INTANGIBLE ASSETS AND GOODWILL

12 Months Ended

Dec. 31, 2022

INTANGIBLE ASSETS AND GOODWILL

INTANGIBLE ASSETS AND GOODWILL

NOTE 9. INTANGIBLE ASSETS AND GOODWILL

Intangible assets

During the years ended December 31, 2022 and 2021, the Company acquired trade name intangible assets through several acquisitions. See Note 2 for further details of these acquisitions. The amount of trade name intangible assets acquired in each transaction is shown in the table below.

				Useful life
Transaction	Acquisition Date	Amount		(in years)
Green Man Acquisition (1)	December 2022	$	150,000	1
Green Tree Acquisition (1)	December 2022	$	950,000	2
Trees MLK Acquisition (2)	January 2022	$	88,000	10
Trees Portland Acquisition	December 2021	$	292,000	10
Trees Waterfront Acquisition (2)	December 2021	$	217,000	10
Trees Englewood Acquisition	September 2021	$	1,399,000	10

(1) ^{The purchase price allocation for this acquisition has not been finalized, therefore this amount could be subsequently adjusted. Note that the useful life takes into account that management plans to re-brand the acquired stores under the TREES tradename.}

(2) ^{The trade name intangible asset for these acquisitions was fully impaired in 2022. See discussion of impairment charges below in this footnote.} ​

The following table summarizes the change in the Company’s tradename intangible assets from December 31, 2021 to December 31, 2022:

		Gross Tradename		Accumulated Amortization		Net Tradename
Balance as of December 31, 2021	$	6,323,780	$	(323,967)	$	5,999,813
Purchase price allocation adjustments (see Note 2)		(3,942,000)		—		(3,942,000)
Tradename intangibles acquired		1,188,000		—		1,188,000
Amortization		—		(148,538)		(148,538)
Impairment		(553,377)		—		(553,377)
Balance as of December 31, 2022	$	3,016,403	$	(472,505)	$	2,543,898

Estimated amortization expense for the next five years is as follows:

Year ending December 31,	Amount
2023	$	788,758
2024		618,073
2025		169,100
2026		169,100
2027		169,100
Thereafter		629,767
Total	$	2,543,898

Amortization expense was $148,538 and $308,342 for the years ended December 31, 2022 and 2021, respectively.

Goodwill

The following represents a summary of changes in the carry amount of goodwill for the years ended December 31, 2022 and 2021 on a consolidated basis and by segment:

Consolidated

		Gross Goodwill		Accumulated Impairment		Net Goodwill
Balance as of December 31, 2020	$	2,484,200	$	—	$	2,484,200
Goodwill acquired		8,799,657		—		8,799,657
Impairment		—		(2,484,200)		(2,484,200)
Balance as of December 31, 2021	$	11,283,857	$	(2,484,200)	$	8,799,657
Goodwill acquired		8,094,258				8,094,258
Purchase price allocation adjustment		3,942,000		—		3,942,000
Impairment		—		(2,450,941)		(2,450,941)
Balance as of December 31, 2022	$	23,320,115	$	(4,935,141)	$	18,384,974

Retail Segment

		Gross Goodwill		Accumulated Impairment		Net Goodwill
Balance as of December 31, 2020	$	—	$	—	$	—
Goodwill acquired		8,799,657		—		8,799,657
Balance as of December 31, 2021	$	8,799,657	$	—	$	8,799,657
Goodwill acquired		8,094,258		—		8,094,258
Purchase price allocation adjustment		3,942,000		—		3,942,000
Impairment		—		(2,450,941)		(2,450,941)
Balance as of December 31, 2022	$	20,835,915	$	(2,450,941)	$	18,384,974

Cultivation Segment

		Gross Goodwill		Accumulated Impairment		Net Goodwill
Balance as of December 31, 2020	$	2,484,200	$	—	$	2,484,200
Goodwill acquired		—		—		—
Impairment		—		(2,484,200)		(2,484,200)
Balance as of December 31, 2021	$	2,484,200	$	(2,484,200)	$	—
Goodwill acquired		—		—		—
Balance as of December 31, 2022	$	2,484,200	$	(2,484,200)	$	—

Cultivation Segment Impairments

As of the annual testing date of December 31, 2021, the Company utilized a third-party valuation firm to estimate the fair value of our Cultivation segment, which consisted of a single reporting unit, using a combination of a discounted cash flow approach and market multiple approach. As a result, the Company determined that the fair value of the Cultivation segment was less than the less than the carrying value and recognized a full impairment of goodwill in the Cultivation segment in the amount of $2,484,200 during the year ended December 31, 2021. Due to the impairment of the goodwill and the price declines of marijuana flower in 2021, the Company also tested its intangible assets with finite lives for impairment using the same valuation methodology and assumptions that we used for the goodwill impairment test. As a result, the Company recorded an impairment of $526,220 during the year ended December 31, 2021.

As of December 31, 2022, due to the continued declines in the wholesale price of marijuana flower in Colorado, the Company determined that the remaining intangible asset balance in the Cultivation segment was not recoverable based on current cash flow projections and that there was no longer value in the tradename value given the economic conditions in the cultivation sector. Therefore, an impairment of the remaining balance of $278,878 was recorded during the year ended December 31, 2022.

Retail Segment Impairments

As of December 31, 2021, the goodwill balance and intangible assets balances in the Retail segment related to acquisitions completed in the third and fourth quarters of 2021. The final purchase price allocations for these acquisitions had not been completed as of December 31, 2021. Therefore, no impairment testing was required.

As of annual testing date on December 31, 2022, the Company utilized a third-party valuation firm to estimate the fair value of each reporting unit within the Retail segment using a combination of a discounted cash flow approach and market multiple approach. Each dispensary location is considered a separate reporting unit. As a result, the Company determined that the fair value of each of the dispensary locations in Oregon was less than the less than its carrying value. Therefore, the Company recognized goodwill impairments in the Retail segment in the amount of $2,450,941 during the year ended December 31, 2022. Due to the impairment of the goodwill in the Retail segment and sales levels that were below management’s expectations, the Company also tested its intangible assets with finite lives for impairment using

the same valuation methodology and assumptions that we used for the goodwill impairment test. The resulting fair value estimates indicated that the fair value of the tradename intangible was less than the carrying value for the Trees MLK and Trees Waterfront dispensaries in Oregon. Therefore, the Company recognized an impairment of $274,500 during the year ended December 31, 2022.