and stock consideration of 17,977,528 shares of our Common Stock. The closing price of our Common Stock on December 12, 2022, the date of license transfer, was $0.165 per share, as such, fair value of the equity consideration is $2,966,292. An additional $3,500,000 in cash will be paid to the sellers in fifteen (15) equal monthly payments commencing on the 9-month anniversary of the closing. Based on a discount rate of 12%, the fair value of these additional monthly payments is approximately $3,017,510. This liability is included in Notes payable- current and Notes payable- non-current in the accompanying consolidated balance sheets.

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


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

Table of Contents

We have not completed the allocation of the purchase price for the Green Tree Acquisition. As of September 30, 2023, the consolidated balance sheet includes a preliminary allocation of fixed assets, inventory, intangible assets, and goodwill. Management anticipates completing the purchase price allocation as soon as possible, but no later than one year from the acquisition date.

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


	Three months ended		Nine months ended
	September 30,		September 30,
	2022		2022
Total revenues	$	5,781,150	$	17,196,773
Net income (loss) attributable to Common Stockholders	$	(3,273,476)	$	(3,798,897)
Net income (loss) per common share	$	(0.03)	$	(0.03)
Weighted average number of basic and diluted common shares outstanding		113,727,033		113,727,033

The unaudited pro-forma results of operations are presented for information purposes only. The unaudited pro-forma results are not intended to present actual results that would have been attained had the acquisition been completed as of January 1, 2022, or to project potential operating results as of any future date or for any future periods. In July 2023, the Company entered into an agreement to transfer the Green Tree Entities back to the original owners of these entities (see Note 5).

On December 19, 2022, we completed the Green Man Acquisition, consisting of the acquisition of substantially all of the assets of Green Man. We paid cash in the amount of $1,225,000 and stock consideration of 4,494,382 shares of Common Stock. The closing price of our Common Stock on December 19, 2022, the date of license transfer, was $0.18 per share, as such, fair value of the equity consideration is $808,989. An additional $1,500,000 in cash will be paid to the sellers in eighteen (18) equal monthly payments commencing on the 12-month anniversary of the closing. Based on a discount rate of 12%, the fair value of these additional monthly payments is approximately $1,224,846. This liability is included in Notes payable-current and Notes payable-non-current in the accompanying consolidated balance sheets.

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


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

We have not completed the allocation of the purchase price for the Green Man Acquisition. As of September 30, 2023, the consolidated balance sheet includes a preliminary allocation of fixed assets, inventory, intangible assets, and goodwill. Management anticipates completing the purchase price allocation as soon as possible, but no later than one year from the acquisition date.

Table of Contents

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


	Three months ended		Nine months ended
	September 30,		September 30,
	2022		2022
Total revenues	$	4,464,409	$	14,093,905
Net income (loss) attributable to Common Stockholders	$	(2,706,386)	$	(3,294,030)
Net income (loss) per common share	$	(0.03)	$	(0.03)
Weighted average number of basic and diluted common shares outstanding		100,243,887		100,243,887

NOTE 3. ASSET ACQUISITION

In February 2023, we completed the acquisition of the assets of Station 2, LLC (“Station 2”). The assets consist of a medical and retail cannabis license for a dispensary located in Denver, CO. We also assumed responsibility of the operating lease for the dispensary and recorded the relating ROU asset which is disclosed separately on the accompanying consolidated balance sheets. The consideration paid by the Company consists of cash at closing equal to $256,582 plus an additional note equal to $384,873. As the dispensary was not in operation and there was no assembled workforce at the time of acquisition, the acquisition was accounted for as an asset acquisition of a license. As of September 30, 2023, the balance of the license was nil, which is recorded within Intangible assets, net in our condensed consolidated balance sheets as a result of the transfer of the license (see Note 5).

NOTE 4. DISCONTINUED OPERATIONS

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

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


	Three months ended				Nine months ended
	September 30,				September 30,
	2023		2022		2023		2022
Product revenues	$	—	$	—	$	—	$	3,438
Service revenues		—		—		—		—
Total revenues		—		—		—		3,438

Cost of sales		—		—		—		—
Selling, general and administrative		—		(195)		—		(2,040)
Professional fees		—		—		—		—
Depreciation and amortization		—		—		—		—
Total costs and expenses		—		(195)		—		(2,040)
Income from discontinued operations	$	—	$	195	$	—	$	5,478

NOTE 5. LICENSE TRANSFER AGREEMENTS

In August 2023, we entered into an Assignment of Assets (“Assignment”), pursuant to which we agreed to transfer and assign to Station 2 and Timothy Brown (“Brown” and collectively with Station 2, “Assignees”), a board member,

Table of Contents

shareholder, and executive level employee of the Company, a State of Colorado and corresponding City and County of Denver retail marijuana store cannabis license and related assets owned related to the licensed cannabis dispensary located at 468 S. Federal Boulevard (collectively, the “Transferred Assets”). In exchange for the transfer to Assignees of the Transferred Assets, the Assignees agreed to extinguishment and satisfaction of, and unconditional waiver by each of Station 2 and Brown of any claims in respect of, any and all debt or other obligations of the Company, Trees Colorado, and any of their respective affiliates, directors, officers or agents, pursuant to that certain Asset Purchase Agreement dated October 14, 2022, as amended, by and among the Company, Trees Colorado and Assignees. This transaction closed in October 2023, and the Company recognized a loss on this transfer of $202,397, located in loss on extinguishment of debt on the condensed consolidated statements of operations.

A summary of the license transfer is presented as follows:


		Balance as of August 17, 2023
Asset to be transferred:
Intangible assets - License		590,536
Accumulated amortization - License		(31,987)

Consideration:
Extinguishment of 468 debt		356,152

In July 2023, we and our subsidiaries Green Tree Colorado, LLC, Green Tree Cultivation LLC, GT Retail LLC, and Green Tree MIP LLC, entered into a settlement agreement (“Settlement Agreement”), (“GT Retail”), (“GT MIP”), with Allyson Feiler Downing (“Downing”) and Loree Schwartz (“Schwartz” and together with Downing, “Green Tree Parties”), pursuant to which the Company and the Green Tree Parties agreed to transfer and assign to new entities controlled by the Green Tree Parties, cannabis licenses and related assets owned by (i) GT Retail relating to a cultivation facility and a retail dispensary located in Berthoud, Colorado; (ii) GT MIP relating to a ‘marijuana infused product’ dispensary located in Boulder County, Colorado; and (iii) certain intellectual property in respect thereof (collectively, the “Transferred Assets”). The Company retained accounts payable and certain cannabis inventory in respect of the Transferred Assets. Closing of the transaction is subject to approval of the license transfers by the Colorado Marijuana Enforcement Division as well as local regulatory authorities.

In exchange for the transfer to the Green Tree Parties of the Transferred Assets, the Company and the Green Tree Parties agreed that upon closing, the Green Tree Parties shall transfer and assign to the Company, and the Company shall redeem, 9,917,574 shares of the Company’s Common Stock owned by the Green Tree Parties and originally issued to the Green Tree Parties in the acquisition consummated in December 2022 pursuant to that certain Asset Purchase Agreement dated September 13, 2022, as amended, by and among the Company, Downing, Schwartz and various other parties thereto (the “APA”). As of September 30, 2023, the license has not yet been transferred and therefore, the Company still holds these assets as of the balance sheet date.

NOTE 6. INVENTORIES, NET

Our inventories consisted of the following:


	September 30,		December 31,
	2023		2022
Raw materials	$	8,883	$	8,883
Work-in-progress and finished goods		1,622,510		2,057,779
Less: Inventory reserves		(53,140)		—
Inventories, net	$	1,578,253	$	2,066,662

Table of Contents

NOTE 7. LEASES

The Company’s leases consist primarily of real estate leases for retail, cultivation, and manufacturing facilities. All but one of the Company’s leases are classified as operating leases. The lease for the retail dispensary acquired in the Green Man Transaction is classified as a finance lease. The current and non-current portions of the operating lease liabilities and finance lease liabilities are disclosed separately on the accompanying consolidated balance sheets. The finance lease ROU asset is included in property and equipment, net and the operating lease ROU asset is disclosed separately on the accompanying consolidated balance sheets. As the rate implicit in the Company’s leases is not readily determinable, we used an estimated incremental borrowing rate of 20% in determining the present value of lease payments.

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


	For the three months ended September 30,				For the nine months ended September 30,
	2023		2022		2023		2022
Straight-line operating lease expense	$	197,513	$	164,103	$	929,241	$	548,135
Variable lease cost		44,239		169,368		502,413		326,105
Total operating lease expense	$	241,752	$	333,471	$	1,431,654	$	874,240

The finance lease expense for the three months ended September 30, 2023, and September 30, 2022, was approximately $41,823 and nil, respectively. The finance lease expense for the nine months ended September 30, 2023, and September 30, 2022, was approximately $125,470 and nil, respectively.

Related party leases

During the three months and nine months ended September 30, 2023, three of the Company’s operating leases, one retail dispensary lease, one cultivation facility lease, and one lease that includes both cultivation and retail, are related party leases as the landlords are current, and former, board members, principal shareholders, or employees. During the three months and nine months ended September 30, 2022, the related party operating leases consisted of one dispensary and one cultivation facility. The retail dispensary lease was with a related party through May 2022, when the building was sold to an unaffiliated third-party. As of September 30, 2023, the ROU asset, operating lease liability, current, and operating lease liability, non-current for the related party leases were $845,234, $535,143, and $368,715, respectively. For the three months ended September 30, 2023 and 2022, the total lease expense for related party leases was $127,790 and $75,849, respectively. For the nine months ended September 30, 2023 and 2022, the total lease expense for related party leases was $383,371 and $151,698, respectively.

Table of Contents

Lease Maturities

Future remaining minimum lease payments were as follows:


Year ending December 31,	Operating leases		Finance lease
2023 (remaining three months)	$	307,735	$	50,000
2024		1,252,825		205,400
2025		1,033,857		171,043
2026		764,190		136,940
2027		507,871		143,102
Thereafter		965,359		818,100
Total		4,831,837		1,524,585
Less: Present value adjustment		(1,725,921)		(803,300)
Lease liability		3,105,916		721,285
Less: Lease liability, current		(1,245,724)		(50,000)
Lease liability, non-current	$	1,860,192	$	671,285

The total remaining lease payments in the table above include $1,219,188 related to renewal option periods that management is reasonably certain will be exercised. The majority of this amount relates to the flagship Trees location in Englewood, Colorado and the retail and certain cultivation facilities that were acquired in the Green Tree Acquisition.

As of September 30, 2023, the weighted average remaining term of the Company’s operating leases is 4.54 years, and the remaining term on the finance lease is 9.25 years.

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

Supplemental cash flow information


For the nine months ended September 30,	2023		2022
Supplemental cash flow information
Cash paid for amounts included in operating lease liability	$	957,153	$	193,523
Cash paid for amounts included in finance lease liability	$	150,000	$	—
Supplemental lease disclosures of non-cash transactions:
ROU assets obtained in exchange for operating lease liabilities	$	348,825	$	172,053

NOTE 8. ACCRUED STOCK PAYABLE

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


			Number of
	Amount		Shares
Balance as of December 31, 2021	$	444,894		1,769,537
Stock issued		(383,994)		(1,669,537)
Balance as of December 31, 2022	$	60,900		100,000
Stock issued		—		—
Balance as of September 30, 2023	$	60,900		100,000

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

The outstanding balance of accrued stock payable as of September 30, 2023 relates to a February 18, 2020 grant of 100,000 fully vested shares for consulting services. Based on a stock price of $0.61 on the date of grant, the consultant will receive $60,900 worth of our Common Stock. As of September 30, 2023, none of the stock has been issued.

Table of Contents

NOTE 9. NOTES PAYABLE

Our notes payable consisted of the following:


	September 30, 2023						December 31, 2022
	Third-party		Related-party		Total		Third-party		Related-party		Total
2022 12% Notes	$	13,167,796		332,204		13,500,000	$	13,167,796	$	332,204	$	13,500,000
Trees Transaction Notes		—		314,154		314,154		—		1,191,865		1,191,865
Green Tree Acquisition Notes		774,750		2,725,250		3,500,000		774,750		2,725,250		3,500,000
Green Man Acquisition Notes		1,500,000		—		1,500,000		1,500,000		—		1,500,000
Unamortized debt discount		(1,123,845)		(165,746)		(1,289,591)		(1,527,346)		(361,587)		(1,888,933)
Total debt		14,318,701		3,205,862		17,524,563		13,915,200		3,887,732		17,802,932
Less: Current portion		(1,556,433)		(2,857,724)		(4,414,157)		(179,827)		(1,723,517)		(1,903,344)
Long-term portion	$	12,762,268	$	348,138	$	13,110,406	$	13,735,373	$	2,164,215	$	15,899,588

Trees Transaction Notes

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

In December 2022, with the completion of the Green Tree Acquisition, we are obligated to pay the Seller cash equal to $3,500,000 in equal month installments over a period of 15 months. Payments of $233,333 are due monthly beginning in September 2023. The relative fair value of this obligation resulted in a debt discount of $512,367. We recorded amortization of debt discount expense from this obligation of $251,520 and nil for the nine months ended September 30, 2023 and September 30, 2022, respectively, and $96,672 and nil for the three months ended September, 2023 and September 30, 2022, respectively.

In December 2022, with the completion of the Green Man Acquisition, we are obligated to pay the Seller cash equal to $1,500,000 in equal month installments over a period of 18 months. The payments begin in December 2023 and the payment is equal to $83,333 per month. The relative fair value of this obligation resulted in a debt discount of $275,154. We recorded amortization of debt discount expense from this obligation of $115,171 and nil for the nine months ended September 30, 2023 and September 30, 2022, respectively, and $39,545 and nil for the three months ended September 30, 2023 and September 30, 2022, respectively.

12% Notes

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

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

Table of Contents

The relative fair value of the new funding on the 12% Warrants was recorded as a debt discount and additional paid-in capital of $569,223. The relative fair value of the cancellation of the outstanding indebtedness was recorded as an extinguishment of debt and additional paid-in capital of $103,577. We recorded amortization of debt discount expense from the 12% Notes of $232,651 and $11,931 for the nine months ended September 30, 2023 and 2022, respectively, and $78,404 and $11,931 for the three months ended September 30, 2023 and September 30, 2022, respectively. We determined there was no beneficial conversion feature on the 12% Notes issued. The 12% Notes are treated as conventional debt.

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


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

In connection with the acquisition of Station 2, LLC in February 2023, we agreed to issue and sell an additional 12% Note with an aggregate principal amount of $384,873. The relative fair value of this 12% Note resulted in a debt discount of $50,918. We recorded amortization of debt discount expense from this Note of $22,197 for the nine months ended September 30, 2023, and $5,164 for the three months ended September 30, 2023. This 12% Note is treated as conventional debt and was relieved as part of the Station 2 license transfer (see Note 5).

10% Notes

In December 2020, we entered into a Securities Purchase Agreement (the “Securities Purchase Agreement’) with certain accredited investors (the “10% Investors”), pursuant to which we issued and sold senior convertible promissory notes (the “10% Notes”) with an aggregate principal amount of $2,940,000 in exchange for payment to us by certain 10% Investors of an aggregate amount of $1,940,000 in cash, as well as cancellation of outstanding indebtedness of previously issued 15% notes in the aggregate amount of $1,000,000. In connection with the issuance of the 10% Notes, the holders of the 10% Notes received warrants (the “10% Warrants”) to purchase shares of our common stock equal to 20% coverage of the aggregate principal amount at $0.56 per share. In the aggregate, this equals 1,050,011 shares of our common stock. The 10% Notes bear interest at an annual rate of 10% and will mature on December 23, 2023. The 10% Investors have the option at any time to convert up to 50% of the outstanding unpaid principal and accrued interest of the 10% Notes into Common Stock at a variable price of 80% of the market price but no less than $0.65 per share and no more than $1.00 per share. The 10% Warrants are exercisable at an exercise price of $0.56 per warrant.

The relative fair value of the new funding on the 10% Warrants was recorded as a debt discount and additional paid-in capital of $254,400. The relative fair value of the cancellation of the outstanding indebtedness was recorded as an extinguishment of debt and additional paid-in capital of $131,000. We recorded amortization of debt discount expense from the 10% Notes of nil and $84,375 for the nine months ended September 30, 2023 and 2022, and nil and $41,352 for the three months ended September 30, 2023 and September 30, 2022, respectively. We determined there was no beneficial conversion feature on the 10% Notes issued in December 2020. The 10% Notes are treated as conventional debt.

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


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

Table of Contents

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

The relative fair value of the new funding on the 10% Warrants was recorded as a debt discount and additional paid-in capital of $429,300. We determined that this 10% Note had a beneficial conversion feature and is calculated at its intrinsic value (that is, the difference between the effective conversion price of $0.66 at the date of the note issuance and the fair value of the common stock into which the debt is convertible at the commitment date, per share being $0.90, multiplied by the number of shares into which the debt is convertible). The valuation of the beneficial conversion feature recorded cannot be greater than the face value of the note issued. We recorded $417,539 as additional paid in capital and a debt discount and included in our consolidated statement of operations. We recorded amortization of debt discount expense from the February 2021 10% Notes of nil and $594,721 for the nine months ended September 30, 2023 and 2022, respectively, and nil and $454,741 for the three months ended September 30, 2023 and September 30, 2022, respectively. The 10% Notes are treated as conventional debt.

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


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

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

The relative fair value of the new funding on the 10% Warrants was recorded as a debt discount and additional paid-in capital of $810,000. We determined that these 10% Notes had a beneficial conversion feature and is calculated at its intrinsic value (that is, the difference between the effective conversion price of $0.49 at the date of the note issuance and the fair value of the common stock into which the debt is convertible at the commitment date, per share being $0.83, multiplied by the number of shares into which the debt is convertible). The valuation of the beneficial conversion feature recorded cannot be greater than the face value of the note issued. We recorded $692,500 as additional paid in capital and a debt discount and included in our consolidated statement of operations. We recorded amortization of debt discount expense from the April 2021 10% Notes of nil and $1,023,577 for the nine months ended September 30, 2023 and 2022, respectively, and nil and $775,638 for the three months ended September 30, 2023 and 2022, respectively. The 10% Notes are treated as conventional debt.

Table of Contents

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


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

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

NOTE 10. WARRANT DERIVATIVE LIABILITY

On May 31, 2019, we received gross proceeds of $3 million by issuing three million shares of our common stock and three million warrants (“2019 Warrants”) to purchase shares of our common stock (“2019 Units”) in a registered direct offering for $1.00 per 2019 Unit (collectively defined as the “2019 Capital Raise”). The 2019 Warrants, issued with the 2019 Capital Raise, are accounted for as a derivative liability. The 2019 Warrant agreements contain a cash settlement provision whereby the holders could settle the warrants for cash based on the Black-Scholes value, upon certain fundamental transactions, as defined in the 2019 Warrant agreement, which are considered outside of the control of management, such as a change of control. The original exercise price of the 2019 Warrants was $1.30 per share. The 2019 Warrants contain certain anti-dilution adjustment provisions with respect to subsequent issuances of securities by the Company at a price below the exercise price of such warrants. As a result of such subsequent issuances of securities by the Company during the fourth quarter 2019, the exercise price of the 2019 Warrants decreased to $0.45 per share and the number of shares subject to the 2019 Warrants increased to 8,666,666 shares of common stock as of December 31, 2019. In May 2020, we issued securities at a price lower than the $0.45 per share above. As a result, the exercise price of the 2019 Warrants decreased to $0.3983 per share and the number of shares subject to the 2019 Warrants increased to 9,591,614 shares of common stock.

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

During the nine months ended September 30, 2023, and 2022, we recognized a $2,359 gain and $14,959 gain on the change in fair value of the derivative liability, respectively. During the three months ended September 30, 2023, and 2022, we recognized a $2,860 loss and $16,364 gain on the change in fair value of the derivative liability, respectively. As of September 30, 2023, there were 322,807 of the 2019 Warrants outstanding.

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


	September 30,			December 31,
	2023			2022
Number of shares underlying the warrants		322,807			322,807
Fair market value of stock	$	0.16		$	0.15
Exercise price	$	0.40		$	0.40
Volatility		90	%		78	%
Risk-free interest rate		5.53	%		3.99	%
Warrant life (years)		0.66			1.41

Table of Contents

The following table sets forth a summary of the changes in the fair value of the warrant derivative liability, our Level 3 financial liabilities that are measured at fair value on a recurring basis:


	Three months ended September 30,				Nine months ended September 30,
	2023		2022		2023		2022
Beginning balance	$	289	$	29,723	$	5,508	$	28,318
Warrant exercise		—		—		—		—
Change in fair value of warrants derivative liability		2,860		(16,364)		(2,359)		(14,959)
Ending balance	$	3,149	$	13,359	$	3,149	$	13,359

NOTE 11. OTHER INCOME

Under the provisions of the Coronavirus Aid Relief, and Economic Security Act (the “CARES Act”) signed into law on March 27, 2020 and the subsequent extension of the CARES Act, the Company, with the guidance from a third-party specialist, determined it was eligible for a refundable employee retention credit (“ERC”) subject to certain criteria.

The Company applied for ERC for the last three quarters’ wages paid in calendar year 2020 and the first three quarters’ wages paid in calendar year 2021. The Company recognized an ERC benefit of $1,085,939, net of third-party specialist fees of $217,188, which is included in Other Income on the accompanying Condensed Consolidated Statement of Operations for the nine-month period ended September 30, 2023. As of September 30, 2023, the Company received $909,282 in ERC payments reducing the receivable within Other current assets on the Condensed Consolidated Balance Sheet to $176,657.

NOTE 12. COMMITMENTS AND CONTINGENCIES

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

In July 2021, we were served with a Complaint in the District Court, County of Denver, Colorado, by plaintiff 2353 SB, LLC (“Plaintiff”). We entered into a lease with Plaintiff for the premises at 2353 South Broadway, Denver, CO with a term of three (3) years to commence on November 1, 2020. Monthly lease payments were to be $12,867. In 2020, we made initial payments (first month’s rent and security deposit) of $39,633; but subsequently did not take possession of the premises and have made no further payments in respect thereof, as a direct result of the COVID-19 pandemic. The lease contains a ‘force majeure’ clause which includes a provision that neither party is liable for failure to perform its obligations under the lease which have become practicably impossible because of circumstances beyond the reasonable control of the applicable party, including ‘pandemics or outbreak of communicable disease.’ We took the position that our failure to take possession and make any further payments under the lease is directly related to the COVID-19 pandemic.

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

Table of Contents

NOTE 13. STOCKHOLDERS’ EQUITY

2021 Preferred stock offering

On September 10, 2021, we entered into a Securities Purchase Agreement (the “Securities Purchase Agreement”) with various accredited investors (the “2021 Investors), pursuant to which we issued and sold Units consisting of Series A Convertible Preferred Stock (“Series A Preferred”) and warrants (the “Preferred Warrants”) to purchase shares of our common stock with a par value of $0.001 per share. The total number of Units sold was 1,180. Each Unit consists of one share of Series A Preferred and 354,000 Preferred Warrants. The purchase price of each Unit was $1,000, for an aggregate amount sold of $1,180,000. Each share of Series A Preferred is convertible into 1,000 shares of common stock upon the consummation of a capital raise of not less than $5,000,000. The Certificate of Designation of the Series A Preferred Stock (“Certificate of Designation”) was filed with the Secretary of the State of Colorado on September 14, 2021. The Certificate of Designations established the new preferred series entitled “Series A Convertible Preferred Stock” with no par value pers share, and sets forth the rights, restrictions, preferences and privileges of the Series A Preferred, summarized as follows:

●

Authorized Number of Shares – 5,000

●

Voting Rights – None

●

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

●

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

●

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

The Preferred Warrants have a five-year term and an exercise price per Preferred Warrant share of $1.05. The warrants contain an anti-dilution provision pursuant to which upon a future capital raise at less than $1.00 per share, each Preferred Investor will be granted additional Preferred Warrants on a ‘full-ratchet’ basis.

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

As of September 30, 2023 we have recorded accrued dividends of $106,200. As of December 31, 2022 we have recorded accrued dividends of $88,500.

Stock-based compensation

We use the fair value method to account for stock-based compensation on the grant date. This expense also includes stock-based compensation expense related to Restricted Stock Units (“RSU”). On April 1, 2022 we entered into a Restricted Stock Unit Agreement with four participants. The RSU’s were granted pursuant to our 2020 Omnibus Incentive Plan. Four separate executives were each granted 300,000 RSU’s, for a total grant of 1,200,000 RSU’s. The 300,000 RSU’s are divided into three equal tranches of 100,000 RSU’s. Each tranche of RSU will vest immediately if and upon the market price reaching a certain minimum market price of our common stock as reported on the OTCQB market. Each tranche will vest as the market price reaches $1.00, $2.00 and $3.00. Upon the RSU’s vesting, the participant will be promptly issued shares of our common stock. If there is a change in control, all unvested RSU’s granted under this agreement will become fully vested and the vested RSU’s will be paid out or settled. The fair value of these instruments is $535,976 and was calculated using the Monte Carlo model. The fair value of the RSU’s is recognized over the requisite service period. As these RSU’s do not have a service period, we used the requisite service period derived from the valuation of 10 years. As of September 30, 2023, none of the RSU’s have vested.

Table of Contents

During the year ended December 31, 2022, we granted options to purchase 250,000 common shares to directors. The options expire five years from the date of grant and vest over a period of one year. Fair value of the awards at the date of grants totaled $56,348.

The following summarizes Employee Awards activity:


				Weighted-
		Weighted-		Average
		Average		Remaining
	Number of	Exercise Price		Contractual	Aggregate
	Shares	per Share		Term (in years)	Intrinsic Value
Outstanding as of December 31, 2022	4,936,825	$	1.08	4.4	$	22,000
Granted	—		—
Forfeited or expired	—		—
Outstanding as of September 30, 2023	4,936,825	$	1.08	4.4	$	22,000

Exercisable as of September 30, 2023	4,936,825	$	1.08	4.4	$	22,000

As of September 30, 2023, there was no unrecognized compensation expense related to unvested employee awards.

We recorded $8,745 and $38,460 in compensation expense for the three months ended September 30, 2023 and 2022, respectively and $54,195 and $156,961 for the nine months ended September 30, 2023 and 2022, respectively. This includes expense related to options issued in prior years for which the requisite service period for those options includes the current period as well as options issued in the current period. Forfeited options result in a reversal in the period forfeited. The fair value of these instruments was calculated using the Black-Scholes option pricing method.

NOTE 14. RELATED PARTY TRANSACTIONS

On September 16, 2022, the Company entered into a new consulting agreement with Adam Hershey, its Interim Chief Executive Officer, pursuant to which Mr. Hershey will continue to serve as the Company’s Interim Chief Executive Officer with compensation equal to $200,000 per annum, payable by the Company, monthly. The term of the consulting agreement is for a period of one year, with automatic six-month renewals thereafter unless terminated by either party. The Company has also agreed to extend warrants to purchase 7,280,007 shares of Common Stock, held by an affiliate of Mr. Hershey, for an additional two years until, May 29, 2027. The exercise price and all other terms and conditions of such warrants remain unchanged. We paid $50,000 and $24,999 for the three months ended September 30, 2023 and 2022, respectively, and $150,000 and $74,997 for the nine months ended September 30, 2023 and 2022, respectively.

In February 2023, the Company completed the acquisition of Station 2, LLC’s assets. Station 2, LLC is owned by a board member, who is also a shareholder and executive level employee of the Company. See Note 3 for additional information regarding the Station 2 asset acquisition and Note 5 for the license transfer.

On July 7, 2023, the Company entered into a Transaction Services Agreement with Allyson Feiler Downing and Loree Schwartz as a result of the Settlement Agreement entered into with the Green Tree Parties as described in Note 3. Ms. Downing was a former officer of the Company and member of the Board of Directors, however, she continues to serve on the Board under the Transaction Services Agreement. Under this Agreement, Ms. Downing and Ms. Schwartz provide certain administrative and management services related to the Transferred Assets in exchange for all revenue generated by the Transferred Assets. The Transaction Services Agreement is effective until the Transferred Assets are officially transferred to the Green Tree Parties. On August 3, 2023, Ms. Downing resigned from the Company’s Board of Directors.

The Company currently has a lease agreement with Dalton Adventures, LLC in which the Company leases 17,000 square feet of greenhouse space in Boulder, Colorado for $29,691 a month, of which $27,000 is base rent and $2,691 is property taxes. The base rent increased to $27,405 per month starting in January 2023. The owner of Dalton Adventures, LLC is a principal shareholder and former board member of the Company. We have incurred $75,849 and $75,849 in related party lease expense for the three months ended September 30, 2023 and 2022, respectively, and $227,547 and $151,698 for the

Table of Contents

nine months ended September 30, 2023 and 2022, respectively. See Note 7 for further discussion of the Company’s obligations associated with related party leases.

The Company currently has a lease agreement with JLA Enterprises, LLC in which the Company leases a retail dispensary in Longmont, Colorado. A board member and an executive level employee of the Company are owners of JLA Enterprises, LLC. The Company also has a lease agreement with ALJ 1090, LLC in which the Company leases a building that has a retail dispensary and cultivation facility in Berthoud, Colorado. The same board member is an owner of ALJ 1090, LLC. These leases were assumed as part of the Green Tree Acquisition on December 12, 2022. We have incurred $51,942 and nil in related party lease expense for the three months ended September 30, 2023 and 2022, respectively, and $155,826 and nil for the nine months ended September 30, 2023 and 2022, respectively. See Note 7 for further discussion of the Company’s obligations associated with related party leases.

The Company had a lease agreement with Bellewood Holdings, LLC in which the Company leased retail space for the Trees Englewood retail store in Englewood, Colorado for $11,287 per month, of which $10,000 is base rent and $1,287 is property taxes. The owner of Bellewood Holdings, LLC is a principal shareholder and board member of the Company. In June 2022, the building was sold to an unrelated party. We incurred nil of related party lease expense for the three months ended September 30, 2023 and 2022, respectively, and nil and $52,287 for the nine months ended September 30, 2023 and 2022, respectively. See Note 7 for further discussion of the Company’s obligations associated with related-party leases.

NOTE 15. SEGMENT INFORMATION

Our operations are organized into two segments: Retail and Cultivation. All revenue originates, and all assets are located in the United States. Segment information is presented in accordance with ASC 280, "Segments Reporting." This standard is based on a management approach that requires segmentation based upon our internal organization and disclosure of revenue and certain expenses based upon internal accounting methods. Our financial reporting systems present various data for management to run the business, including internal profit and loss statements prepared on a basis not consistent with GAAP.

Three months ended September 30,


2023	Retail		Cultivation		Eliminations		Total
Revenues	$	4,038,019	$	415,963	$	(342,399)	$	4,111,583
Costs and expenses		(3,403,102)		(1,272,117)		342,399		(4,332,820)
Segment operating loss	$	634,917	$	(856,154)	$	—		(221,237)
Corporate expenses								(1,490,565)
ERC Credits								896,679
Net loss from continuing operations before income taxes							$	(815,123)


2022	Retail		Cultivation		Eliminations		Total
Revenues	$	3,080,778	$	448,623	$	(352,224)	$	3,177,177
Costs and expenses		(2,413,190)		(849,269)		352,224		(2,910,235)
Segment operating income (loss)	$	667,588	$	(400,646)	$	—		266,942
Corporate expenses								(2,971,621)
Net loss from continuing operations before income taxes							$	(2,704,679)

Table of Contents

Nine months ended September 30,


2023	Retail		Cultivation		Eliminations		Total
Total revenues	$	14,228,202	$	2,044,810	$	(1,952,816)	$	14,320,196
Costs and expenses		(13,285,938)		(3,457,964)		1,952,816		(14,791,086)
Segment operating income (loss)	$	942,264	$	(1,413,154)	$	—		(470,890)
Corporate expenses								(5,163,601)
ERC Credits								896,679
Net loss from continuing operations before income taxes							$	(4,737,812)


2022	Retail		Cultivation		Eliminations		Total
Total revenues	$	9,536,657	$	1,316,241		(866,686)	$	9,986,212
Costs and expenses		(7,169,103)		(1,971,550)		866,686		(8,273,967)
Segment operating income (loss)	$	2,367,554	$	(655,309)	$	—		1,712,245
Corporate expenses								(5,466,211)
Net loss from continuing operations before income taxes							$	(3,753,966)


	September 30,		December 31,
Total assets	2023		2022
Retail	$	23,904,244	$	25,212,245
Cultivation		3,058,175		4,628,452
Corporate		539,215		1,985,455
Total assets - segments		27,501,634		31,826,152
Intercompany eliminations		—		(131,439)
Total assets - consolidated	$	27,501,634	$	31,694,713

NOTE 16. SUBSEQUENT EVENTS

The Company evaluated the impact of subsequent events through the date that the accompanying financial statements were issued. Subsequent to September 30, 2023 and prior to the issuance of these financial statements, the Company completed the transfer of the Transferred Assets to the Green Tree Parties in November 2023.

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

This Management’s Discussion and Analysis (“MD&A”) is intended to provide an understanding of our financial condition, results of operations and cash flows by focusing on changes in certain key measures from year to year. This discussion should be read in conjunction with the Condensed Consolidated Unaudited Financial Statements contained in this Quarterly Report on Form 10-Q and the Consolidated Financial Statements and related notes and MD&A appearing in our Annual Report on Form 10-K as of and for the year ended December 31, 2022. The results of operations for an interim period may not give a true indication of results for future interim periods or for the year.

Cautionary Statement Regarding Forward Looking Statements

This Quarterly Report on Form 10-Q, including the financial statements and related notes, contains forward-looking statements that discuss, among other things, future expectations and projections regarding future developments, operations and financial conditions. All forward-looking statements are based on management’s existing beliefs about present and future events outside of management’s control and on assumptions that may prove to be incorrect. If any underlying assumptions prove incorrect, our actual results may vary materially from those anticipated, estimated, projected or intended. We undertake no obligation to publicly update or revise any forward-looking statements to reflect actual results, changes in expectations or events or circumstances after the date of this Quarterly Report on Form 10-Q.

Table of Contents

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

Our Products, Services, and Customers

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

We presently operate six (6) cannabis dispensaries as follows:

●

Englewood, Colorado

5005 S. Federal Boulevard – Recreational license only

●

Denver, Colorado

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

●

Longmont, Colorado

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

●

Berthoud, Colorado

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

●

Three (3) in Oregon

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

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

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

We also operate two (2) cultivation facilities in Colorado as follows:

●

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

●

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

Our principal business model is to acquire, integrate and optimize cannabis companies in the retail and cultivation segments utilizing the combined experience of entrepreneurs and synergistic operations of our vertically integrated network. During the three months ended September 30, 2023 and 2022, 89% of SevenFive’s revenue was with five customers and 79% was with one customer, respectively. During the nine months ended September 30, 2023 and 2022, 50% of SevenFive’s revenue was with one customer and 66% was with one customer, respectively. Two of the customers with sales in the three months ended September 30, 2023 are related party dispensaries and the revenues associated with these customers are eliminated in consolidation.

Table of Contents

Results of Operations

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


	Three months ended September 30,						Percent
	2023		2022		Change		Change
Revenues	$	4,111,583	$	3,177,177	$	934,406	29	%
Costs and expenses		(4,718,791)		(3,834,374)		(884,417)	23	%
Other expense		(207,915)		(1,793,482)		1,585,567	(88)	%
Net loss from continuing operations before income taxes		(815,123)		(2,450,679)		1,635,556	(67)	%
Loss from discontinued operations		—		195		(195)	(100)	%
Loss from operations before income taxes	$	(815,123)	$	(2,450,484)	$	1,635,361	(67)	%


	Nine months ended September 30,						Percent
	2023		2022		Change		Change
Revenues	$	14,320,196	$	9,986,212	$	4,333,984	43	%
Costs and expenses		(17,569,254)		(10,922,952)		(6,646,302)	61	%
Other expense		(1,403,018)		(2,563,226)		1,160,208	(45)	%
Net loss from continuing operations before income taxes		(4,652,076)		(3,499,966)		(1,152,110)	33	%
Gain (loss) from discontinued operations		—		5,478		(5,478)	(100)	%
Loss from operations before income taxes	$	(4,652,076)	$	(3,494,488)	$	(1,157,588)	33	%

Revenues

The activity driven by Green Tree and Green Man, which we acquired in Q4 2022, contributed to the increase in revenues for the three months ended September 30, 2023 compared to September 30, 2022, and for the nine months ended September 30, 2023 and September 30, 2022, respectively.

Costs and expenses


	Three months ended September 30,						Percent
	2023		2022		Change		Change
Cost of sales	$	2,442,541	$	2,036,532	$	406,009	20	%
Selling, general and administrative		1,962,641		1,462,902		499,739	34	%
Stock-based compensation		8,745		38,460		(29,715)	(77)	%
Professional fees		53,259		197,565		(144,306)	(73)	%
Depreciation and amortization		251,605		98,915		152,690	154	%
	$	4,718,791	$	3,834,374	$	884,417	23	%


	Nine months ended September 30,						Percent
	2023		2022		Change		Change
Cost of sales	$	8,731,032	$	5,856,995	$	2,874,037	49	%
Selling, general and administrative		6,744,632		4,001,816		2,742,816	69	%
Stock-based compensation		54,195		156,961		(102,766)	(65)	%
Professional fees		1,204,369		716,410		487,959	68	%
Depreciation and amortization		835,026		190,770		644,256	338	%
	$	17,569,254	$	10,922,952	$	6,646,302	61	%

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

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

Table of Contents

fourth quarter of 2022 and one additional dispensary license in the first quarter of 2023. This resulted in an increase in employees and an increase in rent expense.

Professional fees consist primarily of accounting and legal expenses. Professional fees increased for the three and nine months ended September 30, 2023 as compared to September 30, 2022 due to the acquisition activity in the first quarter of 2023, as well as the accrued legal expenses for the settlement reached in the second quarter of 2023.

Stock-based compensation included the following:


	Three months ended September 30,						Percent
	2023		2022		Change		Change
Employee awards	$	8,745	$	38,460	$	(29,715)	(77)	%
	$	8,745	$	38,460	$	(29,715)	(77)	%


	Nine months ended September 30,						Percent
	2023		2022		Change		Change
Employee awards	$	54,195	$	156,961	$	(102,766)	(65)	%
	$	54,195	$	156,961	$	(102,766)	(65)	%

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

Other Expense


	Three months ended September 30,						Percent
	2023		2022		Change		Change
Amortization of debt discount	$	219,785	$	1,285,392	$	(1,065,607)	(83)	%
Interest expense		296,242		213,833		82,409	39	%
Loss on extinguishment of debt		218,237		310,622		(92,385)	(30)	%
(Gain) loss on derivative liability		2,860		(16,365)		19,225	(117)	%
Loss on transfer of assets		(2,400)		—		(2,400)	100	%
Other income		(526,809)		—		(526,809)	100	%
	$	207,915	$	1,793,482	$	(1,585,567)	(88)	%


	Nine months ended September 30,						Percent
	2023		2022		Change		Change
Amortization of debt discount	$	621,539	$	1,716,334	$	(1,094,795)	(64)	%
Interest expense		1,462,281		564,229		898,052	159	%
Loss on extinguishment of debt		218,237		310,622		(92,385)	(30)	%
Gain on derivative liability		(2,359)		(14,959)		12,600	(84)	%
Gain on sale of assets		—		(13,000)		13,000	(100)	%
Other income		(896,680)		—		(896,680)	100	%
	$	1,403,018	$	2,563,226	$	(1,160,208)	(45)	%

Amortization of debt discount decreased during the three and nine months ended September 30, 2023, as compared to September 30, 2022 due to the rollover and repayment of the 10% Notes. Interest expense increased during the three and nine months ended September 30, 2023, as compared to September 30, 2022, due to the addition of the 12% Notes with an interest rate of 12% in Q3 2022. Loss on extinguishment of debt decreased during the three and nine months ended September 30, 2023, as compared to September 30, 2022 due to loss on extinguishment of debt from the rollover of the 10% Notes to 12% Notes being higher than the loss on extinguishment of debt resulting from the transfer of the Station 2 license (see Note 5). The gain on warrant derivative liability reflects the change in the fair value of the 2019 Warrants. Gain on sale of assets decreased during the nine months ended September 30, 2023, as compared to September 30, 2022 as no assets were sold during the nine months ended September 30, 2023. Other Income increased during the three months

Table of Contents

and nine months ended September 30, 2023, as compared to September 30, 2022 due to the Company applying for employee retention credits through the CARES Act.

Retail


	Three months ended September 30,						Percent
	2023		2022		Change		Change
Revenues	$	4,038,019	$	3,080,778	$	957,241	31	%
Costs and expenses		(3,403,102)		(2,413,190)		(989,912)	41	%
Segment operating (loss) income	$	634,917	$	667,588	$	(32,671)	(5)	%


	Nine months ended September 30,						Percent
	2023		2022		Change		Change
Revenues	$	14,228,202	$	9,536,657	$	4,691,545	49	%
Costs and expenses		(13,285,938)		(7,169,103)		(6,116,835)	85	%
Segment operating income	$	942,264	$	2,367,554	$	(1,425,290)	(60)	%

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

Cultivation


	Three months ended September 30,						Percent
	2023		2022		Change		Change
Revenues	$	415,963	$	448,623	$	(32,660)	(7)	%
Costs and expenses		(1,272,117)		(849,269)		(422,848)	50	%
Segment operating loss	$	(856,154)	$	(400,646)	$	(455,508)	114	%


	Nine months ended September 30,						Percent
	2023		2022		Change		Change
Revenues	$	2,044,810	$	1,316,241	$	728,569	55	%
Costs and expenses		(3,457,964)		(1,971,550)		(1,486,414)	75	%
Segment operating loss	$	(1,413,154)	$	(655,309)	$	(757,845)	116	%

The decrease in revenues for the three months ended September 30, 2023 compared to September 30, 2022, is due to Green Tree revenues being recognized by the original owners as a result of the license transfer in July 2023. The increase in revenues for the nine months ended September 30, 2023 compared to September 30, 2022 is attributed to the increase in sales made to our dispensaries which are eliminated in consolidation. The increase in cost and expenses for the three and nine months ended September 30, 2023 compared to September 30, 2022 is attributed to the acquisitions of Green Tree and Green Man that occurred during December of 2022, as well as the increase in sales made to our dispensaries. The costs and expense incurred between our dispensaries and cultivation locations are eliminated in consolidation.

Liquidity

Sources of liquidity

Our sources of liquidity historically have included the cash exercise of common stock options and warrants, debt, and the issuance of common stock or other equity-based instruments. We anticipate our significant uses of resources will include funding operations.

In September 2022, we received $10,587,250 in cash in a private placement with certain accredited investors pursuant to the 12% Notes to be used for acquisition of dispensaries and operating capital.

Table of Contents

Sources and uses of cash

We had cash of $251,691 and $2,583,833 as of September 30, 2023 and December 31, 2022, respectively. Our cash flows from operating, investing and financing activities were as follows:


	Nine months ended September 30,
	2023		2022
Net cash used in operating activities	$	(1,147,432)	$	(894,643)
Net cash used in investing activities	$	(265,858)	$	(202,485)
Net cash (used in) provided by financing activities	$	(918,852)	$	5,045,238

Net cash used in operating activities increased in 2023 due to the increased net loss driven from the expenses described above.

Net cash used in investing activities for the nine months ended September 30, 2023 was comparable to the nine months ended September 30, 2022, as a result of the acquisition of Station 2 in 2023 and the acquisition of Trees in 2022.

Net cash used in financing activities for the three and nine months ended September 30, 2023 increased from September 30, 2022 due to an increase in payments on notes payable and finance leases, and no debt raise.

Capital Resources

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

Table of Contents

Non-GAAP Financial Measures

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

We believe that the disclosure of Adjusted EBITDA provides investors with a better comparison of our period-to-period operating results. We exclude the effects of certain items when we evaluate key measures of our performance internally and in assessing the impact of known trends and uncertainties on our business. We also believe that excluding the effects of these items provides a more comparable view of the underlying dynamics of our operations. We believe such information provides additional meaningful methods of evaluating certain aspects of our operating performance from period to period on a basis that may not be otherwise apparent on a GAAP basis. This supplemental financial information should be considered in addition to, not in lieu of, our unaudited condensed consolidated financial statements.

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


	Three months ended September 30,				Nine months ended September 30,
	2023		2022		2023		2022
Net loss from continuing operations	$	(815,123)	$	(2,704,679)	$	(4,737,812)	$	(3,753,966)
Adjustment for loss from discontinued operations		—		195		—		(5,478)
Net loss		(815,123)		(2,704,484)		(4,737,812)		(3,759,444)
Adjustments:
Stock-based compensation		8,745		38,460		54,195		156,961
Depreciation and amortization		251,605		98,915		835,026		190,770
Amortization of debt discount		219,785		1,285,392		621,539		1,716,334
Loss on extinguishment of debt		218,237		310,622		218,237		310,622
Interest expense		296,242		213,833		1,462,281		564,229
Gain on sale of assets		—		—		—		(13,000)
(Gain) loss on derivative liability		2,860		(16,365)		(2,359)		(14,959)
Severance		—		—		—		4,731
Acquisition related expenses		—		162,634		—		193,956
Provision for income taxes		—		254,000		85,736		254,000
Other expense (income)		(526,809)		—		(896,680)		—
Total adjustments		470,665		2,347,491		2,377,975		3,363,644
Adjusted EBITDA	$	(344,458)	$	(356,993)	$	(2,359,837)	$	(395,800)

Off-balance Sheet Arrangements

We currently have no off-balance sheet arrangements.

Critical Accounting Policies

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

Table of Contents

ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

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

ITEM 4. CONTROLS AND PROCEDURES

Evaluation of Disclosure Controls and Procedures

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

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

Internal Control over Financial Reporting

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

●

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

●

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

●

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

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

Changes in Internal Control over Financial Reporting

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

Table of Contents

PART II. OTHER INFORMATION

ITEM 1. LEGAL PROCEEDINGS

ITEM 1A. RISK FACTORS

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

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

None.

ITEM 3. DEFAULTS UPON SENIOR SECURITIES

None.

ITEM 4. MINE SAFETY DISCLOSURES

Not applicable.

ITEM 5. OTHER INFORMATION

None.

Table of Contents

ITEM 6. EXHIBITS

Exhibits

10.1	Assignment of Assets dated August 17, 2023 by and among Trees Colorado, LLC, Station 2, LLC and Timothy Brown (incorporated by reference to Exhibit 10.1 of our Form 8-K filed on August 23, 2023).
31.1	Certification pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
31.2	Certification pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
32.1	Certification pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
101.INS	Inline XBRL Instance Document
101.SCH	Inline XBRL Taxonomy Extension Schema Document
101.CAL	Inline XBRL Taxonomy Extension Calculation Linkbase Document
101.DEF	Inline XBRL Taxonomy Extension Definition Linkbase Document
101.LAB	Inline XBRL Taxonomy Extension Label Linkbase Document
101.PRE	Inline XBRL Taxonomy Extension Presentation Linkbase Document
104	Cover Page Interactive Data File (embedded within the Inline XBRL document)

Table of Contents

SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.

	TREES CORPORATION

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

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

Positive
Negative
Uncertain
Constraining
Legalese
Litigous
Readability	H.S. freshman Avg

PART I. FINANCIAL INFORMATION

Item 1.	Financial Statements	3
Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	24
Item 3.	Quantitative and Qualitative Disclosures about Market Risk	31
Item 4.	Controls and Procedures	31

PART II. OTHER INFORMATION		32

Item 1.	Legal Proceedings	32
Item 1A.	Risk Factors	32
Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	32
Item 3.	Defaults Upon Senior Securities	32
Item 4.	Mine Safety Disclosures	32
Item 5.	Other Information	32
Item 6.	Exhibits	33
	Signatures	34

Trees (CANN) 10-Q2023 Q3 Quarterly report

Content analysis