Nature of Operations, History, and Presentation

9 Months Ended

Sep. 30, 2024

Nature of Operations, History, and Presentation [Abstract]

NATURE OF OPERATIONS, HISTORY, AND PRESENTATION

NOTE 1.  NATURE OF OPERATIONS, HISTORY, AND PRESENTATION

Nature of Operations

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

We presently operate five (5) cannabis dispensaries as follows:

● Englewood, Colorado

o 5005 S Federal Boulevard – Recreational license only

● Denver, Colorado

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

● Longmont, Colorado

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

● Two (2) in Oregon

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

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

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

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

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

Our principal business model is to acquire, integrate and optimize cannabis companies in the retail and cultivation segments utilizing the combined experience of entrepreneurs and synergistic operations of our vertically integrated network.

Basis of Presentation

The accompanying unaudited condensed consolidated financial statements include all accounts of the Company and its wholly owned subsidiaries. All inter-company accounts and transactions have been eliminated in consolidation. These unaudited condensed consolidated financial statements have been prepared following the requirements of the Securities and Exchange Commission for interim reporting. As permitted under those rules, certain footnotes and other financial information that are normally required by accounting principles generally accepted in the United States of America (“U.S. GAAP”) can be condensed or omitted. The condensed consolidated balance sheet for the year ended December 31, 2023, was derived from audited financial statements but does not include all disclosures required by U.S. GAAP. The information included in this quarterly report on Form 10-Q should be read in conjunction with the audited consolidated financial statements and notes thereto of the Company for the year ended December 31, 2023, which were included in the annual report on Form 10-K filed by the Company on April 10, 2024.

In the opinion of management, these unaudited condensed consolidated financial statements have been prepared on the same basis as the annual consolidated financial statements and notes thereto of the Company and include all adjustments, consisting only of normal recurring adjustments, considered necessary for the fair presentation of the Company’s financial position and operating results. The results for the nine months ended September 30, 2024, are not necessarily indicative of the operating results for the year ending December 31, 2024, or any other interim or future periods. Since the date of the Annual Report, there have been no material changes to the Company’s significant accounting policies.

Reclassifications

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

Use of Estimates

The preparation of our unaudited condensed consolidated financial statements in conformity with U.S. GAAP requires management to make estimates and assumptions that affect the reported amounts of assets, liabilities, revenues, and expenses. Although these estimates are based on our knowledge of current events and actions we may undertake in the future, actual results may ultimately differ from these estimates and assumptions. Furthermore, when testing assets for impairment in future periods, if management uses different assumptions or if different conditions occur, impairment charges may result.

Concentrations of Credit Risk

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

Customer and Revenue Concentrations – Cultivation Segment

During the three months ended September 30, 2024, SevenFive had zero dollars in revenue and during the three months ended September 30, 2023, 89% of SevenFive’s revenue was with five customers, respectively. During the nine months ended September 30, 2024 and 2023, 100% of SevenFive’s revenue was with three customers and 50% of SevenFive’s revenue was with one customer, respectively. The customers in 2024 are related party dispensaries and the revenues associated with these customers are eliminated in consolidation.

During the three months ended September 30, 2024 and 2023, 92% of Hillside Cultivation’s (formerly noted as Green Tree) revenue was with three customers, and 84% of Hillside Cultivation’s (formerly noted as Green Tree) revenue was with four customers, respectively. During the nine months ended September 30, 2024 and 2023, 98% of Hillside Cultivation’s (formerly noted as Green Tree) revenue was with three customers, and 78% of Hillside Cultivation’s (formerly noted as Green Tree) revenue was with three customers, respectively. The customers in 2024 are related party dispensaries and the revenues associated with these customers are eliminated in consolidation.

Hillsides Cultivation’s revenue includes revenue from an external wholesale vendor totaling $5,084 which has been applied to open accounts payable for the retail segment of the Company for the same vendor. Accounts payable and the associated cost of goods sold expense have been increased for the retail segment to account for this adjustment. 

Deferred Revenue from Loyalty Program

For the Company's retail locations, the Company offers a loyalty reward program to its dispensary customers that allows customers to earn reward credits to be used on future purchases. Loyalty reward credits issued as part of a sales transaction results in revenue being deferred until the loyalty reward is redeemed by the customer. The loyalty rewards are recorded as reductions to revenue on the condensed consolidated statements of operations and included as deferred revenue on the condensed consolidated balance sheets. A portion of the revenue generated in a sale must be allocated to the loyalty points earned. The amount allocated to the points earned is deferred until the loyalty points are redeemed.

Deferred revenue due to outstanding loyalty points at September 30, 2024 and 2023 was $146,672 and nil, respectively. The deferred revenue is included on the Condensed Consolidated Balance Sheet with Accounts payable and accrued expenses and will be recognized in the consolidated Income Statement with net revenue upon redemption of the loyalty points.

Basic and Diluted Loss Per Share

The Company presents basic earnings per share (EPS) on the face of the statements of operation. Basic EPS is computed by dividing net income (loss) available to common shareholders (numerator) by the weighted average number of shares outstanding (denominator) during the period. Diluted EPS gives effect to all dilutive potential common shares outstanding during the period including convertible debt, stock options, and warrants, using the treasury stock method, and convertible debt instrument, using the if-converted method. In computing diluted EPS, the average stock price for the period is used in determining the number of shares assumed to be purchased from the exercise of stock options or warrants. Diluted EPS excludes all dilutive potential shares as their effect is anti-dilutive.

The calculation of basic and diluted net loss per share is as follows:

	For the three months ended September 30,						For the nine months ended September 30,
	2024			2023			2024			2023
Loss Per Share:
Net Loss	$	(509,009	)	$	(815,123	)	$	(3,051,103	)	$	(4,755,512	)
Denominator:
Weighted-Average common shares outstanding		108,746,520			118,664,094			108,746,520			118,664,094
Basic net loss per share	$	(0.00	)	$	(0.01	)	$	(0.03	)	$	(0.04	)

Potentially dilutive securities excluded from the basic and diluted net income per share are as follows:

	For the three  months ended September 30,				For the nine  months ended September 30,
	2024		2023		2024		2023
Convertible Debt		16,875,000		24,107,143		16,875,000		24,107,143
Warrants to purchase common stock		68,013,005		31,804,686		49,652,254		24,013,547
Options to purchase common stock		4,711,825		4,973,825		4,711,825		4,973,825
		89,599,830		60,885,654		71,239,079		53,094,515

Going Concern

The accompanying unaudited condensed consolidated financial statements have been prepared on the basis of continuity of operations, realization of assets, and the satisfaction of liabilities and commitments in the ordinary course of business. The Company has incurred recurring losses and negative cash flows from operations since inception and have primarily funded its operations with proceeds from the issuance of debt and equity. The Company incurred a net loss of $3,033,403 and lost $724,309 in cash from operations during the nine months ended September 30, 2024, respectively, and had an accumulated deficit of $103,535,443 as of September 30, 2024. We had cash and cash equivalents of $245,367 as of September 30, 2024. The Company expects our operating losses to continue into the foreseeable future as we continue to execute our acquisition and growth strategy.  As a result, the Company has concluded that there is substantial doubt about its ability to continue as a going concern.  The Company’s unaudited condensed consolidated financial statements do not include any adjustments that might result from the outcome of this uncertainty. 

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

Summary of Significant Accounting Policies

See our Annual Report on Form 10-K for the year ended December 31, 2023, as amended, for discussion of the Company’s significant accounting policies.

Recently Issued Accounting Standards

In November 2023, the FASB issued ASU No. 2023-07, “Segment Reporting – Improvements to Reportable Segment Disclosures” (“ASU 2023-07”). ASU 2023-07 requires disclosure of more detailed information about a reportable segment’s expenses. ASU 203-07 is effective for fiscal years beginning after December 15, 2023 and interim periods beginning after December 15, 2024. The amendments must be applied retrospectively, and early adoption is permitted. The Company is currently assessing the effects of adoption on its consolidated financial statements.

In December 2023, the FASB issued ASU No. 2023-09, “Improvements to Income Tax Disclosures” (“ASU 2023-09”). ASU 2023-09 applies to all entities subject to income taxes and requires public business entities such as the Company to provide a tabular rate reconciliation and a separate disclosure for any reconciling items with certain categories that are equal to or greater than a specified quantitative threshold. The new standard is effective for annual periods beginning after December 15, 2024 and is to be applied on a prospective basis with the option to apply the standard retrospectively, early adoption is permitted. The Company is currently assessing the effects of adoption on its consolidated financial statements.