| Summary of Significant Accounting Policies | 2. Summary of Significant Accounting Policies Basis of Presentation The Company’s consolidated financial statements
been prepared in accordance with accounting principles generally accepted in the United States (“GAAP”). The consolidated
financial statements include the accounts of the Company and its wholly owned subsidiary. All material intercompany accounts and transactions
have been eliminated during the consolidation process. The Company manages its operations as a single segment for the purposes of assessing
performance and making operating decisions. Use of Estimates The preparation of financial statements in conformity
with GAAP requires management to make estimates and assumptions that affect the application of accounting policies and the reported amounts
of assets, liabilities, income, and expenses. The most significant estimates included in these consolidated financial statements are those
associated with the assumptions used to value equity instruments, valuation of its long-lived assets for impairment testing, valuation
of intangible assets, the valuation of inventory and assets and liabilities held for sale. These estimates and assumptions are based on
current facts, historical experience and various other factors believed to be reasonable given the circumstances that exist at the time
the financial statements are prepared. Actual results may differ materially and adversely from these estimates. To the extent there are
material differences between the estimates and actual results, the Company’s future results of operations will be affected. Reclassifications Certain amounts in the Company’s consolidated
financial statements for prior periods have been reclassified to conform to the current period presentation. These reclassifications have
not changed the results of operations of prior periods. Principles of Consolidation The Company’s policy is to consolidate all entities
that it controls by ownership of a majority of the outstanding voting stock. In addition, the Company consolidates entities that meet
the definition of a variable interest entity (“VIE”) for which it is the primary beneficiary. The primary beneficiary is the
party who has the power to direct the activities of a VIE that most significantly impact the entity’s economic performance and who
has an obligation to absorb losses of the entity or a right to receive benefits from the entity that could potentially be significant
to the entity. For consolidated entities that are less than wholly owned, the third party’s holding of equity interest is presented
as noncontrolling interests in the Company’s Consolidated Balance Sheets and Consolidated Statements of Changes in Stockholders’
Equity. The portion of net loss attributable to the noncontrolling interests is presented as net loss attributable to noncontrolling interests
in the Company’s Consolidated Statements of Operations. The accompanying consolidated financial statements
include the accounts of Stem Holdings, Inc. and its wholly owned subsidiaries, Stem Holdings Oregon, Inc., Stem Holdings IP, Inc., Opco,
LLC, Stem Holdings Agri, Inc., Stem Oregon Acquisitions 2 Corp., Stem Oregon Acquisitions 3 Corp., Stem Oregon Acquisitions 4 Corp., 7LV
USA Corporation,(sold during the fiscal year ended September 30, 2023), and Stem Oregon Acquisitions 1 Corp., and Driven Deliveries, Inc.(sold
during the fiscal year ended September 30, 2022). In addition, the Company has consolidated YMY Ventures, LLC and NVD RE, Inc. under the
variable interest requirements. Cash and Cash Equivalents The Company considers all highly liquid investments
with a maturity of three months or less at the time of purchase to be cash equivalents. Financial instruments that potentially subject
the Company to a concentration of credit risk consist of cash and cash equivalents. The Company’s cash is primarily maintained in
checking accounts. These balances may, at times, exceed the U.S. Federal Deposit Insurance Corporation insurance limits. As of September
30, 2023, and 2022, the Company had no Accounts Receivable Accounts receivable is shown on the face of the consolidated
balance sheets, net of an allowance for doubtful accounts. The Company analyzes the aging of accounts receivable, historical bad debts,
customer creditworthiness and current economic trends, in determining the allowance for doubtful accounts. The Company does not accrue
interest receivable on past due accounts receivable. As of September 30, 2023, and 2022 the reserve for doubtful accounts was $ 4 79 Inventory Inventory is comprised of raw materials, finished
goods and work-in-progress such as pre-harvested cannabis plants and by-products to be extracted. The costs of growing cannabis including
but not limited to labor, utilities, nutrition, and irrigation, are capitalized into inventory until the time of harvest. Inventory is
included in discontinued operations (see Note 3). Inventory is stated at the lower of cost or net realizable
value, determined using weighted average cost. Cost includes expenditures directly related to manufacturing and distribution of the products.
Primary costs include raw materials, packaging, direct labor, overhead, shipping and the depreciation of manufacturing equipment and production
facilities determined at normal capacity. Manufacturing overhead and related expenses include salaries, wages, employee benefits, utilities,
maintenance, and property taxes. Net realizable value is defined as the estimated selling
price in the ordinary course of business, less reasonably predictable costs of completion, disposal, and transportation. At the end of
each reporting period, the Company performs an assessment of inventory obsolescence to measure inventory at the lower of cost or net realizable
value. Factors considered in the determination of obsolescence include slow-moving or non-marketable items. Prepaid Expenses and Other Current Assets Prepaid expenses consist of various payments
that the Company has made in advance for goods or services to be received in the future. These prepaid expenses include consulting, advertising,
insurance, and service or other contracts requiring up-front payments, and is included in discontinued operations (see Note 3). Held
for Sale Assets
and liabilities to be disposed of by sale are classified as “held for sale” if their carrying amounts are principally expected
to be recovered through a sale transaction rather than through continuing use. The classification occurs when the disposal group is available
for immediate sale and the sale is probable. These criteria are generally met when management has committed to a plan to sell the assets
within one year. Disposal groups are measured at the lower of carrying amount or fair value less costs to sell, and long-lived assets
included within the disposal group are not depreciated or amortized, in accordance with ASC 360, “Property, Plant and Equipment.”
“Discontinued Operations, Assets and Liabilities Held for Sale,” Property and Equipment Property, equipment, and leasehold improvements are
stated at cost less accumulated depreciation. Depreciation is calculated using the straight-line method over the estimated useful lives
of the assets. Repairs and maintenance expenditures that do not extend the useful lives of related assets are expensed as incurred. Expenditures for major renewals and improvements are
capitalized, while minor replacements, maintenance, and repairs, which do not extend the asset lives, are charged to operations as incurred.
Upon sale or disposition, the cost and related accumulated depreciation are removed from the accounts and any gain or loss is included
in operations. The Company continually monitors events and changes in circumstances that could indicate that the carrying balances of
its property, equipment and leasehold improvements may not be recoverable in accordance with the provisions of ASC 360, “Property,
Plant, and Equipment.” When such events or changes in circumstances are present, the Company assesses the recoverability of long-lived
assets by determining whether the carrying value of such assets will be recovered through undiscounted expected future cash flows. If
the total of the future cash flows is less than the carrying amount of those assets, the Company recognizes an impairment loss based on
the excess of the carrying amount over the fair value of the assets. Property and equipment, net, are included in discontinued operations
(see note 3). Property and equipment are stated at cost less accumulated
depreciation. Depreciation is provided on a straight-line method over the estimated useful lives of the assets. The Company estimates
useful lives as follows: Schedule
of Estimated Useful Life of Assets
Buildings 20
Leasehold improvements Shorter of term of lease or economic life of improvement
Furniture and equipment 5
Signage 5
Software and related 5 Impairment of Long-Lived Assets The Company reviews the carrying value of its long-lived
assets, which include property and equipment, for indicators of impairment whenever events or changes in circumstances indicate that the
carrying value of an asset or asset group may not be recoverable. The Company considers the following to be some examples of important
indicators that may trigger an impairment review: (i) significant under-performance or losses of assets relative to expected historical
or projected future operating results; (ii) significant changes in the manner or use of assets or in the Company’s overall strategy
with respect to the manner or use of the acquired assets or changes in the Company’s overall business strategy; (iii) significant
negative industry or economic trends; (iv) increased competitive pressures; (v) a significant decline in the Company’s stock price
for a sustained period of time; and (vi) regulatory changes. The Company evaluates assets for potential impairment indicators at least
annually and more frequently upon the occurrence of such events. The Company does not test for impairment in the year of acquisition of
properties, as long as those properties are acquired from unrelated third parties. The Company assesses the recoverability of its long-lived
assets by comparing the projected undiscounted net cash flows associated with the related long-lived asset or group of long-lived assets
over their remaining estimated useful lives against their respective carrying amounts. In cases where estimated future net undiscounted
cash flows are less than the carrying value, an impairment loss is recognized equal to an amount by which the carrying value exceeds the
fair value of the asset or asset group. Fair value is generally determined using the assets expected future discounted cash flows or market
value, if readily determinable. If long-lived assets are determined to be recoverable, but the newly determined remaining estimated useful
lives are shorter than originally estimated, the net book values of the long-lived assets are depreciated and amortized prospectively
over the newly determined remaining estimated useful lives.The Company’s long-lived assets are included in discontinued operations
(see Note 3). Equity Method Investments Investments in unconsolidated affiliates are accounted
for under the equity method of accounting, as appropriate. The Company accounts for investments in limited partnerships or limited liability
corporations, whereby the Company owns a minimum of 5.0 During the years ended September 30, 2023, and 2022,
the Company had no No 795 Goodwill and Intangible Assets Goodwill. 1.5 5.9 Intangible Assets 2.6 1.9 An intangible asset with an indefinite useful life
is not amortized but assessed for impairment annually, or more frequently, when events or changes in circumstances occur indicating that
it is more likely than not that the indefinite-lived asset is impaired. Impairment exists when the carrying amount exceeds its fair value.
In testing for impairment, the Company has the option to first perform a qualitative assessment to determine whether it is more likely
than not that an impairment exists. If it is determined that it is not more likely than not that an impairment exists, a quantitative
impairment test is not necessary. If the Company concludes otherwise, it is required to perform a quantitative impairment test. To the
extent an impairment loss is recognized, the loss establishes the new cost basis of the asset that is amortized over the remaining useful
life of that asset, if any. Subsequent reversal of impairment losses is not permitted. Business Combinations The Company applies the provisions of ASC 805 in the
accounting for acquisitions. ASC 805 requires the Company to recognize separately from goodwill the assets acquired, and the liabilities
assumed at their acquisition date fair values. Goodwill as of the acquisition date is measured as the excess of consideration transferred
over the net of the acquisition date fair values of the assets acquired and the liabilities assumed. While the Company uses its best estimates
and assumptions to accurately apply preliminary value to assets acquired and liabilities assumed at the acquisition date as well as contingent
consideration, where applicable, these estimates are inherently uncertain and subject to refinement. As a result, during the measurement
period, which may be up to one year from the acquisition date, the Company records adjustments in the current period, rather than a revision
to a prior period. Upon the conclusion of the measurement period or final determination of the values of the assets acquired or liabilities
assumed, whichever comes first, any subsequent adjustments are recorded in the consolidated statements of operations. Accounting for business
combinations requires management to make significant estimates and assumptions, especially at the acquisition date, including estimates
for intangible assets, contractual obligations assumed, restructuring liabilities, pre-acquisition contingencies, and contingent consideration,
where applicable. Although the Company believes the assumptions and estimates made have been reasonable and appropriate, they are based
in part on historical experience and information obtained from management of the acquired companies and are inherently uncertain. Unanticipated
events and circumstances may occur that may affect the accuracy or validity of such assumptions, estimates, or actual results. Contingent Consideration The Company accounts for “contingent consideration”
according to FASB ASC 805, “Business Combinations” (“FASB ASC 805”). Contingent consideration typically represents
the acquirer’s obligation to transfer additional assets or equity interests to the former owners of the acquiree if specified future
events occur or conditions are met. FASB ASC 805 requires that contingent consideration be recognized at the acquisition-date fair value
as part of the consideration transferred in the transaction. FASB ASC 805 uses the fair value definition in Fair Value Measurements, which
defines fair value as the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between
market participants at the measurement date. As defined in FASB ASC 805, contingent consideration is (i) an obligation of the acquirer
to transfer additional assets or equity interests to the former owners of an acquiree as part of the exchange for control of the acquiree,
if specified future events occur or conditions are met or (ii) the right of the acquirer to the return of previously transferred consideration
if specified conditions are met. Warrant Liability The Company accounts for certain common stock warrants
outstanding as a liability at fair value and adjusts the instruments to fair value at each reporting period. This liability is subject
to re-measurement at each balance sheet date until exercised, and any change in fair value is recognized in the Company’s consolidated
statements of operations as a change in fair value. The fair value of the warrants issued by the Company has been estimated using a Black
Scholes model. Embedded Conversion Features The Company evaluates embedded conversion features
within convertible debt to determine whether the embedded conversion feature(s) should be bifurcated from the host instrument and accounted
for as a derivative at fair value with changes in fair value recorded in the statement of operations. If the conversion feature does not
require recognition of a bifurcated derivative, the convertible debt instrument is evaluated for consideration of any beneficial conversion
feature (“BCF”) requiring separate recognition. When the Company records a BCF, the intrinsic value of the BCF is recorded
as a debt discount against the face amount of the respective debt instrument (offset to additional paid-in capital) and amortized to interest
expense over the life of the debt. Income Taxes The provision for income taxes is determined in accordance
with ASC 740, “Income Taxes”. The Company files a consolidated United States federal income tax return. The Company provides
for income taxes based on enacted tax law and statutory tax rates at which items of income and expense are expected to be settled in our
income tax return. Certain items of revenue and expense are reported for Federal income tax purposes in different periods than for financial
reporting purposes, thereby resulting in deferred income taxes. Deferred taxes are also recognized for operating losses that are available
to offset future taxable income. Valuation allowances are established when necessary to reduce deferred tax assets to the amount expected
to be realized. The Company has incurred net operating losses for financial-reporting and tax-reporting purposes. As of September 30,
2023, and 2022, such net operating losses were offset entirely by a valuation allowance. The Company recognizes uncertain tax positions
based on a benefit recognition model. Provided that the tax position is deemed more likely than not of being sustained, the Company recognizes
the largest amount of tax benefit that is more likely than not likely of being ultimately realized upon settlement. The tax position is
derecognized when it is no longer more likely than not of being sustained. The Company classifies income tax related interest and penalties
as interest expense and selling, general and administrative expense, respectively, on the consolidated statements of operations. In December 2017, the Tax Cuts and Jobs Act (TCJA
or the Act) was enacted, which significantly changes U.S. tax law. In accordance with ASC 740, “Income Taxes”, the Company
is required to account for the new requirements in the period that includes the date of enactment. The Act reduced the overall federal
corporate income tax rate to 21.0 Revenue Recognition The Company recognizes revenue when its customer obtains
control of promised goods or services, in an amount that reflects the consideration which the entity expects to receive in exchange for
those goods or services. To determine revenue recognition for arrangements that an entity determines are within the scope of Accounting
Standards Codification (ASC) Topic 606, Revenue from Contracts with Customers (Topic 606), the entity performs the following five steps:
(i) identify the contract(s) with a customer; (ii) identify the performance obligations in the contract; (iii) determine the transaction
price; (iv) allocate the transaction price to the performance obligations in the contract; and (v) recognize revenue when (or as) the
entity satisfies a performance obligation. The Company only applies the five-step model to contracts when it is probable that the entity
will collect the consideration it is entitled to in exchange for the goods or services it transfers to the customer. At contract inception,
once the contract is determined to be within the scope of Topic 606, the Company assesses the goods or services promised within each contract
and determines those that are performance obligations and assesses whether each promised good or service is distinct. The Company then
recognizes as revenue the amount of the transaction price that is allocated to the respective performance obligation when (or as) the
performance obligation is satisfied. Revenue for the Company’s product sales has
not been adjusted for the effects of a financing component as the Company expects, at contract inception, that the period between when
the Company’s transfers control of the product and when the Company receives payment will be one year or less. Product shipping
and handling costs are included in cost of product sales. The following policies reflect specific criteria for
the various revenue streams of the Company: Cannabis Dispensary, Cultivation and Production Revenue is recognized upon transfer of retail merchandise
to the customer upon sale transaction, at which time its performance obligation is complete. Revenue is recognized upon delivery of product
to the wholesale customer, at which time the Company’s performance obligation is complete. Terms are generally between cash on delivery
to 30 days for the Company’s wholesale customers. The Company’s sales environment is somewhat
unique, in that once the product is sold to the customer (retail) or delivered (wholesale) there are essentially no returns allowed or
warranty available to the customer under the various state laws. Delivery
1) Identify the contract with a customer The Company sells retail products directly to customers.
In these sales there is no formal contract with the customer. These sales have commercial substance and there are no issues with collectability
as the customer pays the cost of the goods at the time of purchase or delivery.
2) Identify the performance obligations in the contract The Company sells its products directly to consumers.
In this case these sales represent a performance obligation with the sales and any necessary deliveries of those products.
3) Determine the transaction price The sales that are done directly to the customer have
no variable consideration or financing component. The transaction price is the cost that those goods are being sold for plus any additional
delivery costs.
4) Allocate the transaction price to performance obligations in the contract For the goods that the Company sells directly to customers,
the transaction price is allocated between the cost of the goods and any delivery fees that may be incurred to deliver to the customer.
5) Recognize revenue when or as the Company satisfies a performance obligation For the sales of the Company’s own goods the
performance obligation is complete once the customer has received the product. Revenue for each of the years ended September 30,
2023 and 2022 are included in discontinued operations (see note 3). Leases On October 1, 2020, the Company adopted ASC 842 and
elected to apply the new standard at the adoption date and recognize a cumulative effect as an adjustment to retained earnings. Upon calculation
the effect on retained earnings was immaterial and no adjustment was deemed necessary. Leases with an initial term of twelve months or
less are not recorded on the balance sheet. For lease agreements entered into or reassessed after the adoption of Topic 842, we combine
the lease and non-lease components in determining the lease liabilities and right of use (“ROU”) assets. Our lease agreements generally do not provide an implicit
borrowing rate; therefore, an internal incremental borrowing rate is determined based on information available at lease commencement date
for purposes of determining the present value of lease payments. We used the incremental borrowing rate on September 30, 2023, for all
leases that commenced prior to that date. In determining this rate, which is used to determine the present value of future lease payments,
we estimate the rate of interest we would pay on a collateralized basis, with similar payment terms as the lease and in a similar economic
environment. Under Topic 842, operating lease expense is generally
recognized evenly over the term of the lease. Lease costs were $ 1,370 1,224 177 Lease Costs Schedule
of Lease Costs
2023 2022
Years Ended September 30,
2023 2022
Components of total lease costs:
Operating lease expense $ 1,370 1,224
Total lease costs $ 1,370 $ 1,224 Leases for each of the years ended September 30, 2023
and 2022 are included in discontinued operations (see note 3) Geographical Concentrations As of September 30, 2022, the Company is primarily
engaged in the production and sale of cannabis, which is only legal for recreational use in 19 states and D.C., with lesser legalization,
such as for medical use in an additional 21 states and D.C., as of the time of these consolidated financial statements. In addition, the
United States Congress has passed legislation, specifically the Agriculture Improvement Act of 2018 (also known as the “Farm Bill”)
that has removed production and consumption of hemp and associated products from Schedule 1 of the Controlled Substances Act. Cost of Goods Sold Cost of sales represents costs directly related to
manufacturing and distribution of the Company’s products. Primary costs include raw materials, packaging, direct labor, overhead,
shipping and handling and the depreciation of manufacturing equipment and production facilities. Manufacturing overhead and related expenses
include salaries, wages, employee benefits, utilities, maintenance, and property taxes. The Company recognizes the cost of sales as the
associated revenues are recognized. Cost of goods sold for each of the years ended September 30, 2023 and 2022 are included in discontinued
operations (see note 3) Fair Value of Financial Instruments As defined in the authoritative guidance, fair value
is the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants
at the measurement date. To estimate fair value, the Company utilizes market
data or assumptions that market participants would use in pricing the asset or liability, including assumptions about risk and the risks
inherent in the inputs to the valuation technique. These inputs can be readily observable, market corroborated or generally unobservable. The authoritative guidance establishes a fair value
hierarchy that prioritizes the inputs used to measure fair value. The hierarchy gives the highest priority to unadjusted quoted prices
in active markets for identical assets or liabilities (“Level 1” measurements) and the lowest priority to unobservable inputs
(“Level 3” measurements). The three levels of the fair value hierarchy are as follows: Level 1 — Observable inputs such as quoted prices
in active markets at the measurement date for identical, unrestricted assets or liabilities. Level 2 — Other inputs that are observable,
directly, or indirectly, such as quoted prices in markets that are not active, or inputs which are observable, either directly or indirectly,
for substantially the full term of the asset or liability. Level 3 — Unobservable inputs for which there
is little or no market data and which the Company makes its own assumptions about how market participants would price the assets and liabilities. In instances in which multiple levels of inputs are
used to measure fair value, hierarchy classification is based on the lowest level input that is significant to the fair value measurement
in its entirety. The Company’s assessment of the significance of a particular input to the fair value measurement in its entirety
requires judgment and considers factors specific to the asset or liability. Stock-based Compensation The Company accounts for share-based payment awards
exchanged for services at the estimated grant date fair value of the award. Stock options issued under the Company’s long-term incentive
plans are granted with an exercise price equal to no less than the market price of the Company’s stock at the date of grant and
expire up to ten years from the date of grant. These options generally vest on the grant date or over a one-year period. The Company estimates the fair value of stock option
grants using the Black-Scholes option pricing model and the assumptions used in calculating the fair value of stock-based awards represent
management’s best estimates and involve inherent uncertainties and the application of management’s judgment. Expected Term Expected Volatility Risk-Free Interest Rate Expected Dividend Effective January 1, 2017, the Company elected to
account for forfeited awards as they occur, as permitted by Accounting Standards Update (“ASU”) 2016-09. Ultimately, the actual
expenses recognized over the vesting period will be for those shares that vested. Prior to making this election, the Company estimated
a forfeiture rate for awards at 0%, as the Company did not have a significant history of forfeitures. Earnings (Loss) per Share ASC 260, Earnings Per Share, requires dual presentation
of basic and diluted earnings per share (“EPS”) with a reconciliation of the numerator and denominator of the basic EPS computation
to the numerator and denominator of the diluted EPS computation. Basic EPS excludes dilution. Diluted EPS reflects the potential dilution
that could occur if securities or other contracts to issue common stock were exercised or converted into common stock or resulted in the
issuance of common stock that then shared in the earnings of the entity. Basic net loss per share of common stock excludes
dilution and is computed by dividing net loss by the weighted average number of shares of common stock outstanding during the period.
Diluted net loss per share of common stock reflects the potential dilution that could occur if securities or other contracts to issue
common stock were exercised or converted into common stock or resulted in the issuance of common stock that then shared in the earnings
of the entity unless inclusion of such shares would be anti-dilutive. Since the Company has only incurred losses, basic and diluted net
loss per share is the same. Securities that could potentially dilute loss per share in the future that were not included in the computation
of diluted loss per share as of September 30, 2023, and 2022 are as follows: Schedule
of Computation of Diluted Loss
Potentially dilutive share-based instruments: September 30, September 30,
2023 2022
Convertible notes 881,628 3,250
Options to purchase common stock 1,241 552
Unvested restricted stock awards - -
Warrants to purchase common stock 1,777 6,578
Anti-dilutive Securities 884,645 10,381 Advertising Costs The Company follows the policy of charging the cost
of advertising to expense as incurred. Advertising expense was $ 103 266 Related parties Parties are related to the Company if the parties,
directly or indirectly, through one or more intermediaries, control, are controlled by, or are under common control with the Company.
Related parties also include principal owners of the Company, its management, members of the immediate families of principal owners of
the Company and its management and other parties with which the Company may deal with if one party controls or can significantly influence
the management or operating policies of the other to an extent that one of the transacting parties might be prevented from fully pursuing
its own separate interests. Segment reporting Operating segments are defined as components of an
enterprise about which separate financial information is available that is evaluated regularly by the chief operating decision maker,
or decision–making group in deciding how to allocate resources and in assessing performance. The Company’s chief operating
decision–maker is its chief executive officer. The Company currently operates in one segment. Recent Accounting Guidance In June 2016, the FASB issued ASU 2016-13, Financial
Instruments - Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments (“ASU 2016-13”). ASU 2016-13
provides guidance for recognizing credit losses on financial instruments based on an estimate of current expected credit losses model.
The amendments are effective for fiscal years beginning after December 15, 2019. Recently, the FASB issued the final ASU to delay adoption
for smaller reporting companies to calendar year 2023. The Company is currently assessing the impact of the adoption of this ASU on its
financial statements. Schedule
of Adoption of ASU on its Financial Statements |
