Document and Entity Information
Document and Entity Information - USD ($) | 12 Months Ended | ||
Dec. 31, 2020 | Mar. 23, 2021 | Jun. 30, 2020 | |
Cover [Abstract] | |||
Entity Registrant Name | MEDICINE MAN TECHNOLOGIES, INC. | ||
Entity Central Index Key | 0001622879 | ||
Document Type | 10-K | ||
Document Period End Date | Dec. 31, 2020 | ||
Amendment Flag | false | ||
Current Fiscal Year End Date | --12-31 | ||
Is Entity a Well-known Seasoned Issuer? | No | ||
Is Entity a Voluntary Filer? | No | ||
Is Entity's Reporting Status Current? | Yes | ||
Entity Filer Category | Non-accelerated Filer | ||
Entity Emerging Growth Company | true | ||
Entity Small Business | true | ||
Entity Shell Company | false | ||
Entity Ex Transition Period | true | ||
Entity Public Float | $ 56,200,000 | ||
Entity Common Stock, Shares Outstanding | 42,169,041 | ||
Document Fiscal Period Focus | FY | ||
Document Fiscal Year Focus | 2020 | ||
Entity Interactive Data Current | Yes | ||
Entity Incorporation State Country Code | NV | ||
Entity File Number | 000-55450 |
CONSOLIDATED BALANCE SHEETS
CONSOLIDATED BALANCE SHEETS - USD ($) | Dec. 31, 2020 | Dec. 31, 2019 |
Current assets | ||
Cash and cash equivalents | $ 1,231,235 | $ 11,853,627 |
Accounts receivable, net of allowance for doubtful accounts | 1,270,380 | 313,317 |
Accounts receivable - related party | 80,494 | 72,658 |
Inventory | 2,619,145 | 684,940 |
Note receivable - related party | 181,911 | 767,695 |
Prepaid expenses | 614,200 | 529,416 |
Prepaid acquisition costs | 0 | 1,347,462 |
Total current assets | 5,997,365 | 15,569,115 |
Non-current assets | ||
Fixed assets, net of accumulated depreciation of $872,579 and $159,354, respectively | 2,584,798 | 239,078 |
Goodwill | 53,046,729 | 12,304,306 |
Intangible assets, net of accumulated amortization of $200,456 and $19,811, respectively | 3,082,044 | 75,289 |
Marketable securities, net of unrealized loss of $129,992 and $1,792,569, respectively | 276,782 | 406,774 |
Accounts receivable - litigation | 3,063,968 | 3,063,968 |
Deferred tax assets, net | 0 | 268,423 |
Notes receivable - noncurrent, net | 0 | 241,711 |
Other non-current assets | 51,879 | 0 |
Operating lease right of use assets | 2,579,036 | 59,943 |
Total non-current assets | 64,685,236 | 16,659,492 |
Total assets | 70,682,601 | 32,228,607 |
Current liabilities | ||
Accounts payable | 3,508,479 | 699,961 |
Accounts payable - related party | 48,982 | 15,372 |
Accrued expenses | 2,705,445 | 1,091,204 |
Derivative liabilities | 1,047,481 | 3,773,382 |
Deferred revenue | 50,000 | 0 |
Notes payable - related party | 5,000,000 | 0 |
Income taxes payable | 0 | 1,940 |
Total current liabilities | 12,360,386 | 5,581,859 |
Long-term liabilities | ||
Long term debt | 13,901,759 | |
Lease liabilities | 2,645,597 | 66,803 |
Total long-term liabilities | 16,547,356 | 66,803 |
Total liabilities | 28,907,742 | 5,648,662 |
Commitments and contingencies (Note 11) | 0 | 0 |
Shareholders' equity | ||
Preferred stock $0.001 par value. 10,000,000 authorized, 19,716 shares issued and outstanding December 31, 2020 and zero shares issued and outstanding at December 31, 2019, respectively. | 20 | 0 |
Common stock $0.001 par value. 250,000,000 authorized, 42,601,773 shares issued and 42,169,041 outstanding at December 31, 2020 and 39,952,626 shares issued and 39,694,894 outstanding at December 31, 2019, respectively. | 42,602 | 39,953 |
Additional paid-in capital | 85,357,835 | 50,356,469 |
Accumulated deficit | (42,293,098) | (22,816,477) |
Common stock held in treasury, at cost, 432,732 shares held at December 31, 2020 and 257,732 shares held at 2019, respectively | (1,332,500) | (1,000,000) |
Total Shareholders' equity | 41,774,859 | 26,579,945 |
Total liabilities and stockholders' equity | $ 70,682,601 | $ 32,228,607 |
CONSOLIDATED BALANCE SHEETS (Pa
CONSOLIDATED BALANCE SHEETS (Parenthetical) - USD ($) | 12 Months Ended | |
Dec. 31, 2020 | Dec. 31, 2019 | |
Statement of Financial Position [Abstract] | ||
Accumulated depreciation | $ 872,579 | $ 159,354 |
Accumulated amortization | 200,456 | 19,811 |
Marketable securities, unrealized loss | $ 129,992 | $ 1,792,569 |
Preferred stock authorized | 10,000,000 | 10,000,000 |
Preferred stock par value | $ 0.001 | $ 0.001 |
Preferred stock issued | 19,716 | 0 |
Preferred stock outstanding | 19,716 | 0 |
Common stock authorized | 250,000,000 | 250,000,000 |
Common stock par value | $ 0.001 | $ 0.001 |
Common stock issued | 42,601,773 | 39,952,626 |
Common stock outstanding | 42,169,041 | 39,694,894 |
Treasury Stock, Common, Shares | 432,732 | 257,732 |
CONSOLIDATED STATEMENT OF COMPR
CONSOLIDATED STATEMENT OF COMPREHENSIVE (LOSS) AND INCOME - USD ($) | 12 Months Ended | |
Dec. 31, 2020 | Dec. 31, 2019 | |
Operating revenues | ||
Total revenue | $ 24,000,852 | $ 12,400,955 |
Cost of goods and services | ||
Cost of goods and services | 17,226,486 | 7,616,221 |
Total cost of goods and services | 17,226,486 | 7,616,221 |
Gross profit | 6,774,366 | 4,784,734 |
Operating expenses | ||
Selling, general and administrative expenses | 4,523,603 | 2,261,317 |
Professional services | 8,545,300 | 3,357,877 |
Salaries, benefits and related expenses | 8,377,889 | 3,567,535 |
Stock based compensation | 8,230,513 | 7,279,363 |
Derivative expense - contingent compensation | 0 | 5,400,559 |
Total operating expenses | 29,677,305 | 21,866,651 |
(Loss) Income from operations | (22,902,939) | (17,081,917) |
Other income (expense) | ||
Bad debt expense | 0 | (151,169) |
Gain on forfeiture of contingent consideration | 1,462,636 | 0 |
Unrealized gain on derivative liabilities | 1,263,264 | 1,627,176 |
Unrealized loss on marketable securities | (129,992) | (1,792,569) |
Other income (expense) | 32,621 | 0 |
Interest (expense) income, net | (41,460) | (160,195) |
Total other expense | 2,587,069 | (476,756) |
(Loss) income before income taxes | (20,315,870) | (17,558,673) |
Provision for income tax (benefit) expense | (899,109) | (582,931) |
Net (loss) income | $ (19,416,761) | $ (16,975,742) |
Basic (loss) earnings per common share | $ (0.47) | $ (0.50) |
Diluted (loss) earnings per common share | $ (0.47) | $ (0.50) |
Weighted-average number of common shares outstanding: | ||
Basic | 41,217,026 | 33,740,557 |
Diluted | 41,217,026 | 33,740,557 |
Comprehensive (loss) income | $ (19,416,761) | $ (16,975,742) |
Product sales, net [Member] | ||
Operating revenues | ||
Total revenue | 21,371,408 | 6,468,230 |
Product sales - related party, net [Member] | ||
Operating revenues | ||
Total revenue | 1,170,398 | 1,351,578 |
Litigation Revenue [Member] | ||
Operating revenues | ||
Total revenue | 0 | 1,782,457 |
Licensing And Consulting Fees [Member] | ||
Operating revenues | ||
Total revenue | 1,425,778 | 2,767,649 |
Other Operating Revenues [Member] | ||
Operating revenues | ||
Total revenue | $ 33,268 | $ 31,041 |
STATEMENT OF CHANGES IN STOCKHO
STATEMENT OF CHANGES IN STOCKHOLDERS' EQUITY - USD ($) | Preferred Stock | Common Stock | Additional Paid-In Capital | Accumulated Deficit | Treasury Stock | Total |
Beginning balance, shares at Dec. 31, 2018 | 27,753,310 | |||||
Beginning balance, value at Dec. 31, 2018 | $ 27,875 | $ 22,886,624 | $ (5,840,735) | $ 17,073,764 | ||
Net income (loss) | (16,975,742) | (16,975,742) | ||||
Issuance of common stock in connection with sales made under private of public offerings, shares | 9,800,000 | |||||
Issuance of common stock in connection with sales made under private of public offerings, value | $ 9,800 | 19,590,200 | 19,600,000 | |||
Issuance of common stock in connection with the exercise of common stock purchase warrants, shares | 485,543 | |||||
Issuance of common stock in connection with the exercise of common stock purchase warrants, value | $ 365 | 602,195 | 602,560 | |||
Issuance of common stock as compensation to employees, officers, directors and/or contractors, shares | 1,913,775 | |||||
Issuance of common stock as compensation to employees, officers, directors and/or contractors, value | $ 1,913 | 3,220,488 | 3,222,401 | |||
Stock based compensation expense related to stock options | 4,056,962 | 4,056,962 | ||||
Return of common stock, shares | 257,732 | |||||
Return of common stock, value | $ (1,000,000) | (1,000,000) | ||||
Ending balance, shares at Dec. 31, 2019 | 39,952,628 | 257,732 | ||||
Ending balance, value at Dec. 31, 2019 | $ 39,953 | 50,356,469 | (22,816,477) | $ (1,000,000) | 26,579,945 | |
Net income (loss) | (19,416,761) | (19,416,761) | ||||
Issuance of stock as payment for acquisitions, shares | 9,266 | 2,554,750 | ||||
Issuance of stock as payment for acquisitions, value | $ 9 | $ 2,555 | 13,435,085 | 13,437,649 | ||
Return of common stock as compensation to employees, officers and/or directors, shares | (500,000) | |||||
Return of common stock as compensation to employees, officers and/or directors, value | $ (500) | (500) | ||||
Issuance of common stock in connection with sales made under private of public offerings, shares | 10,450 | 187,500 | ||||
Issuance of common stock in connection with sales made under private of public offerings, value | $ 11 | $ 187 | 12,838,873 | 12,839,071 | ||
Dividends declared | (59,860) | (59,860) | ||||
Issuance of common stock as compensation to employees, officers, directors and/or contractors, shares | 406,895 | |||||
Issuance of common stock as compensation to employees, officers, directors and/or contractors, value | $ 407 | 496,895 | 497,301 | |||
Stock based compensation expense related to stock options | 8,230,513 | 8,230,513 | ||||
Return of common stock, shares | 175,000 | |||||
Return of common stock, value | $ (332,500) | (332,500) | ||||
Ending balance, shares at Dec. 31, 2020 | 19,716 | 42,601,773 | 432,732 | |||
Ending balance, value at Dec. 31, 2020 | $ 20 | $ 42,602 | $ 85,357,835 | $ (42,099,098) | $ (1,332,500) | $ 41,774,859 |
CONSOLIDATED STATEMENTS OF CASH
CONSOLIDATED STATEMENTS OF CASH FLOWS - USD ($) | 12 Months Ended | |
Dec. 31, 2020 | Dec. 31, 2019 | |
Cash flows from operating activities of continuing operations: | ||
Net (loss) income | $ (19,416,761) | $ (16,975,742) |
Adjustments to reconcile net (loss) income to cash used in operating activities: | ||
Depreciation and amortization | 476,592 | 61,708 |
Deferred taxes | 268,423 | (268,423) |
Derivative expense | 0 | 5,400,559 |
Unrealized gain on derivative liabilities | (2,725,901) | (1,627,176) |
Unrealized loss on marketable securities | 129,992 | 1,792,569 |
Stock based compensation | 8,230,513 | 7,184,363 |
Other | 0 | 151,169 |
Changes in operating assets and liabilities | ||
Accounts receivable | 874,616 | (3,361,194) |
Inventory | 781,512 | (195,701) |
Prepaid expense | (84,784) | (383,592) |
Other assets | (51,879) | 0 |
Operating lease right of use assets and liabilities | 59,701 | 6,860 |
Accounts payable and other liabilities | 1,610,226 | 1,241,626 |
Deferred revenue | 50,000 | 0 |
Income taxes payable | (1,940) | (580,991) |
Net cash used in operating activities | (9,799,690) | (7,553,965) |
Cash flows from investing activities | ||
Acquisitions, net of cash acquired | (33,278,462) | 0 |
Repayment (issuance) of notes receivable | 827,495 | (916,518) |
Purchase of fixed assets | (768,173) | (200,238) |
Net cash used in investing activities | (33,219,140) | (1,116,756) |
Cash flows from financing activities | ||
Proceeds from issuance of common stock, net of issuance costs | 12,625,312 | 19,600,000 |
Proceeds from issuance of notes payable, net | 5,000,000 | 0 |
Proceeds from issuance of long term debt, net | 13,901,759 | 0 |
Proceeds for exercise of common stock purchase warrants, net of issuance costs | 374,810 | 602,560 |
Net cash provided by financing activities | 31,901,881 | 20,202,560 |
Net increase in cash and cash equivalents | (11,116,948) | 11,531,839 |
Cash and cash equivalents at beginning of period | 11,853,627 | 321,788 |
Cash and cash equivalents at end of period | 1,231,235 | 11,853,627 |
Supplemental disclosure of cash flow information: | ||
Cash paid for interest | 41,565 | 192,107 |
Cash paid for income taxes | 0 | 268,423 |
Supplemental disclosure of non-cash investing and financing activities: | ||
Common stock issued in connection with long term service contracts | 0 | 95,000 |
Return of common stock | $ 332,500 | $ 1,000,000 |
Organization and Nature of Oper
Organization and Nature of Operations | 12 Months Ended |
Dec. 31, 2020 | |
Organization, Consolidation and Presentation of Financial Statements [Abstract] | |
Business Description | Organization and Nature of Operations Business Description – Business Activity We were incorporated in Nevada on March 20, 2014. On May 1, 2014, we entered into an exclusive Technology License Agreement with Medicine Man Denver whereby Medicine Man Denver granted us a license to use all of their proprietary processes they have developed, implemented and practiced at their cannabis facilities relating to the commercial growth, cultivation, marketing and distribution of medical marijuana and recreational marijuana pursuant to relevant state laws and the right to use and to license such information, including trade secrets, skills and experience (present and future). In 2017, the Company acquired additional cultivation intellectual property through the acquisition of Success Nutrients™ and Pono Publications, including the rights to the book titled “Three A Light” and its associated cultivation techniques, which have been part of the Company’s products and services offerings since the acquisition. The Company acquired Two J’s LLC d/b/a The Big Tomato (“Big T or The Big Tomato”) in 2018, which operates a retail location in Aurora, Colorado. It has been a leading supplier of hydroponics and indoor gardening supplies in the metro Denver area since May 2001. The Company was focused on cannabis dispensary and cultivation consulting and providing equipment and nutrients to cannabis cultivators until its first plant touching acquisition in April of 2020. In 2019, due to the changes in Colorado law permitting non-Colorado resident and publicly traded investment into “plant-touching” cannabis companies, the Company made a strategic decision to move toward direct plant-touching operations. The Company developed a plan to roll up a number of direct plant-touching dispensaries, manufacturing facilities, and cannabis cultivations with a target to be one of the largest seed to sale cannabis businesses in Colorado. In April 2020 the Company acquired its first plant-touching business, Mesa Organics, which consists of four dispensaries and one MIP, d/b/a Purplebee’s. On April 20, 2020, the Company rebranded and conducts its business under the trade name, Schwazze. The corporate name of the Company continues to be Medicine Man Technologies, Inc. Effective April 21, 2020, the Company commenced trading under the OTC ticker symbol SHWZ. On December 17, 2020, the Company closed on the acquisition of (i) Starbuds Pueblo LLC; and (ii) Starbuds Alameda LLC. On December 18, 2020, the Company closed on the acquisition of (i) Starbuds Commerce City LLC; (ii) Lucky Ticket LLC; (iii) Starbuds Niwot LLC; and (iv) LM MJC LLC under the applicable APAs. On February 4, 2021, the Company acquired the assets of Colorado Health Consultants LLC and Mountain View 44th LLC under the applicable APAs. On March 2, 2021, the Company acquired the assets of (i) Starbuds Aurora LLC, (ii) SB Arapahoe LLC, (iii) Citi-Med LLC, (iv) Starbuds Louisville LLC and (v) KEW LLC under the applicable APAs. From December 2020 through March 2021 the Company completed a private placement of Series A Cumulative Convertible Preferred Stock (“Preferred Stock”) for aggregate gross proceeds of $57.7 million dollars. In the private placement, the Company issued and sold an aggregate of 57,700 shares of Preferred Stock at a price of $1,000 per share under securities purchase agreement with Dye Capital and CRW managed funds as well as subscription agreements with unaffiliated investors. Among other terms, each share of Preferred Stock (i) earns an annual dividend of 8% on the “preference amount,” which initially is equal to the $1,000 per-share purchase price and subject to increase, by having such dividends automatically accrete to, and increase, the outstanding preference amount; (ii) is entitled to a liquidation preference under certain circumstances, (iii) is convertible into shares of the Company’s Common Stock by dividing the preference amount by $1.20 per share under certain circumstances, and (iv) is subject to a redemption right or obligation under certain circumstances. In addition, on December 16, 2020, the Company issued and sold a Convertible Promissory Note and Security Agreement in the original principal amount of $5,000,000 to Dye Capital & Company, LLC. On February 26, 2021, Dye Capital & Company, LLC converted all outstanding amounts under the note into 5,060 shares of Preferred Stock. The Company is focused on growing through internal growth, acquisition, and new licenses in the Colorado cannabis market. The Company is focused on building the premier vertically integrated cannabis company in Colorado. The company's leadership team has deep expertise in mainstream consumer packaged goods, retail, and product development at Fortune 500 companies as well as in the cannabis sector. The Company has a high-performance culture and a focus on analytical decision making, supported by data. Customer-centric thinking inspires the Company’s strategy and provides the foundation for the Company’s operational playbooks. |
1. Liquidity and Capital Resour
1. Liquidity and Capital Resources | 12 Months Ended |
Dec. 31, 2020 | |
Organization, Consolidation and Presentation of Financial Statements [Abstract] | |
Liquidity and Capital Resources | 1. Liquidity and Capital Resources During the fiscal year ended December 31, 2020 and 2019, the Company primarily used revenues from its operations supplemented by cash to fund its operations. Cash and cash equivalents are carried at cost or amortized cost and represent cash on hand, deposits placed with banks or other financial institutions and all highly liquid investments with an original maturity of three months or less as of the purchase date. The Company had $1,231,235 and $11,853,627 classified as cash and cash equivalents as of December 31, 2020, and December 31, 2019, respectively. The Company maintains its cash balances with high-credit-quality financial institutions. At times, such cash may be more than the insured limit of $250,000. The Company has not experienced any losses in such accounts, and management believes the Company is not exposed to any significant credit risk on its cash and cash equivalents. The following table depicts the composition of the Company’s cash and cash equivalents as of December 31, 2020 and 2019: December 31, 2019 December 31, 2019 Deposits placed with banks $ 1,231,235 $ 736,101 United States Treasury Bill – 11,117,526 Total cash and cash equivalents $ 1,231,235 $ 11,853,627 |
2. Critical Accounting Policies
2. Critical Accounting Policies and Estimates | 12 Months Ended |
Dec. 31, 2020 | |
Accounting Policies [Abstract] | |
Critical Accounting Policies and Estimates | 2. Critical Accounting Policies and Estimates Basis of Presentation These accompanying financial statements have been prepared in accordance with U.S. GAAP and pursuant to the rules and regulations of the Securities and Exchange Commission (“SEC”) for annual financial statements. Use of Estimates The preparation of financial statements in conformity with U.S. GAAP requires management to make estimates and assumptions that affect the amounts reported therein. Due to the inherent uncertainty involved in making estimates, actual results reported in future periods may be based upon amounts that differ from these estimates. Reclassifications Certain prior year amounts have been reclassified to conform to the current year presentation. These reclassifications had no impact on the Company’s net (loss) earnings and financial position. Fair Value Measurements Fair value is defined as the exchange price that would be received for an asset or paid to transfer a liability (an exit price) in the principal or most advantageous market for the asset or liability, in an orderly transaction between market participants on the measurement date. Valuation techniques used to measure fair value must maximize the use of observable inputs and minimize the use of unobservable inputs. The fair value hierarchy is based on three levels of inputs, of which the first two are considered observable and the last unobservable, as follows: Level 1 – Quoted prices in active markets for identical assets or liabilities. Level 2 – Inputs other than Level 1 that are observable, either directly or indirectly, such as quoted prices for similar assets or liabilities; quoted prices in markets that are not active; or other inputs that are observable or can be corroborated by observable market data for substantially the full term of the assets or liabilities. Level 3 – Unobservable inputs that are supported by little or no market activity and that are significant to the measurement of the fair value of the assets or liabilities. The Company’s financial instruments include cash, accounts receivable, note receivable, accounts payables and tenant deposits. The carrying values of these financial instruments approximate their fair value due to their short maturities. The carrying amount of the Company’s debt approximates fair value because the interest rates on these instruments approximate the interest rate on debt with similar terms available to us. The Company’s derivative liability was adjusted to fair market value at the end of the year, using Level 3 inputs. The following is the Company’s assets and liabilities measured at fair value on a recurring and nonrecurring basis at December 31, 2020 and 2019, using quoted prices in active markets for identical assets (Level 1), significant other observable inputs (Level 2), and significant unobservable inputs (Level 3): December 31, 2020 December 31, 2019 Level 1 – Marketable Securities Available-for-Sale – Recurring $ 276,782 $ 406,774 Marketable Securities at Fair Value on a Recurring Basis Certain assets are measured at fair value on a recurring basis. The Level 1 position consists of an investment in equity securities held in Canada House Wellness Group, Inc., a publicly-traded company whose securities are actively quoted on the Toronto Stock Exchange. Fair Value of Financial Instruments The carrying amounts of cash and current assets and liabilities approximate fair value because of the short-term maturity of these items. These fair value estimates are subjective in nature and involve uncertainties and matters of significant judgment and, therefore, cannot be determined with precision. Changes in assumptions could significantly affect these estimates. Available-for-sale securities are recorded at current market value as of the date of this report. Accounts Receivable The Company extends unsecured credit to its customers in the ordinary course of business. Accounts receivable related to consulting revenues are recorded when a milestone is reached at a point in time resulting in funds being due for delivered services, and where payment is reasonably assured. Accounts receivable related to consulting revenues are recorded based on cultivation yields over time on harvested cannabis. Consulting revenues are generally collected from 30 to 60 days after the invoice is sent. The following table depicts the composition of our accounts receivable as of December 31, 2020 and 2019: December 31, 2020 December 31, 2019 Accounts receivable – trade $ 1,315,188 $ 384,202 Accounts receivable – related party 80,494 72,658 Accounts receivable – litigation, non-current 3,063,968 3,063,968 Allowance for doubtful accounts (44,808 ) (70,885 ) Total accounts receivable $ 4,414,842 $ 3,449,943 The Company establishes an allowance for doubtful accounts based on management’s assessment of the collectability of trade receivables. A considerable amount of judgment is required in assessing the amount of the allowance. The Company makes judgments about the creditworthiness of each customer based on ongoing credit evaluations and monitors current economic trends that might impact the level of credit losses in the future. If the financial condition of the customers were to deteriorate, resulting in their inability to make payments, a specific allowance will be required. At December 31, 2020 and 2019, the Company recorded an allowance for doubtful accounts of $44,808 and $70,885, respectively. Recovery of bad debt amounts previously written off is recorded as a reduction of bad debt expense in the period the payment is collected. If the Company’s actual collection experience changes, revisions to its allowance may be required. After all attempts to collect a receivable have failed, the receivable is written off against the allowance. The Company wrote-off $16,798 of its accounts receivable during the year ended December 31, 2020. The Company wrote-off $80,284 of its accounts receivable during the year ended December 31, 2019. In July 2018, the Company commenced legal action against a customer in Clark County, Nevada for breach of contract, adding a significant value to its receivables for fees that had been booked, due to forbearance grants by the Company that were subsequently violated, causing the Company to increase its receivables accordingly. The Company provided services to this customer for a period of thirteen months, agreeing conditionally to three modifications in December 2017, March 2018 and May 2018 to forego certain revenue sharing payments in accordance with the agreement with the customer, which were subsequently breached by the customer. As a result, the Company engaged legal counsel and filed a complaint in Clark County, Nevada, which alleged breach of contract and sought general, special and punitive damages in the amount of $3,876,850. On August 2, 2019, a jury in the District Court of Clark County, Nevada found in favor of the Company and awarded the Company damages totaling $2,773,321 (See Part II, Item 1, Legal Proceedings for more information). The Company has classified the awarded amount receivable as a non-current asset since the customer has subsequently filed an appeal. Considering this customer’s appeal, the Company sought to compel the customer to obtain and produce a bond securing the award. On December 13, 2019, proof of the bond was posted through United States Fire Insurance Company, naming the Company as the obligee. At December 31, 2020 and 2019, the accounts receivable for this matter totaled $2,773,321, and the related revenue recorded totaled $0 and $1,782,457 for the years ended December 31, 2020 and 2019, respectively. The Company analyzed the contract, associated revenue and litigation process under Accounting Standards Codification (“ASC”) 606, Revenue from Contracts with Customers Paragraph 606-10-25 states that an entity transfers control of a good or service over time and, therefore, satisfies a performance obligation and recognizes revenue over time if one of the following criteria is met: · The customer simultaneously receives and consumes the benefits provided by the entity’s performance as the entity performs. · The entity’s performance creates or enhances an asset that the customer controls as the asset is created or enhanced. · The entity’s performance does not create an asset with an alternative use to the entity, and the entity has an enforceable right to payment for performance completed to date. Paragraph 606-10-25 further states that the process for determining the proper treatment for a contract modification includes three steps: · Determine whether a change to a contract qualifies as a contract modification. · Determine whether the modification should be treated as a separate, standalone contract or as a modification of the original contract. If the contract is a separate contract, the entity follows the five-step model to determine how to recognize revenue. If the modification is not treated as a separate contract, the entity continues to Step 3. · Determine appropriate accounting treatment for contract modification not accounted for as a separate contract. ASC 606 defines a contract modification as a change in scope and/or price to an original contract or any change to the enforceable rights and obligations of the parties to the original contract. Enforceable rights and obligations are those that are approved by both parties and legally required. A contract modification does not need to be written; enforceable changes can be the result of oral agreements or implied through customary business practices. The effect that the modification has on the transaction price and on the entity’s measure of progress towards satisfaction of the performance obligation is recognized as an adjustment to revenue either as an increase in or a reduction of revenue at the date of the modification. The adjustment to revenue is made on a cumulative catch-up basis. As management determined that the litigation process constituted a contract modification, and that the contract was upheld judicially, the Company recognized and recorded $1,782,457 on a cumulative catch-up basis as of August 2, 2019. On June 7, 2019, the Company filed a complaint against a second customer in Clark County, Nevada, for, amongst other causes of action, breach of contract. On July 17, 2019, the parties stipulated to stay the case in favor of arbitration. On February 25, 2020 ACC Industries Inc. filed a counterclaim alleging breach of contract, which the Company believes is without merit. The Company discovered new facts that lead it to believe that a related entity not previously named as a party to the arbitration should be brought in as a party to the arbitration. Based upon the new facts, the Company filed a motion to amend the complaint to add new claims and the related entity as a party. On September 1, 2020, the court ruled in favor of the Company and permitted the Company to amend the complaint to add the related entity. On September 1, 2020, the Company filed an amended complaint naming the related entity a party and added intentional misrepresentation, fraudulent inducement, civil conspiracy, aiding and abetting, successor liability and fraudulent concealment claims. The Company began arbitration proceedings on November 2, 2020. The Company completed arbitration in February 2021 and expects a decision in early April 2021. As of December 31, 2020 and 2019, the accounts receivable for this matter totaled $290,648. Notes Receivable On July 17, 2018, the Company entered into an intellectual property license agreement with Abba Medix Corp. (AMC), a wholly-owned subsidiary of publicly-traded Canada House Wellness Group, Inc. (CHV). The Company agreed to provide a lending facility to AMC in CAD$125,000 increments of up to CAD$500,000. The lending facility is for a term of 36 months and bears interest at a rate of 2%. As of December 31, 2020 and 2019, the Company had loaned to AMC a total of $246,765 and $241,711, respectively. The Company classified these loans as long-term notes receivable on its consolidated balance sheets as of December 31, 2019. As of December 31, 2020, the Company has recorded a full allowance on the note receivable balance. Other Assets (Current and Non-Current) Other assets at December 31, 2020 and 2019 were $666,079 and $529,416, respectively. At December 31, 2020, other assets included $345,777 in prepaid expenses, $268,423 in tax receivable, and $51,879 in security deposits. Prepaid expenses were primarily comprised of insurance premiums, vendor prepayments, and prepaid software costs. At December 31, 2019, other assets included $480,881 in prepaid expenses, $21,085 in interest receivable and $27,450 in security deposits. Goodwill and Intangible Assets Goodwill represents the future economic benefit arising from other assets acquired that could not be individually identified and separately recognized. The goodwill arising from the Company’s acquisitions is attributable to the value of the potential expanded market opportunity with new customers. Intangible assets have either an identifiable or indefinite useful life. Intangible assets with identifiable useful lives are amortized on a straight-line basis over their economic or legal life, whichever is shorter. The Company’s amortizable intangible assets consist of licensing agreements, product licenses and registrations, and intellectual property or trade secrets. Their estimated useful lives range from 10 to 15 years. Goodwill and indefinite-lived assets are not amortized but are subject to annual impairment testing unless circumstances dictate more frequent assessments. The Company performs an annual impairment assessment for goodwill at the end of each calendar year and more frequently whenever events or changes in circumstances indicate that the fair value of the asset may be less than the carrying amount. Goodwill impairment testing is a two-step process performed at the reporting unit level. Step one compares the fair value of the reporting unit to its carrying amount. The fair value of the reporting unit is determined by considering both the income approach and market approaches. The fair values calculated under the income approach and market approaches are weighted based on circumstances surrounding the reporting unit. Under the income approach, the Company determines fair value based on estimated future cash flows of the reporting unit, which are discounted to the present value using discount factors that consider the timing and risk of cash flows. For the discount rate, the Company relies on the capital asset pricing model approach, which includes an assessment of the risk-free interest rate, the rate of return from publicly traded stocks, the Company’s risk relative to the overall market, the Company’s size and industry and other Company-specific risks. Other significant assumptions used in the income approach include the terminal value, growth rates, future capital expenditures and changes in future working capital requirements. The market approaches use key multiples from guideline businesses that are comparable and are traded on a public market. If the fair value of the reporting unit is greater than its carrying amount, there is no impairment. If the reporting unit’s carrying amount exceeds its fair value, then the second step must be completed to measure the amount of impairment, if any. Step two calculates the implied fair value of goodwill by deducting the fair value of all tangible and intangible net assets of the reporting unit from the fair value of the reporting unit as calculated in step one. In this step, the fair value of the reporting unit is allocated to all of the reporting unit’s assets and liabilities in a hypothetical purchase price allocation as if the reporting unit had been acquired on that date. If the carrying amount of goodwill exceeds the implied fair value of goodwill, an impairment loss is recognized in an amount equal to the excess. Determining the fair value of a reporting unit is judgmental in nature and requires the use of significant estimates and assumptions, including revenue growth rates, strategic plans and future market conditions, among others. There can be no assurance that the Company’s estimates and assumptions made for purposes of the goodwill impairment testing will prove to be accurate predictions of the future. Changes in assumptions and estimates could cause the Company to perform an impairment test prior to scheduled annual impairment tests. The Company performed its annual fair value assessment at December 31, 2020 on its reporting units and subsidiary with material goodwill and intangible asset amounts on their respective balance sheets and determined that no impairment exists. Long-Lived Assets The Company evaluates the recoverability of its long-lived assets whenever events or changes in circumstances have indicated that an asset may not be recoverable. Long-lived assets are grouped with other assets at the lowest level for which identifiable cash flows are largely independent of the cash flows of other groups of assets and liabilities. If the sum of the projected undiscounted cash flows is less than the carrying value of the assets, the assets are written down to the estimated fair value. The Company evaluated the recoverability of its long-lived assets at December 31, 2020 on its reporting units and subsidiary with material amounts on their respective balance sheets and determined that no impairment exists. Accounts Payable Accounts payable at December 31, 2020 and 2019 were $3,557,461 and $699,961, respectively, and were comprised of trade payables for various purchases and services rendered during the ordinary course of business. Accrued Expenses and Other Liabilities Accrued expenses and other liabilities at December 31, 2020 and 2019 were $2,705,445 and $1,091,204, respectively. At December 31, 2020, accrued expenses and other liabilities was comprised of customer deposits of $26,826, accrued payroll of $1,154,887, and operating expenses of $1,523,732. At December 31, 2019, accrued expenses and other liabilities was comprised of customer deposits of $148,109, accrued payroll of $714,220, and operating expenses of $228,875. Revenue Recognition and Related Allowances The Company’s revenue recognition policy is significant because the amount and timing of revenue is a key component of its results of operations. Certain criteria are required to be met in order to recognize revenue. If these criteria are not met, then the associated revenue is deferred until the criteria are met. When consideration is received in advance of the delivery of goods or services, a contract liability is recorded. Revenue contracts are identified when accepted from customers and represent a single performance obligation to sell the Company’s products to a customer. The Company has three main revenue streams: (i) product sales; (ii) licensing and consulting fees; and (iii) other operating revenues from seminars, reimbursements and other miscellaneous sources. Product sales are recorded at the time that control of the products is transferred to customers. In evaluating the timing of the transfer of control of products to customers, the Company considers several indicators, including significant risks and rewards of products, its right to payment, and the legal title of the products. Based on the assessment of control indicators, sales are generally recognized when products are delivered to customers. Revenue from licensing and consulting fees are recognized when the obligations to the client are fulfilled which is determined when milestones in the contract are achieved and target harvest yields are exceeded. Revenue from seminar fees is related to one-day seminars and is recognized as earned upon the completion of the seminar. The Company also recognizes expense reimbursement from clients as revenue for expenses incurred during certain jobs. Costs of Goods and Services Sold Costs of goods and services sold are comprised of related expenses incurred while supporting the implementation and sales of Company’s products and services. General and Administrative Expenses General and administrative expense are comprised of all expenses not linked to the production or advertising of the Company’s products or services. Advertising and Marketing Costs Advertising and marketing costs are expensed as incurred and totaled $1,040,671 and $455,047 for years ended December 31, 2020 and 2019, respectively. Stock-Based Compensation The Company accounts for share-based payments pursuant to ASC 718, Stock Compensation Stock compensation expense for stock options is recognized over the vesting period of the award or expensed immediately under ASC 718 and Emerging Issues Task Force (“EITF”) 96-18 when stock or options are awarded for previous or current service without further recourse. Share-based expense paid to through direct stock grants is expensed as occurred. Since the Company’s stock is publicly traded, the value is determined based on the number of shares issued and the over-the-counter quoted value of the stock on the date of the transaction. On June 20, 2018, the FASB issued ASU 2018-07 which simplifies the accounting for share-based payments granted to nonemployees for goods and services. Under the ASU, most of the guidance on such payments to nonemployees would be aligned with the requirements for share-based payments granted to employees. Previously, share-based payment arrangements to nonemployees were accounted for under ASC 718, while nonemployee share-based payments issued for goods and services were accounted for under ASC 505-50. Before the ASU, the major difference for the Company (but not limited to) was the determination of measurement date, which generally is the date on which the measurement of equity classified share-based payments becomes fixed. Equity classified share-based payments for employees was fixed at the time of grant. Equity-classified nonemployee share-based payment awards are no longer measured at the earlier of the date which a commitment for performance by the counterparty is reached or the date at which the counterparty’s performance is complete. They are now measured at the grant date of the award, which is the same as share-based payments for employees. The Company adopted the requirements of the new rule as of January 1, 2019, the effective date of the new guidance. The Company recognized $8,230,513 and $7,279,363 in expense for stock-based compensation to directors, employees and consultants during the years ended December 31, 2020 and 2019, respectively. Income Taxes ASC 740, Income Taxes requires the use of the asset and liability method of accounting for income taxes. Under the asset and liability method of ASC 740, deferred tax assets and liabilities are recognized for the future tax consequences attributable to temporary differences between the financial statement carrying amounts of existing assets and liabilities and their respective tax bases. Deferred tax assets are regularly assessed to determine the likelihood they will be recovered from future taxable income. A valuation allowance is established when we believe it is more likely than not the future realization of all or some of a deferred tax asset will not be achieved. In evaluating our ability to recover deferred tax assets within the jurisdiction which they arise, we consider all available positive and negative evidence. Factors reviewed include the cumulative pre-tax book income for the past three years, scheduled reversals of deferred tax liabilities, our history of earnings and reliability of our forecasts, projections of pre-tax book income over the foreseeable future, and the impact of any feasible and prudent tax planning strategies. The Company assesses all material positions taken in any income tax return, including all significant uncertain positions, in all tax years that are still subject to assessment or challenge by relevant taxing authorities. Assessing an uncertain tax position begins with the initial determination of the position’s sustainability, and the tax benefit to be recognized is measured at the largest amount of benefit that is greater than 50 percent likely of being realized upon ultimate settlement. We recognize the impact of a tax position in our financial statements only if that position is more likely than not of being sustained upon examination by taxing authorities, based on the technical merits of the position. Tax authorities regularly examine our returns in the jurisdictions in which we do business and we regularly assess the tax risk of our return filing positions. Due to the complexity of some of the uncertainties, the ultimate resolution may result in payments that are materially different from our current estimate of the tax liability. These differences, as well as any interest and penalties, will be reflected in the provision for income taxes in the period in which they are determined. As the Company operates in the cannabis industry, it is subject to the limits of the Internal Revenue Code (IRC) Section 280E under which the Company is only allowed to deduct expenses directly related to sales of product. This results in permanent differences between ordinary and necessary business expenses deemed non-allowable under IRC Section 280E. Right of Use Assets and Lease Liabilities In February 2016, the FASB issued ASU No. 2016-02, Leases (Topic 842) Under ASC 842, the Company determines if an arrangement is a lease at inception. ROU assets and liabilities are recognized at commencement date based on the present value of remaining lease payments over the lease term. For this purpose, the Company considers only payments that are fixed and determinable at the time of commencement. As most of the Company's leases do not provide an implicit rate, the Company estimated the incremental borrowing rate in determining the present value of lease payments. The ROU asset also includes any lease payments made prior to commencement and is recorded net of any lease incentives received. The Company’ lease terms may include options to extend or terminate the lease when it is reasonably certain that the Company will exercise such options. Operating leases are included in operating lease Right-of-Use assets and operating lease liabilities, current and non-current, on the Company's consolidated balance sheets. |
3. Recent Accounting Pronouncem
3. Recent Accounting Pronouncements | 12 Months Ended |
Dec. 31, 2020 | |
Accounting Standards Update and Change in Accounting Principle [Abstract] | |
Recent Accounting Pronouncements | 3. Recent Accounting Pronouncements The Company has implemented all new accounting pronouncements that are in effect and that may impact its financial statements and does not believe that there are any other new pronouncements that have been issued that might have a material impact on its financial position or results of operations except as noted below: FASB ASU 2017-01, Clarifying the Definition of a Business (Topic 805) In December 2019, the FASB issued ASU 2019-12, Income Taxes (Topic 740) In February 2020, the FASB issued ASU 2020-02, Financial Instruments-Credit Losses (Topic 326) and Leases (Topic 842) - Amendments to SEC Paragraphs Pursuant to SEC Staff Accounting Bulletin No. 119 and Update to SEC Section on Effective Date Related to Accounting Standards Update No. 2016-02, Leases (Topic 842), |
4.Property and Equipment
4.Property and Equipment | 12 Months Ended |
Dec. 31, 2020 | |
Property, Plant and Equipment [Abstract] | |
Fixed Assets | 4. Property and Equipment Property and equipment are recorded at cost, net of accumulated depreciation and are comprised of the following: December 31, 2020 December 31, 2019 Furniture and fixtures $ 228,451 $ 98,903 Leasehold improvements 90,314 40,953 Machinery and tools 1,456,752 34,000 Office equipment 104,059 33,833 Software 1,308,387 – Work in process 269,414 190,743 3,457,377 398,432 Less: accumulated depreciation (872,579 ) (159,354 ) Total property and equipment, net of depreciation $ 2,584,798 $ 239,078 Depreciation on equipment is recorded on a straight-line basis over the following expected useful: Furniture and fixtures 3 years Leasehold improvements Lesser of the lease term or estimated useful life Marketing display 3 years Vehicles 3 years Office equipment 3 years Software 3-5 years Depreciation expense for the years ended December 31, 2020 and 2019 was $295,947 and $55,800, respectively. |
5. Intangible Asset
5. Intangible Asset | 12 Months Ended |
Dec. 31, 2020 | |
Goodwill and Intangible Assets Disclosure [Abstract] | |
Intangible Asset | 5. Intangible Asset Intangible assets at December 31, 2020 and 2019 were comprised of the following: December 31, December 31, License agreement $ 1,667,000 $ 5,300 Tradename 350,000 – Customer relationships 1,055,000 – Non-compete 120,000 – Product license and registration 57,300 57,300 Trade secret – intellectual property 32,500 32,500 3,282,500 95,100 Less: accumulated amortization (200,456 ) (19,811 ) Total intangible assets, net of amortization $ 3,082,044 $ 75,289 Amortization expense for years ended December 31, 2020 and 2019 was $180,644 and $5,908, respectively. |
6. Derivative Liability
6. Derivative Liability | 12 Months Ended |
Dec. 31, 2020 | |
Derivative Instruments and Hedging Activities Disclosure [Abstract] | |
Derivative Liability | 6. Derivative Liabilities During the year ended December 31, 2019, the Company entered into employment agreements with certain key officers that contained contingent consideration provisions based upon the achievement of certain market condition milestones. The Company determined that each of these vesting conditions represented derivative instruments. On January 8, 2019, the Company granted the right to receive 500,000 shares of restricted Common Stock to an officer, which will vest at such time that that the Company’s stock price appreciates to $8.00 per share with defined minimum average daily trading volume thresholds. On April 23, 2019, the Company granted the right to receive 1,000,000 shares of restricted Common Stock to an officer, which will vest at such time that that the Company’s stock price appreciates to $8.00 per share with defined minimum average daily trading volume thresholds. On February 25, 2020, the officer resigned from his remaining positions with the Company and forfeited his right to the contingent consideration. As a result, the Company recorded a gain of $1,462,636 as a component of other income (expense), net on its financial statements. On June 11, 2019, the Company granted the right to receive 1,000,000 shares of restricted Common Stock to an officer, which will vest at such time that the Company’s stock price appreciates to $8.00 per share with defined minimum average daily trading volume thresholds. The Company accounts for derivative instruments in accordance with the U.S. GAAP accounting guidance under ASC 815 Derivatives and Hedging Activities As of December 31, 2020, the fair value of these derivative liabilities is $1,047,481. The change in the fair value of derivative liabilities for the year ended December 31, 2020 was $1,263,264, resulting in an aggregate unrealized gain on derivative liabilities. |
7. Related Party Transactions
7. Related Party Transactions | 12 Months Ended |
Dec. 31, 2020 | |
Related Party Transactions [Abstract] | |
Related Party Transactions | 7. Related Party Transactions For the year ended December 31, 2020 During the year ended December 31, 2019, the Company’s Chief Cultivation Officer, Joshua Haupt, who currently owns 20% of both Super Farm and De Best, customers of the Company, was an Officer of the Company and therefore a related party. Effective December 4, 2019, he was no longer an Officer and therefore no longer a related party. As such, he is not included as a related party with respect to sales and accounts receivable to Super Farm or De Best during the period ended December 31, 2020. During the year ended December 31, 2020, the Company had sales from Medicine Man Denver, a customer of the Company, totaling $997,262. As of December 31, 2020, the Company had an accounts receivable balance with Medicine Man Denver totaling $72,109. The Company’s former Chief Executive Officer, Andy Williams, maintains an ownership interest in Medicine Man Denver. During the year ended December 31, 2020, the Company had sales from MedPharm Holdings LLC (“MedPharm”), a customer of the Company, totaling $73,557. As of December 31, 2020, the Company had a net accounts receivable balance with MedPharm totaling $5,885. On August 1, 2020, the Company entered into a Settlement Agreement and Mutual Release (the “Settlement Agreement”) with MedPharm. Pursuant to the terms of the Settlement Agreement, the Company and MedPharm agreed that the amount of the settlement to be furnished to the Company by MedPharm shall be $767,695 in principal and $47,161 in accrued interest. The Company received a $100,000 cash payment from MedPharm on August 1, 2020. On September 4, 2020, Andrew Williams, a member of the MedPharm Board of Directors and the Company’s former Chief Executive Officer, returned 175,000 shares of the Company’s Common Stock to the Company, as equity consideration at a price of $1.90 per share, a mutually agreed upon price per share. These shares are held in treasury. The remaining outstanding principal and interest of $181,911 due and payable by MedPharm under the Settlement Agreement will be paid out in bi-weekly installments of product by scheduled deliveries through March 31, 2021. During the year ended December 31, 2020, the Company recorded sales from Baseball 18, LLC totaling $14,605, Farm Boy, LLC totaling $16,125, Emerald Fields LLC totaling $16,605, and Los Sueños Farms totaling $52,244. During the year ended December 31, 2020, the Company had a net accounts payable balance of $31,250 with Baseball and $93,944 with Farm Boy. One of the Company’s former directors, Robert DeGabrielle, owns the Colorado retail marijuana cultivation licenses for Farm Boy, LLC, Emerald Fields LLC, Baseball 18, LLC, and Los Sueños Farms. Justin Dye, the Company’s Chief Executive Officer, one of our directors and the largest beneficial owner of the Common Stock, controls Dye Capital & Company, LLC (“Dye Capital”). Dye Capital controls Dye Capital Cann Holdings, LLC (“Dye Cann I”) and Dye Capital Cann Holdings II, LLC (“Dye Cann II”). Dye Cann I is a significant holder of the Company’s common stock. Dye Cann II is one of the Company’s holders of Preferred Stock. Mr. Dye has sole voting and dispositive power over the securities held by Dye Capital, Dye Cann I, and Dye Cann II. On May 20, 2020, the Company entered into a second amendment (the “Amendment”) to that certain securities purchase agreement (the “Agreement”) dated as of June 5, 2019 by and between the Company and Dye Capital Cann Holdings, LLC, a Delaware limited liability company (the “Investor” and together with the Company the “Parties”) as described in a Current Report on Form 8-K filed with the Securities and Exchange Commission (the “SEC”) on June 6, 2019, as amended by the first amendment to the Agreement dated as of July 15, 2019 (the “First Amendment”) and as described in a Current Report on Form 8-K filed with the SEC on July 17, 2019. The Agreement, as amended by the First Amendment, contemplated, among other things, the sale by the Company to the Investor in three separate tranches of shares of the Company’s Common Stock, par value $0.001 per share (the “Common Stock”), together with warrants to purchase the number of shares of Common Stock purchased in each tranche closing (the “Warrants”). At the time of the closing of the initial transactions contemplated in the Agreement, Justin Dye, principal of the Purchaser, became a Director and Chief Executive Officer of the Company; the Purchaser is currently the Company’s largest shareholder and Mr. Dye has voting and dispositive power over the securities held by the Purchaser. The Amendment provides, pursuant to the terms and subject to the conditions set forth therein, that in addition to the shares of Common Stock and Warrants previously purchased by the Investor in connection with the Agreement as amended by the First Amendment, the Investor shall purchase in a private placement 187,500 shares of Common Stock at a price of $2.00 per share together with 187,500 Warrants at an exercise price of $3.50 per share (the “Transaction”). The Transaction closed on May 21, 2020. On December 16, 2020, the Company entered into an Amendment to Securities Purchase Agreement with Dye Capital Cann Holdings II, LLC (the “Investor”) to change the number of shares of the Company’s Series A Preferred Stock, par value $0.001 per share (the “Preferred Stock”) the Investor would purchase under the Securities Purchase Agreement, dated November 16, 2020 (as amended, the “SPA”), between the Company and the Investor from 12,400 to up to 13,000 in one or more closings, among other changes. The Company issued and sold to the Investor 7,700 shares of Preferred Stock on the same date, 1,450 shares of Preferred Stock on December 18, 2020, and 1.300 shares of Preferred Stock on December 22, 2020. The purchase price was $1,000 per share of Preferred Stock, for aggregate gross proceeds of $10,450,000 and aggregate net proceeds of approximately $8,205,500 after deducting placement agent fees and estimated offering expenses. In addition, on December 16, 2020, the Company entered into a Secured Convertible Note Purchase Agreement with Dye Capital & Company, LLC and issued and sold to Dye Capital a Convertible Note and Security Agreement in the principal amount of $5,000,000. Mr. Brian Ruden, a member of the Company’s Board of Directors, has an ownership interest in each Star Buds Company that sold assets to us on December 17, 2020 and December 18, 2020. Brain is also the owner of Star Buds outside the state of Colorado. He is also the landlord of 5844 Ventures LLC, CO Real Estate Holdings LLC, and 428 McCulloch St LLC, two of the Star Buds retail locations in which we lease. For the year ended December 31, 2019 During the year ended December 31, 2019, the Company had sales from Super Farm totaling $578,655 and sales from De Best totaling $191,915. The Company gives a larger discount on nutrient sales to related parties than non-related parties. During the year ended December 31, 2019, the Company had sales discounts associated with Super Farm totaling $291,823 and sales discounts associated with De Best totaling $95,957. As of December 31, 2019, the Company had an accounts receivable balance from Super Farm totaling $33,127 and an accounts receivable balance from De Best totaling $2,180. The Company’s former Chief Cultivation Officer, Joshua Haupt, currently owns 20% of both Super Farm and De Best. During the year ended December 31, 2019, the Company recorded sales from Medicine Man Denver totaling $402,839 and sales discounts totaling $143,473. As of December 31, 2019, the Company had an accounts receivable balance with Medicine Man Denver totaling $34,748. Also, during the year ended December 31, 2019, the Company incurred expenses from Medicine Man Denver totaling $125,897 for contract labor and other related administrative costs. The Company’s former Chief Executive Officer, Andy Williams, currently owns 38% of Medicine Man Denver. During the year ended December 31, 2019, the Company recorded sales from MedPharm Holdings totaling $64,378 and sales discounts totaling $7,498. As of December 31, 2019, the Company had an accounts receivable balance with MedPharm Holdings totaling $2,604. Also, during the year ended December 31, 2019, the Company issued various notes receivable to MedPharm Holdings totaling $767,695 with original maturity dates ranging from September 21, 2019 through January 19, 2020 and all bearing interest at 8% per annum. Certain notes extended to 2020 by mutual agreement between the Company and noteholder. The Company’s former Chief Executive Officer, Andy Williams, currently owns 29% of MedPharm Holdings. During the year ended December 31, 2019, the Company recorded sales from Baseball 18, LLC totaling $165,617. The revenue is included under product sales - related party, net, in the Company’s consolidated financial statements. As of December 31, 2019, the Company had an accounts receivable balance with Baseball 18, LLC totaling $169,960. During the year ended December 31, 2019, the Company recorded sales from Farm Boy, LLC totaling $321,307. The revenue is included under product sales - related party, net, in the Company’s consolidated financial statements. As of December 31, 2019, the Company had an accounts receivable balance with Farm Boy, LLC totaling $330,911. |
8. Goodwill and Acquisition Acc
8. Goodwill and Acquisition Accounting | 12 Months Ended |
Dec. 31, 2020 | |
Goodwill and Intangible Assets Disclosure [Abstract] | |
Goodwill and Acquisition Accounting | 8. Goodwill and Acquisition Accounting On June 3, 2017, the Company issued an aggregate of 7,000,000 shares of its Common Stock for 100% ownership of both Success Nutrients and Pono Publications. The Company utilized purchase price accounting stating that net book value approximates fair market value of the assets acquired. The purchase price accounting resulted in $6,301,080 of goodwill. On July 21, 2017, the Company issued 2,258,065 shares of its Common Stock for 100% ownership of Denver Consulting Group (“DCG”). The Company utilized purchase price accounting stating that net book value approximates fair market value of the assets acquired. The purchase price accounting resulted in $3,003,226 of goodwill. On September 17, 2018, we closed the acquisition of Two JS LLC, dba The Big Tomato, a Colorado limited liability company. (“Big T” or “Big Tomato”). The Company issued an aggregate of 1,933,329 shares of its Common Stock for 100% ownership of Big Tomato. The Company utilized purchase price accounting stating that net book value approximates fair market value of the assets acquired. The purchase price accounting resulted in the Company valuing the investment as $3,000,000 of goodwill. On April 20, 2020, the Company closed the acquisition of Mesa Organics. The aggregate purchase price after working capital adjustments was $2,609,500 of cash and 2,554,750 shares of the Company’s Common Stock. The Company accounted for the transaction utilizing purchase price accounting stating that the book value approximates the fair market value of the assets acquired. The purchase price accounting resulted in the Company valuing the investment as $2,147,613 of goodwill. The purchase price allocation is preliminary. The purchase price allocation will continue to be preliminary until a third-party valuation is finalized and the fair value and useful life of the assets acquired is determined. The amounts from the final valuation may significantly differ from the preliminary allocation. On December 17, 2020 and December 18, 2020, the Company closed the acquisition of six SBUD LLC dispensaries. The aggregate purchase price was $39,082,180. The Company accounted for the transaction utilizing purchase price accounting stating that the book value approximates the fair market value of the assets acquired. The purchase price accounting resulted in the Company valuing the investment as $38,594,810 of goodwill. The purchase price allocation is preliminary. The purchase price allocation will continue to be preliminary until a third-party valuation is finalized and the fair value and useful life of the assets acquired is determined. The amounts from the final valuation may significantly differ from the preliminary allocation. As of December 31, 2020, the Company had $53,046,729 of goodwill which consisted of $6,301,080 from Success Nutrients and Pono Publications, $3,003,226 from DCG, $3,000,000 from Big Tomato, $2,147,613 from Mesa Organics, and $38,594,810 from SBUD. |
9. Inventory
9. Inventory | 12 Months Ended |
Dec. 31, 2020 | |
Inventory Disclosure [Abstract] | |
Inventory | 9. Inventory As of December 31, 2020 and December 31, 2019, the Company had $2,090,887 and $684,940 of finished goods inventory, respectively. As of December 31, 2020, the Company had $500,917 of work in process and $27,342 of raw materials. The Company did not have any work in process or raw materials at December 31, 2019. The inventory valuation method that the Company uses is the FIFO method. During the years ended December 31, 2020 and 2019, the Company did not recognize any impairment for obsolescence within its inventory. |
10. Leases
10. Leases | 12 Months Ended |
Dec. 31, 2020 | |
Leases [Abstract] | |
Leases | 10. Leases Leases with an initial term of one year or less are not recorded on the balance sheet; we recognize lease expense for these leases on a straight-line basis over the lease term. Leases with a term greater than one year are recognized on the balance sheet at the time of lease commencement or modification by recording an ROU operating lease asset and a lease liability, initially measured at the present value of the lease payments. Lease costs are recognized in the income statement over the lease term on a straight-line basis. ROU assets represent the Company’s right to use an underlying asset for the lease term and lease liabilities represent the Company’s obligation to make lease payments arising from the lease. The Company's leases consist of real estate leases for office, retail and warehouse spaces. The Company elected to combine the lease and related non-lease components for its operating leases. The Company’s operating leases may include options to extend or terminate the leases, which are not included in the determination of the ROU asset or lease liability unless it is reasonably certain to be exercised. The Company's operating leases have remaining lease terms of less than one year. The Company’s lease agreements do not contain any material residual value guarantees or materially restrictive covenants. As the Company's leases do not provide an implicit rate, the Company used an incremental borrowing rate based on the information available at the lease commencement date in determining the present value of lease payments. The discount rate used in the computations was 6-12%. Balance Sheet Classification of Operating Lease Assets and Liabilities Balance Sheet Line December 31, 2020 Asset Operating lease asset Non-Current Assets $ 2,579,036 Liabilities Operating lease liability Non-Current Liabilities $ 2,645,597 Lease Costs The table below summarizes the components of lease costs for the year ended December 31, 2019. Year Ended December 31, 2020 Operating lease costs $ 359,564 Maturities of Lease Liabilities Maturities of lease liabilities as of December 31, 2020 are as follows: 2020 fiscal year $ 2,730,205 Total lease payments 2,730,205 Less: Interest (84,608 ) Present value of lease liabilities $ 2,645,597 The following table presents the Company’s future minimum lease obligation under ASC 840 as of December 31, 2020: 2021 fiscal year 854,870 2022 fiscal year 849,792 2023 fiscal year 717,539 2024 fiscal year 495,175 2025 fiscal year 162,182 Total $ 3,079,559 |
11. Commitments and Contingenci
11. Commitments and Contingencies | 12 Months Ended |
Dec. 31, 2020 | |
Commitments and Contingencies Disclosure [Abstract] | |
Commitments and Contingencies | 11. Commitments and Contingencies Over the past three years, the Company has supported legislation in Colorado to allow licensed cannabis companies in Colorado to trade their securities, provided they are reporting companies under the Exchange Act. HB19-1090 titled, “Publicly Licensed Marijuana Companies” was signed into Colorado legislature on May 29, 2019 and went into effect on November 1, 2019. The bill repeals the provision that prohibits publicly traded corporations from holding a marijuana license in Colorado. Definitive Agreement to Acquire the Colorado-Based Star Buds Branded Dispensaries On June 5, 2020, the Company and SBUD, LLC, a wholly owned subsidiary of the Company, on the one hand, entered into 13 separate purchase agreements with, on the other hand, each of Colorado Health Consultants, LLC, CitiMed, LLC, Lucky Ticket LLC, Kew LLC, SB Aurora LLC, SB Arapahoe LLC, SB Alameda LLC, SB 44th LLC, Starbuds Pueblo LLC, Starbuds Louisville LLC, Starbuds Niwot LLC, Starbuds Longmont LLC, and Starbuds Commerce City LLC (each, a “Star Buds Company” and collectively “Star Buds”) whereby SBUD, LLC agreed to purchase substantially all of the assets of Star Buds from each individual Star Buds Company pursuant to the agreements. In addition, SBUD, LLC entered into a Trademark License Agreement with Star Brands LLC under which Star Brands LLC will license certain trademarks to SBUD, LLC effective as of the closing of the Star Buds acquisitions in exchange for license payments on use of such trademarks outside of Colorado. The parties entered into an Omnibus Amendment No. 1 to Asset Purchase Agreements on September 15, 2020. The description below describes the terms of the transactions as amended. On December 17, 2020, the Company and SBUD, LLC entered into an Omnibus Amendment No. 2 with each Star Buds Company. Omnibus Amendment No. 2 revised certain material terms originally set forth in the Agreements, as amended by Omnibus Amendment No. 1. The aggregate purchase price for Star Buds’ assets is approximately $118,000,000, subject to adjustment upon the closing of each of the purchases based on, among other things, the target inventory as opposed to actual inventory and target working capital as opposed to net working capital of each Star Buds Company, and will be payable to Star Buds 75% in cash and 25% in shares of Preferred Stock, valued at $1,000 per share, estimated to be an aggregate of approximately 29,500 shares (which would be convertible into approximately 24,583,333 shares of Common Stock (based on the initial Preference Amount and an initial Conversion Price equal to $1.20 per share)). Two-thirds of the cash payment is payable at the applicable closing and one-third is deferred and payable 30 months after the applicable closing. 15% of the shares of Preferred Stock will be held in escrow and released post-closing to either the seller or the buyer depending on post-closing adjustments to the purchase price. The Company will make quarterly interest payments on the deferred cash amount at a rate of 4% per annum during the first year after each closing, 6% per annum during the second year after each closing, and 8% per annum during the last 6 months of the 30-month period after each closing. The Company may prepay the deferred cash amount at any time. Payment of the deferred cash amount and the interest will be secured by a security interest in the purchased Star Buds assets, subject to subordination to any security interest in favor of the Company’s future lenders. SBUD, LLC will not assume any of Star Buds’ liabilities other than accounts payable by Star Buds, liabilities in respect of any contractual arrangements assigned to SBUD, LLC by Star Buds, and liabilities in connection with administrative fees associated with obtaining necessary governmental approvals or waivers of such approvals. SBUD, LLC has also agreed to pay certain transfer taxes in connection with the purchases. The closing of each purchase is subject to customary closing conditions, such as the parties obtaining all necessary governmental approvals and licenses for the transactions. On December 17, 2020, pursuant to the applicable APA, the Company and SBUD, LLC closed on the acquisition of (i) Starbuds Pueblo LLC; and (ii) Starbuds Alameda LLC. On December 18, 2020, pursuant to the applicable APA, the Company and SBUD LLC closed on the acquisition of (i) Starbuds Commerce City LLC; (ii) Lucky Ticket LLC; (iii) Starbuds Niwot LLC; and (iv) LM MJC LLC. The aggregate purchase price for the assets of the Star Buds Companies acquired on December 17, 2020 and December 18, 2020 was approximately $37.1 million and was paid to each applicable Star Buds Company and its members as a combination of cash and deferred cash, an aggregate of 7,877 shares of Preferred Stock together with an aggregate of 1,389 shares of Preferred Stock to be held in escrow pursuant to the terms and subject to the conditions set forth in Omnibus Amendment No. 2 (the “Transaction Shares”) and warrants to purchase an aggregate of 1,737,719 shares of the Company’s Common Stock at exercise price equal to $1.20 per share (the “Transaction Warrants”). The Company funded the aggregate cash portion of the purchase price for the assets acquired on December 17, 2020 and December 18, 2020 from proceeds received as disclosed in its December 22, 2020 8-K filing. Departure and Appointment of Officers On February 25, 2020, Andy Williams resigned from the positions of President and member of the Board of Directors of the Company. Mr. Williams’s resignation was not the result of any disagreement with the Company on any matter relating to the company’s operations, policies or practices. Simultaneously, the Company entered into a Severance Agreement and Release (the “Severance Agreement”) with Mr. Williams. The Severance Agreement provides that as severance and in consideration of a customary release against the Company and other customary covenants, Mr. Williams will receive (i) continued salary in the amount of $300,000, half of which to be paid within ten days of the execution of the Severance Agreement, and the remaining half is to be paid in 26 equal disbursements in accordance with the Company’s regular payroll periods, (ii) a bonus payment in the amount of $25,000, (iii) one year family health care coverage, (iv) stock options to purchase 350,000 shares of the Company’s Common Stock, which may be exercised on a cashless basis and vested immediately on the date of termination at a price of $1.80 per share and valued at $582,228, and (v) stock options to purchase 15,000 shares of the Company’s Common Stock, which may be exercised on a cashless basis at a price of $1.80 per share, valued at $27,000, at the one year anniversary of the termination date if Mr. Williams is compliant with the terms of the Severance Agreement. On June 19, 2020, the Company received the resignation of Robert DeGabrielle from the positions of Chief Operating Officer and member of the Board of Directors of the Company. Mr. DeGabrielle’s resignation was not the result of any disagreement with the Company on any matters relating to the Company’s operations, policies, or practices. On September 9, 2020 the Company appointed Nirup Krishnamurthy as Chief Operating Officer and appointed Jeff Garwood as a member of the Company’s Board of Directors (the “Board”). Mr. Krishnamurthy and the Company entered an Employment Agreement effective March 1, 2020 (the “CIO Agreement”). The CIO Agreement provides that Mr. Krishnamurthy shall be paid a base salary of $264,000 per annum, in accordance with the Company’s usual payroll practices (the “Salary”). In addition to the Salary, on the effective date of the CIO Agreement, the Company issued an aggregate of 600,000 options to purchase shares of Common Stock, at a purchase price equal to $1.71 per share (the “CIO Option”). The CIO Option shall vet one-fourth on an annual basis beginning on the first anniversary of the date of grant, such that the CIO Option shall vest and shall be exercisable in full on the fourth anniversary of the date of grant. Notwithstanding the foregoing, the CIO Option shall vest in full and become exercisable upon the occurrence of a “Change in Control” as defined in the CIO Agreement. All shares of Common Stock issuable upon exercise of the CIO Option are subject to a limitation whereby Mr. Krishnamurthy may sell no more than 5% of the preceding day average volume of the Common Stock on any given trading day. In connection with Mr. Garwood’s appointment, Mr. Garwood is expected to be granted an inaugural award of $50,000 value in shares of Common Stock within 90 days of board service. |
12. Stockholders' Equity
12. Stockholders' Equity | 12 Months Ended |
Dec. 31, 2020 | |
Equity [Abstract] | |
Stockholders' Equity | 12. Stockholders’ Equity On December 10, 2019, the shareholders approved an amendment to the Company’s articles of incorporation increasing the number of authorized shares of Common Stock from 90,000,000 shares to 250,000,000 shares. The Company is authorized to issue two classes of shares, designated preferred stock and Common Stock. Preferred Stock The number of shares of preferred stock authorized is 10,000,000, par value $0.001 per share. The preferred stock may be divided into such number of series as the Board may determine. The Board is authorized to determine and alter the rights, preferences, privileges and restrictions granted and imposed upon any wholly unissued series of preferred stock, and to fix the number and designation of shares of any series of preferred stock. The Board, within limits and restrictions stated in any resolution of the Board, originally fixing the number of shares constituting any series may increase or decrease, but not below the number of such series then outstanding, the shares of any subsequent series. At December 31, 2020 and 2019, the Company had 19,716 and 0 shares of Preferred Stock, respectively, issued and outstanding. Common Stock The Company is authorized to issue 250,000,000 shares of Common Stock at a par value of $0.001 and had 42,601,773 shares of Common Stock issued and 42,169,041 shares of Common Stock outstanding as of December 31, 2020, and 39,952,628 shares of Common Stock issued and 39,694,896 shares of Common Stock outstanding as of December 31, 2019. Common Stock Issued in Private Placements During the year ended December 31, 2019, the Company issued and sold 9,800,000 shares of Common Stock and warrants to purchase 9,800,000 shares of Common Stock, for gross proceeds of $19,600,000. During the year ended December 31, 2020, the Company issued 187,500 shares of Common Stock and warrants to purchase 187,500 shares of Common Stock, for gross proceeds of $375,000. Common Stock Issued in Connection with the Exercise of Warrants During the year ended December 31, 2019, the Company issued 485,543 shares of Common Stock for proceeds of $602,560 under a series of stock warrant exercises with an exercise price of $1.33 per share. Common Stock Issued as Compensation to Employees, Officers and Directors During the year ended December 31, 2019, the Company issued 1,740,000 shares of Common Stock valued at $2,916,880 to employees, officers and directors as compensation. During the year ended December 31, 2019, the Company issued an additional 173,775 shares of Common Stock valued at $305,521 to contractors and professionals in exchange for services provided. On April 3, 2020, the Company cancelled 500,000 shares of Common Stock, with vesting conditions represented as derivative instruments. These shares were incorrectly issued as restricted shares instead of restricted stock units to an officer of the Company, Paul Dickman, on January 8, 2019. During the year ended December 31, 2020, the Company issued an additional 406,895 shares of Common Stock valued at $497,301 to employees, officers, and directors as compensation. Common and Preferred Stock Issued as Payment for Acquisition On April 20, 2020, the Company issued 2,554,750 shares of Common Stock valued at $4,167,253 for the acquisition of Mesa Organics, Ltd. On December 17, 2020, the Company issued 2,862 shares of Preferred Stock valued at $2,861,994 and on December 18, 2020, the Company issued 6,404 shares of Preferred Stock valued at 6,403,987 for the acquisition of the Star Buds assets. Warrants The Company accounts for Common Stock purchase warrants in accordance with FASB ASC 480, Accounting for Derivative Financial Instruments Indexed to, and Potentially Settled in, a Company’s Own Stock, Distinguishing Liabilities from Equity. The Company estimates the fair value of warrants at date of grant using the Black-Scholes option pricing model. There is a moderate degree of subjectivity involved when using option pricing models to estimate the warrants, and the assumptions used in the Black Scholes option-pricing model are moderately judgmental. During the year ended December 31, 2020, the Company issued 187,500 Common Stock purchase warrants to an accredited investor with an exercise price of $3.50 per share with an expiration date of three years from the date of issuance. The Company also issued 1,737,719 Common Stock purchase warrants as purchase consideration for the acquisition of SBUD LLC. These warrants have an exercise price of $1.20 per share and expiration date of five years from the date of issuance. The Company estimated the fair value of these warrants at date of grant using the Black-Scholes option pricing model using the following inputs: (i) stock price on the date of grant of $3.50 or $1.20, respectively, (ii) the contractual term of the warrant of 3 or 5 years, respectively, (iii) a risk-free interest rate ranging between 0.21% - 0.38% and (iv) an expected volatility of the price of the underlying Common Stock ranging between 173.07% - 187.52%. Number of shares Balance as of January 1, 2020 9,800,000 Warrants exercised – Warrants forfeited – Warrants issued 1,925,220 Balance as of December 31, 2020 11,725,220 Option Repricing On December 15, 2020, the Board repriced certain outstanding stock options issued to the Company’s employees. The repriced stock options had original exercise prices ranging from $1.52 per share to $3.83 per share. All of these stock options were repriced to have an exercise price of $1.26 per share, which was the closing price of the Company’s Common Stock on December 15, 2020. |
13. Tax Provision
13. Tax Provision | 12 Months Ended |
Dec. 31, 2020 | |
Income Tax Disclosure [Abstract] | |
Tax Provision | 13. Tax Provision In April 2020, the Company acquired its first cannabis plant-touching business, Mesa Organics, which consists of four dispensaries and one MIP, d/b/a Purplebee’s. The Company also acquired six additional cannabis dispensaries in December 2020. The activity of these acquired operations is subject to the limitations of IRC Section 280E. Under Section 280E, no deduction or credit is allowed for any amount paid or incurred during the taxable year in carrying on business if the business (or the activities which comprise the trade or business) consists of trafficking in controlled substances (within the meaning of Schedules I and II of the CSA) except the expenses directly related to sales of product. The IRS has applied this provision to cannabis operations, prohibiting them from deducting expenses associated with cannabis businesses. The following table sets forth the components of income tax (benefit) expense for the years ended December 31, 2020 and 2019: December 31, 2020 December 31, 2019 Current: Federal $ - $ - State and local - - Total current tax expense $ - $ - December 31, 2020 December 31, 2019 Deferred: Federal $ (796,353 ) $ (477,625 ) State and local (102,756 ) (105,305 ) Total deferred tax expense (benefit) $ (899,109 ) $ (582,930 ) The following table sets forth a reconciliation of income tax expense (benefit) at the federal statutory rate to recorded income tax expense (benefit) for the years ended December 31, 2020 and 2019: December 31, December 31, 2019 Federal taxes at U.S. statutory rate 21.0% 21.0% State income taxes 2.3% 4.6% Permanent and temporary differences (3.4% ) (15.5% ) Change in valuation allowance (14% ) (6.8% ) Change in state rate (1.7% ) 0.0% Return to provision adjustment/other 0.4% 0.0% Effective tax rate 4.6% 3.3% The following tables set forth the components of deferred income taxes as of December 31, 2020 and 2019: December 31, 2020 December 31, 2019 Deferred tax assets: Bad debt allowance $ 69,132 18,168 Accrued expenses 197,958 38,413 Share based compensation accruals 3,505,290 3,528,726 Net operating loss carryforwards 4,357,600 1,703,425 Capitalized transaction costs 222,360 – Unrealized losses 245,862 161,155 Other carryforwards 13,357 – Operating leases 240,278 – Total deferred tax assets 8,851,837 5,449,887 Less: valuation allowance (7,233,123 ) (4,411,110 ) Net deferred tax assets $ 1,618,714 1,038,777 Deferred tax liabilities: Prepaid expenses $ – 121,777 Fixed assets 269,443 12,388 Goodwill and intangible assets 1,116,546 636,188 Unrealized gains 232,725 – Net deferred tax liabilities $ 1,618,714 770,354 Total deferred tax assets, net $ – 268,423 The Company has gross Federal net operating loss carryforwards of approximately $19.7 million, which can be carried forward indefinitely. State net operating losses of approximately $12.2 million, which begin to expire in 2039. The Company plans to carryback approximately $1.3M of gross Federal net operating losses to the 2018 tax year, as a result of the CARES Act, which was enacted in response to the COVID-19 pandemic on March 27, 2020. The resulting tax benefit from this carryback is approximately $270k. Federal and State tax laws impose significant restrictions on the utilization of net operating loss carryforwards in the event of a change in ownership of the Company, as defined by Internal Revenue Code Section 382 (Section 382). The Company has not completed a formal Section 382 analysis but plans to do so prior to utilizing any net operating losses in future tax years or releasing the full valuation allowance against its net operating loss carryforwards. In assessing the realizability of deferred tax assets, management considers whether it is more likely than not that some portion or all of the deferred tax assets will not be realized. The Company's valuation allowance represents the amount of tax benefits that are likely to not be realized. The Company has recorded a valuation allowance of $7,233,123 on its deferred tax asset balances as of 12/31/2020. The net change in the valuation allowance for 12/31/2020 was $2,822,013. As of December 31, 2020 and 2019, the Company had no unrecognized tax benefits. The Company does not anticipate the total amount of unrecognized tax benefits to significantly change within the next twelve months. The Company recognized no interest expense or penalties on income tax assessments during 2019 or 2018 and there was no interest related to income tax assessments accrued as of December 31, 2020 or 2019. |
14. Major Customers and Account
14. Major Customers and Accounts Receivable | 12 Months Ended |
Dec. 31, 2020 | |
Major Customers And Accounts Receivable | |
Major Customers and Accounts Receivable | 14. Major Customers and Accounts Receivable The Company had certain customers whose revenue individually represented 10% or more of the Company’s total revenue, or whose accounts receivable balances individually represented 10% or more of the Company’s total accounts receivable. As of December 31, 2019, two customers accounted for 68% of accounts receivable, one with 57% and another with 11%. As of December 31, 2020, two customers accounted for 22% of accounts receivable, both with 11%. For the year ended December 31, 2019, one customer accounted for 14% of revenue. For the year ended December 31, 2020, there were no customers that accounted for 10% or more of revenue. |
15. Segment Information
15. Segment Information | 12 Months Ended |
Dec. 31, 2020 | |
Segment Reporting [Abstract] | |
Segment Information | 15. Segment Information The Company has three identifiable segments as of December 31, 2020; (i) products, (ii) licensing and consulting and (iii) corporate, infrastructure and other. The products segment sells merchandise directly to customers via e-commerce portals, through the Company’s proprietary websites and retail location. The licensing and consulting segment sales derives its revenue from licensing and consulting agreements with cannabis related entities. The corporate, infrastructure and other segment represents new resources added in anticipation of various acquisition transactions and other corporate related costs. The following information represents segment activity for the years ended December 31, 2020 and 2019: For the Years Ended December 31, 2020 2019 Products Licensing and Consulting Corporate, Infrastructure and Other Total Products Licensing and Consulting Corporate, Infrastructure and Other Total Revenues $ 22,506,393 $ 1,494,459 $ – $ 24,000,852 $ 7,820,518 $ 4,580,437 $ – $ 12,400,955 COGS $ (16,359,011 ) $ (867,476 ) $ – $ (17,226,486 ) $ (6,354,100 ) $ (1,262,121 ) $ – $ (7,616,221 ) Gross profit $ 6,147,382 $ 626,983 $ – $ 6,774,365 $ 1,466,418 $ 3,318,316 $ – $ 4,784,734 Intangible assets amortization $ 180,106 $ 539 $ – $ 180,644 $ 5,465 $ 443 $ – $ 5,908 Depreciation $ 76,310 $ 219,637 $ – $ 295,947 $ 7,186 $ 48,614 $ – $ 55,800 Net income (loss) $ 3,201,757 $ 345,312 $ (22,963,830 ) $ (19,416,761 ) $ 794,747 $ 1,688,147 $ (19,458,636 ) $ (16,975,742 ) Segment assets $ 61,591,952 $ 187,601 $ 8,803,419 $ 70,682,601 $ 12,406,230 $ 6,081,485 $ 13,740,892 $ 32,228,607 |
16. Earnings per share (Basic a
16. Earnings per share (Basic and Dilutive) | 12 Months Ended |
Dec. 31, 2020 | |
Earnings Per Share [Abstract] | |
Earnings per share (Basic and Dilutive) | 16. Earnings per share (Basic and Dilutive) The Company computes net (loss) income per share in accordance with ASC 260, Earnings per Share The following is a reconciliation of the numerator and denominator used in the basic and diluted EPS calculations for the years ended December 31, 2020 and 2019. 2020 2019 Numerator: Net income (loss) $ (19,416,761 ) $ (16,975,742 ) Denominator: Weighted-average shares of common stock 41,217,026 33,740,557 Dilutive effect of warrants – – Diluted weighted-average shares of common stock 41,217,026 33,740,557 Net income (loss) per common share from: Basic $ (0.47 ) $ (0.50 ) Diluted $ (0.47 ) $ (0.50 ) Dilutive-potential common share equivalents are excluded from the computation of net loss per share in loss periods, as their effect would be antidilutive. As the Company has incurred a loss from operations in 2020 and 2019, shares issuable pursuant to equity awards were excluded from the computation of diluted net loss per share in the accompanying consolidated statements of operations, as their effect is anti-dilutive. |
17. Subsequent Events
17. Subsequent Events | 12 Months Ended |
Dec. 31, 2020 | |
Subsequent Events [Abstract] | |
Subsequent Events | 17. Subsequent events In accordance with FASB ASC 855-10, Subsequent Events, the Company has analyzed its operations subsequent to December 31, 2020 to the date these consolidated financial statements were issued, and has determined that it does not have any material subsequent events to disclose in these consolidated financial statements, except as follows: On January 27, 2021, the Company appointed Pratap Mukharji to the Board of the Company. Mr. Mukharji will serve as Chairman of the Board’s Audit Committee. On January 27, 2021, the Company received the resignation of Leonard Riera as a member of the Board. Mr. Riera was Chairman of the Board’s Audit Committee. Mr. Riera’s resignation is not the result of any disagreement with the Company on any matters relating to the Company’s operations, policies, or practices. On February 3, 2021, the Company issued and sold 6,100 shares of Preferred Stock. On February 4, 2021, pursuant to the applicable APA, the Company and SBUD, LLC closed on the acquisition of (i) Colorado Health Consultants LLC; and (ii) Mountain View 44th LLC. The aggregate purchase price for the assets of the Star Buds Companies acquired on February 4, 2021 was approximately $9.3 million and was paid to each applicable Star Buds Company and its members as a combination of cash, an aggregate of 1,969 shares of Preferred Stock together with an aggregate of 347 shares of Preferred Stock to be held in escrow pursuant to the terms and subject to the conditions set forth in Omnibus Amendment No. 2 and warrants to purchase an aggregate of 434,315 shares of the Company’s Common Stock at exercise price equal to $1.20 per share. On February 9, 2021, the Company issued and sold 100 shares of Preferred Stock, on February 10, 2021, 250 shares of Preferred Stock, on February 23, 2021, 500 shares of Preferred Stock, on February 25, 2021, 1,300 shares of Preferred Stock, on February 26, 2021, 23,900 shares of Preferred Stock on March 1, 2021, 1,500 shares of Preferred Stock, and on March 3, 2021, 2,100 shares of Preferred Stock. On February 26, 2021, the Company received a Conversion Notice and Agreement (the “Conversion Agreement”) from Dye Capital pursuant to which Dye Capital elected to convert all outstanding amounts owed by the Company to Dye Capital under the Convertible Promissory Note and Security Agreement in the original principal amount of $5,000,000 issued by the Company to Dye Capital on December 16, 2020 pursuant to the terms thereof. On the same date, the Company executed the Conversion Agreement and issued 5,060 shares of Preferred Stock to Dye Capital and also paid Dye Capital an immaterial amount in cash in lieu of issuing any fractional shares of Preferred Stock to Dye Capital upon conversion. On February 26, 2021, the Company’s wholly owned subsidiaries Mesa Organics Ltd., Mesa Organics II Ltd., Mesa Organics III Ltd., Mesa Organics IV Ltd, SCG Holding, LLC and PBS Holdco LLC, as borrowers (collectively, the “Borrowers”), entered into a Loan Agreement (the “Loan Agreement”) with SHWZ Altmore, LLC, as lender (the “Lender”), and GGG Partners LLC, as collateral agent (the “Collateral Agent”). Upon execution of the Loan Agreement and the associated loan documents described below, the Lender made an initial advance of $10,000,000 to the Borrowers. Under the Loan Agreement, the Lender has agreed to make one additional advance of $5,000,000 to the Borrowers on or before June 26, 2021 upon the satisfaction of certain closing conditions customary for this type of transaction as well as a requirement that the Company has completed the acquisition of substantially all of the assets of an identified company. On March 2, 2021, pursuant to the applicable APA, the Company and the Purchaser closed on the acquisition of (i) Starbuds Aurora LLC, (ii) Store 3 – SB Arapahoe LLC, (iii) Citi-Med LLC, (iv) Starbuds Louisville LLC and (v) Store 9 – KEW LLC. The aggregate purchase price for the assets of the Starbuds Group acquired on March 2, 2021 was approximately $71.8 million and was paid to each applicable Starbuds Company and the Members as a combination of cash, an aggregate of 15,228.45 shares of Preferred Stock, together with an aggregate of 2,687.37 shares of Preferred Stock to be held in escrow pursuant to the terms, and subject to the conditions, set forth in Omnibus Amendment No. 2 and warrants to purchase an aggregate of 3,359,215.32 shares of the Company’s Common Stock at exercise price equal to $1.20 per share (the “Transaction Warrants”). The Company funded the aggregate cash portion of the purchase price for each Starbuds Company who was acquired on March 2, 2021 from the net proceeds of the transactions disclosed in the Company’s Current Report on Form 8-K filed with the SEC on March 4, 2021. Mr. Brian Ruden, a member of the Company’s Board of Directors, has an ownership interest in each Starbuds Company that was acquired on February 4, 2021 and March 2, 2021 On March 14, 2021, the Company increased the size of the board of directors from five to seven directors, designated the two new directorships as Class A, and appointed Jeffrey A. Cozad and Salim Wahdan as Class A directors. Mr. Cozad will serve as a member of the board of directors’ Audit Committee, Compensation Committee and Nominating and Corporate Governance Committee. Mr. Wahdan will serve as a member of the board of directors’ Audit Committee. On March 30, 2021, the Company entered into a Third Amendment to Securities Purchase Agreement (the “Third Amendment”) with Dye Capital Cann II to amend the terms of the Securities Purchase Agreement, dated November 16, 2020, as previously amended by the Amendment to Securities Purchase Agreement, dated December 16, 2020, and the Second Amendment to Securities Purchase Agreement, dated February 3, 2021 (as amended, the “Cann II SPA”). The Third Amendment increased the number of shares of Preferred Stock the Company may sell and Dye Capital Cann II may purchase under the Cann II SPA from 17,000 to 21,350, and also extended the time during which the parties may agree to do so from February 23, 2021 to March 30, 2021. On the same date, the Company issued and sold 4,000 shares of Preferred Stock to Dye Capital Cann II at a purchase price of $1,000 per share for aggregate gross proceeds of $4,000,000 and aggregate net proceeds of approximately $3,900,000, after deducting placement agent fees and estimated offering expenses. |
2. Critical Accounting Polici_2
2. Critical Accounting Policies and Estimates (Policies) | 12 Months Ended |
Dec. 31, 2020 | |
Accounting Policies [Abstract] | |
Basis of Presentation | Basis of Presentation These accompanying financial statements have been prepared in accordance with U.S. GAAP and pursuant to the rules and regulations of the Securities and Exchange Commission (“SEC”) for annual financial statements. |
Use of Estimates | Use of Estimates The preparation of financial statements in conformity with U.S. GAAP requires management to make estimates and assumptions that affect the amounts reported therein. Due to the inherent uncertainty involved in making estimates, actual results reported in future periods may be based upon amounts that differ from these estimates. |
Reclassifications | Reclassifications Certain prior year amounts have been reclassified to conform to the current year presentation. These reclassifications had no impact on the Company’s net (loss) earnings and financial position. |
Fair Value Measurements | Fair Value Measurements Fair value is defined as the exchange price that would be received for an asset or paid to transfer a liability (an exit price) in the principal or most advantageous market for the asset or liability, in an orderly transaction between market participants on the measurement date. Valuation techniques used to measure fair value must maximize the use of observable inputs and minimize the use of unobservable inputs. The fair value hierarchy is based on three levels of inputs, of which the first two are considered observable and the last unobservable, as follows: Level 1 – Quoted prices in active markets for identical assets or liabilities. Level 2 – Inputs other than Level 1 that are observable, either directly or indirectly, such as quoted prices for similar assets or liabilities; quoted prices in markets that are not active; or other inputs that are observable or can be corroborated by observable market data for substantially the full term of the assets or liabilities. Level 3 – Unobservable inputs that are supported by little or no market activity and that are significant to the measurement of the fair value of the assets or liabilities. The Company’s financial instruments include cash, accounts receivable, note receivable, accounts payables and tenant deposits. The carrying values of these financial instruments approximate their fair value due to their short maturities. The carrying amount of the Company’s debt approximates fair value because the interest rates on these instruments approximate the interest rate on debt with similar terms available to us. The Company’s derivative liability was adjusted to fair market value at the end of the year, using Level 3 inputs. The following is the Company’s assets and liabilities measured at fair value on a recurring and nonrecurring basis at December 31, 2020 and 2019, using quoted prices in active markets for identical assets (Level 1), significant other observable inputs (Level 2), and significant unobservable inputs (Level 3): December 31, 2020 December 31, 2019 Level 1 – Marketable Securities Available-for-Sale – Recurring $ 276,782 $ 406,774 |
Marketable Securities at Fair Value on a Recurring Basis | Marketable Securities at Fair Value on a Recurring Basis Certain assets are measured at fair value on a recurring basis. The Level 1 position consists of an investment in equity securities held in Canada House Wellness Group, Inc., a publicly-traded company whose securities are actively quoted on the Toronto Stock Exchange. |
Fair Value of Financial Instruments | Fair Value of Financial Instruments The carrying amounts of cash and current assets and liabilities approximate fair value because of the short-term maturity of these items. These fair value estimates are subjective in nature and involve uncertainties and matters of significant judgment and, therefore, cannot be determined with precision. Changes in assumptions could significantly affect these estimates. Available-for-sale securities are recorded at current market value as of the date of this report. |
Accounts receivable | Accounts Receivable The Company extends unsecured credit to its customers in the ordinary course of business. Accounts receivable related to consulting revenues are recorded when a milestone is reached at a point in time resulting in funds being due for delivered services, and where payment is reasonably assured. Accounts receivable related to consulting revenues are recorded based on cultivation yields over time on harvested cannabis. Consulting revenues are generally collected from 30 to 60 days after the invoice is sent. The following table depicts the composition of our accounts receivable as of December 31, 2020 and 2019: December 31, 2020 December 31, 2019 Accounts receivable – trade $ 1,315,188 $ 384,202 Accounts receivable – related party 80,494 72,658 Accounts receivable – litigation, non-current 3,063,968 3,063,968 Allowance for doubtful accounts (44,808 ) (70,885 ) Total accounts receivable $ 4,414,842 $ 3,449,943 The Company establishes an allowance for doubtful accounts based on management’s assessment of the collectability of trade receivables. A considerable amount of judgment is required in assessing the amount of the allowance. The Company makes judgments about the creditworthiness of each customer based on ongoing credit evaluations and monitors current economic trends that might impact the level of credit losses in the future. If the financial condition of the customers were to deteriorate, resulting in their inability to make payments, a specific allowance will be required. At December 31, 2020 and 2019, the Company recorded an allowance for doubtful accounts of $44,808 and $70,885, respectively. Recovery of bad debt amounts previously written off is recorded as a reduction of bad debt expense in the period the payment is collected. If the Company’s actual collection experience changes, revisions to its allowance may be required. After all attempts to collect a receivable have failed, the receivable is written off against the allowance. The Company wrote-off $16,798 of its accounts receivable during the year ended December 31, 2020. The Company wrote-off $80,284 of its accounts receivable during the year ended December 31, 2019. In July 2018, the Company commenced legal action against a customer in Clark County, Nevada for breach of contract, adding a significant value to its receivables for fees that had been booked, due to forbearance grants by the Company that were subsequently violated, causing the Company to increase its receivables accordingly. The Company provided services to this customer for a period of thirteen months, agreeing conditionally to three modifications in December 2017, March 2018 and May 2018 to forego certain revenue sharing payments in accordance with the agreement with the customer, which were subsequently breached by the customer. As a result, the Company engaged legal counsel and filed a complaint in Clark County, Nevada, which alleged breach of contract and sought general, special and punitive damages in the amount of $3,876,850. On August 2, 2019, a jury in the District Court of Clark County, Nevada found in favor of the Company and awarded the Company damages totaling $2,773,321 (See Part II, Item 1, Legal Proceedings for more information). The Company has classified the awarded amount receivable as a non-current asset since the customer has subsequently filed an appeal. Considering this customer’s appeal, the Company sought to compel the customer to obtain and produce a bond securing the award. On December 13, 2019, proof of the bond was posted through United States Fire Insurance Company, naming the Company as the obligee. At December 31, 2020 and 2019, the accounts receivable for this matter totaled $2,773,321, and the related revenue recorded totaled $0 and $1,782,457 for the years ended December 31, 2020 and 2019, respectively. The Company analyzed the contract, associated revenue and litigation process under Accounting Standards Codification (“ASC”) 606, Revenue from Contracts with Customers Paragraph 606-10-25 states that an entity transfers control of a good or service over time and, therefore, satisfies a performance obligation and recognizes revenue over time if one of the following criteria is met: · The customer simultaneously receives and consumes the benefits provided by the entity’s performance as the entity performs. · The entity’s performance creates or enhances an asset that the customer controls as the asset is created or enhanced. · The entity’s performance does not create an asset with an alternative use to the entity, and the entity has an enforceable right to payment for performance completed to date. Paragraph 606-10-25 further states that the process for determining the proper treatment for a contract modification includes three steps: · Determine whether a change to a contract qualifies as a contract modification. · Determine whether the modification should be treated as a separate, standalone contract or as a modification of the original contract. If the contract is a separate contract, the entity follows the five-step model to determine how to recognize revenue. If the modification is not treated as a separate contract, the entity continues to Step 3. · Determine appropriate accounting treatment for contract modification not accounted for as a separate contract. ASC 606 defines a contract modification as a change in scope and/or price to an original contract or any change to the enforceable rights and obligations of the parties to the original contract. Enforceable rights and obligations are those that are approved by both parties and legally required. A contract modification does not need to be written; enforceable changes can be the result of oral agreements or implied through customary business practices. The effect that the modification has on the transaction price and on the entity’s measure of progress towards satisfaction of the performance obligation is recognized as an adjustment to revenue either as an increase in or a reduction of revenue at the date of the modification. The adjustment to revenue is made on a cumulative catch-up basis. As management determined that the litigation process constituted a contract modification, and that the contract was upheld judicially, the Company recognized and recorded $1,782,457 on a cumulative catch-up basis as of August 2, 2019. On June 7, 2019, the Company filed a complaint against a second customer in Clark County, Nevada, for, amongst other causes of action, breach of contract. On July 17, 2019, the parties stipulated to stay the case in favor of arbitration. On February 25, 2020 ACC Industries Inc. filed a counterclaim alleging breach of contract, which the Company believes is without merit. The Company discovered new facts that lead it to believe that a related entity not previously named as a party to the arbitration should be brought in as a party to the arbitration. Based upon the new facts, the Company filed a motion to amend the complaint to add new claims and the related entity as a party. On September 1, 2020, the court ruled in favor of the Company and permitted the Company to amend the complaint to add the related entity. On September 1, 2020, the Company filed an amended complaint naming the related entity a party and added intentional misrepresentation, fraudulent inducement, civil conspiracy, aiding and abetting, successor liability and fraudulent concealment claims. The Company began arbitration proceedings on November 2, 2020. The Company completed arbitration in February 2021 and expects a decision in early April 2021. As of December 31, 2020 and 2019, the accounts receivable for this matter totaled $290,648. |
Notes receivable | Notes Receivable On July 17, 2018, the Company entered into an intellectual property license agreement with Abba Medix Corp. (AMC), a wholly-owned subsidiary of publicly-traded Canada House Wellness Group, Inc. (CHV). The Company agreed to provide a lending facility to AMC in CAD$125,000 increments of up to CAD$500,000. The lending facility is for a term of 36 months and bears interest at a rate of 2%. As of December 31, 2020 and 2019, the Company had loaned to AMC a total of $246,765 and $241,711, respectively. The Company classified these loans as long-term notes receivable on its consolidated balance sheets as of December 31, 2019. As of December 31, 2020, the Company has recorded a full allowance on the note receivable balance. |
Other assets (current and non-current) | Other Assets (Current and Non-Current) Other assets at December 31, 2020 and 2019 were $666,079 and $529,416, respectively. At December 31, 2020, other assets included $345,777 in prepaid expenses, $268,423 in tax receivable, and $51,879 in security deposits. Prepaid expenses were primarily comprised of insurance premiums, vendor prepayments, and prepaid software costs. At December 31, 2019, other assets included $480,881 in prepaid expenses, $21,085 in interest receivable and $27,450 in security deposits. |
Goodwill and Intangible Assets | Goodwill and Intangible Assets Goodwill represents the future economic benefit arising from other assets acquired that could not be individually identified and separately recognized. The goodwill arising from the Company’s acquisitions is attributable to the value of the potential expanded market opportunity with new customers. Intangible assets have either an identifiable or indefinite useful life. Intangible assets with identifiable useful lives are amortized on a straight-line basis over their economic or legal life, whichever is shorter. The Company’s amortizable intangible assets consist of licensing agreements, product licenses and registrations, and intellectual property or trade secrets. Their estimated useful lives range from 10 to 15 years. Goodwill and indefinite-lived assets are not amortized but are subject to annual impairment testing unless circumstances dictate more frequent assessments. The Company performs an annual impairment assessment for goodwill at the end of each calendar year and more frequently whenever events or changes in circumstances indicate that the fair value of the asset may be less than the carrying amount. Goodwill impairment testing is a two-step process performed at the reporting unit level. Step one compares the fair value of the reporting unit to its carrying amount. The fair value of the reporting unit is determined by considering both the income approach and market approaches. The fair values calculated under the income approach and market approaches are weighted based on circumstances surrounding the reporting unit. Under the income approach, the Company determines fair value based on estimated future cash flows of the reporting unit, which are discounted to the present value using discount factors that consider the timing and risk of cash flows. For the discount rate, the Company relies on the capital asset pricing model approach, which includes an assessment of the risk-free interest rate, the rate of return from publicly traded stocks, the Company’s risk relative to the overall market, the Company’s size and industry and other Company-specific risks. Other significant assumptions used in the income approach include the terminal value, growth rates, future capital expenditures and changes in future working capital requirements. The market approaches use key multiples from guideline businesses that are comparable and are traded on a public market. If the fair value of the reporting unit is greater than its carrying amount, there is no impairment. If the reporting unit’s carrying amount exceeds its fair value, then the second step must be completed to measure the amount of impairment, if any. Step two calculates the implied fair value of goodwill by deducting the fair value of all tangible and intangible net assets of the reporting unit from the fair value of the reporting unit as calculated in step one. In this step, the fair value of the reporting unit is allocated to all of the reporting unit’s assets and liabilities in a hypothetical purchase price allocation as if the reporting unit had been acquired on that date. If the carrying amount of goodwill exceeds the implied fair value of goodwill, an impairment loss is recognized in an amount equal to the excess. Determining the fair value of a reporting unit is judgmental in nature and requires the use of significant estimates and assumptions, including revenue growth rates, strategic plans and future market conditions, among others. There can be no assurance that the Company’s estimates and assumptions made for purposes of the goodwill impairment testing will prove to be accurate predictions of the future. Changes in assumptions and estimates could cause the Company to perform an impairment test prior to scheduled annual impairment tests. The Company performed its annual fair value assessment at December 31, 2020 on its reporting units and subsidiary with material goodwill and intangible asset amounts on their respective balance sheets and determined that no impairment exists. |
Long-Lived Assets | Long-Lived Assets The Company evaluates the recoverability of its long-lived assets whenever events or changes in circumstances have indicated that an asset may not be recoverable. Long-lived assets are grouped with other assets at the lowest level for which identifiable cash flows are largely independent of the cash flows of other groups of assets and liabilities. If the sum of the projected undiscounted cash flows is less than the carrying value of the assets, the assets are written down to the estimated fair value. The Company evaluated the recoverability of its long-lived assets at December 31, 2020 on its reporting units and subsidiary with material amounts on their respective balance sheets and determined that no impairment exists. |
Accounts payable | Accounts Payable Accounts payable at December 31, 2020 and 2019 were $3,557,461 and $699,961, respectively, and were comprised of trade payables for various purchases and services rendered during the ordinary course of business. |
Accrued expenses and other liabilities | Accrued Expenses and Other Liabilities Accrued expenses and other liabilities at December 31, 2020 and 2019 were $2,705,445 and $1,091,204, respectively. At December 31, 2020, accrued expenses and other liabilities was comprised of customer deposits of $26,826, accrued payroll of $1,154,887, and operating expenses of $1,523,732. At December 31, 2019, accrued expenses and other liabilities was comprised of customer deposits of $148,109, accrued payroll of $714,220, and operating expenses of $228,875. |
Revenue recognition and related allowances | Revenue Recognition and Related Allowances The Company’s revenue recognition policy is significant because the amount and timing of revenue is a key component of its results of operations. Certain criteria are required to be met in order to recognize revenue. If these criteria are not met, then the associated revenue is deferred until the criteria are met. When consideration is received in advance of the delivery of goods or services, a contract liability is recorded. Revenue contracts are identified when accepted from customers and represent a single performance obligation to sell the Company’s products to a customer. The Company has three main revenue streams: (i) product sales; (ii) licensing and consulting fees; and (iii) other operating revenues from seminars, reimbursements and other miscellaneous sources. Product sales are recorded at the time that control of the products is transferred to customers. In evaluating the timing of the transfer of control of products to customers, the Company considers several indicators, including significant risks and rewards of products, its right to payment, and the legal title of the products. Based on the assessment of control indicators, sales are generally recognized when products are delivered to customers. Revenue from licensing and consulting fees are recognized when the obligations to the client are fulfilled which is determined when milestones in the contract are achieved and target harvest yields are exceeded. Revenue from seminar fees is related to one-day seminars and is recognized as earned upon the completion of the seminar. The Company also recognizes expense reimbursement from clients as revenue for expenses incurred during certain jobs. |
Cost of Goods and Services Sold | Costs of Goods and Services Sold Costs of goods and services sold are comprised of related expenses incurred while supporting the implementation and sales of Company’s products and services. |
General and Administrative Expenses | General and Administrative Expenses General and administrative expense are comprised of all expenses not linked to the production or advertising of the Company’s products or services. |
Advertising and Marketing Costs | Advertising and Marketing Costs Advertising and marketing costs are expensed as incurred and totaled $1,040,671 and $455,047 for years ended December 31, 2020 and 2019, respectively. |
Stock-Based Compensation | Stock-Based Compensation The Company accounts for share-based payments pursuant to ASC 718, Stock Compensation Stock compensation expense for stock options is recognized over the vesting period of the award or expensed immediately under ASC 718 and Emerging Issues Task Force (“EITF”) 96-18 when stock or options are awarded for previous or current service without further recourse. Share-based expense paid to through direct stock grants is expensed as occurred. Since the Company’s stock is publicly traded, the value is determined based on the number of shares issued and the over-the-counter quoted value of the stock on the date of the transaction. On June 20, 2018, the FASB issued ASU 2018-07 which simplifies the accounting for share-based payments granted to nonemployees for goods and services. Under the ASU, most of the guidance on such payments to nonemployees would be aligned with the requirements for share-based payments granted to employees. Previously, share-based payment arrangements to nonemployees were accounted for under ASC 718, while nonemployee share-based payments issued for goods and services were accounted for under ASC 505-50. Before the ASU, the major difference for the Company (but not limited to) was the determination of measurement date, which generally is the date on which the measurement of equity classified share-based payments becomes fixed. Equity classified share-based payments for employees was fixed at the time of grant. Equity-classified nonemployee share-based payment awards are no longer measured at the earlier of the date which a commitment for performance by the counterparty is reached or the date at which the counterparty’s performance is complete. They are now measured at the grant date of the award, which is the same as share-based payments for employees. The Company adopted the requirements of the new rule as of January 1, 2019, the effective date of the new guidance. The Company recognized $8,230,513 and $7,279,363 in expense for stock-based compensation to directors, employees and consultants during the years ended December 31, 2020 and 2019, respectively. |
Income Taxes | Income Taxes ASC 740, Income Taxes requires the use of the asset and liability method of accounting for income taxes. Under the asset and liability method of ASC 740, deferred tax assets and liabilities are recognized for the future tax consequences attributable to temporary differences between the financial statement carrying amounts of existing assets and liabilities and their respective tax bases. Deferred tax assets are regularly assessed to determine the likelihood they will be recovered from future taxable income. A valuation allowance is established when we believe it is more likely than not the future realization of all or some of a deferred tax asset will not be achieved. In evaluating our ability to recover deferred tax assets within the jurisdiction which they arise, we consider all available positive and negative evidence. Factors reviewed include the cumulative pre-tax book income for the past three years, scheduled reversals of deferred tax liabilities, our history of earnings and reliability of our forecasts, projections of pre-tax book income over the foreseeable future, and the impact of any feasible and prudent tax planning strategies. The Company assesses all material positions taken in any income tax return, including all significant uncertain positions, in all tax years that are still subject to assessment or challenge by relevant taxing authorities. Assessing an uncertain tax position begins with the initial determination of the position’s sustainability, and the tax benefit to be recognized is measured at the largest amount of benefit that is greater than 50 percent likely of being realized upon ultimate settlement. We recognize the impact of a tax position in our financial statements only if that position is more likely than not of being sustained upon examination by taxing authorities, based on the technical merits of the position. Tax authorities regularly examine our returns in the jurisdictions in which we do business and we regularly assess the tax risk of our return filing positions. Due to the complexity of some of the uncertainties, the ultimate resolution may result in payments that are materially different from our current estimate of the tax liability. These differences, as well as any interest and penalties, will be reflected in the provision for income taxes in the period in which they are determined. As the Company operates in the cannabis industry, it is subject to the limits of the Internal Revenue Code (IRC) Section 280E under which the Company is only allowed to deduct expenses directly related to sales of product. This results in permanent differences between ordinary and necessary business expenses deemed non-allowable under IRC Section 280E. |
Right of Use Assets and Lease Liabilities | Right of Use Assets and Lease Liabilities In February 2016, the FASB issued ASU No. 2016-02, Leases (Topic 842) Under ASC 842, the Company determines if an arrangement is a lease at inception. ROU assets and liabilities are recognized at commencement date based on the present value of remaining lease payments over the lease term. For this purpose, the Company considers only payments that are fixed and determinable at the time of commencement. As most of the Company's leases do not provide an implicit rate, the Company estimated the incremental borrowing rate in determining the present value of lease payments. The ROU asset also includes any lease payments made prior to commencement and is recorded net of any lease incentives received. The Company’ lease terms may include options to extend or terminate the lease when it is reasonably certain that the Company will exercise such options. Operating leases are included in operating lease Right-of-Use assets and operating lease liabilities, current and non-current, on the Company's consolidated balance sheets. |
1. Liquidity and Capital Reso_2
1. Liquidity and Capital Resources (Tables) | 12 Months Ended |
Dec. 31, 2020 | |
Organization, Consolidation and Presentation of Financial Statements [Abstract] | |
Composition of cash | The following table depicts the composition of the Company’s cash and cash equivalents as of December 31, 2020 and 2019: December 31, 2019 December 31, 2019 Deposits placed with banks $ 1,231,235 $ 736,101 United States Treasury Bill – 11,117,526 Total cash and cash equivalents $ 1,231,235 $ 11,853,627 |
2. Critical Accounting Polici_3
2. Critical Accounting Policies and Estimates (Tables) | 12 Months Ended |
Dec. 31, 2020 | |
Accounting Policies [Abstract] | |
Schedule of fair value measurement | The following is the Company’s assets and liabilities measured at fair value on a recurring and nonrecurring basis at December 31, 2020 and 2019, using quoted prices in active markets for identical assets (Level 1), significant other observable inputs (Level 2), and significant unobservable inputs (Level 3): December 31, 2020 December 31, 2019 Level 1 – Marketable Securities Available-for-Sale – Recurring $ 276,782 $ 406,774 |
Schedule of Accounts Receivable | The following table depicts the composition of our accounts receivable as of December 31, 2020 and 2019: December 31, 2020 December 31, 2019 Accounts receivable – trade $ 1,315,188 $ 384,202 Accounts receivable – related party 80,494 72,658 Accounts receivable – litigation, non-current 3,063,968 3,063,968 Allowance for doubtful accounts (44,808 ) (70,885 ) Total accounts receivable $ 4,414,842 $ 3,449,943 |
4. Property and Equipment (Tabl
4. Property and Equipment (Tables) | 12 Months Ended |
Dec. 31, 2020 | |
Property, Plant and Equipment [Abstract] | |
Property and equipment table | Property and equipment are recorded at cost, net of accumulated depreciation and are comprised of the following: December 31, 2020 December 31, 2019 Furniture and fixtures $ 228,451 $ 98,903 Leasehold improvements 90,314 40,953 Machinery and tools 1,456,752 34,000 Office equipment 104,059 33,833 Software 1,308,387 – Work in process 269,414 190,743 3,457,377 398,432 Less: accumulated depreciation (872,579 ) (159,354 ) Total property and equipment, net of depreciation $ 2,584,798 $ 239,078 |
Schedule of property and equipment useful lives | Depreciation on equipment is recorded on a straight-line basis over the following expected useful: Furniture and fixtures 3 years Leasehold improvements Lesser of the lease term or estimated useful life Marketing display 3 years Vehicles 3 years Office equipment 3 years Software 3-5 years |
5. Intangible Asset (Tables)
5. Intangible Asset (Tables) | 12 Months Ended |
Dec. 31, 2020 | |
Goodwill and Intangible Assets Disclosure [Abstract] | |
Intangible assets | Intangible assets at December 31, 2020 and 2019 were comprised of the following: December 31, December 31, License agreement $ 1,667,000 $ 5,300 Tradename 350,000 – Customer relationships 1,055,000 – Non-compete 120,000 – Product license and registration 57,300 57,300 Trade secret – intellectual property 32,500 32,500 3,282,500 95,100 Less: accumulated amortization (200,456 ) (19,811 ) Total intangible assets, net of amortization $ 3,082,044 $ 75,289 |
10. Leases (Tables)
10. Leases (Tables) | 12 Months Ended |
Dec. 31, 2020 | |
Leases [Abstract] | |
Balance Sheet Classification Table | Balance Sheet Classification of Operating Lease Assets and Liabilities Balance Sheet Line December 31, 2020 Asset Operating lease asset Non-Current Assets $ 2,579,036 Liabilities Operating lease liability Non-Current Liabilities $ 2,645,597 |
Operating Lease Costs | The table below summarizes the components of lease costs for the year ended December 31, 2019. Year Ended December 31, 2020 Operating lease costs $ 359,564 |
Maturities of Lease Liabilities | Maturities of lease liabilities as of December 31, 2020 are as follows: 2020 fiscal year $ 2,730,205 Total lease payments 2,730,205 Less: Interest (84,608 ) Present value of lease liabilities $ 2,645,597 |
Future minimum lease obligations | The following table presents the Company’s future minimum lease obligation under ASC 840 as of December 31, 2020: 2021 fiscal year 854,870 2022 fiscal year 849,792 2023 fiscal year 717,539 2024 fiscal year 495,175 2025 fiscal year 162,182 Total $ 3,079,559 |
12. Stockholders' Equity (Table
12. Stockholders' Equity (Tables) | 12 Months Ended |
Dec. 31, 2020 | |
Equity [Abstract] | |
Schedule of warrant activity | Number of shares Balance as of January 1, 2020 9,800,000 Warrants exercised – Warrants forfeited – Warrants issued 1,925,220 Balance as of December 31, 2020 11,725,220 |
13. Tax Provision (Tables)
13. Tax Provision (Tables) | 12 Months Ended |
Dec. 31, 2020 | |
Income Tax Disclosure [Abstract] | |
Components of income tax expense | The following table sets forth the components of income tax (benefit) expense for the years ended December 31, 2020 and 2019: December 31, 2020 December 31, 2019 Current: Federal $ - $ - State and local - - Total current tax expense $ - $ - |
Reconciliation of income tax expense | The following table sets forth a reconciliation of income tax expense (benefit) at the federal statutory rate to recorded income tax expense (benefit) for the years ended December 31, 2020 and 2019: December 31, December 31, 2019 Federal taxes at U.S. statutory rate 21.0% 21.0% State income taxes 2.3% 4.6% Permanent and temporary differences (3.4% ) (15.5% ) Change in valuation allowance (14% ) (6.8% ) Change in state rate (1.7% ) 0.0% Return to provision adjustment/other 0.4% 0.0% Effective tax rate 4.6% 3.3% |
Components of income tax payable | December 31, 2020 December 31, 2019 Deferred: Federal $ (796,353 ) $ (477,625 ) State and local (102,756 ) (105,305 ) Total deferred tax expense (benefit) $ (899,109 ) $ (582,930 ) |
Components of deferred income tax | The following tables set forth the components of deferred income taxes as of December 31, 2020 and 2019: December 31, 2020 December 31, 2019 Deferred tax assets: Bad debt allowance $ 69,132 18,168 Accrued expenses 197,958 38,413 Share based compensation accruals 3,505,290 3,528,726 Net operating loss carryforwards 4,357,600 1,703,425 Capitalized transaction costs 222,360 – Unrealized losses 245,862 161,155 Other carryforwards 13,357 – Operating leases 240,278 – Total deferred tax assets 8,851,837 5,449,887 Less: valuation allowance (7,233,123 ) (4,411,110 ) Net deferred tax assets $ 1,618,714 1,038,777 Deferred tax liabilities: Prepaid expenses $ – 121,777 Fixed assets 269,443 12,388 Goodwill and intangible assets 1,116,546 636,188 Unrealized gains 232,725 – Net deferred tax liabilities $ 1,618,714 770,354 Total deferred tax assets, net $ – 268,423 |
15. Segment Information (Tables
15. Segment Information (Tables) | 12 Months Ended |
Dec. 31, 2020 | |
Segment Reporting [Abstract] | |
Schedule of Segment Reporting Information | The following information represents segment activity for the years ended December 31, 2020 and 2019: For the Years Ended December 31, 2020 2019 Products Licensing and Consulting Corporate, Infrastructure and Other Total Products Licensing and Consulting Corporate, Infrastructure and Other Total Revenues $ 22,506,393 $ 1,494,459 $ – $ 24,000,852 $ 7,820,518 $ 4,580,437 $ – $ 12,400,955 COGS $ (16,359,011 ) $ (867,476 ) $ – $ (17,226,486 ) $ (6,354,100 ) $ (1,262,121 ) $ – $ (7,616,221 ) Gross profit $ 6,147,382 $ 626,983 $ – $ 6,774,365 $ 1,466,418 $ 3,318,316 $ – $ 4,784,734 Intangible assets amortization $ 180,106 $ 539 $ – $ 180,644 $ 5,465 $ 443 $ – $ 5,908 Depreciation $ 76,310 $ 219,637 $ – $ 295,947 $ 7,186 $ 48,614 $ – $ 55,800 Net income (loss) $ 3,201,757 $ 345,312 $ (22,963,830 ) $ (19,416,761 ) $ 794,747 $ 1,688,147 $ (19,458,636 ) $ (16,975,742 ) Segment assets $ 61,591,952 $ 187,601 $ 8,803,419 $ 70,682,601 $ 12,406,230 $ 6,081,485 $ 13,740,892 $ 32,228,607 |
16. Earnings per share (Basic_2
16. Earnings per share (Basic and Dilutive) (Tables) | 12 Months Ended |
Dec. 31, 2020 | |
Earnings Per Share [Abstract] | |
Basic and diluted earnings per share | The following is a reconciliation of the numerator and denominator used in the basic and diluted EPS calculations for the years ended December 31, 2020 and 2019. 2020 2019 Numerator: Net income (loss) $ (19,416,761 ) $ (16,975,742 ) Denominator: Weighted-average shares of common stock 41,217,026 33,740,557 Dilutive effect of warrants – – Diluted weighted-average shares of common stock 41,217,026 33,740,557 Net income (loss) per common share from: Basic $ (0.47 ) $ (0.50 ) Diluted $ (0.47 ) $ (0.50 ) |
Organization and Nature of Op_2
Organization and Nature of Operations (Details Narrative) - Private Placement [Member] - USD ($) | 3 Months Ended | 12 Months Ended | |
Mar. 31, 2021 | Dec. 31, 2020 | Dec. 31, 2019 | |
Proceeds from sale of equity | $ 375,000 | $ 19,600,000 | |
Stock issued new, shares | 187,500 | 9,800,000 | |
Subsequent Event [Member] | |||
Proceeds from sale of equity | $ 57,700,000 | ||
Subsequent Event [Member] | Series A Cumulative Convertible Preferred Stock [Member] | |||
Stock issued new, shares | 57,700 |
1. Liquidity and Capital Reso_3
1. Liquidity and Capital Resources (Details - Cash) - USD ($) | Dec. 31, 2020 | Dec. 31, 2019 | Dec. 31, 2018 |
Total cash and cash equivalents | $ 1,231,235 | $ 11,853,627 | $ 321,788 |
Bank Deposits [Member] | |||
Total cash and cash equivalents | 1,231,235 | 736,101 | |
U S Treasury Bills [Member] | |||
Total cash and cash equivalents | $ 0 | $ 11,117,526 |
1. Liquidity and Capital Reso_4
1. Liquidity and Capital Resources (Details Narrative) - USD ($) | Dec. 31, 2020 | Dec. 31, 2019 | Dec. 31, 2018 |
Organization, Consolidation and Presentation of Financial Statements [Abstract] | |||
Cash and cash equivalents | $ 1,231,235 | $ 11,853,627 | $ 321,788 |
2. Critical Accounting Polici_4
2. Critical Accounting Policies and Estimates (Details - Level 3) - USD ($) | Dec. 31, 2020 | Dec. 31, 2019 |
Fair Value Inputs Level 1 [Member] | Fair Value Measurements Recurring [Member] | Marketable Securities [Member] | ||
Fair value assets | $ 276,782 | $ 406,774 |
2. Critical Accounting Polici_5
2. Critical Accounting Policies and Estimates (Details Receivables) - USD ($) | Dec. 31, 2020 | Dec. 31, 2019 |
Total accounts receivable | $ 4,414,842 | $ 3,449,943 |
Allowance for doubtful accounts | (44,808) | (70,885) |
Trade Accounts Receivable [Member] | ||
Total accounts receivable | 1,315,188 | 384,202 |
Accounts receivable - related party [Member] | ||
Total accounts receivable | 80,494 | 72,658 |
Accounts receivable - litigation [Member] | ||
Total accounts receivable | $ 3,063,968 | $ 3,063,968 |
2. Critical Accounting Polici_6
2. Critical Accounting Policies and Estimates (Details Narrative) - USD ($) | 7 Months Ended | 12 Months Ended | ||
Jul. 31, 2018 | Dec. 31, 2020 | Dec. 31, 2019 | Aug. 02, 2019 | |
Allowance for doubtful accounts | $ 44,808 | $ 70,885 | ||
Accounts receivable written off | 16,798 | 80,284 | ||
Damages sought value | $ 3,876,850 | |||
Accounts receivable - litigation | 3,063,968 | 3,063,968 | ||
Revenues | 24,000,852 | 12,400,955 | ||
Cumulative effect of new accounting principle | $ 1,782,457 | |||
Long-term notes receivable | 0 | 241,711 | ||
Other assets | 666,079 | 529,416 | ||
Accounts payable | 3,508,479 | 699,961 | ||
Accrued expenses and other liabilities | 2,705,445 | 1,091,204 | ||
Advertising and marketing expense | 1,040,671 | 455,047 | ||
Stock based compensation expense | 8,230,513 | 7,279,363 | ||
Litigation Revenue [Member] | ||||
Revenues | 0 | 1,782,457 | ||
Abba Medix [Member] | ||||
Payments for notes receivable | 246,765 | 241,711 | ||
Prepaid Expenses [Member] | ||||
Other assets | 345,777 | 480,881 | ||
Interest Receivable [Member] | ||||
Other assets | 268,423 | 21,085 | ||
Security Deposits [Member] | ||||
Other assets | 51,879 | 27,450 | ||
Customer Deposits [Member] | ||||
Accrued expenses and other liabilities | 26,826 | 148,109 | ||
Accrued Payroll [Member] | ||||
Accrued expenses and other liabilities | 1,154,887 | 714,220 | ||
Operating Expenses [Member] | ||||
Accrued expenses and other liabilities | 1,523,732 | 228,875 | ||
2nd Breach of Contract [Member] | ||||
Accounts receivable - litigation | 290,648 | 290,648 | ||
Breach of Contract [Member] | ||||
Accounts receivable - litigation | 2,773,321 | |||
Breach of Contract [Member] | Litigation Revenue [Member] | ||||
Revenues | $ 0 | $ 1,782,457 |
4. Property and Equipment (Deta
4. Property and Equipment (Details) - USD ($) | Dec. 31, 2020 | Dec. 31, 2019 |
Property and Equipment, gross | $ 3,457,377 | $ 398,432 |
Less: Accumulated Depreciation | (872,579) | (159,354) |
Property and equipment, net | 2,584,798 | 239,078 |
Furniture and Fixtures [Member] | ||
Property and Equipment, gross | 228,451 | 98,903 |
Leasehold Improvements [Member] | ||
Property and Equipment, gross | 90,314 | 40,953 |
Machinery And Tools [Member] | ||
Property and Equipment, gross | 1,456,752 | 34,000 |
Office Equipment [Member] | ||
Property and Equipment, gross | 104,059 | 33,833 |
Software [Member] | ||
Property and Equipment, gross | 1,308,387 | 0 |
Work In Progress [Member] | ||
Property and Equipment, gross | $ 269,414 | $ 190,743 |
4. Property and Equipment (De_2
4. Property and Equipment (Details - Expected life) | 12 Months Ended |
Dec. 31, 2020 | |
Furniture and Fixtures [Member] | |
Estimated useful life | 3 years |
Leasehold Improvements [Member] | |
Estimated useful life | Lesser of the lease term or estimated useful life |
Marketing Display [Member] | |
Estimated useful life | 3 years |
Vehicles [Member] | |
Estimated useful life | 3 years |
Office Equipment [Member] | |
Estimated useful life | 3 years |
Software [Member] | |
Estimated useful life | 3-5 years |
4. Property and Equipment (De_3
4. Property and Equipment (Details Narrative) - USD ($) | 12 Months Ended | |
Dec. 31, 2020 | Dec. 31, 2019 | |
Property, Plant and Equipment [Abstract] | ||
Depreciation expense | $ 295,947 | $ 55,800 |
5. Intangible Asset (Details)
5. Intangible Asset (Details) - USD ($) | Dec. 31, 2020 | Dec. 31, 2019 |
Intangible assets, gross | $ 3,282,500 | $ 95,100 |
Less: accumulated amortization | (200,456) | (19,811) |
Intangible assets, net | 3,082,044 | 75,289 |
License Agreement [Member] | ||
Intangible assets, gross | 1,667,000 | 5,300 |
Tradename [Member] | ||
Intangible assets, gross | 350,000 | 0 |
Customer Relationships [Member] | ||
Intangible assets, gross | 1,055,000 | 0 |
Noncompete [Member] | ||
Intangible assets, gross | 120,000 | 0 |
Product License and Registration [Member] | ||
Intangible assets, gross | 57,300 | 57,300 |
Trade secret Intellectual Propertyt [Member] | ||
Intangible assets, gross | $ 32,500 | $ 32,500 |
5. Intangible Asset (Details Na
5. Intangible Asset (Details Narrative) - USD ($) | 12 Months Ended | |
Dec. 31, 2020 | Dec. 31, 2019 | |
Goodwill and Intangible Assets Disclosure [Abstract] | ||
Amortization expense | $ 180,644 | $ 5,908 |
6. Derivative Liability (Detail
6. Derivative Liability (Details Narrative) - USD ($) | Jan. 08, 2019 | Feb. 25, 2020 | Apr. 23, 2019 | Jun. 11, 2019 | Dec. 31, 2020 | Dec. 31, 2019 |
Fair value of derivative liabilities | $ 1,047,481 | |||||
Change in fair value of derivatives | 1,263,264 | $ 1,627,176 | ||||
Gain on forfeiture of contingent consideration | $ 1,462,636 | $ 0 | ||||
Measurement Input Share Price [Member] | ||||||
Fair value measurements | 41.32 - $3.75 | |||||
Measurement Input Expected Term [Member] | ||||||
Fair value measurements | 2.25 - 3 years | |||||
Measurement Input Risk Free Interest Rate [Member] | ||||||
Fair value measurements | 1.87% - 2.57% | |||||
Measurement Input Price Volatility [Member] | ||||||
Fair value measurements | 145%-158% | |||||
Officer [Member] | ||||||
Restricted stock granted, shares | 500,000 | 1,000,000 | 1,000,000 | |||
Gain on forfeiture of contingent consideration | $ 1,462,636 |
7. Related Party Transactions (
7. Related Party Transactions (Details Narrative) - USD ($) | 5 Months Ended | 12 Months Ended | ||||
May 20, 2020 | Dec. 31, 2020 | Dec. 22, 2020 | Dec. 18, 2020 | Dec. 16, 2020 | Dec. 31, 2019 | |
Super Farm LLC [Member] | ||||||
Revenue from related parties | $ 578,655 | |||||
Accounts receivable from related parties | 33,127 | |||||
Discount on sales given | $ 291,823 | |||||
Super Farm LLC [Member] | Chief Cultivation Officer [Member] | ||||||
Ownership percentage by related party | 20.00% | |||||
De Best [Member] | ||||||
Revenue from related parties | $ 191,915 | |||||
Accounts receivable from related parties | 2,180 | |||||
Discount on sales given | $ 95,957 | |||||
De Best [Member] | Chief Cultivation Officer [Member] | ||||||
Ownership percentage by related party | 20.00% | |||||
Med Pharm Holdings [Member] | ||||||
Revenue from related parties | $ 73,557 | $ 64,378 | ||||
Accounts receivable from related parties | 5,885 | 2,604 | ||||
Discount on sales given | 7,498 | |||||
Notes receivable issued | $ 767,695 | |||||
Note receivable interest rate | 8.00% | |||||
Proceeds from related party debt | $ 100,000 | |||||
Shares returned | 175,000 | |||||
Med Pharm Holdings [Member] | Principal [Member] | ||||||
Repayment to related party debt | $ 767,695 | |||||
Med Pharm Holdings [Member] | AccruedInterest [Member] | ||||||
Repayment to related party debt | 47,161 | |||||
Med Pharm Holdings [Member] | Principal and Interest [Member] | ||||||
Accounts payable to related party | 181,911 | |||||
Med Pharm Holdings [Member] | Chief Executive Officer [Member] | ||||||
Ownership percentage by related party | 29.00% | |||||
Med Man Denver [Member] | ||||||
Revenue from related parties | 997,262 | $ 402,839 | ||||
Accounts receivable from related parties | 72,109 | 34,748 | ||||
Discount on sales given | 143,473 | |||||
Costs and expenses to related party | $ 125,897 | |||||
Med Man Denver [Member] | Former CEO [Member] | ||||||
Ownership percentage by related party | 38.00% | |||||
Baseball 18 LLC [Member] | ||||||
Revenue from related parties | 14,605 | $ 165,617 | ||||
Accounts receivable from related parties | 169,960 | |||||
Accounts payable to related party | 31,250 | |||||
Farm Boy [Member] | ||||||
Revenue from related parties | 16,125 | 321,307 | ||||
Accounts receivable from related parties | $ 330,911 | |||||
Accounts payable to related party | 93,944 | |||||
Emerald Fields [Member] | ||||||
Revenue from related parties | 16,605 | |||||
Los Sueños [Member] | ||||||
Revenue from related parties | $ 52,244 | |||||
Dye Capital Cann Holdings [Member] | ||||||
Shares issued during period | 187,500 | |||||
Warrant issued | 187,500 | |||||
Exercise price | $ 3.50 | |||||
Proceeds from sale of equity, gross | $ 10,450,000 | |||||
Proceeds from sale of equity, net | 8,205,500 | |||||
Principal amount | $ 5,000,000 | |||||
Dye Capital Cann Holdings [Member] | Preferred Stock [Member] | ||||||
Shares issued during period | 1.300 | 1,450 | 7,700 |
8. Goodwill and Acquisition A_2
8. Goodwill and Acquisition Accounting (Details Narrative) - USD ($) | 5 Months Ended | 9 Months Ended | ||||||
Jun. 05, 2020 | Sep. 17, 2018 | Dec. 31, 2020 | Dec. 18, 2020 | Apr. 20, 2020 | Dec. 31, 2019 | Jul. 21, 2017 | Jun. 03, 2017 | |
Goodwill | $ 53,046,729 | $ 12,304,306 | ||||||
Common stock shares, issued | 42,601,773 | 39,952,626 | ||||||
Success Nutrients and Pono Publications [Member] | ||||||||
Goodwill | $ 6,301,080 | |||||||
Common stock shares, issued | 7,000,000 | |||||||
Denver Consulting Group [Member] | ||||||||
Goodwill | 3,003,226 | |||||||
Common stock shares, issued | 2,258,065 | |||||||
Big Tomato [Member] | ||||||||
Stock issued for acquisition, shares | 1,933,329 | |||||||
Goodwill | 3,000,000 | |||||||
Mesa Organics [Member] | ||||||||
Goodwill | 2,147,613 | |||||||
Common stock shares, issued | 2,554,750 | |||||||
Working capital adjustments | $ 2,609,500 | |||||||
SBUD LLC [Member] | ||||||||
Stock issued for acquisition, shares | 29,500 | |||||||
Goodwill | $ 38,594,810 | |||||||
Purchase price | $ 39,082,180 |
9. Inventory (Details Narrative
9. Inventory (Details Narrative) - USD ($) | 12 Months Ended | |
Dec. 31, 2020 | Dec. 31, 2019 | |
Inventory Disclosure [Abstract] | ||
Finished goods inventory | $ 2,090,887 | $ 684,940 |
Inventory obsolescence | 0 | $ 0 |
Raw materials inventory | 27,342 | |
Inventory work in process | $ 500,917 |
10. Leases (Details - Balance S
10. Leases (Details - Balance Sheet Classification) - USD ($) | Dec. 31, 2020 | Dec. 31, 2019 |
Leases [Abstract] | ||
Operating lease asset - non-current | $ 2,579,036 | $ 59,943 |
Operating lease liability - non-current | $ 2,645,597 | $ 66,803 |
10. Leases (Details - Operating
10. Leases (Details - Operating lease cost) | 12 Months Ended |
Dec. 31, 2020USD ($) | |
Leases [Abstract] | |
Operating lease costs | $ 359,564 |
10. Leases (Details - Lease mat
10. Leases (Details - Lease maturities) | Dec. 31, 2020USD ($) |
Leases [Abstract] | |
2020 fiscal year | $ 2,730,205 |
Total lease payments | 2,730,205 |
Less: interest | (84,608) |
Present value of lease liabilities | $ 2,645,597 |
10. Leases (Details - Minimum l
10. Leases (Details - Minimum lease obligation) | Dec. 31, 2020USD ($) |
Leases [Abstract] | |
2021 fiscal year | $ 854,870 |
2022 fiscal year | 849,792 |
2023 fiscal year | 717,539 |
2024 fiscal year | 495,175 |
2025 fiscal year | 162,182 |
Total | $ 3,079,559 |
10. Leases (Details Narrative)
10. Leases (Details Narrative) | Dec. 31, 2020 |
Minimum [Member] | |
Weighted average lease discount rate | 6.00% |
Maximum [Member] | |
Weighted average lease discount rate | 12.00% |
11. Commitments and Contingen_2
11. Commitments and Contingencies (Details Narrative) - USD ($) | 2 Months Ended | 5 Months Ended | 8 Months Ended | 12 Months Ended |
Feb. 25, 2020 | Jun. 05, 2020 | Sep. 09, 2020 | Dec. 17, 2020 | |
Andy Williams [Member] | ||||
Salary | $ 300,000 | |||
Compensation, description | Mr. Williams will receive (i) continued salary in the amount of $300,000, half of which to be paid within ten days of the execution of the Severance Agreement, and the remaining half is to be paid in 26 equal disbursements in accordance with the Company’s regular payroll periods, (ii) bonus payment in the amount of $25,000, (iii) one year family health care coverage, (iv) stock options to purchase 350,000 shares of the Company’s Common Stock, which may be exercised on a cashless basis and which vest immediately on the date of termination at a price of $1.80 per share and valued at $582,228, and (v) stock options to purchase 15,000 shares of the Company’s Common Stock, which may be exercised on a cashless basis at a price of $1.80 per share, valued at $27,000, at the one year anniversary of the termination date if Mr. Williams is compliant with the terms of the Severance Agreement. | |||
Nirup Krishnamurthy [Member] | ||||
Salary | $ 264,000 | |||
Shares issued for compensation | 600,000 | |||
Shares issued for compensation, value | $ 50,000 | |||
SBUD, LLC [Member] | ||||
Consideration to be transferred | $ 118,000,000 | |||
Stock issued for acquisition, shares | 29,500 | |||
Acquisition, description | Which would be convertible into approximately 24,583,333 shares of Common Stock (based on the initial Preference Amount and an initial Conversion Price equal to $1.20 per share | |||
Starbuds [Member] | ||||
Consideration to be transferred | $ 37,100,000 | |||
Stock issued for acquisition, shares | 7,877 | |||
Warrant issued | 1,737,719 | |||
Starbuds [Member] | Preferred Stock | ||||
Stock issued for acquisition, shares | 1,389 |
12. Stockholders' Equity (Detai
12. Stockholders' Equity (Details Warrant Activity) - Warrants [Member] | 12 Months Ended |
Dec. 31, 2020shares | |
Warrants outstanding, beginning balance | 9,800,000 |
Warrants exercised | 0 |
Warrants forfeited | 0 |
Warrants issued | 1,925,220 |
Warrants outstanding, ending balance | 11,725,220 |
12. Stockholders' Equity (Det_2
12. Stockholders' Equity (Details Narrative) - USD ($) | 3 Months Ended | 4 Months Ended | 12 Months Ended | |||
Apr. 03, 2020 | Apr. 20, 2020 | Dec. 31, 2020 | Dec. 18, 2020 | Dec. 17, 2020 | Dec. 31, 2019 | |
Common stock authorized | 250,000,000 | 250,000,000 | ||||
Common stock par value | $ 0.001 | $ 0.001 | ||||
Common stock issued | 42,601,773 | 39,952,626 | ||||
Common stock outstanding | 42,169,041 | 39,694,894 | ||||
Preferred stock authorized | 10,000,000 | 10,000,000 | ||||
Preferred stock par value | $ 0.001 | $ 0.001 | ||||
Preferred stock issued | 19,716 | 0 | ||||
Preferred stock outstanding | 19,716 | 0 | ||||
Proceeds from warrant exercises | $ 374,810 | $ 602,560 | ||||
Stock issued for compensation, value | 497,301 | $ 3,222,401 | ||||
Shares issued for acquisition, value | $ 13,437,649 | |||||
Measurement Input Share Price [Member] | ||||||
Fair value measurement | 41.32 - $3.75 | |||||
Measurement Input Expected Term [Member] | ||||||
Fair value measurement | 2.25 - 3 years | |||||
Measurement Input Risk Free Interest Rate [Member] | ||||||
Fair value measurement | 1.87% - 2.57% | |||||
Measurement Input Price Volatility [Member] | ||||||
Fair value measurement | 145%-158% | |||||
Contractors and Professionals [Member] | ||||||
Stock issued for services, shares | 173,775 | |||||
Stock issued for services, value | $ 305,521 | |||||
Accredited Investors [Member] | Warrants [Member] | Minimum [Member] | ||||||
Contractual term | 3 years | |||||
Risk-free interest rate | 0.21% | |||||
Expected volatility rate | 173.07% | |||||
Stock price | $ 3.50 | |||||
Accredited Investors [Member] | Warrants [Member] | Maximum [Member] | ||||||
Contractual term | 5 years | |||||
Risk-free interest rate | 0.38% | |||||
Expected volatility rate | 187.52% | |||||
Stock price | $ 1.20 | |||||
Accredited Investor [Member] | Common Stock Purchase Warrants [Member] | ||||||
Warrants issued, shares | 187,500 | |||||
Warrant term | 3 years | |||||
Warrant exercisable price | $ 3.50 | |||||
Accredited Investor [Member] | Common Stock Purchase Warrants [Member] | Measurement Input Share Price [Member] | ||||||
Fair value measurement | $3.50 | |||||
Accredited Investor [Member] | Common Stock Purchase Warrants [Member] | Measurement Input Expected Term [Member] | ||||||
Fair value measurement | 3 years | |||||
Accredited Investor [Member] | Common Stock Purchase Warrants [Member] | Measurement Input Risk Free Interest Rate [Member] | ||||||
Fair value measurement | 0.21% - 0.38% | |||||
Accredited Investor [Member] | Common Stock Purchase Warrants [Member] | Measurement Input Price Volatility [Member] | ||||||
Fair value measurement | 173.07% - 187.52% | |||||
SBUD LLC [Member] | Common Stock Purchase Warrants [Member] | ||||||
Warrants issued, shares | 1,737,719 | |||||
Warrant term | 5 years | |||||
Warrant exercisable price | $ 1.20 | |||||
SBUD LLC [Member] | Common Stock Purchase Warrants [Member] | Measurement Input Share Price [Member] | ||||||
Fair value measurement | $1.20 | |||||
SBUD LLC [Member] | Common Stock Purchase Warrants [Member] | Measurement Input Expected Term [Member] | ||||||
Fair value measurement | 5years | |||||
SBUD LLC [Member] | Common Stock Purchase Warrants [Member] | Measurement Input Risk Free Interest Rate [Member] | ||||||
Fair value measurement | 0.21% - 0.38% | |||||
SBUD LLC [Member] | Common Stock Purchase Warrants [Member] | Measurement Input Price Volatility [Member] | ||||||
Fair value measurement | 173.07% - 187.52% | |||||
Employees, Officers and Directors [Member] | ||||||
Stock issued for compensation, shares | 406,895 | 1,740,000 | ||||
Stock issued for compensation, value | $ 497,301 | $ 2,916,880 | ||||
Paul Dickman [Member] | ||||||
Shares cancelled | 500,000 | |||||
Mesa Organics, Ltd [Member] | ||||||
Stock issued for acquisition, shares | 2,554,750 | |||||
Shares issued for acquisition, value | $ 4,167,253 | |||||
SBUD LLC [Member] | Preferred Stock | ||||||
Stock issued for acquisition, shares | 6,404 | 2,862 | ||||
Shares issued for acquisition, value | $ 6,403,987 | $ 2,861,994 | ||||
Warrant Exercises [Member] | ||||||
Warrant exercisable price | $ 1.33 | |||||
Issuance of common stock in connection with the exercise of common stock purchase warrants, shares | 485,543 | |||||
Proceeds from warrant exercises | $ 602,560 | |||||
Private Placement [Member] | ||||||
Stock issued new, shares | 187,500 | 9,800,000 | ||||
Warrants issued, shares | 187,500 | 9,800,000 | ||||
Proceeds from sale of equity | $ 375,000 | $ 19,600,000 |
13. Tax Provision (Details - Co
13. Tax Provision (Details - Components of Income Tax) - USD ($) | 12 Months Ended | |
Dec. 31, 2020 | Dec. 31, 2019 | |
Income Tax Disclosure [Abstract] | ||
Federal | $ 0 | $ 0 |
State and local | 0 | 0 |
Total current tax expense | $ 0 | $ 0 |
13. Tax Provision (Details - _2
13. Tax Provision (Details - Components of Income tax payable) - USD ($) | 12 Months Ended | |
Dec. 31, 2020 | Dec. 31, 2019 | |
Total deferred tax expense (benefit) | $ (899,109) | $ (582,930) |
Federal [Member] | ||
Total deferred tax expense (benefit) | (796,353) | (477,625) |
State [Member] | ||
Total deferred tax expense (benefit) | $ (102,756) | $ (105,305) |
13. Tax Provision (Details - Re
13. Tax Provision (Details - Reconciliation of income taxes) | 12 Months Ended | |
Dec. 31, 2020 | Dec. 31, 2019 | |
Income Tax Disclosure [Abstract] | ||
Federal taxes at U.S. statutory rate | 21.00% | 21.00% |
State income taxes | 2.30% | 4.60% |
Permanent and temporary differences | (3.40%) | (15.50%) |
Change in valuation allowance | (14.00%) | (6.80%) |
Change in state rate | (1.70%) | 0.00% |
Return to provision adjustment/other | 0.40% | 0.00% |
Effective tax rate | 4.60% | 3.30% |
13. Tax Provision (Details - De
13. Tax Provision (Details - Deferred Income Taxes) - USD ($) | Dec. 31, 2020 | Dec. 31, 2019 |
Deferred tax assets: | ||
Bad debt allowance | $ 69,132 | $ 18,168 |
Accrued expenses | 197,958 | 38,413 |
Share based compensation accruals | 3,505,290 | 3,528,726 |
Net operating loss carryforwards | 4,357,600 | 1,703,425 |
Capitalized transaction costs | 222,360 | 0 |
Unrealized losses | 245,862 | 161,155 |
Other carryforwards | 13,357 | 0 |
Operating leases | 240,278 | 0 |
Total deferred tax assets | 8,851,837 | 5,449,887 |
Less: valuation allowance | (7,233,123) | (4,411,110) |
Net deferred tax assets | 1,618,714 | 1,038,777 |
Deferred tax liabilities: | ||
Prepaid expenses | 0 | 121,777 |
Fixed assets | 269,443 | 12,388 |
Goodwill and intangible assets | 1,116,546 | 636,188 |
Unrealized gains | 232,725 | 0 |
Net deferred tax liabilities | 1,618,714 | 770,354 |
Total deferred tax assets, net | $ 0 | $ 268,423 |
13. Tax Provision (Details Narr
13. Tax Provision (Details Narrative) - USD ($) | 12 Months Ended | |
Dec. 31, 2020 | Dec. 31, 2019 | |
NOL beginning expiration date | Dec. 31, 2039 | |
Valuation allowances | $ 7,233,123 | $ 4,411,110 |
Change in valuation allowance | 2,822,013 | |
Unrecognized tax benefits | 0 | 0 |
Interest expense or penalties | 0 | $ 0 |
Federal | ||
Net operating loss carryforwards | 19,700,000 | |
NOL carryback | 1,800,000 | |
Tax benefit from carryback | 270,000 | |
State | ||
Net operating loss carryforwards | $ 12,200,000 |
14. Major Customers and Accou_2
14. Major Customers and Accounts Receivable (Details Narrative) | 12 Months Ended | |
Dec. 31, 2020 | Dec. 31, 2019 | |
Accounts Receivable [Member] | ||
Concentration percentage | 22.00% | 68.00% |
Accounts Receivable [Member] | One Customer [Member] | ||
Concentration percentage | 11.00% | 57.00% |
Accounts Receivable [Member] | Second Customer [Member] | ||
Concentration percentage | 11.00% | 11.00% |
Revenue [Member] | One Customer [Member] | ||
Concentration percentage | 14.00% |
15. Segment Information (Detail
15. Segment Information (Details- Segment Information) - USD ($) | 12 Months Ended | |
Dec. 31, 2020 | Dec. 31, 2019 | |
Revenues | $ 24,000,852 | $ 12,400,955 |
COGS | (17,226,486) | (7,616,221) |
Gross profit | 6,774,366 | 4,784,734 |
Intangible assets amortization | 180,644 | 5,908 |
Depreciation | 295,947 | 55,800 |
Net income (loss) | (19,416,761) | (16,975,742) |
Segment assets | 70,682,601 | 32,228,607 |
Products [Member] | ||
Revenues | 22,506,393 | 7,820,518 |
COGS | (16,359,011) | (6,354,100) |
Gross profit | 6,147,382 | 1,466,418 |
Intangible assets amortization | 180,106 | 5,465 |
Depreciation | 76,310 | 7,186 |
Net income (loss) | 3,201,757 | 794,747 |
Segment assets | 61,591,952 | 12,406,230 |
Licensing and Consulting [Member] | ||
Revenues | 1,494,459 | 4,580,437 |
COGS | (867,476) | (1,262,121) |
Gross profit | 626,983 | 3,318,316 |
Intangible assets amortization | 539 | 443 |
Depreciation | 219,637 | 48,614 |
Net income (loss) | 345,312 | 1,688,147 |
Segment assets | 187,601 | 6,081,485 |
Corporate, Infrastructure and Other [Member] | ||
Revenues | 0 | 0 |
COGS | 0 | 0 |
Gross profit | 0 | 0 |
Intangible assets amortization | 0 | 0 |
Depreciation | 0 | 0 |
Net income (loss) | (22,963,830) | (19,458,636) |
Segment assets | $ 8,803,419 | $ 13,740,892 |
16. Earnings per share (Basic_3
16. Earnings per share (Basic and Dilutive) (Details - Basic and diluted earnings per share ) - USD ($) | 12 Months Ended | |
Dec. 31, 2020 | Dec. 31, 2019 | |
Numerator: | ||
Net income (loss) | $ (19,416,761) | $ (16,975,742) |
Denominator: | ||
Weighted-average shares of common stock | 41,217,026 | 33,740,557 |
Dilutive effect of warrants | 0 | 0 |
Diluted weighted-average shares of common stock | 41,217,026 | 33,740,557 |
Basic | $ (0.47) | $ (0.50) |
Diluted | $ (0.47) | $ (0.50) |
16. Earnings per share (Basic_4
16. Earnings per share (Basic and Dilutive) (Details Narrative) | 12 Months Ended |
Dec. 31, 2020shares | |
Option [Member] | |
Potential dilutive shares | 6,627,000 |
Warrants [Member] | |
Potential dilutive shares | 11,725,220 |
Preferred Shares [Member] | |
Potential dilutive shares | 19,716 |