10-Q

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

FORM 10-Q

☒ QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 

For the quarterly period ended September 30, 2021

☐ TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from ________________ to ________________.

Commission File Number 000-55450

MEDICINE MAN TECHNOLOGIES, INC.

(Exact name of registrant as specified in its charter)

Nevada	46-5289499
(State or other jurisdiction of Incorporation or organization)	(I.R.S. Employer Identification No.)

4880 Havana Street Suite 201 Denver, Colorado	80239
(Address of principal executive offices)	(Zip Code)

(303) 371-0387

(Registrant’s telephone number, including area code)

N/A

(Former name, former address and former fiscal year, if changed since last report)

Securities registered pursuant to Section 12(b) of the Act:

Title of each class	Trading  Symbol(s)	Name of each exchange on which registered
None	None	None

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 such filing requirements for the past 90 days. Yes ☒     No ☐

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). Yes ☒     No ☐

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See definitions of “large accelerated filer,” “accelerated filer” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.

Large accelerated Filer  ☐	Accelerated Filer  ☐
Non-accelerated Filer  ☒	Smaller reporting company  ☒
	Emerging growth company  ☒

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☒

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).    Yes ☐    No ☒

As of November 11, 2021, the Registrant had 44,400,853 shares of Common Stock outstanding. 

TABLE OF CONTENTS

		Page
Part I – FINANCIAL INFORMATION
	Cautionary Note About Forward Looking Statements	3
Item 1.	Financial Statements	4
Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	29
Item 3.	Quantitative and Qualitative Disclosures About Market Risk	32
Item 4.	Controls and Procedures	32
Part II – OTHER INFORMATION
Item 1.	Legal Proceedings	33
Item 1A.	Risk Factors	33
Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	33
Item 3.	Defaults Upon Senior Securities	33
Item 4.	Mine Safety Disclosure	33
Item 5.	Other Information	34
Item 6.	Exhibits	34
	Signatures	35

2

CAUTIONARY NOTE ABOUT FORWARD-LOOKING INFORMATION

This Quarterly Report on Form 10-Q contains “forward-looking statements” within the meaning of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended (the “Exchange Act”). All statements contained in this Quarterly Report on Form 10-Q other than statements of historical fact, including statements regarding our future results of operations and financial position, business strategy and plans, and objectives for future operations, are forward-looking statements. In some cases, you can identify forward-looking statements by the following words: “may,” “will,” “could,” “would,” “should,” “expect,” “intend,” “plan,” “anticipate,” “believe,” “approximately,” “estimate,” “predict,” “project,” “potential,” “continue,” “ongoing,” or the negative of these terms or other words of similar meaning in connection with a discussion of future events or future operating or financial performance, although the absence of these words does not necessarily mean that a statement is not forward-looking. Forward-looking statements are based upon our current assumptions, expectations and beliefs concerning future developments and their potential effect on our business. Forward-looking statements are subject to known and unknown risks, uncertainties and other factors which may cause actual events or our actual results, performance or achievements to be materially different from the future events, results, performance or achievements expressed or implied by any forward-looking statements. There can be no assurance that future events, results, performance or achievements will be in accordance with our expectations or that the effect of future events, results, performance or achievements will be those anticipated by us.

Factors and risks that may cause or contribute to actual events, results, performance or achievements differing from these forward-looking statements include, but are not limited to, for example:

· regulatory limitations on our products and services;

· our ability to complete and integrate announced acquisitions;

· general industry and economic conditions;

· our ability to access adequate capital upon terms and conditions that are acceptable to us;

· volatility in credit and market conditions;

· other risks and uncertainties related to the cannabis market and our business strategy.

We operate in very competitive and rapidly changing markets. New risks emerge from time to time. It is not possible for our management to predict all risks, nor can we assess the impact of all factors on our business or the extent to which any factor, or combination of factors, may cause actual results to differ materially from those contained in any forward-looking statements we may make. In light of these risks, uncertainties and assumptions, the forward-looking events and circumstances discussed in this Quarterly Report on Form 10-Q may not occur and actual results could differ materially and adversely from those anticipated or implied in the forward-looking statements.

Stockholders and potential investors should not place undue reliance on these forward-looking statements. Although we believe that our plans, intentions and expectations reflected in or suggested by the forward-looking statements in this Quarterly Report on Form 10-Q are reasonable, we cannot assure stockholders and potential investors that these plans, intentions or expectations will be achieved.

These forward-looking statements represent our intentions, plans, expectations, assumptions and beliefs about future events and are subject to risks, uncertainties and other factors. Many of those factors are outside of our control and could cause actual results to differ materially from the results expressed or implied by those forward-looking statements. Considering these risks, uncertainties and assumptions, the events described in the forward-looking statements might not occur or might occur to a different extent or at a different time than we have described. You are cautioned not to place undue reliance on these forward-looking statements. All subsequent written and oral forward-looking statements concerning other matters addressed in this Quarterly Report on Form 10-Q and attributable to us or any person acting on our behalf are expressly qualified in their entirety by the cautionary statements contained or referred to in this Quarterly Report on Form 10-Q.

All forward-looking statements speak only as of the date of this this Quarterly Report on Form 10-Q. Except to the extent required by law, we undertake no obligation to update or revise any forward-looking statements, whether because of new information, future events, a change in events, conditions, circumstances or assumptions underlying such statements, or otherwise.

3

Part I. FINANCIAL INFORMATION

Item 1. Financial Statements

MEDICINE MAN TECHNOLOGIES, INC.

CONDENSED BALANCE SHEETS

Expressed in U.S. Dollars

	September 30,			December 31,
	2021			2020
	(Unaudited)			(Audited)
ASSETS
Current assets
Cash and cash equivalents	$	21,168,816		$	1,231,235
Accounts receivable, net of allowance for doubtful accounts		3,530,520			1,270,380
Accounts receivable - related party		–			80,494
Inventory		10,678,381			2,619,145
Note receivable - current, net		–			–
Note receivable - related party		–			181,911
Prepaid expenses and other current assets		2,579,035			614,200
Total current assets		37,956,752			5,997,365
Non-current assets
Fixed assets, net accumulated depreciation of $1,631,093 and $872,579, respectively		8,805,348			2,584,798
Goodwill		42,090,944			53,046,729
Intangible assets, net accumulated amortization of $7,162,110 and $200,456, respectively		98,072,970			3,082,044
Marketable securities, net of unrealized gain (loss) of $210,685 and $(129,992), respectively		487,467			276,782
Note receivable – noncurrent, net		179,167			–
Accounts receivable – litigation		3,063,968			3,063,968
Other noncurrent assets		448,062			51,879
Operating lease right of use assets		3,626,617			2,579,036
Total non-current assets		156,774,543			64,685,236
Total assets	$	194,731,295		$	70,682,601
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities
Accounts payable	$	953,467		$	3,508,478
Accounts payable - related party		87,143			48,982
Accrued expenses		11,660,237			2,705,445
Derivative liabilities		79,730			1,047,481
Deferred revenue		–			50,000
Notes payable - related party		134,498			5,000,000
Income taxes payable		1,029,482			–
Total current liabilities		13,944,557			12,360,386
Long term debt		59,246,337			13,901,759
Lease liabilities		3,807,306			2,645,597
Total long-term liabilities		63,053,643			16,547,356
Total liabilities		76,998,200			28,907,742
Stockholders' equity
Common stock, $0.001 par value. 250,000,000 shares authorized; 45,139,297 shares issued and 44,400,853 shares outstanding at September 30, 2021 and 42,601,773 shares issued and 42,169,041 outstanding at December 31, 2020, respectively		45,140			42,602
Preferred stock, $0.001 par value. 10,000,000 shares authorized; 82,838 shares issued and outstanding at September 30, 2021 and 10,000,000 shares authorized; 19,716 shares issued and outstanding at December 31, 2020		87			20
Additional paid-in capital		165,393,733			85,357,835
Accumulated deficit		(46,188,829	)		(42,293,098	)
Common stock held in treasury, at cost, 517,044 shares held at September 30, 2021 and 432,732 shares held at December 31, 2020		(1,517,036	)		(1,332,500	)
Total stockholders' equity		117,733,095			41,774,859
Total liabilities and stockholders' equity	$	194,731,295		$	70,682,601

See accompanying notes to the financial statements

4

MEDICINE MAN TECHNOLOGIES, INC.

CONDENSED STATEMENT OF COMPREHENSIVE (LOSS) AND INCOME

For the Three and Nine Months Ended September 30, 2021 and 2020

Expressed in U.S. Dollars

	Three Months Ended						Nine Months Ended
	September 30,						September 30,
	2021			2020			2021			2020
	(Unaudited)			(Unaudited)			(Unaudited)			(Unaudited)
Operating revenues
Retail	$	20,741,864		$	1,135,822		$	54,083,880		$	1,868,279
Wholesale		11,022,519			6,273,897			27,654,965			12,909,025
Other		70,922			20,655			165,416			1,280,533
Total revenue		31,835,305			7,430,374			81,904,261			16,057,837
Cost of goods and services
Cost of goods and services		16,779,313			4,648,910			44,692,765			9,904,131
Total cost of goods and services		16,779,313			4,648,910			44,692,765			9,904,131
Gross profit		15,055,992			2,781,464			37,211,496			6,153,706
Operating expenses
Selling, general and administrative expenses		5,593,336			1,298,693			13,580,469			3,054,091
Professional services		752,572			1,769,455			4,466,696			5,390,186
Salaries		3,644,320			1,878,156			8,505,733			5,973,482
Stock based compensation		1,228,764			1,453,986			3,865,588			5,815,808
Total operating expenses		11,218,992			6,400,290			30,418,486			20,233,567
Income (loss) from operations		3,837,000			(3,618,826	)		6,793,010			(14,079,861	)
Other income (expense)
Interest income (expense), net		(1,851,694	)		10,131			(4,526,746	)		46,726
Gain on forfeiture of contingent consideration		–			–			–			1,462,636
Unrealized gain on derivative liabilities		356,824			684,422			967,751			1,527,850
Other income		–			–			–			32,621
Gain (loss) on sale of assets		(49,985	)		–			242,494			–
Unrealized gain (loss) on investments		(10,572	)		10,062			210,685			120,800
Total other income (expense)		(1,555,427	)		704,615			(3,105,816	)		3,190,633
Provision for income taxes		1,312,817			–			1,997,905			–
Net income (loss)	$	968,756		$	(2,914,211	)	$	1,689,289		$	(10,889,228	)
Earnings (loss) per share attributable to common stockholders
Basic earnings (loss) per share	$	0.02		$	(0.07	)	$	0.04		$	(0.26	)
Diluted earnings (loss) per share	$	0.02		$	(0.07	)	$	0.03		$	(0.26	)
Weighted average number of shares outstanding - basic		44,145,709			41,568,147			42,903,008			41,242,041
Weighted average number of shares outstanding - diluted		56,139,416			41,568,147			56,688,640			41,242,041
Comprehensive income (loss)	$	968,756		$	(2,914,211	)	$	1,689,289		$	(10,889,228	)

See accompanying notes to the financial statements

5

MEDICINE MAN TECHNOLOGIES, INC.

STATEMENT OF CHANGES IN STOCKHOLDERS’ EQUITY (UNAUDITED)

For the Nine months Ended September 30, 2021 and 2020

Expressed in U.S. Dollars

											Additional										Total
	Preferred Stock				Common Stock						Paid-in		Accumulated			Treasury Stock					Stockholders’
	Shares		Value		Shares			Value			Capital		Deficit			Shares		Cost			Equity
Balance, December 31, 2019		–	$	–		39,952,628		$	39,953		$	50,356,469	$	(22,816,477	)		257,732	$	(1,000,000	)	$	26,579,945
Net income (loss)		–		–		–			–			–		(10,889,228	)		–		–			(10,889,228	)
Issuance of stock as payment for acquisitions		–		–		2,554,750			2,555			4,167,253		–			–		–			4,169,808
Return of common stock as compensation to employees, officers and/or directors		–		–		(500,000	)		(500	)		–		–			–		–			(500	)
Issuance of common stock in connection with sales made under private or public offerings		–		–		187,500			187			374,813		–			–		–			375,000
Return of common stock		–		–		–			–			–		–			175,000		(332,500	)		(332,500	)
Stock based compensation expense related to common stock options		–		–		–			–			5,815,808		–			–		–			5,815,808
Balance, September 30, 2020		–	$	–		42,194,878		$	42,195		$	60,714,343	$	(33,705,705	)		432,732	$	(1,332,500	)	$	25,718,333

									Additional										Total
	Preferred Stock				Common Stock				Paid-in		Accumulated			Treasury Stock					Stockholders’
	Shares		Value		Shares		Value		Capital		Deficit			Shares		Cost			Equity
Balance, December 31, 2020		19,716	$	20		42,601,773	$	42,602	$	85,357,835	$	(42,293,098	)		432,732	$	(1,332,500	)	$	41,774,859
Net income (loss)		–		–		–		–		–		1,689,289			–		–			1,689,289
Issuance of stock as payment for acquisitions		20,240		20		2,213,994		2,214		25,617,766		–			–		–			25,620,000
Return of common stock as compensation to employees, officers and/or directors		–		–		–		–		–		–			–		–			–
Issuance of common stock as compensation to employees, officers and/or directors		–		–		323,530		324		680,538		–			–		–			680,862
Issuance of common stock in connection with sales made under private or public offerings		47,310		47		–		–		50,449,159		–			–		–			50,449,206
Dividends declared		–		–		–		–		–		(5,585,020	)		–		–			(5,585,020	)
Return of common stock		–		–		–		–		–		–			84,312		(184,536	)		(184,536	)
Stock based compensation expense related to common stock options		–		–		–		–		3,288,435		–			–		–			3,288,435
Balance, September 30, 2021		87,266	$	87		45,139,297	$	45,140	$	165,393,733	$	(46,188,829	)		517,044	$	(1,517,036	)	$	117,733,095

See accompanying notes to the financial statements

6

MEDICINE MAN TECHNOLOGIES, INC.

STATEMENT OF CHANGES IN STOCKHOLDERS’ EQUITY (UNAUDITED)

For the Three months Ended September 30, 2021 and 2020

Expressed in U.S. Dollars

Additional

Total

Preferred Stock

Common Stock

Paid-in

Accumulated

Treasury Stock

Stockholders’

Shares

Value

Shares

Value

Capital

Deficit

Shares

Cost

Equity

Balance, June 30, 2020

–

$

–

42,194,878

$

42,195

$

59,260,357

$

(30,791,494

)

257,732

$

(1,000,000

)

$

27,511,058

Net income (loss)

–

–

–

–

–

(2,914,211

)

–

–

(2,914,211

)

Issuance of stock as payment for acquisitions

–

–

–

–

–

–

–

–

–

Return of common stock as compensation to employees, officers and/or directors

–

–

–

–

–

–

–

–

–

Issuance of common stock as compensation to employees, officers and/or directors

–

–

–

–

–

–

–

–

–

Issuance of stock in connection with sales made under private or public offerings

–

–

–

–

–

–

–

–

–

Dividends declared

–

–

–

–

–

–

–

–

–

Return of common stock

–

–

–

–

–

–

175,000

(332,500

)

(332,500

)

Stock based compensation expense related to common stock options

–

–

–

–

1,453,986

–

–

–

1,453,986

Balance, September 30, 2020

–

$

–

42,194,878

$

42,195

$

60,714,343

$

(33,705,705

)

432,732

$

(1,332,500

)

$

25,718,333

Additional

Total

Preferred Stock

Common Stock

Paid-in

Accumulated

Treasury Stock

Stockholders’

Shares

Value

Shares

Value

Capital

Deficit

Shares

Cost

Equity

Balance, June 30, 2021

87,266

$

87

42,925,303

$

42,925

$

158,787,183

$

(45,373,480

)

517,044

$

(1,517,036

)

$

111,939,679

Net income (loss)

–

–

–

–

–

968,757

–

–

968,756

Issuance of stock as payment for acquisitions

–

–

2,213,994

2,214

5,377,786

–

–

–

5,380,000

Return of common stock as compensation to employees, officers and/or directors

–

–

–

–

–

–

–

–

–

Issuance of common stock as compensation to employees, officers and/or directors

–

–

–

1

–

–

–

–

1

Issuance of stock in connection with sales made under private or public offerings

–

–

–

–

–

–

–

–

–

Dividends declared

–

–

–

–

–

(1,784,106

)

–

–

(1,784,106

)

Return of common stock

–

–

–

–

–

–

–

–

–

Stock based compensation expense related to common stock options

–

–

–

–

1,228,764

–

–

–

1,228,764

Balance, September 30, 2021

87,266

$

87

45,139,297

$

45,140

$

165,393,733

$

(46,188,829

)

517,044

$

(1,517,036

)

$

117,733,095

See accompanying notes to the financial statements

7

MEDICINE MAN TECHNOLOGIES, INC.

STATEMENT OF CASH FLOWS (UNAUDITED)

For the Nine months Ended September 30, 2021 and 2020

Expressed in U.S. Dollars

	For the Nine Months Ended
	September 30,
	2021			2020
Cash flows from operating activities
Net income (loss) for the period	$	1,689,289		$	(10,889,228	)
Adjustments to reconcile net income to cash used in operating activities
Depreciation and amortization		7,779,828			322,292
Deferred taxes		–			–
Gain on change in derivative liabilities		(967,751	)		(2,990,486	)
Gain on investment, net		(210,685	)		(120,800	)
Gain on sale of assets		(292,479	)		–
Stock based compensation		3,865,588			5,815,808
Changes in operating assets and liabilities
Accounts receivable		(2,179,646	)		1,292,509
Inventory		(3,034,246	)		271,305
Prepaid expenses and other current assets		(1,964,835	)		274,814
Other assets		(396,183	)		(127,999	)
Operating leases right of use assets and liabilities		114,129			27,028
Accounts payable and other liabilities		(568,387	)		(177,295	)
Deferred revenue		(50,000	)		–
Income taxes payable		1,029,482			(1,940	)
Net cash provided by (used in) operating activities		4,814,104			(6,303,992	)
Cash flows from investing activities:
Collection of notes receivable		181,911			478,285
Cash consideration for acquisition of business		(71,927,071	)		(2,609,500	)
Purchase of fixed assets - net		(3,869,658	)		(976,685	)
Purchase of intangible assets		(29,580	)		–
Net cash (used in) investing activities		(75,644,398	)		(3,107,900	)
Cash flows from financing activities:
Proceeds from issuance of debt, net		45,344,578			–
Repayment of notes payable		(4,865,502	)		–
Proceeds from issuance of common stock, net of issuance costs		50,282,797			42,000
Net cash provided by financing activities		90,761,874			42,000
Net increase (decrease) in cash and cash equivalents		19,931,580			(9,369,892	)
Cash and cash equivalents at beginning of period		1,237,236			12,351,580
Cash and cash equivalents at end of period	$	21,168,816		$	2,981,688
Supplemental disclosure of cash flow information:
Cash paid for interest	$	3,862,970		$	–

See accompanying notes to the financial statements

8

MEDICINE MAN TECHNOLOGIES, INC.

NOTES TO UNAUDITED CONDENSED INTERIM FINANCIAL STATEMENTS

Organization and Nature of Operations

Medicine Man Technologies, Inc. (“we,” “us,” “our” or the “Company”) was incorporated in Nevada on March 20, 2014. On May 1, 2014, we entered into a non-exclusive Technology License Agreement with Futurevision, Inc., f/k/a Medicine Man Production Corp., dba Medicine Man Denver (“Medicine Man Denver”) pursuant to which Medicine Man Denver granted us a license to use all of the proprietary processes that they had developed, implemented and practiced at their cannabis facilities relating to the commercial growth, cultivation, marketing and distribution of medical and recreational marijuana pursuant to relevant state laws and the right to use and to license such information, including trade secrets, skills and experience (present and future) (the “License Agreement”) for 10 years.

In 2017, the Company acquired additional cultivation intellectual property through the acquisition of Success Nutrients™ and Pono Publications, including the rights to the book titled “Three A Light” and its associated cultivation techniques, which have been part of the Company’s products and services offerings since the acquisition. The Company acquired Two J’s LLC d/b/a The Big Tomato (“The Big Tomato”) in 2018, which operates a retail location in Aurora, Colorado. It has been a leading supplier of hydroponics and indoor gardening supplies in the metro Denver area since May 2001. The Company was focused on cannabis dispensary and cultivation consulting and providing equipment and nutrients to cannabis cultivators until its first plant touching acquisition in April of 2020. In 2019, due to the changes in Colorado law permitting non-Colorado resident and publicly traded investment into “plant-touching” cannabis companies, the Company made a strategic decision to move toward direct plant-touching operations. The Company developed a plan to roll up a number of direct plant-touching dispensaries, manufacturing facilities, and cannabis cultivations with a target to be one of the largest seed to sale cannabis businesses in Colorado. In April 2020, the Company acquired its first plant-touching business, Mesa Organics Ltd. (“Mesa Organics”), which consists of four dispensaries and one manufacturing infused products facility (“MIP”), d/b/a Purplebee’s.

On April 20, 2020, the Company rebranded and since then conducts its business under the trade name, Schwazze. The corporate name of the Company continues to be Medicine Man Technologies, Inc. Effective April 21, 2020, the Company commenced trading under the OTC ticker symbol SHWZ.

On December 17, 2020, the Company acquired the assets of (i) Starbuds Pueblo LLC; and (ii) Starbuds Alameda LLC under the applicable Asset Purchase Agreements (“APAs”). On December 18, 2020, the Company acquired the assets of (i) Starbuds Commerce City LLC; (ii) Lucky Ticket LLC; (iii) Starbuds Niwot LLC; and (iv) LM MJC LLC under the applicable APAs.

On February 4, 2021, the Company acquired the assets of Colorado Health Consultants LLC and Mountain View 44th LLC under the applicable APAs.

On March 2, 2021, the Company acquired the assets of (i) Starbuds Aurora LLC, (ii) SB Arapahoe LLC; (iii) Citi-Med LLC; (iv) Starbuds Louisville LLC; and (v) KEW LLC under the applicable APAs.

On July 21, 2021, the Company acquired the assets of Southern Colorado Growers under the applicable APA.

From December 2020 through March 2021 the Company completed a private placement of Series A Cumulative Convertible Preferred Stock (“Series A Preferred Stock”) for aggregate gross proceeds of $57.7 million dollars. In the private placement, the Company issued and sold an aggregate of 57,700 shares of Series A Preferred Stock at a price of $1,000 per share under securities purchase agreements with Dye Capital Cann Holdings II, LLC (“Dye Cann II”) and CRW Cann Holdings, LLC (“CRW”) as well as subscription agreements with unaffiliated investors. Among other terms, each share of Series A Preferred Stock (i) earns an annual dividend of 8% on the “preference amount,” which initially is equal to the $1,000 per-share purchase price and subject to increase, by having such dividends automatically accrete to, and increase, the outstanding preference amount; (ii) is entitled to a liquidation preference under certain circumstances, (iii) is convertible into shares of the Company’s common stock by dividing the preference amount by $1.20 per share under certain circumstances, and (iv) is subject to a redemption right or obligation under certain circumstances.

9

In addition, on December 16, 2020, the Company issued and sold a Convertible Promissory Note and Security Agreement in the original principal amount of $5,000,000 to Dye Capital & Company, LLC (“Dye Capital”). On February 26, 2021, Dye Capital converted all outstanding amounts under the note into 5,060 shares of Series A Preferred Stock.

The Company is focused on growing through internal growth, acquisition, and new licenses in the Colorado cannabis market. The Company is focused on building the premier vertically integrated cannabis company in Colorado. The company's leadership team has deep expertise in mainstream consumer packaged goods, retail, and product development at Fortune 500 companies as well as in the cannabis sector. The Company has a high-performance culture and a focus on analytical decision making, supported by data. Customer-centric thinking inspires the Company’s strategy and provides the foundation for the Company’s operational playbooks.

The Company’s operations are organized into three different segments as follows: (i) retail, consisting of retail locations for sale of cannabis products, (ii) wholesale, consisting of manufacturing, cultivation and sale of wholesale cannabis products, nutrients for cannabis, and hydroponics and indoor gardening supplies, and (iii) other, consisting of all other income and expenses, including those related to licensing and consulting services, facility design services, facility management services, and corporate operations.

1. Liquidity and Capital Resources

During the quarters ended September 30, 2021 and 2020, the Company primarily used revenues from its operations to fund its operations.

Cash and cash equivalents are carried at cost and represent cash on hand, deposits placed with banks or other financial institutions and all highly liquid investments with an original maturity of three months or less as of the purchase date. The Company had $21,168,816 and $1,231,235 classified as cash and cash equivalents as of September 30, 2021, and December 31, 2020, respectively.

The Company maintains its cash balances with a high-credit-quality financial institution. At times, such cash may be more than the insured limit of $250,000. The Company has not experienced any losses in such accounts, and management believes the Company is not exposed to any significant credit risk on its cash and cash equivalents.

2. Critical Accounting Policies and Estimates

Management’s Representation of Interim Financial Statements

The accompanying unaudited consolidated financial statements have been prepared by the Company without audit pursuant to the rules and regulations of the Securities and Exchange Commission (“SEC”). Certain information and disclosures normally included in financial statements prepared in accordance with accounting principles generally accepted in the United States (“U.S. GAAP”) have been condensed or omitted as allowed by such rules and regulations, and management believes that the disclosures are adequate to make the information presented not misleading. These unaudited consolidated financial statements include all of the adjustments, which in the opinion of management are necessary to a fair presentation of the Company’s financial position and results of operations. All such adjustments are of a normal and recurring nature. Interim results are not necessarily indicative of results for a full year. These unaudited consolidated financial statements should be read in conjunction with the audited consolidated financial statements as of December 31, 2020 and 2019, as presented in the Company’s Annual Report on Form 10-K filed on March 31, 2021 with the SEC.

Basis of Presentation

These accompanying financial statements have been prepared in accordance with U.S. GAAP and pursuant to the rules and regulations of the SEC for interim financial statements. All intercompany accounts and transactions are eliminated in consolidation.

10

Use of Estimates

The preparation of financial statements in conformity with U.S. GAAP requires management to make estimates and assumptions that affect the amounts reported therein. Due to the inherent uncertainty involved in making estimates, actual results reported in future periods may be based upon amounts that differ from these estimates.

Reclassifications

Certain prior period amounts have been reclassified to conform to the current period presentation. These reclassifications had no impact on net earnings and financial position.

Fair Value Measurements

Fair value is defined as the exchange price that would be received for an asset or paid to transfer a liability (an exit price) in the principal or most advantageous market for the asset or liability, in an orderly transaction between market participants on the measurement date. Valuation techniques used to measure fair value must maximize the use of observable inputs and minimize the use of unobservable inputs. The fair value hierarchy is based on three levels of inputs, of which the first two are considered observable and the last unobservable, as follows:

Level 1 – Quoted prices in active markets for identical assets or liabilities.

Level 2 – Inputs other than Level 1 that are observable, either directly or indirectly, such as quoted prices for similar assets or liabilities; quoted prices in markets that are not active; or other inputs that are observable or can be corroborated by observable market data for substantially the full term of the assets or liabilities.

Level 3 – Unobservable inputs that are supported by little or no market activity and that are significant to the measurement of the fair value of the assets or liabilities.

The Company’s financial instruments include cash, accounts receivable, notes receivable, accounts payable and tenant deposits. The carrying values of these financial instruments approximate their fair value due to their short maturities. The carrying amount of the Company’s debt approximates fair value because the interest rates on these instruments approximate the interest rate on debt with similar terms available to us. The Company’s derivative liability was adjusted to fair market value at the end of each reporting period, using Level 3 inputs.

The following is the Company’s assets and liabilities measured at fair value on a recurring and nonrecurring basis at September 30, 2021 and December 31, 2020, using quoted prices in active markets for identical assets (Level 1), significant other observable inputs (Level 2), and significant unobservable inputs (Level 3):

	September 30,		December 31,
	2021		2020
Level 1 - Marketable Securities Available-for-Sale - Recurring		487,467		276,782

Marketable Securities at Fair Value on a Recurring Basis

Certain assets are measured at fair value on a recurring basis. The Level 1 position consists of an investment in equity securities held in Canada House Wellness Group, Inc., a publicly-traded company whose securities are actively quoted on the Toronto Stock Exchange.

11

Fair Value of Financial Instruments

The carrying amounts of cash and current assets and liabilities approximate fair value because of the short-term maturity of these items. These fair value estimates are subjective in nature and involve uncertainties and matters of significant judgment and, therefore, cannot be determined with precision. Changes in assumptions could significantly affect these estimates. Available-for-sale securities are recorded at current market value as of the date of this report.

Accounts Receivable

The Company extends unsecured credit to its customers in the ordinary course of business. These accounts receivable relates to the Company’s wholesale and other revenue segments. Accounts receivable are recorded when a milestone is reached at a point in time resulting in funds being due for delivered goods or services, and where payment is reasonably assured. Wholesale revenues are generally collected within 14 to 30 days after invoice is sent. Consulting revenues are generally collected from 30 to 60 days after the invoice is sent.

The following table depicts the composition of our accounts receivable as of September 30, 2021, and December 31, 2020:

	September 30,			December 31,
	2021			2020
Accounts receivable - trade	$	3,665,566		$	1,315,188
Accounts receivable - related party		–			80,494
Accounts receivable - litigation, non-current		3,063,968			3,063,968
Allowance for doubtful accounts		(135,046	)		(44,808	)
Total accounts receivable	$	6,594,488		$	4,414,842

The Company establishes an allowance for doubtful accounts based on management’s assessment of the collectability of trade receivables. A considerable amount of judgment is required in assessing the amount of the allowance. The Company makes judgments about the creditworthiness of each customer based on ongoing credit evaluations and monitors current economic trends that might impact the level of credit losses in the future. If the financial condition of the customers were to deteriorate, resulting in their inability to make payments, a specific allowance will be required.

Notes Receivable

On March 12, 2021, the Company sold equipment to Colorado Cannabis. The terms of sale included a zero interest note receivable, payable $11,944 on the first of each month for 24 months. As of September 30, 2021, the outstanding balance, including penalties for late payments, on the notes receivable with Colorado Cannabis totaled $179,167.

12

Prepaid Expenses and Other Assets (Current and Non-Current)

Prepaid expenses and other assets as of September 30, 2021 and December 31, 2020 were $3,027,097 and $666,079, respectively. As of September 30, 2021, this balance included $2,579,035 in prepaid expenses and $448,062 in security deposits. As of December 31, 2020, other assets included $345,777 in prepaid expenses, $268,423 in tax receivable, and $51,879 in security deposits. Prepaid expenses were primarily comprised of insurance premiums, membership dues, conferences and seminars, and other general and administrative costs.

Goodwill and Intangible Assets

Goodwill represents the future economic benefit arising from other assets acquired that could not be individually identified and separately recognized. The goodwill arising from the Company’s acquisitions is attributable to the value of the potential expanded market opportunity with new customers. Intangible assets have either an identifiable or indefinite useful life. Intangible assets with identifiable useful lives are amortized on a straight-line basis over their economic or legal life, whichever is shorter. The Company’s amortizable intangible assets consist of licensing agreements, product licenses and registrations, and intellectual property or trade secrets. Their estimated useful lives range from 10 to 15 years.

Goodwill and indefinite-lived assets are not amortized but are subject to annual impairment testing unless circumstances dictate more frequent assessments. The Company performs an annual impairment assessment for goodwill during the fourth quarter of each year and more frequently whenever events or changes in circumstances indicate that the fair value of the asset may be less than the carrying amount. Goodwill impairment testing is a two-step process performed at the reporting unit level. Step one compares the fair value of the reporting unit to its carrying amount. The fair value of the reporting unit is determined by considering both the income approach and market approaches. The fair values calculated under the income approach and market approaches are weighted based on circumstances surrounding the reporting unit. Under the income approach, the Company determines fair value based on estimated future cash flows of the reporting unit, which are discounted to the present value using discount factors that consider the timing and risk of cash flows. For the discount rate, the Company relies on the capital asset pricing model approach, which includes an assessment of the risk-free interest rate, the rate of return from publicly traded stocks, the Company’s risk relative to the overall market, the Company’s size and industry and other Company-specific risks. Other significant assumptions used in the income approach include the terminal value, growth rates, future capital expenditures and changes in future working capital requirements. The market approaches use key multiples from guideline businesses that are comparable and are traded on a public market. If the fair value of the reporting unit is greater than its carrying amount, there is no impairment. If the reporting unit’s carrying amount exceeds its fair value, then the second step must be completed to measure the amount of impairment, if any. Step two calculates the implied fair value of goodwill by deducting the fair value of all tangible and intangible net assets of the reporting unit from the fair value of the reporting unit as calculated in step one. In this step, the fair value of the reporting unit is allocated to all of the reporting unit’s assets and liabilities in a hypothetical purchase price allocation as if the reporting unit had been acquired on that date. If the carrying amount of goodwill exceeds the implied fair value of goodwill, an impairment loss is recognized in an amount equal to the excess.

Determining the fair value of a reporting unit is judgmental in nature and requires the use of significant estimates and assumptions, including revenue growth rates, strategic plans, and future market conditions, among others. There can be no assurance that the Company’s estimates and assumptions made for purposes of the goodwill impairment testing will prove to be accurate predictions of the future. Changes in assumptions and estimates could cause the Company to perform an impairment test prior to scheduled annual impairment tests.

The Company performed its annual fair value assessment as of December 31, 2020, on its subsidiaries with material goodwill and intangible asset amounts on their respective balance sheets and determined that no impairment exists. No additional factors or circumstances existed as of September 30, 2021 that would indicate impairment.

13

Long-Lived Assets

The Company evaluates the recoverability of its long-lived assets whenever events or changes in circumstances have indicated that an asset may not be recoverable. The long-lived asset is grouped with other assets at the lowest level for which identifiable cash flows are largely independent of the cash flows of other groups of assets and liabilities. If the sum of the projected undiscounted cash flows is less than the carrying value of the assets, the assets are written down to the estimated fair value.

The Company evaluated the recoverability of its long-lived assets on December 31, 2020 on its subsidiaries with material amounts on their respective balance sheets and determined that no impairment exists.

Accounts Payable

Accounts payable as of September 30, 2021 and December 31, 2020 were $1,040,610 and $3,557,460, respectively and were comprised of trade payables for various purchases and services rendered during the ordinary course of business.

Accrued Expenses and Other Liabilities

Accrued expenses and other liabilities as of September 30, 2021 and December 31, 2020 were $11,660,237 and $2,705,445, respectively. As of September 30, 2021, this was comprised of accrued payroll of $632,965, operating expenses of $5,442,254, and accrued dividends on preferred stock of $5,585,018. As of December 31, 2020, accrued expenses and other liabilities was comprised of customer deposits of $26,826, accrued payroll of $1,154,887, and operating expenses of $1,523,732.

Revenue Recognition and Related Allowances

The Company’s revenue recognition policy is significant because the amount and timing of revenue is a key component of our results of operations. Certain criteria are required to be met in order to recognize revenue. If these criteria are not met, then the associated revenue is deferred until is the criteria are met. When consideration is received in advance of the delivery of goods or services, a contract liability is recorded. Revenue contracts are identified when accepted from customers and represent a single performance obligation to sell the Company’s products to a customer.

The Company has three main revenue streams: retail; wholesale; and other.

Retail and wholesale sales are recorded at the time that control of the products is transferred to customers. In evaluating the timing of the transfer of control of products to customers, the Company considers several indicators, including significant risks and rewards of products, its right to payment, and the legal title of the products. Based on the assessment of control indicators, sales are generally recognized when products are delivered to customers.

Other revenue consists of other income and expenses, including related to, licensing and consulting services, facility design services, facility management services, the Company’s Three A Light™ publication, and corporate operations. Revenue is recognized when the obligations to the client are fulfilled which is determined when milestones in the contract are achieved and target harvest yields are exceeded or earned upon the completion of the seminar. The Company also recognizes expense reimbursement from clients as revenue for expenses incurred during certain jobs.

Costs of Goods and Services Sold

Costs of goods and services sold are comprised of related expenses incurred while supporting the implementation and sales of the Company’s products and services.

14

General and Administrative Expenses

General and administrative expense are comprised of all expenses not linked to the production or advertising of the Company’s services.

Advertising and Marketing Costs

Advertising and marketing costs are expensed as incurred and totaled $250,568 and $559,161 for the three and nine months ended September 30, 2021, respectively, as compared to $ $172,539 and $638,335, respectively, for the three and nine months ended September 30, 2020.

Stock Based Compensation

The Company accounts for share-based payments pursuant to ASC 718, Stock Compensation and, accordingly, the Company records compensation expense for share-based awards based upon an assessment of the grant date fair value for stock options using the Black-Scholes option pricing model.

Stock compensation expense for stock options is recognized over the vesting period of the award or expensed immediately under ASC 718 and Emerging Issues Task Force (“EITF”) 96-18 when stock or options are awarded for previous or current service without further recourse.

Share-based expense paid through direct stock grants is expensed as occurred. Since the Company’s common stock is publicly traded, the value is determined based on the number of shares of common stock issued and the trading value of the common stock on the date of the transaction.

On June 20, 2018, the Financial Accounting Standards Board (“FASB”) issued ASU 2018-07 which simplifies the accounting for share-based payments granted to nonemployees for goods and services. Under the ASU, most of the guidance on such payments to nonemployees would be aligned with the requirements for share-based payments granted to employees. Previously, share-based payment arrangements to nonemployees were accounted for under ASC 718, while nonemployee share-based payments issued for goods and services were accounted for under ASC 505-50. Before the amendment, the major difference for the Company (but not limited to) was the determination of measurement date, which generally is the date on which the measurement of equity classified share-based payments becomes fixed. Equity classified share-based payments for employees was fixed at the time of grant. Equity-classified nonemployee share-based payment awards are no longer measured at the earlier of the date which a commitment for performance by the counterparty is reached or the date at which the counterparty’s performance is complete. They are now measured at the grant date of the award, which is the same as share-based payments for employees. The Company adopted the requirements of the new rule as of January 1, 2019, the effective date of the new guidance.

The Company recognized $1,228,764 and $3,865,588 in expense for stock-based compensation from common stock options and common stock issued to employees, officers, and directors during the three and nine months ended September 30, 2021, respectively, and $1,453,986 and $5,815,808 in expenses for stock-based compensation from the issuance of common stock to employees, officers, directors and/or contractors during the three and nine months ended September 30, 2020, respectively.

Income Taxes

ASC 740, Income Taxes requires the use of the asset and liability method of accounting for income taxes. Under the asset and liability method of ASC 740, deferred tax assets and liabilities are recognized for the future tax consequences attributable to temporary differences between the financial statement carrying amounts of existing assets and liabilities and their respective tax bases.

Deferred tax assets are regularly assessed to determine the likelihood they will be recovered from future taxable income. A valuation allowance is established when we believe it is more likely than not the future realization of all or some of a deferred tax asset will not be achieved. In evaluating our ability to recover deferred tax assets within the jurisdiction which they arise, we consider all available positive and negative evidence. Factors reviewed include the cumulative pre-tax book income for the past three years, scheduled reversals of deferred tax liabilities, our history of earnings and reliability of our forecasts, projections of pre-tax book income over the foreseeable future, and the impact of any feasible and prudent tax planning strategies.

15

The Company assesses all material positions taken in any income tax return, including all significant uncertain positions, in all tax years that are still subject to assessment or challenge by relevant taxing authorities. Assessing an uncertain tax position begins with the initial determination of the position’s sustainability, and the tax benefit to be recognized is measured at the largest amount of benefit that is greater than 50 percent likely of being realized upon ultimate settlement. We recognize the impact of a tax position in our financial statements only if that position is more likely than not of being sustained upon examination by taxing authorities, based on the technical merits of the position. Tax authorities regularly examine our returns in the jurisdictions in which we do business, and we regularly assess the tax risk of our return filing positions. Due to the complexity of some of the uncertainties, the ultimate resolution may result in payments that are materially different from our current estimate of the tax liability. These differences, as well as any interest and penalties, will be reflected in the provision for income taxes in the period in which they are determined.

As the Company operates in the cannabis industry, it is subject to the limits of the Internal Revenue Code (“IRC”) Section 280E under which the Company is only allowed to deduct expenses directly related to sales of product. This results in permanent differences between ordinary and necessary business expenses deemed non-allowable under IRC Section 280E.

Right of Use Assets and Lease Liabilities

In February 2016, the FASB issued ASU No. 2016-02, Leases (Topic 842). The standard requires lessees to recognize almost all leases on the balance sheet as a Right-of-Use (“ROU”) asset and a lease liability and requires leases to be classified as either an operating or a finance type lease. The standard excludes leases of intangible assets or inventory. The standard became effective for the Company beginning January 1, 2019. The Company adopted ASC 842 using the modified retrospective approach, by applying the new standard to all leases existing at the date of initial application. Results and disclosure requirements for reporting periods beginning after January 1, 2019 are presented under ASC 842, while prior period amounts have not been adjusted and continue to be reported in accordance with our historical accounting under ASC 840. The Company elected the package of practical expedients permitted under the standard, which also allowed the Company to carry forward historical lease classifications. The Company also elected the practical expedient related to treating lease and non-lease components as a single lease component for all equipment leases as well as electing a policy exclusion permitting leases with an original lease term of less than one year to be excluded from the ROU assets and lease liabilities.

Under ASC 842, the Company determines if an arrangement is a lease at inception. ROU assets and liabilities are recognized at commencement date based on the present value of remaining lease payments over the lease term. For this purpose, the Company considers only payments that are fixed and determinable at the time of commencement. As most of the Company's leases do not provide an implicit rate, the Company estimated the incremental borrowing rate in determining the present value of lease payments. The ROU asset also includes any lease payments made prior to commencement and is recorded net of any lease incentives received. The Company’s lease terms may include options to extend or terminate the lease when it is reasonably certain that the Company will exercise such options.

Operating leases are included in operating lease ROU assets and operating lease liabilities, current and non-current, on the Company's consolidated balance sheets.

3. Recent Accounting Pronouncements

The Company has implemented all new accounting pronouncements that are in effect and that may impact its financial statements and does not believe that there are any other new pronouncements that have been issued that might have a material impact on its financial position or results of operations except as noted below:

In January 2017, the FASB issued ASU 2017-01, Clarifying the Definition of a Business (Topic 805), which changes the definition of a business to assist entities with evaluating when a set of transferred assets and activities is a business. The guidance requires an entity to evaluate if substantially all of the fair value of the gross assets acquired is concentrated in a single identifiable asset or a group of similar identifiable assets; if so, the set of transferred assets and activities is not a business. The guidance also requires a business to include at least one substantive process and narrows the definition of outputs by more closely aligning it with how outputs are described in ASC 606. The ASU is effective for annual reporting periods beginning after December 15, 2017, and for interim periods within those years. Adoption of this ASU did not have a significant impact on the Company’s consolidated results of operations, cash flows and financial position.

16

In December 2019, the FASB issued ASU 2019-12, Income Taxes (Topic 740), which enhances and simplifies various aspects of the income tax accounting guidance, including requirements such as tax basis step-up in goodwill obtained in a transaction that is not a business combination, ownership changes in investments, and interim-period accounting for enacted changes in tax law. The amendment became effective for public companies with fiscal years beginning after December 15, 2020. The Company is evaluating the impact of this amendment on its consolidated financial statements.

In February 2020, the FASB issued ASU 2020-02, Financial Instruments-Credit Losses (Topic 326) and Leases (Topic 842) - Amendments to SEC Paragraphs Pursuant to SEC Staff Accounting Bulletin No. 119 and Update to SEC Section on Effective Date Related to Accounting Standards Update No. 2016-02, Leases (Topic 842), which amends the effective date of the original pronouncement for smaller reporting companies. ASU 2016-13 and its amendments will be effective for the Company for interim and annual periods in fiscal years beginning after December 15, 2022. The Company believes the adoption will modify the way the Company analyzes financial instruments, but it does not anticipate a material impact on results of operations. The Company is in the process of determining the effects adoption will have on its consolidated financial statements.

4. Property and Equipment

Property and equipment are recorded at cost, net of accumulated depreciation and are comprised of the following:

	September 30,			December 31,
	2021			2020
Furniture and fixtures	$	254,490		$	228,451
Leasehold improvements		662,839			90,314
Machinery and tools		1,779,411			1,456,752
Land and buildings		2,935,000			–
Office equipment		250,833			104,059
Software		1,983,356			1,308,387
Work in process		2,570,512			269,414
	$	10,436,441		$	3,457,377
Less: Accumulated depreciation		(1,631,093	)		(872,579	)
Total property and equipment, net of depreciation	$	8,805,348		$	2,584,798

Depreciation on equipment is provided on a straight-line basis over its expected useful lives at the following annual rates.

Furniture and fixtures	3-5 years
Leasehold improvements	Lesser of the lease term or estimated useful life
Machinery and tools	5 years
Office equipment	3 years
Software	3-5 years

Depreciation expense for the three and nine months ended September 30, 2021 was $364,399 and $818,174, respectively.

17

5. Intangible Asset

Intangible assets as of September 30, 2021 and December 31, 2020 were comprised of the following:  

	September 30,			December 31,
	2021			2020
License Agreements	$	94,287,580		$	1,667,700
Tradename		4,560,000			350,000
Customer Relationships		5,150,000			1,055,000
Non Compete		1,205,000			120,000
Product License and Registration Agreements		–			57,300
Trade Secret		32,500			32,500
	$	105,235,080		$	3,282,500
Less: accumulated amortization		(7,162,110	)		(200,456	)
Total intangible assets, net of amortization	$	98,072,970		$	3,082,044

Amortization expense for the three and nine months ended September 30, 2021 was $2,609,987 and $6,961,654, respectively.

6. Derivative Liability

In 2019, the Company entered into certain employment agreements with key officers that contained contingent consideration provisions based upon the achievement of certain market condition milestones. The Company determined that each of these vesting conditions represented derivative instruments.

On January 8, 2019, the Company granted the right to receive 500,000 shares of restricted common stock to an officer and director, which will vest at such time that the Company’s stock price appreciates to $8.00 per share with defined minimum average daily trading volume thresholds. The rights expire January 8, 2022.

On April 23, 2019, the Company granted the right to receive 1,000,000 shares of restricted common stock to an officer and director, which will vest at such time that the Company’s stock price appreciates to $8.00 per share with defined minimum average daily trading volume thresholds. On February 25, 2020, the director resigned from his remaining positions with the Company and forfeited his right to the contingent consideration. As a result, the Company recorded a gain of $1,462,636 as a component of other income (expense), net on the financial statements in the first quarter of 2020.

On June 11, 2019, the Company granted the right to receive 1,000,000 shares of restricted common stock to an officer, which will vest at such time that the Company’s stock price appreciates to $8.00 per share with defined minimum average daily trading volume thresholds. On May 3, 2021, the Company executed an agreement whereby the officer relinquished the 1,000,000 shares of restricted common stock. and as a result, recorded a gain of $1,509,117 as a component of other income (expense), net on the financial statements in the second quarter of 2021.

The Company accounts for derivative instruments in accordance with the US GAAP accounting guidance under ASC 815, Derivatives and Hedging Activities. The Company estimated the fair value of these derivatives at the respective balance sheet dates using the Black-Scholes option pricing model based upon the following inputs: (i) stock price on the date of grant ranging between $1.32 - $3.75, (ii) a risk-free interest rate ranging between 1.45% - 2.57% and (iii) an expected volatility of the price of the underlying common stock ranging between 145% - 201%.

As of September 30, 2021, the fair value of these derivative liabilities is $79,730. The change in the fair value of derivative liabilities for the three months ended September 30, 2021 was $356,824, resulting in an aggregate unrealized gain on derivative liabilities. The change in the fair value of the derivative liabilities for the nine months ended September 30, 2021 was $967,751, resulting in an aggregated unrealized gain on derivative liabilities.

18

7. Related Party Transactions

Transactions Involving Former Directors, Executive Officers or Their Affiliated Entities

During the year ended December 31, 2020, the Company recorded sales to Medicine Man Denver, totaling $997,262. The Company had an accounts receivable balance with Medicine Man Denver totaling $72,109 as of December 31, 2020. The Company’s former Chief Executive Officer, Andy Williams, maintains an ownership interest in Medicine Man Denver. Effective February 25, 2020 he was no longer an officer of the Company and therefore no longer a related party. As such, he is not included as a related party with respect to sales and accounts receivable from Medicine Man Denver during the period ended September 30, 2021. 

During the year ended December 31, 2020, the Company recorded sales to MedPharm Holdings LLC (“MedPharm”) totaling $73,557. The Company had a net accounts receivable balance with MedPharm totaling $5,885 as of December 31, 2020. The Company’s former Chief Executive Officer, Andy Williams, maintains an ownership interest in MedPharm. Effective February 25, 2020 he was no longer an officer of the Company and therefore no longer a related party. As such, he is not included as a related party with respect to sales and accounts receivable from MedPharm during the period ended September 30, 2021.

Also, during the year ended December 31, 2019, the Company made loans to MedPharm totaling $767,695 evidenced by promissory notes with original maturity dates ranging from September 21, 2019 through January 19, 2020 and all bearing interest at 8% per annum. On August 1, 2020, the Company entered into a Settlement Agreement and Mutual Release (the “Settlement Agreement”) with MedPharm pursuant to which (i) the parties agreed that the outstanding amount owed by MedPharm to the Company was $767,695 of principal and $47,161 in accrued and unpaid interest, (ii) MedPharm paid the Company $100,000 in cash, (iii) Andrew Williams returned 175,000 shares of the Company’s common stock to the Company, as partial repayment of the outstanding balance at a value of $1.90 per share. These shares are held in treasury. The remaining outstanding principal and interest of $181,911 due and payable by MedPharm under the Settlement Agreement was to be paid out in bi-weekly installments of product by scheduled deliveries through June 30, 2021. This amount was paid off on April 19, 2021.

During the year ended December 31, 2020, the Company recorded sales to Baseball 18, LLC (“Baseball”) totaling $14,605, to Farm Boy, LLC (“Farm Boy”) totaling $16,125, to Emerald Fields LLC (“Emerald Fields”) totaling $16,605, and to Los Sueños Farms (“Los Sueños”) totaling $52,244. As of December 31, 2020 the Company had net accounts payable balances with Baseball of $31,250, and with Farm Boy of $93,944. One of the Company’s former Chief Operating Officers and directors, Robert DeGabrielle, owns the Colorado retail marijuana cultivation licenses for Farm Boy, Baseball, Emerald Fields, and Los Sueños. Effective June 19, 2020 he was no longer an officer of the Company and therefore no longer a related party. As such, he is not included as a related party with respect to sales and accounts receivable from Baseball, Farm Boy, Emerald Fields, or Los Sueños during the period ended September 30, 2021.

Transactions with Entities Affiliated with Justin Dye

The Company has participated in several transaction involving Dye Capital, Dye Capital Cann Holdings, LLC (“Dye Cann I”) and Dye Cann II. Justin Dye, the Company’s Chief Executive Officer, one of its directors, and the largest beneficial owner of the Company’s common stock and Series A Preferred Stock, controls Dye Capital and Dye Capital controls Dye Cann I and Dye Cann II. Dye Cann I is the largest holder of the Company’s outstanding common stock. Dye Cann II is a significant holder of the Series A Preferred Stock. Mr. Dye has sole voting and dispositive power over the securities held by Dye Capital, Dye Cann I, and Dye Cann II.

19

The Company entered into a Securities Purchase Agreement with Dye Cann I on June 5, 2019, (as amended, the “Dye Cann I SPA”) pursuant to which the Company agreed to sell to Dye Cann I up to between 8,187,500 and 10,687,500 shares of the Company’s common stock in several tranches at $2.00 per share and warrants to purchase 100% of the number of shares of common stock sold at a purchase price of $3.50 per share. At the initial closing on June 5, 2019, the Company sold to Dye Cann I 1,500,000 shares of common stock and warrants to purchase 1,500,000 shares of common stock for gross proceeds of $3,000,000, and the Company has consummated subsequent closings for an aggregate of 9,287,500 shares of common stock and warrants to purchase 9,287,500 shares of common stock for aggregate gross proceeds of $18,575,000 to the Company. The terms of the Dye Cann I SPA are disclosed in the Company’s Current Report on Form 8-K filed on June 6, 2019. The Company and Dye Cann I entered into a first amendment to the Dye Cann I SPA on July 15, 2019, as described in the Company’s Current Report on Form 8-K filed on July 17, 2019, a second amendment to the Dye Cann I SPA on May 20, 2020, as described in the Company’s Current Report on Form 8-K filed on May 22, 2020, and a Consent, Waiver and Amendment on December 16, 2020, as described in the Company’s Current Report on Form 8-K filed on December 23, 2020. At the time of the initial closing under the Dye Cann I SPA, Justin Dye became a director and the Company’s Chief Executive Officer.

The Company granted Dye Cann I certain demand and piggyback registration rights with respect to the shares of common stock sold under the Dye Cann I SPA and issuable upon exercise of the warrants sold under the Dye Cann I SPA. The Company also granted Dye Cann I the right to designate one or more individuals for election or appointment to the Company’s board of directors (the “Board”) and Board observer rights. Further, under the Dye Cann I SPA, until June 5, 2022, if the Company desires to pursue debt or equity financing, the Company must first give Dye Cann I an opportunity to provide a proposal to the Company with the terms upon which Dye Cann I would be willing to provide or secure such financing. If the Company does not accept Dye Cann I’s proposal, the Company may pursue such debt or equity financing from other sources but Dye Cann I has a right to participate in such financing to the extent required to enable Dye Cann I to maintain the percentage of the Company’s common stock (on a fully-diluted basis) that it then owns, in the case of equity securities, or, in the case of debt, a pro rata portion of such debt based on the percentage of the Company’s common stock (on a fully-diluted basis) that it then owns.

The Company entered into a Securities Purchase Agreement (as amended, the “Dye Cann II SPA”) with Dye Cann II on November 16, 2020 pursuant to which the Company agreed to sell to Dye Cann II shares of Series A Preferred Stock in one or more tranches at a price of $1,000 per share. The terms of the Dye Cann II SPA are disclosed in the Company’s Current Report on Form 8-K filed on December 23, 2020. The Company and Dye Cann II entered into an amendment to the Dye Cann II SPA on December 16, 2020, as described in the Company’s Current Report on Form 8-K filed on December 23, 2020, a second amendment to the Dye Cann II SPA on February 3, 2021, as described in the Company’s Form 8-K filed on February 9, 2021, and a third amendment to the Dye Cann II SPA on March 30, 2021, as described under Item 9B of the Company’s Annual Report on Form 10-K for the year ended December 31, 2021. The Company issued and sold to Dye Cann II 7,700 shares of Series A Preferred Stock on December 16, 2020, 1,450 shares of Series A Preferred Stock on December 18, 2020, 1,300 shares of Series Preferred Stock on December 22, 2020, 3,100 shares of Series A Preferred Stock on February 3, 2021, 3,800 shares of Series A Preferred Stock on March 2, 2021 and 4,000 shares of Series A Preferred Stock on March 30, 2021. As a result, the Company issued and sold an aggregate of 21,350 shares of Series A Preferred Stock to Dye Cann II for aggregate gross proceeds of $21,350,000.

The Company granted Dye Cann II certain demand and piggyback registration rights with respect to the shares of common stock issuable upon conversion of the Series A Preferred Stock under the Dye Cann II SPA. Further, the Company granted Dye Can II the right to designate one or more individuals for election or appointment to the Board and Board observer rights.

On December 16, 2020, the Company entered into a Secured Convertible Note Purchase Agreement with Dye Capital and issued and sold to Dye Capital a Convertible Note and Security Agreement in the principal amount of $5,000,000 as described in the Company’s Current Report on Form 8-K filed on December 23, 2020. On February 26, 2021, Dye Capital elected to convert the $5,000,000 principal amount and the $60,250 of accrued but unpaid interest under the Convertible Promissory Note and Security Agreement under its terms and Dye Capital and the Company entered into a Conversion Notice and Agreement pursuant to which the Company issued 5,060 shares of Series A Preferred Stock to Dye Capital and also paid Dye Capital $230.97 in cash in lieu of issuing any fractional shares of Series Preferred Stock upon conversion, as described in the Company’s Current Report on Form 8-K filed on March 4, 2021.

20

The Company previously reported the terms of the Series A Preferred Stock in the Company’s Current Report on Form 8-K filed on December 23, 2020 and under Item 1 of this Report, which disclosure is incorporated herein by reference.

During the year ended December 31, 2020, the Company recorded expenses of $66,264 with Tella Digital. As of September 30, 2021 the Company recorded expenses of $188,354 for the nine month period. Tella Digital provides on-premise digital experience solutions for our retail dispensary locations. Mr. Dye is an indirect part owner and serves as Chairman of Tella Digital. Nirup Krishnamurthy, Chief Operating Officer, is also an indirect part owner in Tella Digital.

Transactions with CRW and Affiliated Entities

On February 26, 2021, the Company entered into a Securities Purchase Agreement (the “CRW SPA”) with CRW pursuant to which the Company issued and sold 25,350 shares of Series A Preferred Stock to CRW at a price of $1,000 per share for aggregate gross proceeds of $25,350,000. The transaction made CRW a beneficial owner of more than 5% of the Company’s common stock. The Company granted CRW certain demand and piggyback registration rights with respect to the shares of common stock issuable upon conversion of the Series A Preferred Stock under the CRW SPA. On the same date, the Company entered into a letter agreement with CRW, granting CRW the right to designate one individual for election or appointment to the Board and Board observer rights. Under the letter agreement, for as long as CRW has the right to designate a Board member, if the Company, directly or indirectly, plans to issue, sell or grant any securities or options to purchase any of its securities, CRW has a right to purchase its pro rata portion of such securities, based on the number of shares of Series A Preferred Stock beneficially held by CRW on the applicable date on an as-converted to common stock basis divided by the total number of shares of common stock outstanding on such date on an as-converted, fully-diluted basis (taking into account all outstanding securities of the Company regardless of whether the holders of such securities have the right to convert or exercise such securities for common stock at the time of determination). Further, under the letter agreement, the Company will pay CRW Capital, LLC, the sole manager of CRW and a holder of a carried interest in CRW, a monitoring fee equal to $150,000 in monthly installments of $10,000. On March 14, 2021, the Board appointed Jeffrey A. Cozad as a director to fill a vacancy on the Board. Mr. Cozad is a manager and owns 50% of CRW Capital, LLC, and he shares voting and disposition power over the shares of Series A Preferred Stock held by CRW. Mr. Cozad and his family members indirectly own membership interests in CRW. The Company previously reported the terms of the CRW SPA and the CRW letter agreement in the Company’s Current Report on Form 8-K filed March 4, 2021.

Transactions with Entities Affiliated with Brian Ruden

The Company has participated in several transactions involving entities owned or affiliated with Brian Ruden, one of its directors and a beneficial owner of more than 5% of the Company’s common stock and a beneficial owner of more than 5% of the Series A Preferred Stock.

Between December 17, 2020 and March 2, 2021, the Company’s wholly-owned subsidiary SBUD, LLC acquired the Star Buds assets. The Company previously reported the terms of the applicable purchase agreements and related amendments in the Company’s Current Reports on Form 8-K filed June 8, 2020, September 21, 2020, December 22, 2020, and March 8, 2021.

The aggregate purchase price for the Star Buds assets was $118,000,000, paid as follows: (i) $44,250,000 in cash at the applicable closings, (ii) $44,250,000 in deferred cash, also referred to in this report as “seller note(s),” (iii) 29,500 shares of Series A Preferred Stock, of which 25,075 shares were issued at the applicable closings and 4,425 shares are held in held in escrow and will be released post-closing to either Star Buds or the Company depending on post-closing adjustments to the purchase price. In addition, the Company issued warrants to purchase an aggregate of 5,531,250 shares of the Company’s common stock to the sellers. As of September 30, 2021, the Company owed an aggregate principal amount of $44,250,000 under the seller notes. The Company has not paid any principal and has paid an aggregate of $3,010,887 of interest on the seller notes as of September 30, 2021. Mr. Ruden’s interest in the aggregate purchase price for the Star Buds assets is as follows: (i) $13,727,490 in cash at the applicable closings, (ii) $13,727,490 in seller notes, (iii) 9,152 shares of Series A Preferred Stock, of which 7,779 shares were issued at the applicable closings and 1,373 shares are held in held in escrow and will be released post-closing to either Mr. Ruden or the Company depending on post-closing adjustments to the purchase price. In addition, the Company issued warrants to purchase an aggregate of 1,715,936 shares of the Company’s common stock to Mr. Ruden. The Company has paid Mr. Ruden an aggregate of $929,913 in interest on his seller notes as of September 30, 2021.

21

Mr. Ruden was a part-owner of each of the Star Buds companies that sold assets to SBUD, LLC. Mr. Ruden owned 50% of Colorado Health Consultants LLC, 50% of Starbuds Aurora LLC, 50% of Starbuds Pueblo LLC, 50% of Starbuds Alameda LLC, 48% of SB Arapahoe LLC, 36% of Starbuds Commerce City LLC, 30% of Starbuds Louisville LLC, 25% of Starbuds Niwot LLC, 16.66% of Lucky Ticket LLC, 15% of KEW LLC, and 10% of LM MJC LLC.

In connection with acquiring the Star Buds assets for our Pueblo West, Niwot, Commerce City, Lakeside, Arapahoe and Aurora locations, SBUD LLC entered into a lease with each of 428 S. McCulloch LLC, Colorado Real Estate Holdings LLC, 5844 Ventures LLC, 5238 W 44^th LLC, 14655 Arapahoe LLC and Montview Real Estate LLC, on substantially the same terms. Each of the leases is for an initial three-year term. The lease with 428 S. McCulloch LLC is for the Company’s Pueblo West Star Buds location and was effective on December 17, 2020. The lease with Colorado Real Estate Holdings LLC and 5844 Ventures LLC is for the Company’s Niwot and Commerce City Star Buds location, respectively, and was effective on December 18, 2020. The lease with 5238 W 44^th LLC is for the Company’s Lakeside Star Buds location and was effective on February 3, 2021. The lease with 14655 Arapahoe LLC and Montview Real Estate LLC is for the Company’s Arapahoe and Aurora locations, respectively, and was effective on March 2, 2021. The 428 S McCulloch LLC, 5844 Ventures LLC and 5238 W 44^th LLC provides for a monthly rent payment of $5,000 with an aggregate of $180,000 during the initial term of the leases. The Colorado Real Estate Holdings LLC lease provides for a monthly rent payment of $6,779 with an aggregate of $244,044 during the initial term of the lease. The 14655 Arapahoe LLC lease provides for a monthly rent payment of $12,367 with an aggregate of $445,212 during the initial term of the lease. The Montview Real Estate LLC lease provides for a monthly rent of $6,250 with an aggregate of $225,000 during the initial term of the lease. During 2020, SBUD LLC made aggregate rent payments of $10,000. Between January 1, 2021 and September 30, 2021, SBUD LLC made aggregate rent payments of $328,109. In addition, SBUD LLC must pay each landlord’s expenses and disbursements incurred in connection with the ownership, operation, maintenance, repair and replacement of the premises. SBUD LLC has the option to renew each lease for two additional three-year terms with escalation. The Company has an option to purchase the premises at fair market value at any time during the lease term and also has a right of first refusal if the landlords desire to sell the premises to a third party.

On December 17, 2020, SBUD, LLC entered into a Trademark License Agreement with Star Brands LLC under which Star Brands LLC licenses certain trademarks to SBUD, LLC effective as of the closing of the acquisitions of all of the Star Buds assets. SBUD LLC has no payment obligation under this agreement. Mr. Ruden is a part-owner of Star Brands LLC.

In connection with the Star Buds acquisitions, the Company granted Mr. Ruden and Naser Joudeh the right designate individuals for election or appointment to the Board.

Transactions with John Sacun

The Company sold material on behalf of John Sacun of $50,578. This transaction occurred due to orders placed prior to acquisition by the Company which needed to be fulfilled to the customer. An agreement was reached to provide payment to Mr. Sacun for the profit associated with the sale.

8. Inventory

As of September 30, 2021, and December 31, 2020, respectively, the Company had $4,518,125 and $2,090,886 of finished goods inventory. As of September 30, 2021, the Company had $5,598,515 of work in process and $561,741 of raw materials. As of December 31, 2020, the Company had $500,917 of work in process and $27,342 of raw materials. The Company uses the FIFO inventory valuation method. As of September 30, 2021 and December 31, 2020, the Company did not recognize any impairment for obsolescence within its inventory.

9. Goodwill

On June 3, 2017, the Company issued an aggregate of 7,000,000 shares of its common stock for 100% ownership of both Success Nutrients and Pono Publications. The Company utilized purchase price accounting stating that net book value approximates fair market value of the assets acquired. The purchase price accounting resulted in $6,301,080 of goodwill.

On July 21, 2017, the Company issued 2,258,065 shares of its common stock for 100% ownership of Denver Consulting Group (“DCG”). The Company utilized purchase price accounting stating that net book value approximates fair market value of the assets acquired. The purchase price accounting resulted in $3,003,226 of goodwill.

22

On September 17, 2018, we closed the acquisition of The Big Tomato. The Company issued an aggregate of 1,933,329 shares of its common stock for 100% ownership of The Big Tomato. The Company utilized purchase price accounting stating that net book value approximates fair market value of the assets acquired. The purchase price accounting resulted in the Company valuing the investment as $3,000,000 of goodwill.

On April 20, 2020, the Company closed the acquisition of Mesa Organics. The aggregate purchase price after working capital adjustments was $2,609,500 of cash and 2,554,750 shares of the Company’s Common Stock. The Company accounted for the transaction utilizing purchase price accounting stating that the book value approximates the fair market value of the assets acquired. The purchase price accounting resulted in the Company valuing the investment as $2,147,613 of goodwill.

From December 2020 through March 2021, the Company closed the acquisition of thirteen Star Buds dispensaries and one cultivation facility. The aggregate purchase price was $118,000,000. The Company accounted for the transaction utilizing purchase price accounting stating that the book value approximates the fair market value of the assets acquired. The purchase price accounting resulted in the Company valuing the investment as $27,054,025 of goodwill.

On July 21, 2021 the Company closed the acquisition of Southern Colorado Growers. The Company utilized purchase price accounting stating that net book value approximates fair market value of the assets acquired. The purchase price accounting resulted in $585,000 of goodwill.

As of September 30, 2021, the Company had $42,090,944 of goodwill, which consisted of $6,301,080 from Success Nutrients and Pono Publications, $3,003,226 from DCG, $3,000,000 from The Big Tomato, $2,147,613 from Mesa Organics, $27,054,025 from Star Buds, and $585,000 from Southern Colorado Growers.

10. Debt

Term Loan — On February 26, 2021, the Company entered into a Loan Agreement with SHWZ Altmore, LLC and GGG Partners LLC, as collateral agent. Upon execution of the Loan Agreement, the Company received $10,000,000. In connection with the Company’s acquisition of Southern Colorado Growers, an additional $5,000,000 was added to the Loan Agreement. The term loan incurs 15% interest per annum, due quarterly on March 1, June 1, September 1, and December 1 of each year. Principal payments begin on June 1, 2023 in the amount of $750,000, with the remainder of the principal due upon maturity on February 26, 2025.

Under the terms of the loan, the Company must comply with certain restrictions. These include customary events of default and specified representations as well as various financial ratio requirements including, (i) a consolidated fixed charge coverage ratio of at least 1.3 at the end of each fiscal quarter beginning in the first quarter of 2022, and (ii) a minimum of $3,000,000 in a deposit account in which the lender has a security interest. As of September 30, 2021, the Company was in compliance with the requirements described above.

Seller Notes — As part of the acquisition of the Star Buds assets, the Company entered into a deferred payment arrangement with the sellers for $44,250,000. The deferred payment arrangement incurs 12% interest per annum, payable on the 1^st of every month through November 2025. Principal payments are due as follows: $13,901,759 on December 17, 2025, $3,474,519 on February 3, 2026, and $26,873,722 on March 2, 2026.

11. Leases

Leases with an initial term of 12 months or less are not recorded on the balance sheet; we recognize lease expense for these leases on a straight-line basis over the lease term. Leases with a term greater than one year are recognized on the balance sheet at the time of lease commencement or modification of an ROU operating lease asset and a lease liability, initially measured at the present value of the lease payments. Lease costs are recognized in the income statement over the lease term on a straight-line basis. ROU assets represent our right to use an underlying asset for the lease term and lease liabilities represent our obligation to make lease payments arising from the lease.

23

The Company's leases consist of real estate leases for office spaces. The Company elected to combine the lease and related non-lease components for its operating leases.

The Company’s operating leases include options to extend or terminate the lease, which are not included in the determination of the ROU asset or lease liability unless reasonably certain to be exercised. The Company's operating leases have remaining lease terms of less than two years. The Company’s lease agreements do not contain any material residual value guarantees or material restrictive covenants.

As the Company's leases do not provide an implicit rate, we used an incremental borrowing rate based on the information available at the lease commencement date in determining the present value of lease payments. The discount rate used in the computations ranged between 6% and 12%.

Balance Sheet Classification of Operating Lease Assets and Liabilities

	Balance Sheet Line	September 30, 2021
Asset
Operating lease right of use assets	Noncurrent assets	$	3,626,617
Liabilities
Lease liabilities	Noncurrent liabilities	$	3,807,306

Lease Costs

The table below summarizes the components of lease costs for the nine months ended September 30, 2021.  

	Nine Months Ended September 30, 2021
Operating lease costs	$	1,023,267

Maturities of Lease Liabilities

Maturities of lease liabilities as of September 30, 2021 are as follows:  

2021 fiscal year	$	4,439,713
Less: Interest		281,227
Present value of lease liabilities	$	4,158,486

The following table presents the Company’s future minimum lease obligation under ASC 842 as of September 30, 2021:  

2021 fiscal year	$	370,131
2022 fiscal year		1,479,393
2023 fiscal year		1,354,595
2024 fiscal year		723,590
2025 fiscal year		333,356
Total	$	4,261,065

24

12. Stockholders’ Equity

The Company is authorized to issue two classes of stock, designated preferred stock and common stock.

Preferred Stock

The number of shares of preferred stock authorized is 10,000,000, par value $0.001 per share. The preferred stock may be divided into such number of series as the Board may determine. The Board is authorized to determine and alter the rights, preferences, privileges and restrictions granted and imposed upon any wholly unissued series of preferred stock, and to fix the number and designation of shares of any series of preferred stock. The Board, within limits and restrictions stated in any resolution of the Board, originally fixing the number of shares constituting any series may increase or decrease, but not below the number of such series then outstanding, the shares of any subsequent series.

The Company had 82,838 shares of Series A Preferred Stock issued and outstanding and 4,428 in escrow as of September 30, 2021 and 18,327 shares of Series A Preferred Stock issued and outstanding and 1,389 in escrow as of December 31, 2020. Among other terms, each share of Series A Preferred Stock (i) earns an annual dividend of 8% on the “preference amount,” which initially is equal to the $1,000 per-share purchase price and subject to increase, by having such dividends automatically accrete to, and increase, the outstanding preference amount; (ii) is entitled to a liquidation preference under certain circumstances, (iii) is convertible into shares of the Company’s common stock by dividing the preference amount by $1.20 per share under certain circumstances, and (iv) is subject to a redemption right or obligation under certain circumstances.

Common Stock

The Company is authorized to issue 250,000,000 shares of common stock at a par value of $0.001. The Company had 45,139,297 shares of common stock issued, and 44,400,853 shares of common stock outstanding, 517,044 of treasury stock and 221,400 of stock in escrow as of September 30, 2021, and 42,601,773 shares of common stock issued, and 42,169,041 shares of common stock outstanding and 432,732 of treasury stock as of December 31, 2020.

Common Stock Issued in Private Placements

During the year ended December 31, 2020, the Company issued 187,500 shares of common stock and warrants to purchase 187,500 shares of common stock, for gross proceeds of $375,000.

Common Stock Issued as Compensation to Employees, Officers, and Directors

On April 3, 2020, the Company cancelled 500,000 shares of common stock, with vesting conditions represented as derivative instruments. These shares were incorrectly issued as restricted shares instead of restricted stock units to an officer of the Company, Paul Dickman, on January 8, 2019.

For the year ended December 31, 2020, the Company issued 406,895 shares of common stock valued at $497,301 to employees, officers, and directors as compensation.

During the nine months ended September 30, 2021, the Company issued 323,530 shares of common stock valued at $557,998 to employees, and directors as compensation. 

Common and Preferred Stock Issued as Payment for Acquisitions

On April 20, 2020, the Company issued 2,554,750 shares of common stock valued at $4,167,253 for the acquisition of Mesa Organics, Ltd.

On December 17, 2020, the Company issued 2,862 shares of Series A Preferred Stock valued at $2,861,994 of which 430 shares of Series A Preferred Stock valued at $387,000 were placed in escrow, and on December 18, 2020, the Company issued 6,404 shares of Series A Preferred Stock valued at $6,403,987 of which 959 shares of Series A Preferred Stock valued at $863,100 were placed in escrow, for the acquisition of Star Buds assets.

25

On February 3, 2021, the Company issued 2,319 shares of Series A Preferred Stock valued at $2,318,998 of which 349 shares of Series A Preferred Stock valued at $314,100 were placed in escrow and on March 3, 2021, the Company issued 17,921 shares of Series A Preferred Stock valued at $17,920,982 of which 2,690 shares of Series A Preferred Stock valued at $2,421,000 were placed in escrow for the acquisition of Star Buds assets.

On July 21, 2021, the Company issued 2,213,994 shares of common stock valued at $5,377,786 of which 221,400 shares valued at $537,779 were placed in escrow for the acquisition of Southern Colorado Growers.

Warrants

The Company accounts for common stock purchase warrants in accordance with ASC 480, Accounting for Derivative Financial Instruments Indexed to, and Potentially Settled in, a Company’s Own Stock, Distinguishing Liabilities from Equity. The Company estimates the fair value of warrants at date of grant using the Black-Scholes option pricing model. There is a moderate degree of subjectivity involved when using option pricing models to estimate the warrants, and the assumptions used in the Black Scholes option-pricing model are moderately judgmental.

During the nine months ended September 30, 2021, the Company issued warrants to purchase an aggregate of 3,793,530 shares of common stock as purchase consideration for the acquisition of certain Star Buds assets. These warrants have an exercise price of $1.20 per share and expiration dates five years from the date of issuance. In addition, the Company issued a warrant to purchase an aggregate of 1,500,000 shares of common stock to an accredited investor in connection with entering into a loan agreement. This warrant has an exercise price of $2.50 per share and expires five years from the date of issuance. The Company estimated the fair value of these warrants at date of grant using the Black-Scholes option pricing model using the following inputs: (i) stock price on the date of grant of $1.20 and $2.50, respectively, (ii) the contractual term of the warrant of 5 years, (iii) a risk-free interest rate ranging between 0.21% - 1.84% and (iv) an expected volatility of the price of the underlying common stock ranging between 157.81% - 195.00%.

The following table reflects the change in common stock purchase warrants for the nine months ended September 30, 2021:

	Number of shares
Balance as of January 1, 2021		11,725,220
Warrants exercised		–
Warrants forfeited		–
Warrants issued		5,293,530
Balance as of September 30, 2021		17,018,750

Option Repricing

On December 15, 2020, the Board repriced certain outstanding stock options issued to the Company’s current employees. The repriced stock options had original exercise prices ranging from $1.52 per share to $3.83 per share. All of these stock options to current employees were repriced to have an exercise price of $1.26 per share, which was the closing price of the Company’s common stock on December 15, 2020. Each of the options has a new 10-year term from the repricing date.

13. Segment Information

The Company has three identifiable segments as of September 30, 2021; (i) retail, (ii) wholesale and (iii) and other. The retail segment represents our dispensaries which sell merchandise directly to customers via retail locations and e-commerce portals. The wholesale segment represents our manufacturing, cultivation, and wholesale business which sells merchandise to customers via e-commerce portals, a retail location, and manufacturing facility. The other segment derives its revenue from licensing and consulting agreements with cannabis related entities, in addition to fees from seminars and expense reimbursements included in other revenue on the Company’s financial statements.

26

The following information represents segment activity for the three-month periods ended September 30, 2021 and September 30, 2020:  

Schedule of Segment Reporting Information
	For the Three Months Ended												For the Three Months Ended
	30-September-2021												30-September-2020
	Retail			Wholesale			Other			Total			Retail			Wholesale			Other			Total
Revenues		20,741,863			11,022,520			70,922			31,835,305			1,135,820			6,273,899			20,655			7,430,374
Cost of goods and services		(9,469,080	)		(7,258,213	)		(52,020	)		(16,779,313	)		(614,763	)		(3,870,475	)		(163,672	)		(4,648,910	)
Gross profit		11,272,782			3,764,308			18,903			15,055,992			521,057			2,403,424			(143,017	)		2,781,464
Intangible assets amortization		2,525,875			79,855			2,552			2,608,282			–			1,530			135			1,665
Depreciation		(56,543	)		83,725			224,131			364,399			131,903			4,505			89,950			226,358
Net income (loss)		5,168,758			3,123,377			(7,323,379	)		968,756			183,306			1,893,813			(4,991,285	)		(2,914,211	)
Segment assets		129,912,570			41,075,819			23,742,906			194,731,295			237,524			(188,123	)		(3,365,733	)		3,316,332	)

The following information represents segment activity for the nine-month periods ended September 30, 2021 and September 30, 2020:

	For The Nine Months Ended												For The Nine Months Ended
	30-September-2021												30-September-2020
	Retail			Wholesale			Other			Total			Retail			Wholesale			Other			Total
Revenues		54,083,880			27,654,965			165,416			81,904,261			1,868,279			12,909,025			1,280,533			16,057,837
Cost of goods and services		(26,532,199	)		(17,950,322	)		(210,244	)		(44,692,765	)		(1,091,848	)		(8,122,860	)		(689,423	)		(9,904,131	)
Gross profit		27,551,680			9,704,644			(44,827	)		37,211,496			776,431			4,786,165			591,110			6,153,706
Intangible assets amortization		6,745,121			211,222			5,311			6,961,654			–			4,557			403			4,960
Depreciation		130,749			237,638			449,787			818,174			208,351			9,098			99,883			317,332
Net income (loss)		13,210,770			8,456,852			(19,978,333	)		1,689,289			106,517			3,342,360			(14,338,059	)		(10,889,228	)
Segment assets		129,912,570			41,075,819			23,742,906			194,731,295			1,967,680			20,595,696			10,133,257			32,696,633

14. Tax Provision 

The following table summarizes the Company’s income tax expense and effective tax rates for the three months and nine months ended September 30, 2021 and September 30, 2020:

	Three Months Ended September 30,
	2021		2020
Income (loss) before income taxes	$	2,281,573	$	(2,914,211	)
Income tax expense		1,312,817		–
Effective tax rate		57.54%		0%

	Nine Months Ended September 30,
	2021		2020
Income (loss) before income taxes	$	3,687,194	$	(10,889,228	)
Income tax expense		1,997,905		–
Effective tax rate		54.18%		0%

27

The Company has computed its provision for income taxes under the discrete method which treats the year-to-date period as if it were the annual period and determines the income tax expense or benefit on that basis. The discrete method is applied when application of the estimated annual effective tax rate is impractical because it is not possible to reliably estimate the annual effective tax rate. We believe that, at this time, the use of this discrete method is more appropriate than the annual effective tax rate method as the estimated annual effective tax rate method is not reliable due to the high degree of uncertainty in estimating annual pre-tax income due to the early growth stage of the business.

Due to its cannabis operations, the Company is subject to the limitations of IRC Section 280E under which the Company is only allowed to deduct expenses directly related to sales of product. This results in permanent differences between ordinary and necessary business expenses deemed non-allowable under IRC Section 280E.

The effective tax rate for the three months and nine months ended September 30, 2021 varies from the three months and nine months ended September 30, 2020 primarily due to IRC Section 280E. The Company acquired plant-touching cannabis operations during 2020 and 2021 and these plant-touching operations are subject to the limitations of IRC Section 280E. In April 2020, the Company acquired its first plant-touching business, Mesa Organics. Prior to this acquisition, the Company was not subject to IRC Section 280E.

In assessing the realizability of deferred tax assets, management considers whether it is more likely than not that some portion or all of the deferred tax assets will not be realized. The Company's valuation allowance represents the amount of tax benefits that are likely to not be realized. Management assesses the need for a valuation allowance each period and continues to have a full valuation allowance on its deferred tax assets as of September 30, 2021.

The Federal statute of limitation remains open for the 2017 tax year to present. The state statute of limitation remains open for the 2016 tax year to present.

15. Subsequent Events

In accordance with FASB ASC 855-10, Subsequent Events, the Company has analyzed its operations subsequent to September 30, 2021 to the date these consolidated financial statements were issued, and has determined that it does not have any material subsequent events to disclose in these consolidated financial statements, exclusive of those noted below.

On November 15, 2021, the Company signed definitive documents to acquire the assets of Smoking Gun, LLC and Smoking Gun Land Company, LLC (“Smoking Gun”).

Total consideration for the acquisition will be $4 million in cash and 100,000 shares of Schwazze common stock upon closing. The acquisition is expected to close during the fourth quarter of 2021, subject to closing conditions and covenants customary for this type of transaction, including, without limitation, obtaining Colorado Marijuana Enforcement Division and local licensing approval.

28

Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations 

The following discussion should be read in conjunction with our unaudited consolidated financial statements and notes thereto included herein and with our audited consolidated financial statements included in our Annual Report on Form 10-K for the year ended December 31, 2020, as filed with the SEC. In addition to our historical unaudited condensed consolidated financial information, the following discussion contains forward-looking statements that reflect our plans, estimates, and beliefs. Our actual results could differ materially from those discussed in the forward-looking statements. Factors that could cause or contribute to these differences include those discussed below and elsewhere in this Quarterly Report on Form 10-Q and our most recent Annual Report on Form 10-K, particularly in Part I, Item 1A “Risk Factors.” See also, “CAUTIONARY NOTE ABOUT FORWARD-LOOKING INFORMATION.”

Overview

We were incorporated in Nevada on March 20, 2014. On May 1, 2014, we entered into an exclusive Technology License Agreement with Medicine Man Denver whereby Medicine Man Denver granted us a license to use all of their proprietary processes they have developed, implemented and practiced at their cannabis facilities relating to the commercial growth, cultivation, marketing and distribution of medical marijuana and recreational marijuana pursuant to relevant state laws and the right to use and to license such information, including trade secrets, skills and experience (present and future).

In 2017, the Company acquired additional cultivation intellectual property through the acquisition of Success Nutrients™ and Pono Publications, including the rights to the book titled “Three A Light” and its associated cultivation techniques, which have been part of the Company’s products and services offerings since the acquisition. The Company acquired Two J’s LLC d/b/a The Big Tomato (“Big T or The Big Tomato”) in 2018, which operates a retail location in Aurora, Colorado. It has been a leading supplier of hydroponics and indoor gardening supplies in the metro Denver area since May 2001. The Company was focused on cannabis dispensary and cultivation consulting and providing equipment and nutrients to cannabis cultivators until its first plant touching acquisition in April of 2020. In 2019, due to the changes in Colorado law permitting non-Colorado resident and publicly traded investment into “plant-touching” cannabis companies, the Company made a strategic decision to move toward direct plant-touching operations. The Company developed a plan to roll up a number of direct plant-touching dispensaries, manufacturing facilities, and cannabis cultivations with a target to be one of the largest seed to sale cannabis businesses in Colorado. In April 2020 the Company acquired its first plant-touching business, Mesa Organics, which consists of four dispensaries and one MIP, d/b/a Purplebee’s.

On April 20, 2020, the Company rebranded and since then conducts its business under the trade name, Schwazze. The corporate name of the Company continues to be Medicine Man Technologies, Inc. Effective April 21, 2020, the Company commenced trading under the OTC ticker symbol SHWZ.

On December 17, 2020, the Company acquired the assets of (i) Starbuds Pueblo LLC; and (ii) Starbuds Alameda LLC under the applicable APAs. On December 18, 2020, the Company acquired the assets of (i) Starbuds Commerce City LLC; (ii) Lucky Ticket LLC; (iii) Starbuds Niwot LLC; and (iv) LM MJC LLC under the applicable APAs.

On February 4, 2021, the Company acquired the assets of Colorado Health Consultants LLC and Mountain View 44th LLC under the applicable APAs.

On March 2, 2021, the Company acquired the assets of (i) Starbuds Aurora LLC, (ii) SB Arapahoe LLC, (iii) Citi-Med LLC, (iv) Starbuds Louisville LLC and (v) KEW LLC under the applicable APAs.

On July 21, 2021, the Company acquired the assets of Southern Colorado Growers under the applicable APAs.

From December 2020 through March 2021 the Company completed a private placement of Series A Preferred Stock for aggregate gross proceeds of $57.7 million dollars. In the private placement, the Company issued and sold an aggregate of 57,700 shares of Series A Preferred Stock at a price of $1,000 per share under securities purchase agreement with Dye Capital and CRW as well as subscription agreements with unaffiliated investors. Among other terms, each share of Series A Preferred Stock (i) earns an annual dividend of 8% on the “preference amount,” which initially is equal to the $1,000 per-share purchase price and subject to increase, by having such dividends automatically accrete to, and increase, the outstanding preference amount; (ii) is entitled to a liquidation preference under certain circumstances, (iii) is convertible into shares of the Company’s common stock by dividing the preference amount by $1.20 per share under certain circumstances, and (iv) is subject to a redemption right or obligation under certain circumstances.

29

In addition, on December 16, 2020, the Company issued and sold a Convertible Promissory Note and Security Agreement in the original principal amount of $5,000,000 to Dye Capital. On February 26, 2021, Dye Capital converted all outstanding amounts under the note into 5,060 shares of Series A Preferred Stock.

The Company is focused on growing through internal growth, acquisition, and new licenses in the Colorado cannabis market. The Company is focused on building the premier vertically integrated cannabis company in Colorado. The company's leadership team has deep expertise in mainstream consumer packaged goods, retail, and product development at Fortune 500 companies as well as in the cannabis sector. The Company has a high-performance culture and a focus on analytical decision making, supported by data. Customer-centric thinking inspires the Company’s strategy and provides the foundation for the Company’s operational playbooks.

The Company’s operations are organized into three different segments as follows: (i) retail, consisting of retail locations for sale of cannabis products, (ii) wholesale, consisting of manufacturing, cultivation and sale of wholesale cannabis products, nutrients for cannabis, and hydroponics and indoor gardening supplies, and (iii) other, consisting of all other income and expenses, including those related to licensing and consulting services, facility design services, facility management services, and corporate operations.

Results of Operations

Comparison of Results of Operations for the three months ended September 30, 2021 and 2020

Revenues

Revenue for the three months ended September 30, 2021 totaled $31,835,305 and consisted of (i) retail revenue of $20,741,863, (ii) wholesale revenue of $11,022,520, and (iii) other operating revenue of $70,922, compared to $7,430,374 for the three months ended September 30, 2020, consisting of (i) retail revenue of $1,135,820, (ii) wholesale revenue of $6,273,899, and (iii) other operating revenue of $20,655, representing an increase of $24,404,931, or 328.4%. This increase was due to increased sale of our products as well as growth through acquisition.

Cost of Goods and Services

Cost of goods and services for the three months ended September 30, 2021 totaled $16,779,313, compared to cost of goods and services of $4,648,910 during the three months ended September 30, 2020 representing an increase of $12,130,403 or 260.9%. This increase was due to increased sale of our products as well as growth through acquisition.

Operating Expenses

Operating expenses for the three months ended September 30, 2021 totaled $11,218,992, compared to operating expenses of $6,400,290 during the three months ended September 30, 2020 representing an increase of $4,818,702 or 75.3%. This increase was due to increased selling, general and administrative expenses, and salaries, benefits and related employment costs, offset by decreases in professional service fees, and non-cash, stock-based compensation.

Other Income (Expense), Net

Net other expense for the three months ended September 30, 2021 totaled $1,555,427, compared to net other income of $704,615 during the three months ended September 30, 2020. The increase in other income was primarily due to interest expense.

Net Income (Loss)

As a result, we generated net income of 968,756 during the three months ended September 30, 2021 or approximately $0.02 per share, compared to net loss of $2,914,211 or approximately $0.07 per share during the three months ended September 30, 2020.

30

Comparison of Results of Operations for the nine months ended September 30, 2021 and 2020

Revenues

Revenue for the nine months ended September 30, 2021 totaled $81,904,261 and consisted of (i) retail revenue of $54,083,880, (ii) wholesale revenue of $27,654,965, and (iii) other operating revenue of $165,416, compared to $16,057,837 for the nine months ended September 30, 2020, consisting of (i) retail revenue of $1,868,279, (ii) wholesale revenue of $12,909,025, and (iii) other operating revenues of $1,280,533, representing an increase of $65,846,424, or 410.1%. This increase was due to increased sale of our products as well as growth through acquisition.

Cost of Goods and Services

Cost of goods and services for the nine months ended September 30, 2021 totaled $44,692,765, compared to cost of goods and services of $9,904,131 during the nine months ended September 30, 2020 representing an increase of $34,788,634 or 351.3%. This increase was due to increased sale of our products as well as growth through acquisition.

Operating Expenses

Operating expenses for the nine months ended September 30, 2021 totaled $30,418,486, compared to operating expenses of $20,233,567 during the nine months ended September 30, 2020 representing an increase of $10,184,919 or 50.3%. This increase was due to increased selling, general and administrative expenses, professional service fees, and salaries, benefits and related employment costs, offset by a decrease in stock-based compensation.

Other Income (Expense), Net

Net other expense for the nine months ended September 30, 2021 totaled $3,105,816, compared to net other income of $3,190,633 during the nine months ended September 30, 2020. The decrease in other expenses was primarily due to an unrealized gain recognized on the change in fair value of certain derivative liabilities, unrealized gain on investments, and a gain on sale of assets, offset by interest expense. In addition, there was a gain on forfeiture of contingent consideration during the nine months ended September 30, 2020 that was not present during the nine months ended September 30, 2021.

Net Income (Loss)

As a result, we generated net income of $1,689,289 during the nine months ended September 30, 2021 or approximately $0.02 per share, compared to net loss of $10,889,228 or approximately $0.26 per share during the nine months ended September 30, 2020.

Liquidity and Capital Resources

As of September 30, 2021, we had $21,168,816 in cash and cash equivalents. Net cash provided by operating activities was $4,814,104 during the nine months ended September 30, 2021, compared to cash used in operating activities of $6,303,992 for the nine months ended September 30, 2020, representing an increase in cash provided of $11,118,096. This increase is a result of increased sales of our products and acquisitions. Cash flows used for investing activities was $75,644,398 during the nine months ended September 30, 2021, compared to cash used of $3,107,900 for the nine months ended September 30, 2020, representing an increase of $72,536,498. This increase is largely due to increased investment in acquisitions Cash flows provided by financing activities was $90,761,874 during the nine months ended September 30, 2021, compared to $42,000 for the nine months ended September 30, 2020, representing an increase of $90,719,874. This increase was due to securities issued related to the acquisition of the Star Buds assets and sale of preferred stock.

The Company’s debt obligations are discussed in Note 10, Debt, in the Notes to Unaudited Condensed Interim Financial Statements contained in Part I, Item 1 of this Quarterly Report on Form 10-Q. Such discussion is incorporated herein by reference.

We will likely need to raise additional capital to fund our growth acquisition strategy. We may explore capital raising transactions in the form of debt, equity or both. At this time, we are unable to state how much additional capital we may need. No assurance can be given that any future financing will be available or, if available, that it will be on terms that are satisfactory to the Company. Even if the Company can obtain additional financing, it may contain undue restrictions on our operations, in the case of debt financing or cause substantial dilution for our stockholders, in case of equity financing. Failure to obtain this additional financing may have a material negative impact on our ability growth the company at the pace we anticipate.

31

Off-Balance Sheet Arrangements

We had no off-balance sheet arrangements as of September 30, 2021 and December 31, 2020.

Critical Accounting Estimates

Our 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 in the Critical Accounting Policies section of Management’s Discussion and Analysis of Financial Condition and Results of Operations.

Item 3. Quantitative and Qualitative Disclosures About Market Risk

Not applicable

Item 4. Controls and Procedures

Evaluation of Disclosure Controls and Procedures

As of the end of the period covered by this Quarterly Report on Form 10-Q, we conducted an evaluation, under the supervision and with the participation of our Chief Executive Officer and Chief Financial Officer of our disclosure controls and procedures (as defined in Rule 13a-15(e) and Rule 15d-15(e) of the Exchange Act). Based upon this evaluation, our Chief Executive Officer and Chief Financial Officer concluded that our disclosure controls and procedures are effective to ensure that information required to be disclosed by us in the reports that we file or submit under the Exchange Act is: (i) recorded, processed, summarized and reported, within the time periods specified in the SEC’s rules and forms, and (ii) accumulated and communicated to our management, including our Chief Executive Officer and Chief Financial Officer, or person performing similar functions, as appropriate to allow timely decisions regarding required disclosure.

Changes in Internal Control over Financial Reporting

There have been no changes in our internal control over financial reporting during the period covered by this Quarterly Report on Form 10-Q that have materially affected, or are reasonably likely to affect, our internal control over financial reporting.

32

PART II — OTHER INFORMATION

Item 1. Legal Proceedings.

On June 7, 2019, the Company filed a complaint against ACC Industries Inc. and Building Management Company B, L.L.C., in state district court located in Clark County, Nevada, alleging, amongst other causes of action, breach of contract, conversion, and unjust enrichment and seeking general, special and punitive damages. On July 17, 2019, the parties stipulated to stay the case in favor of arbitration. On February 25, 2020 ACC filed a counterclaim against the Company alleging breach of contract. The Company discovered new facts that lead it to believe that a related entity not previously named as a party to the arbitration, ACC Enterprises, LLC (“ACC”), should be brought in as a party to the arbitration. Based upon the new facts, the Company filed a motion to amend the complaint to add new claims and ACC as a party. On September 1, 2020, the arbitrator granted the Company’s motion. and permitted the Company to amend the complaint to add ACC as a party. On September 1, 2020, the Company filed an amended complaint and added intentional misrepresentation, fraudulent inducement, civil conspiracy, aiding and abetting, successor liability and fraudulent concealment claims. The Company began arbitration proceedings on November 2, 2020. The Company completed arbitration in February 2021. On May 14, 2021, the Arbitrator entered an award in favor of the Company in the amount of $1,935,273 with an offset of $150,000 for a total award of $1,785,273. After the arbitration award was entered, a receiver was appointed over ACC and its affiliates due to the death of the only owner who had a valid cannabis establishment registration agent card. An automatic litigation stay was entered upon the appointment of the receiver.  Once the stay is lifted, the arbitration proceeding will resume, and amongst other things, the arbitration will now enter into a second phase to adjudicate the remaining alter ego claims, attorney fees and costs, and the award will be reduced to judgment.

On July 6, 2018, the Company filed a complaint in the Eight Judicial Court, Clark County, Nevada against Vegas Valley Growers (“VVG”). In the complaint, the Company alleges breach by VVG of the Technologies License Agreement dated April 27, 2017 between the parties and seeks general, special and punitive damages in the amount of $3,876,850. On August 28, 2018, VVG filed an Answer and Counterclaim against the Company. On August 2, 2019, a jury found in favor of the Company and awarded the Company damages totaling $2,773,321 plus pre and post judgment interest as well as attorneys’ fees. In March 2020, VVG filed its opening appeal brief with the Nevada Supreme Court. The Company’s response brief was due on May 15, 2020. After VVG filed its opening brief in March 2020, the Company filed a Motion to Strike portions of the brief and record. On August 27, 2020, the court ordered VVG to supplement its brief and the record. On October 27, 2020, the Company, in a joint request with VVG, filed a motion to extend its time to file its answering brief. The Company filed its answering brief in January 2021. VVG’s reply brief was filed in March 2021. On July 23, 2021, the Nevada Supreme Court affirmed the trial court’s damage award, but remanded the case to the trial court to properly calculate post-judgement interest. After the affirmance, VVG filed a petition for rehearing with the Nevada Supreme Court arguing it overlooked or misapprehended material facts in the record.  The Company answered the rehearing petition arguing that it did not.  The parties are currently engaged in some minimal briefing over whether VVG can file a reply in support of its petition for rehearing.  The parties are currently awaiting a decision from the Nevada Supreme Court on this and on VVG’s petition for rehearing.

On March 6, 2020, the Company’s former Chief Operating Officer, Joe Puglise, issued an arbitration demand against the Company claiming breach of contract and seeking equity compensation and cash damages. The Company counterclaimed with breach of contract and breach of fiduciary duty claims for unspecified damages. The parties commenced arbitration on January 25, 2021 and concluded it in March 2021. On May 12, 2021, the arbitration panel entered an award in favor of Mr. Puglise finding that Mr. Puglise is entitled to $189,920 as a performance bonus plus interest, and 2,000,000 vested options to purchase shares of common stock for $1.49 per share. Mr. Puglise was also awarded attorneys’ fees and costs in the amount of $391,768.28.

Item 1A. Risk Factors

There have been no material changes in the risk factors applicable to us from those identified in the Annual Report on Form 10-K for the period ended December 31, 2020 filed with the Securities and Exchange Commission on March 31, 2021.

Item 2.    Unregistered Sales of Equity Securities and Use of Proceeds

None.

Item 3. Defaults Upon Senior Securities

None.

Item 4. Mine Safety Disclosures

Not applicable.

33

Item 5. Other Information

None. 

Item 6. Exhibits

2.4+	Asset Purchase Agreement, dated August 20, 2021, by and among Double Brow, LLC, Brow 2, LLC and Brian Welsh (Incorporated by reference to Exhibit 2.1 to Medicine Man Technologies, Inc.’s Current Report on Form 8-K filed August 26, 2021 (Commission File No. 000-55450))
10.1	First Amendment to Loan Agreement, dated July 28 2021, by and among Mesa Organics Ltd., SHWZ Altmore, LLC and GGG Partners, LLC (Incorporated by reference to Exhibit 10.1 to Medicine Man Technologies, Inc.’s Current Report on Form 8-K filed August 3, 2021 (Commission File No. 000-55450))
31.1	Rule 13a-14(a)/15d-14(a) Certification of Chief Executive Officer
31.2	Rule 13a-14(a)/15d-14(a) Certification of Chief Financial Officer
32*	Chief Executive Officer and Chief Financial Officer Certification pursuant to Section 906 of the Sarbanes-Oxley Act of 2002
101.INS	Inline XBRL Instance Document (the instance document does not appear in the Interactive Data File because its XBRL tags are embedded within the Inline XBRL 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 and included in Exhibit 101)

______________________ 

+ Certain exhibits and schedules to the agreement have been omitted pursuant to Item 601(a)(5) of Regulation S-K. The Company hereby undertakes to supplementally furnish copies of any omitted schedules to the Securities and Exchange Commission upon request.

* Furnished herewith.

34

SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant has duly caused this Quarterly Report to be signed on its behalf by the undersigned thereunto duly authorized.

Dated:  November 15, 2021	MEDICINE MAN TECHNOLOGIES, INC.
	By: /s/ Justin Dye
	Justin Dye, Chief Executive Officer (Authorized Officer)
	By: /s/ Nancy Huber
	Nancy Huber, Chief Financial Officer
	(Principal Financial Officer and Chief Accounting Officer)

35

EX-31.1

Exhibit 31.1

CERTIFICATION PURSUANT TO

SECTION 302 OF THE SARBANES OXLEY ACT OF 2002

I, Justin Dye, certify that:

1.	I have reviewed this quarterly report on Form 10-Q of Medicine Man Technologies, Inc.;
2.	Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary in order to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;
3.	Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;
4.	The registrant’s other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal controls over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:

a.	Designed such disclosure controls and procedures, or caused such disclosure controls and procedure to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;
b.	Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;
c.	Evaluated the effectiveness of the registrant's disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based upon such evaluation; and
d.	Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and

5. The registrant’s other certifying officer(s) and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant's auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions):

a.	All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant's ability to record, process, summarize and report financial information; and
b.	Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.

Dated: November 15, 2021	/s/ Justin Dye
	Justin Dye, Chief Executive Officer (Principal Executive Officer)

EX-31.2

Exhibit 31.2

CERTIFICATION PURSUANT TO

SECTION 302 OF THE SARBANES OXLEY ACT OF 2002

I, Nancy Huber, certify that:

1.	I have reviewed this quarterly report on Form 10-Q of Medicine Man Technologies, Inc.;
2.	Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary in order to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;
3.	Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;
4.	The registrant’s other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal controls over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:

a.	Designed such disclosure controls and procedures, or caused such disclosure controls and procedure to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;
b.	Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;
c.	Evaluated the effectiveness of the registrant's disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based upon such evaluation; and
d.	Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and

5. The registrant’s other certifying officer(s) and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant's auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions):

a.	All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant's ability to record, process, summarize and report financial information; and
b.	Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.

Dated: November 15, 2021	/s/ Nancy Huber
	Nancy Huber, Chief Financial Officer (Principal Financial Officer)

EX-32

Exhibit 32

CERTIFICATION PURSUANT TO

18 USC, SECTION 1350,

AS ADOPTED PURSUANT TO

SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002

In connection with this quarterly report of Medicine Man Technologies, Inc. (the “Company”) on Form 10-Q for the fiscal period ended September 30, 2021, as filed with the Securities and Exchange Commission on the date hereof (the “Report”), we, the undersigned, in the capacities and on the date indicated below, certify, pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that to the best of our knowledge:

1.	The Report fully complies with the requirements of Rule 13(a) or 15(d) of the Securities Exchange Act of 1934; and
2.	The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company.

Dated: November 15, 2021	/s/ Justin Dye
	Justin Dye, Chief Executive Officer
Dated: November 15, 2021	/s/ Nancy Huber
	Nancy Huber, Chief Financial Officer

XML

Cover - shares	9 Months Ended
	Sep. 30, 2021	Nov. 11, 2021
Cover [Abstract]
Document Type	10-Q
Amendment Flag	false
Document Quarterly Report	true
Document Transition Report	false
Document Period End Date	Sep. 30, 2021
Document Fiscal Period Focus	Q3
Document Fiscal Year Focus	2021
Current Fiscal Year End Date	--12-31
Entity File Number	000-55450
Entity Registrant Name	MEDICINE MAN TECHNOLOGIES, INC.
Entity Central Index Key	0001622879
Entity Tax Identification Number	46-5289499
Entity Incorporation, State or Country Code	NV
Entity Address, Address Line One	4880 Havana Street
Entity Address, Address Line Two	Suite 201
Entity Address, City or Town	Denver
Entity Address, State or Province	CO
Entity Address, Postal Zip Code	80239
City Area Code	(303)
Local Phone Number	371-0387
Entity Current Reporting Status	Yes
Entity Interactive Data Current	Yes
Entity Filer Category	Non-accelerated Filer
Entity Small Business	true
Entity Emerging Growth Company	true
Elected Not To Use the Extended Transition Period	true
Entity Shell Company	false
Entity Common Stock, Shares Outstanding		44,400,853

XML

CONDENSED BALANCE SHEETS (Unaudited) - USD ($)	Sep. 30, 2021	Dec. 31, 2020
Current assets
Cash and cash equivalents	$ 21,168,816	$ 1,231,235
Accounts receivable, net of allowance for doubtful accounts	3,530,520	1,270,380
Accounts receivable - related party	0	80,494
Inventory	10,678,381	2,619,145
Note receivable - current, net	0	0
Note receivable - related party	0	181,911
Prepaid expenses and other current assets	2,579,035	614,200
Total current assets	37,956,752	5,997,365
Non-current assets
Fixed assets, net accumulated depreciation of $1,631,093 and $872,579, respectively	8,805,348	2,584,798
Goodwill	42,090,944	53,046,729
Intangible assets, net accumulated amortization of $7,162,110 and $200,456, respectively	98,072,970	3,082,044
Marketable securities, net of unrealized gain (loss) of $210,685 and $(129,992), respectively	487,467	276,782
Note receivable – noncurrent, net	179,167	0
Accounts receivable – litigation	3,063,968	3,063,968
Other noncurrent assets	448,062	51,879
Operating lease right of use assets	3,626,617	2,579,036
Total non-current assets	156,774,543	64,685,236
Total assets	194,731,295	70,682,601
Current liabilities
Accounts payable	953,467	3,508,478
Accounts payable - related party	87,143	48,982
Accrued expenses	11,660,237	2,705,445
Derivative liabilities	79,730	1,047,481
Deferred revenue	0	50,000
Notes payable - related party	134,498	5,000,000
Income taxes payable	1,029,482
Total current liabilities	13,944,557	12,360,386
Long term debt	59,246,337	13,901,759
Lease liabilities	3,807,306	2,645,597
Total long-term liabilities	63,053,643	16,547,356
Total liabilities	76,998,200	28,907,742
Stockholders' equity
Common stock, $0.001 par value. 250,000,000 shares authorized; 45,139,297 shares issued and 44,400,853 shares outstanding at September 30, 2021 and 42,601,773 shares issued and 42,169,041 outstanding at December 31, 2020, respectively	45,140	42,602
Preferred stock, $0.001 par value. 10,000,000 shares authorized; 82,838 shares issued and outstanding at September 30, 2021 and 10,000,000 shares authorized; 19,716 shares issued and outstanding at December 31, 2020	87	20
Additional paid-in capital	165,393,733	85,357,835
Accumulated deficit	(46,188,829)	(42,293,098)
Common stock held in treasury, at cost, 517,044 shares held at September 30, 2021 and 432,732 shares held at December 31, 2020	(1,517,036)	(1,332,500)
Total stockholders' equity	117,733,095	41,774,859
Total liabilities and stockholders' equity	$ 194,731,295	$ 70,682,601

XML

CONDENSED BALANCE SHEETS (Unaudited) (Parenthetical) - USD ($)	9 Months Ended	12 Months Ended
	Sep. 30, 2021	Dec. 31, 2020
Statement of Financial Position [Abstract]
Accumulated depreciation	$ 1,631,093	$ 872,579
Accumulated amortization	7,162,110	200,456
Marketable Securities, Unrealized Gain (Loss)	$ 210,685	$ (129,992)
Common stock, par value	$ 0.001	$ 0.001
Common stock, shares authorized	250,000,000	250,000,000
Common stock, shares issued	45,139,297	42,601,773
Common stock, shares outstanding	44,400,853	42,169,041
Preferred Stock, Par or Stated Value Per Share	$ 0.001	$ 0.001
Preferred Stock, Shares Authorized	10,000,000	10,000,000
Preferred Stock, Shares Outstanding	82,838	19,716
Treasury stock, common shares	517,044	432,732

XML

CONDENSED STATEMENT OF COMPREHENSIVE (LOSS) AND INCOME (Unaudited) - USD ($)	3 Months Ended		9 Months Ended
	Sep. 30, 2021	Sep. 30, 2020	Sep. 30, 2021	Sep. 30, 2020
Operating revenues
Total revenue	$ 31,835,305	$ 7,430,374	$ 81,904,261	$ 16,057,837
Cost of goods and services
Cost of goods and services	16,779,313	4,648,910	44,692,765	9,904,131
Total cost of goods and services	16,779,313	4,648,910	44,692,765	9,904,131
Gross profit	15,055,992	2,781,464	37,211,496	6,153,706
Operating expenses
Selling, general and administrative expenses	5,593,336	1,298,693	13,580,469	3,054,091
Professional services	752,572	1,769,455	4,466,696	5,390,186
Salaries	3,644,320	1,878,156	8,505,733	5,973,482
Stock based compensation	1,228,764	1,453,986	3,865,588	5,815,808
Total operating expenses	11,218,992	6,400,290	30,418,486	20,233,567
Income (loss) from operations	3,837,000	(3,618,826)	6,793,010	(14,079,861)
Other income (expense)
Interest income (expense), net	(1,851,694)	10,131	(4,526,746)	46,726
Gain on forfeiture of contingent consideration	0	0	0	1,462,636
Unrealized gain on derivative liabilities	356,824	684,422	967,751	1,527,850
Other income	0	0	0	32,621
Gain (loss) on sale of assets	(49,985)	0	242,494	0
Unrealized gain (loss) on investments	(10,572)	10,062	210,685	120,800
Total other income (expense)	(1,555,427)	704,615	(3,105,816)	3,190,633
Provision for income taxes	1,312,817	0	1,997,905	0
Net income (loss)	$ 968,756	$ (2,914,211)	$ 1,689,289	$ (10,889,228)
Earnings (loss) per share attributable to common stockholders
Basic earnings (loss) per share	$ 0.02	$ (0.07)	$ 0.04	$ (0.26)
Diluted earnings (loss) per share	$ 0.02	$ (0.07)	$ 0.03	$ (0.26)
Weighted average number of shares outstanding - basic	44,145,709	41,568,147	42,903,008	41,242,041
Weighted average number of shares outstanding - diluted	56,139,416	41,568,147	56,688,640	41,242,041
Comprehensive income (loss)	$ 968,756	$ (2,914,211)	$ 1,689,289	$ (10,889,228)
Retail [Member]
Operating revenues
Total revenue	20,741,864	1,135,822	54,083,880	1,868,279
Wholesale [Member]
Operating revenues
Total revenue	11,022,519	6,273,897	27,654,965	12,909,025
Other [Member]
Operating revenues
Total revenue	$ 70,922	$ 20,655	$ 165,416	$ 1,280,533

XML

STATEMENT OF CHANGES IN STOCKHOLDERS' EQUITY (Unaudited) - USD ($)	Preferred Stock [Member]	Common Stock [Member]	Additional Paid-in Capital [Member]	Retained Earnings [Member]	Treasury Stock [Member]	Total
Beginning balance, value at Dec. 31, 2019		$ 39,953	$ 50,356,469	$ (22,816,477)	$ (1,000,000)	$ 26,579,945
Beginning balance, shares at Dec. 31, 2019		39,952,628			257,732
Net income (loss)				(10,889,228)		(10,889,228)
Issuance of stock as payment for acquisitions		$ 2,555	4,167,253			4,169,808
Issuance of stock as payment for acquisitions, shares		2,554,750
Return of common stock as compensation to employees, officers and/or directors		$ 500				500
Return of common stock as compensation to employees, officers and/or directors, shares		(500,000)
Issuance of stock in connection with sales made under private or public offerings		$ 187	374,813			375,000
Issuance of stock in connection with sales made under private or public offerings, shares		187,500
Return of common stock					$ (332,500)	(332,500)
Return of common stock, shares					175,000
Stock based compensation expense related to common stock options			5,815,808			5,815,808
Ending balance, value at Sep. 30, 2020		$ 42,195	60,714,343	(33,705,705)	$ (1,332,500)	25,718,333
Ending balance, shares at Sep. 30, 2020		42,194,878			432,732
Beginning balance, value at Dec. 31, 2019		$ 39,953	50,356,469	(22,816,477)	$ (1,000,000)	26,579,945
Beginning balance, shares at Dec. 31, 2019		39,952,628			257,732
Ending balance, value at Dec. 31, 2020	$ 20	$ 42,602	85,357,835	(42,293,098)	$ (1,332,500)	41,774,859
Ending balance, shares at Dec. 31, 2020	19,716	42,601,773			432,732
Beginning balance, value at Jun. 30, 2020		$ 42,195	59,260,357	(30,791,494)	$ (1,000,000)	27,511,058
Beginning balance, shares at Jun. 30, 2020		42,194,878			257,732
Net income (loss)				(2,914,211)		(2,914,211)
Issuance of stock as payment for acquisitions
Return of common stock as compensation to employees, officers and/or directors
Issuance of common stock as compensation to employees, officers and/or directors
Issuance of stock in connection with sales made under private or public offerings
Dividends declared
Return of common stock					$ (332,500)	(332,500)
Return of common stock, shares					175,000
Stock based compensation expense related to common stock options			1,453,986			1,453,986
Ending balance, value at Sep. 30, 2020		$ 42,195	60,714,343	(33,705,705)	$ (1,332,500)	25,718,333
Ending balance, shares at Sep. 30, 2020		42,194,878			432,732
Beginning balance, value at Dec. 31, 2020	$ 20	$ 42,602	85,357,835	(42,293,098)	$ (1,332,500)	41,774,859
Beginning balance, shares at Dec. 31, 2020	19,716	42,601,773			432,732
Net income (loss)				1,689,289		1,689,289
Issuance of stock as payment for acquisitions	$ 20	$ 2,214	25,617,766			25,620,000
Issuance of stock as payment for acquisitions, shares	20,240	2,213,994
Return of common stock as compensation to employees, officers and/or directors
Issuance of common stock as compensation to employees, officers and/or directors		$ 324	680,538			680,862
Issuance of common stock as compensation to employees, officers, and/or directors, shares		323,530
Issuance of stock in connection with sales made under private or public offerings	$ 47		50,449,159			50,449,206
Issuance of stock in connection with sales made under private or public offerings, shares	47,310
Dividends declared				(5,585,020)		(5,585,020)
Return of common stock					$ (184,536)	(184,536)
Return of common stock, shares					84,312
Stock based compensation expense related to common stock options			3,288,435			3,288,435
Ending balance, value at Sep. 30, 2021	$ 87	$ 45,140	165,393,733	(46,188,829)	$ (1,517,036)	117,733,095
Ending balance, shares at Sep. 30, 2021	87,266	45,139,297			517,044
Beginning balance, value at Jun. 30, 2021	$ 87	$ 42,925	158,787,183	(45,373,480)	$ (1,517,036)	111,939,679
Beginning balance, shares at Jun. 30, 2021	87,266	42,925,303			517,044
Net income (loss)				968,757		968,756
Issuance of stock as payment for acquisitions		$ 2,214	5,377,786			5,380,000
Issuance of stock as payment for acquisitions, shares		2,213,994
Return of common stock as compensation to employees, officers and/or directors
Issuance of common stock as compensation to employees, officers and/or directors		1				1
Issuance of stock in connection with sales made under private or public offerings
Dividends declared				(1,784,106)		(1,784,106)
Return of common stock
Stock based compensation expense related to common stock options			1,228,764			1,228,764
Ending balance, value at Sep. 30, 2021	$ 87	$ 45,140	$ 165,393,733	$ (46,188,829)	$ (1,517,036)	$ 117,733,095
Ending balance, shares at Sep. 30, 2021	87,266	45,139,297			517,044

XML

STATEMENT OF CASH FLOWS (Unaudited) - USD ($)	9 Months Ended
	Sep. 30, 2021	Sep. 30, 2020
Cash flows from operating activities
Net income (loss) for the period	$ 1,689,289	$ (10,889,228)
Adjustments to reconcile net income to cash used in operating activities
Depreciation and amortization	7,779,828	322,292
Deferred taxes	0	0
Gain on change in derivative liabilities	(967,751)	(2,990,486)
Gain on investment, net	(210,685)	(120,800)
Gain on sale of assets	(292,479)	0
Stock based compensation	3,865,588	5,815,808
Changes in operating assets and liabilities
Accounts receivable	(2,179,646)	1,292,509
Inventory	(3,034,246)	271,305
Prepaid expenses and other current assets	(1,964,835)	274,814
Other assets	(396,183)	(127,999)
Operating leases right of use assets and liabilities	114,129	27,028
Accounts payable and other liabilities	(568,387)	(177,295)
Deferred revenue	(50,000)	0
Income taxes payable	1,029,482	(1,940)
Net cash provided by (used in) operating activities	4,814,104	(6,303,992)
Cash flows from investing activities:
Collection of notes receivable	181,911	478,285
Cash consideration for acquisition of business	(71,927,071)	(2,609,500)
Purchase of fixed assets - net	(3,869,658)	(976,685)
Purchase of intangible assets	(29,580)	0
Net cash (used in) investing activities	(75,644,398)	(3,107,900)
Cash flows from financing activities:
Proceeds from issuance of debt, net	45,344,578	0
Repayment of notes payable	(4,865,502)	0
Proceeds from issuance of common stock, net of issuance costs	50,282,797	42,000
Net cash provided by financing activities	90,761,874	42,000
Net increase (decrease) in cash and cash equivalents	19,931,580	(9,369,892)
Cash and cash equivalents at beginning of period	1,237,236	12,351,580
Cash and cash equivalents at end of period	21,168,816	2,981,688
Supplemental disclosure of cash flow information:
Cash paid for interest	$ 3,862,970	$ 0

XML

Organization and Nature of Operations

9 Months Ended

Sep. 30, 2021

Accounting Policies [Abstract]

Organization and Nature of Operations

Organization and Nature of Operations

Medicine Man Technologies, Inc. (“we,” “us,” “our” or the “Company”) was incorporated in Nevada on March 20, 2014. On May 1, 2014, we entered into a non-exclusive Technology License Agreement with Futurevision, Inc., f/k/a Medicine Man Production Corp., dba Medicine Man Denver (“Medicine Man Denver”) pursuant to which Medicine Man Denver granted us a license to use all of the proprietary processes that they had developed, implemented and practiced at their cannabis facilities relating to the commercial growth, cultivation, marketing and distribution of medical and recreational marijuana pursuant to relevant state laws and the right to use and to license such information, including trade secrets, skills and experience (present and future) (the “License Agreement”) for 10 years.

In 2017, the Company acquired additional cultivation intellectual property through the acquisition of Success Nutrients™ and Pono Publications, including the rights to the book titled “Three A Light” and its associated cultivation techniques, which have been part of the Company’s products and services offerings since the acquisition. The Company acquired Two J’s LLC d/b/a The Big Tomato (“The Big Tomato”) in 2018, which operates a retail location in Aurora, Colorado. It has been a leading supplier of hydroponics and indoor gardening supplies in the metro Denver area since May 2001. The Company was focused on cannabis dispensary and cultivation consulting and providing equipment and nutrients to cannabis cultivators until its first plant touching acquisition in April of 2020. In 2019, due to the changes in Colorado law permitting non-Colorado resident and publicly traded investment into “plant-touching” cannabis companies, the Company made a strategic decision to move toward direct plant-touching operations. The Company developed a plan to roll up a number of direct plant-touching dispensaries, manufacturing facilities, and cannabis cultivations with a target to be one of the largest seed to sale cannabis businesses in Colorado. In April 2020, the Company acquired its first plant-touching business, Mesa Organics Ltd. (“Mesa Organics”), which consists of four dispensaries and one manufacturing infused products facility (“MIP”), d/b/a Purplebee’s.

On April 20, 2020, the Company rebranded and since then conducts its business under the trade name, Schwazze. The corporate name of the Company continues to be Medicine Man Technologies, Inc. Effective April 21, 2020, the Company commenced trading under the OTC ticker symbol SHWZ.

On December 17, 2020, the Company acquired the assets of (i) Starbuds Pueblo LLC; and (ii) Starbuds Alameda LLC under the applicable Asset Purchase Agreements (“APAs”). On December 18, 2020, the Company acquired the assets of (i) Starbuds Commerce City LLC; (ii) Lucky Ticket LLC; (iii) Starbuds Niwot LLC; and (iv) LM MJC LLC under the applicable APAs.

On February 4, 2021, the Company acquired the assets of Colorado Health Consultants LLC and Mountain View 44th LLC under the applicable APAs.

On March 2, 2021, the Company acquired the assets of (i) Starbuds Aurora LLC, (ii) SB Arapahoe LLC; (iii) Citi-Med LLC; (iv) Starbuds Louisville LLC; and (v) KEW LLC under the applicable APAs.

On July 21, 2021, the Company acquired the assets of Southern Colorado Growers under the applicable APA.

From December 2020 through March 2021 the Company completed a private placement of Series A Cumulative Convertible Preferred Stock (“Series A Preferred Stock”) for aggregate gross proceeds of $57.7 million dollars. In the private placement, the Company issued and sold an aggregate of 57,700 shares of Series A Preferred Stock at a price of $1,000 per share under securities purchase agreements with Dye Capital Cann Holdings II, LLC (“Dye Cann II”) and CRW Cann Holdings, LLC (“CRW”) as well as subscription agreements with unaffiliated investors. Among other terms, each share of Series A Preferred Stock (i) earns an annual dividend of 8% on the “preference amount,” which initially is equal to the $1,000 per-share purchase price and subject to increase, by having such dividends automatically accrete to, and increase, the outstanding preference amount; (ii) is entitled to a liquidation preference under certain circumstances, (iii) is convertible into shares of the Company’s common stock by dividing the preference amount by $1.20 per share under certain circumstances, and (iv) is subject to a redemption right or obligation under certain circumstances.

In addition, on December 16, 2020, the Company issued and sold a Convertible Promissory Note and Security Agreement in the original principal amount of $5,000,000 to Dye Capital & Company, LLC (“Dye Capital”). On February 26, 2021, Dye Capital converted all outstanding amounts under the note into 5,060 shares of Series A Preferred Stock.

The Company is focused on growing through internal growth, acquisition, and new licenses in the Colorado cannabis market. The Company is focused on building the premier vertically integrated cannabis company in Colorado. The company's leadership team has deep expertise in mainstream consumer packaged goods, retail, and product development at Fortune 500 companies as well as in the cannabis sector. The Company has a high-performance culture and a focus on analytical decision making, supported by data. Customer-centric thinking inspires the Company’s strategy and provides the foundation for the Company’s operational playbooks.

The Company’s operations are organized into three different segments as follows: (i) retail, consisting of retail locations for sale of cannabis products, (ii) wholesale, consisting of manufacturing, cultivation and sale of wholesale cannabis products, nutrients for cannabis, and hydroponics and indoor gardening supplies, and (iii) other, consisting of all other income and expenses, including those related to licensing and consulting services, facility design services, facility management services, and corporate operations.

XML

Liquidity and Capital Resources

9 Months Ended

Sep. 30, 2021

Liquidity And Capital Resources

Liquidity and Capital Resources

1. Liquidity and Capital Resources

During the quarters ended September 30, 2021 and 2020, the Company primarily used revenues from its operations to fund its operations.

Cash and cash equivalents are carried at cost and represent cash on hand, deposits placed with banks or other financial institutions and all highly liquid investments with an original maturity of three months or less as of the purchase date. The Company had $21,168,816 and $1,231,235 classified as cash and cash equivalents as of September 30, 2021, and December 31, 2020, respectively.

The Company maintains its cash balances with a high-credit-quality financial institution. At times, such cash may be more than the insured limit of $250,000. The Company has not experienced any losses in such accounts, and management believes the Company is not exposed to any significant credit risk on its cash and cash equivalents.

XML

Critical Accounting Policies and Estimates

9 Months Ended

Sep. 30, 2021

Accounting Policies [Abstract]

Critical Accounting Policies and Estimates

2. Critical Accounting Policies and Estimates

Management’s Representation of Interim Financial Statements

The accompanying unaudited consolidated financial statements have been prepared by the Company without audit pursuant to the rules and regulations of the Securities and Exchange Commission (“SEC”). Certain information and disclosures normally included in financial statements prepared in accordance with accounting principles generally accepted in the United States (“U.S. GAAP”) have been condensed or omitted as allowed by such rules and regulations, and management believes that the disclosures are adequate to make the information presented not misleading. These unaudited consolidated financial statements include all of the adjustments, which in the opinion of management are necessary to a fair presentation of the Company’s financial position and results of operations. All such adjustments are of a normal and recurring nature. Interim results are not necessarily indicative of results for a full year. These unaudited consolidated financial statements should be read in conjunction with the audited consolidated financial statements as of December 31, 2020 and 2019, as presented in the Company’s Annual Report on Form 10-K filed on March 31, 2021 with the SEC.

Basis of Presentation

These accompanying financial statements have been prepared in accordance with U.S. GAAP and pursuant to the rules and regulations of the SEC for interim financial statements. All intercompany accounts and transactions are eliminated in consolidation.

Use of Estimates

The preparation of financial statements in conformity with U.S. GAAP requires management to make estimates and assumptions that affect the amounts reported therein. Due to the inherent uncertainty involved in making estimates, actual results reported in future periods may be based upon amounts that differ from these estimates.

Reclassifications

Certain prior period amounts have been reclassified to conform to the current period presentation. These reclassifications had no impact on net earnings and financial position.

Fair Value Measurements

Fair value is defined as the exchange price that would be received for an asset or paid to transfer a liability (an exit price) in the principal or most advantageous market for the asset or liability, in an orderly transaction between market participants on the measurement date. Valuation techniques used to measure fair value must maximize the use of observable inputs and minimize the use of unobservable inputs. The fair value hierarchy is based on three levels of inputs, of which the first two are considered observable and the last unobservable, as follows:

Level 1 – Quoted prices in active markets for identical assets or liabilities.

Level 2 – Inputs other than Level 1 that are observable, either directly or indirectly, such as quoted prices for similar assets or liabilities; quoted prices in markets that are not active; or other inputs that are observable or can be corroborated by observable market data for substantially the full term of the assets or liabilities.

Level 3 – Unobservable inputs that are supported by little or no market activity and that are significant to the measurement of the fair value of the assets or liabilities.

The Company’s financial instruments include cash, accounts receivable, notes receivable, accounts payable and tenant deposits. The carrying values of these financial instruments approximate their fair value due to their short maturities. The carrying amount of the Company’s debt approximates fair value because the interest rates on these instruments approximate the interest rate on debt with similar terms available to us. The Company’s derivative liability was adjusted to fair market value at the end of each reporting period, using Level 3 inputs.

The following is the Company’s assets and liabilities measured at fair value on a recurring and nonrecurring basis at September 30, 2021 and December 31, 2020, using quoted prices in active markets for identical assets (Level 1), significant other observable inputs (Level 2), and significant unobservable inputs (Level 3):

	September 30,		December 31,
	2021		2020
Level 1 - Marketable Securities Available-for-Sale - Recurring		487,467		276,782

Marketable Securities at Fair Value on a Recurring Basis

Certain assets are measured at fair value on a recurring basis. The Level 1 position consists of an investment in equity securities held in Canada House Wellness Group, Inc., a publicly-traded company whose securities are actively quoted on the Toronto Stock Exchange.

Fair Value of Financial Instruments

The carrying amounts of cash and current assets and liabilities approximate fair value because of the short-term maturity of these items. These fair value estimates are subjective in nature and involve uncertainties and matters of significant judgment and, therefore, cannot be determined with precision. Changes in assumptions could significantly affect these estimates. Available-for-sale securities are recorded at current market value as of the date of this report.

Accounts Receivable

The Company extends unsecured credit to its customers in the ordinary course of business. These accounts receivable relates to the Company’s wholesale and other revenue segments. Accounts receivable are recorded when a milestone is reached at a point in time resulting in funds being due for delivered goods or services, and where payment is reasonably assured. Wholesale revenues are generally collected within 14 to 30 days after invoice is sent. Consulting revenues are generally collected from 30 to 60 days after the invoice is sent.

The following table depicts the composition of our accounts receivable as of September 30, 2021, and December 31, 2020:

	September 30,			December 31,
	2021			2020
Accounts receivable - trade	$	3,665,566		$	1,315,188
Accounts receivable - related party		–			80,494
Accounts receivable - litigation, non-current		3,063,968			3,063,968
Allowance for doubtful accounts		(135,046	)		(44,808	)
Total accounts receivable	$	6,594,488		$	4,414,842

The Company establishes an allowance for doubtful accounts based on management’s assessment of the collectability of trade receivables. A considerable amount of judgment is required in assessing the amount of the allowance. The Company makes judgments about the creditworthiness of each customer based on ongoing credit evaluations and monitors current economic trends that might impact the level of credit losses in the future. If the financial condition of the customers were to deteriorate, resulting in their inability to make payments, a specific allowance will be required.

Notes Receivable

On March 12, 2021, the Company sold equipment to Colorado Cannabis. The terms of sale included a zero interest note receivable, payable $11,944 on the first of each month for 24 months. As of September 30, 2021, the outstanding balance, including penalties for late payments, on the notes receivable with Colorado Cannabis totaled $179,167.

Prepaid Expenses and Other Assets (Current and Non-Current)

Prepaid expenses and other assets as of September 30, 2021 and December 31, 2020 were $3,027,097 and $666,079, respectively. As of September 30, 2021, this balance included $2,579,035 in prepaid expenses and $448,062 in security deposits. As of December 31, 2020, other assets included $345,777 in prepaid expenses, $268,423 in tax receivable, and $51,879 in security deposits. Prepaid expenses were primarily comprised of insurance premiums, membership dues, conferences and seminars, and other general and administrative costs.

Goodwill and Intangible Assets

Goodwill represents the future economic benefit arising from other assets acquired that could not be individually identified and separately recognized. The goodwill arising from the Company’s acquisitions is attributable to the value of the potential expanded market opportunity with new customers. Intangible assets have either an identifiable or indefinite useful life. Intangible assets with identifiable useful lives are amortized on a straight-line basis over their economic or legal life, whichever is shorter. The Company’s amortizable intangible assets consist of licensing agreements, product licenses and registrations, and intellectual property or trade secrets. Their estimated useful lives range from 10 to 15 years.

Goodwill and indefinite-lived assets are not amortized but are subject to annual impairment testing unless circumstances dictate more frequent assessments. The Company performs an annual impairment assessment for goodwill during the fourth quarter of each year and more frequently whenever events or changes in circumstances indicate that the fair value of the asset may be less than the carrying amount. Goodwill impairment testing is a two-step process performed at the reporting unit level. Step one compares the fair value of the reporting unit to its carrying amount. The fair value of the reporting unit is determined by considering both the income approach and market approaches. The fair values calculated under the income approach and market approaches are weighted based on circumstances surrounding the reporting unit. Under the income approach, the Company determines fair value based on estimated future cash flows of the reporting unit, which are discounted to the present value using discount factors that consider the timing and risk of cash flows. For the discount rate, the Company relies on the capital asset pricing model approach, which includes an assessment of the risk-free interest rate, the rate of return from publicly traded stocks, the Company’s risk relative to the overall market, the Company’s size and industry and other Company-specific risks. Other significant assumptions used in the income approach include the terminal value, growth rates, future capital expenditures and changes in future working capital requirements. The market approaches use key multiples from guideline businesses that are comparable and are traded on a public market. If the fair value of the reporting unit is greater than its carrying amount, there is no impairment. If the reporting unit’s carrying amount exceeds its fair value, then the second step must be completed to measure the amount of impairment, if any. Step two calculates the implied fair value of goodwill by deducting the fair value of all tangible and intangible net assets of the reporting unit from the fair value of the reporting unit as calculated in step one. In this step, the fair value of the reporting unit is allocated to all of the reporting unit’s assets and liabilities in a hypothetical purchase price allocation as if the reporting unit had been acquired on that date. If the carrying amount of goodwill exceeds the implied fair value of goodwill, an impairment loss is recognized in an amount equal to the excess.

Determining the fair value of a reporting unit is judgmental in nature and requires the use of significant estimates and assumptions, including revenue growth rates, strategic plans, and future market conditions, among others. There can be no assurance that the Company’s estimates and assumptions made for purposes of the goodwill impairment testing will prove to be accurate predictions of the future. Changes in assumptions and estimates could cause the Company to perform an impairment test prior to scheduled annual impairment tests.

The Company performed its annual fair value assessment as of December 31, 2020, on its subsidiaries with material goodwill and intangible asset amounts on their respective balance sheets and determined that no impairment exists. No additional factors or circumstances existed as of September 30, 2021 that would indicate impairment.

Long-Lived Assets

The Company evaluates the recoverability of its long-lived assets whenever events or changes in circumstances have indicated that an asset may not be recoverable. The long-lived asset is grouped with other assets at the lowest level for which identifiable cash flows are largely independent of the cash flows of other groups of assets and liabilities. If the sum of the projected undiscounted cash flows is less than the carrying value of the assets, the assets are written down to the estimated fair value.

The Company evaluated the recoverability of its long-lived assets on December 31, 2020 on its subsidiaries with material amounts on their respective balance sheets and determined that no impairment exists.

Accounts Payable

Accounts payable as of September 30, 2021 and December 31, 2020 were $1,040,610 and $3,557,460, respectively and were comprised of trade payables for various purchases and services rendered during the ordinary course of business.

Accrued Expenses and Other Liabilities

Accrued expenses and other liabilities as of September 30, 2021 and December 31, 2020 were $11,660,237 and $2,705,445, respectively. As of September 30, 2021, this was comprised of accrued payroll of $632,965, operating expenses of $5,442,254, and accrued dividends on preferred stock of $5,585,018. As of December 31, 2020, accrued expenses and other liabilities was comprised of customer deposits of $26,826, accrued payroll of $1,154,887, and operating expenses of $1,523,732.

Revenue Recognition and Related Allowances

The Company’s revenue recognition policy is significant because the amount and timing of revenue is a key component of our results of operations. Certain criteria are required to be met in order to recognize revenue. If these criteria are not met, then the associated revenue is deferred until is the criteria are met. When consideration is received in advance of the delivery of goods or services, a contract liability is recorded. Revenue contracts are identified when accepted from customers and represent a single performance obligation to sell the Company’s products to a customer.

The Company has three main revenue streams: retail; wholesale; and other.

Retail and wholesale sales are recorded at the time that control of the products is transferred to customers. In evaluating the timing of the transfer of control of products to customers, the Company considers several indicators, including significant risks and rewards of products, its right to payment, and the legal title of the products. Based on the assessment of control indicators, sales are generally recognized when products are delivered to customers.

Other revenue consists of other income and expenses, including related to, licensing and consulting services, facility design services, facility management services, the Company’s Three A Light™ publication, and corporate operations. Revenue is recognized when the obligations to the client are fulfilled which is determined when milestones in the contract are achieved and target harvest yields are exceeded or earned upon the completion of the seminar. The Company also recognizes expense reimbursement from clients as revenue for expenses incurred during certain jobs.

Costs of Goods and Services Sold

Costs of goods and services sold are comprised of related expenses incurred while supporting the implementation and sales of the Company’s products and services.

General and Administrative Expenses

General and administrative expense are comprised of all expenses not linked to the production or advertising of the Company’s services.

Advertising and Marketing Costs

Advertising and marketing costs are expensed as incurred and totaled $250,568 and $559,161 for the three and nine months ended September 30, 2021, respectively, as compared to $ $172,539 and $638,335, respectively, for the three and nine months ended September 30, 2020.

Stock Based Compensation

The Company accounts for share-based payments pursuant to ASC 718, Stock Compensation and, accordingly, the Company records compensation expense for share-based awards based upon an assessment of the grant date fair value for stock options using the Black-Scholes option pricing model.

Stock compensation expense for stock options is recognized over the vesting period of the award or expensed immediately under ASC 718 and Emerging Issues Task Force (“EITF”) 96-18 when stock or options are awarded for previous or current service without further recourse.

Share-based expense paid through direct stock grants is expensed as occurred. Since the Company’s common stock is publicly traded, the value is determined based on the number of shares of common stock issued and the trading value of the common stock on the date of the transaction.

On June 20, 2018, the Financial Accounting Standards Board (“FASB”) issued ASU 2018-07 which simplifies the accounting for share-based payments granted to nonemployees for goods and services. Under the ASU, most of the guidance on such payments to nonemployees would be aligned with the requirements for share-based payments granted to employees. Previously, share-based payment arrangements to nonemployees were accounted for under ASC 718, while nonemployee share-based payments issued for goods and services were accounted for under ASC 505-50. Before the amendment, the major difference for the Company (but not limited to) was the determination of measurement date, which generally is the date on which the measurement of equity classified share-based payments becomes fixed. Equity classified share-based payments for employees was fixed at the time of grant. Equity-classified nonemployee share-based payment awards are no longer measured at the earlier of the date which a commitment for performance by the counterparty is reached or the date at which the counterparty’s performance is complete. They are now measured at the grant date of the award, which is the same as share-based payments for employees. The Company adopted the requirements of the new rule as of January 1, 2019, the effective date of the new guidance.

The Company recognized $1,228,764 and $3,865,588 in expense for stock-based compensation from common stock options and common stock issued to employees, officers, and directors during the three and nine months ended September 30, 2021, respectively, and $1,453,986 and $5,815,808 in expenses for stock-based compensation from the issuance of common stock to employees, officers, directors and/or contractors during the three and nine months ended September 30, 2020, respectively.

Income Taxes

ASC 740, Income Taxes requires the use of the asset and liability method of accounting for income taxes. Under the asset and liability method of ASC 740, deferred tax assets and liabilities are recognized for the future tax consequences attributable to temporary differences between the financial statement carrying amounts of existing assets and liabilities and their respective tax bases.

Deferred tax assets are regularly assessed to determine the likelihood they will be recovered from future taxable income. A valuation allowance is established when we believe it is more likely than not the future realization of all or some of a deferred tax asset will not be achieved. In evaluating our ability to recover deferred tax assets within the jurisdiction which they arise, we consider all available positive and negative evidence. Factors reviewed include the cumulative pre-tax book income for the past three years, scheduled reversals of deferred tax liabilities, our history of earnings and reliability of our forecasts, projections of pre-tax book income over the foreseeable future, and the impact of any feasible and prudent tax planning strategies.

The Company assesses all material positions taken in any income tax return, including all significant uncertain positions, in all tax years that are still subject to assessment or challenge by relevant taxing authorities. Assessing an uncertain tax position begins with the initial determination of the position’s sustainability, and the tax benefit to be recognized is measured at the largest amount of benefit that is greater than 50 percent likely of being realized upon ultimate settlement. We recognize the impact of a tax position in our financial statements only if that position is more likely than not of being sustained upon examination by taxing authorities, based on the technical merits of the position. Tax authorities regularly examine our returns in the jurisdictions in which we do business, and we regularly assess the tax risk of our return filing positions. Due to the complexity of some of the uncertainties, the ultimate resolution may result in payments that are materially different from our current estimate of the tax liability. These differences, as well as any interest and penalties, will be reflected in the provision for income taxes in the period in which they are determined.

As the Company operates in the cannabis industry, it is subject to the limits of the Internal Revenue Code (“IRC”) Section 280E under which the Company is only allowed to deduct expenses directly related to sales of product. This results in permanent differences between ordinary and necessary business expenses deemed non-allowable under IRC Section 280E.

Right of Use Assets and Lease Liabilities

In February 2016, the FASB issued ASU No. 2016-02, Leases (Topic 842). The standard requires lessees to recognize almost all leases on the balance sheet as a Right-of-Use (“ROU”) asset and a lease liability and requires leases to be classified as either an operating or a finance type lease. The standard excludes leases of intangible assets or inventory. The standard became effective for the Company beginning January 1, 2019. The Company adopted ASC 842 using the modified retrospective approach, by applying the new standard to all leases existing at the date of initial application. Results and disclosure requirements for reporting periods beginning after January 1, 2019 are presented under ASC 842, while prior period amounts have not been adjusted and continue to be reported in accordance with our historical accounting under ASC 840. The Company elected the package of practical expedients permitted under the standard, which also allowed the Company to carry forward historical lease classifications. The Company also elected the practical expedient related to treating lease and non-lease components as a single lease component for all equipment leases as well as electing a policy exclusion permitting leases with an original lease term of less than one year to be excluded from the ROU assets and lease liabilities.

Under ASC 842, the Company determines if an arrangement is a lease at inception. ROU assets and liabilities are recognized at commencement date based on the present value of remaining lease payments over the lease term. For this purpose, the Company considers only payments that are fixed and determinable at the time of commencement. As most of the Company's leases do not provide an implicit rate, the Company estimated the incremental borrowing rate in determining the present value of lease payments. The ROU asset also includes any lease payments made prior to commencement and is recorded net of any lease incentives received. The Company’s lease terms may include options to extend or terminate the lease when it is reasonably certain that the Company will exercise such options.

Operating leases are included in operating lease ROU assets and operating lease liabilities, current and non-current, on the Company's consolidated balance sheets.

XML

Recent Accounting Pronouncements

9 Months Ended

Sep. 30, 2021

Accounting Standards Update and Change in Accounting Principle [Abstract]

Recent Accounting Pronouncements

3. Recent Accounting Pronouncements

The Company has implemented all new accounting pronouncements that are in effect and that may impact its financial statements and does not believe that there are any other new pronouncements that have been issued that might have a material impact on its financial position or results of operations except as noted below:

In January 2017, the FASB issued ASU 2017-01, Clarifying the Definition of a Business (Topic 805), which changes the definition of a business to assist entities with evaluating when a set of transferred assets and activities is a business. The guidance requires an entity to evaluate if substantially all of the fair value of the gross assets acquired is concentrated in a single identifiable asset or a group of similar identifiable assets; if so, the set of transferred assets and activities is not a business. The guidance also requires a business to include at least one substantive process and narrows the definition of outputs by more closely aligning it with how outputs are described in ASC 606. The ASU is effective for annual reporting periods beginning after December 15, 2017, and for interim periods within those years. Adoption of this ASU did not have a significant impact on the Company’s consolidated results of operations, cash flows and financial position.

In December 2019, the FASB issued ASU 2019-12, Income Taxes (Topic 740), which enhances and simplifies various aspects of the income tax accounting guidance, including requirements such as tax basis step-up in goodwill obtained in a transaction that is not a business combination, ownership changes in investments, and interim-period accounting for enacted changes in tax law. The amendment became effective for public companies with fiscal years beginning after December 15, 2020. The Company is evaluating the impact of this amendment on its consolidated financial statements.

In February 2020, the FASB issued ASU 2020-02, Financial Instruments-Credit Losses (Topic 326) and Leases (Topic 842) - Amendments to SEC Paragraphs Pursuant to SEC Staff Accounting Bulletin No. 119 and Update to SEC Section on Effective Date Related to Accounting Standards Update No. 2016-02, Leases (Topic 842), which amends the effective date of the original pronouncement for smaller reporting companies. ASU 2016-13 and its amendments will be effective for the Company for interim and annual periods in fiscal years beginning after December 15, 2022. The Company believes the adoption will modify the way the Company analyzes financial instruments, but it does not anticipate a material impact on results of operations. The Company is in the process of determining the effects adoption will have on its consolidated financial statements.

XML

Property and Equipment

9 Months Ended

Sep. 30, 2021

Property, Plant and Equipment [Abstract]

Property and Equipment

4. Property and Equipment

Property and equipment are recorded at cost, net of accumulated depreciation and are comprised of the following:

	September 30,			December 31,
	2021			2020
Furniture and fixtures	$	254,490		$	228,451
Leasehold improvements		662,839			90,314
Machinery and tools		1,779,411			1,456,752
Land and buildings		2,935,000			–
Office equipment		250,833			104,059
Software		1,983,356			1,308,387
Work in process		2,570,512			269,414
	$	10,436,441		$	3,457,377
Less: Accumulated depreciation		(1,631,093	)		(872,579	)
Total property and equipment, net of depreciation	$	8,805,348		$	2,584,798

Depreciation on equipment is provided on a straight-line basis over its expected useful lives at the following annual rates.

Furniture and fixtures	3-5 years
Leasehold improvements	Lesser of the lease term or estimated useful life
Machinery and tools	5 years
Office equipment	3 years
Software	3-5 years

Depreciation expense for the three and nine months ended September 30, 2021 was $364,399 and $818,174, respectively.

XML

Intangible Asset

9 Months Ended

Sep. 30, 2021

Goodwill and Intangible Assets Disclosure [Abstract]

Intangible Asset

5. Intangible Asset

Intangible assets as of September 30, 2021 and December 31, 2020 were comprised of the following:  

	September 30,			December 31,
	2021			2020
License Agreements	$	94,287,580		$	1,667,700
Tradename		4,560,000			350,000
Customer Relationships		5,150,000			1,055,000
Non Compete		1,205,000			120,000
Product License and Registration Agreements		–			57,300
Trade Secret		32,500			32,500
	$	105,235,080		$	3,282,500
Less: accumulated amortization		(7,162,110	)		(200,456	)
Total intangible assets, net of amortization	$	98,072,970		$	3,082,044

Amortization expense for the three and nine months ended September 30, 2021 was $2,609,987 and $6,961,654, respectively.

XML

Derivative Liability

9 Months Ended

Sep. 30, 2021

Derivative Instruments and Hedging Activities Disclosure [Abstract]

Derivative Liability

6. Derivative Liability

In 2019, the Company entered into certain employment agreements with key officers that contained contingent consideration provisions based upon the achievement of certain market condition milestones. The Company determined that each of these vesting conditions represented derivative instruments.

On January 8, 2019, the Company granted the right to receive 500,000 shares of restricted common stock to an officer and director, which will vest at such time that the Company’s stock price appreciates to $8.00 per share with defined minimum average daily trading volume thresholds. The rights expire January 8, 2022.

On April 23, 2019, the Company granted the right to receive 1,000,000 shares of restricted common stock to an officer and director, which will vest at such time that the Company’s stock price appreciates to $8.00 per share with defined minimum average daily trading volume thresholds. On February 25, 2020, the director resigned from his remaining positions with the Company and forfeited his right to the contingent consideration. As a result, the Company recorded a gain of $1,462,636 as a component of other income (expense), net on the financial statements in the first quarter of 2020.

On June 11, 2019, the Company granted the right to receive 1,000,000 shares of restricted common stock to an officer, which will vest at such time that the Company’s stock price appreciates to $8.00 per share with defined minimum average daily trading volume thresholds. On May 3, 2021, the Company executed an agreement whereby the officer relinquished the 1,000,000 shares of restricted common stock. and as a result, recorded a gain of $1,509,117 as a component of other income (expense), net on the financial statements in the second quarter of 2021.

The Company accounts for derivative instruments in accordance with the US GAAP accounting guidance under ASC 815, Derivatives and Hedging Activities. The Company estimated the fair value of these derivatives at the respective balance sheet dates using the Black-Scholes option pricing model based upon the following inputs: (i) stock price on the date of grant ranging between $1.32 - $3.75, (ii) a risk-free interest rate ranging between 1.45% - 2.57% and (iii) an expected volatility of the price of the underlying common stock ranging between 145% - 201%.

As of September 30, 2021, the fair value of these derivative liabilities is $79,730. The change in the fair value of derivative liabilities for the three months ended September 30, 2021 was $356,824, resulting in an aggregate unrealized gain on derivative liabilities. The change in the fair value of the derivative liabilities for the nine months ended September 30, 2021 was $967,751, resulting in an aggregated unrealized gain on derivative liabilities.

XML

Related Party Transactions

9 Months Ended

Sep. 30, 2021

Related Party Transactions [Abstract]

Related Party Transactions

7. Related Party Transactions

Transactions Involving Former Directors, Executive Officers or Their Affiliated Entities

During the year ended December 31, 2020, the Company recorded sales to Medicine Man Denver, totaling $997,262. The Company had an accounts receivable balance with Medicine Man Denver totaling $72,109 as of December 31, 2020. The Company’s former Chief Executive Officer, Andy Williams, maintains an ownership interest in Medicine Man Denver. Effective February 25, 2020 he was no longer an officer of the Company and therefore no longer a related party. As such, he is not included as a related party with respect to sales and accounts receivable from Medicine Man Denver during the period ended September 30, 2021. 

During the year ended December 31, 2020, the Company recorded sales to MedPharm Holdings LLC (“MedPharm”) totaling $73,557. The Company had a net accounts receivable balance with MedPharm totaling $5,885 as of December 31, 2020. The Company’s former Chief Executive Officer, Andy Williams, maintains an ownership interest in MedPharm. Effective February 25, 2020 he was no longer an officer of the Company and therefore no longer a related party. As such, he is not included as a related party with respect to sales and accounts receivable from MedPharm during the period ended September 30, 2021.

Also, during the year ended December 31, 2019, the Company made loans to MedPharm totaling $767,695 evidenced by promissory notes with original maturity dates ranging from September 21, 2019 through January 19, 2020 and all bearing interest at 8% per annum. On August 1, 2020, the Company entered into a Settlement Agreement and Mutual Release (the “Settlement Agreement”) with MedPharm pursuant to which (i) the parties agreed that the outstanding amount owed by MedPharm to the Company was $767,695 of principal and $47,161 in accrued and unpaid interest, (ii) MedPharm paid the Company $100,000 in cash, (iii) Andrew Williams returned 175,000 shares of the Company’s common stock to the Company, as partial repayment of the outstanding balance at a value of $1.90 per share. These shares are held in treasury. The remaining outstanding principal and interest of $181,911 due and payable by MedPharm under the Settlement Agreement was to be paid out in bi-weekly installments of product by scheduled deliveries through June 30, 2021. This amount was paid off on April 19, 2021.

During the year ended December 31, 2020, the Company recorded sales to Baseball 18, LLC (“Baseball”) totaling $14,605, to Farm Boy, LLC (“Farm Boy”) totaling $16,125, to Emerald Fields LLC (“Emerald Fields”) totaling $16,605, and to Los Sueños Farms (“Los Sueños”) totaling $52,244. As of December 31, 2020 the Company had net accounts payable balances with Baseball of $31,250, and with Farm Boy of $93,944. One of the Company’s former Chief Operating Officers and directors, Robert DeGabrielle, owns the Colorado retail marijuana cultivation licenses for Farm Boy, Baseball, Emerald Fields, and Los Sueños. Effective June 19, 2020 he was no longer an officer of the Company and therefore no longer a related party. As such, he is not included as a related party with respect to sales and accounts receivable from Baseball, Farm Boy, Emerald Fields, or Los Sueños during the period ended September 30, 2021.

Transactions with Entities Affiliated with Justin Dye

The Company has participated in several transaction involving Dye Capital, Dye Capital Cann Holdings, LLC (“Dye Cann I”) and Dye Cann II. Justin Dye, the Company’s Chief Executive Officer, one of its directors, and the largest beneficial owner of the Company’s common stock and Series A Preferred Stock, controls Dye Capital and Dye Capital controls Dye Cann I and Dye Cann II. Dye Cann I is the largest holder of the Company’s outstanding common stock. Dye Cann II is a significant holder of the Series A Preferred Stock. Mr. Dye has sole voting and dispositive power over the securities held by Dye Capital, Dye Cann I, and Dye Cann II.

The Company entered into a Securities Purchase Agreement with Dye Cann I on June 5, 2019, (as amended, the “Dye Cann I SPA”) pursuant to which the Company agreed to sell to Dye Cann I up to between 8,187,500 and 10,687,500 shares of the Company’s common stock in several tranches at $2.00 per share and warrants to purchase 100% of the number of shares of common stock sold at a purchase price of $3.50 per share. At the initial closing on June 5, 2019, the Company sold to Dye Cann I 1,500,000 shares of common stock and warrants to purchase 1,500,000 shares of common stock for gross proceeds of $3,000,000, and the Company has consummated subsequent closings for an aggregate of 9,287,500 shares of common stock and warrants to purchase 9,287,500 shares of common stock for aggregate gross proceeds of $18,575,000 to the Company. The terms of the Dye Cann I SPA are disclosed in the Company’s Current Report on Form 8-K filed on June 6, 2019. The Company and Dye Cann I entered into a first amendment to the Dye Cann I SPA on July 15, 2019, as described in the Company’s Current Report on Form 8-K filed on July 17, 2019, a second amendment to the Dye Cann I SPA on May 20, 2020, as described in the Company’s Current Report on Form 8-K filed on May 22, 2020, and a Consent, Waiver and Amendment on December 16, 2020, as described in the Company’s Current Report on Form 8-K filed on December 23, 2020. At the time of the initial closing under the Dye Cann I SPA, Justin Dye became a director and the Company’s Chief Executive Officer.

The Company granted Dye Cann I certain demand and piggyback registration rights with respect to the shares of common stock sold under the Dye Cann I SPA and issuable upon exercise of the warrants sold under the Dye Cann I SPA. The Company also granted Dye Cann I the right to designate one or more individuals for election or appointment to the Company’s board of directors (the “Board”) and Board observer rights. Further, under the Dye Cann I SPA, until June 5, 2022, if the Company desires to pursue debt or equity financing, the Company must first give Dye Cann I an opportunity to provide a proposal to the Company with the terms upon which Dye Cann I would be willing to provide or secure such financing. If the Company does not accept Dye Cann I’s proposal, the Company may pursue such debt or equity financing from other sources but Dye Cann I has a right to participate in such financing to the extent required to enable Dye Cann I to maintain the percentage of the Company’s common stock (on a fully-diluted basis) that it then owns, in the case of equity securities, or, in the case of debt, a pro rata portion of such debt based on the percentage of the Company’s common stock (on a fully-diluted basis) that it then owns.

The Company entered into a Securities Purchase Agreement (as amended, the “Dye Cann II SPA”) with Dye Cann II on November 16, 2020 pursuant to which the Company agreed to sell to Dye Cann II shares of Series A Preferred Stock in one or more tranches at a price of $1,000 per share. The terms of the Dye Cann II SPA are disclosed in the Company’s Current Report on Form 8-K filed on December 23, 2020. The Company and Dye Cann II entered into an amendment to the Dye Cann II SPA on December 16, 2020, as described in the Company’s Current Report on Form 8-K filed on December 23, 2020, a second amendment to the Dye Cann II SPA on February 3, 2021, as described in the Company’s Form 8-K filed on February 9, 2021, and a third amendment to the Dye Cann II SPA on March 30, 2021, as described under Item 9B of the Company’s Annual Report on Form 10-K for the year ended December 31, 2021. The Company issued and sold to Dye Cann II 7,700 shares of Series A Preferred Stock on December 16, 2020, 1,450 shares of Series A Preferred Stock on December 18, 2020, 1,300 shares of Series Preferred Stock on December 22, 2020, 3,100 shares of Series A Preferred Stock on February 3, 2021, 3,800 shares of Series A Preferred Stock on March 2, 2021 and 4,000 shares of Series A Preferred Stock on March 30, 2021. As a result, the Company issued and sold an aggregate of 21,350 shares of Series A Preferred Stock to Dye Cann II for aggregate gross proceeds of $21,350,000.

The Company granted Dye Cann II certain demand and piggyback registration rights with respect to the shares of common stock issuable upon conversion of the Series A Preferred Stock under the Dye Cann II SPA. Further, the Company granted Dye Can II the right to designate one or more individuals for election or appointment to the Board and Board observer rights.

On December 16, 2020, the Company entered into a Secured Convertible Note Purchase Agreement with Dye Capital and issued and sold to Dye Capital a Convertible Note and Security Agreement in the principal amount of $5,000,000 as described in the Company’s Current Report on Form 8-K filed on December 23, 2020. On February 26, 2021, Dye Capital elected to convert the $5,000,000 principal amount and the $60,250 of accrued but unpaid interest under the Convertible Promissory Note and Security Agreement under its terms and Dye Capital and the Company entered into a Conversion Notice and Agreement pursuant to which the Company issued 5,060 shares of Series A Preferred Stock to Dye Capital and also paid Dye Capital $230.97 in cash in lieu of issuing any fractional shares of Series Preferred Stock upon conversion, as described in the Company’s Current Report on Form 8-K filed on March 4, 2021.

The Company previously reported the terms of the Series A Preferred Stock in the Company’s Current Report on Form 8-K filed on December 23, 2020 and under Item 1 of this Report, which disclosure is incorporated herein by reference.

During the year ended December 31, 2020, the Company recorded expenses of $66,264 with Tella Digital. As of September 30, 2021 the Company recorded expenses of $188,354 for the nine month period. Tella Digital provides on-premise digital experience solutions for our retail dispensary locations. Mr. Dye is an indirect part owner and serves as Chairman of Tella Digital. Nirup Krishnamurthy, Chief Operating Officer, is also an indirect part owner in Tella Digital.

Transactions with CRW and Affiliated Entities

On February 26, 2021, the Company entered into a Securities Purchase Agreement (the “CRW SPA”) with CRW pursuant to which the Company issued and sold 25,350 shares of Series A Preferred Stock to CRW at a price of $1,000 per share for aggregate gross proceeds of $25,350,000. The transaction made CRW a beneficial owner of more than 5% of the Company’s common stock. The Company granted CRW certain demand and piggyback registration rights with respect to the shares of common stock issuable upon conversion of the Series A Preferred Stock under the CRW SPA. On the same date, the Company entered into a letter agreement with CRW, granting CRW the right to designate one individual for election or appointment to the Board and Board observer rights. Under the letter agreement, for as long as CRW has the right to designate a Board member, if the Company, directly or indirectly, plans to issue, sell or grant any securities or options to purchase any of its securities, CRW has a right to purchase its pro rata portion of such securities, based on the number of shares of Series A Preferred Stock beneficially held by CRW on the applicable date on an as-converted to common stock basis divided by the total number of shares of common stock outstanding on such date on an as-converted, fully-diluted basis (taking into account all outstanding securities of the Company regardless of whether the holders of such securities have the right to convert or exercise such securities for common stock at the time of determination). Further, under the letter agreement, the Company will pay CRW Capital, LLC, the sole manager of CRW and a holder of a carried interest in CRW, a monitoring fee equal to $150,000 in monthly installments of $10,000. On March 14, 2021, the Board appointed Jeffrey A. Cozad as a director to fill a vacancy on the Board. Mr. Cozad is a manager and owns 50% of CRW Capital, LLC, and he shares voting and disposition power over the shares of Series A Preferred Stock held by CRW. Mr. Cozad and his family members indirectly own membership interests in CRW. The Company previously reported the terms of the CRW SPA and the CRW letter agreement in the Company’s Current Report on Form 8-K filed March 4, 2021.

Transactions with Entities Affiliated with Brian Ruden

The Company has participated in several transactions involving entities owned or affiliated with Brian Ruden, one of its directors and a beneficial owner of more than 5% of the Company’s common stock and a beneficial owner of more than 5% of the Series A Preferred Stock.

Between December 17, 2020 and March 2, 2021, the Company’s wholly-owned subsidiary SBUD, LLC acquired the Star Buds assets. The Company previously reported the terms of the applicable purchase agreements and related amendments in the Company’s Current Reports on Form 8-K filed June 8, 2020, September 21, 2020, December 22, 2020, and March 8, 2021.

The aggregate purchase price for the Star Buds assets was $118,000,000, paid as follows: (i) $44,250,000 in cash at the applicable closings, (ii) $44,250,000 in deferred cash, also referred to in this report as “seller note(s),” (iii) 29,500 shares of Series A Preferred Stock, of which 25,075 shares were issued at the applicable closings and 4,425 shares are held in held in escrow and will be released post-closing to either Star Buds or the Company depending on post-closing adjustments to the purchase price. In addition, the Company issued warrants to purchase an aggregate of 5,531,250 shares of the Company’s common stock to the sellers. As of September 30, 2021, the Company owed an aggregate principal amount of $44,250,000 under the seller notes. The Company has not paid any principal and has paid an aggregate of $3,010,887 of interest on the seller notes as of September 30, 2021. Mr. Ruden’s interest in the aggregate purchase price for the Star Buds assets is as follows: (i) $13,727,490 in cash at the applicable closings, (ii) $13,727,490 in seller notes, (iii) 9,152 shares of Series A Preferred Stock, of which 7,779 shares were issued at the applicable closings and 1,373 shares are held in held in escrow and will be released post-closing to either Mr. Ruden or the Company depending on post-closing adjustments to the purchase price. In addition, the Company issued warrants to purchase an aggregate of 1,715,936 shares of the Company’s common stock to Mr. Ruden. The Company has paid Mr. Ruden an aggregate of $929,913 in interest on his seller notes as of September 30, 2021.

Mr. Ruden was a part-owner of each of the Star Buds companies that sold assets to SBUD, LLC. Mr. Ruden owned 50% of Colorado Health Consultants LLC, 50% of Starbuds Aurora LLC, 50% of Starbuds Pueblo LLC, 50% of Starbuds Alameda LLC, 48% of SB Arapahoe LLC, 36% of Starbuds Commerce City LLC, 30% of Starbuds Louisville LLC, 25% of Starbuds Niwot LLC, 16.66% of Lucky Ticket LLC, 15% of KEW LLC, and 10% of LM MJC LLC.

In connection with acquiring the Star Buds assets for our Pueblo West, Niwot, Commerce City, Lakeside, Arapahoe and Aurora locations, SBUD LLC entered into a lease with each of 428 S. McCulloch LLC, Colorado Real Estate Holdings LLC, 5844 Ventures LLC, 5238 W 44^th LLC, 14655 Arapahoe LLC and Montview Real Estate LLC, on substantially the same terms. Each of the leases is for an initial three-year term. The lease with 428 S. McCulloch LLC is for the Company’s Pueblo West Star Buds location and was effective on December 17, 2020. The lease with Colorado Real Estate Holdings LLC and 5844 Ventures LLC is for the Company’s Niwot and Commerce City Star Buds location, respectively, and was effective on December 18, 2020. The lease with 5238 W 44^th LLC is for the Company’s Lakeside Star Buds location and was effective on February 3, 2021. The lease with 14655 Arapahoe LLC and Montview Real Estate LLC is for the Company’s Arapahoe and Aurora locations, respectively, and was effective on March 2, 2021. The 428 S McCulloch LLC, 5844 Ventures LLC and 5238 W 44^th LLC provides for a monthly rent payment of $5,000 with an aggregate of $180,000 during the initial term of the leases. The Colorado Real Estate Holdings LLC lease provides for a monthly rent payment of $6,779 with an aggregate of $244,044 during the initial term of the lease. The 14655 Arapahoe LLC lease provides for a monthly rent payment of $12,367 with an aggregate of $445,212 during the initial term of the lease. The Montview Real Estate LLC lease provides for a monthly rent of $6,250 with an aggregate of $225,000 during the initial term of the lease. During 2020, SBUD LLC made aggregate rent payments of $10,000. Between January 1, 2021 and September 30, 2021, SBUD LLC made aggregate rent payments of $328,109. In addition, SBUD LLC must pay each landlord’s expenses and disbursements incurred in connection with the ownership, operation, maintenance, repair and replacement of the premises. SBUD LLC has the option to renew each lease for two additional three-year terms with escalation. The Company has an option to purchase the premises at fair market value at any time during the lease term and also has a right of first refusal if the landlords desire to sell the premises to a third party.

On December 17, 2020, SBUD, LLC entered into a Trademark License Agreement with Star Brands LLC under which Star Brands LLC licenses certain trademarks to SBUD, LLC effective as of the closing of the acquisitions of all of the Star Buds assets. SBUD LLC has no payment obligation under this agreement. Mr. Ruden is a part-owner of Star Brands LLC.

In connection with the Star Buds acquisitions, the Company granted Mr. Ruden and Naser Joudeh the right designate individuals for election or appointment to the Board.

Transactions with John Sacun

The Company sold material on behalf of John Sacun of $50,578. This transaction occurred due to orders placed prior to acquisition by the Company which needed to be fulfilled to the customer. An agreement was reached to provide payment to Mr. Sacun for the profit associated with the sale.

XML

Inventory

9 Months Ended

Sep. 30, 2021

Inventory Disclosure [Abstract]

Inventory

8. Inventory

As of September 30, 2021, and December 31, 2020, respectively, the Company had $4,518,125 and $2,090,886 of finished goods inventory. As of September 30, 2021, the Company had $5,598,515 of work in process and $561,741 of raw materials. As of December 31, 2020, the Company had $500,917 of work in process and $27,342 of raw materials. The Company uses the FIFO inventory valuation method. As of September 30, 2021 and December 31, 2020, the Company did not recognize any impairment for obsolescence within its inventory.

XML

Goodwill

9 Months Ended

Sep. 30, 2021

Goodwill and Intangible Assets Disclosure [Abstract]

Goodwill

9. Goodwill

On June 3, 2017, the Company issued an aggregate of 7,000,000 shares of its common stock for 100% ownership of both Success Nutrients and Pono Publications. The Company utilized purchase price accounting stating that net book value approximates fair market value of the assets acquired. The purchase price accounting resulted in $6,301,080 of goodwill.

On July 21, 2017, the Company issued 2,258,065 shares of its common stock for 100% ownership of Denver Consulting Group (“DCG”). The Company utilized purchase price accounting stating that net book value approximates fair market value of the assets acquired. The purchase price accounting resulted in $3,003,226 of goodwill.

On September 17, 2018, we closed the acquisition of The Big Tomato. The Company issued an aggregate of 1,933,329 shares of its common stock for 100% ownership of The Big Tomato. The Company utilized purchase price accounting stating that net book value approximates fair market value of the assets acquired. The purchase price accounting resulted in the Company valuing the investment as $3,000,000 of goodwill.

On April 20, 2020, the Company closed the acquisition of Mesa Organics. The aggregate purchase price after working capital adjustments was $2,609,500 of cash and 2,554,750 shares of the Company’s Common Stock. The Company accounted for the transaction utilizing purchase price accounting stating that the book value approximates the fair market value of the assets acquired. The purchase price accounting resulted in the Company valuing the investment as $2,147,613 of goodwill.

From December 2020 through March 2021, the Company closed the acquisition of thirteen Star Buds dispensaries and one cultivation facility. The aggregate purchase price was $118,000,000. The Company accounted for the transaction utilizing purchase price accounting stating that the book value approximates the fair market value of the assets acquired. The purchase price accounting resulted in the Company valuing the investment as $27,054,025 of goodwill.

On July 21, 2021 the Company closed the acquisition of Southern Colorado Growers. The Company utilized purchase price accounting stating that net book value approximates fair market value of the assets acquired. The purchase price accounting resulted in $585,000 of goodwill.

As of September 30, 2021, the Company had $42,090,944 of goodwill, which consisted of $6,301,080 from Success Nutrients and Pono Publications, $3,003,226 from DCG, $3,000,000 from The Big Tomato, $2,147,613 from Mesa Organics, $27,054,025 from Star Buds, and $585,000 from Southern Colorado Growers.

XML

Debt

9 Months Ended

Sep. 30, 2021

Debt Disclosure [Abstract]

Debt

10. Debt

Term Loan — On February 26, 2021, the Company entered into a Loan Agreement with SHWZ Altmore, LLC and GGG Partners LLC, as collateral agent. Upon execution of the Loan Agreement, the Company received $10,000,000. In connection with the Company’s acquisition of Southern Colorado Growers, an additional $5,000,000 was added to the Loan Agreement. The term loan incurs 15% interest per annum, due quarterly on March 1, June 1, September 1, and December 1 of each year. Principal payments begin on June 1, 2023 in the amount of $750,000, with the remainder of the principal due upon maturity on February 26, 2025.

Under the terms of the loan, the Company must comply with certain restrictions. These include customary events of default and specified representations as well as various financial ratio requirements including, (i) a consolidated fixed charge coverage ratio of at least 1.3 at the end of each fiscal quarter beginning in the first quarter of 2022, and (ii) a minimum of $3,000,000 in a deposit account in which the lender has a security interest. As of September 30, 2021, the Company was in compliance with the requirements described above.

Seller Notes — As part of the acquisition of the Star Buds assets, the Company entered into a deferred payment arrangement with the sellers for $44,250,000. The deferred payment arrangement incurs 12% interest per annum, payable on the 1^st of every month through November 2025. Principal payments are due as follows: $13,901,759 on December 17, 2025, $3,474,519 on February 3, 2026, and $26,873,722 on March 2, 2026.

XML

Leases

9 Months Ended

Sep. 30, 2021

Leases [Abstract]

Leases

11. Leases

Leases with an initial term of 12 months or less are not recorded on the balance sheet; we recognize lease expense for these leases on a straight-line basis over the lease term. Leases with a term greater than one year are recognized on the balance sheet at the time of lease commencement or modification of an ROU operating lease asset and a lease liability, initially measured at the present value of the lease payments. Lease costs are recognized in the income statement over the lease term on a straight-line basis. ROU assets represent our right to use an underlying asset for the lease term and lease liabilities represent our obligation to make lease payments arising from the lease.

The Company's leases consist of real estate leases for office spaces. The Company elected to combine the lease and related non-lease components for its operating leases.

The Company’s operating leases include options to extend or terminate the lease, which are not included in the determination of the ROU asset or lease liability unless reasonably certain to be exercised. The Company's operating leases have remaining lease terms of less than two years. The Company’s lease agreements do not contain any material residual value guarantees or material restrictive covenants.

As the Company's leases do not provide an implicit rate, we used an incremental borrowing rate based on the information available at the lease commencement date in determining the present value of lease payments. The discount rate used in the computations ranged between 6% and 12%.

Balance Sheet Classification of Operating Lease Assets and Liabilities

	Balance Sheet Line	September 30, 2021
Asset
Operating lease right of use assets	Noncurrent assets	$	3,626,617
Liabilities
Lease liabilities	Noncurrent liabilities	$	3,807,306

Lease Costs

The table below summarizes the components of lease costs for the nine months ended September 30, 2021.  

	Nine Months Ended September 30, 2021
Operating lease costs	$	1,023,267

Maturities of Lease Liabilities

Maturities of lease liabilities as of September 30, 2021 are as follows:  

2021 fiscal year	$	4,439,713
Less: Interest		281,227
Present value of lease liabilities	$	4,158,486

The following table presents the Company’s future minimum lease obligation under ASC 842 as of September 30, 2021:  

2021 fiscal year	$	370,131
2022 fiscal year		1,479,393
2023 fiscal year		1,354,595
2024 fiscal year		723,590
2025 fiscal year		333,356
Total	$	4,261,065

XML

Stockholders’ Equity

9 Months Ended

Sep. 30, 2021

Equity [Abstract]

Stockholders’ Equity

12. Stockholders’ Equity

The Company is authorized to issue two classes of stock, designated preferred stock and common stock.

Preferred Stock

The number of shares of preferred stock authorized is 10,000,000, par value $0.001 per share. The preferred stock may be divided into such number of series as the Board may determine. The Board is authorized to determine and alter the rights, preferences, privileges and restrictions granted and imposed upon any wholly unissued series of preferred stock, and to fix the number and designation of shares of any series of preferred stock. The Board, within limits and restrictions stated in any resolution of the Board, originally fixing the number of shares constituting any series may increase or decrease, but not below the number of such series then outstanding, the shares of any subsequent series.

The Company had 82,838 shares of Series A Preferred Stock issued and outstanding and 4,428 in escrow as of September 30, 2021 and 18,327 shares of Series A Preferred Stock issued and outstanding and 1,389 in escrow as of December 31, 2020. Among other terms, each share of Series A Preferred Stock (i) earns an annual dividend of 8% on the “preference amount,” which initially is equal to the $1,000 per-share purchase price and subject to increase, by having such dividends automatically accrete to, and increase, the outstanding preference amount; (ii) is entitled to a liquidation preference under certain circumstances, (iii) is convertible into shares of the Company’s common stock by dividing the preference amount by $1.20 per share under certain circumstances, and (iv) is subject to a redemption right or obligation under certain circumstances.

Common Stock

The Company is authorized to issue 250,000,000 shares of common stock at a par value of $0.001. The Company had 45,139,297 shares of common stock issued, and 44,400,853 shares of common stock outstanding, 517,044 of treasury stock and 221,400 of stock in escrow as of September 30, 2021, and 42,601,773 shares of common stock issued, and 42,169,041 shares of common stock outstanding and 432,732 of treasury stock as of December 31, 2020.

Common Stock Issued in Private Placements

During the year ended December 31, 2020, the Company issued 187,500 shares of common stock and warrants to purchase 187,500 shares of common stock, for gross proceeds of $375,000.

Common Stock Issued as Compensation to Employees, Officers, and Directors

On April 3, 2020, the Company cancelled 500,000 shares of common stock, with vesting conditions represented as derivative instruments. These shares were incorrectly issued as restricted shares instead of restricted stock units to an officer of the Company, Paul Dickman, on January 8, 2019.

For the year ended December 31, 2020, the Company issued 406,895 shares of common stock valued at $497,301 to employees, officers, and directors as compensation.

During the nine months ended September 30, 2021, the Company issued 323,530 shares of common stock valued at $557,998 to employees, and directors as compensation. 

Common and Preferred Stock Issued as Payment for Acquisitions

On April 20, 2020, the Company issued 2,554,750 shares of common stock valued at $4,167,253 for the acquisition of Mesa Organics, Ltd.

On December 17, 2020, the Company issued 2,862 shares of Series A Preferred Stock valued at $2,861,994 of which 430 shares of Series A Preferred Stock valued at $387,000 were placed in escrow, and on December 18, 2020, the Company issued 6,404 shares of Series A Preferred Stock valued at $6,403,987 of which 959 shares of Series A Preferred Stock valued at $863,100 were placed in escrow, for the acquisition of Star Buds assets.

On February 3, 2021, the Company issued 2,319 shares of Series A Preferred Stock valued at $2,318,998 of which 349 shares of Series A Preferred Stock valued at $314,100 were placed in escrow and on March 3, 2021, the Company issued 17,921 shares of Series A Preferred Stock valued at $17,920,982 of which 2,690 shares of Series A Preferred Stock valued at $2,421,000 were placed in escrow for the acquisition of Star Buds assets.

On July 21, 2021, the Company issued 2,213,994 shares of common stock valued at $5,377,786 of which 221,400 shares valued at $537,779 were placed in escrow for the acquisition of Southern Colorado Growers.

Warrants

The Company accounts for common stock purchase warrants in accordance with ASC 480, Accounting for Derivative Financial Instruments Indexed to, and Potentially Settled in, a Company’s Own Stock, Distinguishing Liabilities from Equity. The Company estimates the fair value of warrants at date of grant using the Black-Scholes option pricing model. There is a moderate degree of subjectivity involved when using option pricing models to estimate the warrants, and the assumptions used in the Black Scholes option-pricing model are moderately judgmental.

During the nine months ended September 30, 2021, the Company issued warrants to purchase an aggregate of 3,793,530 shares of common stock as purchase consideration for the acquisition of certain Star Buds assets. These warrants have an exercise price of $1.20 per share and expiration dates five years from the date of issuance. In addition, the Company issued a warrant to purchase an aggregate of 1,500,000 shares of common stock to an accredited investor in connection with entering into a loan agreement. This warrant has an exercise price of $2.50 per share and expires five years from the date of issuance. The Company estimated the fair value of these warrants at date of grant using the Black-Scholes option pricing model using the following inputs: (i) stock price on the date of grant of $1.20 and $2.50, respectively, (ii) the contractual term of the warrant of 5 years, (iii) a risk-free interest rate ranging between 0.21% - 1.84% and (iv) an expected volatility of the price of the underlying common stock ranging between 157.81% - 195.00%.

The following table reflects the change in common stock purchase warrants for the nine months ended September 30, 2021:

	Number of shares
Balance as of January 1, 2021		11,725,220
Warrants exercised		–
Warrants forfeited		–
Warrants issued		5,293,530
Balance as of September 30, 2021		17,018,750

Option Repricing

On December 15, 2020, the Board repriced certain outstanding stock options issued to the Company’s current employees. The repriced stock options had original exercise prices ranging from $1.52 per share to $3.83 per share. All of these stock options to current employees were repriced to have an exercise price of $1.26 per share, which was the closing price of the Company’s common stock on December 15, 2020. Each of the options has a new 10-year term from the repricing date.

XML

Segment Information

9 Months Ended

Sep. 30, 2021

Segment Reporting [Abstract]

Segment Information

13. Segment Information

The Company has three identifiable segments as of September 30, 2021; (i) retail, (ii) wholesale and (iii) and other. The retail segment represents our dispensaries which sell merchandise directly to customers via retail locations and e-commerce portals. The wholesale segment represents our manufacturing, cultivation, and wholesale business which sells merchandise to customers via e-commerce portals, a retail location, and manufacturing facility. The other segment derives its revenue from licensing and consulting agreements with cannabis related entities, in addition to fees from seminars and expense reimbursements included in other revenue on the Company’s financial statements.

The following information represents segment activity for the three-month periods ended September 30, 2021 and September 30, 2020:  

Schedule of Segment Reporting Information
	For the Three Months Ended												For the Three Months Ended
	30-September-2021												30-September-2020
	Retail			Wholesale			Other			Total			Retail			Wholesale			Other			Total
Revenues		20,741,863			11,022,520			70,922			31,835,305			1,135,820			6,273,899			20,655			7,430,374
Cost of goods and services		(9,469,080	)		(7,258,213	)		(52,020	)		(16,779,313	)		(614,763	)		(3,870,475	)		(163,672	)		(4,648,910	)
Gross profit		11,272,782			3,764,308			18,903			15,055,992			521,057			2,403,424			(143,017	)		2,781,464
Intangible assets amortization		2,525,875			79,855			2,552			2,608,282			–			1,530			135			1,665
Depreciation		(56,543	)		83,725			224,131			364,399			131,903			4,505			89,950			226,358
Net income (loss)		5,168,758			3,123,377			(7,323,379	)		968,756			183,306			1,893,813			(4,991,285	)		(2,914,211	)
Segment assets		129,912,570			41,075,819			23,742,906			194,731,295			237,524			(188,123	)		(3,365,733	)		3,316,332	)

The following information represents segment activity for the nine-month periods ended September 30, 2021 and September 30, 2020:

	For The Nine Months Ended												For The Nine Months Ended
	30-September-2021												30-September-2020
	Retail			Wholesale			Other			Total			Retail			Wholesale			Other			Total
Revenues		54,083,880			27,654,965			165,416			81,904,261			1,868,279			12,909,025			1,280,533			16,057,837
Cost of goods and services		(26,532,199	)		(17,950,322	)		(210,244	)		(44,692,765	)		(1,091,848	)		(8,122,860	)		(689,423	)		(9,904,131	)
Gross profit		27,551,680			9,704,644			(44,827	)		37,211,496			776,431			4,786,165			591,110			6,153,706
Intangible assets amortization		6,745,121			211,222			5,311			6,961,654			–			4,557			403			4,960
Depreciation		130,749			237,638			449,787			818,174			208,351			9,098			99,883			317,332
Net income (loss)		13,210,770			8,456,852			(19,978,333	)		1,689,289			106,517			3,342,360			(14,338,059	)		(10,889,228	)
Segment assets		129,912,570			41,075,819			23,742,906			194,731,295			1,967,680			20,595,696			10,133,257			32,696,633

XML

Tax Provision

9 Months Ended

Sep. 30, 2021

Income Tax Disclosure [Abstract]

Tax Provision

14. Tax Provision 

The following table summarizes the Company’s income tax expense and effective tax rates for the three months and nine months ended September 30, 2021 and September 30, 2020:

	Three Months Ended September 30,
	2021		2020
Income (loss) before income taxes	$	2,281,573	$	(2,914,211	)
Income tax expense		1,312,817		–
Effective tax rate		57.54%		0%

	Nine Months Ended September 30,
	2021		2020
Income (loss) before income taxes	$	3,687,194	$	(10,889,228	)
Income tax expense		1,997,905		–
Effective tax rate		54.18%		0%

The Company has computed its provision for income taxes under the discrete method which treats the year-to-date period as if it were the annual period and determines the income tax expense or benefit on that basis. The discrete method is applied when application of the estimated annual effective tax rate is impractical because it is not possible to reliably estimate the annual effective tax rate. We believe that, at this time, the use of this discrete method is more appropriate than the annual effective tax rate method as the estimated annual effective tax rate method is not reliable due to the high degree of uncertainty in estimating annual pre-tax income due to the early growth stage of the business.

Due to its cannabis operations, the Company is subject to the limitations of IRC Section 280E under which the Company is only allowed to deduct expenses directly related to sales of product. This results in permanent differences between ordinary and necessary business expenses deemed non-allowable under IRC Section 280E.

The effective tax rate for the three months and nine months ended September 30, 2021 varies from the three months and nine months ended September 30, 2020 primarily due to IRC Section 280E. The Company acquired plant-touching cannabis operations during 2020 and 2021 and these plant-touching operations are subject to the limitations of IRC Section 280E. In April 2020, the Company acquired its first plant-touching business, Mesa Organics. Prior to this acquisition, the Company was not subject to IRC Section 280E.

In assessing the realizability of deferred tax assets, management considers whether it is more likely than not that some portion or all of the deferred tax assets will not be realized. The Company's valuation allowance represents the amount of tax benefits that are likely to not be realized. Management assesses the need for a valuation allowance each period and continues to have a full valuation allowance on its deferred tax assets as of September 30, 2021.

The Federal statute of limitation remains open for the 2017 tax year to present. The state statute of limitation remains open for the 2016 tax year to present.

XML

Subsequent Events

9 Months Ended

Sep. 30, 2021

Subsequent Events [Abstract]

Subsequent Events

15. Subsequent Events

In accordance with FASB ASC 855-10, Subsequent Events, the Company has analyzed its operations subsequent to September 30, 2021 to the date these consolidated financial statements were issued, and has determined that it does not have any material subsequent events to disclose in these consolidated financial statements, exclusive of those noted below.

On November 15, 2021, the Company signed definitive documents to acquire the assets of Smoking Gun, LLC and Smoking Gun Land Company, LLC (“Smoking Gun”).

Total consideration for the acquisition will be $4 million in cash and 100,000 shares of Schwazze common stock upon closing. The acquisition is expected to close during the fourth quarter of 2021, subject to closing conditions and covenants customary for this type of transaction, including, without limitation, obtaining Colorado Marijuana Enforcement Division and local licensing approval.

XML

Critical Accounting Policies and Estimates (Policies)

9 Months Ended

Sep. 30, 2021

Accounting Policies [Abstract]

Management’s Representation of Interim Financial Statements

Management’s Representation of Interim Financial Statements

The accompanying unaudited consolidated financial statements have been prepared by the Company without audit pursuant to the rules and regulations of the Securities and Exchange Commission (“SEC”). Certain information and disclosures normally included in financial statements prepared in accordance with accounting principles generally accepted in the United States (“U.S. GAAP”) have been condensed or omitted as allowed by such rules and regulations, and management believes that the disclosures are adequate to make the information presented not misleading. These unaudited consolidated financial statements include all of the adjustments, which in the opinion of management are necessary to a fair presentation of the Company’s financial position and results of operations. All such adjustments are of a normal and recurring nature. Interim results are not necessarily indicative of results for a full year. These unaudited consolidated financial statements should be read in conjunction with the audited consolidated financial statements as of December 31, 2020 and 2019, as presented in the Company’s Annual Report on Form 10-K filed on March 31, 2021 with the SEC.

Basis of Presentation

Basis of Presentation

These accompanying financial statements have been prepared in accordance with U.S. GAAP and pursuant to the rules and regulations of the SEC for interim financial statements. All intercompany accounts and transactions are eliminated in consolidation.

Use of Estimates

Use of Estimates

The preparation of financial statements in conformity with U.S. GAAP requires management to make estimates and assumptions that affect the amounts reported therein. Due to the inherent uncertainty involved in making estimates, actual results reported in future periods may be based upon amounts that differ from these estimates.

Reclassifications

Reclassifications

Certain prior period amounts have been reclassified to conform to the current period presentation. These reclassifications had no impact on net earnings and financial position.

Fair Value Measurements

Fair Value Measurements

Fair value is defined as the exchange price that would be received for an asset or paid to transfer a liability (an exit price) in the principal or most advantageous market for the asset or liability, in an orderly transaction between market participants on the measurement date. Valuation techniques used to measure fair value must maximize the use of observable inputs and minimize the use of unobservable inputs. The fair value hierarchy is based on three levels of inputs, of which the first two are considered observable and the last unobservable, as follows:

Level 1 – Quoted prices in active markets for identical assets or liabilities.

Level 2 – Inputs other than Level 1 that are observable, either directly or indirectly, such as quoted prices for similar assets or liabilities; quoted prices in markets that are not active; or other inputs that are observable or can be corroborated by observable market data for substantially the full term of the assets or liabilities.

Level 3 – Unobservable inputs that are supported by little or no market activity and that are significant to the measurement of the fair value of the assets or liabilities.

The Company’s financial instruments include cash, accounts receivable, notes receivable, accounts payable and tenant deposits. The carrying values of these financial instruments approximate their fair value due to their short maturities. The carrying amount of the Company’s debt approximates fair value because the interest rates on these instruments approximate the interest rate on debt with similar terms available to us. The Company’s derivative liability was adjusted to fair market value at the end of each reporting period, using Level 3 inputs.

The following is the Company’s assets and liabilities measured at fair value on a recurring and nonrecurring basis at September 30, 2021 and December 31, 2020, using quoted prices in active markets for identical assets (Level 1), significant other observable inputs (Level 2), and significant unobservable inputs (Level 3):

	September 30,		December 31,
	2021		2020
Level 1 - Marketable Securities Available-for-Sale - Recurring		487,467		276,782

Marketable Securities at Fair Value on a Recurring Basis

Marketable Securities at Fair Value on a Recurring Basis

Certain assets are measured at fair value on a recurring basis. The Level 1 position consists of an investment in equity securities held in Canada House Wellness Group, Inc., a publicly-traded company whose securities are actively quoted on the Toronto Stock Exchange.

Fair Value of Financial Instruments

Fair Value of Financial Instruments

The carrying amounts of cash and current assets and liabilities approximate fair value because of the short-term maturity of these items. These fair value estimates are subjective in nature and involve uncertainties and matters of significant judgment and, therefore, cannot be determined with precision. Changes in assumptions could significantly affect these estimates. Available-for-sale securities are recorded at current market value as of the date of this report.

Accounts Receivable

Accounts Receivable

The Company extends unsecured credit to its customers in the ordinary course of business. These accounts receivable relates to the Company’s wholesale and other revenue segments. Accounts receivable are recorded when a milestone is reached at a point in time resulting in funds being due for delivered goods or services, and where payment is reasonably assured. Wholesale revenues are generally collected within 14 to 30 days after invoice is sent. Consulting revenues are generally collected from 30 to 60 days after the invoice is sent.

The following table depicts the composition of our accounts receivable as of September 30, 2021, and December 31, 2020:

	September 30,			December 31,
	2021			2020
Accounts receivable - trade	$	3,665,566		$	1,315,188
Accounts receivable - related party		–			80,494
Accounts receivable - litigation, non-current		3,063,968			3,063,968
Allowance for doubtful accounts		(135,046	)		(44,808	)
Total accounts receivable	$	6,594,488		$	4,414,842

The Company establishes an allowance for doubtful accounts based on management’s assessment of the collectability of trade receivables. A considerable amount of judgment is required in assessing the amount of the allowance. The Company makes judgments about the creditworthiness of each customer based on ongoing credit evaluations and monitors current economic trends that might impact the level of credit losses in the future. If the financial condition of the customers were to deteriorate, resulting in their inability to make payments, a specific allowance will be required.

Notes Receivable

Notes Receivable

On March 12, 2021, the Company sold equipment to Colorado Cannabis. The terms of sale included a zero interest note receivable, payable $11,944 on the first of each month for 24 months. As of September 30, 2021, the outstanding balance, including penalties for late payments, on the notes receivable with Colorado Cannabis totaled $179,167.

Prepaid Expenses and Other Assets (Current and Non-Current)

Prepaid Expenses and Other Assets (Current and Non-Current)

Prepaid expenses and other assets as of September 30, 2021 and December 31, 2020 were $3,027,097 and $666,079, respectively. As of September 30, 2021, this balance included $2,579,035 in prepaid expenses and $448,062 in security deposits. As of December 31, 2020, other assets included $345,777 in prepaid expenses, $268,423 in tax receivable, and $51,879 in security deposits. Prepaid expenses were primarily comprised of insurance premiums, membership dues, conferences and seminars, and other general and administrative costs.

Goodwill and Intangible Assets

Goodwill and Intangible Assets

Goodwill represents the future economic benefit arising from other assets acquired that could not be individually identified and separately recognized. The goodwill arising from the Company’s acquisitions is attributable to the value of the potential expanded market opportunity with new customers. Intangible assets have either an identifiable or indefinite useful life. Intangible assets with identifiable useful lives are amortized on a straight-line basis over their economic or legal life, whichever is shorter. The Company’s amortizable intangible assets consist of licensing agreements, product licenses and registrations, and intellectual property or trade secrets. Their estimated useful lives range from 10 to 15 years.

Goodwill and indefinite-lived assets are not amortized but are subject to annual impairment testing unless circumstances dictate more frequent assessments. The Company performs an annual impairment assessment for goodwill during the fourth quarter of each year and more frequently whenever events or changes in circumstances indicate that the fair value of the asset may be less than the carrying amount. Goodwill impairment testing is a two-step process performed at the reporting unit level. Step one compares the fair value of the reporting unit to its carrying amount. The fair value of the reporting unit is determined by considering both the income approach and market approaches. The fair values calculated under the income approach and market approaches are weighted based on circumstances surrounding the reporting unit. Under the income approach, the Company determines fair value based on estimated future cash flows of the reporting unit, which are discounted to the present value using discount factors that consider the timing and risk of cash flows. For the discount rate, the Company relies on the capital asset pricing model approach, which includes an assessment of the risk-free interest rate, the rate of return from publicly traded stocks, the Company’s risk relative to the overall market, the Company’s size and industry and other Company-specific risks. Other significant assumptions used in the income approach include the terminal value, growth rates, future capital expenditures and changes in future working capital requirements. The market approaches use key multiples from guideline businesses that are comparable and are traded on a public market. If the fair value of the reporting unit is greater than its carrying amount, there is no impairment. If the reporting unit’s carrying amount exceeds its fair value, then the second step must be completed to measure the amount of impairment, if any. Step two calculates the implied fair value of goodwill by deducting the fair value of all tangible and intangible net assets of the reporting unit from the fair value of the reporting unit as calculated in step one. In this step, the fair value of the reporting unit is allocated to all of the reporting unit’s assets and liabilities in a hypothetical purchase price allocation as if the reporting unit had been acquired on that date. If the carrying amount of goodwill exceeds the implied fair value of goodwill, an impairment loss is recognized in an amount equal to the excess.

Determining the fair value of a reporting unit is judgmental in nature and requires the use of significant estimates and assumptions, including revenue growth rates, strategic plans, and future market conditions, among others. There can be no assurance that the Company’s estimates and assumptions made for purposes of the goodwill impairment testing will prove to be accurate predictions of the future. Changes in assumptions and estimates could cause the Company to perform an impairment test prior to scheduled annual impairment tests.

The Company performed its annual fair value assessment as of December 31, 2020, on its subsidiaries with material goodwill and intangible asset amounts on their respective balance sheets and determined that no impairment exists. No additional factors or circumstances existed as of September 30, 2021 that would indicate impairment.

Long-Lived Assets

Long-Lived Assets

The Company evaluates the recoverability of its long-lived assets whenever events or changes in circumstances have indicated that an asset may not be recoverable. The long-lived asset is grouped with other assets at the lowest level for which identifiable cash flows are largely independent of the cash flows of other groups of assets and liabilities. If the sum of the projected undiscounted cash flows is less than the carrying value of the assets, the assets are written down to the estimated fair value.

The Company evaluated the recoverability of its long-lived assets on December 31, 2020 on its subsidiaries with material amounts on their respective balance sheets and determined that no impairment exists.

Accounts Payable

Accounts Payable

Accounts payable as of September 30, 2021 and December 31, 2020 were $1,040,610 and $3,557,460, respectively and were comprised of trade payables for various purchases and services rendered during the ordinary course of business.

Accrued Expenses and Other Liabilities

Accrued Expenses and Other Liabilities

Accrued expenses and other liabilities as of September 30, 2021 and December 31, 2020 were $11,660,237 and $2,705,445, respectively. As of September 30, 2021, this was comprised of accrued payroll of $632,965, operating expenses of $5,442,254, and accrued dividends on preferred stock of $5,585,018. As of December 31, 2020, accrued expenses and other liabilities was comprised of customer deposits of $26,826, accrued payroll of $1,154,887, and operating expenses of $1,523,732.

Revenue Recognition and Related Allowances

Revenue Recognition and Related Allowances

The Company’s revenue recognition policy is significant because the amount and timing of revenue is a key component of our results of operations. Certain criteria are required to be met in order to recognize revenue. If these criteria are not met, then the associated revenue is deferred until is the criteria are met. When consideration is received in advance of the delivery of goods or services, a contract liability is recorded. Revenue contracts are identified when accepted from customers and represent a single performance obligation to sell the Company’s products to a customer.

The Company has three main revenue streams: retail; wholesale; and other.

Retail and wholesale sales are recorded at the time that control of the products is transferred to customers. In evaluating the timing of the transfer of control of products to customers, the Company considers several indicators, including significant risks and rewards of products, its right to payment, and the legal title of the products. Based on the assessment of control indicators, sales are generally recognized when products are delivered to customers.

Other revenue consists of other income and expenses, including related to, licensing and consulting services, facility design services, facility management services, the Company’s Three A Light™ publication, and corporate operations. Revenue is recognized when the obligations to the client are fulfilled which is determined when milestones in the contract are achieved and target harvest yields are exceeded or earned upon the completion of the seminar. The Company also recognizes expense reimbursement from clients as revenue for expenses incurred during certain jobs.

Costs of Goods and Services Sold

Costs of Goods and Services Sold

Costs of goods and services sold are comprised of related expenses incurred while supporting the implementation and sales of the Company’s products and services.

General and Administrative Expenses

General and Administrative Expenses

General and administrative expense are comprised of all expenses not linked to the production or advertising of the Company’s services.

Advertising and Marketing Costs

Advertising and Marketing Costs

Advertising and marketing costs are expensed as incurred and totaled $250,568 and $559,161 for the three and nine months ended September 30, 2021, respectively, as compared to $ $172,539 and $638,335, respectively, for the three and nine months ended September 30, 2020.

Stock Based Compensation

Stock Based Compensation

The Company accounts for share-based payments pursuant to ASC 718, Stock Compensation and, accordingly, the Company records compensation expense for share-based awards based upon an assessment of the grant date fair value for stock options using the Black-Scholes option pricing model.

Stock compensation expense for stock options is recognized over the vesting period of the award or expensed immediately under ASC 718 and Emerging Issues Task Force (“EITF”) 96-18 when stock or options are awarded for previous or current service without further recourse.

Share-based expense paid through direct stock grants is expensed as occurred. Since the Company’s common stock is publicly traded, the value is determined based on the number of shares of common stock issued and the trading value of the common stock on the date of the transaction.

On June 20, 2018, the Financial Accounting Standards Board (“FASB”) issued ASU 2018-07 which simplifies the accounting for share-based payments granted to nonemployees for goods and services. Under the ASU, most of the guidance on such payments to nonemployees would be aligned with the requirements for share-based payments granted to employees. Previously, share-based payment arrangements to nonemployees were accounted for under ASC 718, while nonemployee share-based payments issued for goods and services were accounted for under ASC 505-50. Before the amendment, the major difference for the Company (but not limited to) was the determination of measurement date, which generally is the date on which the measurement of equity classified share-based payments becomes fixed. Equity classified share-based payments for employees was fixed at the time of grant. Equity-classified nonemployee share-based payment awards are no longer measured at the earlier of the date which a commitment for performance by the counterparty is reached or the date at which the counterparty’s performance is complete. They are now measured at the grant date of the award, which is the same as share-based payments for employees. The Company adopted the requirements of the new rule as of January 1, 2019, the effective date of the new guidance.

The Company recognized $1,228,764 and $3,865,588 in expense for stock-based compensation from common stock options and common stock issued to employees, officers, and directors during the three and nine months ended September 30, 2021, respectively, and $1,453,986 and $5,815,808 in expenses for stock-based compensation from the issuance of common stock to employees, officers, directors and/or contractors during the three and nine months ended September 30, 2020, respectively.

Income Taxes

Income Taxes

ASC 740, Income Taxes requires the use of the asset and liability method of accounting for income taxes. Under the asset and liability method of ASC 740, deferred tax assets and liabilities are recognized for the future tax consequences attributable to temporary differences between the financial statement carrying amounts of existing assets and liabilities and their respective tax bases.

Deferred tax assets are regularly assessed to determine the likelihood they will be recovered from future taxable income. A valuation allowance is established when we believe it is more likely than not the future realization of all or some of a deferred tax asset will not be achieved. In evaluating our ability to recover deferred tax assets within the jurisdiction which they arise, we consider all available positive and negative evidence. Factors reviewed include the cumulative pre-tax book income for the past three years, scheduled reversals of deferred tax liabilities, our history of earnings and reliability of our forecasts, projections of pre-tax book income over the foreseeable future, and the impact of any feasible and prudent tax planning strategies.

The Company assesses all material positions taken in any income tax return, including all significant uncertain positions, in all tax years that are still subject to assessment or challenge by relevant taxing authorities. Assessing an uncertain tax position begins with the initial determination of the position’s sustainability, and the tax benefit to be recognized is measured at the largest amount of benefit that is greater than 50 percent likely of being realized upon ultimate settlement. We recognize the impact of a tax position in our financial statements only if that position is more likely than not of being sustained upon examination by taxing authorities, based on the technical merits of the position. Tax authorities regularly examine our returns in the jurisdictions in which we do business, and we regularly assess the tax risk of our return filing positions. Due to the complexity of some of the uncertainties, the ultimate resolution may result in payments that are materially different from our current estimate of the tax liability. These differences, as well as any interest and penalties, will be reflected in the provision for income taxes in the period in which they are determined.

As the Company operates in the cannabis industry, it is subject to the limits of the Internal Revenue Code (“IRC”) Section 280E under which the Company is only allowed to deduct expenses directly related to sales of product. This results in permanent differences between ordinary and necessary business expenses deemed non-allowable under IRC Section 280E.

Right of Use Assets and Lease Liabilities

Right of Use Assets and Lease Liabilities

In February 2016, the FASB issued ASU No. 2016-02, Leases (Topic 842). The standard requires lessees to recognize almost all leases on the balance sheet as a Right-of-Use (“ROU”) asset and a lease liability and requires leases to be classified as either an operating or a finance type lease. The standard excludes leases of intangible assets or inventory. The standard became effective for the Company beginning January 1, 2019. The Company adopted ASC 842 using the modified retrospective approach, by applying the new standard to all leases existing at the date of initial application. Results and disclosure requirements for reporting periods beginning after January 1, 2019 are presented under ASC 842, while prior period amounts have not been adjusted and continue to be reported in accordance with our historical accounting under ASC 840. The Company elected the package of practical expedients permitted under the standard, which also allowed the Company to carry forward historical lease classifications. The Company also elected the practical expedient related to treating lease and non-lease components as a single lease component for all equipment leases as well as electing a policy exclusion permitting leases with an original lease term of less than one year to be excluded from the ROU assets and lease liabilities.

Under ASC 842, the Company determines if an arrangement is a lease at inception. ROU assets and liabilities are recognized at commencement date based on the present value of remaining lease payments over the lease term. For this purpose, the Company considers only payments that are fixed and determinable at the time of commencement. As most of the Company's leases do not provide an implicit rate, the Company estimated the incremental borrowing rate in determining the present value of lease payments. The ROU asset also includes any lease payments made prior to commencement and is recorded net of any lease incentives received. The Company’s lease terms may include options to extend or terminate the lease when it is reasonably certain that the Company will exercise such options.

Operating leases are included in operating lease ROU assets and operating lease liabilities, current and non-current, on the Company's consolidated balance sheets.

XML

Critical Accounting Policies and Estimates (Tables)

9 Months Ended

Sep. 30, 2021

Accounting Policies [Abstract]

Schedule of fair value measurement

	September 30,		December 31,
	2021		2020
Level 1 - Marketable Securities Available-for-Sale - Recurring		487,467		276,782

Schedule of Accounts Receivable

	September 30,			December 31,
	2021			2020
Accounts receivable - trade	$	3,665,566		$	1,315,188
Accounts receivable - related party		–			80,494
Accounts receivable - litigation, non-current		3,063,968			3,063,968
Allowance for doubtful accounts		(135,046	)		(44,808	)
Total accounts receivable	$	6,594,488		$	4,414,842

XML

Property and Equipment (Tables)

9 Months Ended

Sep. 30, 2021

Property, Plant and Equipment [Abstract]

Property and equipment table

	September 30,			December 31,
	2021			2020
Furniture and fixtures	$	254,490		$	228,451
Leasehold improvements		662,839			90,314
Machinery and tools		1,779,411			1,456,752
Land and buildings		2,935,000			–
Office equipment		250,833			104,059
Software		1,983,356			1,308,387
Work in process		2,570,512			269,414
	$	10,436,441		$	3,457,377
Less: Accumulated depreciation		(1,631,093	)		(872,579	)
Total property and equipment, net of depreciation	$	8,805,348		$	2,584,798

Schedule of property and equipment useful lives

Furniture and fixtures	3-5 years
Leasehold improvements	Lesser of the lease term or estimated useful life
Machinery and tools	5 years
Office equipment	3 years
Software	3-5 years

XML

Intangible Asset (Tables)

9 Months Ended

Sep. 30, 2021

Goodwill and Intangible Assets Disclosure [Abstract]

Intangible assets

	September 30,			December 31,
	2021			2020
License Agreements	$	94,287,580		$	1,667,700
Tradename		4,560,000			350,000
Customer Relationships		5,150,000			1,055,000
Non Compete		1,205,000			120,000
Product License and Registration Agreements		–			57,300
Trade Secret		32,500			32,500
	$	105,235,080		$	3,282,500
Less: accumulated amortization		(7,162,110	)		(200,456	)
Total intangible assets, net of amortization	$	98,072,970		$	3,082,044

XML

Leases (Tables)

9 Months Ended

Sep. 30, 2021

Leases [Abstract]

Balance Sheet Classification Table

	Balance Sheet Line	September 30, 2021
Asset
Operating lease right of use assets	Noncurrent assets	$	3,626,617
Liabilities
Lease liabilities	Noncurrent liabilities	$	3,807,306

Operating Lease Costs

	Nine Months Ended September 30, 2021
Operating lease costs	$	1,023,267

Maturities of Lease Liabilities

2021 fiscal year	$	4,439,713
Less: Interest		281,227
Present value of lease liabilities	$	4,158,486

Future minimum lease obligations

2021 fiscal year	$	370,131
2022 fiscal year		1,479,393
2023 fiscal year		1,354,595
2024 fiscal year		723,590
2025 fiscal year		333,356
Total	$	4,261,065

XML

Stockholders’ Equity (Tables)

9 Months Ended

Sep. 30, 2021

Equity [Abstract]

Schedule of warrant activity

	Number of shares
Balance as of January 1, 2021		11,725,220
Warrants exercised		–
Warrants forfeited		–
Warrants issued		5,293,530
Balance as of September 30, 2021		17,018,750

XML

Segment Information (Tables)

9 Months Ended

Sep. 30, 2021

Segment Reporting [Abstract]

Schedule of Segment Reporting Information

Schedule of Segment Reporting Information
	For the Three Months Ended												For the Three Months Ended
	30-September-2021												30-September-2020
	Retail			Wholesale			Other			Total			Retail			Wholesale			Other			Total
Revenues		20,741,863			11,022,520			70,922			31,835,305			1,135,820			6,273,899			20,655			7,430,374
Cost of goods and services		(9,469,080	)		(7,258,213	)		(52,020	)		(16,779,313	)		(614,763	)		(3,870,475	)		(163,672	)		(4,648,910	)
Gross profit		11,272,782			3,764,308			18,903			15,055,992			521,057			2,403,424			(143,017	)		2,781,464
Intangible assets amortization		2,525,875			79,855			2,552			2,608,282			–			1,530			135			1,665
Depreciation		(56,543	)		83,725			224,131			364,399			131,903			4,505			89,950			226,358
Net income (loss)		5,168,758			3,123,377			(7,323,379	)		968,756			183,306			1,893,813			(4,991,285	)		(2,914,211	)
Segment assets		129,912,570			41,075,819			23,742,906			194,731,295			237,524			(188,123	)		(3,365,733	)		3,316,332	)

The following information represents segment activity for the nine-month periods ended September 30, 2021 and September 30, 2020:

	For The Nine Months Ended												For The Nine Months Ended
	30-September-2021												30-September-2020
	Retail			Wholesale			Other			Total			Retail			Wholesale			Other			Total
Revenues		54,083,880			27,654,965			165,416			81,904,261			1,868,279			12,909,025			1,280,533			16,057,837
Cost of goods and services		(26,532,199	)		(17,950,322	)		(210,244	)		(44,692,765	)		(1,091,848	)		(8,122,860	)		(689,423	)		(9,904,131	)
Gross profit		27,551,680			9,704,644			(44,827	)		37,211,496			776,431			4,786,165			591,110			6,153,706
Intangible assets amortization		6,745,121			211,222			5,311			6,961,654			–			4,557			403			4,960
Depreciation		130,749			237,638			449,787			818,174			208,351			9,098			99,883			317,332
Net income (loss)		13,210,770			8,456,852			(19,978,333	)		1,689,289			106,517			3,342,360			(14,338,059	)		(10,889,228	)
Segment assets		129,912,570			41,075,819			23,742,906			194,731,295			1,967,680			20,595,696			10,133,257			32,696,633

XML

Tax Provision (Tables)

9 Months Ended

Sep. 30, 2021

Income Tax Disclosure [Abstract]

Components of income tax expense

	Three Months Ended September 30,
	2021		2020
Income (loss) before income taxes	$	2,281,573	$	(2,914,211	)
Income tax expense		1,312,817		–
Effective tax rate		57.54%		0%

	Nine Months Ended September 30,
	2021		2020
Income (loss) before income taxes	$	3,687,194	$	(10,889,228	)
Income tax expense		1,997,905		–
Effective tax rate		54.18%		0%

XML

Organization and Nature of Operations (Details Narrative) - USD ($)	2 Months Ended	4 Months Ended	9 Months Ended
	Feb. 26, 2021	Mar. 31, 2021	Sep. 30, 2021	Sep. 30, 2020	Dec. 16, 2020
Proceeds from Issuance of Common Stock			$ 50,282,797	$ 42,000
Dye Capital [Member]
Debt Instrument, Face Amount					$ 5,000,000
Debt Conversion, Converted Instrument, Amount	$ 5,000,000
Debt converted, shares issued	5,060
Series A Cumulative Convertible Preferred Stock [Member] | Dye Cann II and CRW [Member]
Proceeds from Issuance of Common Stock		$ 57,700,000
Stock Issued During Period, Shares, New Issues		57,700
Share Price			$ 1,000
Preferred Stock, Dividend Rate, Percentage		8.00%

XML

Liquidity and Capital Resources (Details Narrative) - USD ($)	Sep. 30, 2021	Dec. 31, 2020	Sep. 30, 2020
Liquidity And Capital Resources
Cash and cash equivalents	$ 21,168,816	$ 1,231,235	$ 2,981,688

XML

Critical Accounting Policies and Estimates (Details - Level 3) - USD ($)	Sep. 30, 2021	Dec. 31, 2020
Fair Value, Recurring [Member] | Marketable Securities [Member]
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items]
Fair value assets	$ 487,467	$ 276,782

XML

Critical Accounting Policies and Estimates (Details - Receivables) - USD ($)	Sep. 30, 2021	Dec. 31, 2020
Accounts, Notes, Loans and Financing Receivable [Line Items]
Total accounts receivable	$ 6,594,488	$ 4,414,842
Allowance for doubtful accounts	(135,046)	(44,808)
Trade Accounts Receivable [Member]
Accounts, Notes, Loans and Financing Receivable [Line Items]
Total accounts receivable	3,665,566	1,315,188
Accounts Receivable Related Party [Member]
Accounts, Notes, Loans and Financing Receivable [Line Items]
Total accounts receivable	0	80,494
Accounts Receivable Litigation [Member]
Accounts, Notes, Loans and Financing Receivable [Line Items]
Total accounts receivable	$ 3,063,968	$ 3,063,968

XML

Critical Accounting Policies and Estimates (Details Narrative) - USD ($)	3 Months Ended		9 Months Ended
	Sep. 30, 2021	Sep. 30, 2020	Sep. 30, 2021	Sep. 30, 2020	Dec. 31, 2020
AccountingPoliciesLineItems [Line Items]
Notes receivable	$ 0		$ 0		$ 0
Other assets	3,027,097		3,027,097		666,079
Accounts payable	1,040,610		1,040,610		3,557,460
Accrued expenses and other liabilities	11,660,237		11,660,237		2,705,445
Advertising and marketing expense	250,568	$ 172,539	559,161	$ 638,335
Stock based compensation expense	1,228,764	$ 1,453,986	$ 3,865,588	$ 5,815,808
Minimum [Member]
AccountingPoliciesLineItems [Line Items]
Intangible assets useful lives			10 years
Maximum [Member]
AccountingPoliciesLineItems [Line Items]
Intangible assets useful lives			15 years
Prepaid Expenses [Member]
AccountingPoliciesLineItems [Line Items]
Other assets	2,579,035		$ 2,579,035		345,777
Security Deposits [Member]
AccountingPoliciesLineItems [Line Items]
Other assets	448,062		448,062		51,879
Tax Receivable [Member]
AccountingPoliciesLineItems [Line Items]
Other assets					268,423
Accrued Payroll [Member]
AccountingPoliciesLineItems [Line Items]
Accrued expenses and other liabilities	632,965		632,965		1,154,887
Operating Expenses [Member]
AccountingPoliciesLineItems [Line Items]
Accrued expenses and other liabilities	5,442,254		5,442,254		1,523,732
Dividends On Preferred Stock [Member]
AccountingPoliciesLineItems [Line Items]
Accrued expenses and other liabilities	5,585,018		5,585,018
Customer Deposits [Member]
AccountingPoliciesLineItems [Line Items]
Accrued expenses and other liabilities					$ 26,826
Colorado Cannabis [Member]
AccountingPoliciesLineItems [Line Items]
Notes receivable	$ 179,167		$ 179,167

XML

Property and Equipment (Details) - USD ($)	Sep. 30, 2021	Dec. 31, 2020
Property, Plant and Equipment [Line Items]
Property and Equipment, gross	$ 10,436,441	$ 3,457,377
Less: Accumulated Depreciation	(1,631,093)	(872,579)
Property and equipment, net	8,805,348	2,584,798
Furniture and Fixtures [Member]
Property, Plant and Equipment [Line Items]
Property and Equipment, gross	254,490	228,451
Leasehold Improvements [Member]
Property, Plant and Equipment [Line Items]
Property and Equipment, gross	662,839	90,314
Machinery and Equipment [Member]
Property, Plant and Equipment [Line Items]
Property and Equipment, gross	1,779,411	1,456,752
Land and Building [Member]
Property, Plant and Equipment [Line Items]
Property and Equipment, gross	2,935,000	0
Office Equipment [Member]
Property, Plant and Equipment [Line Items]
Property and Equipment, gross	250,833	104,059
Software and Software Development Costs [Member]
Property, Plant and Equipment [Line Items]
Property and Equipment, gross	1,983,356	1,308,387
Work In Progress [Member]
Property, Plant and Equipment [Line Items]
Property and Equipment, gross	$ 2,570,512	$ 269,414

XML

Property and Equipment (Details - Expected life)	9 Months Ended
	Sep. 30, 2021
Furniture and Fixtures [Member] | Minimum [Member]
Property, Plant and Equipment [Line Items]
Estimated useful life	3 years
Furniture and Fixtures [Member] | Maximum [Member]
Property, Plant and Equipment [Line Items]
Estimated useful life	5 years
Leasehold Improvements [Member]
Property, Plant and Equipment [Line Items]
Estimated useful life	Lesser of the lease term or estimated useful life
Machinery and Equipment [Member]
Property, Plant and Equipment [Line Items]
Estimated useful life	5 years
Office Equipment [Member]
Property, Plant and Equipment [Line Items]
Estimated useful life	3 years
Software and Software Development Costs [Member] | Minimum [Member]
Property, Plant and Equipment [Line Items]
Estimated useful life	3 years
Software and Software Development Costs [Member] | Maximum [Member]
Property, Plant and Equipment [Line Items]
Estimated useful life	5 years

XML

Property and Equipment (Details Narrative) - USD ($)	3 Months Ended		9 Months Ended
	Sep. 30, 2021	Sep. 30, 2020	Sep. 30, 2021	Sep. 30, 2020
Property, Plant and Equipment [Abstract]
Depreciation	$ 364,399	$ 226,358	$ 818,174	$ 317,332

XML

Intangible Asset (Details) - USD ($)	Sep. 30, 2021	Dec. 31, 2020
Finite-Lived Intangible Assets [Line Items]
Intangible assets, gross	$ 105,235,080	$ 3,282,500
Less: accumulated amortization	(7,162,110)	(200,456)
Intangible assets, net	98,072,970	3,082,044
Licensing Agreements [Member]
Finite-Lived Intangible Assets [Line Items]
Intangible assets, gross	94,287,580	1,667,700
Trade Names [Member]
Finite-Lived Intangible Assets [Line Items]
Intangible assets, gross	4,560,000	350,000
Customer Relationships [Member]
Finite-Lived Intangible Assets [Line Items]
Intangible assets, gross	5,150,000	1,055,000
Noncompete Agreements [Member]
Finite-Lived Intangible Assets [Line Items]
Intangible assets, gross	1,205,000	120,000
Product License and Registration [Member]
Finite-Lived Intangible Assets [Line Items]
Intangible assets, gross	0	57,300
Trade Secrets [Member]
Finite-Lived Intangible Assets [Line Items]
Intangible assets, gross	$ 32,500	$ 32,500

XML

Intangible Asset (Details Narrative) - USD ($)	3 Months Ended	9 Months Ended
	Sep. 30, 2021	Sep. 30, 2021
Goodwill and Intangible Assets Disclosure [Abstract]
Amortization	$ 2,609,987	$ 6,961,654

XML

Derivative Liability (Details Narrative) - USD ($)		2 Months Ended	3 Months Ended		4 Months Ended	5 Months Ended	9 Months Ended
	Jan. 08, 2019	Feb. 25, 2020	Sep. 30, 2021	Sep. 30, 2020	Apr. 23, 2019	Jun. 11, 2019	Sep. 30, 2021	Sep. 30, 2020
Derivative [Line Items]
Gain on forfeiture of contingent consideration			$ 0	$ 0			$ 0	$ 1,462,636
Fair value of derivative liabilities			79,730				79,730
Unrealized gain (loss) on derivative liabilities			$ 356,824	$ 684,422			$ 967,751	$ 1,527,850
Officer And Director [Member] | Restricted Stock [Member]
Derivative [Line Items]
Restricted stock granted, shares	500,000				1,000,000
Officer And Director [Member] | Restricted Stock [Member] | Director Resignation [Member]
Derivative [Line Items]
Gain on forfeiture of contingent consideration		$ 1,462,636
An Officer [Member] | Restricted Stock [Member]
Derivative [Line Items]
Restricted stock granted, shares						1,000,000

XML

Related Party Transactions (Details Narrative) - USD ($)	1 Months Ended	2 Months Ended			3 Months Ended	4 Months Ended	5 Months Ended	7 Months Ended	8 Months Ended	9 Months Ended		12 Months Ended					22 Months Ended	25 Months Ended
	Feb. 03, 2021	Mar. 02, 2021	Mar. 02, 2021	Feb. 26, 2021	Mar. 30, 2021	Apr. 19, 2021	Jun. 05, 2019	Jul. 31, 2020	Sep. 04, 2020	Sep. 30, 2021	Sep. 30, 2020	Dec. 31, 2020	Dec. 22, 2020	Dec. 18, 2020	Dec. 16, 2020	Dec. 31, 2019	Mar. 31, 2021	Sep. 30, 2021	Aug. 01, 2020
Related Party Transaction [Line Items]
Cash paid at closing										$ 71,927,071	$ 2,609,500
Star Buds [Member]
Related Party Transaction [Line Items]
Consideration transferred		$ 118,000,000
Cash paid at closing		44,250,000
Deferred cash		$ 44,250,000
Dye Capital [Member]
Related Party Transaction [Line Items]
Convertible note															$ 5,000,000
Debt converted, amount converted				$ 5,000,000
Debt converted, interest converted				$ 60,250
Seller Notes [Member] | Star Buds [Member]
Related Party Transaction [Line Items]
Note payable balance										44,250,000								$ 44,250,000
Interest paid										$ 3,010,887
Warrants [Member] | Star Buds [Member]
Related Party Transaction [Line Items]
Stock issued		5,531,250								3,793,530
Warrants [Member] | Dye Capital [Member]
Related Party Transaction [Line Items]
Debt converted, shares issued				5,060
Cash paid on conversion of debt				$ 230
Series A Preferred Stock [Member] | Star Buds [Member]
Related Party Transaction [Line Items]
Stock issued		29,500
Dye Cann Ii Spa [Member]
Related Party Transaction [Line Items]
Stock issued new, shares										21,350
Proceeds from sale of equity										$ 21,350,000
Dye Cann Ii Spa [Member] | Series A Preferred Stock [Member]
Related Party Transaction [Line Items]
Stock issued new, shares	3,100		3,800		4,000								1,300	1,450	7,700
Crw Spa [Member] | Series A Preferred Stock [Member]
Related Party Transaction [Line Items]
Stock issued new, shares				25,350
Proceeds from sale of equity				$ 25,350,000
Med Man Denver [Member]
Related Party Transaction [Line Items]
Revenue from related parties												$ 997,262
Accounts receivable from related parties												72,109
Med Pharm Holdings [Member]
Related Party Transaction [Line Items]
Revenue from related parties												73,557
Accounts receivable from related parties												5,885
Notes receivable issued																$ 767,695
Note receivable balance																			$ 767,695
Accrued interest receivable																			$ 47,161
Note receivable balance						$ 181,911		$ 100,000
Med Pharm Holdings [Member] | Andrew Williams [Member]
Related Party Transaction [Line Items]
Shares returned for payment of note receivable									175,000
Baseball 18 [Member]
Related Party Transaction [Line Items]
Revenue from related parties												14,605
Accounts payable from related party												31,250
Farm Boy [Member]
Related Party Transaction [Line Items]
Revenue from related parties												16,125
Accounts payable from related party												93,944
Emerald Fields [Member]
Related Party Transaction [Line Items]
Revenue from related parties												16,605
Los Suenos [Member]
Related Party Transaction [Line Items]
Revenue from related parties												52,244
Dye Cann I [Member] | Securities Purchase Agreement [Member]
Related Party Transaction [Line Items]
Proceeds from sale of equity							$ 3,000,000											$ 18,575,000
Dye Cann I [Member] | Securities Purchase Agreement [Member] | Common Stock [Member]
Related Party Transaction [Line Items]
Stock issued new, shares							1,500,000											9,287,500
Dye Cann I [Member] | Securities Purchase Agreement [Member] | Warrants [Member]
Related Party Transaction [Line Items]
Warrants issued							1,500,000										9,287,500
Tella Digital [Member]
Related Party Transaction [Line Items]
Costs and expenses to related party										188,354		$ 66,264
Brian Ruden [Member] | Star Buds [Member]
Related Party Transaction [Line Items]
Cash paid at closing		$ 13,727,490
Deferred cash		$ 13,727,490
Brian Ruden [Member] | Seller Notes [Member] | Star Buds [Member]
Related Party Transaction [Line Items]
Interest paid										929,913
Brian Ruden [Member] | Warrants [Member] | Star Buds [Member]
Related Party Transaction [Line Items]
Stock issued		1,715,936
Brian Ruden [Member] | Series A Preferred Stock [Member] | Star Buds [Member]
Related Party Transaction [Line Items]
Stock issued		9,152
John Sacun [Member]
Related Party Transaction [Line Items]
Proceed from sales of asset										$ 50,578

XML

Inventory (Details Narrative) - USD ($)	9 Months Ended	12 Months Ended
	Sep. 30, 2021	Dec. 31, 2020
Inventory Disclosure [Abstract]
Finished goods inventory	$ 4,518,125	$ 2,090,886
Inventory work in process	5,598,515	500,917
Raw materials inventory	561,741	27,342
Inventory obsolescence	$ 0	$ 0

XML

Goodwill (Details Narrative) - USD ($)	2 Months Ended	4 Months Ended	5 Months Ended	7 Months Ended	9 Months Ended
	Mar. 02, 2021	Apr. 20, 2020	Jun. 03, 2017	Jul. 21, 2017	Sep. 30, 2021	Sep. 30, 2020	Sep. 17, 2018	Jul. 21, 2021	Jun. 30, 2021	Dec. 31, 2020
Goodwill [Line Items]
Goodwill					$ 42,090,944					$ 53,046,729
Cash paid for acquisition					71,927,071	$ 2,609,500
Success And Pono [Member]
Goodwill [Line Items]
Stock issued for acquisition, shares			7,000,000
Goodwill			$ 6,301,080						$ 6,301,080
Denver Consulting [Member]
Goodwill [Line Items]
Stock issued for acquisition, shares				2,258,065
Goodwill				$ 3,003,226					3,003,226
Big Tomato [Member]
Goodwill [Line Items]
Stock issued for acquisition, shares							1,933,329
Goodwill					$ 3,000,000		$ 3,000,000
Mesa Organics [Member]
Goodwill [Line Items]
Stock issued for acquisition, shares		2,554,750
Goodwill		$ 2,147,613							2,147,613
Cash paid for acquisition		$ 2,609,500
Star Buds [Member]
Goodwill [Line Items]
Goodwill	$ 27,054,025								27,054,025
Cash paid for acquisition	$ 44,250,000
Southern Colorado Growers [Member]
Goodwill [Line Items]
Goodwill								$ 585,000	$ 585,000

XML

Debt (Details Narrative) - USD ($)	1 Months Ended	2 Months Ended		3 Months Ended	9 Months Ended	12 Months Ended
	Feb. 03, 2026	Mar. 02, 2026	Feb. 26, 2021	Mar. 31, 2021	Sep. 30, 2021	Dec. 17, 2025
Star Buds Assets [Member] | Seller Notes [Member]
Debt Instrument [Line Items]
Debt Instrument, Interest Rate During Period					12.00%
Periodic principal payment				$ 44,250,000
Star Buds [Member] | Seller Notes [Member] | Subsequent Event [Member]
Debt Instrument [Line Items]
Periodic principal payment	$ 3,474,519	$ 26,873,722				$ 13,901,759
Loan Agreement [Member]
Debt Instrument [Line Items]
Proceeds from Issuance of Debt			$ 10,000,000
Additional loan			$ 5,000,000
Debt Instrument, Interest Rate During Period			15.00%
Periodic principal payment			$ 750,000
Debt Instrument, Maturity Date			Feb. 26, 2025

XML

Leases (Details - Balance Sheet Classification) - USD ($)	Sep. 30, 2021	Dec. 31, 2020
Leases [Abstract]
Operating lease asset - non-current	$ 3,626,617	$ 2,579,036
Operating lease liability - non-current	$ 3,807,306	$ 2,645,597

XML

Leases (Details - Operating lease cost)	9 Months Ended
	Sep. 30, 2021 USD ($)
Leases [Abstract]
Operating lease costs	$ 1,023,267

XML

Leases (Details - Lease maturities)	Sep. 30, 2021 USD ($)
Leases [Abstract]
2021 fiscal year	$ 4,439,713
Less: Interest	281,227
Present value of lease liabilities	$ 4,158,486

XML

Leases (Details - Minimum lease obligation)	Sep. 30, 2021 USD ($)
Leases [Abstract]
2021 fiscal year	$ 370,131
2022 fiscal year	1,479,393
2023 fiscal year	1,354,595
2024 fiscal year	723,590
2025 fiscal year	333,356
Total	$ 4,261,065

XML

Leases (Details Narrative)	Sep. 30, 2021
Minimum [Member]
Weighted average lease discount rate	6.00%
Maximum [Member]
Weighted average lease discount rate	12.00%

XML

Stockholders' Equity (Details Warrant Activity) - Warrant [Member]	9 Months Ended
	Sep. 30, 2021 shares
Class of Warrant or Right [Line Items]
Warrants outstanding, beginning balance	11,725,220
Warrants exercised
Warrants forfeited
Warrants issued	5,293,530
Warrants outstanding, ending balance	17,018,750

XML

Stockholders’ Equity (Details Narrative) - USD ($)			1 Months Ended	2 Months Ended		3 Months Ended		4 Months Ended	9 Months Ended		12 Months Ended
	Jul. 21, 2021	Apr. 03, 2020	Feb. 03, 2021	Mar. 03, 2021	Mar. 02, 2021	Sep. 30, 2021	Sep. 30, 2020	Apr. 20, 2020	Sep. 30, 2021	Sep. 30, 2020	Dec. 31, 2020	Dec. 18, 2020	Dec. 17, 2020
Class of Stock [Line Items]
Preferred stock authorized						10,000,000			10,000,000		10,000,000
Preferred stock par value						$ 0.001			$ 0.001		$ 0.001
Preferred stock outstanding						82,838			82,838		19,716
Common stock authorized						250,000,000			250,000,000		250,000,000
Common stock par value						$ 0.001			$ 0.001		$ 0.001
Common stock issued						45,139,297			45,139,297		42,601,773
Common stock outstanding						44,400,853			44,400,853		42,169,041
Treasury Stock, Common, Shares						517,044			517,044		432,732
Shares cancelled		500,000
Stock issued for compensation, value						$ 1			$ 680,862
Shares issued for acquisition, value						$ 5,380,000			$ 25,620,000	$ 4,169,808
Warrant [Member] | Various Accredited Investor [Member]
Class of Stock [Line Items]
Contractual term									5 years
Warrant [Member] | Various Accredited Investor [Member] | Minimum [Member]
Class of Stock [Line Items]
Stock price						$ 1.20			$ 1.20
Risk-free interest rate									0.21%
Expected volatility rate									157.81%
Warrant [Member] | Various Accredited Investor [Member] | Maximum [Member]
Class of Stock [Line Items]
Stock price						$ 2.50			$ 2.50
Risk-free interest rate									1.84%
Expected volatility rate									195.00%
Souther Colorado Growers [Member]
Class of Stock [Line Items]
Stock issued for acquisition, shares	2,213,994
Shares issued for acquisition, value	$ 5,377,786
Employees Officers Directors [Member]
Class of Stock [Line Items]
Stock issued for compensation, shares									323,530		406,895
Stock issued for compensation, value									$ 557,998		$ 497,301
Mesa Organics Ltd [Member]
Class of Stock [Line Items]
Stock issued for acquisition, shares								2,554,750
Shares issued for acquisition, value								$ 4,167,253
Private Placements [Member]
Class of Stock [Line Items]
Stock issued new, shares											187,500
Warrants issued											187,500
Proceeds from sale of equity											$ 375,000
Series A Preferred Stock [Member]
Class of Stock [Line Items]
Preferred stock issued						82,838			82,838		18,327
Preferred stock outstanding						82,838			82,838		18,327
Escrow shares						4,428			4,428		1,389
Series A Preferred Stock [Member] | Star Buds [Member]
Class of Stock [Line Items]
Stock issued for acquisition, shares					29,500
Common Stock [Member]
Class of Stock [Line Items]
Common stock issued						45,139,297			45,139,297		42,601,773
Common stock outstanding						44,400,853			44,400,853		42,169,041
Treasury Stock [Member]
Class of Stock [Line Items]
Treasury Stock, Common, Shares						517,044			517,044		432,732
Preferred Stock [Member] | Star Buds [Member]
Class of Stock [Line Items]
Escrow shares			349	2,690								959	430
Stock issued for acquisition, shares			2,319	17,921								6,404	2,862
Shares issued for acquisition, value			$ 2,318,998	$ 17,920,982								$ 6,403,987	$ 2,861,994
[custom:EscrowSharesValue-0]			$ 314,100	$ 2,421,000								$ 863,100	$ 387,000
Warrants [Member] | Star Buds [Member]
Class of Stock [Line Items]
Stock issued for acquisition, shares					5,531,250				3,793,530

XML

Segment Information (Details- Segment Information) - USD ($)	3 Months Ended		9 Months Ended
	Sep. 30, 2021	Sep. 30, 2020	Sep. 30, 2021	Sep. 30, 2020
Segment Reporting Information [Line Items]
Revenues	$ 31,835,305	$ 7,430,374	$ 81,904,261	$ 16,057,837
Cost of goods and services	(16,779,313)	(4,648,910)	(44,692,765)	(9,904,131)
Gross profit	15,055,992	2,781,464	37,211,496	6,153,706
Intangible assets amortization	2,608,282	1,665	6,961,654	4,960
Depreciation	364,399	226,358	818,174	317,332
Net income (loss)	968,756	(2,914,211)	1,689,289	(10,889,228)
Segment assets	194,731,295	3,316,332	194,731,295	32,696,633
Products [Member]
Segment Reporting Information [Line Items]
Revenues	20,741,863	1,135,820	54,083,880	1,868,279
Cost of goods and services	(9,469,080)	(614,763)	(26,532,199)	(1,091,848)
Gross profit	11,272,782	521,057	27,551,680	776,431
Intangible assets amortization	2,525,875	0	6,745,121	0
Depreciation	(56,543)	131,903	130,749	208,351
Net income (loss)	5,168,758	183,306	13,210,770	106,517
Segment assets	129,912,570	237,524	129,912,570	1,967,680
Licensing and Consulting [Member]
Segment Reporting Information [Line Items]
Revenues	11,022,520	6,273,899	27,654,965	12,909,025
Cost of goods and services	(7,258,213)	(3,870,475)	(17,950,322)	(8,122,860)
Gross profit	3,764,308	2,403,424	9,704,644	4,786,165
Intangible assets amortization	79,855	1,530	211,222	4,557
Depreciation	83,725	4,505	237,638	9,098
Net income (loss)	3,123,377	1,893,813	8,456,852	3,342,360
Segment assets	41,075,819	(188,123)	41,075,819	20,595,696
Infrastructure [Member]
Segment Reporting Information [Line Items]
Revenues	70,922	20,655	165,416	1,280,533
Cost of goods and services	(52,020)	(163,672)	(210,244)	(689,423)
Gross profit	18,903	(143,017)	(44,827)	591,110
Intangible assets amortization	2,552	135	5,311	403
Depreciation	224,131	89,950	449,787	99,883
Net income (loss)	(7,323,379)	(4,991,285)	(19,978,333)	(14,338,059)
Segment assets	$ 23,742,906	$ (3,365,733)	$ 23,742,906	$ 10,133,257

XML

Tax Provision (Details - Components of Income Tax) - USD ($)	3 Months Ended		9 Months Ended
	Sep. 30, 2021	Sep. 30, 2020	Sep. 30, 2021	Sep. 30, 2020
Income Tax Disclosure [Abstract]
Income (Loss) before Income Taxes	$ 2,281,573	$ (2,914,211)	$ 3,687,194	$ (10,889,228)
Income Tax Expense	$ 1,312,817	$ 0	$ 1,997,905	$ 0
Effective Tax Rate	57.54%	0.00%	54.18%	0.00%