UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM
for the quarterly period ended
for the transition period from ____________ to ____________.
Commission file number:
(Exact name of registrant as specified in its charter)
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(State of incorporation) | (IRS Employer Identification No.) | |
(Address of principal executive offices) (Zip Code) | ||
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(Registrant’s Telephone Number, Including Area Code) |
Securities registered pursuant to Section 12(b) of the Act:
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to the filing requirements for the past 90 days.
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☑ | Smaller reporting company | ||
Emerging growth company |
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Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes
As of August 9, 2021, there were
GENERAL CANNABIS CORP
FORM 10-Q
TABLE OF CONTENTS
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Management’s Discussion and Analysis of Financial Condition and Results of Operations | 20 | |
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PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
GENERAL CANNABIS CORP
CONDENSED CONSOLIDATED BALANCE SHEETS
June 30, 2021 | ||||||
(Unaudited) | December 31, 2020 | |||||
Assets |
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Current assets |
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Cash and cash equivalents | $ | | $ | | ||
Accounts receivable, net of allowance of $ |
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Current portion of notes receivable, net of allowance of | — | |||||
Inventories, net | | | ||||
Prepaid expenses and other current assets |
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Assets of discontinued operations - current portion |
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Total current assets |
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Right-of-use operating lease asset | | | ||||
Property and equipment, net | | | ||||
Investment, held for sale |
| — |
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Intangible assets, net | | | ||||
Goodwill | | | ||||
Assets of discontinued operations | | | ||||
Total assets | $ | | $ | | ||
Liabilities and Stockholders' Equity |
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Current liabilities |
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Accounts payable and accrued expenses | $ | | $ | | ||
Interest payable |
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Operating lease liability, current | | | ||||
Accrued stock payable |
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Warrant derivative liability |
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Liabilities of discontinued operations |
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Total current liabilities |
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Operating lease liability, non-current | | | ||||
Long-term notes payable (net of discount) | | | ||||
Related party long-term notes payable (net of discount) | | | ||||
Total liabilities | | | ||||
Commitments and contingencies (Note 9) | ||||||
Stockholders’ equity |
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Preferred stock, | ||||||
Common stock, $ | | | ||||
Additional paid-in capital |
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Accumulated deficit |
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Total stockholders’ equity |
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Total liabilities and stockholders’ equity | $ | | $ | |
See Notes to condensed consolidated financial statements.
3
GENERAL CANNABIS CORP
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited)
| Three months ended | Six months ended | |||||||||||
June 30, | June 30, | ||||||||||||
2021 | 2020 | 2021 | 2020 | ||||||||||
Revenue |
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Cultivation sales | $ | | $ | | $ | | $ | | |||||
Interest | — | | | | |||||||||
Total revenue | | | | | |||||||||
Costs and expenses | |||||||||||||
Cost of sales | | | | | |||||||||
Selling, general and administrative | | | | | |||||||||
Stock-based compensation | ( | | | | |||||||||
Professional fees | | | | | |||||||||
Depreciation and amortization | | | | | |||||||||
Total costs and expenses | | | | | |||||||||
Operating loss | ( | ( | ( | ( | |||||||||
Other expenses (income) | |||||||||||||
Amortization of debt discount and equity issuance costs | | | | | |||||||||
Interest expense | | | | | |||||||||
Loss on extinguishment of debt | — | | — | | |||||||||
(Gain) loss on derivative liability | ( | | ( | ||||||||||
(Gain) loss on sale of assets | — | ( | | ( | |||||||||
Total other expenses, net | | | | | |||||||||
Net loss from continuing operations before income taxes | ( | ( | ( | ( | |||||||||
Loss from discontinued operations | ( | ( | ( | ( | |||||||||
Loss from operations before income taxes | ( | ( | ( | ( | |||||||||
Provision for income taxes | — | | — | | |||||||||
Net loss | ( | ( | ( | ( | |||||||||
Deemed dividend | — | ( | — | ( | |||||||||
Net loss attributable to common stockholders | $ | ( | $ | ( | $ | ( | $ | ( | |||||
Per share data - basic and diluted | |||||||||||||
Net loss from continuing operations per share | $ | ( | $ | ( | $ | ( | $ | ( | |||||
Net loss from discontinued operations per share | $ | $ | $ | ( | $ | ||||||||
Net loss attributable to common stockholders per share | $ | ( | $ | ( | $ | ( | $ | ( | |||||
Weighted average number of common shares outstanding | | | | |
See Notes to condensed consolidated financial statements.
4
GENERAL CANNABIS CORP
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
Six months ended June 30, | ||||||
2021 | 2020 | |||||
Cash flows from operating activities |
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Net loss | $ | ( | $ | ( | ||
Adjustments to reconcile net loss to net cash used in operating activities: |
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Amortization of debt discount and equity issuance costs |
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Depreciation and amortization |
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Amortization of loan origination fees | — | ( | ||||
Loss on extinguishment of debt | — | | ||||
Non-cash lease expense | | | ||||
Bad debt expense | ( | | ||||
Loss on disposal of property and equipment | | | ||||
Loss (gain) on warrant derivative liability |
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| ( | ||
Stock-based compensation |
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Gain on sale of building | — | ( | ||||
Changes in operating assets and liabilities, net of acquisitions |
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Accounts receivable |
| ( |
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Prepaid expenses and other assets |
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Inventories |
| ( |
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Accounts payable and accrued liabilities | ( | ( | ||||
Operating lease liabilities | ( | ( | ||||
Income taxes | — | | ||||
Net cash used in operating activities: |
| ( |
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Cash flows from investing activities |
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Purchase of property and equipment |
| ( |
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Proceeds from sale of investment | | — | ||||
Proceeds on notes receivable | | — | ||||
Proceeds from sale of building | — | | ||||
Net cash provided by investing activities |
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Cash flows from financing activities |
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Proceeds from the sale of common stock and warrants - accrued stock payable | — | | ||||
Proceeds from the exercise of warrants | — | | ||||
Proceeds from exercise of stock options | | — | ||||
Proceeds from notes payable | | | ||||
Payments on notes payable | ( | ( | ||||
Net cash provided by financing activities |
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Net increase in cash and cash equivalents |
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Cash and cash equivalents, beginning of period |
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Cash and cash equivalents, end of period | $ | | $ | | ||
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Supplemental schedule of cash flow information |
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Cash paid for interest | $ | | $ | | ||
Non-cash investing & financing activities |
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Cashless warrant exercises | $ | | $ | | ||
Beneficial conversion feature | $ | | $ | | ||
$ | | $ | — | |||
Issuance of common stock to a consultant | $ | | $ | — | ||
Deemed dividend from | $ | — | $ | | ||
Operating lease right-of-use asset/operating lease liability | $ | — | $ | | ||
$ | — | $ | | |||
$ | — | $ | | |||
Debt converted to equity | $ | — | $ | | ||
Issuance of common stock to an employee | $ | — | $ | | ||
Stock issued in connection with SevenFive Farm acquisition | $ | — | $ | |
See Notes to condensed consolidated financial statements.
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GENERAL CANNABIS CORP
CONDENSED CONSOLIDATED STATEMENTS OF CHANGES
IN STOCKHOLDERS’ EQUITY (DEFICIT)
For the three months ended June 30, 2021 | ||||||||||||||
Common Stock | Additional | Accumulated | ||||||||||||
Shares | Amount | Paid-in Capital | Deficit | Total | ||||||||||
April 1, 2021 |
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| $ | |
| $ | |
| $ | ( |
| $ | |
Common stock issued upon exercise of stock options | |
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| — |
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Warrants issued with |
| — |
| — |
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| — |
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Beneficial conversion feature | — | — | | — | | |||||||||
Stock-based compensation | — | — | ( | — | ( | |||||||||
Net loss |
| — |
| — |
| — |
| ( |
| ( | ||||
June 30, 2021 |
| | $ | | $ | | $ | ( | $ | | ||||
For the three months ended June 30, 2020 | ||||||||||||||
Common Stock | Additional | Accumulated | ||||||||||||
Shares | Amount | Paid-in Capital | Deficit | Total | ||||||||||
April 1, 2020 | |
| $ | |
| $ | |
| $ | ( |
| $ | ( | |
Common stock issued for acquisition of SevenFive Farm | |
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| — |
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Common stock issued upon conversion of debt | | | | — | | |||||||||
Stock-based compensation | — | — | | — | | |||||||||
Cashless exercise of warrants | | | | — | | |||||||||
Net loss | — |
| — |
| — |
| ( |
| ( | |||||
June 30, 2020 | | $ | | $ | | $ | ( | $ | ( |
| For the six months ended June 30, 2021 | |||||||||||||
Common Stock | Additional | Accumulated | ||||||||||||
| Shares |
| Amount |
| Paid-in Capital |
| Deficit |
| Total | |||||
January 1, 2021 | | $ | | $ | | $ | ( | $ | | |||||
Common stock issued to a consultant | |
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| — |
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Common stock issued upon exercise of stock options | |
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| — |
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Warrants issued with | — |
| — |
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| — |
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Beneficial conversion feature | — | — | | — | | |||||||||
Cashless exercise of warrants | | | | — | | |||||||||
Stock-based compensation | — | — | | — | | |||||||||
Net loss | — |
| — |
| — |
| ( |
| ( | |||||
June 30, 2021 | | $ | | $ | | $ | ( | $ | | |||||
For the six months ended June 30, 2020 | ||||||||||||||
Common Stock | Additional | Accumulated | ||||||||||||
Shares |
| Amount |
| Paid-in Capital |
| Deficit |
| Total | ||||||
January 1, 2020 | | $ | | $ | | $ | ( | $ | ( | |||||
Sale of common stock, net of issuance costs | |
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| — |
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Common stock issued upon conversion of debt | | | | — | | |||||||||
Common stock issued for acquisition of SevenFive Farm | |
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| — |
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Stock-based compensation | — |
| — |
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| — |
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Beneficial conversion feature | — |
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| — |
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Warrants exercised | | | | — | | |||||||||
Warrants issued with the | — | — | | — | | |||||||||
Cashless exercise of warrants | | | | — | | |||||||||
Net loss | — |
| — |
| — |
| ( |
| ( | |||||
June 30, 2020 | | $ | | $ | | $ | ( | $ | ( |
See Notes to condensed consolidated financial statements.
6
GENERAL CANNABIS CORP
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
NOTE 1. NATURE OF OPERATIONS, HISTORY AND PRESENTATION
Nature of Operations
General Cannabis Corp, a Colorado Corporation (the “Company,” “we,” “us,” or “our,”) (formerly, Advanced Cannabis Solutions, Inc.), was incorporated on June 3, 2013, and provides services and products to the regulated cannabis industry. We currently trade on the OTCQB® Market under the trading symbol CANN. As of June 30, 2021, our operations are segregated into the following segments:
Cultivation (“Cultivation Segment”)
Through our acquisition of SevenFive Farm ("SevenFive") in May 2020, we operate a
During the three and six months ended June 30, 2021,
Discontinued Operations - Operations Consulting and Products (“Operations Segment”)
Through Next Big Crop (“NBC”), we deliver comprehensive consulting services to the cannabis industry that include obtaining licenses, compliance, cultivation, retail operations, logistical support, facility design and construction, and expansion of existing operations.
NBC oversees our wholesale equipment and supply business, operated under the name “GC Supply,” which provides turnkey sourcing and stocking services to cultivation, retail and infused products manufacturing facilities. Our products include building materials, equipment, consumables and compliance packaging. There are generally multiple suppliers for the products we sell; however, there are a limited number of manufacturers of certain high-tech cultivation equipment. NBC also provides operational support for our internal cultivation. In June 2021, we began talks with an individual to begin the sale of NBC. On July 16, 2021, we entered into an Asset Purchase Agreement with this individual to sell substantially all of the assets of NBC for a total of $
Basis of Presentation
The accompanying 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, 2020 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 consolidated financial statements and notes thereto of the Company for the year ended December 31, 2020 which were included in the annual report on Form 10-K filed by the Company on April 1, 2021.
In the opinion of management, these condensed consolidated financial statements have been prepared on the same basis as the annual consolidated financial statements and notes thereto of the Company and include all adjustments, consisting only of normal recurring adjustments, considered necessary for the fair presentation of the Company's financial position and operating results. The results for the three and six months ended June 30, 2021 are not necessarily indicative of the
7
operating results for the year ending December 31, 2021, or any other interim or future periods. Since the date of the Annual Report, there have been no material changes to the Company’s significant accounting policies.
Reclassifications
Certain prior year amounts have been reclassified for consistency with the current year presentation. These reclassifications had no effect on the reported results of operations.
Use of Estimates
The preparation of our 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. In particular, the COVID-19 pandemic has adversely impacted and is likely to further adversely impact the Company's business and markets. The full extent to which the COVID-19 pandemic will directly or indirectly impact the Company's business, results of operations and financial condition, including revenues, expenses, reserves and allowances, fair value measurements and asset impairment charges, will depend on future developments that are highly uncertain and difficult to predict. These developments include, but are not limited to, the duration and spread of the pandemic, its severity in our markets and elsewhere, governmental actions to contain the spread of the pandemic and respond to the reduction in global economic activity, and how quickly and to what extent normal economic and operating conditions can resume.
Discontinued Operations
In June 2021, we began talks with an individual to begin the sale of NBC. On July 16, 2021, we entered into an Asset Purchase Agreement with this individual to sell substantially all of the assets of NBC for a total of $
On January 1, 2021, we discontinued our investments segment. As this is not a materially significant segment, we have not shown the effects of the discontinued segment in the financial statements.
On December 26, 2019, the board of directors and management made the strategic decision to discontinue the operations for both the Security Segment and the Consumer Goods Segment. The assets and liabilities classified as discontinued operations for the Security Segment and Consumer Goods Segment are presented separately in the balance sheet and the operating results. The cash flows related to discontinued operations have not been segregated and are included in the consolidated statements of cash flows.
Going Concern
The Company incurred net losses of $
The accompanying 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 has primarily funded its
8
operations with proceeds from the issuance of convertible debt. The Company expects its operating losses to continue into the foreseeable future as it continues to execute its acquisition and growth strategy.
The Company believes that its cash and cash equivalents as of June 30, 2021 will be sufficient to fund its operating expenses and capital expenditure requirements for at least twelve months from the date of filing this Quarterly Report on Form 10-Q due to the receipt of an additional $
Summary of Significant Accounting Policies
See our Annual Report on Form 10-K for the year ended December 31, 2020, for discussion of the Company's significant accounting policies.
Recently Issued Accounting Standards
FASB ASU 2020-06 – “Debt-Debt with Conversion and Other Options (Subtopic 470-20) and Derivatives and Hedging-Contracts in Entity’s Own Equity (Subtopic 815-40): Accounting for Convertible Instruments and Contracts in an Entity’s Own Equity”- In June 2020, the Financial Accounting Standards Board (“FASB”) issued guidance which simplifies accounting for convertible instruments by removing major separation models required under current GAAP. Accounting Standards Updates (“ASU”) also removes certain settlement conditions that are required for equity contracts to qualify for the derivative scope exception and simplifies the diluted earnings per share calculation in certain areas. The amendments in this ASU are effective for annual and interim periods beginning after December 15, 2021, although early adoption is permitted. We are in the process of evaluating the impact of this new guidance on our consolidated financial statements.
FASB ASU 2019-12 – “Income Taxes (Topic 740)” – In December 2019, the FASB issued guidance which simplifies certain aspects of accounting for income taxes. The guidance is effective for interim and annual reporting periods beginning after December 15, 2020, and early adoption is permitted. We adopted this ASU in the first quarter of 2021. This ASU did not have a material effect on our condensed consolidated financial statements.
NOTE 2. BUSINESS ACQUISITION
On May 13, 2020, we received approval of the transaction and transfer of the Dalton Adventures, LLC (“Seller”) license from the Colorado Marijuana Enforcement Division. On May 25, 2020, we finalized the acquisition, pursuant to which we acquired the assets of the Seller that constitute the business of SevenFive Farm, a cultivation facility in Boulder, Colorado, whereby we acquired fixed assets, inventory, a cultivation license and the tradename. The purchase price paid by the Company to the Seller was
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The table below reflects the Company’s estimates of the acquisition date fair values of the assets acquired:
Inventories | $ | | |
Fixed assets |
| | |
Tradename |
| | |
Goodwill |
| | |
$ | |
The accompanying condensed consolidated financial statements include the results of SevenFive from the date of acquisition for financial reporting purposes, May 13, 2020. The pro forma effects of the acquisition on the results of operations as if the transaction had been completed on January 1, 2020, are as follows:
| Three months ended |
| Six months ended | |||
June 30, | June 30, | |||||
2020 | 2020 | |||||
Total revenues | $ | | $ | | ||
Net loss attributable to common stockholders | $ | ( | $ | ( | ||
Net loss per common share: | $ | ( | $ | ( | ||
Weighted average number of basic and diluted common shares outstanding | | |
The unaudited proforma results of operations are presented for information purposes only. The unaudited pro-forma results are not intended to present actual results that would have been attained had the acquisition been completed as of January 1, 2020, or to project potential operating results as of any future date or for any future periods.
NOTE 3. DISCONTINUED OPERATIONS
In June 2021, we began talks with an individual to begin the sale of NBC. On July 16, 2021, we entered into an Asset Purchase Agreement with this individual to sell substantially all of the assets of NBC for a total of $
Assets and liabilities of discontinued operations for the Operations Segment included the following:
June 30, | December 31, | |||||
| 2021 |
| 2020 | |||
Accounts receivable, net | $ | | $ | | ||
Prepaid expenses and other current assets |
| |
| | ||
Current assets discontinued operations | | | ||||
Property and equipment, net | | | ||||
Noncurrent assets discontinued operations | | | ||||
Accounts payable and accrued expenses | | | ||||
Customer deposits | | | ||||
Current liabilities discontinued operations | $ | | $ | |
A summary of the discontinued operations for the Operations Segment is presented as follows:
10
Three months ended | Six months ended | ||||||||||||
June 30, | June 30, | ||||||||||||
| 2021 |
| 2020 |
| 2021 |
| 2020 | ||||||
Product revenues | $ | | $ | | $ | | $ | |
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Service revenues | | | | | |||||||||
Total revenues | | | | | |||||||||
Cost of sales | | |
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Selling, general and administrative | | |
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Professional fees | | |
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Depreciation and amortization | | | | | |||||||||
Total costs and expenses | | |
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Loss from discontinued operations | $ | ( | $ | ( | $ | ( | $ | ( |
The condensed consolidated statement of operations include 2019 discontinued operations gain of $
The cash flows related to discontinued operations have not been segregated and are included in the consolidated statements of cash flows. The following table provides selected information on cash flows related to discontinued operations for the Operations Segment for the six months ended June 30, 2021 and 2020.
Six months ended | |||||||
June 30, | |||||||
| 2021 |
| 2020 | ||||
Accounts receivables | $ | ( | $ | | |||
Prepaid expenses and other current assets | | | |||||
Depreciation and amortization | | | |||||
Capital expenditures | — | ( | |||||
Accounts payable and accrued expenses | ( | ( | |||||
Customer deposits | ( | ( |
NOTE 4. INVENTORIES, NET
Our inventories consisted of the following:
June 30, | December 31, | |||||
| 2021 |
| 2020 | |||
Raw materials | $ | | $ | | ||
Work-in-progress and finished goods | | | ||||
Less: Inventory reserves | — | — | ||||
Inventories, net | $ | | $ | |
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NOTE 5. LEASES
On May 13, 2020, we entered into a commercial real estate lease with a related party (see Note 11) for
Year ending December 31, |
| Amount | |
2021 (remaining six months) | $ | | |
2022 |
| | |
2023 |
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2024 |
| | |
2025 |
| | |
Thereafter |
| | |
Total |
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Less: Present value adjustment |
| ( | |
Operating lease liability | $ | |
NOTE 6. ACCRUED STOCK PAYABLE
The following tables summarize the changes in accrued common stock payable:
Number of | ||||||
| Amount |
| Shares | |||
Balance as of December 31, 2020 | $ | | | |||
Stock issued | ( | ( | ||||
Balance as of June 30, 2021 | $ | | |
In December 2020, several warrant holders exercised their 2020 A warrants through cashless exercises and we issued
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NOTE 7. NOTES PAYABLE
Our notes payable consisted of the following:
| June 30, |
| December 31, | |||
2021 | 2020 | |||||
2020 10% Notes | $ | | $ | | ||
2019 15% Notes | — | | ||||
Related party note payable | | | ||||
Unamortized debt discount | ( | ( | ||||
| | |||||
Less: Current portion | — | — | ||||
Long-term portion | $ | | $ | |
10% Notes
In December 2020, we entered into a Securities Purchase Agreement (the “Securities Purchase Agreement’) with certain accredited investors (the “
The relative fair value of the new funding on the
For purposes of determining the debt discount, the underlying assumptions used in the binomial lattice model to determine the fair value of the
Current stock price |
| $ | |
Exercise price | $ | ||
Risk-free interest rate | |||
Expected dividend yield | — | ||
Expected term (in years) | 5.0 | ||
Expected volatility |
On February 8, 2021, we entered into a Securities Purchase Agreement with an accredited
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variable price of
The relative fair value of the new funding on the
For purposes of determining the debt discount, the underlying assumptions used in the binomial lattice model to determine the fair value of the
Current stock price |
| $ | |
Exercise price | $ | ||
Risk-free interest rate | |||
Expected dividend yield | — | ||
Expected term (in years) | | ||
Expected volatility |
On April 20, 2021, we entered into a Securities Purchase Agreement with accredited
The relative fair value of the new funding on the
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For purposes of determining the debt discount, the underlying assumptions used in the binomial lattice model to determine the fair value of the
Current stock price |
| $ | |
Exercise price | $ | ||
Risk-free interest rate | |||
Expected dividend yield | — | ||
Expected term (in years) | | ||
Expected volatility |
15% Notes
In December 2019, we completed a private placement with certain accredited investors pursuant to an unsecured promissory note (the “
We received $
For purposes of determining the debt discount, the underlying assumptions used in the binomial lattice model to determine the fair value of the
Current stock price |
| $ | |
Exercise price | $ | ||
Risk-free interest rate | |||
Expected dividend yield | — | ||
Expected term (in years) | |||
Expected volatility |
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NOTE 8. WARRANT DERIVATIVE LIABILITY
On May 31, 2019 we received gross proceeds of $
During the first quarter of 2021 the warrant holders exercised
The following are the key assumptions that were used to determine the fair value of the 2019 Warrants
| May 31, |
| December 31, | June 30, |
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| 2019 |
| 2020 | 2021 |
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Number of shares underlying the warrants |
| |
| | | ||||||
Fair market value of stock | $ | | $ | | $ | | |||||
Exercise price | $ | | $ | | $ | | |||||
Volatility |
| | % | | % | | % | ||||
Risk-free interest rate |
| | % | | % | | % | ||||
Warrant life (years) |
| | |
| |
The following table sets forth a summary of the changes in the fair value of the warrant derivative liability, our Level 3 financial liabilities that are measured at fair value on a recurring basis:
Six months ended June 30, | |||||||
| 2021 |
| 2020 | ||||
Beginning balance | $ | | $ | | |||
Warrant exercise | ( | ( | |||||
Change in fair value of warrants derivative liability | | ( | |||||
Ending balance | $ | | $ | |
NOTE 9. COMMITMENTS AND CONTINGENCIES
In June 2020, Michael Feinsod resigned as our Executive Chairman, claiming that his resignation was for "Good Reason" under the terms of his employment agreement. If it is ultimately determined that his resignation was, in fact, for "Good Reason", rather than a voluntary act absent "Good Reason", it could enable certain potential claims for benefits under his employment agreement, including potential claims for severance, for the vesting of his unvested options and/or for the extension of the term within which he can exercise his options in the future. Having reviewed the matter, however, we do not believe that Mr. Feinsod's resignation was for "Good Reason". Accordingly, we believe that Mr. Feinsod's resignation was voluntary, and that any such potential claims, if asserted, would be without foundation. Although the outcome of legal proceedings is subject to uncertainty, the Company will vigorously defend any future claims made by Mr. Feinsod alleging a "Good Reason" resignation.
16
From time to time, the Company is a party to various litigation matters incidental to the conduct of its business. The Company is not presently a party to any legal proceedings that would have a material adverse effect on its business, operating results, financial condition or cash flows.
NOTE 10. STOCKHOLDERS’ EQUITY
2020 Capital Raise
On May 29, 2020, we entered into a subscription agreement, as amended with Hershey Strategic Capital, LP and Shore Ventures III, LP (collectively as the “Hershey Investor”) with respect to the sale of shares of common stock and warrants to purchase common stock (collectively, the “securities”). The sales of the securities to the Hershey Investor consists of a minimum of $
The Hershey Subscription Agreement also provides the Hershey Investor with certain participation rights in future financings of the Company until the one-year anniversary of the second closing. The Hershey Subscription Agreement further provides that the Company shall, during a negotiation period ending October 4, 2020, endeavor to cause the existing holders of the promissory notes of the Company having an outstanding balance in the amount of approximately $
Stock-based compensation
We use the fair value method to account for stock-based compensation. We recorded $(
17
During the six months ended June 30, 2021 we granted options to purchase
The following summarizes Employee Awards activity:
Weighted- | ||||||||||
Weighted- | Average | |||||||||
Average | Remaining | |||||||||
Number of | Exercise Price | Contractual | Aggregate | |||||||
| Shares |
| per Share |
| Term (in years) |
| Intrinsic Value | |||
Outstanding as of December 31, 2020 | | $ | | $ | | |||||
Granted | | |
|
| ||||||
Exercised |
| ( |
| |
|
|
|
| ||
Forfeited or expired |
| ( |
| |
|
|
|
| ||
Outstanding as of June 30, 2021 |
| |
| $ | |
| $ | | ||
Exercisable as of June 30, 2021 |
| | $ | |
| $ | |
As of June 30, 2021, there was approximately $
NOTE 11. RELATED PARTY TRANSACTIONS
On June 3, 2020, the Company entered into a consulting agreement with Adam Hershey, Interim Chief Executive Officer, board member and investor, pursuant to which he would act as a strategic consultant for the Company, including providing assistance with the sourcing and evaluation of merger and acquisition deals, strategic capital and strategic partnerships or joint ventures. Mr. Hershey is paid an initial monthly rate of $
We currently have a lease agreement with Dalton Adventures, LLC in which we rent
On December 23, 2020, our
NOTE 12. SEGMENT INFORMATION
Our operations are organized into
18
Three months ended June 30
2021 |
| Cultivation |
| Eliminations | Total | ||||
Revenues | $ | | $ | — | $ | | |||
Costs and expenses | ( | | ( | ||||||
Segment operating income | $ | | $ | | | ||||
Corporate expenses | ( | ||||||||
Net loss from continuing operations before income taxes |
| $ | ( |
2020 |
| Cultivation |
| Total | ||
Revenues | $ | | $ | | ||
Costs and expenses | ( | ( | ||||
Segment operating income | $ | | | |||
Corporate expenses |
|
| ( | |||
Net loss from continuing operations before income taxes |
| $ | ( |
Six months ended June 30
2021 |
| Cultivation |
| Eliminations |
| Total | |||
Total revenues | $ | | $ | — | $ | | |||
Costs and expenses |
| ( |
| |
| ( | |||
Operating (loss) income | $ | ( | $ | | ( | ||||
Corporate expenses |
|
|
|
|
| ( | |||
Net loss from continuing operations before income taxes | $ | ( |
2020 |
| Cultivation |
| Total | ||
Total revenues | $ | | $ | | ||
Costs and expenses |
| ( |
| ( | ||
Operating income | $ | | | |||
Corporate expenses |
|
| ( | |||
Net loss from continuing operations before income taxes | $ | ( |
June 30, | December 31, | |||||
Total assets |
| 2021 |
| 2020 | ||
Cultivation | $ | | $ | | ||
Corporate |
| |
| | ||
Discontinued operations | | | ||||
Total assets - segments | | | ||||
Intercompany eliminations | ( | ( | ||||
Total assets - consolidated | $ | | $ | |
NOTE 13. SUBSEQUENT EVENTS
On April 18, 2021, the Company, entered into an Agreement and Plan of Reorganization and Liquidation among the Company, Trees Acquisition Corp., a newly-formed indirect wholly-owned subsidiary of the Company (“Trees Acquisition”), and TDM, LLC and Station 2, LLC (“Colorado Sellers”), as well as a separate Agreement and Plan of Reorganization and Liquidation among the Company, Trees Acquisition, and Trees Waterfront, LLC, Trees MLK Inc. and Trees Portland, LLC (“Oregon Sellers” and collectively with the Colorado Sellers, the “Sellers”) (collectively, the “Plans”). The transaction will provide the Company with a foundational retail platform from which to expand growth. Pursuant to the Plans, the Company has agreed to purchase substantially all of the assets of each of the Colorado Sellers and Oregon Sellers (“Assets”). The Assets to be transferred to the Company by each of the Colorado Sellers and Oregon Sellers principally consist of the cannabis business licenses, inventory and intellectual property related to the Sellers’ cannabis dispensaries located in Englewood and Denver, Colorado and Portland, Oregon together with substantially all related assets. The Company is not assuming any liabilities of any of the Sellers. The Plan provides that the transaction
19
qualifies as a tax-free reorganization pursuant to Section 368 of the Internal Revenue Code. The purchase price for the transaction consists of a cash payment of $
On July 16, 2021, the Company, entered into an Asset Purchase Agreement (the “NBC Agreement”) with NBC Holdings LLC and Richard Cardinal (“NBC Buyer”) pursuant to which the Company has agreed to sell substantially all of the assets in its cultivation consulting business known as Next Big Crop (“NBC”) to the NBC Buyer. The Board of Directors approved the NBC Agreement in furtherance of its previously disclosed plan to identify and acquire licensed cannabis assets that will allow us to continue to generate cash and meet our financial commitments. The purchase price for the sale consists of a payment by the NBC Buyer of $
ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
This Management’s Discussion and Analysis (“MD&A”) is intended to provide an understanding of our financial condition, results of operations and cash flows by focusing on changes in certain key measures from year to year. This discussion should be read in conjunction with the Condensed Consolidated Unaudited Financial Statements contained in this Quarterly Report on Form 10-Q and the Consolidated Financial Statements and related notes and MD&A appearing in our Annual Report on Form 10-K as of and for the year ended December 31, 2020, as amended. The results of operations for an interim period may not give a true indication of results for future interim periods or for the year.
Cautionary Statement Regarding Forward Looking Statements
This Quarterly Report on Form 10-Q, including the financial statements and related notes, contains forward-looking statements that discuss, among other things, future expectations and projections regarding future developments, operations and financial conditions. All forward-looking statements are based on management’s existing beliefs about present and future events outside of management’s control and on assumptions that may prove to be incorrect. If any underlying assumptions prove incorrect, our actual results may vary materially from those anticipated, estimated, projected or intended. We undertake no obligation to publicly update or revise any forward-looking statements to reflect actual results, changes in expectations or events or circumstances after the date of this Quarterly Report on Form 10-Q.
When this report uses the words “we,” “us,” or “our,” and the “Company,” they refer to General Cannabis Corp (formerly, “Advanced Cannabis Solutions, Inc.”).
Our Products, Services and Customers
Through our one reporting segment Cultivation, we provide products to the regulated cannabis industry, which include the following:
Cultivation (“Cultivation Segment”)
Through SevenFive Farm (“SevenFive”), we operate a 17,000 square foot licensed light deprivation greenhouse cultivation facility. We believe our production capability is sufficient to meet the diverse needs of our recreational consumers in Colorado, from cost-effective, high-yield inputs to sophisticated and dried cannabis flower.
20
During the three and six months ended June 30, 2021, 11% of SevenFive’s revenue was with one customer.
Discontinued Operations - Operations Consulting and Products
Through Next Big Crop (“NBC”), we deliver comprehensive consulting services to the cannabis industry that include obtaining licenses, compliance, cultivation, retail operations, logistical support, facility design and construction, and expansion of existing operations.
NBC oversees our wholesale equipment and supply business, operated under the name “GC Supply,” which provides turnkey sourcing and stocking services to cultivation, retail and infused products manufacturing facilities. Our products include building materials, equipment, consumables and compliance packaging. There are generally multiple suppliers for the products we sell; however, there are a limited number of manufacturers of certain high-tech cultivation equipment. NBC also provides operational support for our internal cultivation. In June 2021, we began talks with an individual to begin the sale of NBC. On July 16, 2021, we entered into an Asset Purchase Agreement with this individual to sell substantially all of the assets of NBC for a total of $150,000 and 10% of profits generated by the buyer in the states of Michigan, Mississippi, and Massachusetts for a period of twelve months from the closing. On August 2, 2021, the sale of NBC was completed.
Results of Operations
The following tables set forth, for the periods indicated, statements of operations data. The tables and the discussion below should be read in conjunction with the accompanying condensed consolidated financial statements and the notes thereto in this report.
Three months ended June 30, | Percent |
| ||||||||||
2021 | 2020 | Change | Change |
| ||||||||
Revenues |
| $ | 698,608 | $ | 554,544 | $ | 144,064 | 26 | % | |||
Costs and expenses |
| (1,478,458) | (2,107,725) | 629,267 | (30) | % | ||||||
Other expense |
| (273,326) | (229,555) | (43,771) | 19 | % | ||||||
Net loss from continuing operations before income taxes |
| (1,053,176) | (1,782,736) | 729,560 | (41) | % | ||||||
Loss from discontinued operations |
| (323,077) | (117,636) | (205,441) | 175 | % | ||||||
Loss from operations before income taxes | $ | (1,376,253) | $ | (1,900,372) | $ | 524,119 | (28) | % |
Six months ended June 30, | Percent |
| ||||||||||
2021 | 2020 | Change | Change |
| ||||||||
Revenues |
| $ | 1,362,413 |
| $ | 571,273 |
| $ | 791,140 |
| 138 | % |
Costs and expenses |
| (3,116,282) |
| (4,156,675) |
| 1,040,393 | (25) | % | ||||
Other expense |
| (1,644,923) |
| (89,627) |
| (1,555,296) | 1,735 | % | ||||
Net loss from continuing operations before income taxes |
| (3,398,792) |
| (3,675,029) |
| 276,237 | (8) | % | ||||
Loss from discontinued operations |
| (336,529) |
| (239,522) |
| (97,007) | 41 | % | ||||
Loss from operations before income taxes | $ | (3,735,321) | $ | (3,914,551) | $ | 179,230 | (5) | % |
Revenues
Revenue increased for our Cultivation Segment due to a full three and six months of revenue in 2021, as SevenFive was acquired in May 2020. See Segment discussions below for further details.
21
Costs and expenses
Three months ended June 30, | Percent |
| ||||||||||
2021 | 2020 | Change | Change |
| ||||||||
Cost of sales |
| $ | 511,426 |
| $ | 281,243 |
| $ | 230,183 |
| 82 | % |
Selling, general and administrative |
| 582,059 |
| 862,029 |
| (279,970) |
| (32) | % | |||
Stock-based compensation |
| (41,648) |
| 434,365 |
| (476,013) |
| (110) | % | |||
Professional fees |
| 353,833 |
| 508,991 |
| (155,158) |
| (30) | % | |||
Depreciation and amortization |
| 72,788 |
| 21,097 |
| 51,691 |
| 245 | % | |||
$ | 1,478,458 | $ | 2,107,725 | $ | (629,267) |
| (30) | % |
Six months ended June 30, | Percent |
| ||||||||||
| 2021 |
| 2020 |
| Change |
| Change |
| ||||
Cost of sales | $ | 1,066,631 | $ | 281,243 | $ | 785,388 | 279 | % | ||||
Selling, general and administrative |
| 1,180,750 |
| 1,713,265 |
| (532,515) |
| (31) | % | |||
Stock-based compensation |
| 62,284 |
| 1,006,939 |
| (944,655) |
| (94) | % | |||
Professional fees |
| 616,148 |
| 1,106,027 |
| (489,879) |
| (44) | % | |||
Depreciation and amortization |
| 190,469 |
| 49,201 |
| 141,268 |
| 287 | % | |||
$ | 3,116,282 | $ | 4,156,675 | $ | (1,040,393) |
| (25) | % |
Cost of sales includes costs associated with cultivation sales, which fluctuates with the changes in cultivation revenues. See Segment discussions below for further details.
Selling, general and administrative expense decreased for the three months and six months ended June 30, 2021 as compared to June 30, 2020 due to a reduction in employees throughout 2021 and a concerted effort by management to reduce expenses.
Stock-based compensation included the following:
Three months ended June 30, | Percent |
| ||||||||||
2021 | 2020 | Change | Change |
| ||||||||
Employee awards |
| $ | (41,648) |
| $ | 431,777 |
| $ | (473,425) |
| (110) | % |
Consulting awards |
| — |
| 2,588 |
| (2,588) |
| (100) | % | |||
$ | (41,648) | $ | 434,365 | $ | (476,013) |
| (110) | % |
Six months ended June 30, | Percent |
| ||||||||||
2021 | 2020 | Change | Change |
| ||||||||
Employee awards |
| $ | 62,284 |
| $ | 933,336 |
| $ | (871,052) |
| (93) | % |
Consulting awards |
| — |
| 73,603 |
| (73,603) |
| (100) | % | |||
$ | 62,284 | $ | 1,006,939 | $ | (944,655) |
| (94) | % |
Employee awards are issued under our 2020 Omnibus Incentive Plan, which was approved by shareholders on November 23, 2020 and our 2014 Equity Incentive Plan, which was approved by shareholders on June 26, 2015. Expense varies primarily due to the number of stock options granted and the share price on the date of grant. The decrease in expense for the three and six months ended June 30, 2021 as compared to June 30, 2020 is due to the decrease in the number of options we grant on a quarterly basis and an increase in forfeitures in 2021 due to the departure of our Chief Executive Officer in May 2021 and a reduction in workforce in 2020 and 2021.
22
Professional fees consist primarily of accounting and legal expenses and decreased for the three and six months ended June 30, 2021 as compared to the three and six months ended June 30, 2020 due to the hiring of internal counsel to be more cost effective.
Other Expense
Three months ended June 30, | Percent |
| ||||||||||
2021 | 2020 | Change | Change |
| ||||||||
Amortization of debt discount and equity issuance costs |
| $ | 185,460 | $ | 72,516 | $ | 112,944 |
| 156 | % | ||
Interest expense |
| 190,627 | 103,672 | 86,955 |
| 84 | % | |||||
Loss on extinguishment of debt |
| — | 48,908 | (48,908) |
| (100) | % | |||||
(Gain) loss on derivative liability | (102,761) | 4,541 | (107,302) |
| (100) | % | ||||||
Gain on sale of assets |
| — | (82) | 82 | 19 | % | ||||||
$ | 273,326 | $ | 229,555 | $ | 43,771 |
| 19 | % |
Six months ended June 30, | Percent |
| ||||||||||
2021 | 2020 | Change | Change |
| ||||||||
Amortization of debt discount |
| $ | 253,790 |
| $ | 138,837 |
| $ | 114,953 |
| 83 | % |
Interest expense |
| 293,683 |
| 274,720 |
| 18,963 |
| 7 | % | |||
Loss on extinguishment of debt |
| — |
| 1,186,336 |
| (1,186,336) |
| (100) | % | |||
Loss (gain) on derivative liability |
| 1,095,983 |
| (1,371,079) |
| 2,467,062 |
| (180) | % | |||
Other expense (income), net |
| 1,467 |
| (139,187) |
| 140,654 |
| (100) | % | |||
$ | 1,644,923 | $ | 89,627 | $ | 1,555,296 |
| 1,735 | % |
Amortization of debt discount increased during the three and six months ended June 30, 2021 as compared to June 30, 2020 due to the senior convertible promissory notes with warrants (“10% Notes”) issued in December 2020, February 2021 and April 2021. Interest expense increased during the three and six months ended June 30, 2021 as compared to June 30, 2020 due to the addition of the 10% Notes with an interest rate of 10%. The gain on warrant derivative liability reflects the change in the fair value of the 2019 Warrants. The loss on extinguishment of debt is due to the conversion and extension of the SBI debt, and the exchange of the 12% Notes into the 15% Notes that occurred during the first quarter of 2020. See Note 7 of the accompanying unaudited condensed consolidated financial statements for further information. The other expense (income) in 2020 relates to the gain on the sale of the building we recognized as a result of the sale of our corporate office building in March 2020.
Cultivation
Three months ended June 30, | Percent |
| ||||||||||
| 2021 |
| 2020 |
| Change |
| Change |
| ||||
Revenues | $ | 698,608 | $ | 509,175 | $ | 189,433 |
| 37 | % | |||
Costs and expenses |
| (677,715) |
| (456,661) |
| (221,054) |
| 48 | % | |||
$ | 20,893 | $ | 52,514 | $ | (31,621) |
| (60) | % |
Six months ended June 30, | Percent |
| ||||||||||
| 2021 |
| 2020 |
| Change |
| Change |
| ||||
Revenues | $ | 1,347,941 | $ | 509,175 | $ | 838,766 |
| 165 | % | |||
Costs and expenses |
| (1,475,423) |
| (456,661) |
| (1,018,762) |
| 223 | % | |||
$ | (127,482) | $ | 52,514 | $ | (179,996) |
| (343) | % |
The increase in revenues for the three and six months ended June 30, 2021 over prior year is due to the acquisition of SevenFive Farm occurring in May 2020. The decrease in gross margin is due to lower yields caused by several environmental factors.
23
Liquidity
Sources of liquidity
Our sources of liquidity include cash generated from operations, the cash exercise of common stock options and warrants, debt, and the issuance of common stock or other equity-based instruments. We anticipate our significant uses of resources will include funding operations and developing infrastructure.
In April 2021, we received $2,300,000 in cash in a private placement with certain accredited investors pursuant to the 10% Notes to be used for the acquisition of dispensaries (See Note 13 of the accompanying unaudited condensed consolidated financial statements).
In February 2021, we received $1,660,000 in cash in a private placement with certain accredited investors pursuant to the 10% Notes.
Sources and uses of cash
We had cash of $2,307,604 and $750,218 as of June 30, 2021 and December 31, 2020, respectively. Our cash flows from operating, investing and financing activities were as follows:
Six months ended June 30, | ||||||
2021 | 2020 | |||||
Net cash used in operating activities |
| $ | (2,698,972) |
| $ | (3,168,581) |
Net cash provided by investing activities | $ | 314,349 | $ | 1,341,707 | ||
Net cash provided by financing activities | $ | 3,941,709 | $ | 2,800,000 |
Net cash used in operating activities decreased in 2021 due to the acquisition of SevenFive Farm which provides positive operating cash flows and adjustments relating to non-cash activities.
Net cash provided by investing activities for the six months ended June 30, 2021 decreased from June 30, 2020 due to the sale of the building in the first quarter of 2020. Net cash used in investing activities for the six months ended June 30, 2021 consisted of purchase of property and equipment for SevenFive Farms, offset by the sale of our investment during the first quarter and repayment of our notes receivable in the second quarter.
Net cash provided by financing activities for the six months ended June 30, 2021 related to the payment on notes payable of $200,000, proceeds from notes payable of $3,960,000 and proceeds from the exercise of stock options of $181,709.
Capital Resources
We had no material commitments for capital expenditures as of June 30, 2021. Part of our growth strategy, however, is to acquire operating businesses. We expect to fund such activity through cash on hand, the issuance of debt, common stock, warrants for our common stock or a combination thereof.
Non-GAAP Financial Measures
Adjusted EBITDA is a non-GAAP financial measure. We define Adjusted EBITDA as net income (loss) attributable to common stockholders calculated in accordance with GAAP, adjusted for the impact of stock-based compensation expense, acquisition or disposal-related transaction costs , non-recurring professional fees in relation to litigation and other non-recurring expenses, depreciation and amortization, amortization of debt discounts and equity issuance costs, loss on extinguishment of debt, interest expense, income taxes and certain other non-cash items. Below we have provided a reconciliation of Adjusted EBITDA per share to the most directly comparable GAAP measure, which is net income (loss) per share.
24
We believe that the disclosure of Adjusted EBITDA provides investors with a better comparison of our period-to-period operating results. We exclude the effects of certain items when we evaluate key measures of our performance internally and in assessing the impact of known trends and uncertainties on our business. We also believe that excluding the effects of these items provides a more comparable view of the underlying dynamics of our operations. We believe such information provides additional meaningful methods of evaluating certain aspects of our operating performance from period to period on a basis that may not be otherwise apparent on a GAAP basis. This supplemental financial information should be considered in addition to, not in lieu of, our condensed consolidated financial statements.
The following table reconciles Adjusted EBITDA to the most directly comparable GAAP measure, which is net loss.
Three months ended June 30, | Six months ended June 30, | |||||||||||
2021 | 2020 | 2021 | 2020 | |||||||||
Loss from operations before income taxes |
| $ | (1,376,253) |
| $ | (1,900,372) |
| $ | (3,735,321) |
| $ | (3,914,551) |
Adjustment for loss from discontinued operations |
| 323,077 |
| 117,636 |
| 336,529 |
| 239,522 | ||||
Net loss from continuing operations before income taxes |
| (1,053,176) |
| (1,782,736) |
| (3,398,792) |
| (3,675,029) | ||||
Adjustments: |
|
|
|
|
|
|
|
| ||||
Stock-based compensation |
| (41,648) |
| 434,365 |
| 62,284 |
| 1,006,939 | ||||
Depreciation and amortization | 72,788 | 21,097 | 190,469 | 49,201 | ||||||||
Amortization of debt discount and equity issuance costs |
| 185,460 |
| 72,516 |
| 253,790 |
| 138,837 | ||||
Loss on extinguishment of debt |
| — |
| 48,908 |
| — |
| 1,186,336 | ||||
Interest expense |
| 190,627 |
| 103,672 |
| 293,683 |
| 274,720 | ||||
Gain on sale of assets | — | (82) | 1,467 | (139,187) | ||||||||
(Gain) loss on derivative liability |
| (102,761) |
| 4,541 |
| 1,095,983 |
| (1,371,079) | ||||
Transaction costs | 48,029 | 147,652 | 83,659 | 308,196 | ||||||||
Total adjustments |
| 352,495 |
| 832,669 |
| 1,981,335 |
| 1,453,963 | ||||
Adjusted EBITDA | $ | (700,681) | $ | (950,067) | $ | (1,417,457) | $ | (2,221,066) |
Off-balance Sheet Arrangements
We currently have no off-balance sheet arrangements.
Critical Accounting Policies
Our unaudited condensed consolidated financial statements and accompanying notes have been prepared in accordance with U.S. GAAP. The preparation of these financial statements requires management to make estimates, judgments and assumptions that affect reported amounts of assets, liabilities, revenues and expenses. We continually evaluate the accounting policies and estimates used to prepare the condensed financial statements. The estimates are based on historical experience and assumptions believed to be reasonable under current facts and circumstances. Actual amounts and results could differ from these estimates made by management. Certain accounting policies that require significant management estimates and are deemed critical to our results of operations or financial position are discussed in our Annual Report on Form 10-K for the year ended December 31, 2020, and Note 1 to the Unaudited Condensed Consolidated Financial Statements in this Form 10-Q.
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
As a “smaller reporting company” as defined by Item 10 of Regulation S-K, we are not required to provide information required by this Item.
ITEM 4. CONTROLS AND PROCEDURES
25
Evaluation of Disclosure Controls and Procedures
We maintain disclosure controls and procedures (as defined in Rules 13a-15(e) and 15d-15(e) under the Securities Exchange Act of 1934, as amended (the “Exchange Act”) that are designed to ensure that information required to be disclosed in our reports filed under the Exchange Act, is recorded, processed, summarized and reported within the time periods specified in the Securities and Exchange Commission’s rules and forms, and that such information is accumulated and communicated to our management, including our Principal Executive Officer and Principal Financial and Accounting Officer, as appropriate to allow timely decisions regarding required disclosure.
We carried out an evaluation under the supervision and with the participation of management, including our Principal Executive Officer and Principal Financial and Accounting Officer, of the effectiveness of the design and operation of our disclosure controls and procedures as of June 30, 2021, the end of the period covered by this report. Based on that evaluation, our Principal Executive Officer and Principal Financial and Accounting Officer have concluded that our disclosure controls and procedures were effective as of June 30, 2021.
Internal Control over Financial Reporting
Our management is responsible for establishing and maintaining adequate internal control over financial reporting as defined in Rules 13a-15(f) and 15d-15(f) promulgated under the Exchange Act as a process designed by, or under the supervision of, our principal executive officer and principal financial officer and effected by the Board, management, and other personnel, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with GAAP and includes those policies and procedures that:
● | Pertain to the maintenance of records that in reasonable detail accurately and fairly reflect the transactions and dispositions of the assets of the Company; |
● | Provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with GAAP, and that our receipts and expenditures of are being made only in accordance with authorizations of our management and directors; and |
● | Provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of our assets that could have a material effect on the financial statements. |
Because of inherent limitations, our internal control over financial reporting may not prevent or detect misstatements. Therefore, even those systems determined to be effective can provide only reasonable assurance with respect to financial statement preparation and presentation. Projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.
Assessment of Internal Control over Financial Reporting
Our management assessed the effectiveness of our internal control over financial reporting as of June 30, 2021. In making this assessment, management used the criteria set forth by the Committee of Sponsoring Organizations of the Treadway Commission (“COSO”) in Internal Control - Integrated Framework (2013). Based on management’s assessment, management concluded that its internal control over financial reporting was effective as of June 30, 2021, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements in accordance with GAAP.
Changes in Internal Control over Financial Reporting
None.
26
PART II. OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
None.
ITEM 1A. RISK FACTORS
As of the date of this report, there have been no material changes to the Risk Factors disclosed in our Annual Report on Form 10-K for the year ended December 31, 2020, as amended.
ITEM 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS
On April 20, 2021 we issued warrants to purchase 1,275,660 shares of our common stock, together with our 10% Notes, to accredited investors. The warrants have an exercise price of $0.56 per share and a life of 5 years.
ITEM 3. DEFAULTS UPON SENIOR SECURITIES
None.
ITEM 4. MINE SAFETY DISCLOSURES
Not applicable.
ITEM 5. OTHER INFORMATION
None.
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ITEM 6. EXHIBITS
Exhibits |
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Certification pursuant to Section 302 of the Sarbanes-Oxley Act of 2002. | |
Certification pursuant to Section 302 of the Sarbanes-Oxley Act of 2002. | |
Certification pursuant to Section 906 of the Sarbanes-Oxley Act of 2002. | |
101.INS | Inline XBRL Instance Document |
101.SCH | Inline XBRL Taxonomy Extension Schema Document |
101.CAL | Inline XBRL Taxonomy Extension Calculation Linkbase Document |
101.DEF | Inline XBRL Taxonomy Extension Definition Linkbase Document |
101.LAB | Inline XBRL Taxonomy Extension Label Linkbase Document |
101.PRE | Inline XBRL Taxonomy Extension Presentation Linkbase Document |
104 | Cover Page Interactive Data File (embedded within the Inline XBRL document) |
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SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.
GENERAL CANNABIS CORP | ||
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Date: August 11, 2021 | /s/ Adam Hershey | |
| Adam Hershey, Interim Chief Executive Officer | |
| Principal Executive Officer | |
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| /s/ Diane Jones | |
| Diane Jones, Chief Financial Officer | |
| Principal Financial and Accounting Officer |
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