EDGAR 10-K Filing

Company CIK: 1996210
Filing Year: 2024
Filename: 1996210_10-K_2024_0001437749-24-012085.json

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ITEM 1. BUSINESS
ITEM 1. BUSINESS
References in this document to “we”, “us”, “our”, “the Company”, or “Blüm” are intended to mean Blum Holdings, Inc., individually, or as the context requires, collectively with its subsidiaries on a consolidated basis.
Effective January 12, 2024, Unrivaled Brands, Inc. completed a reverse stock split of its common stock at a 1-for-100 ratio (the “Reverse Stock Split”). Accordingly, all share and per share amounts for all periods presented in this Current Report on Form 10-K have been adjusted retroactively, where applicable, to reflect this Reverse Stock Split and adjustment of the preferred stock conversion ratios.
Company Overview
Blum Holdings, Inc. is a holding company with the following subsidiaries:
• Unrivaled Brands, Inc., a Nevada corporation (“Unrivaled”)
• Black Oak Gallery, a California corporation (“Black Oak” or “Blüm Oakland”)
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Blüm San Leandro, a California corporation (“Blüm San Leandro”)
• 2705 PFC, LLC, a Nevada limited liability company
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3242 Enterprises, Inc., a California corporation (“The Spot”)
• 3242 Holdings, LLC, a Nevada limited liability company
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Halladay Holding, LLC, a California limited liability company (“Halladay”)
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People's First Choice, LLC, a California limited liability company (“Blüm OC”)
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People's Costa Mesa, LLC, a California limited liability company
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IVXX Gardens I, Inc., a California corporation
Our corporate headquarters are located at 3242 S. Halladay Street, Suite 202, Santa Ana, California 92705 and our telephone number is (888) 909-5564. Our website addresses are as follows: www.blumholdings.com, www.letsblum.com and www.thespotforyou.com. We have included our website addresses in this Annual Report solely as an inactive textual references. No information available on or through our websites shall be deemed to be incorporated into this Annual Report on Form 10-K. Our common stock, par value $0.001 (the “Common Stock”), is quoted on the OTC Markets Group, Inc.’s OTCQB tier under the symbol “BLMH.” Prior to February 12, 2024, our Common Stock was quoted on the OTCQB under the symbol “UNRV.” Our Annual Reports on Form 10-K, Quarterly Reports on Form 10-Q, Current Reports on Form 8-K, including exhibits, proxy and information statements and amendments to those reports filed or furnished pursuant to Sections 13(a), 14, and 15(d) of the Exchange Act may be accessed through the SEC’s Interactive Data Electronic Applications system at https://www.sec.gov.
Our Business
Blum Holdings, Inc. is a cannabis company with operations in retail and distribution throughout California, with an emphasis on providing the highest quality of medical and adult use cannabis products. The Company is home to Korova, a brand of high potency products across multiple product categories, currently available in California. The Company operates Blüm OC, a premier cannabis dispensary in Orange County, California. The Company also owns dispensaries in California which operate as The Spot in Santa Ana, Blüm in Oakland, and Blüm in San Leandro.
The Company was originally incorporated as “Private Secretary, Inc.” on July 22, 2008 in the State of Nevada. On January 27, 2012, the Company filed an amendment to its Articles of Incorporation changing its name to “Terra Tech Corp.” Effective July 7, 2021, the Company changed its corporate name from “Terra Tech Corp.” to “Unrivaled Brands, Inc.” in connection with the Company’s acquisition of UMBRLA, Inc. Effective January 12, 2024, Unrivaled completed a corporate reorganization (the “Reorganization”) pursuant to which Blum Holdings, Inc. became the publicly-traded holding company and Unrivaled survived the merger as a wholly-owned subsidiary of Blum Holdings, Inc. After the Reorganization, the Company continues to engage in the business conducted by it prior to the Reorganization, and all of its contractual, employment and other business relationships have generally continued unaffected by the Reorganization.
Our Operations
We are organized into two reportable segments:
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Cannabis Retail - Includes cannabis-focused retail, both physical stores and non-store front delivery
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Cannabis Distribution - Includes cannabis distribution operations
Either independently or in conjunction with third parties, we operate medical marijuana retail and adult use dispensaries and distribution facilities in California.
Human Capital
As of December 31, 2023, we had 149 employees. Our employees are the heart of our Company. In a rapidly evolving industry, it is imperative that we attract, develop and retain top talent on an ongoing basis. To do this, we seek to make the Company an inclusive, diverse and safe workplace, with meaningful compensation and opportunities for career growth.
Recent Developments
Refer to “Fiscal Year 2023 Highlights” in “Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations” in this Form 10-K.
The risks and uncertainties regarding the future of our business due to regulatory uncertainty, combined with our historical lack of profitability, have raised substantial doubt as to our ability to continue as a going concern. The accompanying consolidated financial statements have been prepared assuming that we will continue as a going concern.
Marijuana Industry Overview
As of December 2023, there are a total of 38 states, plus the District of Columbia, that have passed legislation related to medicinal cannabis. Of these states, 24, plus the District of Columbia, have legalized recreational cannabis. These state laws are in direct conflict with the United States Federal Controlled Substances Act (21 U.S.C. § 811) (“CSA”). The CSA classifies cannabis as a Schedule I controlled substance, which is viewed as having a high potential for abuse and has no currently-acceptable use for medical treatment.
Although the possession, cultivation, and distribution of cannabis for medical and adult use is permitted in California, cannabis is illegal under federal law. We believe we operate our business in compliance with applicable state laws and regulations. Any changes in federal, state or local law enforcement regarding cannabis may affect our ability to operate our business. Strict enforcement of federal law regarding cannabis would likely result in the inability to proceed with our business plans, could expose us to potential criminal liability, and could subject our properties to civil forfeiture. Any changes in banking, insurance or other business services may also affect our ability to operate our business.
Our Marijuana Dispensaries, Cultivation and Manufacturing Operations
Blüm Oakland
On April 1, 2016, we acquired Black Oak Gallery, which operates a medical and adult use marijuana dispensary in Oakland, California under the name “Blüm”. Blüm opened its retail storefront in Oakland, California in November 2012.
Blüm Oakland sells a combination of our own cultivated products as well as high quality name-brand products from outside suppliers. In addition to multiple grades of medical and adult use marijuana, Blüm sells the following: (i) edibles, which include cannabis-infused baked goods, chocolates, and candies, (ii) cannabis-infused topical products, such as lotions, massage oils and balms, (iii) clones of marijuana plants, and (iv) numerous kinds of cannabis concentrates, such as hash, shatter and wax. Blüm Oakland’s location consists of a retail dispensary storefront, a distribution area and a gated 20-car capacity parking lot with armed security.
Blüm San Leandro
We incorporated Blüm San Leandro on October 14, 2016, which is a medical and adult use marijuana dispensary and delivery service in San Leandro, California originally operating under the name “Silverstreak”. Blüm San Leandro has received the necessary governmental approvals and permitting to operate a medical and adult use marijuana dispensary and as well as a distribution facility in San Leandro, California. The San Leandro dispensary opened on January 11, 2019. In June 2022, the San Leandro dispensary was temporarily closed and reopened under new management in December 2022 under the name “Blüm”.
Blüm OC
On November 22, 2021, the Company acquired People’s First Choice, which owns and operates one of the most successful dispensaries in Orange County, California, regularly servicing upwards of 800 customers each day. In December 2023, the dispensary was renamed to Blüm OC. The Company has entered into agreements to acquire and operate additional People's dispensaries in Riverside, California and Costa Mesa, California.
The Spot
On July 1, 2021, the Company acquired UMBRLA, Inc. which operated The Spot dispensary in Santa Ana, California and owned the Korova brand intellectual property. The Spot sells a combination of high-quality name-brand products from outside suppliers. In addition to multiple grades of medical and adult use marijuana, Blüm sells the following: (i) edibles, which include cannabis-infused baked goods, chocolates, and candies, (ii) cannabis-infused topical products, such as lotions, massage oils and balms, and (iii) numerous kinds of cannabis concentrates, such as hash, shatter, and wax. On February 18, 2024, The Spot closed its doors for in-store shopping and continued offering cannabis delivery.
Oakland Cultivation
In October 2022, the Company ceased operations its cultivation facility located in Oakland, California. In October 2023, the Company entered into a management services agreement with a third-party to manage and operate the cultivation facility.
We leased 13,000 square feet of industrial space on over 30,000 square feet of land in Oakland’s industrial corridor where we operated a cannabis cultivation facility. In January 2024, the Company sold its equity interests in the licensed cultivation entity. As of December 31, 2023, the Company no longer has cultivation operations in California.

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ITEM 1A. RISK FACTORS
ITEM 1A. RISK FACTORS
Investing in our common stock involves a high degree of risk. Before deciding to purchase, hold, or sell our common stock, you should carefully consider the risks described below in addition to the cautionary statements and risks described elsewhere and the other information contained in this Report and in our other filings with the SEC, including subsequent reports on Forms 10-Q and 8-K. The risks and uncertainties described below are not the only ones we face. Additional risks and uncertainties not presently known to us or that we currently deem immaterial may also impair our business operations. If any of these known or unknown risks or uncertainties actually occur, our business, financial condition, results of operations and/or liquidity could be seriously harmed, which could cause our actual results to vary materially from recent results or from our anticipated future results. In addition, the trading price of our common stock could decline due to any of these known or unknown risks or uncertainties, and you could lose all or part of your investment. An investment in our securities is speculative and involves a high degree of risk. You should not invest in our securities if you cannot bear the economic risk of your investment for an indefinite period of time and cannot afford to lose your entire investment. See also “Cautionary Note Concerning Forward-Looking Statements.”
Summary of Risk Factors
Our business is subject to numerous risks and uncertainties, discussed in more detail in the following section. These risks include, among others, the following key risks:
Risks Relating to Our Business, Financial Position and Industry
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We have had significant changes to our operations, which may make it difficult for investors to predict future performance based on current operations.
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We have incurred significant losses in prior periods, and losses in the future could cause the quoted price of our Common Stock to decline or have a material adverse effect on our financial condition, our ability to pay our debts as they become due and on our cash flow.
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We will likely need additional capital to sustain our operations and will likely need to seek further financing, which we may not be able to obtain on acceptable terms, or at all. If we fail to raise additional capital, as needed, our ability to implement our business model and strategy could be compromised.
• We have entered into binding term sheets with third parties and cannot assure you that any anticipated arrangements under such term sheets will lead to definitive agreements. If we are unable to complete these arrangements in a timely manner and on terms favorable to us, our business may be adversely affected.
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We face intense competition and many of our competitors have greater resources that may enable them to compete more effectively.
• The effects of war, acts of terrorism, threat of terrorism, or other types of violence, could adversely affect our business.
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If we fail to protect our intellectual property, our business could be adversely affected.
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Although we believe that our products and processes do not and will not infringe upon the patents or violate the proprietary rights of others, it is possible such infringement or violation has occurred or may occur, which could have a material adverse effect on our business.
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Our trade secrets may be difficult to protect.
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Our business, financial condition, results of operations, and cash flow may in the future be negatively impacted by challenging global economic conditions.
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Our future success depends on our key executive officers and our ability to attract, retain, and motivate qualified personnel.
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We may not be able to effectively manage our growth or improve our operational, financial, and management information systems, which would impair our results of operations.
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If we are unable to continually innovate and increase efficiencies, our ability to attract new customers may be adversely affected.
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We are dependent on the popularity of consumer acceptance of our product lines.
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A drop in the retail and/or wholesale prices of medical and adult use marijuana products may negatively impact our business.
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Federal regulation and enforcement may adversely affect the implementation of cannabis laws and regulations may negatively impact our revenues and profits.
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We could be found to be violating laws related to cannabis.
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Variations in state and local regulation, and enforcement in states that have legalized cannabis, may restrict cannabis-related activities, which may negatively impact our revenues and prospective profits.
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Prospective customers may be deterred from doing business with a company with a significant nationwide online presence because of fears of federal or state enforcement of laws prohibiting possession and sale of medical or recreational marijuana.
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Marijuana remains illegal under federal law.
• Increased attention to climate change and ESG matters may adversely impact our business.
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We are not able to deduct some of our business expenses.
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We may not be able to attract or retain a majority of independent directors.
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We may not be able to successfully execute on our merger and acquisition strategy.
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Laws and regulations affecting the medical and adult use marijuana industry are constantly changing, which could detrimentally affect our cultivation, production and dispensary operations
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We may not obtain the necessary permits and authorizations to operate the medical and adult use marijuana business.
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If we incur substantial liability from litigation, complaints, or enforcement actions, our financial condition could suffer.
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We may have difficulty accessing the service of banks, which may make it difficult for us to operate.
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Litigation may adversely affect our business, financial condition, and results of operations.
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Our insurance coverage may be inadequate to cover all significant risk exposures.
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We may become subject to legal proceedings and liability if our products are contaminated.
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Some of our lines of business rely on our third-party service providers to host and deliver services and data, and any interruptions or delays in these hosted services, security or privacy breaches, or failures in data collection could expose us to liability and harm our business and reputation.
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Disruptions to cultivation, manufacturing and distribution of cannabis in California may negatively affect our access to products for sale at our dispensaries.
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High tax rates on cannabis and compliance costs in California may limit our customer base.
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Federal income tax reform could have unforeseen effects on our financial condition and results of operations.
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Inadequate funding for the Department of Justice (DOJ) and other government agencies could hinder their ability to perform normal business functions on which the operation of our business may rely, which could negatively impact our business.
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California’s Phase-In of Laboratory Testing Requirements could impact the availability of the products sold in our dispensary.
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There is uncertainty related to the regulation of vaporization products and certain other consumption accessories. Increased regulatory compliance burdens could have a material adverse impact on our business development efforts and our operations.
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The scientific community has not yet extensively studied the long-term health effects of the use of vaporizer products.
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If product liability lawsuits are brought against us, we will incur substantial liabilities.
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Unionization of employees could have a material adverse impact on our business.
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Inadequate funding for state and local regulatory agencies and the effects of COVID-19 could hinder their ability to perform normal business functions on which the operation of our business may rely, which could negatively impact our business.
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Competition from Synthetic Production and Technological Advances could adversely impact our profitability.
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There are risks inherent in an Agricultural Business.
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We may suffer from Unfavorable Publicity or Consumer Perception.
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Our independent registered public accounting firm's report for the year ended December 31, 2023 is qualified as to our ability to continue as a going concern.
• The processes undertaken to effect the restatement may not have been adequate to identify and correct all errors in our historical financial statements and, as a result, we may discover additional errors and our financial statements remain subject to the risk of future restatement.
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The Company has identified material weaknesses in its internal control over financial reporting and may identify additional material weaknesses in the future that may cause them to fail to meet its reporting obligations or result in material misstatements of its financial statements. If the Company fails to remediate any material weaknesses or if the Company fails to establish and maintain effective control over financial reporting, its ability to accurately and timely report its financial results could be adversely affected.
Risks Related to an Investment in Our Securities
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We expect to experience volatility in the price of our Common Stock, which could negatively affect stockholders’ investments.
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Our Common Stock is categorized as “penny stock,” which may make it more difficult for investors to sell their shares of Common Stock due to suitability requirements.
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Financial Industry Regulatory Authority (“FINRA”) sales practice requirements may also limit a stockholder’s ability to buy and sell our Common Stock, which could depress the price of our Common Stock.
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Claims for indemnification by our directors and officers may reduce our available funds to satisfy successful third-party claims against us and may reduce the amount of money available to us.
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We may issue additional shares of Common Stock or preferred stock in the future, which could cause significant dilution to all stockholders.
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Our charter documents and Delaware law could prevent a takeover that stockholders consider favorable and could also reduce the market price of our stock.
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Because we do not intend to pay any cash dividends on our Common Stock, our stockholders will not be able to receive a return on their shares unless they sell them.
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Failure to execute our strategies could result in impairment of goodwill or other intangible assets, which may negatively impact profitability.
• If our acquired intangible assets become impaired in the future, we may incur significant impairment charges.
Risks Relating to Our Business, Financial Position and Industry
We have had significant changes to our operations, which may make it difficult for investors to predict future performance based on current operations.
We have had significant changes to our operations which changes the relevance of our historical performance upon which investors may base an evaluation of our potential future performance. In particular, we may not be able to sell cannabis products in a manner that enables us to be profitable and meet customer requirements, obtain the necessary permits and/or achieve certain milestones to develop our dispensary businesses, enhance our line of cannabis products, develop and maintain relationships with key manufacturers and strategic partners to extract value from our intellectual property, raise sufficient capital in the public and/or private markets, or respond effectively to competitive pressures. As a result, there can be no assurance that we will be able to develop or maintain consistent revenue sources, or that our operations will be profitable and/or generate positive cash flow.
Any forecasts we make about our operations may prove to be inaccurate. We must, among other things, determine appropriate risks, rewards, and level of investment in our product lines, respond to economic and market variables outside of our control, respond to competitive developments and continue to attract, retain, and motivate qualified employees. There can be no assurance that we will be successful in meeting these challenges and addressing such risks and the failure to do so could have a materially adverse effect on our business, results of operations, and financial condition. Our prospects must be considered in light of the risks, expenses, and difficulties frequently encountered by companies in the early stage of development. As a result of these risks, challenges, and uncertainties, the value of our stockholder's investment could be significantly reduced or completely lost.
We have incurred significant losses in prior periods, and losses in the future could cause the quoted price of our Common Stock to decline or have a material adverse effect on our financial condition, our ability to pay our debts as they become due and on our cash flow
We have incurred significant losses in prior periods. For the year ended December 31, 2023, we incurred a net loss of $14.13 million and, as of that date, we had an accumulated deficit of $454.18 million. For the year ended December 31, 2022, we incurred a net loss of $188.93 million and, as of that date, we had an accumulated deficit of $440.05 million. Any losses in the future could cause the quoted price of our Common Stock to decline or have a material adverse effect on our financial condition, our ability to pay our debts as they become due, and on our cash flow.
We will likely need additional capital to sustain our operations and will likely need to seek further financing, which we may not be able to obtain on acceptable terms, or at all. If we fail to raise additional capital, as needed, our ability to implement our business model and strategy could be compromised.
We have limited capital resources and operations. To date, our operations have been funded primarily from the proceeds of debt and equity financings. We expect to require substantial capital in the near future to fund our future operations. We may not be able to obtain additional financing on terms acceptable to us, or at all. In particular, because marijuana is illegal under federal law, we may have difficulty attracting investors.
Even if we obtain financing for our near-term operations, we expect that we will require additional capital thereafter. Our capital needs will depend on numerous factors including: (i) our profitability; (ii) the release of competitive products by our competition; (iii) the level of our investment in research and development; and (iv) the amount of our capital expenditures, including acquisitions. We cannot provide assurance that we will be able to obtain capital in the future to meet our needs.
As of December 31, 2023, we had $0.86 million of cash and cash equivalents. We maintain our cash and cash equivalents with high quality, accredited financial institutions. However, some of these accounts at times exceed federally insured limits, and, while we believe that we are not exposed to significant credit risk due to the financial strength of these depository institutions or investments, the failure or collapse of one or more of these depository institutions or default on these investments could materially adversely affect our ability to recover these assets and/or materially harm our financial condition.
If we raise additional funds through the issuance of equity or convertible debt securities, the percentage ownership held by our existing stockholders will be reduced and our stockholders may experience significant dilution. In addition, new securities may contain rights, preferences, or privileges that are senior to those of our Common Stock. If we raise additional capital by incurring debt, this will result in increased interest expense. If we raise additional funds through the issuance of securities, market fluctuations in the price of our shares of Common Stock could limit our ability to obtain equity financing.
We cannot provide any assurance that any additional financing will be available to us, or if available, will be on terms favorable to us. If we are unable to raise capital when needed, our business, financial condition, and results of operations would be materially adversely affected, and we could be forced to reduce or discontinue our operations.
We have entered into binding term sheets with third parties and cannot assure you that any anticipated arrangements under such term sheets will lead to definitive agreements. If we are unable to complete these arrangements in a timely manner and on terms favorable to us, our business may be adversely affected.
We have engaged in negotiations with a number of third parties and have agreed to terms regarding settlement of litigation in which the Company is involved and restructuring of certain debt. We may be unable to negotiate final terms in a timely manner, or at all, and there is no guarantee that the terms of any final, definitive, binding agreement will be the same or similar to those currently contemplated in the term sheets. Final terms may be less favorable to us than those set forth in the term sheets. Delays in negotiating final, definitive, binding agreements could slow the Company’s development, divert management’s attention from other matters, result in wasted resources, and cause the Company to consume capital significantly faster than it currently anticipates.
We face intense competition and many of our competitors have greater resources that may enable them to compete more effectively.
The industries in which we operate in general are subject to intense and increasing competition from other companies as well as from the illicit market. Some of our competitors may have greater capital resources, facilities, and diversity of product lines, which may enable them to compete more effectively in this market. Our competitors may devote their resources to developing and marketing products that will directly compete with our product lines. Illicit market participants divert customers away through product offerings, price point, anonymity and convenience. Due to this competition, there is no assurance that we will not encounter difficulties in obtaining revenues and market share or in the positioning of our products. Additionally, as the number of available licenses increase in the markets in which we operate, additional competition and increased product availability may result in competitors undercutting our prices. From time to time, we may need to reduce our prices in response to competitive and customer pressures and to maintain our market share, which could materially reduce our revenues. There are no assurances that competition in our respective industries will not lead to reduced prices for our products. If we are unable to successfully compete with existing companies and new entrants to the market, this will have a negative impact on our business and financial condition.
The effects of war, acts of terrorism, threat of terrorism, or other types of violence, could adversely affect our business.
Some of our stores are located in areas with a high amount of foot traffic. Any threat of terrorist attacks or actual terrorist events, or other types of violence, such as shootings or riots, could lead to lower consumer traffic and a decline in sales. Decreased sales could have a material adverse effect on our business, financial condition and results of operations.
If we fail to protect our intellectual property, our business could be adversely affected.
Our viability will depend, in part, on our ability to develop and maintain the proprietary aspects of our intellectual property to distinguish our products from our competitors’ products. We rely on copyrights, trademarks, trade secrets, and confidentiality provisions to establish and protect our intellectual property. We may not be able to enforce some of our intellectual property rights because cannabis is illegal under federal law.
Any infringement or misappropriation of our intellectual property could damage its value and limit our ability to compete. We may have to engage in litigation to protect the rights to our intellectual property, which could result in significant litigation costs and require a significant amount of our time. In addition, our ability to enforce and protect our intellectual property rights may be limited in certain countries outside the United States, which could make it easier for competitors to capture market position in such countries by utilizing technologies that are similar to those developed or licensed by us.
Competitors may also harm our sales by designing products that mirror our products or processes that do not infringe on our intellectual property rights. If we do not obtain sufficient protection for our intellectual property, or if we are unable to effectively enforce our intellectual property rights, our competitiveness could be impaired, which would limit our growth and future revenue.
We may also find it necessary to bring infringement or other actions against third parties to seek to protect our intellectual property rights. Litigation of this nature, even if successful, is often expensive and time-consuming to prosecute and there can be no assurance that we will have the financial or other resources to enforce our rights or be able to enforce our rights or prevent other parties from developing similar products or processes or designing around our intellectual property.
Although we believe that our products and processes do not and will not infringe or violate the intellectual property rights of others, it is possible such infringement or violation has occurred or may occur, which could have a material adverse effect on our business.
We are not aware of any infringement by us of any person’s or entity’s intellectual property rights. In the event that products we sell or processes we employ are deemed to infringe upon the patents or proprietary rights of others, we could be required to modify our products or processes or obtain a license for the manufacture and/or sale of such products or processes or cease selling such products or employing such processes. In such event, we may not be able to modify our products or secure a license in a timely manner, upon acceptable terms and conditions, or at all, and the failure to do any of the foregoing could have a material adverse effect upon our business.
We may not have the financial or other resources necessary to enforce or defend a patent infringement or proprietary rights violation action. If our products or processes are deemed to infringe or likely to infringe upon the patents or proprietary rights of others, we could be subject to injunctive relief and, under certain circumstances, become liable for damages, which could also have a material adverse effect on our business and our financial condition.
Our trade secrets may be difficult to protect.
Our success depends upon the skills, knowledge, and experience of our scientific and technical personnel, our consultants and advisors, as well as our licensors and contractors. Because we operate in several highly competitive industries, we rely in part on trade secrets to protect our proprietary technology and processes. However, trade secrets are difficult to protect. We enter into confidentiality or non-disclosure agreements with our corporate partners, employees, consultants, outside scientific collaborators, developers, and other advisors. These agreements generally require that the receiving party keep confidential and not disclose to third parties, confidential information developed by the receiving party or made known to the receiving party by us during the course of the receiving party’s relationship with us. These agreements also generally provide that inventions conceived by the receiving party in the course of rendering services to us will be our exclusive property, and we enter into assignment agreements to perfect our rights.
These confidentiality, inventions, and assignment agreements may be breached and may not effectively assign intellectual property rights to us. Our trade secrets could also be independently discovered by competitors, in which case we would not be able to prevent the use of such trade secrets by our competitors. The enforcement of a claim alleging that a party illegally obtained and was using our trade secrets could be difficult, expensive, and time consuming and the outcome would be unpredictable. In addition, courts outside the United States may be less willing to protect trade secrets. The failure to obtain or maintain meaningful trade secret protection could adversely affect our competitive position.
Our business, financial condition, results of operations, and cash flow may in the future be negatively impacted by challenging global economic conditions, including negative impacts from continued inflation.
Future disruptions and volatility in global financial markets and declining consumer and business confidence could lead to decreased levels of consumer spending. These macroeconomic developments could negatively impact our business, which depends on the general economic environment and levels of consumer spending. As a result, we may not be able to maintain our existing customers or attract new customers, or we may be forced to reduce the price of our products. Additionally, continued upward rate of inflation could negatively impact any future profits that we might generate from our business. When the rate of inflation rises, the operational costs of running our Company also increases, such as labor costs, raw materials, and public utilities, thus affecting our ability to provide our products at competitive prices. An increase in the rate of inflation could force our customers to search for other products, causing us to lose business and revenue. We are unable to predict the likelihood of the occurrence, duration, or severity of such disruptions in the credit and financial markets and adverse global economic conditions. Any general or market-specific economic downturn could have a material adverse effect on our business, financial condition, results of operations, and cash flow.
Our future success depends on our key executive officers and our ability to attract, retain, and motivate qualified personnel.
Our future success largely depends upon the continued services of our executive officers and management team. If one or more of our executive officers are unable or unwilling to continue in their present positions, we may not be able to replace them readily, if at all. Additionally, we may incur additional expenses to recruit and retain new executive officers. If any of our executive officers joins a competitor or forms a competing company, we may lose some or all of our customers. Finally, we do not maintain “key person” life insurance on any of our executive officers. Because of these factors, the loss of the services of any of these key persons could adversely affect our business, financial condition, and results of operations, and thereby an investment in our stock.
Our continuing ability to attract and retain highly qualified personnel will also be critical to our success because we will need to hire and retain additional personnel as our business grows. There can be no assurance that we will be able to attract or retain highly qualified personnel. We face significant competition for skilled personnel in our industries. In particular, if the marijuana industry continues to grow, demand for personnel may become more competitive. This competition may make it more difficult and expensive to attract, hire, and retain qualified managers and employees. Because of these factors, we may not be able to effectively manage or grow our business, which could adversely affect our financial condition or business. As a result, the value of your investment could be significantly reduced or completely lost.
We may not be able to effectively manage our growth or improve our operational, financial, and management information systems, which would impair our results of operations.
In the near term, we intend to expand the scope of our operations activities significantly. If we are successful in executing our business plan, we will experience growth in our business that could place a significant strain on our business operations, finances, management, and other resources. The factors that may place strain on our resources include, but are not limited to, the following:
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The need for continued development of our financial and information management systems;
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The need to manage strategic relationships and agreements with manufacturers, customers, and partners; and
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Difficulties in hiring and retaining skilled management, technical, and other personnel necessary to support and manage our business.
Additionally, our strategy envisions a period of rapid growth that may impose a significant burden on our administrative and operational resources. Our ability to effectively manage growth will require us to substantially expand the capabilities of our administrative and operational resources and to attract, train, manage, and retain qualified management and other personnel. There can be no assurance that we will be successful in recruiting and retaining new employees or retaining existing employees.
Our management may not be able to manage this growth effectively. Our failure to successfully manage growth could result in our sales not increasing commensurately with capital investments or otherwise materially adversely affecting our business, financial condition, or results of operations.
If we are unable to continually innovate and increase efficiencies, our ability to attract new customers may be adversely affected.
In the area of innovation, we must be able to develop new technologies and products that appeal to our customers. This depends, in part, on the technological and creative skills of our personnel and on our ability to protect our intellectual property rights. We may not be successful in the development, introduction, marketing, and sourcing of new technologies or innovations, that satisfy customer needs, achieve market acceptance, or generate satisfactory financial returns.
We depend on the popularity of consumer acceptance of our product lines.
Our ability to generate revenue and be successful in the implementation of our business plan is dependent on consumer acceptance and demand of our product lines. Acceptance of our products will depend on several factors, including availability, cost, ease of use, familiarity of use, convenience, effectiveness, safety, and reliability. If customers do not accept our products, or if we fail to meet customers’ needs and expectations adequately, our ability to continue generating revenues could be reduced.
A drop in the retail price of medical and adult use marijuana products may negatively impact our business.
The demand for our products depends in part on the price of commercially grown marijuana. Fluctuations in economic and market conditions that impact the prices of commercially grown marijuana, such as increases in the supply of such marijuana and the decrease in the price of products using commercially grown marijuana, could cause the demand for marijuana products to decline, which would have a negative impact on our business.
Federal regulation and enforcement may adversely affect the implementation of cannabis laws and regulations may negatively impact our revenues and profits.
Currently, the CSA prohibits the manufacture, distribution, dispensation, and possession of cannabis. Unless Congress amends the CSA to alter the Schedule I status of cannabis, for which there can be no assurance, federal authorities may enforce current federal law, and we may be deemed to be producing, cultivating, or dispensing marijuana in violation of federal law. Active enforcement of the current federal regulatory position on cannabis may therefore indirectly and adversely affect our revenues and profits. The risk of strict enforcement of the CSA in light of Congressional activity, judicial holdings, and stated federal policy remains uncertain.
We could be found to be violating laws related to cannabis.
Currently, the CSA prohibits the manufacture, distribution, dispensation, and possession of cannabis. Unless Congress amends the CSA to alter the Schedule I status of cannabis, for which there can be no assurance federal authorities may enforce current federal law, including the CSA in appropriate circumstances. The risk of strict enforcement of the CSA in light of Congressional activity, judicial holdings, and stated federal policy remains uncertain. Because we cultivate, produce, sell and distribute marijuana, there is a risk that we will be deemed to facilitate the selling or distribution of medical marijuana in violation of federal law. Active enforcement of the CSA on cannabis may, hence cause a direct and adverse effect on our subsidiaries’ businesses, or intended businesses, and on our revenue and prospective profits.
Variations in state and local regulation, and enforcement in states that have legalized cannabis, may restrict cannabis-related activities, which may negatively impact our revenues and prospective profits.
Individual state and local laws do not always conform to the federal standard or to other states’ laws. A number of states have decriminalized marijuana to varying degrees, other states have created exemptions specifically for medical cannabis, and several have both decriminalization and medical laws. As of December 2022, 21 states and the District of Columbia have legalized the recreational use of cannabis. Variations exist among states that have legalized, decriminalized, or created medical marijuana exemptions. For example, certain states have limits on the number of marijuana plants that can be homegrown. In most states, the cultivation of marijuana for personal use continues to be prohibited except for those states that allow small-scale cultivation by the individual in possession of medical marijuana needing care or that person’s caregiver. Active enforcement of state laws that prohibit personal cultivation of marijuana may indirectly and adversely affect our business and our revenue and profits.
If we are unable to obtain and maintain the permits and licenses required to operate our business in compliance with state and local regulations in California, we may experience negative effects on our business and results of operations.
Prospective customers may be deterred from doing business with a company with a significant nationwide online presence because of fears of federal or state enforcement of laws prohibiting possession and sale of medical or recreational marijuana.
Our website is visible in jurisdictions where medicinal and adult use of marijuana is not permitted and, as a result, we may be found to be violating the laws of those jurisdictions.
Marijuana remains illegal under federal law.
Marijuana is a Schedule I controlled substance and is illegal under federal law. Even in those states in which the use of marijuana has been legalized, its use remains a violation of federal law. Since federal law criminalizing the use of marijuana preempts state laws that legalize its use, strict enforcement of federal law regarding marijuana would likely result in our inability to proceed with our business plan, especially in respect of our marijuana cultivation, production and dispensaries. In addition, our assets, including real property, cash, equipment and other goods, could be subject to asset forfeiture because marijuana is still federally illegal.
Increased attention to climate change and ESG matters may adversely impact our business.
We are subject to a variety of risks arising from environmental, social and governance (“ESG”) matters. ESG matters include increasing attention to climate change, climate risk, expectations on companies to address climate change, hiring practices, the diversity of the work force, racial and social justice issues involving the Company’s personnel, customers and third parties with whom it otherwise does business, and investor and societal expectations regarding ESG matters and disclosures.
Risks arising from ESG matters may adversely affect, among other things, reputation and the market price of our stock. Further, we may be exposed to negative publicity based on the identity and activities of those we do business with and the public’s view of the approach and performance of our customers and business partners with respect to ESG matters. Any such negative publicity could arise from adverse news coverage in traditional media and could also spread through the use of social media platforms. Our relationships and reputation with our existing and prospective customers and third parties with which we do business could be damaged if we were to become the subject of any such negative publicity.
This, in turn, could have an adverse effect on our ability to attract and retain customers and employees and could have a negative impact on the market price for our stock. Investors have begun to consider the steps taken and resources allocated by financial institutions and other commercial organizations to address ESG matters when making investment and operational decisions. Certain investors are beginning to incorporate the business risks of climate change and the adequacy of companies’ responses to the risks posed by climate change and other ESG matters into their investment theses. These shifts in investing priorities may result in adverse effects on the market price of our stock to the extent investors determine we have not made sufficient progress on ESG matters.
In addition, customers, employees, regulators and suppliers have also been focused on ESG matters. Companies that do not adapt to or comply with ESG expectations and standards, or that are perceived to have not responded appropriately to the growing concern regarding ESG issues, regardless of whether there is a legal requirement to do so, may suffer from reputational damage and other adverse consequences. To the extent ESG matters negatively impact our reputation, we may not be able to compete as effectively to recruit or retain employees, which may adversely affect our operations.
Further, growing public concern about climate change has resulted in the increased focus of local, state, regional, national and international regulatory bodies on greenhouse gas emissions and climate change issues. Policy changes and changes in federal, state and local legislation and regulations based on concerns about climate change, including regulations aimed at limiting greenhouse gas emissions and the implementation of "green" building codes, could result in increased capital expenditures on our existing properties (for example, to improve their energy efficiency) without a corresponding increase in revenue, resulting in adverse impacts to our results of operations.
We are not able to deduct some of our business expenses.
Section 280E of the Internal Revenue Code prohibits marijuana businesses from deducting their ordinary and necessary business expenses, forcing us to pay higher effective federal tax rates than similar companies in other industries. The effective tax rate on a marijuana business depends on how large its ratio of nondeductible expenses is to its total revenues. Therefore, our marijuana business may be less profitable than it could otherwise be.
We may not be able to attract or retain a majority of independent directors.
Our board of directors is currently comprised of a majority of independent directors. However, through much of our history our board was not comprised of a majority of independent directors. We may in the future desire to list our common stock on The New York Stock Exchange (“NYSE”) or The NASDAQ Stock Market (“NASDAQ”), both of which require that a majority of our board be comprised of independent directors. We may have difficulty attracting and retaining independent directors because, among other things, we operate in the marijuana industry, and as a result we may be delayed or prevented from listing our common stock on the NYSE or NASDAQ.
We may not be able to successfully execute on our merger and acquisition strategy.
Our business plan depends in part on merging with or acquiring other businesses in the marijuana industry. The success of any acquisition will depend upon, among other things, our ability to integrate acquired personnel, operations, products and technologies into our organization effectively, to retain and motivate key personnel of acquired businesses, and to retain their customers. Any acquisition may result in diversion of management’s attention from other business concerns, and such acquisition may be dilutive to our financial results and/or result in impairment charges and write-offs. We might also spend time and money investigating and negotiating with potential acquisition or investment targets, but not complete the transaction.
Although we expect to realize strategic, operational and financial benefits as a result of our acquisitions, we cannot predict whether and to what extent such benefits will be achieved. There are significant challenges to integrating an acquired operation into our business.
Any future acquisition could involve other risks, including the assumption of unidentified liabilities for which we, as a successor owner, may be responsible. These transactions typically involve a number of risks and present financial and other challenges, including the existence of unknown disputes, liabilities, or contingencies and changes in the industry, location, or regulatory or political environment in which these investments are located, that our due diligence review may not adequately uncover and that may arise after entering into such arrangements.
Laws and regulations affecting the medical and adult use marijuana industry are constantly changing, which could detrimentally affect our cultivation, production and dispensary operations.
Local, state, and federal medical and adult use marijuana laws and regulations are broad in scope and subject to evolving interpretations, which could require us to incur substantial costs associated with compliance or alter certain aspects of our business plan. In addition, violations of these laws, or allegations of such violations, could disrupt certain aspects of our business plan and result in a material adverse effect on certain aspects of our planned operations. In addition, it is possible that regulations may be enacted in the future that will be directly applicable to certain aspects of our cultivation, production and dispensary businesses, and our business of selling cannabis products. We cannot predict the nature of any future laws, regulations, interpretations or applications, nor can we determine what effect additional governmental regulations or administrative policies and procedures, when and if promulgated, could have on our business.
We may not obtain the necessary permits and authorizations to operate our medical and adult use marijuana businesses.
We may not be able to obtain or maintain the necessary licenses, permits, authorizations, or accreditations for our cultivation, production and dispensary businesses, or may only be able to do so at great cost. In addition, we may not be able to comply fully with the wide variety of laws and regulations applicable to the medical and adult use marijuana industry. Failure to comply with or to obtain the necessary licenses, permits, authorizations, or accreditations could result in restrictions on our ability to operate the medical and adult use marijuana business, which could have a material adverse effect on our business.
If we incur substantial liability from litigation, complaints, or enforcement actions, our financial condition could suffer.
Our participation in the medical and adult use marijuana industry may lead to litigation, formal or informal complaints, enforcement actions, and inquiries by various federal, state, or local governmental authorities against us. Litigation, complaints, and enforcement actions could consume considerable amounts of financial and other corporate resources, which could have a negative impact on our sales, revenue, profitability, and growth prospects. We have not been, and are not currently, subject to any material litigation, complaint, or enforcement action regarding marijuana (or otherwise) brought by any federal, state, or local governmental authority.
We may have difficulty accessing the service of banks, which may make it difficult for us to operate.
Since the use of marijuana is illegal under federal law, many banks will not accept for deposit funds from businesses involved with the marijuana industry. Consequently, businesses involved in the marijuana industry often have difficulty finding a bank willing to accept their business. The inability to open or maintain bank accounts may make it difficult for us to operate our medical and adult use marijuana businesses. If any of our bank accounts are closed, we may have difficulty processing transactions in the ordinary course of business, including paying suppliers, employees and landlords, which could have a significant negative effect on our operations.
Litigation may adversely affect our business, financial condition, and results of operations.
From time to time in the normal course of our business operations, we may become subject to litigation that may result in liability material to our financial statements as a whole or may negatively affect our operating results if changes to our business operations are required. The cost to defend such litigation may be significant and may require a diversion of our resources. There also may be adverse publicity associated with litigation that could negatively affect customer perception of our business, regardless of whether the allegations are valid or whether we are ultimately found liable. Insurance may not be available at all or in sufficient amounts to cover any liabilities with respect to these or other matters. A judgment or other liability in excess of our insurance coverage for any claims could adversely affect our business and the results of our operations.
Our insurance coverage may not cover all significant risk exposures.
We will be exposed to liabilities that are unique to the products we provide. While we intend to maintain insurance for certain risks, the amount of our insurance coverage may not be adequate to cover all claims or liabilities, and we may be forced to bear substantial costs resulting from risks and uncertainties of our business. It is also not possible to obtain insurance to protect against all operational risks and liabilities. In particular, we have had difficulty obtaining insurance because we operate in the marijuana industry. The failure to obtain adequate insurance coverage on terms favorable to us, or at all, could have a material adverse effect on our business, financial condition, and results of operations. We do not have any business interruption insurance. Any business disruption or natural disaster could result in substantial costs and diversion of resources.
We may become subject to legal proceedings and liability if our products are contaminated.
We source some of our products from third-party suppliers. Although we verify that the products we receive from third-party suppliers are adequately tested, we may not identify all contamination in those products. Possible contaminates include pesticides, molds and fungus. If any of our products harm a customer, they may sue us in addition to the supplier, and we may not have adequate insurance to cover any such claims, which could result in a negative effect on our results of operations.
Some of our lines of business rely on our third-party service providers to host and deliver services and data, and any interruptions or delays in these hosted services, security or privacy breaches, or failures in data collection could expose us to liability and harm our business and reputation.
Some of our lines of business and services, including our dispensaries, rely on services hosted and controlled directly by third-party service providers. We do not have redundancy for all of our systems, many of our critical applications reside in only one of our data centers, and our disaster recovery planning may not account for all eventualities. If our business relationship with a third-party provider of hosting or software services is negatively affected, or if one of our service providers were to terminate its agreement with us, we might not be able to deliver access to our data, which could subject us to reputational harm and cause us to lose customers and future business, thereby reducing our revenue.
We hold large amounts of customer data, some of which is hosted in third-party facilities. A security incident at those facilities or ours may compromise the confidentiality, integrity or availability of customer data. Unauthorized access to customer data stored on our computers or networks may be obtained through break-ins, breaches of our secure network by an unauthorized party, employee theft or misuse or other misconduct. It is also possible that unauthorized access to customer data may be obtained through inadequate use of security controls by customers. Accounts created with weak passwords could allow cyber-attackers to gain access to customer data. If there were an inadvertent disclosure of customer information, or if a third party were to gain unauthorized access to the information we possess on behalf of our customers, our operations could be disrupted, our reputation could be damaged and we could be subject to claims or other liabilities. In addition, such perceived or actual unauthorized disclosure of the information we collect or breach of our security could damage our reputation, result in the loss of customers and harm our business.
Because of the large amount of data we collect and manage using our hosted solutions, it is possible that hardware or software failures or errors in our systems (or those of our third-party service providers) could result in data loss or corruption, cause the information that we collect to be incomplete or contain inaccuracies that our customers regard as significant or cause us to fail to meet committed service levels. Furthermore, our ability to collect and report data may be delayed or interrupted by a number of factors, including access to the Internet, the failure of our network or software systems or security breaches. In addition, computer viruses or other malware may harm our systems, causing us to lose data, and the transmission of computer viruses or other malware could expose us to litigation. We may also find, on occasion, that we cannot deliver data and reports in near real time because of a number of factors, including failures of our network or software. If we supply inaccurate information or experience interruptions in our ability to capture, store and supply information in near real time or at all, our reputation could be harmed and we could lose customers, or we could be found liable for damages or incur other losses.
Loss of access to our data could have a negative impact on our business and results of operations. In particular, the states in which we operate require that we maintain certain information about our customers and transactions. If we fail to maintain such information, we could be in violation of state laws.
Disruptions to cultivation, manufacturing and distribution of cannabis in California may negatively affect our access to products for sale at our dispensaries.
California laws and regulations require us to purchase products only from licensed vendors and through licensed distributors. To date, a relatively small number of licenses have been issued in California to cultivate, manufacture and distribute cannabis products. We have obtained a license to distribute products from our cultivation and manufacturing facilities to our dispensaries, however we currently do not cultivate and manufacture enough of our own products to satisfy customer demand. In addition, we carry products cultivated and manufactured by third parties. As a result, if an insufficient number of cultivators, manufacturers and distributors are able to obtain licenses our ability to purchase products and have them delivered to our dispensaries may be limited and may impact our sales.
High tax rates on cannabis and compliance costs in California may limit our customer base.
The States of California impose excise tax on products sold at licensed cannabis dispensaries. Local jurisdictions typically impose additional taxes on cannabis products. In addition, we incur significant costs complying with state and local laws and regulations. As a result, products sold at our dispensaries will likely cost more than similar products sold by unlicensed vendors and we may lose market share to those vendors.
Federal income tax reform could have unforeseen effects on our financial condition and results of operations.
The Tax Cuts and Jobs Act, or the Tax Act, was enacted on December 22, 2017, and contains many changes to U.S. federal tax laws. The Tax Act requires complex computations that were not previously provided for under U.S. tax law and significantly revised the U.S. tax code by, among other changes, lowering the corporate income tax rate from 35% to 21%, requiring a one-time transition tax on accumulated foreign earnings of certain foreign subsidiaries that were previously tax deferred and creating new taxes on certain foreign sourced earnings. As of December 31, 2023, the Company has completed its accounting for the tax effects of the 2017 Tax Act. However, additional guidance may be issued by the Internal Revenue Service, the Department of the Treasury, or other governing body that may significantly differ from our interpretation of the law, which may result in a material adverse effect on our business, cash flow, results of operations or financial conditions.
Inadequate funding for the DOJ and other government agencies could hinder their ability to perform normal business functions on which the operation of our business may rely, which could negatively impact our business.
In an effort to provide guidance to federal law enforcement, the DOJ has issued Guidance Regarding Marijuana Enforcement to all United States Attorneys in a memorandum from Deputy Attorney General David Ogden on October 19, 2009, in a memorandum from Deputy Attorney General James Cole on June 29, 2011, in a memorandum from Deputy Attorney General James Cole on August 29, 2013, and in a memorandum from Attorney General Jefferson Sessions on January 4, 2018. Each memorandum provides that the DOJ is committed to the enforcement of the CSA but, the DOJ is also committed to using its limited investigative and prosecutorial resources to address the most significant threats in the most effective, consistent, and rational way.
The DOJ has not historically devoted resources to prosecuting individuals whose conduct is limited to possession of small amounts of marijuana for use on private property but has relied on state and local law enforcement to address marijuana activity. In the event the DOJ reverses its stated policy and begins strict enforcement of the CSA in states that have laws legalizing medical marijuana and recreational marijuana in small amounts, there may be a direct and adverse impact to our business and our revenue and profits. Furthermore, H.R. 83, enacted by Congress on December 16, 2014, provides that none of the funds made available to the DOJ pursuant to the 2015 Consolidated and Further Continuing Appropriations Act may be used to prevent certain states, including California, from implementing their own laws that authorized the use, distribution, possession, or cultivation of medical marijuana. If a prolonged government shutdown occurs, it could enable the DOJ to enforce the CSA in states that have laws legalizing medical marijuana.
California’s Phase-In of Laboratory Testing Requirements could impact the availability of the products sold in our dispensaries.
Beginning July 1, 2018, cannabis goods must meet all statutory and regulatory requirements. A licensee can only sell cannabis goods that have been tested by a licensed testing laboratory and have passed all statutory and regulatory testing requirements. In order to be sold, cannabis goods harvested or manufactured prior to January 1, 2018, must be tested by a licensed testing laboratory and must comply with all testing requirements in section 5715 of the Bureau of Cannabis Control (“BCC”) regulations. Cannabis goods that do not meet all statutory and regulatory requirements must be destroyed in accordance with the rules pertaining to destruction.
There is uncertainty related to the regulation of vaporization products and certain other consumption accessories. Increased regulatory compliance burdens could have a material adverse impact on our business development efforts and our operations.
There is uncertainty regarding whether and in what circumstances federal, state, or local regulatory authorities will seek to develop and enforce regulations relative to vaporizer hardware and accessories that can be used to vaporize cannabis and/or tobacco. Further, it remains to be seen whether current or future regulations relating to tobacco vaporization products would also apply to cannabis vaporization products and related consumption accessories.
There has been increasing activity on the federal, state, and local levels with respect to scrutiny of vaporizer products. Federal, state, and local governmental bodies across the United States have indicated that vaporization products and certain other consumption accessories may become subject to new laws and regulations at the state and local levels. For example, in September 2019, the Administration announced a plan to ban the sale of most flavored e-cigarettes nationwide. At the state level, over 25 states have implemented statewide regulations that prohibit vaping in public places.
In January 2015, the California Department of Health declared electronic cigarettes and certain other vaporizer products a health threat that should be strictly regulated like tobacco products, and in September 2019, California’s governor issued an executive order on vaping, focused on enforcement and disclosure. Many states, provinces, and some cities have passed laws restricting the sale of electronic cigarettes and certain other tobacco vaporizer products. Some cities have also implemented more restrictive measures than their state counterparts, such as San Francisco, which in June 2018, approved a new ban on the sale of flavored tobacco products, including vaping liquids and menthol cigarettes. In August 2020, California prohibited the sale of most flavored tobacco products, including menthol cigarettes.
The application of any new laws or regulations that may be adopted in the future, at a federal, state, or local level, directly or indirectly implicating cannabis vaporization products or consumption accessories could limit our ability to sell such products, result in additional compliance expenses, and require us to change our labeling and methods of distribution, any of which could have a material adverse effect on our business, results of operations and financial condition.
The scientific community has not yet extensively studied the long-term health effects of the use of vaporizer products.
Cannabis vaporizers and related products were recently developed and therefore the scientific community has not had a sufficient period of time to study the long-term health effects of their use. If the scientific community were to determine conclusively that use of any or all of these products poses long-term health risks, market demand for these products and their use could materially decline. Such a determination could also lead to litigation and significant regulation. Loss of demand for our product, product liability claims, and increased regulation stemming from unfavorable scientific studies on these products could have a material adverse effect on our business, results of operations, and financial condition.
If product liability lawsuits are brought against us, we will incur substantial liabilities.
We face an inherent risk of product liability. For example, we could be sued if any product we sell allegedly causes injury or is found to be otherwise unsuitable during product testing, manufacturing, marketing or sale. Any such product liability claims may include allegations of defects in manufacturing, defects in design, a failure to warn of dangers inherent in the product, negligence, strict liability and a breach of warranties. Claims could also be asserted under state consumer protection acts.
Furthermore, vaporizer products and other similar consumption product manufacturers, suppliers, distributors, and sellers have recently become subject to litigation. While we have not been a party to any product liability litigation, several lawsuits have been brought against other manufacturers and sellers of smokeless products for injuries to health allegedly caused by use of smokeless products. We may be subject to similar claims in the future relating to vaporizer products that we sell. We may also be named as a defendant in product liability litigation against one of our suppliers by association, including in class action lawsuits. In addition, we may see increasing litigation over our vaporizer products or the regulation of our products as the regulatory regimes surrounding these products develop. If such lawsuits are filed against us in the future, we could incur substantial costs, including costs to defend the cases and possible damages awards.
If we cannot successfully defend ourselves against product liability claims, we may incur substantial liabilities or be required to limit sales of our products. Even a successful defense of these hypothetical future cases would require significant financial and management resources. If we are unable to successfully defend these hypothetical future cases, we could face at least the following potential consequences:
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decreased demand for our products;
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injury to our reputation;
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costs to defend the related litigation;
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a diversion of management’s time and our resources;
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substantial monetary awards to users of our products;
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product recalls or withdrawals;
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loss of revenue; and
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a decline in our stock price.
In addition, while we continue to take what we believe are appropriate precautions, we may be unable to avoid significant liability if any product liability lawsuit is brought against us.
Unionization of employees could have a material adverse impact on our business.
Employees in our Blüm Oakland and Blüm San Leandro facilities are unionized. We could face an increased risk of work stoppages and higher labor costs wherever labor is organized. If additional employees at our dispensaries, production or cultivation facilities were to unionize, our relationship with our employees could be adversely affected. Accordingly, unionization of our employees could have a material adverse impact on our operating costs and financial condition and could force us to raise prices on our products or curtail operations.
Inadequate funding for state and local regulatory agencies and the effects of COVID-19 could hinder their ability to perform normal business functions on which the operation of our business may rely, which could negatively impact our business.
We operate in a highly regulated industry and rely on state and local regulatory agencies to issue licenses to operate our business and, in some cases, approve transfers of ownership interests in the event we intend to dispose of assets. Since the onset of the COVID-19 pandemic, many state and local regulatory agencies have been operating at reduced capacity which has resulted in delayed approvals of transfers of ownership interests.
Competition from synthetic production and technological advances could adversely impact our profitability.
The pharmaceutical industry may attempt to dominate the cannabis industry, and in particular, legal cannabis, through the development and distribution of synthetic products which emulate the effects and treatment of organic cannabis. If they are successful, the widespread popularity of such synthetic products could change the demand, volume and profitability of the cannabis industry. This could materially adversely affect the ability of the Company to secure long-term profitability and success through the sustainable and profitable operation of its business.
There are risks inherent in an agricultural business.
Medical and adult-use cannabis is an agricultural product. There are risks inherent in the cultivation business, such as insects, plant diseases and similar agricultural risks. Although the products are usually grown indoors or in green houses under climate-controlled conditions, there can be no assurance that natural elements will not have a material adverse effect on the production of the products and, consequentially, on the business, financial condition and operating results of the Company.
We may suffer from unfavorable publicity or consumer perception.
The legal cannabis industry in the U.S. is at an early stage of its development. Cannabis has been, and is expected to continue to be, a controlled substance. Consumer perceptions regarding legality, morality, consumption, safety, efficacy and quality of cannabis are mixed and evolving. Consumer perception can be significantly influenced by scientific research or findings, regulatory investigations, litigation, media attention and other publicity regarding the consumption of cannabis products. There can be no assurance that future scientific research, findings, regulatory proceedings, litigation, media attention or other research findings or publicity will be favorable to the cannabis market or any particular product, or consistent with earlier publicity. Future research reports, findings, regulatory proceedings, litigation, media attention or other publicity that are perceived as less favorable than, or that question, earlier research reports, findings or publicity could have a material adverse effect on the demand for cannabis and on the business, results of operations, financial condition and cash flows of the Company. Further, adverse publicity, reports or other media attention regarding cannabis in general, or associating the consumption of cannabis with negative effects or events, could have such a material adverse effect.
Our independent registered public accounting firm's report for the year ended December 31, 2023 is qualified as to our ability to continue as a going concern.
Due to the uncertainty of our ability to meet our current operating and capital expenses, in our audited annual financial statements as of and for the year ended December 31, 2023, our independent registered public accounting firm included a note to our financial statements regarding concerns about our ability to continue as a going concern. Recurring losses from operations raise substantial doubt about our ability to continue as a going concern. The presence of the going concern note to our financial statements may have an adverse impact on the relationships we are developing and plan to develop with third parties as we continue the commercialization of our products and could make it challenging and difficult for us to raise additional financing, all of which could have a material adverse impact on our business and prospects and result in a significant or complete loss of your investment.
The Company has identified material weaknesses in its internal control over financial reporting and may identify additional material weaknesses in the future that may cause us to fail to meet the reporting obligations or result in material misstatements of our financial statements. If the Company fails to remediate any material weaknesses or if the Company fails to establish and maintain effective control over financial reporting, its ability to accurately and timely report its financial results could be adversely affected.
Management is responsible for establishing and maintaining adequate internal control over financial reporting. Internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements in accordance with U.S. generally accepted accounting principles. A material weakness is a deficiency, or a combination of deficiencies, in internal control over financial reporting such that there is a reasonable possibility that a material misstatement of annual or interim financial statements will not be prevented or detected on a timely basis. The Company has identified material weaknesses pertaining to its primary user access controls and review of transactions and account reconciliations. The Company plans to implement measures designed to improve our internal control over financial reporting to remediate such material weaknesses, which will not be considered remediated until the remediated controls operate for a sufficient period of time and management has concluded that these controls are operating effectively.
If management is unable to further implement and maintain effective internal control over financial reporting or disclosure controls and procedures, the Company’s ability to record, process and report financial information accurately, and to prepare financial statements within required time periods could be adversely affected, which could subject it to litigation or investigations requiring management resources and payment of legal and other expenses, negatively affect investor confidence in the financial statements and adversely impact the stock price. If the Company is unable to assert that its internal control over financial reporting is effective, investors may lose confidence in the accuracy and completeness of the financial reports, the market price of the shares could be adversely affected and the Company could become subject to litigation or investigations by the stock exchange on which our securities are listed, the SEC or other regulatory authorities, which could require additional financial and management resources.
Furthermore, the Company cannot assure you that the measures it has taken to date, and actions it may take in the future, will be sufficient to remediate the control deficiencies that led to the material weakness in its internal control over financial reporting or that they will prevent or avoid potential future material weaknesses. The current controls and any new controls that management develops may become inadequate because of changes in conditions in the business. Further, weaknesses in the disclosure controls and internal control over financial reporting may be discovered in the future. Any failure to develop or maintain effective controls or any difficulties encountered in their implementation or improvement could harm the Company’s operating results or cause the Company to fail to meet its reporting obligations and may result in a restatement of the financial statements for prior periods.
Risks Related to an Investment in Our Securities
We expect to experience volatility in the price of our Common Stock, which could negatively affect stockholders’ investments.
The trading price of our Common Stock may be highly volatile and could be subject to wide fluctuations in response to various factors, some of which are beyond our control. The stock market in general has experienced extreme price and volume fluctuations that have often been unrelated or disproportionate to the operating performance of companies with securities traded in those markets. Broad market and industry factors may seriously affect the market price of companies’ stock, including ours, regardless of actual operating performance. All of these factors could adversely affect our stockholders' ability to sell their shares of Common Stock or, if they are able to sell their shares, to sell their shares at a price that they determine to be fair or favorable.
Our Common Stock may be categorized as “penny stock,” which may make it more difficult for investors to sell their shares of Common Stock due to suitability requirements.
Our Common Stock may be categorized as “penny stock.” The SEC has adopted Rule 15g-9, which generally defines “penny stock” to be any equity security that has a market price (as defined) less than $5.00 per share or an exercise price of less than $5.00 per share, subject to certain exceptions. The price of our Common Stock is significantly less than $5.00 per share and may therefore be considered a “penny stock.” This designation imposes additional sales practice requirements on broker-dealers who sell to persons other than established customers and accredited investors. The penny stock rules require a broker-dealer buying our securities to disclose certain information concerning the transaction, obtain a written agreement from the purchaser and determine that the purchaser is reasonably suitable to purchase the securities given the increased risks generally inherent in penny stocks. These rules may restrict the ability and/or willingness of brokers or dealers to buy or sell our Common Stock, either directly or on behalf of their clients, may discourage potential stockholders from purchasing our Common Stock, or may adversely affect the ability of stockholders to sell their shares.
Financial Industry Regulatory Authority (“FINRA”) sales practice requirements may also limit a stockholder’s ability to buy and sell our Common Stock, which could depress the price of our Common Stock.
In addition to the “penny stock” rules described above, FINRA has adopted rules that require a broker-dealer to have reasonable grounds for believing that the investment is suitable for that customer before recommending an investment to a customer. Prior to recommending speculative low-priced securities to their non-institutional customers, broker-dealers must make reasonable efforts to obtain information about the customer’s financial status, tax status, investment objectives, and other information. Under interpretations of these rules, FINRA believes that there is a high probability that speculative low-priced securities will not be suitable for at least some customers. Thus, the FINRA requirements make it more difficult for broker-dealers to recommend that their customers buy our Common Stock, which may limit investors' ability to buy and sell our shares of Common Stock, have an adverse effect on the market for our shares of Common Stock, and thereby depress our price per share of Common Stock.
Our voting control is concentrated.
Our Chief Executive Officer controls a significant amount of the voting power of our capital stock due to (i) his ownership of approximately 15% of the outstanding Common Stock, (ii) his ownership of approximately 25% of the Company’s outstanding Series V Preferred Stock, which vote in a number equal to two times the number of shares of the Common Stock into which such shares of Series V Preferred Stock are then convertible, and (iii) the fact that he has voting power over an additional approximately 75% of the Series V Preferred Stock owned by others due to such other owners executing Voting Agreements which provide Mr. Carrillo with their voting rights with respect to the Series V Preferred Stock owned by them. As a result, Mr. Carrillo potentially has the ability to control the outcome of matters submitted to our stockholders for approval, including the election and removal of directors and any arrangement or sale of all or substantially all of our assets. Certain other of our executive officers own, in the aggregate, approximately 1% of the outstanding shares of Common Stock and approximately 8% of the outstanding shares of Series V Preferred Stock.
This concentrated control could delay, defer, or prevent a change of control, arrangement, or merger involving sale of all or substantially all of our assets that our other stockholders may support. Conversely, this concentrated control could allow Mr. Carrillo and certain of our other executive officers to consummate such a transaction our other stockholders do not support.
Claims for indemnification by our directors and officers may reduce our available funds to satisfy successful third-party claims against us and may reduce the amount of money available to us.
Our amended and restated certificate of incorporation and amended and restated bylaws provide that we will indemnify our directors and officers, in each case to the fullest extent permitted by Delaware law.
In addition, as permitted by Section 145 of the DGCL, our amended and restated bylaws and our indemnification agreements that we have entered into with our directors and officers provide that:
•
we will indemnify our directors and officers for serving us in those capacities to the fullest extent permitted by Delaware law;
•
we may, in our discretion, indemnify employees and agents in those circumstances where indemnification is permitted by applicable law;
•
we are required to advance expenses, as incurred, to our directors and officers in connection with defending a proceeding, except that such directors or officers shall undertake to repay such advances if it is ultimately determined that such person is not entitled to indemnification;
•
we will not be obligated pursuant to our amended and restated bylaws to indemnify a person with respect to proceedings initiated by that person against us or our other indemnitees, except with respect to proceedings authorized by our board of directors ;
•
the rights conferred in our amended and restated bylaws are not exclusive, and we are authorized to enter into indemnification agreements with our directors, officers, employees and agents and to obtain insurance to indemnify such persons; and
•
we may not retroactively amend our amended and restated bylaw provisions to reduce our indemnification obligations to directors, officers, employees and agents.
We may issue additional shares of Common Stock or preferred stock in the future, which could cause significant dilution to all stockholders.
Our Certificate of Incorporation authorize the issuance of up to 990,000,000 shares of Common Stock and 50,000,000 shares of preferred stock, with a par value of $0.001 per share. As of April 10, 2024, we had 8,499,105 shares of Common Stock outstanding, 14,071,431 shares of Series V Preferred Stock outstanding, and no shares of Series N Preferred Stock outstanding. We may issue additional shares of Common Stock or preferred stock in the future in connection with a financing or an acquisition. Such issuances may not require the approval of our stockholders. In addition, certain of our outstanding rights to purchase additional shares of Common Stock or securities convertible into our Common Stock are subject to full-ratchet anti-dilution protection, which could result in the right to purchase significantly more shares of Common Stock being issued or a reduction in the purchase price for any such shares or both. Any issuance of additional shares of our Common Stock, or equity securities convertible into our Common Stock, including but not limited to, preferred stock, warrants, and options, will dilute the percentage ownership interest of all stockholders, may dilute the book value per share of our Common Stock, and may negatively impact the market price of our Common Stock.
Our charter documents and Delaware law could prevent a takeover that stockholders consider favorable and could also reduce the market price of our stock.
Our amended and restated certificate of incorporation and our amended and restated bylaws contain provisions that could delay or prevent a change in control of our Company. These provisions could also make it more difficult for stockholders to elect directors and take other corporate actions. These provisions include:
•
authorizing our board of directors to issue preferred stock with voting or other rights or preferences that could discourage a takeover attempt or delay changes in control;
•
limiting the persons who may call special meetings of stockholders; and
•
requiring advance notification of stockholder nominations and proposals.
These provisions may frustrate or prevent any attempts by our stockholders to replace or remove our current management by making it more difficult for stockholders to replace members of our board of directors, which is responsible for appointing the members of our management. In addition, the provisions of Section 203 of the Delaware General Corporate Law (“DGCL”) govern us. These provisions may prohibit large stockholders, in particular those owning 15% or more of our outstanding voting stock, from merging or combining with us for a certain period of time without the consent of our board of directors.
These and other provisions in our amended and restated certificate of incorporation and our amended and restated bylaws and under Delaware law, together with the voting control possessed by our founders, could discourage potential takeover attempts, reduce the price investors might be willing to pay in the future for shares of our common stock and result in the market price of our common stock being lower than it would be without these provisions.
Because we do not intend to pay any cash dividends on our Common Stock, our stockholders will not be able to receive a return on their shares unless they sell them.
We intend to retain any future earnings to finance the development and expansion of our business. We do not anticipate paying any cash dividends on our Common Stock in the foreseeable future. Declaring and paying future dividends, if any, will be determined by our board of directors, based upon earnings, financial condition, capital resources, capital requirements, restrictions in our Certificate of Incorporation, contractual restrictions, and such other factors as our board of directors deems relevant. Unless we pay dividends, our stockholders will not be able to receive a return on their shares unless they sell them. There is no assurance that stockholders will be able to sell shares when desired.
Failure to execute our strategies could result in impairment of goodwill or other intangible assets, which may negatively impact profitability.
As of December 31, 2023, we had goodwill of $3.59 million and other intangible assets of $1.36 million, which represented 15% of our total assets. As of December 31, 2022, we have goodwill of $3.59 million and other intangible assets of $2.86 million, which represented 16% of our total assets. We evaluate goodwill for impairment on an annual basis or more frequently if impairment indicators are present based upon the fair value of each reporting unit. We assess the impairment of other intangible assets on an annual basis, or more frequently if impairment indicators are present, based upon the expected future cash flows of the respective assets. These valuations include management’s estimates of sales, profitability, cash flow generation, capital structure, cost of debt, interest rates, capital expenditures, and other assumptions. Significant negative industry or economic trends, disruptions to our business, inability to achieve sales projections or cost savings, inability to effectively integrate acquired businesses, unexpected significant changes or planned changes in use of the assets or in entity structure, and divestitures may adversely impact the assumptions used in the valuations. If the estimated fair value of our reporting units changes in future periods, we may be required to record an impairment charge related to goodwill or other intangible assets, which would reduce earnings in such period.
If our acquired intangible assets become impaired in the future, we may incur significant impairment charges.
At least annually, or whenever events or circumstances arise indicating impairment may exist, we review goodwill for impairment as required by generally accepted accounting principles in the United States. Long-lived assets other than goodwill and indefinite-lived intangible assets, held and used by the Company are reviewed for impairment whenever events or changes in circumstances indicate that the carrying amount of the assets may not be recoverable.
In the future, we may need to further reduce the carrying amount of goodwill and incur additional non-cash charges to our results of operations. Such charges could have the effect of reducing goodwill with a corresponding impairment expense and may have a material effect upon our reported results. The additional expense may reduce our reported profitability or increase our reported losses in future periods and could negatively affect the value of our securities, our ability to obtain other sources of capital, and may generally have a negative effect on our future operations.

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ITEM 1B. UNRESOLVED STAFF COMMENTS
ITEM 1B. UNRESOLVED STAFF COMMENTS
None.

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ITEM 2. PROPERTIES
ITEM 2. PROPERTIES
A summary of the offices and properties that we lease or own are presented in the table below. Each of our facilities is considered to be in good condition, adequate for its purpose, and suitably utilized according to the individual nature and requirements of the relevant operations.
Base
Lease
Lease
Own or
Monthly
Begin
End
Purpose
Location
Lease
Rent
Date
Date
Cultivation Facility*
Oakland, CA
Lease
$ 28,384
1/1/2017
12/31/2024
Dispensary (Blüm Oakland)/Distribution Facility
Oakland, CA
Lease
$ 35,436
4/1/2016
3/31/2026
Dispensary (Blüm San Leandro)
San Leandro, CA
Lease
$ 28,384
1/1/2017
12/31/2024
Dispensary (Blüm OC)
Santa Ana, CA
Lease
$ 56,160
9/1/2021
3/1/2025
Dispensary (People's Costa Mesa)
Costa Mesa, CA
Lease
$ 62,131
9/1/2021
6/1/2036
Dispensary (People's DTLA)
Los Angeles, CA
Lease
$ 62,348
9/1/2021
10/31/2026
Corporate Headquarters and Dispensary (The Spot)
Santa Ana, CA
Own
* Indicates property related to discontinued operations.

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ITEM 3. LEGAL PROCEEDINGS
ITEM 3. LEGAL PROCEEDINGS
See "Note 22 - Commitments and Contingencies” of the Notes to Consolidated Financial Statements in Part II of this Annual Report on Form 10-K, which is incorporated herein by reference.

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ITEM 4. MINE SAFETY DISCLOSURE
ITEM 4. MINE SAFETY DISCLOSURES
Not applicable.
PART II

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ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY
ITEM 5. MARKET FOR REGISTRANT’S COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND ISSUER PURCHASES OF EQUITY SECURITIES
Market Information
Our Common Stock is quoted on the OTC Markets Group, Inc.’s OTCQB tier under the symbol “BLMH.” Prior to February 12, 2024, our Common Stock was quoted on the OTCQB under the symbol “UNRV.” On April 10, 2024, the closing bid price on the OTC Markets Group, Inc.’s OTCQB tier for our Common Stock was $0.77.
Holders
As of April 10, 2024, there were 8,499,105 shares of Common Stock issued and outstanding (excluding shares of Common Stock issuable upon conversion of all of our warrants and options) held by approximately 261 stockholders of record.
Dividends
We have not declared any dividends and we do not plan to declare any dividends in the foreseeable future. There are no restrictions in our Certificate of Incorporation or Bylaws that prevent us from declaring dividends. However, the terms of any future debt agreements or other contractual obligations may preclude us from paying dividends. As a result, capital appreciation, if any, of our shares of common stock will be your sole source of gain for the foreseeable future.
Securities Authorized for Issuance Under Equity Compensation Plans
On January 12, 2016, we adopted the 2016 Equity Incentive Plan (the “2016 Plan”), and our stockholders approved the 2016 Plan at our annual meeting of stockholders that was held on September 26, 2016. Pursuant to the terms of the 2016 Plan, the maximum number of shares of Common Stock available for the grant of awards under the 2016 Plan shall not exceed 2,000,000. During the years ended December 31, 2016, 2017, and 2018, the Company granted ten-year options to directors, officers, and employees, pursuant to which such individuals are entitled to exercise options to purchase an aggregate of up to 1,300, 2,100, and 2,000 shares of Common Stock, respectively. The options have exercise prices of $254.00 to $504.00 per share, and generally vest quarterly over a three-year period.
On December 11, 2018, the Company’s board of directors approved the 2018 Equity Incentive Plan. On June 20, 2019, the Company adopted the Amended and Restated 2018 Equity Incentive Plan (the “2018 Plan”), and our stockholders approved the 2018 Plan at our annual meeting of stockholders that was held September 23, 2019. Pursuant to the terms of the 2018 Plan, the maximum number of shares of Common Stock available for the grant of awards under the 2018 Plan shall not exceed 13,000,000 shares. On February 14, 2020, the board of directors approved an amendment (the “Plan Amendment”) to the Company’s Amended and Restated 2018 Equity Incentive Plan to increase the number of shares available for issuance thereunder by 28,980,000 shares of Common Stock for a total of 43,980,000 shares of Common Stock, plus the number of shares, not to exceed 2,000,000 shares, that may become available under the Company’s 2016 Equity Incentive Plan after termination of awards thereunder, subject to adjustment in accordance with the terms of the Plan. During the years ended December 31, 2022 and 2021, the Company granted ten-year options to directors, officers, and employees, pursuant to which such individuals are entitled to exercise options to purchase an aggregate of up to 589,800 and 250,100 shares of Common Stock, respectively. The options have exercise prices of $7.00 to $26.00 per share, and generally vest quarterly over a three-year period. During the year ended December 31, 2023, the Company granted ten-year options to executives and employees totaling 192,442, pursuant to which such individuals are entitled to exercise options to purchase an aggregate of up to 192,442 shares of Common Stock. The options have an exercise price of $1.00 and vest immediately on the grant date.
During the year ended December 31, 2018, the Company granted ten-year options to directors, officers, and employees, pursuant to which such individuals are entitled to exercise options to purchase an aggregate of up to 3,500 shares of Common Stock that were not subject to the 2016 Equity Incentive Plan or the 2018 Equity Incentive Plan. The options have exercise prices of $202.00 per share, and generally vest quarterly over a three-year period.
On May 15, 2019, UMBRLA, Inc. approved the 2019 Equity Incentive Plan (the “UMBRLA Plan”). The UMBRLA Plan was subsequently amended by shareholder consents dated effective March 11, 2020 and November 2, 2020. Pursuant to the terms of the UMBRLA Plan as amended, the maximum number of shares of Common Stock available for the grant of awards under the UMBRLA Plan is 55,000,000 shares. At the time the acquisition of UMBRLA, Inc. completed, UMBRLA, Inc. had granted ten-year options to employees, directors, officers, and consultants totaling 539,570 shares. Immediately after the acquisition of UMBRLA, Inc. by the Company, those shares were assumed by the Company and will be honored in equivalent shares of Common Stock which equivalency equals an aggregate 830,171 shares. The options have exercise prices of $13.00 to $19.00, and with limited exceptions, vest in equal monthly installments over a four-year period, with the first one-quarter of the award vesting on the first anniversary following the vesting start date.
Equity Compensation Plan Information
Number of
Securities
Remaining
Available for
Future
Range of
Issuance
Weighted-
Under
Number of
Average
Equity
Securities to be
Exercise
Compensation
Issued Upon
Price of
Plans
Exercise of Outstanding
Outstanding
Excluding
Options,
Options,
Securities
Warrants and
Warrants
Reflected in
Plan Category
Rights
and Rights
Column (a))
(a)
(b)
(c)
Equity Compensation Plans Approved By Security Holders
368,351
$ 1.00 - 438.00
100,608,074
Equity Compensation Plans Not Approved By Security Holders
202.00
-
Total
369,301
$ 1.00 - 438.00
100,608,074
Penny Stock Regulations
The SEC has adopted regulations that generally define “penny stock” to be an equity security that has a market price of less than $5.00 per share. Our Common Stock may fall within the definition of penny stock and be subject to rules that impose additional sales practice requirements on broker-dealers who sell such securities to persons other than established customers and accredited investors (generally those with assets in excess of $1.00 million (excluding primary residence), or annual incomes exceeding $0.20 million individually, or $0.30 million, together with their spouse).
For transactions covered by these rules, the broker-dealer must make a special suitability determination for the purchase of such securities and have received the purchaser’s prior written consent to the transaction. Additionally, for any transaction, other than exempt transactions, involving a penny stock, the rules require the delivery, prior to the transaction, of a risk disclosure document mandated by the SEC relating to the penny stock market. The broker-dealer also must disclose the commissions payable to both the broker-dealer and the registered representative, current quotations for the securities and, if the broker-dealer is the sole market-maker, the broker-dealer must disclose this fact and the broker-dealer’s presumed control over the market. Finally, monthly statements must be sent disclosing recent price information for the penny stock held in the account and information on the limited market in penny stocks. Consequently, the “penny stock” rules may restrict the ability of broker-dealers to sell our Common Stock and may affect the ability of investors to sell their Common Stock in the secondary market.
Recent Sales of Unregistered Securities
In January 2023, the Company entered into Securities Purchase Agreements with certain investors, including Sabas Carrillo, the Company’s Chief Executive Officer, Patty Chan, the Company’s Chief Financial Officer, James Miller, the Company's Chief Operating Officer, and Robert Baca, the Company’s Chief Legal Officer. Pursuant to the Securities Purchase Agreement ("SPA"), the Company issued (i) 14,071,431 shares of Series V Preferred Stock at $0.14 per share which is equal to the closing share price of our Common Stock on December 30, 2022 on an as-converted-to-common stock-basis of one-tenth (1/10th) of a share of Common Stock for each one share of Series V Preferred Stock or $1.40 per share of Common Stock and (ii) 703,572 warrants to purchase up to 703,572 of Common Stock with an exercise price of $2.80 or equivalent to two times the as-converted-to-common stock purchase price of $1.40. The Company received total gross proceeds of $1.97 million from the private placement transaction.
During the year ended December 31, 2023, the Company issued 961,783 shares of the common stock to Adnant, LLC under the performance bonus award pursuant to the Original Adnant Letter dated August 12, 2022 and the A&R Engagement Letter dated June 30, 2023.
During the year ended December 31, 2023, the Company issued 759,403 shares of common stock to Brick City Productions, Inc. pursuant to the Management Services Agreement dated December 28, 2022.

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ITEM 6. SELECTED FINANCIAL DATA
ITEM 6. [RESERVED]
None.

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ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS
ITEM 7. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS.
The following discussion of our financial condition and results of operations should be read in conjunction with our consolidated financial statements and the related notes thereto included elsewhere in this Annual Report on Form 10-K beginning on page. The following discussion contains forward-looking statements that involve risks and uncertainties. Investors should not place undue reliance on these forward-looking statements. These forward-looking statements are based on current expectations and actual results could differ materially from those discussed herein. Factors that could cause or contribute to the differences are discussed in Item 1A, “Risk Factors” and elsewhere in this Annual Report on Form 10-K. Our actual results could differ materially from those predicted in these forward-looking statements, and the events anticipated in the forward-looking statements may not actually occur. Although we believe that the expectations reflected in these forward-looking statements are reasonable, we cannot guarantee future results, levels of activity, performance or achievements. We are under no duty to update any of the forward-looking statements after the date of this Annual Report on Form 10-K to conform these statements to actual results or to reflect the occurrence of unanticipated events, unless required by applicable laws or regulations.
COMPANY OVERVIEW
Our Business
The Company is a cannabis company with retail, manufacturing, distribution, and cultivation operations throughout California, with an emphasis on providing the highest quality of medical and adult use cannabis products. The Company is home to Korova, a brand of high potency products across multiple product categories. The Company operates Blüm OC, a premier cannabis dispensary in Orange County, California, regularly servicing upwards of 800 customers each day. The Company also owns dispensaries in California which operate as The Spot in Santa Ana, Blüm in Oakland, and Blüm in San Leandro. As of December 31, 2023, the Company had 149 employees.
We are organized into two reportable segments:
• Cannabis Retail - Includes cannabis-focused retail, both physical stores and non-store front delivery
• Cannabis Distribution - Includes cannabis distribution operations
Either independently or in conjunction with third parties, we operate medical marijuana retail and adult use dispensaries, cultivation and manufacturing facilities in California.
Our corporate headquarters are located at 3242 S. Halladay St, Suite 202, Santa Ana, California 92705 and our telephone number is (888) 909-5564. Our website address is as follows: www.blumholdings.com. No information available on or through our websites shall be deemed to be incorporated into this Form 10-Q. Our common stock, par value $0.001 (the “Common Stock”), is quoted on the OTC Markets Group, Inc’s OTCQB tier under the symbol “BLMH.”
Corporate Reorganization
On January 12, 2024, Unrivaled Brands, Inc. ("UNRV") completed its previously announced corporate reorganization pursuant to the Reorganization Agreement, by and among Unrivaled Brands, Inc., Blum Holdings, Inc., and Blum Merger Sub, Inc ("Merger Sub"). The Reorganization Agreement provided for the merger of UNRV and Merger Sub, with UNRV surviving the merger as a wholly-owned subsidiary of Blüm. The Reorganization Agreement was approved and adopted by the stockholders of UNRV at its annual meeting of stockholders held on December 5, 2023. At the effective time of the Reorganization, all of the issued and outstanding shares of UNRV’s common stock, par value $0.001 per share were converted automatically on a one-for-one basis into shares of Blüm’s common stock, par value $0.001 per share, and all of the issued and outstanding shares of UNRV’s classes of preferred stock, par value $0.001 per share, were converted automatically on a one-for-one basis into shares of Blüm’s respective classes of preferred stock, par value $0.001 per share. On February 12, 2024, the Company began trading as "BLMH" on the OTCQB.
Effective January 12, 2024, the Company completed a reverse stock split of its common stock at a 1-for-100 ratio. Accordingly, all share and per share amounts for all periods presented in this Current Report on Form 10-K have been adjusted retroactively, where applicable, to reflect this reverse stock split and adjustment of the preferred stock conversion ratios.
Fiscal Year 2023 Highlights
Executive-Led Private Placement
In January 2023, the Company entered into Securities Purchase Agreements with certain investors, including Sabas Carrillo, the Company’s Chief Executive Officer, Patty Chan, the Company’s Chief Financial Officer, James Miller, the Company's Chief Operating Officer, and Robert Baca, the Company’s Chief Legal Officer. Pursuant to the SPA, the Company issued (i) 14,071,431 shares of Series V Preferred Stock at $0.14 per share which is equal to the closing share price of common stock on December 30, 2022 on an as-converted-to-common stock-basis of one-tenth (1/10th) of a share of common stock for each one share of Series V Preferred Stock or $1.40 per share of common stock and (ii) 703,572 warrants to purchase up to 703,572 of common stock with an exercise price of $2.80 or equivalent to two times the as-converted-to-common stock purchase price of $1.40. The Company received total gross proceeds of $1.97 million from the private placement transaction.
Settlement of People's Litigation & Amendments of Related Promissory Notes
On March 6, 2023, the Company entered into a binding settlement term sheet (“Settlement Term Sheet”) to resolve pending litigation matters with People’s California, LLC, subject to final documentation. Upon execution of the binding term sheet, the parties agreed to inform the court of the settlement and request a stay of all pending litigation.
As a result of the Settlement Term Sheet, the parties agreed to amend the terms of the secured promissory note dated November 22, 2021 (“Original Note”) wherein the Original Note was amended and restated into two secured promissory notes: a $3.00 million note ("$3M Note") and a $20.00 million note ("Settlement Note"). The $3M Note accrues simple interest at 10.0% annually, interest payable monthly in cash, and principal is due 180 days after effective date of the Settlement Term Sheet. Refer to “Note 13 - Notes Payable” of the Consolidated Financial Statements for further information on the Settlement Term Sheet dated March 6, 2023.
On May 17, 2023, the Company amended the Settlement Term Sheet wherein the maturity date of the $3M Note was extended to December 6, 2023 and payments of the $5.00 million portion of the Up-front Settlement was extended through September 6, 2023, with $0.80 million being due and paid in cash on May 18, 2023. In addition, the Company shall make an additional $2.20 million principal repayment on or before September 6, 2023. Monthly interest payments were amended to provide the Company with the option to pay 50% of interest in the form of registered shares of Common Stock. Refer to “Note 13 - Notes Payable” of the Consolidated Financial Statements for additional details.
Amendment of Promissory Notes Related to Silverstreak Acquisition
On March 23, 2023, the Company entered into a binding term sheet to settle an aggregate of $3.02 million of the promissory notes dated October 1, 2021 related to the acquisition of Silverstreak Solutions, Inc. in the original amount of $4.50 million. The Company and the noteholders agreed to reduce the total amount of principal and interest owed to $1.25 million, payable over 60 months, and bearing interest at a rate of 10.0% per annum.
Settlement of Mystic Holdings Litigation
On September 12, 2023, the Company announced the resolution of outstanding litigation with Mystic Holdings, Inc. ("Mystic"). The settlement grants Unrivaled up to two seats on the board of directors of Mystic in addition to its 5.5% of shares of Mystic common stock and 9.7% of Series A Preferred shares of Mystic which grant 1,100-to-1 voting rights and which convert on a 1-to-1 basis to Mystic common stock. The parties have agreed to explore opportunities for mutual collaboration and growth.
Amendment of Senior Convertible Promissory Notes & Settlement of Related Litigation
On November 15, 2023, the Company entered into a binding settlement term sheet for the senior convertible promissory notes issued in connection with the Securities Purchase Agreement dated January 25, 2021. Pursuant to the settlement, the Company agreed to pay the principal balance of $3.25 million on or before May 15, 2024 and the lender agreed to waive all accrued interest and penalties. In addition, the binding term sheet settles a related motion for summary judgement brought by certain of the investors. Refer to “Note 22 - Commitments and Contingencies” regarding the litigation between Dominion Capital LLC and M2B Funding Corp. vs Unrivaled Brands, Inc.
Cultivation Operations
In October 2023, the Company entered into a management services agreement with a third-party to manage and operate the Company’s cultivation facility in Oakland, California which had been non-operational since October 2022.
On December 15, 2023, the Company entered into a management services agreement with a third-party to manage and operate the Company's second cultivation operations in Oakland, California (the "MSA"). The agreement includes an option to purchase the licensed entity at its fair value or a negotiated price. In conjunction with the MSA, the parties entered into a binding letter of intent to sell 100% of the stock and assets of the licensed entity which was completed on January 28, 2024 for a purchase price of $1.40 million.
Accordingly, the Company’s cultivation operations were classified as discontinued operations during the fiscal fourth quarter of 2023. As a result, assets and liabilities allocable to the cultivation operations were classified as held for sale in the Consolidated Balance Sheets for all periods presented. Discontinued operations are presented separately from continuing operations in the Consolidated Statements of Operations and the Consolidated Statements of Cash Flows for all periods presented.
Management Changes
On June 5, 2023, the Company announced the resignation of two of its board members, Nicholas Kovacevich and Eric Baum, effective July 1, 2023.
On June 12, 2023, the Company appointed Patty Chan as its Chief Financial Officer. Ms. Chan previously served as the Company’s Interim Chief Financial Officer since September 2022. Effective June 26, 2023, Chris Rivera was appointed as Interim Chief Financial Officer during Ms. Chan’s parental leave through November 2023.
On June 30, 2023, the Company’s board of directors (the “Board”) appointed Sabas Carrillo, the Chief Executive Officer, as Chairman of the Board and James Miller, the Chief Operating Officer, as a director on the Board, effective July 1, 2023. Mr. Carrillo has served as a member of the Board since December 2022.
On June 30, 2023, the Company amended and restated its engagement letter (“A&R Engagement Letter”) with Adnant, LLC (“Adnant”) dated August 12, 2022 pursuant to which Adnant will continue to provide certain executive level consulting and related business support and services through September 30, 2023. Effective April 1, 2023, as compensation for such services, Adnant is entitled to receive a monthly flat fee of $0.20 million. Adnant has the option to convert accrued and unpaid service fees into shares of common stock of the Company. In addition to the monthly fee described above, a Performance Bonus Award of $2.50 million shall be payable to Adnant in shares of the Company’s common stock (“Performance Bonus Award Shares”) based upon the achievement of the Performance Bonus Award Objectives set forth in the A&R Engagement Letter and the continued performance of Adnant towards obtaining such Performance Bonus Award Objectives. A transaction bonus award of $1.25 million is also available to Adnant subject to a change of control event approved by the Company’s Board of Directors with a value equal to or greater than $40.00 million in the aggregate. On December 29, 2023, the board of directors approved an extension of Adnant's continued services on a month-to-month basis under the terms of the A&R Engagement Letter.
On August 1, 2023, the Company appointed Matthew Barron to the board of directors and as a member of the audit committee of the Company.
Outlook
The Company will continue to focus on its performing assets, particularly California retail assets. In particular, the Company intends to emphasize retail business fundamentals including a robust and diverse product offering, improving inventory turn and vendor management to continue to optimize gross margins, effective marketing strategies focused on driving loyalty, reactivation of lapsed customers and new customer acquisitions. The Company remains excited as it embarks on reinvigorating the Korova brand. The Company will continue to focus on reducing and streamlining its corporate overhead and rightsizing the Company. This outlook is based on several management assumptions that are largely outside the control of the Company, including the continued overall down trending market conditions and highly promotional competitive landscape in our key markets. With a disciplined approach to analyzing retail performance and customer relationship management, a management team with extensive retail and cannabis industry and capital markets experience, deep relationships in the industry, and a commitment to investing in its team and, specifically, its company culture, the Company is encouraged that Unrivaled will emerge from its current restructuring efforts as an effective cannabis company. We will continue to seek further opportunities to expand profitability and maximize returns for its shareholders.
RESULTS OF OPERATIONS
The below table outlines our consolidated statements of operations for the three months and year ended December 31, 2023 and 2022:
Unaudited (in thousands)
(in thousands)
Three Months Ended December 31,
Year Ended December 31,
$ Change
% Change
$ Change
% Change
Revenue
$ 8,095
$ 7,644
$
5.9 %
$ 33,229
$ 52,015
$ (18,786 )
(36.1 )%
Cost of Goods Sold
3,720
3,653
1.8 %
15,565
33,875
(18,310 )
(54.1 )%
Gross Profit
4,375
3,991
9.6 %
17,664
18,140
(476 )
(2.6 )%
Gross Margin %
54.0 %
52.2 %
1.8 %
53.2 %
34.9 %
18.3 %
Operating Expenses (Income):
Selling, General and Administrative Expenses
9,254
4,928
4,326
87.8 %
30,263
52,684
(22,421 )
(42.6 )%
Impairment Expense
-
-
-
- %
-
163,698
(163,698 )
(100.0 )%
Loss (Gain) on Disposal of Assets
1,806
(15,304 )
17,110
(111.8 )%
1,607
(13,432 )
15,039
(112.0 )%
Total Operating Expenses (Income)
11,060
(10,376 )
21,436
(206.6 )%
31,870
202,950
(171,080 )
(84.3 )%
Income (Loss) from Operations
(6,685 )
14,367
(21,052 )
(146.5 )%
(14,206 )
(184,810 )
170,604
(92.3 )%
Other Income (Expense)
(956 )
1,302
(136.2 )%
4,503
(1,884 )
6,387
(339.0 )%
Income (Loss) from Continuing Operations Before Provisions for Income Taxes
(6,339 )
13,411
(19,750 )
(147.3 )%
(9,703 )
(186,694 )
176,991
(94.8 )%
Provision for Income Tax (Expense) Benefit for Continuing Operations
(3,274 )
(2,802 )
(472 )
16.8 %
(4,116 )
2,784
(6,900 )
(247.8 )%
Net (Loss) Income from Continuing Operations
(9,613 )
10,609
(20,222 )
(190.6 )%
(13,819 )
(183,910 )
170,091
(92.5 )%
Net Loss from Discontinued Operations
(123 )
(7,056 )
6,933
(98.3 )%
(311 )
(4,746 )
4,435
(93.4 )%
Net (Loss) Income
(9,736 )
3,553
(13,289 )
(374.0 )%
(14,130 )
(188,656 )
174,526
(92.5 )%
Net Income from Discontinued Operations Attributable to Non-Controlling Interest
-
-
-
- %
-
(275 )
(100.0 )%
Net (Loss) Income Attributable to Unrivaled Brands, Inc.
$ (9,736 )
$ 3,553
$ (13,289 )
(374.0 )%
$ (14,130 )
$ (188,931 )
$ 174,801
(92.5 )%
Year Ended December 31, 2023 Compared to Year Ended December 31, 2022
Revenue
Overall revenue was $33.23 million for the year ended December 31, 2023 compared to $52.02 million for the year ended December 31, 2022, a decrease of $18.79 million or 36.1%. Revenue from continuing operations in fiscal year 2023 was composed of retail revenue of $33.04 million and distribution revenue of $0.19 million. This compared to fiscal year 2022 revenue composed of retail revenue of $39.94 million and distribution revenue of $12.08 million.
Retail revenue for the year ended December 31, 2023 decreased compared to the same period in the prior year by $6.9 million or 17.3% due to the closure of our non-storefront delivery in Sacramento, California, the divestiture of the Downtown Los Angeles retail operations during the second quarter of 2022, and a general decline in the cannabis market since the last half of 2022. While we operated the non-storefront Sacramento retail operation and the Los Angeles retail operations during the year ended December 31, 2022, there were no operations of the same non-storefront Sacramento retail and Los Angeles retail operations during the year ended December 31, 2023, which contributed $2.29 million in revenues in the prior year.
Distribution revenue for the year ended December 31, 2023 decreased by $11.89 million or 98.4% compared to the same period in the prior year. During the fiscal third quarter of 2022, we eliminated third-party distribution operations in California due to underperforming margins, which contributed $11.56 million of revenue in fiscal year 2022. During the year ended December 31, 2023, the Company's cultivation operations were classified as discontinued operations and separately presented in the Consolidated Statements of Operations for all periods presented. Refer to "Note 18 - Discontinued Operations" of the notes to the Consolidated Financial Statements in Item 8 for further information.
Gross Profit
Cost of goods sold for the year ended December 31, 2023 was $15.57 million, a decrease of $18.31 million or 54.1% compared to $33.88 million for the year ended December 31, 2022. The decrease in cost of goods sold was directly impacted by the decrease in revenues for the current reporting period as compared to the prior year in addition to management's focused efforts to improve efficiencies and reduce costs.
Gross profit from continuing operations for the year ended December 31, 2023 was $17.66 million compared to $18.14 million for the year ended December 31, 2022, a decrease of $0.48 million or 2.6% which is generally consistent with prior year. The Company's overall gross margin improved for the year ended December 31, 2023 to 53.2% as compared to 34.9% for the same period in the prior year as the Company focused on its core assets and divested non-performing assets related to its distribution operations. Gross profit for on-going retail operations improved to 53.7% for the year ended December 31, 2023 compared to 51.0% for the same period in the prior year.
Selling, General & Administrative Expenses
Selling, general and administrative expenses for the year ended December 31, 2023 were $30.26 million compared to $52.68 million for the year ended December 31, 2022, a decrease of $22.42 million or 42.6%. As a result of the Company's restructuring plan implemented during the third fiscal quarter of 2022, the Company saw significant reductions in expenses during the year ended December 31, 2023 as compared to the same period in the prior year. Specifically, the Company saw a decrease of $6.96 million in depreciation and amortization expense, a decrease of $6.78 million in salaries and benefits, a decrease of $2.48 million in stock-based compensation, and a decrease of $2.10 million in bad debt expense. As a result of the strategic right-sizing of the Company's cannabis operations, the Company also saw a decrease of $1.57 million in rent related expenses, a decrease of $1.06 million in security fees, and a decrease of $1.68 million in licenses, fees and taxes. Management expects to continue focusing on efficiencies within its core assets and reducing non-core assets and expenditures.
Operating Loss
The Company realized an operating loss from continuing operations of $14.21 million for the year ended December 31, 2023 compared to $184.81 million for the year ended December 31, 2022, a decrease of $170.6 million or 92.3%. This improvement from the same period in the prior year was primarily attributable to the results of the Company's restructuring objectives noted above and an impairment loss of $163.70 million recognized in the year ended December 31, 2022, versus no impairment loss recognized in the current fiscal year.
Other Income (Expense)
Other income for the year ended December 31, 2023 was $4.5 million compared to other expense of $1.88 million for the year ended December 31, 2022, an improvement of $6.39 million. The change from the prior year was primarily attributable to a gain on extinguishment of debt of $5.44 million recognized during the current period. Additionally, the improvement was also contributed by the cash receipt of $1.23 million in employer retention credits, versus no such transactions in the same period in the prior year.
Discontinued Operations
Net loss from discontinued operations was $0.31 million for the year ended December 31, 2023 compared to $4.75 million for the comparative prior period. The decrease of $4.44 million was primarily due to a decrease of $8.63 million in net income from the Company's cultivation operations. Specifically, we ceased operations at a cultivation facility in Northern California which provided no revenue in 2023 and began slowing down cultivation operations at our remaining facility in Northern California during the current year. In addition, all other entities classified as discontinued operations in prior periods were fully divested as of December 31, 2022, and as a result, the Company had no income or loss from discontinued operations for such entities during the year ended December 31, 2023.
Three Months Ended December 31, 2023 Compared to Three Months Ended December 31, 2022 (Unaudited)
Revenue
Overall revenue was $8.1 million for the three months ended December 31, 2023 compared to $7.64 million for the three months ended December 31, 2022, an increase of $0.45 million or 5.9%. Revenue from continuing operations in fiscal fourth quarter of 2023 was composed of retail revenue of $8.06 million and distribution revenue of $0.04 million. This compared to fiscal fourth quarter of 2022 revenue composed of retail revenue of $7.03 million and distribution revenue of $0.61 million.
Retail revenue for the three months ended December 31, 2023 increased by $1.02 million or 14.5% compared to the same period in the prior year.
Distribution revenue for the three months ended December 31, 2023 decreased by $0.57 million, or 93.5%, compared to the same period in the prior year. During fiscal year 2023, the Company scaled down its wholesale distribution operations in California and focused primarily on distribution to its own retail dispensaries.
Gross Profit
Cost of goods sold for the three months ended December 31, 2023 was $3.72 million which is generally consistent compared to $3.65 million for the three months ended December 31, 2022.
Gross profit from continuing operations for the three months ended December 31, 2023 was $4.38 million compared to $3.99 million for the three months ended December 31, 2022, an increase of $0.38 million or 9.6% which is generally consistent with the comparative prior quarter. The Company’s overall gross margin improved for the three months ended December 31, 2023 to 54.0% as compared to 52.2% for the three months ended December 31, 2022 as the Company focused on its core assets to maximize pricing and inventory strategy and divested non-performing assets related to its distribution operations. Gross profit for on-going retail operations improved to 54.5% for the three months ended December 31, 2023 compared to 51.5% for the same period in the prior year.
Selling, General & Administrative Expenses
Selling, general and administrative expenses for the three months ended December 31, 2023 were $9.25 million compared to $4.93 million for the three months ended December 31, 2022, an increase of $4.33 million, or 87.8%. The increase in selling, general and administrative expenses was primarily due to an increase of $2.17 million in income tax related interest and penalties and an increase of $2.17 million in professional fees related to the A&R Engagement Letter dated June 30, 2023 and an increase in legal fees related to the reorganization merger effected on January 12, 2024. Management expects to continue focusing on efficiencies within its core assets and reducing non-core assets and expenditures.
Operating Income (Loss)
The Company realized an operating loss from continuing operations of $6.69 million for the three months ended December 31, 2023 compared to an operating income from continuing operations of $14.37 million for the three months ended December 31, 2022, a decrease of $21.05 million or 146.5%. The decrease was primarily due to a gain on disposal of assets of $15.30 million related to the divestiture of non-core assets during the fiscal fourth quarter of 2022.
Other Income (Expense)
Other income for the three months ended December 31, 2023 was $0.35 million compared to other expense of $0.96 million for the three months ended December 31, 2022, a decrease of $1.3 million. The decrease in other expense was primarily attributable to a gain on extinguishment of debt of $2.42 million recognized during the fiscal fourth quarter of 2023, versus no such transaction in the same period in the prior year.
Discontinued Operations
Net loss from discontinued operations was $0.12 million for the three months ended December 31, 2023 compared to $7.06 million for the comparative prior period. The decrease of $6.93 million was primarily related to entities classified as discontinued operations in prior periods that were fully divested as of December 31, 2022, and as a result, the Company had no income or loss from discontinued operations for such entities during the three months ended December 31, 2023.
Three Months Ended December 31, 2023 Compared to Three Months Ended September 30, 2023 (Unaudited)
The below table outlines our consolidated statements of operations for the fiscal fourth quarter of 2023 compared to the fiscal third quarter of 2023:
Unaudited (in thousands)
Three Months Ended
December 31, 2023
September 30, 2023
$ Change
% Change
Revenue
$ 8,095
$ 8,188
$ (93 )
(1.1 )%
Cost of Goods Sold
3,720
4,021
(301 )
(7.5 )%
Gross Profit
4,375
4,167
5.0 %
Gross Margin %
54.0 %
50.9 %
3.2 %
Operating Expenses:
Selling, General & Administrative Expenses
9,254
7,471
1,783
23.9 %
Loss on Disposal of Assets
1,806
1,540
17.3 %
Total Operating Expenses, Net
11,060
9,011
2,049
22.7 %
Loss from Operations
(6,685 )
(4,844 )
(1,841 )
38.0 %
Other Income
2,022
(1,676 )
(82.9 )%
Loss from Continuing Operations Before Provisions for Income Taxes
(6,339 )
(2,822 )
(3,517 )
124.6 %
Provision for Income Tax Expense for Continuing Operations
(3,274 )
(309 )
(2,965 )
959.5 %
Net Loss from Continuing Operations
(9,613 )
(3,131 )
(6,482 )
207.0 %
Net Loss from Discontinued Operations
(123 )
(231 )
(46.8 )%
Net Loss Attributable to Unrivaled Brands, Inc.
$ (9,736 )
$ (3,362 )
$ (6,374 )
189.6 %
Revenue
Revenues for the three months ended December 31, 2023 were generally consistent with the preceding quarter ended September 30, 2023.
Gross Profit
Cost of goods sold for the three months ended December 31, 2023 was $3.72 million, a decrease of $0.3 million or 7.5% compared to $4.02 million for the three months ended September 30, 2023. The decrease in cost of goods sold was primarily due to management's continued efforts to improve efficiencies and reduce costs.
Gross profit from continuing operations for the three months ended December 31, 2023 was $4.38 million compared to $4.17 million for the three months ended September 30, 2023, an increase of $0.21 million or 5.0%. The increase in gross profit was primarily attributable to the decrease in cost of goods sold as described above. The Company’s overall gross margin improved for the three months ended December 31, 2023 to 54.0% as compared to 50.9% for the three months ended September 30, 2023 as the Company focused on its core assets to maximize pricing and inventory strategy and divested non-performing assets. Specifically, during the fiscal fourth quarter ended December 31, 2023, the Company entered into management services agreements for its two cultivation facilities in Oakland, California which became classified as discontinued operations.
Selling, General & Administrative Expenses
Selling, general and administrative expenses for the three months ended December 31, 2023 were $9.25 million compared to $7.47 million for the three months ended September 30, 2023, an increase of $1.78 million or 23.9%. The increase was primarily due to an increase of $2.17 million in income tax related penalties.
Operating Loss
The Company realized an operating loss from continuing operations of $6.69 million for the three months ended December 31, 2023 compared to $4.84 million for the three months ended September 30, 2023, an increase of $1.84 million or 38.0%. The increase in operating loss from the preceding quarter was primarily due to changes in selling, general and administrative expenses as described above.
Other Income
Other income for the three months ended December 31, 2023 was $0.35 million compared to $2.02 million for the three months ended September 30, 2023, a decrease of $1.68 million or 82.9%. The decrease in other income was primarily attributable to a gain on extinguishment of debt of $2.42 million recognized during the fiscal fourth quarter of 2023, versus none in the consecutive prior quarter, as well as income from employer retention credit totaling $1.23 million received during the fiscal third quarter of 2023. In addition, the Company recognized an unrealized loss on investment of $0.67 million related to its shares in Mystic Holdings, Inc. for the three months ended December 31, 2023 versus an unrealized gain on investment of $1.33 million in the preceding quarter.
Discontinued Operations
Net loss from discontinued operations was $0.12 million for the three months ended December 31, 2023, a decrease compared to $0.23 million for the consecutive prior period as the Company winded down operations at its cultivation facilities and classified its cultivation operations as discontinued operations during the fiscal fourth quarter of 2023.
Non-GAAP Reconciliations
Non-GAAP earnings is a supplemental measure of our performance that is neither required by, nor presented in accordance with, U.S. generally accepted accounting principles (“US GAAP”). Non-GAAP earnings is not a measurement of the Company’s financial performance under US GAAP and should not be considered as alternative to net income, operating income, or any other performance measures derived in accordance with US GAAP, or as alternative to cash flows from operating activities as a measure of the Company’s liquidity. In addition, in evaluating non-GAAP earnings, you should be aware that in the future the Company will incur expenses or charges such as those added back to calculate non-GAAP earnings. The Company’s presentation of non-GAAP earnings should not be construed as an inference that its future results will be unaffected by unusual or nonrecurring items.
Non-GAAP earnings has limitations as an analytical tool, and you should not consider it in isolation, or as a substitute for analysis of the Company’s results as reported under US GAAP. Some of these limitations are (i) it does not reflect the Company’s cash expenditures, or future requirements for capital expenditures or contractual commitments, (ii) it does not reflect changes in, or cash requirements for, the Company’s working capital needs, (iii) it does not reflect interest expense, or the cash requirements necessary to service interest or principal payments, on the Company’s debt, (iv) although depreciation and amortization are non-cash charges, the assets being depreciated and amortized will often have to be replaced in the future, and non-GAAP earnings does not reflect any cash requirements for such replacements, (v) it does not adjust for all non-cash income or expense items that are reflected in the Company's statements of cash flows, and (vi) other companies in our industry may calculate this measure differently than we do, limiting its usefulness as comparative measures.
The Company compensates for these limitations by providing specific information regarding the US GAAP amounts excluded from such non-GAAP financial measures. The Company further compensates for the limitations in our use of non-GAAP financial measures by presenting comparable US GAAP measures more prominently.
The Company believes that non-GAAP earnings facilitates operating performance comparisons from period to period by isolating the effects of some items that vary from period to period without any correlation to core operating performance or that vary widely among similar companies. These potential differences may be caused by variations in capital structures (affecting interest expense) and the age and book depreciation of facilities and equipment (affecting relative depreciation expense). The Company also presents non-GAAP earnings because (i) it believes that this measure is frequently used by securities analysts, investors and other interested parties to evaluate companies in the Company’s industry, (ii) the Company believes that investors will find these measures useful in assessing the Company's ability to service or incur indebtedness, and (iii) the Company uses non-GAAP earnings internally as benchmark to compare its performance to that of its competitors.
In the presentation of the financial results below, the Company reconciles Non-GAAP Adjusted EBITDA (Loss) Income with net loss attributable to continuing operations, the most directly comparable GAAP measure. Management believes that this presentation may be more meaningful in analyzing our income generation.
On a non-GAAP basis, the Company recorded Non-GAAP Adjusted EBITDA Loss of $4.33 million for the three months ended December 31, 2023 compared to Non-GAAP Adjusted EBITDA Income of $1.19 million for the three months ended December 31, 2022. For the year ended December 31, 2023, the Company recorded Non-GAAP Adjusted EBITDA Loss of $6.06 million compared to $18.3 million for the year ended December 31, 2022. The details of those expenses and non-GAAP reconciliation of these non-cash items are set forth below:
Unaudited (in thousands)
(in thousands)
Three Months Ended December 31,
Year Ended December 31,
Net (Loss) Income
$ (9,736 )
$ 3,553
$ (14,130 )
$ (188,656 )
Less: Net Loss from Discontinued Operations, Net
7,056
4,746
Add (Deduct) Impact of:
Interest Expense
1,622
1,587
3,777
4,173
Provision for Income Tax Expense (Benefit)
3,274
2,802
4,116
(2,784 )
Depreciation Expense
1,271
Amortization of Intangible Assets
-
1,500
7,616
EBITDA (Loss) Income from Continuing Operations (Non-GAAP)
$ (4,638 )
$ 15,739
$ (3,986 )
$ (173,634 )
Non-GAAP Adjustments:
Stock-based Compensation Expense
2,435
4,919
Impairment of Assets
-
-
-
163,698
Severance Expense for Series A Share Repurchases
-
(12 )
-
Realized Loss on Sale of Investments
-
-
-
Unrealized Loss (Gain) on Investments
(667 )
(210 )
Loss (Gain) on Disposal of Assets
1,806
(15,304 )
1,607
(13,432 )
Gain on Settlement of Liabilities
(1 )
-
(70 )
-
Gain on Extinguishment of Debt
(2,415 )
-
(5,441 )
(542 )
Adjusted EBITDA (Loss) Income from Continuing Operations (Non-GAAP)
$ (4,329 )
$ 1,190
$ (6,061 )
$ (18,300 )
LIQUIDITY AND CAPITAL RESOURCES
We incurred pre-tax net loss from continuing operations of $9.7 million and $186.69 million for the years ended December 31, 2023 and 2022, respectively, and have an accumulated deficit of $454.18 million and $440.05 million at December 31, 2023 and 2022, respectively. As of December 31, 2023, we had a working capital deficit of $57.86 million, including $0.86 million of cash, compared to a working capital deficit of $54.57 million, including $1.2 million of cash, as of December 31, 2022. Current assets were approximately 0.08 times current liabilities as of December 31, 2023, compared to approximately 0.08 times current liabilities as of December 31, 2022.
We have not been able to generate sufficient cash from operating activities to fund our ongoing operations. Since our inception, we have raised capital through private sales of common stock, preferred stock, and debt securities. Our future success is dependent upon our ability to achieve profitable operations and generate cash from operating activities. There is no guarantee that we will be able to generate enough revenue and/or raise capital to support our operations.
We will be required to raise additional funds through public or private financing, additional collaborative relationships or other arrangements until we are able to raise revenues to a point of positive cash flow. We continue to evaluate various options to further reduce our cash requirements to operate at a reduced rate, as well as options to raise additional funds, including obtaining loans and selling common stock. There is no guarantee that we will be able to generate enough revenue and/or raise capital to support our operations, or if we are able to raise capital, that such capital will be available to us on acceptable terms, on an acceptable schedule, or at all.
The risks and uncertainties surrounding the Company’s ability to continue to raise capital and its limited capital resources raise substantial doubt as to the Company’s ability to continue as a going concern for twelve months from the issuance of these financial statements. The accompanying consolidated financial statements have been prepared in accordance with accounting principles generally accepted in the United States of America, which contemplate our continuation as a going concern. For additional information on, see Item 1A - “Risk Factors” in Part I of this Form 10-K.
Operating Activities
Cash used in operating activities for the year ended December 31, 2023 was $1.34 million compared to $7.95 million for the year ended December 31, 2022, a decrease of $6.61 million, or 83.2%. The decrease in cash used in operating activities was primarily due to a slowdown in cash payments of payables and accrued expenses, partly due to the lack of capital during the current year and our increased efforts to scale back on non-accretive expenditures. During fiscal year 2023, management focused on its turnaround plan to stabilize operations to put the Company on a path to profitability. Management took decisive action to preserve operating cash flow by reducing cash burn, prioritizing payments, renegotiating vendor agreements and closing underperforming business units. Management expects to see improvement in cash flow from operating activities as the Company continues to execute its strategic restructuring.
Investing Activities
Cash provided by investing activities for the year ended December 31, 2023 was $0.46 million compared to $19.73 million for the year ended December 31, 2022, a decrease of $19.27 million, or 97.7%. The decrease in cash provided by investing activities was primarily due to $20.71 million in cash proceeds from the sale of the Dyer property, the Reno dispensary and the NuLeaf joint venture in the prior year, versus no such transactions in the current year.
Financing Activities
Cash provided by financing activities for the year ended December 31, 2023 was $0.54 million compared to $17.28 million used in financing activities for the year ended December 31, 2022, a decrease of $17.81 million, or 103.1%. The decrease in cash used in financing activities for the year ended December 31, 2023 was primarily due to $21.65 million of principal repayments of debt in the prior year while the Company had minimal debt payments in the current year.
Results of Operations for the Three and Nine Months ended September 30, 2023 (Unaudited and As Restated)
The below table outlines our consolidated statements of operations for the three and nine months ended September 30, 2023 and 2022:
As Restated
Unaudited (in thousands)
Unaudited (in thousands)
For the three months ended September 30,
For the nine months ended September 30,
$ Change
% Change
$ Change
% Change
Revenue
$ 8,612
$ 9,721
$ (1,109 )
(11.4 )%
$ 26,649
$ 44,371
$ (17,722 )
(39.9 )%
Cost of Goods Sold
4,618
9,763
(5,145 )
(52.7 )%
13,360
30,213
(16,853 )
(55.8 )%
Gross Profit
3,994
(42 )
4,036
(9609.5 )%
13,289
14,158
(869 )
(6.1 )%
Gross Margin %
46.4 %
(0.4 )%
46.8 %
49.9 %
31.9 %
18.0 %
Operating Expenses (Income):
Selling, General and Administrative Expenses
7,529
12,752
(5,223 )
(41.0 )%
21,197
48,843
(27,646 )
(56.6 )%
Impairment Expense
-
107,972
(107,972 )
(100.0 )%
-
163,698
(163,698 )
(100.0 )%
Loss (Gain) on Disposal of Assets
1,540
1,529
0.7 %
1,607
1,872
(265 )
(14.2 )%
Total Operating Expenses (Income)
9,069
122,253
(113,184 )
(92.6 )%
22,804
214,413
(191,609 )
(89.4 )%
Income (Loss) from Operations
(5,075 )
(122,295 )
117,220
(95.9 )%
(9,515 )
(200,255 )
190,740
(95.2 )%
Other Income (Expense)
2,022
(1,087 )
3,109
(286.0 )%
4,157
(928 )
5,085
(548.0 )%
Income (Loss) from Continuing Operations Before Provisions for Income Taxes
(3,053 )
(123,382 )
120,329
(97.5 )%
(5,358 )
(201,183 )
195,825
(97.3 )%
Provision for Income Tax (Expense) Benefit for Continuing Operations
(309 )
3,450
(3,759 )
(109.0 )%
(842 )
5,586
(6,428 )
(115.1 )%
Net (Loss) Income from Continuing Operations
(3,362 )
(119,932 )
116,570
(97.2 )%
(6,200 )
(195,597 )
189,397
(96.8 )%
Net Loss from Discontinued Operations
-
(25 )
(100.0 )%
-
3,374
(3,374 )
(100.0 )%
Net (Loss) Income
(3,362 )
(119,907 )
116,545
(97.2 )%
(6,200 )
(192,223 )
186,023
(96.8 )%
Net Income from Discontinued Operations Attributable to Non-Controlling Interest
-
-
-
- %
-
(275 )
(100.0 )%
Net (Loss) Income Attributable to Unrivaled Brands, Inc.
$ (3,362 )
$ (119,907 )
$ 116,545
(97.2 )%
$ (6,200 )
$ (192,498 )
$ 186,298
(96.8 )%
Three Months Ended September 30, 2023 Compared to Three Months Ended September 30, 2022
Revenue
Overall revenue for the three months ended September 30, 2023 was $8.61 million compared to $9.72 million for the same period in 2022, a decrease of $1.11 million or 11.4%. During the three months ended September 30, 2023, the Company generated revenue from continuing operations of $8.61 million composed of retail revenue of $8.10 million and cultivation/distribution revenue of $0.51 million. This compared to revenue from continuing operations of $9.72 million for the quarter ended September 30, 2022, which included retail revenue of $9.25 million and cultivation/distribution revenue of $0.47 million.
Retail revenue for the three months ended September 30, 2023 decreased compared to the same period in the prior year by $1.15 million or 12.4% due a general decline in the cannabis market since the last half of 2022. Cultivation and distribution revenue for the three months ended September 30, 2023 was generally consistent with the same period in the prior year.
Gross Profit
Cost of goods sold for the three months ended September 30, 2023 was $4.62 million, a decrease of $5.15 million, or 52.7%, compared to $9.76 million for the three months ended September 30, 2022. The decrease in cost of goods sold was directly impacted by the decrease in revenues for the current reporting period as compared to the prior year.
Gross profit from continuing operations for the three months ended September 30, 2023 was $3.99 million compared to a gross profit of $(0.04) million for the three months ended September 30, 2022, an increase of $4.04 million or 9,609.5%.
The increase in gross profit was directly impacted by the significant inventory write down on its distribution and wholesale operations in the prior year, resulting in negative consolidated gross margins. In addition, the Company's gross margin improved for the three months September 30, 2023 to 46.4% as compared to (0.4)% for the same period in the prior year as the Company focused on its core assets to maximize pricing and inventory strategy and divested non-performing assets related to its distribution operations. Gross profit for on-going retail operations stabilized to 52.3% for the three months ended September 30, 2023 compared to 58.3% for the same period in the prior year.
Selling, General & Administrative Expenses
Selling, general and administrative expenses for the three months ended September 30, 2023 were $7.53 million, compared to $12.75 million for the three months ended September 30, 2022, a decrease of $5.22 million or 41.0%. As a result of the Company's restructuring plan implemented during the third fiscal quarter of 2022, the Company saw significant reductions in expenses during the three months ended September 30, 2023 as compared to the same period in the prior year. Specifically, the Company saw a decrease of $2.66 million in depreciation and amortization expense, a decrease of $2.26 million in facility related expenses, such as rent, utilities, repairs and maintenance, security, and insurance, and a decrease of $1.43 million in salaries and benefits. Management expects to continue focusing on efficiencies within its core assets and reducing non-core assets and expenditures.
Operating Loss
The Company realized an operating loss from continuing operations of $5.08 million for the three months ended September 30, 2023 compared to $122.30 million for the three months ended September 30, 2022, a decrease of $117.22 million or 95.9%. This improvement from the same period in the prior year was primarily attributable to the results of the Company's restructuring objectives noted above and an impairment loss of $107.97 million recognized in the three months ended September 30, 2022, versus no impairment loss recognized during the current period.
Other Income (Expense)
Other income for the three months ended September 30, 2023 of $2.02 million improved significantly compared to other expense of $1.09 million for the three months ended September 30, 2022, an improvement of $3.11 million. The improvement was due to the Company recording income from employer retention credits of $1.23 million and an unrealized gain on investment of $1.33 million for the shares in Mystic Holdings, Inc. recognized as a result of the litigation settlement during the three months ended September 30, 2023, versus no such transactions in the same period in the prior year.
Discontinued Operations
Net income from discontinued operations was nil for the three months ended September 30, 2023 compared to $0.03 million for the comparative prior period. All discontinued operations were fully divested as of December 31, 2022, and as a result, the Company had no income or loss from discontinued operations for the three months ended September 30, 2023.
Nine Months Ended September 30, 2023 Compared to Nine Months Ended September 30, 2022
Revenue
Overall revenue was $26.65 million for the nine months ended September 30, 2023 compared to $44.37 million for the same period in 2022, a decrease of $17.72 million or 39.9%. Revenue from continuing operations of $26.65 million for the nine months ended September 30, 2023 was composed of retail revenue of $24.99 million and cultivation/distribution revenue of $1.66 million. This compared to revenue from continuing operations of $44.37 million for the nine months ended September 30, 2022, which included retail revenue of $32.91 million and cultivation/distribution revenue of $11.47 million.
Retail revenue for the nine months ended September 30, 2023 decreased compared to the same period in the prior year by $7.92 million or 24.1% due to the closure of our non-storefront delivery in Sacramento, California, the divestiture of the Downtown Los Angeles retail operations during the second quarter of 2022, and a general decline in the cannabis market since the last half of 2022. While we operated the non-storefront Sacramento retail operation and the Los Angeles retail operations during the nine months ended September 30, 2022, there were no operations of the same non-storefront Sacramento retail and Los Angeles retail operations during the nine months ended September 30, 2023, which contributed $2.29 million in revenues in the prior year.
Cultivation and distribution revenue for the nine months ended September 30, 2023 decreased by $9.80 million or 85.5% compared to the same period in the prior year due the closure of all cultivation and distribution operations as part of the Company's turnaround plan, except for a cultivation facility in Northern California which remains as of September 30, 2023. Specifically, we eliminated third-party distribution operations in California which contributed $12.34 million of revenue in the same period in the prior year. We also ceased operations at a cultivation facility in Northern California which provided no revenue in 2023 and began slowing down cultivation operations at our remaining facility in Northern California, which provided $1.41 million of revenue in the current year compared to $2.39 million in the prior year.
Gross Profit
Cost of goods sold for the nine months ended September 30, 2023 was $13.36 million, a decrease of $16.85 million or 55.8% compared to $30.21 million for the nine months ended September 30, 2022. The decrease in cost of goods sold was directly impacted by the decrease in revenues for the current reporting period as compared to the prior year.
Gross profit from continuing operations for the nine months ended September 30, 2023 was $13.29 million compared to a gross profit of $14.16 million for the nine months ended September 30, 2022, a decrease of $0.87 million or 6.1%. The decrease in gross profit was directly impacted by the decrease in revenues for the current reporting period as compared to the prior year. However, the Company's overall gross margin improved for the nine months September 30, 2023 to 49.9% as compared to 31.9% for the same period in the prior year as the Company focused on its core assets and divested non-performing assets related to its distribution operations. Gross profit for on-going retail operations improved to 53.5% for the nine months ended September 30, 2023 compared to 50.9% for the same period in the prior year.
Selling, General & Administrative Expenses
Selling, general and administrative expenses for the nine months ended September 30, 2023 were $21.20 million, compared to $48.84 million for the nine months ended September 30, 2022, a decrease of $27.65 million or 56.6%. As a result of the Company's restructuring plan implemented during the third fiscal quarter of 2022, the Company saw significant reductions in expenses during the nine months ended September 30, 2023 as compared to the same period in the prior year. Specifically, the Company saw a decrease of $7.70 million in depreciation and amortization expense, a decrease of $5.33 million in facility related expenses, such as rent, utilities, repairs and maintenance, security, and insurance, a decrease of $7.36 million in salaries and benefits, and a decrease of $2.23 million in stock-based compensation. Management expects to continue focusing on efficiencies within its core assets and reducing non-core assets and expenditures.
Operating Loss
The Company realized an operating loss from continuing operations of $9.52 million for the nine months ended September 30, 2023 compared to $200.26 million for the nine months ended September 30, 2022, a decrease of $190.74 million or 95.2%. This improvement from the same period in the prior year was primarily attributable to the results of the Company's restructuring objectives noted above and an impairment loss of $163.70 million recognized in the nine months ended September 30, 2022, versus no impairment loss recognized in the nine months ended September 30, 2023.
Other Income (Expense)
Other income for the nine months ended September 30, 2023 was $4.16 million compared to other expense of $0.93 million for the nine months ended September 30, 2022, an improvement of $5.08 million. The change from the prior year was primarily attributable to a gain on extinguishment of debt of $3.03 million recognized during the current period. Additionally, the improvement was also contributed by the cash receipt of $1.23 million in employer retention credits and an unrealized gain on investment of $1.33 million for the shares in Mystic Holdings, Inc. recognized as a result of the litigation settlement during the nine months ended September 30, 2023, versus no such transactions in the same period in the prior year.
Discontinued Operations
Net income from discontinued operations was nil for the nine months ended September 30, 2023 compared to $3.37 million for the comparative prior period. All discontinued operations were fully divested as of December 31, 2022, and as a result, the Company had no income or loss from discontinued operations for the nine months ended September 30, 2023.
Three Months Ended September 30, 2023 Compared to Three Months Ended June 30, 2023
The below table outlines our consolidated statements of operations for the fiscal third quarter of 2023 compared to the fiscal second quarter of 2023:
As Restated
Unaudited (in thousands)
Three Months Ended
September 30, 2023
June 30, 2023
$ Change
% Change
Revenue
$ 8,612
$ 8,797
$ (185 )
(2.1 )%
Cost of Goods Sold
4,618
4,197
10.0 %
Gross Profit
3,994
4,600
(606 )
(13.2 )%
Gross Margin %
46.4 %
52.3 %
(5.9 )%
Operating Expenses:
Selling, General & Administrative Expenses
7,529
8,071
(542 )
(6.7 )%
Loss on Disposal of Assets
1,540
1,473
2,198.5 %
Total Operating Expenses, Net
9,069
8,138
11.4 %
Loss from Operations
(5,075 )
(3,538 )
(1,537 )
43.4 %
Other Income
2,022
1,857
1,125.5 %
Loss from Continuing Operations Before Provisions for Income Taxes
(3,053 )
(3,373 )
(9.5 )%
Provision for Income Tax Expense for Continuing Operations
(309 )
(434 )
(347.2 )%
Net Loss Attributable to Unrivaled Brands, Inc.
$ (3,362 )
$ (3,248 )
$ (114 )
3.5 %
Revenue
Revenues for the three months ended September 30, 2023 were generally consistent with the preceding quarter ended June 30, 2023.
Gross Profit
Cost of goods sold for the three months ended September 30, 2023 was $4.62 million, an increase of $0.42 million or 10.0%, compared to $4.20 million for the three months ended June 30, 2023. The decrease in cost of goods sold was primarily due to the improvement in efficiency and focus on cost-cutting measures at the Company's cultivation facility and its operations.
Gross profit from continuing operations for the three months ended September 30, 2023 was $3.99 million compared to $4.60 million for the three months ended June 30, 2023, a decrease of $0.61 million or 13.2%. The decrease in gross profit was directly impacted by the decrease gross margin from our wholesale operations which contributed to the overall decline for the three months September 30, 2023 to 46.4% as compared to 52.3% for the immediate prior quarter. Gross profit for on-going retail operations remained consistent at 52.3% for the three months ended September 30, 2023 compared to 52.9% for the preceding quarter.
Selling, General & Administrative Expenses
Selling, general and administrative expenses for the three months ended September 30, 2023 were $7.53 million, compared to $8.07 million for the three months ended June 30, 2023. The quarter-over-quarter decrease of $0.54 million or 6.7%.was primarily related to a decrease in stock-based compensation of $1.56 million for shares issued pursuant to a related party for executive-level consulting and related business support services, offset by an increase in professional fees of $0.20 million related to legal services.
Operating Loss
The Company realized an operating loss from continuing operations of $5.08 million for the three months ended September 30, 2023 compared to $3.54 million for the three months ended June 30, 2023, an increase of $1.53 million or 43.4%. The increase in operating loss from the preceding quarter was primarily due to a loss on disposal of assets related to the write off of property and equipment of $1.54 million, while in the preceding quarter, the Company recognized a loss on disposal of assets of $0.07 million for the dissolution of UMBRLA, Inc.
Other Income
Other income for the three months ended September 30, 2023 was $2.02 million compared to $0.17 million for the three months ended June 30, 2023, a increase of $1.86 million. The improvement was a result of the Company receiving cash of $1.23 million in employer retention credits and recognizing an unrealized gain on investment of $1.33 million for the shares in Mystic Holdings, Inc. recognized as a result of the litigation settlement during the three months ended September 30, 2023, while in the immediate prior quarter, no such transactions had occurred.
Non-GAAP Reconciliations
Non-GAAP earnings is a supplemental measure of our performance that is neither required by, nor presented in accordance with, U.S. generally accepted accounting principles (“US GAAP”). Non-GAAP earnings is not a measurement of the Company's financial performance under US GAAP and should not be considered as alternative to net income, operating income, or any other performance measures derived in accordance with US GAAP, or as alternative to cash flows from operating activities as a measure of the Company's liquidity. In addition, in evaluating non-GAAP earnings, you should be aware that in the future the Company will incur expenses or charges such as those added back to calculate non-GAAP earnings. The Company's presentation of non-GAAP earnings should not be construed as an inference that its future results will be unaffected by unusual or nonrecurring items.
Non-GAAP earnings has limitations as an analytical tool, and you should not consider it in isolation, or as a substitute for analysis of the Company's results as reported under US GAAP. Some of these limitations are (i) it does not reflect the Company's cash expenditures, or future requirements for capital expenditures or contractual commitments, (ii) it does not reflect changes in, or cash requirements for, the Company's working capital needs, (iii) it does not reflect interest expense, or the cash requirements necessary to service interest or principal payments, on the Company's debt, (iv) although depreciation and amortization are non-cash charges, the assets being depreciated and amortized will often have to be replaced in the future, and non-GAAP earnings does not reflect any cash requirements for such replacements, (v) it does not adjust for all non-cash income or expense items that are reflected in the Company's statements of cash flows, and (vi) other companies in our industry may calculate this measure differently than we do, limiting its usefulness as comparative measures.
The Company compensates for these limitations by providing specific information regarding the US GAAP amounts excluded from such non-GAAP financial measures. The Company further compensates for the limitations in our use of non-GAAP financial measures by presenting comparable US GAAP measures more prominently.
The Company believes that non-GAAP earnings facilitates operating performance comparisons from period to period by isolating the effects of some items that vary from period to period without any correlation to core operating performance or that vary widely among similar companies.
These potential differences may be caused by variations in capital structures (affecting interest expense) and the age and book depreciation of facilities and equipment (affecting relative depreciation expense). The Company also presents non-GAAP earnings because (i) it believes that this measure is frequently used by securities analysts, investors and other interested parties to evaluate companies in the Company's industry, (ii) the Company believes that investors will find these measures useful in assessing the Company's ability to service or incur indebtedness, and (iii) the Company uses non-GAAP earnings internally as benchmark to compare its performance to that of its competitors.
In the presentation of the financial results below, the Company reconciles non-GAAP Adjusted EBITDA Income (Loss) with net income (loss) attributable to continuing operations, the most directly comparable GAAP measure. Management believes that this presentation may be more meaningful in analyzing our income generation.
On a non-GAAP basis, the Company recorded non-GAAP Adjusted EBITDA Loss of $1.20 million for the three months ended September 30, 2023 compared to $9.18 million for the three months ended September 30, 2022. For the nine months ended September 30, 2023, the Company recorded non-GAAP Adjusted EBITDA Loss of $1.64 million compared to $18.87 million for the nine months ended September 30, 2022. The details of those expenses and non-GAAP reconciliation of these non-cash items are set forth below:
As Restated
Unaudited (in thousands)
Unaudited (in thousands)
Three months ended September 30,
Nine months ended September 30,
Net (Loss) Income
$ (3,362 )
$ (119,907 )
$ (6,200 )
$ (192,223 )
Less: Net Loss from Discontinued Operations, Net
-
(25 )
-
(3,374 )
Add (Deduct) Impact of:
-
-
-
-
Interest Expense
2,155
2,586
Provision for Income Tax Expense (Benefit)
(3,450 )
(5,586 )
Depreciation Expense
2,716
Amortization of Intangible Assets
2,361
1,500
7,126
EBITDA (Loss) Income from Continuing Operations (Non-GAAP)
$ (1,530 )
$ (119,760 )
$ (1,066 )
$ (188,755 )
Non-GAAP Adjustments:
Stock-based Compensation Expense
2,182
4,412
Impairment of Assets
-
107,972
-
163,698
Severance Expense for Series A Share Repurchases
-
-
Realized Loss on Sale of Investments
-
-
-
Unrealized Loss (Gain) on Investments
(1,333 )
(1,333 )
(470 )
Loss (Gain) on Disposal of Assets
1,540
1,529
1,607
1,872
Gain on Settlement of Liabilities
-
(69 )
-
Gain on Extinguishment of Debt
-
-
(3,026 )
(542 )
Adjusted EBITDA (Loss) Income from Continuing Operations (Non-GAAP)
$ (1,197 )
$ (9,180 )
$ (1,644 )
$ (18,872 )
LIQUIDITY, CAPITAL RESOURCES AND GOING CONCERN
We incurred net losses for the three and nine months ended September 30, 2023 and 2022, respectively and have an accumulated deficit of $446.25 million and $440.05 million at September 30, 2023 and December 31, 2022, respectively. As of September 30, 2023, we had a working capital deficit of $53.79 million, including $2.01 million of cash compared to a working capital deficit of $54.57 million, including $1.20 million of cash, as of December 31, 2022. Current assets were approximately 0.12 times current liabilities as of September 30, 2023, compared to approximately 0.08 times current liabilities as of December 31, 2022.
We have not been able to generate sufficient cash from operating activities to fund our ongoing operations. Since our inception, we have raised capital through private sales of common stock, preferred stock and debt securities. Our future success is dependent upon our ability to achieve profitable operations and generate cash from operating activities. There is no guarantee that we will be able to generate enough revenue and/or raise capital to support our operations.
We will be required to raise additional funds through public or private financing, additional collaborative relationships or other arrangements until we are able to raise revenues to a point of positive cash flow. We believe our existing and available capital resources will be sufficient to satisfy our funding requirements through the end of 2023. However, we continue to evaluate various options to further reduce our cash requirements to operate at a reduced rate, as well as options to raise additional funds, including obtaining loans and selling common stock. There is no guarantee that we will be able to generate enough revenue and/or raise capital to support our operations, or if we are able to raise capital, that such capital will be available to us on acceptable terms, on an acceptable schedule, or at all.
The risks and uncertainties surrounding the Company’s ability to continue to raise capital and its limited capital resources raise substantial doubt as to the Company’s ability to continue as a going concern for twelve months from the issuance of these financial statements. The accompanying consolidated financial statements have been prepared in accordance with US GAAP, which contemplate our continuation as a going concern.
Operating Activities
Cash used in operating activities for the nine months ended September 30, 2023 was $0.55 million, compared to $7.03 million for the nine months ended September 30, 2022, a decrease of $6.48 million, or 92.2%. The decrease in cash used in operating activities was primarily due to a slowdown in cash payments of payables and accrued expenses, partly due to the lack of capital during the current period as compared to the same period in the prior year and our increased efforts to scale back on non-accretive expenditures. For the latter half of fiscal year 2022, management focused on its turnaround plan to stabilize operations to put the Company on a path to profitability. Management took decisive action to preserve operating cash flow by reducing cash burn, prioritizing payments, renegotiating vendor agreements and closing underperforming business units. Management expects to see improvements in cash flow from operating activities as the Company continues to execute its strategic restructuring.
Investing Activities
Cash provided by investing activities for the nine months ended September 30, 2023 was $0.62 million, compared to $19.55 million for the nine months ended September 30, 2022, a decrease of $18.92 million, or 96.8%. The decrease in cash provided by investing activities was primarily due to the cash received upon disposing some of the Company's subsidiaries, which the Company had no such transactions in the current year.
Financing Activities
Cash provided by financing activities for the nine months ended September 30, 2023 was $0.74 million, compared to cash used in financing activities of $17.36 million for the nine months ended September 30, 2022, an improvement of $18.10 million, or 104.3%. The decrease in cash used in financing activities as compared to the prior year was primarily due to the significant debt payments made on the Company's debt in the prior year, while the Company had minimal debt payments in the current year.
Results of Operations for the Three and Six Months ended June 30, 2023 (Unaudited and As Restated)
The below table outlines our consolidated statements of operations for the three and six months ended June 30, 2023 and 2022:
As Restated
Unaudited (in thousands)
Unaudited (in thousands)
For the three months ended June 30,
For the six months ended June 30,
$ Change
% Change
$ Change
% Change
Revenue
$ 8,797
$ 15,801
$ (7,004 )
(44.3 )%
$ 18,037
$ 34,650
$ (16,613 )
(47.9 )%
Cost of Goods Sold
4,197
7,714
(3,517 )
(45.6 )%
8,742
20,450
(11,708 )
(57.3 )%
Gross Profit
4,600
8,087
(3,487 )
(43.1 )%
9,295
14,200
(4,905 )
(34.5 )%
Gross Margin %
52.3 %
51.2 %
1.1 %
51.5 %
41.0 %
10.6 %
Operating Expenses (Income):
Selling, General and Administrative Expenses
8,071
18,160
(10,089 )
(55.6 )%
13,668
36,091
(22,423 )
(62.1 )%
Impairment Expense
-
55,726
(55,726 )
(100.0 )%
-
55,726
(55,726 )
(100.0 )%
Loss (Gain) on Disposal of Assets
(474 )
(87.6 )%
(276 )
(80.5 )%
Total Operating Expenses (Income)
8,138
74,427
(66,289 )
(89.1 )%
13,735
92,160
(78,425 )
(85.1 )%
Income (Loss) from Operations
(3,538 )
(66,340 )
62,802
(94.7 )%
(4,440 )
(77,960 )
73,520
(94.3 )%
Other Income (Expense)
(590 )
(78.1 )%
2,135
1,976
1242.8 %
Income (Loss) from Continuing Operations Before Provisions for Income Taxes
(3,373 )
(65,585 )
62,212
(94.9 )%
(2,305 )
(77,801 )
75,496
(97.0 )%
Provision for Income Tax (Expense) Benefit for Continuing Operations
(323 )
(72.1 )%
(533 )
2,136
(2,669 )
(125.0 )%
Net (Loss) Income from Continuing Operations
(3,248 )
(65,137 )
61,889
(95.0 )%
(2,838 )
(75,665 )
72,827
(96.2 )%
Net Loss from Discontinued Operations
-
1,419
(1,419 )
(100.0 )%
-
3,349
(3,349 )
(100.0 )%
Net (Loss) Income
(3,248 )
(63,718 )
60,470
(94.9 )%
(2,838 )
(72,316 )
69,478
(96.1 )%
Net Income from Discontinued Operations Attributable to Non-Controlling Interest
-
-
-
- %
-
(275 )
(100.0 )%
Net (Loss) Income Attributable to Unrivaled Brands, Inc.
$ (3,248 )
$ (63,718 )
$ 60,470
(94.9 )%
$ (2,838 )
$ (72,591 )
$ 69,753
(96.1 )%
Three Months Ended June 30, 2023 Compared to Three Months Ended June 30, 2022
Revenue
Overall revenue for the three months ended June 30, 2023 was $8.80 million compared to $15.80 million for the same period in 2022, a decrease of $7.00 million or 44.0%. During the three months ended June 30, 2023, the Company generated revenue from continuing operations of $8.80 million composed of retail revenue of $8.42 million and cultivation/distribution revenue of $0.38 million. This compared to revenue from continuing operations of $15.80 million for the quarter ended June 30, 2022, which included retail revenue of $11.14 million and cultivation/distribution revenue of $4.66 million.
Retail revenue for the three months ended June 30, 2023 decreased compared to the same period in the prior year by $2.73 million or 24.5% due to the closure of our non-storefront delivery in Sacramento, California, the divestiture of the Downtown Los Angeles retail operations during the second quarter of 2022, and a general decline in the cannabis market during the last half of 2022. While we operated the non-storefront Sacramento retail operation and the Los Angeles retail operations during the first quarter of 2022, there were no operations of the same non-storefront Sacramento retail and Los Angeles retail operations during the quarter ended June 30, 2023, which contributed $0.91 million in revenues in the prior year.
Cultivation and distribution revenue for the three months ended June 30, 2023 decreased by $4.28 million or 91.8% compared to the same period in the prior year due to the closure of all operations except for one growing facility in Northern California that was implemented as part of the Company's turnaround plan in 2022. In addition, we eliminated third-party distribution operations in California which contributed $4.66 million of revenue in the same period in the prior year. We also ceased growing operations at a facility in Northern California which provided no revenue in 2023 and began slowing down cultivation operations at our remaining facility in Northern California which provided $0.34 million of revenue in the current year. Combined revenues from both facilities provided $1.11 million in the prior year.
Gross Profit
Cost of goods sold for the three months ended June 30, 2023 was $4.20 million, a decrease of $3.52 million, or 46.0%, compared to $7.71 million for the three months ended June 30, 2022. The decrease in cost of goods sold was directly impacted by the decrease in revenues for the current reporting period as compared to the prior year.
Gross profit from continuing operations for the three months ended June 30, 2023 was $4.60 million compared to a gross profit of $8.09 million for the three months ended June 30, 2022, a decrease of $3.49 million or 43.0%. The decrease in gross profit was directly impacted by the decrease in revenues for the current reporting period as compared to the prior year. However, the Company's gross margin improved for the three months June 30, 2023 to 52.3% as compared to 51.2% for the same period in the prior year as the Company focused on its core assets and divested non-performing assets related to its distribution operations. Gross profit for on-going retail operations improved to 52.9% for the three months ended June 30, 2023 compared to 51.3% for the same period in the prior year.
Selling, General & Administrative Expenses
Selling, general and administrative expenses for the three months ended June 30, 2023 were $8.07 million, compared to $18.16 million for the three months ended June 30, 2022, a decrease of $10.09 million or 55.6%. As a result of the Company's restructuring plan implemented during the third fiscal quarter of 2022, the Company saw significant reductions in expenses during the three months ended June 30, 2023 as compared to the same period in the prior year. Specifically, the Company saw a decrease of $2.57 million in depreciation and amortization expense, a decrease of $1.40 million in facility related expenses, such as rent, utilities, repairs and maintenance, security, and insurance, a decrease of $3.00 million in salaries and benefits, and a decrease of $0.04 million in stock-based compensation. Management expects to continue focusing on efficiencies within its core assets and reducing non-core assets and expenditures.
Operating Loss
The Company realized an operating loss from continuing operations of $3.54 million for the three months ended June 30, 2023 compared to $66.34 million for the three months ended June 30, 2022, a decrease of $62.80 million or 94.7%. This improvement from the same period in the prior year was primarily attributable to the results of the Company's restructuring objectives noted above and an impairment charge of $55.73 million recognized in the three months ended June 30, 2022, where no impairment charge was recognized during the current period.
Other Income
Other income for the three months ended June 30, 2023 of $0.17 million was generally consistent compared to $0.76 million for the three months ended June 30, 2022. During the three months ended June 30, 2023, the Company recognized a gain on settlement of liabilities of $0.11 million versus none in the comparative prior period. This was offset by an unrealized gain on investments of $0.96 million during the three months ended June 30, 2022 compared to none in the current period.
Discontinued Operations
Net income from discontinued operations was nil for the three months ended June 30, 2023 compared to $1.42 million for the comparative prior period. All discontinued operations were fully divested as of December 31, 2022, and as a result, the Company had no income or loss from discontinued operations for the three months ended June 30, 2023.
Six Months Ended June 30, 2023 Compared to Six Months Ended June 30, 2022
Revenue
Overall revenue was $18.04 million for the six months ended June 30, 2023 compared to $34.65 million for the same period in 2022, a decrease of $16.61 million or 48.0%. Revenue from continuing operations was $18.04 million for the six months ended June 30, 2023 which was composed of retail revenue of $16.89 million and cultivation/distribution revenue of $1.15 million. This compared to revenue from continuing operations of $34.65 million for the six months ended June 30, 2022, which included retail revenue of $23.65 million and cultivation/distribution revenue of $11.00 million.
Retail revenue for the six months ended June 30, 2023 decreased compared to the same period in the prior year by $6.77 million or 28.6% due to the closure of our non-storefront delivery in Sacramento, California, the divestiture of the Downtown Los Angeles retail operations during the second quarter of 2022, and a general decline in the cannabis market during the last half of 2022. While we operated the non-storefront Sacramento retail operation and the Los Angeles retail operations during the first two quarters of 2022, there were no operations of the same non-storefront Sacramento retail and Los Angeles retail operations during the first two quarters of 2023, which contributed $2.29 million in revenues in the prior year.
Cultivation and distribution revenue for the six months ended June 30, 2023 decreased by $9.85 million or 89.5% compared to the same period in the prior year due the closure of all operations except one growing facility in Northern California that was implemented as part of the Company's turnaround plan. In addition, we eliminated third-party distribution operations in California which contributed $11.87 million of revenue in the same period in the prior year. We also ceased growing operations at a facility in Northern California which provided no revenue in 2023 and began slowing down cultivation operations at our remaining facility in Northern California which provided $0.99 million of revenue in the current year compared to $2.21 million in the prior year.
Gross Profit
Cost of goods sold for the six months ended June 30, 2023 was $8.74 million, a decrease of $11.71 million or 57.0% compared to $20.45 million for the six months ended June 30, 2022. The decrease in cost of goods sold was directly impacted by the decrease in revenues for the current reporting period as compared to the prior year.
Gross profit from continuing operations for the six months ended June 30, 2023 was $9.30 million compared to a gross profit of $14.20 million for the six months ended June 30, 2022, a decrease of $4.91 million or 35.0%. The decrease in gross profit was directly impacted by the decrease in revenues for the current reporting period as compared to the prior year. However, the Company's overall gross margin improved for the six months June 30, 2023 to 51.5% as compared to 41.0% for the same period in the prior year as the Company focused on its core assets and divested non-performing assets related to its distribution operations. Gross profit for on-going retail operations improved to 54.0% for the six months ended June 30, 2023 compared to 48.0% for the same period in the prior year.
Selling, General & Administrative Expenses
Selling, general and administrative expenses for the six months ended June 30, 2023 were $13.67 million, compared to $36.09 million for the six months ended June 30, 2022, a decrease of $22.42 million or 62.1%. As a result of the Company's restructuring plan implemented during the third fiscal quarter of 2022, the Company saw significant reductions in expenses during the six months ended June 30, 2023 as compared to the same period in the prior year. Specifically, the Company saw a decrease of $5.04 million in depreciation and amortization expense, a decrease of $3.03 million in facility related expenses, such as rent, utilities, repairs and maintenance, security, and insurance, a decrease of $5.93 million in salaries and benefits, and a decrease of $1.77 million in stock-based compensation. Management expects to continue focusing on efficiencies within its core assets and reducing non-core assets and expenditures.
Operating Loss
The Company realized an operating loss from continuing operations of $4.44 million for the six months ended June 30, 2023 compared to $77.96 million for the six months ended June 30, 2022, a decrease of $73.52 million or 94.3%. This improvement from the same period in the prior year was primarily attributable to the results of the Company's restructuring objectives noted above and an impairment charge of $55.73 million recognized in the six months ended June 30, 2022, where no impairment charge was recognized for the three months ended June 30, 2023.
Other Income
Other income for the six months ended June 30, 2023 was $2.14 million compared to $0.16 million for the six months ended June 30, 2022, an increase of $1.98 million. The change from the prior year was primarily attributable to an increase in gain on extinguishment of debt due to the $3.03 million recognized during the current period, offset by a decrease in other income of $0.59 million compared to the same period in the prior year.
Discontinued Operations
Net income from discontinued operations was nil for the six months ended June 30, 2023 compared to $3.35 million for the comparative prior period. All discontinued operations were fully divested as of December 31, 2022, and as a result, the Company had no income or loss from discontinued operations for the six months ended June 30, 2023.
Three Months Ended June 30, 2023 Compared to Three Months Ended March 31, 2023
The below table outlines our consolidated statements of operations for the fiscal second quarter of 2023 compared to the fiscal first quarter of 2023:
As Restated
Unaudited (in thousands)
Three Months Ended
June 30, 2023
March 31, 2023
$ Change
% Change
Revenue
$ 8,797
$ 9,240
$ (443 )
(4.8 )%
Cost of Goods Sold
4,197
4,545
(348 )
(7.7 )%
Gross Profit
4,600
4,695
(95 )
(2.0 )%
Gross Margin %
52.3 %
50.8 %
1.5 %
Operating Expenses:
Selling, General & Administrative Expenses
8,071
5,597
2,474
44.2 %
Loss on Disposal of Assets
-
100.0 %
Total Operating Expenses, Net
8,138
5,597
2,541
45.4 %
Loss from Operations
(3,538 )
(902 )
(2,636 )
292.2 %
Other Income
1,970
(1,805 )
(91.6 )%
Loss from Continuing Operations Before Provisions for Income Taxes
(3,373 )
1,068
(4,441 )
(415.8 )%
Provision for Income Tax Expense for Continuing Operations
(658 )
(119.0 )%
Net Loss Attributable to Unrivaled Brands, Inc.
$ (3,248 )
$
$ (3,658 )
(892.2 )%
Revenue
Revenues for the three months ended June 30, 2023 were generally consistent with the preceding quarter ended March 31, 2023. The decrease in consolidated revenue of $0.44 million was primarily due to a $0.39 million decrease in cultivation/distribution revenue quarter over quarter due to the Company's focus on its retail operations during the current period. Retail revenue was generally consistent with the prior quarter.
Gross Profit
Cost of goods sold for the three months ended June 30, 2023 was $4.20 million, a decrease of $0.35 million or 8.0%, compared to $4.55 million for the three months ended March 31, 2023. The decrease in cost of goods sold was primarily due to the improvement in efficiency and focus on cost-cutting measures at the Company's cultivation facility and its operations.
Gross profit from continuing operations for the three months ended June 30, 2023 was $4.60 million compared to $4.70 million for the three months ended March 31, 2023, an decrease of $0.10 million or 2.0%. The decrease in gross profit was directly impacted by the decrease in promotion and marketing program ("PMP") revenue compared to the immediate prior quarter. The Company's overall gross profit improved for the three months June 30, 2023 to 52.3% as compared to 50.8% for the immediate prior quarter. Gross profit for on-going retail operations declined to 52.9% for the three months ended June 30, 2023 compared to 55.1% for the preceding quarter as a result of a decline in PMP revenue during the three months ended June 30, 2023. Gross profit for on-going retail operations remained consistent from product sales.
Selling, General & Administrative Expenses
Selling, general and administrative expenses for the three months ended June 30, 2023 were $8.07 million, compared to $5.60 million for the three months ended March 31, 2023. The quarter-over-quarter increase of $2.47 million or 44.2%.was primarily related to an increase in stock-based compensation of $1.19 million for shares issued pursuant to a related party for executive-level consulting and related business support services and an increase in professional fee expenses of $0.47 million due to professional fees related to legal services.
Operating Loss
The Company realized an operating loss from continuing operations of $3.54 million for the three months ended June 30, 2023 compared to $0.90 million for the three months ended March 31, 2023, an increase of $2.64 million or 292.2%. The increase in operating loss from the immediate prior quarter was primarily due to the $2.47 million increase in selling, general and administrative expenses as described above.
Other Income
Other income for the three months ended June 30, 2023 was $0.17 million compared to $1.97 million for the three months ended March 31, 2023, a decrease of $1.81 million. This change from was primarily attributable to the gain on extinguishment of debt of $3.03 million during the first quarter of 2023, versus none in the current quarter.
Non-GAAP Reconciliations
Non-GAAP earnings is a supplemental measure of our performance that is neither required by, nor presented in accordance with, U.S. generally accepted accounting principles (“US GAAP”). Non-GAAP earnings is not a measurement of the Company's financial performance under US GAAP and should not be considered as alternative to net income, operating income, or any other performance measures derived in accordance with US GAAP, or as alternative to cash flows from operating activities as a measure of the Company's liquidity. In addition, in evaluating non-GAAP earnings, you should be aware that in the future the Company will incur expenses or charges such as those added back to calculate non-GAAP earnings. The Company's presentation of non-GAAP earnings should not be construed as an inference that its future results will be unaffected by unusual or nonrecurring items.
Non-GAAP earnings has limitations as an analytical tool, and you should not consider it in isolation, or as a substitute for analysis of the Company's results as reported under US GAAP. Some of these limitations are (i) it does not reflect the Company's cash expenditures, or future requirements for capital expenditures or contractual commitments, (ii) it does not reflect changes in, or cash requirements for, the Company's working capital needs, (iii) it does not reflect interest expense, or the cash requirements necessary to service interest or principal payments, on the Company's debt, (iv) although depreciation and amortization are non-cash charges, the assets being depreciated and amortized will often have to be replaced in the future, and non-GAAP earnings does not reflect any cash requirements for such replacements, (v) it does not adjust for all non-cash income or expense items that are reflected in the Company's statements of cash flows, and (vi) other companies in our industry may calculate this measure differently than we do, limiting its usefulness as comparative measures.
The Company compensates for these limitations by providing specific information regarding the US GAAP amounts excluded from such non-GAAP financial measures. The Company further compensates for the limitations in our use of non-GAAP financial measures by presenting comparable US GAAP measures more prominently.
The Company believes that non-GAAP earnings facilitates operating performance comparisons from period to period by isolating the effects of some items that vary from period to period without any correlation to core operating performance or that vary widely among similar companies.
These potential differences may be caused by variations in capital structures (affecting interest expense) and the age and book depreciation of facilities and equipment (affecting relative depreciation expense). The Company also presents non-GAAP earnings because (i) it believes that this measure is frequently used by securities analysts, investors and other interested parties to evaluate companies in the Company's industry, (ii) the Company believes that investors will find these measures useful in assessing the Company's ability to service or incur indebtedness, and (iii) the Company uses non-GAAP earnings internally as benchmark to compare its performance to that of its competitors.
In the presentation of the financial results below, the Company reconciles non-GAAP Adjusted EBITDA Income (Loss) with net income (loss) attributable to continuing operations, the most directly comparable GAAP measure. Management believes that this presentation may be more meaningful in analyzing our income generation.
On a non-GAAP basis, the Company recorded non-GAAP Adjusted EBITDA Loss of $0.80 million for the three months ended June 30, 2023 compared to $4.61 million for the three months ended June 30, 2022. For the six months ended June 30, 2023, the Company recorded non-GAAP Adjusted EBITDA Loss of $0.45 million compared to $9.69 million for the six months ended June 30, 2022. The details of those expenses and non-GAAP reconciliation of these non-cash items are set forth below:
As Restated
Unaudited (in thousands)
Unaudited (in thousands)
Three months ended June 30,
Six months ended June 30,
Net (Loss) Income
$ (3,248 )
$ (63,718 )
$ (2,838 )
$ (72,316 )
Less: Net Loss from Discontinued Operations, Net
-
(1,419 )
-
(3,349 )
Add (Deduct) Impact of:
-
-
-
Interest Expense
1,211
2,204
Provision for Income Tax Expense (Benefit)
(125 )
(448 )
(2,136 )
Depreciation Expense
1,837
Amortization of Intangible Assets
2,422
1,125
4,765
EBITDA (Loss) Income from Continuing Operations (Non-GAAP)
$ (2,403 )
$ (61,795 )
$
$ (68,995 )
Non-GAAP Adjustments:
Stock-based Compensation Expense
1,642
1,680
2,097
3,868
Impairment of Assets
-
55,726
-
55,726
Severance Expense for Series A Share Repurchases
-
-
Realized Loss on Sale of Investments
-
-
-
Unrealized Loss (Gain) on Investments
-
(963 )
-
(963 )
Loss (Gain) on Disposal of Assets
Gain on Settlement of Liabilities
(110 )
-
(110 )
-
Gain on Extinguishment of Debt
-
-
(3,026 )
(542 )
Adjusted EBITDA (Loss) Income from Continuing Operations (Non-GAAP)
$ (804 )
$ (4,610 )
$ (447 )
$ (9,692 )
LIQUIDITY, CAPITAL RESOURCES AND GOING CONCERN
We incurred net losses for the three and six months ended June 30, 2023 and 2022, respectively and have an accumulated deficit of $442.89 million and $440.05 million at June 30, 2023 and December 31, 2022, respectively. As of June 30, 2023, we had a working capital deficit of $48.90 million, including $0.59 million of cash compared to a working capital deficit of $54.57 million, including $1.20 million of cash, as of December 31, 2022. Current assets were approximately 0.10 times current liabilities as of June 30, 2023, compared to approximately 0.08 times current liabilities as of December 31, 2022.
We have not been able to generate sufficient cash from operating activities to fund our ongoing operations. Since our inception, we have raised capital through private sales of common stock, preferred stock and debt securities. Our future success is dependent upon our ability to achieve profitable operations and generate cash from operating activities. There is no guarantee that we will be able to generate enough revenue and/or raise capital to support our operations.
We will be required to raise additional funds through public or private financing, additional collaborative relationships or other arrangements until we are able to raise revenues to a point of positive cash flow. We believe our existing and available capital resources will be sufficient to satisfy our funding requirements through the end of 2023. However, we continue to evaluate various options to further reduce our cash requirements to operate at a reduced rate, as well as options to raise additional funds, including obtaining loans and selling common stock. There is no guarantee that we will be able to generate enough revenue and/or raise capital to support our operations, or if we are able to raise capital, that such capital will be available to us on acceptable terms, on an acceptable schedule, or at all.
The risks and uncertainties surrounding the Company’s ability to continue to raise capital and its limited capital resources raise substantial doubt as to the Company’s ability to continue as a going concern for twelve months from the issuance of these financial statements. The accompanying consolidated financial statements have been prepared in accordance with US GAAP, which contemplate our continuation as a going concern.
Operating Activities
Cash used in operating activities for the six months ended June 30, 2023 was $2.15 million, compared to $2.50 million for the six months ended June 30, 2022, a decrease of $0.36 million, or 14.3%. The decrease in cash used in operating activities was primarily due to a slowdown in cash payments of payables and accrued expenses, partly due to the lack of capital during the current period as compared to the same period in the prior year and our increased efforts to scale back on non-accretive expenditures. For the latter half of fiscal year 2022, management focused on its turnaround plan to stabilize operations to put the Company on a path to profitability. Management took decisive action to preserve operating cash flow by reducing cash burn, prioritizing payments, renegotiating vendor agreements and closing underperforming business units. Management expects to see improvements in cash flow from operating activities as the Company continues to execute its strategic restructuring.
Investing Activities
Cash provided by investing activities for the six months ended June 30, 2023 was $0.69 million, compared to $19.50 million for the six months ended June 30, 2022, a decrease of $18.81 million, or 96.5%. The decrease in cash provided by investing activities was primarily due to the cash received upon disposing some of the Company's subsidiaries, which the Company had no such transactions in the current year.
Financing Activities
Cash provided by financing activities for the six months ended June 30, 2023 was $0.84 million, compared to cash used in financing activities of $17.27 million for the six months ended June 30, 2022, an improvement of $18.11 million, or 104.9%. The decrease in cash used in financing activities as compared to the prior year was primarily due to the significant debt payments made on the Company's debt in the prior year, while the Company has minimal debt payments in the current year.
CRITICAL ACCOUNTING POLICIES AND ESTIMATES
A detailed description of our accounting policies are described in “Note 3- Summary of Accounting Policies” of the notes to the Consolidated Financial Statements in Item 8 of this Form 10-K. Critical accounting policies that have the most significant in the annual Consolidated Financial Statements are described below.
Right-of-Use Assets and Lease Liabilities
Right-of-use assets are measured at cost, which is calculated as the amount of the initial measurement of lease liability plus any lease payments made at or before the commencement date, any initial direct costs and related restoration costs. The right-of-use assets are depreciated on a straight-line basis over the shorter of the lease term or estimates of economic life. The Company’s lease liability is recognized net of lease incentives receivable. The lease payments are discounted using the interest rate implicit in the lease or, if that rate cannot be determined, the lessee’s incremental borrowing rate. The period over which the lease payments are discounted is the expected lease term, including renewal and termination options that the Company is reasonably certain to exercise.
Revenue Recognition
Revenue from retail dispensaries is recorded at the time customers take possession of the product and recognized net of discounts, promotional adjustments, and returns. The Company collects taxes on certain revenue transactions to be remitted to governmental authorities, which may include sales, excise and local taxes. These taxes are not included in the transaction price and are, therefore, excluded from revenue. Upon purchase, the Company has no further performance obligations and collection is assured as sales are paid for at time of purchase.
The Company recognizes revenue from cultivation, manufacturing and distribution product sales when its customers obtain control of the products. This determination is based on the customer specific terms of the arrangement and gives consideration to factors including, but not limited to, whether the customer has an unconditional obligation to pay, whether a time period or event is specified in the arrangement and whether the Company can mandate the return or transfer of the products. Revenue is recorded net of taxes collected from customers that are remitted to governmental authorities with collected taxes recorded as current liabilities until remitted to the relevant government authority.
Assets Held for Sale and Discontinued Operations
Assets held for sale are measured at the lower of their carrying amount or fair value less cost to sell unless the asset held for sale meets the exceptions as denoted by ASC Topic 360, “Property, Plant, and Equipment”. Fair value is the amount obtainable from the sale of the asset in an arm’s length transaction, less the costs of disposal. A component of an entity is identified as operations and cash flows that can be clearly distinguished, operationally and financially, from the rest of the entity. A discontinued operation is a component of an entity that either has been disposed of, or is classified as held for sale.
Income Taxes
Current tax assets and/or liabilities comprise those claims from, or obligations to, fiscal authorities relating to the current or prior reporting periods that are unpaid at the reporting date. Current tax is payable on taxable profit, which differs from profit or loss in the financial statements. Calculation of current tax is based on tax rates and tax laws that have been enacted or substantively enacted by the end of the reporting period. Income taxes are accounted for under the asset and liability method, which requires the recognition of deferred tax assets and liabilities for the expected future tax consequences of events that have been included in the financial statements. Under this method, deferred tax assets and liabilities are determined on the basis of the differences between the financial statement and tax basis of assets and liabilities by using enacted tax rates in effect for the year in which the differences are expected to reverse. The effect of a change in tax rates on deferred tax assets and liabilities is recognized in income in the period that includes the enactment date.
Our “Management’s Discussion and Analysis of Financial Condition and Results of Operations” section discusses our consolidated financial statements, which have been prepared in accordance with accounting principles generally accepted in the United States of America. The preparation of these financial statements requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. On an on-going basis, management evaluates its estimates and judgments, including those related to revenue recognition, accrued expenses, financing operations, and contingencies and litigation. Management bases its estimates and judgments on historical experience and on various other factors that are believed to be reasonable under the circumstances, the results of which form the basis for making judgments about the carrying value of assets and liabilities that are not readily apparent from other sources. Actual results may differ from these estimates under different assumptions or conditions. The most significant accounting estimates inherent in the preparation of our financial statements include estimates as to the appropriate carrying value of certain assets and liabilities which are not readily apparent from other sources. The actual results the Company experiences may differ materially and adversely from these estimates. To the extent there are material differences between the estimates and actual results, the Company’s future results of operations will be affected. Significant judgments, estimates and assumptions that have the most significant effect on the amounts recognized in the annual Consolidated Financial Statements are described below.
Inventory Valuation
The Company periodically reviews physical inventory for excess, obsolete, and potentially impaired items and reserves. The Company reviews inventory for obsolete, redundant and slow-moving goods and any such inventory is written down to net realizable value. The reserve estimate for excess and obsolete inventory is dependent on expected future use.
Fair Value of Financial Instruments
The individual fair values attributed to the different components of a financing transaction, notably investment in equity securities, convertible debt and loans, are determined using valuation techniques. The Company uses judgment to select the methods used to make certain assumptions and in performing the fair value calculations in order to determine (a) the values attributed to each component of a transaction at the time of their issuance; (b) the fair value measurements for certain instruments that require subsequent measurement at fair value on a recurring basis; and (c) for disclosing the fair value of financial instruments subsequently carried at amortized cost. These valuation estimates could be significantly different because of the use of judgment and the inherent uncertainty in estimating the fair value of these instruments that are not quoted in an active market.
Goodwill Impairment, Other Intangible Assets and Long-Lived Assets
Goodwill is tested annually for impairment, or more frequently if events or changes in circumstances indicate that the carrying value of goodwill has been impaired. In the impairment test, the Company measures the recoverability of goodwill by comparing a reporting unit’s carrying amount to the estimated fair value of the reporting unit. The carrying amount of each reporting unit is determined based upon the assignment of the Company’s assets and liabilities, including existing goodwill, to the identified reporting units. The Company relies on a number of factors, including historical results, business plans, forecasts and market data. Changes in the conditions for these judgments and estimates can significantly affect the recoverable amount.
Stock-Based Compensation
The Company uses the Black-Scholes option-pricing model to determine the fair value of equity-based grants. In estimating fair value, management is required to make certain assumptions and estimates such as the expected life of units, volatility of the Company’s future share price, risk-free rates, future dividend yields and estimated forfeitures at the initial grant date. Changes in assumptions used to estimate fair value could result in materially different results.
Income Taxes
Deferred tax assets are recognized to the extent that the Company believe that these assets are more likely than not to be realized. In making such a determination, all available positive and negative evidence are considered, including future reversals of existing taxable temporary differences, projected future taxable income, tax-planning strategies, and results of recent operations. If it is determined that the Company would be able to realize deferred tax assets in the future in excess of their net recorded amount, an adjustment to the deferred tax asset valuation allowance is recorded, which would reduce the provision for income taxes. Uncertain tax positions are recorded in accordance with ASC Topic 740, “Income Taxes”, on the basis of a two-step process in which (1) the Company determines whether it is more likely than not that the tax positions will be sustained on the basis of the technical merits of the position and (2) for those tax positions that meet the more-likely-than-not recognition threshold, the Company recognizes the largest amount of tax benefit that is more than 50 percent likely to be realized upon ultimate settlement with the related tax authority.
RECENT ACCOUNTING PRONOUNCEMENTS
A description of recently adopted accounting pronouncements and recently issued accounting pronouncements that may potentially impact our financial position and results of operations are described in “Note 3 - Summary of Accounting Policies” of the notes to the Consolidated Financial Statements in Item 8 of this Form 10-K.
DISCLOSURE ABOUT OFF-BALANCE SHEET ARRANGEMENTS
The Company does not have any transactions, agreements or other contractual arrangements that constitute off-balance sheet arrangements.

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ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK.
We are a smaller reporting company as defined by Rule 12b-2 of the Exchange Act and are not required to provide the information under this item.

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ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTAL DATA
Our consolidated financial statement as of December 31, 2023 and 2022, together with the related notes and the report of our independent registered public accounting firm, are set forth on page through of this report.

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ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE
None.

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ITEM 9A. CONTROLS AND PROCEDURES
ITEM 9A. CONTROLS AND PROCEDURES
Evaluation of Disclosure Controls and Procedures
Our management, with the participation and supervision of our Chief Executive Officer and Chief Financial Officer, is responsible for our disclosure controls and procedures pursuant to Rules 13a-15(e) and 15d-15(e) under the Exchange Act. Disclosure controls and procedures are controls and other procedures that are designed to ensure that information required to be disclosed in our reports filed or submitted under the Exchange Act is recorded, processed, summarized and reported, within the time periods specified under SEC rules and forms. Disclosure controls and procedures include controls and procedures designed to ensure that information required to be disclosed in our reports filed under the Exchange Act is accumulated and communicated to our principal executive officer and our principal financial officer, as appropriate, to allow timely decisions regarding required disclosure.
Our management, including the Chief Executive Officer and the Chief Financial Officer, carried out an evaluation of the effectiveness of our disclosure controls and procedures as of December 31, 2023. Based on this evaluation, our management concluded that as of December 31, 2023 these disclosure controls and procedures were not effective at the reasonable assurance level. As discussed below, our internal control over financial reporting is an integral part of our disclosure controls and procedures.
Management’s Annual Report on Internal Control Over Financial Reporting
Our management is responsible for establishing and maintaining adequate internal control over our financial reporting, as defined in Rule 13a-15(f) under the Exchange Act. Internal control over financial reporting is a process designed by, or under the supervision of, our principal executive and principal financial officers, or persons performing similar functions, and effected by our board of directors, management, and other personnel, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with GAAP and includes those policies and procedures that:
1.
Lack of timely review of accounts and reconciliations leading to material audit adjustments
2.
Pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of our assets;
3.
Provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with GAAP, and our receipts and expenditures are being made only in accordance with authorizations of our management and directors; and
4.
Provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use or disposition of our assets that could have a material effect on the financial statements.
5. After consultation with our independent registered public accounting firm, our management and our audit committee concluded that, it was appropriate to restate our previously issued unaudited balance sheets as of June 30, 2023 and September 30, 2023, to reverse the write-off of an uncertain tax position liability (the “Restatement”). As a result of these events, which led to the Restatement, we have identified a material weakness in our internal control over financial reporting.
Because of inherent limitations, no matter how well designed and operated, internal control over financial reporting may not prevent or detect misstatements and can only provide reasonable assurance of achieving the desired control objectives. In addition, the design of internal control over financial reporting must reflect the fact that there are resource constraints and that management is required to apply its judgment in evaluating the benefits of possible controls and procedures relative to their costs.
Our Chief Executive Officer and Chief Financial Officer have performed an evaluation of our internal control over financial reporting under the framework in Internal Control-Integrated Framework (2013), issued by the Committee of Sponsoring Organizations of the Treadway Commission. The objective of this assessment was to determine whether our internal control over financial reporting was effective at December 31, 2023.
Based on the results of its assessment, our management concluded that our internal control over financial reporting was not effective as of December 31, 2023 based on such criteria due to material weaknesses in internal control over financial reporting described below:
Material Weaknesses in Internal Control over Financial Reporting
•
The Company’s primary user access controls (i.e. provisioning, de-provisioning, and quarterly user access review) to ensure appropriate segregation of duties that would adequately restrict user and privileged access to the financially relevant systems and data to appropriate Company personnel were not operating effectively. Automated process-level controls and manual controls that are dependent upon the information derived from such financially relevant systems were also determined to be ineffective as a result of such deficiency.
•
Failure to timely record transactions and to timely review account reconciliations resulting in post-closing adjustments and restatement of the financial statements.
Remediation Plan
We plan to enhance our internal control over financial reporting in an effort to remediate the material weaknesses described above. We are committed to ensuring that our internal control over financial reporting is designed and operating effectively. Our remediation process will include:
•
Enhancing the organizational structure to support financial reporting processes and internal controls.
• Investing in IT systems to enhance our operational and financial reporting and internal controls.
• Establishing effective general controls over IT systems to ensure that information produced can be relied upon by process level controls is relevant and reliable.
•
Providing guidance, education and training to employees relating to our accounting policies and procedures.
•
Further developing and documenting detailed policies and procedures regarding business processes for significant accounts, critical accounting policies and critical accounting estimates.
We expect to remediate these material weaknesses during 2024. However, we may discover additional material weaknesses that may require additional time and resources to remediate.
We believe that the consolidated financial statements included in this Annual Report on Form 10-K for the year ended December 31, 2023 fairly present, in all material respects, our financial position, results of operations and cash flows for the periods presented in conformity with GAAP.
Changes in Internal Control over Financial Reporting
There were no changes in our internal control over financial reporting (as defined in Rule 13a-15(f) under the Exchange Act) during the fiscal quarter ended December 31, 2023, that have materially affected, or are likely to materially affect, our internal control over financial reporting.
Inherent Limitation on the Effectiveness of Internal Controls
The effectiveness of any system of internal control over financial reporting is subject to inherent limitations, including the exercise of judgment in designing, implementing, operating, and evaluating the controls and procedures, and the inability to eliminate misconduct completely. Accordingly, any system of internal control over financial reporting can only provide reasonable, not absolute, assurances. In addition, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate. We intend to continue to monitor and upgrade our internal controls as necessary or appropriate for our business but cannot assure that such improvements will be sufficient to provide us with effective internal control over financial reporting.

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ITEM 9B. OTHER INFORMATION
ITEM 9B. OTHER INFORMATION
None.

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ITEM 10. DIRECTORS, EXECUTIVE OFFICERS AND CORPORATE GOVERNANCE
ITEM 10. DIRECTORS, EXECUTIVE OFFICERS AND CORPORATE GOVERNANCE
Name
Director or Officer Since
Age
Positions
Sabas Carrillo
Chief Executive Officer and Chairman of the Board of Directors
Patty Chan
Chief Financial Officer
James Miller
Chief Operating Officer and Director
Matthew Barron
Director
Sabas Carrillo, Chief Executive Officer and Chairman of the Board of Directors
Mr. Carrillo serves as our Chief Executive Officer and a member of our board of directors, positions which he has held since December 2022. Mr. Carrillo was appointed as Chairman of the Board on July 1, 2023. Previously, Mr. Carrillo served as our Interim Chief Executive Officer from August 2022 to December 2022. Mr. Carrillo is an industry veteran with 13 years of cannabis experience and has helped lead public and private cannabis companies through restructuring, growth, mergers & acquisitions, and successful exits during such time. He is the Founder and CEO of Adnant, LLC (“Adnant”), an accounting and consulting firm advising cannabis companies on technical and operational accounting, strategic transactions, and the public offering process, and he has served as Adnant’s CEO since 2009. Mr. Carrillo served on the go-public team for Weedmaps and General Cannabis, Inc., a publicly traded company from late 2009 to 2012. An SEC financial reporting expert with comprehensive capital markets experience, Mr. Carrillo led the team that took Blüm Oakland through a public offering on behalf of Terra Tech Corp. in 2014 (now Unrivaled) - the first plant touching, vertically integrated company to enter the public markets. Mr. Carrillo helped guide MedMen Enterprises, Inc., the first publicly traded multi-state operator, from late 2017 to 2019 to acquire 53 companies and effectively supported them through the rollup, audits and integration efforts. Mr. Carrillo served as Interim CFO for Cookies Creative Consulting & Promotions Inc. from January 2019 to January 2020. He is a co-founder and general partner of two cannabis-focused funds: Mesh Ventures, LLC and 1212 Ventures, LLC.
Patty Chan, Chief Financial Officer
Ms. Chan serves as our Chief Financial Officer, a position she has held since June 2023. Previously, Ms. Chan served as our Interim Chief Financial Officer from September 2022 to June 2023. Ms. Chan has over 15 years of accounting, financial reporting, compliance, and operational experience across the cannabis, real estate, and financial services industries. Before entering the cannabis and CBD industries, she accrued nearly 10 years of experience managing forensic accounting engagements for business litigation, supervising and conducting fraud investigations, and preparing forensic analysis of complex financial transactions. She previously served as Chief Financial Officer for Upexi Inc. f/k/a Grove Inc. (NASDAQ: UPXI) a manufacturing, distribution, wholesale and retail company in the CBD industry from June 2016 until June 2020. Prior to that company’s initial public offering, she was part of the team overseeing their business model transition, equity fundraising, and go-public efforts. Ms. Chan received a B.A. in Business Economics with a minor in accounting and political science from the University of California, Los Angeles and is a Certified Public Accountant in the state of California.
Ms. Chan currently serves as a Manager at Adnant, a position she has held since February 2021. At Adnant, Ms. Chan focuses on advising hypergrowth clients on their operations and audit preparation as well as managing the accounting and reporting for cannabis investment funds. She has also implemented financial controls and infrastructure for cannabis clients in various stages of their business development.
James Miller, Chief Operating Officer and Director
Mr. Miller serves as our Chief Operating Officer and a member of our board of directors, positions which he has held since December 2022 and June 2023, respectively. Mr. Miller most recently served as Chief Financial Officer of Operators Only, Inc., a cannabis operations service provider, supporting Cookies-branded retail and cultivation licensees, from January 2022 to October 2022. Mr. Miller was Corporate Controller at 3PL Central LLC, a private equity owned eCommerce WMS provider, from February 2020 until December 2021. Previously, Mr. Miller served as interim Chief Financial Officer and Vice President of Accounting at MedMen Enterprises Inc., a cannabis MSO and cultivation company, from January 2018 until December 2019, where he was responsible for financial reporting, financial controls, and various operating departments through its formation, initial public offering, and subsequent growth stage. He was also Chief Financial Officer of MedMen Enterprises Inc.’s affiliated Treehouse Real Estate Investment Trust from December 2018 until October 2019. Mr. Miller has held several senior executive and finance roles at leading entertainment firms, such as the Walt Disney Company and Viacom, as well as various technology and e-commerce companies. Mr. Miller received a Bachelor of Arts degree in Economics from the University of California at Los Angeles, and is a CPA (license inactive) in California.
Matthew Barron, Director
Mr. Barron serves as a member of our board of directors, a position which he has held since August 2023. Mr. Barron currently serves as co-founder and managing partner of 1212 Ventures, LLC, a cannabis-focused venture capital firm. He also serves on the board of directors of Cookies Creative Consulting & Promotions, Inc., the most globally recognized cannabis brand, and serves as Vice President of Mesh Ventures, LLC, which invested in 12 cannabis firms across the supply chain. Mr. Barron has held several senior roles leading growth and strategy at IT solutions, software development, and health companies. Mr. Barron received a Bachelor of Arts degree in Philosophy, Political Science, and Economics from Denison University, and a Master of Business Administration from the University of Chicago, Booth School of Business.
Family Relationships
There are no family relationships among any of our directors or executive officers.
Director Qualifications
We believe that our directors should have the highest professional and personal ethics and values, consistent with our values and standards. They should have broad experience at the policy-making level in business or banking. They should be committed to enhancing stockholder value and should have sufficient time to carry out their duties and to provide insight and practical wisdom based on experience. Their service on other boards of public companies should be limited to a number that permits them, given their individual circumstances, to perform responsibly all director duties for us. Each director must represent the interests of all stockholders. When considering potential director candidates, the board of directors also considers the candidate’s character, judgment, diversity, age and skills, including financial literacy and experience in the context of our needs and the needs of the board of director.
Independent Director Agreements
Pursuant to an Independent Director Agreement dated December 11, 2020 by and between us and Nicholas Kovacevich, we agreed to grant Mr. Kovacevich 1,500 restricted shares of stock, to be fully vested on the date of appointment. On February 1, 2021, the Company and Mr. Kovacevich entered into an Amended and Restated Independent Director Agreement (as may be amended from time to time, the “Kovacevich Agreement”). Per the Kovacevich Agreement, (1) the Company issued to Mr. Kovacevich 5,000 restricted shares of the Company’s Common Stock, which vested in twelve equal installments on the first day of each month beginning on March 1, 2021 (provided Mr. Kovacevich is a director of the Company on the applicable vesting date) and (2) the Company agreed to pay Mr. Kovacevich cash compensation of $5,000 per month, payable on the first day of each month beginning March 1, 2021 for the term of the Kovacevich Agreement. Pursuant to the Kovacevich Agreement, as of December 31, 2023, the Company has granted Mr. Kovacevich all 5,000 restricted shares of Common Stock (all of which are vested), and has paid cash compensation of $9,000 during the fiscal year ended December 31, 2023. Mr. Kovacevich resigned from the board of directors effective July 1, 2023 and accordingly, the Independent Director Agreement was terminated.
Pursuant to an Independent Director Agreement dated July 1, 2021 by and between us and Eric Baum, we agreed to grant Mr. Baum an option to purchase 5,000 shares of Common Stock at the closing price of the Common Stock on the date of the Director Agreement and to pay Mr. Baum cash compensation of $5,000 per month, pro-rated for any partial months, payable on the first day of each month beginning July 1, 2021 for the term of the Baum Director Agreement. The Company issued to Mr. Baum 5,000 options to purchase shares of Common Stock at an exercise price of $0.22, which vested in twelve equal installments on the first day of each month beginning on August 1, 2021. Pursuant to the Baum Director Agreement, the Company has paid cash compensation of $9,000 during the fiscal year ended December 31, 2023. Mr. Baum resigned from the board of directors effective July 1, 2023 and accordingly, the Independent Director Agreement was terminated.
Pursuant to a Board of Directors Agreement effective August 1, 2023 by and between us and Matthew Barron, compensation shall be determined by the Board and the Compensation Committee. During the year ended December 31, 2023, the Board and the Compensation Committee agreed that compensation paid to directors shall be nil for the fiscal year ended December 31, 2023. As of December 31, 2023, Mr. Barron did not receive any cash compensation or issuance of Common Stock for his role as director.
Involvement in Certain Legal Proceedings
Other than as disclosed below, to our knowledge, our directors and executive officers have not been involved in any of the following events during the past ten years:
•
Any bankruptcy petition filed by or against such person or any business of which such person was a general partner or executive officer either at the time of the bankruptcy or within two years prior to that time;
•
Any conviction in a criminal proceeding or being subject to a pending criminal proceeding (excluding traffic violations and other minor offenses);
•
Being subject to any order, judgment, or decree, not subsequently reversed, suspended or vacated, of any court of competent jurisdiction, permanently or temporarily enjoining him from or otherwise limiting his involvement in any type of business, securities or banking activities or to be associated with any person practicing in banking or securities activities;
•
Being found by a court of competent jurisdiction in a civil action, the SEC or the Commodity Futures Trading Commission to have violated a Federal or state securities or commodities law, and the judgment has not been reversed, suspended, or vacated;
•
Being subject of, or a party to, any federal or state judicial or administrative order, judgment decree, or finding, not subsequently reversed, suspended or vacated, relating to an alleged violation of any federal or state securities or commodities law or regulation, any law or regulation respecting financial institutions or insurance companies, or any law or regulation prohibiting mail or wire fraud or fraud in connection with any business entity; or
•
Being subject of or party to any sanction or order, not subsequently reversed, suspended, or vacated, of any self-regulatory organization, any registered entity or any equivalent exchange, association, entity or organization that has disciplinary authority over its members or persons associated with a member.
Code of Ethics
On November 4, 2015, our board of directors approved and adopted a Code of Ethics (the “Code of Ethics”) that applies to all of our directors, officers, and employees, including our principal executive officer and principal financial officer. The Code of Ethics addresses such individuals’ conduct with respect to, among other things, conflicts of interests; compliance with applicable laws, rules, and regulations; full, fair, accurate, timely, and understandable disclosure by us; competition and fair dealing; corporate opportunities; confidentiality; insider trading; protection and proper use of our assets; fair treatment; and reporting suspected illegal or unethical behavior. The Code of Ethics is available on our website at https://ir.blumholdings.com/corporate-governance/governance-documents. We intend to satisfy the requirements under Item 5.05 of Form 8-K regarding disclosure of amendments to, or waivers from, provisions of the Code of Ethics by posting such information on our website. Information contained on our website is not part of this report.
Term of Office
Our directors are appointed to hold office until the next annual meeting of our stockholders or until removed from office in accordance with our Bylaws. Our officers are appointed by our board of directors and hold office until removed by the board of directors, absent an employment agreement.
Section 16(A) Beneficial Ownership Reporting Compliance
Section 16(a) of the Exchange Act requires that our directors and executive officers and persons who beneficially own more than 10% of our Common Stock (referred to herein as the “Reporting Persons”) file with the SEC various reports as to their ownership of and activities relating to our Common Stock. The Reporting Persons are required by rules of the SEC to furnish the Company with copies of all Section 16(a) reports they file. Based solely upon a review of Section 16(a) reports furnished to the Company, written representations that no other reports were required and other knowledge relating to transactions involving Reporting Persons, the Company believes that the foregoing Reporting Persons complied with all filing requirements with respect to transactions during the fiscal year ended December 31, 2023, except the following:
•
Sabas Carrillo did not timely file a Form 4 with respect to three transactions.
•
Patty Chan did not timely file a Form 4 with respect to one transaction.
•
James Miller did not timely file a Form 4 with respect to two transactions.
• Matthew Barron did not timely file a Form 3 with respect to his appointment as director on August 1, 2023.
Audit Committee and Audit Committee Financial Expert
On November 4, 2015, our board of directors established the Audit Committee, which is governed by the Audit Committee Charter. Mr. Barron is currently the sole member of the Audit Committee, and Mr. Barron meets the requirements for financial literacy under the applicable Nasdaq rules and regulations. Our board of directors has affirmatively determined that each member of our Audit Committee meets the independence requirements of The Nasdaq Stock Market, LLC and Rule 10A-3 of the Exchange Act. In addition, our board of directors has determined that Mr. Barron qualifies as an “audit committee financial expert,” as such term is defined in Item 407(d)(5) of Regulation S-K. A copy of the Audit Committee Charter can be found online at https://ir.blumholdings.com/corporate-governance/governance-documents.

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ITEM 11. EXECUTIVE COMPENSATION
ITEM 11. EXECUTIVE COMPENSATION
Summary Compensation Table
Stock
Option
All Other
Name and Principal Position
Year
Salary
Bonus
Awards (10)
Awards (11)
Compensation
Total
Sabas Carrillo (1)
$ -
$ -
$ -
$ -
$ -
$ -
Chief Executive Officer and Director
$ -
$ -
$ -
$ -
$ -
$ -
Patty Chan (2)
$ -
$ -
$ -
$ -
$ -
$ -
Chief Financial Officer
$ -
$ -
$ -
$ -
$ -
$ -
James Miller (3)
$ 215,000
$ -
$ -
$ 13,790
$ -
$ 228,790
Chief Operating Officer and Director
$ 28,942
$ -
$ -
$ -
$ -
$ 28,942
Tiffany Davis (4)
$ -
$ -
$ -
$ -
$ -
$ -
Chief Executive Officer, President, and Director
$ 111,605
$ -
$ -
$ -
$ -
$ 111,605
Francis Knuettel II (5)
$ -
$ -
$ -
$ -
$ -
$ -
Chief Executive Officer and Director
$ 206,522
$ -
$ 308,025
$ -
$ -
$ 514,547
Jeffrey Batliner (6)
$ -
$ -
$ -
$ -
$ -
$ -
Chief Financial Officer
$ 254,014
$ -
$ -
$ -
$ -
$ 254,014
Uri Kenig (7)
$ -
$ -
$ -
$ -
$ -
$ -
Chief Operating Officer
$ 125,539
$ -
$ 41,700
$ -
$ -
$ 167,239
Oren Schauble (8)
$ -
$ -
$ -
$ -
$ -
$ -
President
$ 160,205
$ -
$ -
$ -
$ -
$ 160,205
Christopher Rivera (9)
$ -
$ -
$ -
$ -
$ -
$ -
Interim Chief Financial Officer
$ -
$ -
$ -
$ -
$ -
$ -
(1)
Appointed Interim Chief Executive Officer on August 12, 2022. Appointed Director on December 23, 2022. Designated as Chief Executive Officer on December 23, 2022. Appointed Chairman of the Board on July 1, 2023. Compensation is included as part of the Company's agreement with Adnant described below.
(2)
Appointed Interim Chief Financial Officer on September 12, 2022. Designated as Chief Financial Officer on June 12, 2023. Compensation is included as part of the Company's agreement with Adnant described below.
(3)
Appointed Chief Operating Officer on December 23, 2022. Previously started with the Company in November 2022. Appointed Director on July 1, 2023.
(4)
Appointed Interim Chief Executive Officer on March 13, 2022. Terminated employment on July 21, 2022.
(5)
Appointed Director on December 11, 2020. Appointed Interim Chief Executive Officer and President on December 15, 2020. Designated as Chief Executive Officer and President on March 2, 2021. Terminated employment on March 13, 2022.
(6)
Appointed Chief Financial Officer effective October 5, 2020. Stepped down from Chief Financial Officer on September 12, 2022, and continued to work for the Company in other capacities through March 2023. Compensation received during fiscal year 2023 is not included in this table as Mr. Batliner was not an executive officer during fiscal year 2023.
(7)
Appointed Interim Chief Operating Officer effective December 18, 2020. Appointed Chief Operating Officer effective June 7, 2021. Terminated employment on March 25, 2022.
(8)
Appointed President on July 27, 2021. Terminated employment on March 10, 2022.
(9)
Appointed Interim Chief Financial Officer on June 26, 2023. Terminated position as Interim Chief Financial Officer in November 2023 when Ms. Chan returned from parental leave and continues to work for the Company in other capacities. Compensation is included as part of the Company's agreement with Adnant described below.
(10)
The dollar amounts in this column reflect the aggregate grant date fair value, as determined in accordance with Financial Accounting Standards Board Accounting Standards Codification Topic 718, Compensation - Stock Compensation (“FASB ASC Topic 718”). The fair value is calculated based on the closing price of the Common Stock on the grant dates.
(11)
The dollar amounts shown in this column reflect the aggregate grant date fair value, as determined in accordance with FASB ASC Topic 718, of stock options granted in the applicable year. For a discussion of the assumptions that we used to value the stock options, for financial accounting purposes, please refer to “Note 15 - Stock-Based Compensation” in the notes to our consolidated financial statements contained in this Annual Report on Form 10-K.
Employment Contracts, Termination of Employment, Change-in-Control Arrangements
Sabas Carrillo, Patty Chan, & Christopher Rivera
On August 12, 2022, the Company entered into the Original Adnant Letter pursuant to which Adnant agreed to provide executive level consulting and related business support and services related to the Company’s present and future challenges and opportunities, as described in more detail on the Company’s Current Report on Form 8-K filed with the U.S. Securities and Exchange Commission on August 12, 2022. Adnant will provide certain services (the “Services”) focused on achieving identified performance objectives (the “Performance Objectives”). Both the Services and Performance Objectives are described in more detail in the Original Adnant Letter. Compensation to Adnant includes fees for the Services of $150,000 monthly subject to the Company having available a cash balance greater than or equal to $1.20 million following payment of the fee and a performance bonus award of up to $1.0 million subject to achievement of the Performance Objectives as set forth in Exhibit A to the Original Adnant Letter. The services of Mr. Carrillo, Ms. Chan, Mr. Rivera and other Adnant employees providing services to the Company are included as part of the fees covered in the Original Adnant Letter.
On June 30, 2023, the Company and Adnant entered into the A&R Engagement Letter, pursuant to which Adnant will continue to provide certain executive level consulting and related business support and services through September 30, 2023. Effective April 1, 2023, as compensation for such services, Adnant is entitled to receive a monthly flat fee of $0.20 million. Adnant has the option to convert accrued and unpaid service fees into shares of common stock of the Company. In addition to the monthly fee described above, a performance based award of $2.50 million shall be payable to Adnant in shares of Common Stock based upon the achievement of the performance bonus award objectives set forth in the A&R Engagement Letter and the continued performance of Adnant towards obtaining such performance bonus award objectives. A transaction bonus award of $1.25 million is also available to Adnant subject to a change of control event approved by the Board of Directors with a value equal to or greater than $40.00 million in the aggregate.
In connection with the Reorganization, Unrivaled assigned to the Company, and the Company assumed from Unrivaled, A&R Engagement Letter.
On December 29, 2023, the board of directors approved an extension of Adnant's continued services on a month-to-month basis under the terms of the A&R Engagement Letter.
James Miller
On October 28, 2022, the Company entered into an Employment Agreement with James Miller (the "Miller Employment Agreement"), appointing Mr. Miller as the Company's Chief Operating Officer. Mr. Miller's compensation pursuant to the Miller Employment Agreement is a base salary of $215,000 and he is eligible to receive an equity bonus, provided that the actual amount of the performance-based option grant may be greater or less than the target grant. The equity bonus is to be based on performance and achievement of the Company and individual goals and objectives agreed to between Mr. Miller and the Company's Chief Executive Officer.
Francis Knuettel II
On December 18, 2020, Terra Tech Corp. entered into an Executive Employment Agreement (the “Knuettel Employment Agreement”) with Francis Knuettel II, appointing Mr. Knuettel as the Company’s Interim Chief Executive Officer and President. The Knuettel Employment Agreement, was for a term of six months. Mr. Knuettel’s compensation pursuant to the Knuettel Employment Agreement was $150,000 and he was eligible to receive a cash performance bonus at the discretion of the board of directors. Mr. Knuettel was granted 2,000 fully-vested shares of the Company’s Common Stock and was entitled to an additional 2,000 fully-vested shares of Common Stock on the six-month anniversary of the Knuettel Employment Agreement; provided it had not been terminated prior to that date. Mr. Knuettel was also granted an option to purchase 6,000 shares of Common Stock with an exercise price equal to the closing price of the Common Stock on the trading day prior to the date of the Knuettel Employment Agreement pursuant to the terms of the Company’s 2018 Equity Incentive Plan, which vest 50% on the three-month anniversary of the Knuettel Employment Agreement and 50% on the six-month anniversary of the Knuettel Employment Agreement; provided it had not been terminated prior to either such date. In addition, Mr. Knuettel was eligible to receive a bonus of 4,000 fully-vested shares of Common Stock and $40,000 upon closing of (A) a merger or consolidation of the Company or a subsidiary of the Company with another entity, or (B) the disposition by the Company of all or substantially all of the Company’s assets or the acquisition by the Company of all or substantially all of the assets of another entity entered into during the term of the Knuettel Employment Agreement, in each case with a transaction value of over $20,000,000 and approved by the board of directors, whether or not he is then an employee of the Company.
On June 7, 2021, the Company entered into an Amended and Restated Executive Employment Agreement (the “A&R Knuettel Employment Agreement”) with Mr. Knuettel, appointing Mr. Knuettel as the Company’s Chief Executive Officer and President. The term of the A&R Knuettel Employment Agreement began on June 7, 2021 and continued until terminated by the Company or Mr. Knuettel pursuant to the terms thereof. Mr. Knuettel’s annual base compensation pursuant to the A&R Knuettel Employment Agreement was $300,000 and he was eligible to receive an annual cash bonus, with the target amount of such annual bonus equal to 50% of his base compensation in the year to which the annual bonus relates; provided that the actual amount of the annual bonus may be greater or less than the target bonus. The annual bonus was to be based on performance and achievement by the Company and individual goals and objectives agreed to by the board of directors or Compensation Committee and Mr. Knuettel.
In connection with the A&R Knuettel Employment Agreement, Mr. Knuettel was issued 15,000 shares (the “Knuettel Grant Shares”) of Common Stock, which vest in six equal installments, with the first installment vesting on June 7, 2021, and the remaining installments vesting on every three-month anniversary thereafter; provided he is an employee of the Company on the applicable vesting date. The vesting of the Knuettel Grant Shares is subject to acceleration under certain circumstances as set forth in the A&R Knuettel Employment Agreement.
Mr. Knuettel was also issued an option to purchase 15,000 shares (the “Knuettel Grant Options”) of Common Stock with an exercise price equal to the closing price of the Common Stock on the trading day prior to June 7, 2021 pursuant to the terms of the Company’s Equity Incentive Plan, which vest in six equal installments, with the first installment vesting on June 7, 2021, and the remaining installments vesting on every three month anniversary thereafter; provided he is an employee of the Company on the applicable vesting date. The vesting of the Knuettel Grant Options is subject to acceleration under certain circumstances as set forth in the A&R Knuettel Employment Agreement.
In addition, under the A&R Knuettel Employment Agreement, Mr. Knuettel was eligible to receive a bonus of 2,000 fully-vested shares of Common Stock and $40,000 in cash upon closing of (A) a merger or consolidation of the Company or a subsidiary of the Company with another entity, or (B) the disposition by the Company of all or substantially all of the Company’s assets or the acquisition by the Company of all or substantially all of the assets of another entity entered into during the term of Mr. Knuettel’s original employment agreement with the Company, in each case with a transaction value of over $20,000,000 and approved by the Company’s board of directors. The board of directors approved the payment of this cash and equity bonus to Mr. Knuettel in connection with the closing of the UMBRLA merger on July 1, 2021.
Under the A&R Knuettel Employment Agreement, Mr. Knuettel was also eligible to receive a performance stock grant (the “Knuettel Performance Grant”), with the target amount of the Knuettel Performance Grant equal to 7,500 shares of Common Stock (the “Knuettel Target Grant”); provided that the actual amount of the Knuettel Performance Grant may be greater or less than the Knuettel Target Grant based on performance and achievement of Company and individual goals and objectives as set forth in the Knuettel Employment Agreement.
Under the A&R Knuettel Employment Agreement, if (i) Mr. Knuettel’s employment with the Company is terminated by the Company other than for cause (as defined in the A&R Knuettel Employment Agreement), death or “permanent and total disability” or (ii) Mr. Knuettel resigns for good reason (as defined in the A&R Knuettel Employment Agreement), then he shall be entitled to severance benefits in an amount equal to 50% of his then current base compensation, less any taxes and withholding as may be necessary pursuant to law, to be paid in accordance with the Company’s normal payroll practices, but in no event less frequently than monthly, paid in equal installments over a six-month period.
On April 12, 2022, the Company and Mr. Knuettel agreed to terms on a separation agreement. The Company agreed to pay Mr. Knuettel 50% of his annual base salary and continue his medical benefits for a period of six months. Mr. Knuettel's unvested shares and options vested immediately. As part of this separation agreement Mr. Knuettel resigned as director of the Company.
Uri Kenig
On December 21, 2020, the Company entered into an Executive Employment Agreement (the “Kenig Employment Agreement”) with Uri Kenig, appointing Mr. Kenig as the Company’s Interim Chief Operating Officer. The Kenig Employment Agreement, was for a term of six months. Mr. Kenig’s compensation pursuant to the Kenig Employment Agreement was $90,000 and he was eligible to receive a cash performance bonus at the discretion of the board of directors. Mr. Kenig was granted 1,500 fully-vested shares of the Company’s Common Stock and was entitled to an additional 1,500 fully-vested shares of Common Stock on the six-month anniversary of the Kenig Employment Agreement; provided it had not been terminated prior to that date. Mr. Kenig was also granted an option to purchase 3,000 shares of Common Stock with an exercise price equal to the closing price of the Common Stock on the trading day prior to the date of the Kenig Employment Agreement pursuant to the terms of the Company’s 2018 Equity Incentive Plan, which vested 50% on the three-month anniversary of the Kenig Employment Agreement and 50% on the six-month anniversary of the Kenig Employment Agreement; provided it had not been terminated prior to either such date. In addition, Mr. Kenig was eligible to receive a bonus of 2,000 fully-vested shares of Common Stock and $20,000 upon closing of (A) a merger or consolidation of the Company or a subsidiary of the Company with another entity, or (B) the disposition by the Company of all or substantially all of the Company’s assets or the acquisition by the Company of all or substantially all of the assets of another entity entered into during the term of the Kenig Employment Agreement, in each case with a transaction value of over $20,000,000 and approved by the board of directors, whether or not he is then an employee of the Company.
The Board of Directors approved the payment of this cash and equity bonus to Mr. Kenig in connection with the closing of the UMBRLA merger on July 1, 2021.
On June 7, 2021, the Company entered into an Amended and Restated Executive Employment Agreement (the “A&R Kenig Employment Agreement”) with Mr. Kenig, appointing Mr. Kenig as the Company’s Chief Operating Officer. The term of the A&R Kenig Employment Agreement began on June 7, 2021 and continued until terminated by the Company or Mr. Kenig pursuant to the terms thereof. Mr. Kenig’s annual base compensation pursuant to the A&R Kenig Employment Agreement was Two Hundred and Fifty Thousand Dollars ($250,000) and he was eligible to receive an annual cash bonus, with the target amount of such annual bonus equal to 50% of his base compensation in the year to which the annual bonus relates; provided that the actual amount of the annual bonus may be greater or less than the target bonus. The annual bonus was to be based on performance and achievement of Company and individual goals and objectives agreed to by the board of directors or Compensation Committee and Mr. Kenig.
Mr. Kenig was also issued an option to purchase 17,500 shares (the “Kenig Grant Options”) of Common Stock with an exercise price equal to the closing price of the Common Stock on the trading day prior to June 7, 2021 pursuant to the terms of the Company’s Equity Incentive Plan, which vest in six equal installments, with the first installment vesting on June 7, 2021, and the remaining installments vesting on every three month anniversary thereafter; provided he is an employee of the Company on the applicable vesting date. The vesting of the Kenig Grant Options is subject to acceleration under certain circumstances as set forth in the A&R Kenig Employment Agreement.
Mr. Kenig was also eligible to receive a performance stock grant (the “Kenig Performance Grant”), with the target amount of the Kenig Performance Grant equal to 5,000 shares of Common Stock (the “Kenig Target Grant”); provided that the actual amount of the Kenig Performance Grant may be greater or less than the Kenig Target Grant based on performance and achievement of Company and individual goals and objectives as set forth in the A&R Kenig Employment Agreement.
If (i) Mr. Kenig’s employment with the Company is terminated by the Company other than for cause (as defined in the A&R Kenig Employment Agreement), death or “permanent and total disability” or (ii) Mr. Kenig resigns for good reason (as defined in the A&R Kenig Employment Agreement), then he shall be entitled to severance benefits in an amount equal to 50% of his then current base compensation, less any taxes and withholding as may be necessary pursuant to law, to be paid in accordance with the Company’s normal payroll practices, but in no event less frequently than monthly, paid in equal installments over a six-month period.Mr. Kenig is eligible to participate in the Company’s 2018 Equity Incentive Plan, pursuant to which the Company may grant equity awards to its officers, directors and employees.
On March 10, 2022, the Company terminated the employment of Mr. Kenig effective as of March 25, 2022.
Jeffrey Batliner
On September 28, 2020, Terra Tech Corp. entered into an Executive Employment Agreement (the “Employment Agreement”) with Jeffrey Batliner, formerly the Company’s Director of Reporting & Analysis, appointing Mr. Batliner as the Company’s Chief Financial Officer, effective October 5, 2020. The Employment Agreement, was for a term of one year. Mr. Batliner’s base salary was Two Hundred Thousand Dollars ($200,000) and he was eligible for a performance bonus of up to 100% of his base salary (“Target Performance Bonus”). The Target Performance Bonus was to be based on performance and achievement of Company goals and objectives as defined by the board of directors or Compensation Committee and may be greater or less than the Target Performance Bonus. Mr. Batliner may be eligible for severance benefits under certain circumstances as set forth in the Employment Agreement.
On June 7, 2021, the Company entered into an Amended and Restated Executive Employment Agreement (the “A&R Batliner Employment Agreement”) with Mr. Batliner, appointing Mr. Batliner as the Company’s Chief Financial Officer. The term of the A&R Batliner Employment Agreement began on June 7, 2021 and continued until terminated by the Company or Mr. Batliner pursuant to the terms thereof. Mr. Batliner’s annual base compensation pursuant to the A&R Batliner Employment Agreement was $250,000 and he was eligible to receive an annual cash bonus, with the target amount of such annual bonus equal to 50% of his base compensation in the year to which the annual bonus relates; provided that the actual amount of the annual bonus may be greater or less than the target bonus. The annual bonus was to be based on performance and achievement of Company and individual goals and objectives agreed to by the Company’s board of directors or Compensation Committee and Mr. Batliner.
Mr. Batliner was also issued an option to purchase 17,500 shares (the “Batliner Grant Options”) of Common Stock with an exercise price equal to the closing price of the Common Stock on the trading day prior to June 7, 2021 pursuant to the terms of the Company’s Equity Incentive Plan, which vest in six equal installments, with the first installment vesting on June 7, 2021, and the remaining installments vesting on every three month anniversary thereafter; provided he is an employee of the Company on the applicable vesting date. The vesting of the Batliner Grant Options is subject to acceleration under certain circumstances as set forth in the A&R Batliner Employment Agreement.
Mr. Batliner was also eligible to receive a performance stock grant (the “Batliner Performance Grant”), with the target amount of the Batliner Performance Grant equal to 5,000 shares of Common Stock (the “Batliner Target Grant”); provided that the actual amount of the Batliner Performance Grant may be greater or less than the Batliner Target Grant based on performance and achievement of Company and individual goals and objectives as set forth in the A&R Batliner Employment Agreement.
If (i) Mr. Batliner’s employment with the Company is terminated by the Company other than for cause (as defined in the A&R Batliner Employment Agreement), death or “permanent and total disability” or (ii) Mr. Batliner resigns for good reason (as defined in the A&R Batliner Employment Agreement), then he shall be entitled to severance benefits in an amount equal to 50% of his then current base compensation, less any taxes and withholding as may be necessary pursuant to law, to be paid in accordance with the Company’s normal payroll practices, but in no event less frequently than monthly, paid in equal installments over a six-month period.
Mr. Batliner resigned as Chief Financial Officer on September 12, 2022, and continued to work for the Company in other capacities through March 2023.
Outstanding Equity Awards at Fiscal Year-End
Option Awards
Stock Awards
Number of securities underlying unexercised options
Number of securities underlying unexercised options
Option Exercise Price
Option Expiration
Number of shares or units of stock that have not vested
Market value of shares of units of stock that have not vested
Name
Grant Date
(#) exercisable
(#) unexercisable
($)
Date
(#)
($)
Jeffrey Batliner (1)
4/02/2020 (4)
183,333
-
$ 0.07
4/2/2030
-
-
9/25/2020 (5)
833,333
-
$ 0.08
9/25/2030
-
-
6/07/2021 (3)
1,750,000
-
$ 0.23
6/6/2031
-
-
James Miller
10/23/2023 (2)
1,400,000
-
$ 0.01
10/23/1933
-
-
(1)
All grants are part of the 2018 Equity Incentive Plan.
(2)
Grant is part of the 2019 Equity Incentive Plan and vested immediately.
(3)
Grant vests in six quarterly installments, with the first vesting on June 7, 2021 and subsequently on every three month anniversary of the grant date for the next five quarters.
(4)
Grant vests in twelve quarterly installments, with the first vesting on April 2, 2020 and subsequently on the first day of the quarter for the next eleven quarters.
(5)
Grant vests in twelve quarterly installments, with the first vesting on October 1, 2020 and subsequently on the first day of the quarter for the next eleven quarters.
Director Compensation
The following table sets forth director compensation for the year ended December 31, 2023:
Fees Earned
Stock
Option
All Other
Name (1)
Paid in Cash ($)
Awards ($)
Awards ($)
Compensation ($)
Total ($)
Matthew Barron (2)
$ -
$ -
$ -
$ -
$ -
Nicholas Kovacevich (3)
$ 9,000
$ -
$ -
$ -
$ 9,000
Eric Baum (4)
$ 9,000
$ -
$ -
$ -
$ 9,000
(1)
Sabas Carrillo and James Miller are not included in this table as they were executive officers during fiscal year 2023, and thus received no compensation for their service as directors. The compensation of Mr. Carrillo and Mr. Miller as our employees is shown in “Item 11. Executive Compensation - Summary Compensation Table.”
(2)
Appointed Director on August 1, 2023. Mr. Barron received no compensation for his service as director in 2023.
(3)
Appointed Director on December 10, 2020. Resigned on July 1, 2023.
(4)
Appointed Director on July 1, 2021. Resigned on July 1, 2023.
Narrative to Director Compensation Table
The following is a narrative discussion of the material information that we believe is necessary to understand the information disclosed in the previous table.
Matthew Barron
On August 1, 2023, the Company and Mr. Barron entered into Board of Directors Agreement which provided no compensation for his service as director.
Nicholas Kovacevich
On February 1, 2021, the Company and Mr. Kovacevich amended the Independent Director Agreement. Pursuant to the amended agreement, (1) the Company issued to Mr. Kovacevich 5,000 restricted shares of Common Stock, which vest in twelve equal installments on the first day of each month beginning on March 1, 2021 (provided Mr. Kovacevich is a director of the Company on the applicable vesting date) and (2) the Company agreed to pay Mr. Kovacevich cash compensation of $5,000 per month, payable on the first day of each month beginning March 1, 2021 for the term of the agreement. Mr. Kovacevich resigned from the board of directors effective July 1, 2023 and accordingly, the Independent Director Agreement was terminated.
Eric Baum
On July 1, 2021, we entered into an Independent Director Agreement and a Director Indemnification Agreement with Eric Baum in connection with his appointment to the board of directors of the Company. Pursuant to the Director Agreements, among other things, (1) we agreed to enter into a Stock Option Agreement to issue to Mr. Baum an option to purchase 5,000 shares of Common Stock at the closing price of the Common Stock on the date of the Director Agreement and (2) we agreed to pay Mr. Baum cash compensation of $5,000 per month, pro-rated for any partial months, payable on the first day of each month beginning on the date of the Baum Director Agreement. Mr. Baum resigned from the board of directors effective July 1, 2023 and accordingly, the Independent Director Agreement was terminated.

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ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED STOCKHOLDER MATTERS
Equity Compensation Plan Information
On January 12, 2016, we adopted the 2016 Equity Incentive Plan, and our stockholders approved the 2016 Plan at our annual meeting of stockholders that was held on September 26, 2016. We refer to such plan in this report as the “2016 Plan.” Pursuant to the terms of the 2016 Plan, the maximum number of shares of Common Stock available for the grant of awards under the 2016 Plan shall not exceed 2,000,000. During the years ended December 31, 2016, 2017, and 2018, the Company granted ten-year options to directors, officers, and employees, pursuant to which such individuals are entitled to exercise options to purchase an aggregate of up to 1,300, 2,100, and 2,000 shares of Common Stock, respectively. The options have exercise prices of $254.00 to $504.00 per share, and generally vest quarterly over a three-year period. The number of securities available for future issuance under the 2016 Plan is 1,997,511.
On December 11, 2018, our Board approved the Company’s 2018 Equity Incentive Plan, as amended and restated as of June 20, 2019, and approved by our stockholders on September 23, 2019, with 13,000,000 shares available for issuance. We refer to such plan, as amended, in this report as the “2018 Plan.” On February 14, 2020, our Board approved an amendment to the 2018 Plan, increasing the number of shares available for issuance thereunder by 28,976,425 shares of Common Stock for a total of 41,976,425 shares of Common Stock, plus the number of shares that may become available under the 2016 Plan after termination of awards thereunder, not to exceed 2,000,000 shares subject to adjustment in accordance with the terms of the 2018 Plan. During the years ended December 31, 2022 and 2021, the Company granted ten-year options to directors, officers, and employees, pursuant to which such individuals are entitled to exercise options to purchase an aggregate of up to 69,097 and 36,448 shares of Common Stock, respectively. The options have exercise prices ranging from $7.00 to $26.00 per share, and generally vest quarterly over a three-year period. During the year ended December 31, 2023, the Company granted ten-year options to executives and employees totaling 192,442, pursuant to which such individuals are entitled to exercise options to purchase an aggregate of up to 192,442 shares of Common Stock. The options have an exercise price of $1.10 and vest immediately on the grant date. The number of securities available for future issuance under the 2018 Plan is 43,690,333.
On May 15, 2019, UMBRLA, Inc. approved the 2019 Equity Incentive Plan, as amended by shareholder consents dated effective March 11, 2020 and November 2, 2020. We refer to such plan, as amended, in this report as the “UMBRLA Plan.” Pursuant to the terms of the UMBRLA Plan as amended, the maximum number of shares of Common Stock available for the grant of awards under the UMBRLA Plan is 55,000,000 shares. At the time the acquisition of UMBRLA, Inc. completed, UMBRLA, Inc. had granted ten-year options to employees, directors, officers, and consultants totaling 539,570. Immediately after the acquisition of UMBRLA, Inc. by the Company, those shares were assumed by the Company and will be honored in equivalent shares of Common Stock which equivalency equals an aggregate 830,171 shares. The options have exercise prices of $13.00 to $19.00, and with limited exceptions, vest in equal monthly installments over a four-year period, with the first one-quarter of the award vesting on the first anniversary following the vesting start date. The number of securities available for future issuance under the UMBRLA Plan is 54,879,659.
Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters
The following table sets forth certain information as of April 10, 2024 with respect to the holdings of: (1) each person known to us to be the beneficial owner of more than 5.0% of our Common Stock; (2) each of our directors, nominees for director and executive officers; and (3) all directors and executive officers as a group.
Beneficial ownership is determined in accordance with the rules of the SEC and includes voting and/or investing power with respect to securities. These rules generally provide that shares of Company Common Stock subject to options, warrants or other convertible securities that are currently exercisable or convertible, or exercisable or convertible within 60 days of April 10, 2024, are deemed to be outstanding and to be beneficially owned by the person or group holding such options, warrants or other convertible securities for the purpose of computing the percentage ownership of such person or group, but are not treated as outstanding for the purpose of computing the percentage ownership of any other person or group.
To the best of our knowledge, each of the persons named in the table below as beneficially owning the shares set forth therein has sole voting power and sole investment power with respect to such shares, unless otherwise indicated. Unless otherwise specified, the address of each of the persons set forth below is in care of the Company, at the address of 3242 S. Halladay Street, Suite 202, Santa Ana, CA 92705.
Amount and
Nature of
Percent of
Beneficial
Common
Name and Address of Beneficial Owner
Title of Class
Ownership
Stock(1)
Greater than 5% Beneficial Owners:
Sabas Carrillo
Common Stock
1,302,166 (2)
15.01 %
Dallas Imbimbo
Common Stock
797,871 (3)
9.20 %
Alicia Cotta
Common Stock
757,142 (4)
8.86 %
Brick City Productions, Inc.
Common Stock
759,403 (5)
8.94 %
Joseph Gerlach
Common Stock
431,701 (6)
5.05 %
Executive Officers and Directors:
Sabas Carrillo
Common Stock
1,302,166 (2)
15.01 %
Chief Executive Officer and Chairman of the Board of Directors
Patty Chan
Common Stock
35,714 (7)
*
Chief Financial Officer
James Miller
Common Stock
31,857 (7)(8)
*
Chief Operating Officer and Director
Matthew Barron
Common Stock
3,571 (7)
*
Director
All Directors and Executive Officers as a Group (4 persons)
1,373,308
15.68 %
*
Represents beneficial ownership of less than one percent (1.0%) of the outstanding shares of our Common Stock.
(1)
As of April 10, 2024, we had a total of 8,499,105 shares of Common Stock issued and outstanding.
(2)
Includes (i) 1,123,595 shares of Common Stock held by Adnant, LLC, and (ii) 178,571 shares underlying exercisable warrants held by Adnant LLC, of which Mr. Carrillo is the sole member. The principal address is 11516 Downey Ave, Downey, CA 90241.
(3)
Based on information known to us, Mr. Imbimbo’s holdings include (i) 134,277 shares held by Mr. Imbimbo, (ii) 8,167 shares underlying exercisable warrants, (iii) 5,000 shares underlying exercisable options, (iv) 64,547 shares held by Mr. Imbimbo’s spouse, (v) 8,167 shares underlying exercisable warrants held by Mr. Imbimbo’s spouse, (vi) 192,607 shares held by Alpha West Holdings Inc. (“Alpha West”), of which Mr. Imbimbo is a 60% stockholder and has voting and dispositive control, (vii) 27,692 shares underlying exercisable warrants held by Alpha West, (viii) 82,590 shares held by Rove Group LLC, of which Mr. Imbimbo is the sole member (“Rove Group”), (ix) 120,377 shares underlying exercisable warrants held by Rove Group, and (x) 154,447 shares held by Bonaparte Group LLC, of which Mr. Imbimbo’s spouse is the managing member. Mr. Imbimbo disclaims beneficial ownership with respect to the shares held by Alpha West and Bonaparte Group LLC except to the extent of his pecuniary interest therein. The principal address is 17595 Harvard Ave. C552, Irvine, CA 92614. The stockholder’s principal address is 17595 Harvard Ave. C552, Irvine, CA 92614. Mr. Imbimbo resigned as a director of the Company in April 2022.
(4)
The principal address is 570 Washington Blvd., Jersey City, NJ 07310.
(5)
Based on information known to us, Ms. Cotta’s holdings include (i) 714,285 shares held by Green Door Redding, LLC, of which Ms. Cotta is the manager, Chief Executive Officer, Chief Financial Officer, and Secretary, and (ii) 42,857 shares underlying exercisable warrants. Ms. Cotta disclaims beneficial ownership with respect to the shares held by Green Door Redding, LLC except to the extent of her pecuniary interest therein. The stockholder’s principal address is 11516 Downey Ave, Downey, CA 90241.
(6)
The principal address is 3801 Lorene Ct, Modesto, CA 95356.
(7)
Consists of shares underlying exercisable warrants. The stockholder’s principal address is 11516 Downey Ave, Downey, CA 90241.
(8) Includes (i) 14,000 shares underlying exercisable options and (ii) 17,857 shares underlying exercisable warrants.
The following table sets forth certain information as of April 10, 2024 with respect to the holdings of: (1) each person known to us to be the beneficial owner of more than 5.0% of our Series V Preferred Stock; (2) each of our directors, nominees for director and executive officers; and (3) all directors and executive officers as a group. As of April 10, 2024, there are no shares of Series N Preferred Stock outstanding. To the best of our knowledge, each of the persons named in the table below as beneficially owning the shares set forth therein has sole voting power and sole investment power with respect to such shares, unless otherwise indicated. Unless otherwise specified, the address of each of the persons set forth below is in care of the Company, at the address of 3242 S. Halladay Street, Suite 202, Santa Ana, CA 92705.
Name and Address of Beneficial Owner
Title of Class
Amount and Nature of Beneficial Ownership
Percent of Series V Preferred Stock (1)(2)
Greater than 5% Beneficial Owners:
Sabas Carrillo
Series V Preferred Stock
3,571,429 (3)
25.38 %
SME Maywood, LLC
Series V Preferred Stock
1,785,714 (4)(7)
12.69 %
MKSI Investments
Series V Preferred Stock
1,428,571 (4)(8)
10.15 %
Miguel Rodriguez
Series V Preferred Stock
1,071,429 (4)
7.61 %
David Kang
Series V Preferred Stock
1,071,429 (5)
7.61 %
Robert Baca
Series V Preferred Stock
1,071,429 (6)
7.61 %
Alicia Cotta
Series V Preferred Stock
857,143 (4)
6.09 %
Patty Chan
Series V Preferred Stock
714,286 (4)
5.08 %
Justin Jarin
Series V Preferred Stock
714,286 (6)
5.08 %
Executive Officers and Directors:
Sabas Carrillo
Series V Preferred Stock
3,571,429 (3)
25.38 %
Chief Executive Officer and Chairman of the Board of Directors
Patty Chan
Series V Preferred Stock
714,286 (4)
5.08 %
Chief Financial Officer
James Miller
Series V Preferred Stock
357,143 (4)
2.54 %
Chief Operating Officer and Director
Matthew Barron
Series V Preferred Stock
71,429 (4)
0.51 %
Director
All Directors and Executive Officers as a Group (4 persons)
4,714,287
33.50 %
(1)
As of April 10, 2024, we had a total of 14,071,431 shares of Series V Preferred Stock issued and outstanding.
(2)
In connection with the Securities Purchase Agreement entered into on or about December 30, 2022, all other investors in the 2022 Private Placement executed Voting Agreements pursuant to which such investors provide Mr. Carrillo with their voting rights with respect to the Series V Preferred Stock owned by them. As a result, Mr. Carrillo has voting power over 100% of the Company's Series V Preferred Stock.
(3)
Includes 3,571,429 shares of Series V Preferred Stock held by Adnant, LLC, of which Mr. Carrillo, the Company’s Chief Executive Officer and Chairman of the Board, is the sole member. The stockholder’s principal address is 11516 Downey Ave, Downey, CA 90241. In connection with the Securities Purchase Agreement entered into on or about December 30, 2022, all other investors in the 2022 Private Placement executed Voting Agreements pursuant to which such investors provide Mr. Carrillo with their voting rights with respect to the Series V Preferred Stock owned by them. As a result, Mr. Carrillo has voting power over 100% of the Company's Series V Preferred Stock.
(4)
The stockholder’s principal address is 11516 Downey Ave, Downey, CA 90241.
(5)
The stockholder’s principal address is 9200 Double R Blvd, Reno, NV 89521.
(6)
Mr. Baca is the Company's Chief Legal Officer. The stockholder’s principal address is 401 E. 8th St, Sioux Falls, SD 57103.
(7) Edwin Movagharian is the managing member of SME Maywood, LLC and as such may be deemed to have sole voting and investment discretion with respect to the Series V Preferred Stock held by SME Maywood, LLC. Mr. Movagharian disclaims any beneficial ownership of the securities held by SME Maywood, LLC other than to the extent of any pecuniary interest he may have therein, directly or indirectly.
(8) Martin Kaufman and Salwa Ibrahim are the managers of MKSI Investments LLC and have shared voting and investor control over the shares beneficially owned by MKSI Investments LLC. Each of Mr. Kaufman and Ms. Ibrahim disclaims any beneficial ownership of the securities held by MKSI Investments LLC other than to the extent of any pecuniary interest he or she may have therein, directly or indirectly.
There are no arrangements known to us that might, at a subsequent date, result in a change-in-control.

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ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS, AND DIRECTOR INDEPENDENCE
Related Party Transactions
Except as described below, during the past fiscal year, there have been no transactions, whether directly or indirectly, between us and any of our respective officers, directors, beneficial owners of more than 5.0% of our outstanding Common Stock or their family members, that exceeded the lesser of $0.12 million or 1.0% of the average of our total assets at year-end for the last completed fiscal year.
Membership Interest Purchase Agreement
On July 1, 2021, the Company entered into a Membership Interest Purchase Agreement with Nicholas Kovacevich and Dallas Imbimbo, pursuant to which the Company acquired 100% of the outstanding membership interests in Halladay Holding, LLC from Mr. Kovacevich and Mr. Imbimbo. Halladay Holding, LLC is the owner of real property located at 3242 S. Halladay Street, Santa Ana, CA 92705, where the Company operates a cannabis dispensary and maintains its principal office space. Pursuant to the Purchase Agreement, as consideration for the acquisition, the Company paid Mr. Kovacevich and Mr. Imbimbo an aggregate purchase price of $4.60 million in cash. The Company had an independent third-party perform a valuation of the Property prior to entering into the Purchase Agreement. Mr. Kovacevich was a former director of the Company and Mr. Imbimbo was a former director of the Company. As such, the acquisition was a related party transaction.
Engagement of Adnant, LLC
On August 12, 2022, the Company entered into an engagement letter with Adnant, LLC (the “Original Adnant Letter”) pursuant to which Adnant provides executive level consulting and related business support and services related to the Company’s present and future challenges and opportunities. As compensation for the Adnant’s continued services and on achieving identified performance objectives as described in the engagement letter, Adnant is entitled to receive fees of $0.15 million monthly subject to the Company having available a cash balance greater than or equal to $1.20 million following payment of the fee and a performance bonus award subject to achievement of the performance objectives as set forth in more detail in the engagement letter. Pursuant to the engagement letter, the board of directors appointed Sabas Carrillo, the Founder and Chief Executive Officer (“CEO”) of Adnant, as Interim Chief Executive Officer. On December 23, 2022, the Company’s board of directors appointed Mr. Carrillo as the Chief Executive Officer of the Company. On July 1, 2023, our Board appointed Mr. Carrillo as the Chairman of the Board of Directors of the Company.
The Original Adnant Letter provided that, in the event that prior to December 31, 2022 the Interim CEO’s service is terminated by the Company other than for “Cause” (as defined in the Adnant engagement letter), then 100% of the performance bonus award shares will be released to Adnant from the performance bonus award trust subject to the execution and non-revocation of a release of claims by the Interim CEO and Adnant in the form provided by the Company and reasonably agreed by Adnant. The engagement services commenced on August 12, 2022 and the engagement remained in effect through December 31, 2022. Upon the expiration of the engagement letter, the engagement shall automatically renew for subsequent three-month periods unless, at least 30 days prior to the renewal date, either the Company or Adnant provides written notice of termination. During the period from the initial engagement through December 31, 2022, and pursuant to Adnant’s engagement, the Company has incurred a total of $0.75 million in fees, and has issued 161,812 common shares under the performance bonus award valued at $0.57 million.
On June 30, 2023, the Company and Adnant entered into an Amended and Restated Engagement Letter (“A&R Engagement Letter”), which amends and restates the Original Adnant Letter in its entirety. Under the A&R Engagement Letter, Adnant will continue to provide certain executive level consulting and related business support and services through September 30, 2023. Effective April 1, 2023, as compensation for such services, Adnant is entitled to receive a monthly flat fee of $0.20 million. Adnant has the option to convert accrued and unpaid service fees into shares of Common Stock. In addition to the monthly fee described above, a performance based award of $2.50 million shall be payable to Adnant in shares of Common Stock based upon the achievement of the performance bonus award objectives set forth in the A&R Engagement Letter and the continued performance of Adnant towards obtaining such performance bonus award objectives. A transaction bonus award of $1.25 million is also available to Adnant subject to a change of control event approved by the Board of Directors with a value equal to or greater than $40.00 million in the aggregate.
On December 29, 2023, the Board approved an extension of Adnant's continued services on a month-to-month basis under the terms of the A&R Engagement Letter. During the year ended December 31, 2023, the Company incurred a total of $2.25 million in fees and issued 961,783 shares of the Company's common stock under the performance bonus award valued at $1.91 million.
2022 Private Placement
On or about December 30, 2022, the Company entered into Securities Purchase Agreements with certain accredited investors, including but not limited to, Sabas Carrillo (the Company’s Chief Executive Officer), Patty Chan (the Company’s Chief Financial Officer), and Robert Baca (the Company’s Interim Chief Legal Officer). The Securities Purchase Agreements related to a private placement (the “2022 Private Placement”) of: (a) up to approximately 14,285,714 shares of the Company’s Series V Preferred Stock for a price equal to the closing share price of the Company’s Common Stock on December 30, 2022 (on an as-converted-into-common stock-basis of one-tenth (1/10th) of a share of Common Stock for each one share of Series V Preferred Stock), or $1.40 per share of Common Stock, directly to the purchasers, and (b) up to 714,286 warrants to purchase up to 714,286 shares of the Common Stock directly to the purchasers, with an exercise price of each warrant of $2.80. Each share of Series V Preferred Stock is convertible into 100 shares of Common Stock, as further described in the Second Amended and Restated Certificate of Designation and as amended by the Reverse Stock Split. The 2022 Private Placement closed in January 2023. Pursuant to the 2022 Private Placement, Mr. Carrillo purchased 3,571,429 shares of Series V Preferred Stock and 17,857 warrants, Ms. Chan purchased 714,286 shares of Series V Preferred Stock and 3,571 warrants, and Mr. Baca purchased 1,071,429 shares of Series V Preferred Stock and 5,357 warrants.
Voting Agreements
In connection with the 2022 Private Placement, the other investors in the 2022 Private Placement executed Voting Agreements, pursuant to which such investors provide Mr. Carrillo with their voting rights with respect to the Series V Preferred Stock owned by them. As a result, Mr. Carrillo has voting power over an additional approximately 75% of the Series V Preferred Stock owned by others due to such Voting Agreements, or a total voting power of 100% of the Series V Preferred Stock. Such Voting Agreements were amended and restated in connection with the Reorganization, such that the Voting Agreements remain in full force and effect with the Company replacing Unrivaled as the issuer party thereto.
Short-Term Advance
During the year ended December 31, 2023, Sabas Carrillo, the Company's Chief Executive Officer, advanced the Company $0.20 million for working capital needs, which has been repaid as of December 31, 2023.
Director Agreements
Pursuant to an Independent Director Agreement dated December 11, 2020 between the Company and Nicholas Kovacevich, we agreed to grant Mr. Kovacevich 1,500 restricted shares of Company Common Stock, to be fully vested on the date of appointment. On February 1, 2021, the Company and Mr. Kovacevich entered into an Amended and Restated Independent Director Agreement (as may be amended from time to time, the “Kovacevich Agreement”). Per the Kovacevich Agreement, (a) the Company issued to Mr. Kovacevich 5,000 restricted shares of Company Common Stock, which vested in twelve (12) equal installments on the first day of each month beginning on March 1, 2021 (provided Mr. Kovacevich is a director of the Company on the applicable vesting date) and (b) the Company agreed to pay Mr. Kovacevich cash compensation in the amount of $5,000 per month, payable on the first day of each month beginning March 1, 2021 for the term of the Kovacevich Agreement. Pursuant to the Kovacevich Agreement, as of December 31, 2023, the Company had granted Mr. Kovacevich all 5,000 restricted shares of Company Common Stock (all of which are vested), and had paid cash compensation in the amount of $9,000 during the fiscal year ended December 31, 2023. Mr. Kovacevich resigned from the board of directors effective July 1, 2023 and accordingly, the Independent Director Agreement was terminated.
Pursuant to an Independent Director Agreement dated July 1, 2021 by and between us and Eric Baum, we agreed to grant Mr. Baum an option to purchase 5,000 shares of Common Stock at the closing price of the Common Stock on the date of the Director Agreement and to pay Mr. Baum cash compensation of $5,000 per month, pro-rated for any partial months, payable on the first day of each month beginning July 1, 2021 for the term of the Baum Director Agreement. The Company issued to Mr. Baum 5,000 options to purchase shares of Common Stock at an exercise price of $0.22, which vested in twelve equal installments on the first day of each month beginning on August 1, 2021. Pursuant to the Baum Director Agreement, the Company has paid cash compensation of $9,000 during the fiscal year ended December 31, 2023. Mr. Baum resigned from the board of directors effective July 1, 2023 and accordingly, the Independent Director Agreement was terminated.
Pursuant to a Board of Directors Agreement effective August 1, 2023 by and between us and Matthew Barron, compensation shall be determined by the Board and the Compensation Committee. During the year ended December 31, 2023, the Board and the Compensation Committee agreed that compensation paid to directors shall be nil for the fiscal year ended December 31, 2023. As of December 31, 2023, Mr. Barron did not receive any cash compensation or issuance of Common Stock for his role as director.
We are also party to indemnification agreements with each of our directors pursuant to which we have agreed, among other things, to indemnify each director to the fullest extent permitted by Nevada law, including indemnification of expenses such as attorneys’ fees, judgments, penalties, fines and settlement amounts incurred by the director in any action or proceeding, including any action or proceeding by or in right of us, arising out of the person’s services as a Director. In connection with the Reorganization, Blum Holdings, Inc. entered into new indemnification agreements with the members of the Board, on terms substantially similar to those set forth in the existing director indemnification agreements of Unrivaled Brands, Inc.
Director Independence
Our board of directors is currently composed of three (3) members. Our Common Stock is not currently listed for trading on a national securities exchange and, as such, we are not subject to any director independence standards. However, our Board has determined that one (1) of our directors, Mr. Matthew Barron, qualifies as an independent director. We evaluated independence in accordance with Nasdaq Stock Market Listing Rule 5605(a)(2).
The board of directors currently has three (3) separately designated standing committees: (i) the Audit Committee, (ii) the Compensation Committee, and (iii) the Governance and Nominating Committee. All three of these committees are solely comprised of our independent director.

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ITEM 14. PRINCIPAL ACCOUNTING FEES AND SERVICES
ITEM 14. PRINCIPAL ACCOUNTING FEES AND SERVICES
The following table presents fees paid or to be paid for professional audit services rendered by Marcum LLP for the audit of our annual financial statements and fees billed for other services rendered for the years ended December 31, 2023 and 2022:
Year Ended
December 31,
Audit Fees (1)
$ 469,918
$ 180,090
Audit Related Fees (2)
-
-
Tax Fees
-
-
All Other Fees (3)
38,063
-
Total Fees
$ 507,981
$ 180,090
(1)
Audit Fees consisted of fees billed for professional services rendered for the audit of the Company’s annual financial statements and internal control over financial reporting, review of the interim financial statements included in quarterly reports, and review of other documents filed with the SEC within those fiscal years.
(2)
Audit Related Fees include consultation regarding our correspondence with the SEC and other accounting consulting.
(3)
All Other Fees consists of fees for other miscellaneous items.
The Audit Committee’s policy is to pre-approve all audit and permissible non-audit services provided by our independent registered public accounting firm. These services may include audit services, audit-related services, tax services and other services. Pre-approval is specific to the particular service or category of services and is generally subject to a specific budget. In addition, the Audit Committee has delegated pre-approval authority to its Chairman who, in turn, must report any pre-approval decisions to the Audit Committee at its next scheduled regular meeting. Our independent registered public accounting firm and management are required to periodically report to the Audit Committee regarding the extent of services provided by our independent registered public accounting firm in accordance with this pre-approval, and the fees for the services performed to date. The Audit Committee may also pre-approve particular services on a case-by-case basis. The Audit Committee, as applicable, pre-approved all fees for audit and non-audit work performed during fiscal 2023 and 2022.
PART IV

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ITEM 15. EXHIBITS, FINANCIAL STATEMENT SCHEDULES
ITEM 15. EXHIBITS, FINANCIAL STATEMENT SCHEDULES
(a)
The following documents are filed as part of this Annual Report:
(1)
Financial Statements and Report of Independent Registered Public Accounting Firm - See Index on page
(2)
Financial Statement Schedules have been omitted because they are not applicable, not material or because the information is included in the Consolidated Financial Statements or the notes thereto.
(b)
The following exhibits are incorporated by reference from the Exhibit Index attached hereto.
Incorporated by Reference
Exhibit
Description
Form
Date Filed
Exhibit
2.1
Membership Interest Purchase Agreement, dated July 1, 2021.
8-K
7/8/2021
2.1
2.2
Membership Interest Purchase Agreement, dated August 15, 2021.
8-K
8/16/2021
2.1
2.3
Membership Interest Purchase Agreement, dated as of November 17, 2021.
8-K
11/22/2021
2.1
2.4
Membership Interest Purchase Agreement, dated November 22, 2021.
8-K
11/29/2021
2.1
2.5
Agreement and Plan of Merger, dated as of October 9, 2023, by and among Unrivaled Brands, Inc., Blum Holdings, Inc., and Blum Merger Sub, Inc. 8-K
10/10/2023
2.1
3.1
Amended and Restated Certificate of Incorporation of Blum Holdings, Inc., a Delaware corporation, effective January 11, 2024.
8-K
1/16/2024
3.1
3.2
Certificate of Designation of Series V Preferred Stock of Blum Holdings, Inc., a Delaware corporation, effective January 11, 2024.
8-K
1/16/2024
3.2
3.3
Certificate of Designation of Series N Preferred Stock of Blum Holdings, Inc., a Delaware corporation, effective January 11, 2024.
8-K
1/16/2024
3.3
3.4
Amended and Restated Bylaws of Blum Holdings, Inc., a Delaware corporation, dated January 11, 2024.
8-K
1/16/2024
3.4
3.5
Articles of Merger, filed with the Nevada Secretary of State, effective January 12, 2024.
8-K
1/16/2024
3.1
4.1
Description of Capital Stock*
4.2
Form of 3.0% Senior Convertible Promissory Note.
8-K
1/25/2021
4.4
4.3
Form of Common Stock Purchase Warrant (“A Warrant”).
8-K
1/25/2021
4.5
4.4
Form of Common Stock Purchase Warrant (“B Warrant”).
8-K
1/25/2021
4.6
4.4
Form of Straight Promissory Note (“6-Month Note”).
8-K
1/25/2021
4.7
4.5
Form of Straight Promissory Note (“12-Month Note”).
8-K
1/25/2021
4.8
4.6
Form of Senior Secured Promissory Note.
8-K
11/29/2021
4.1
4.7
Secured Promissory Note, dated November 22, 2021.
8-K
11/29/2021
4.2
4.8
Binding Term Sheet dated March 23, 2023, by and among the Company, as borrower, and Noteholders.
8-K
3/28/2023
4.1
10.1
2016 Equity Incentive Plan †.
10-K
3/29/2016
10.23
10.2
Form of Terra Tech Corp. Amended and Restated 2018 Equity Incentive Plan.†
8-K
6/26/2019
10.1
10.3
Amendment to Terra Tech Corp. Amended and Restated 2018 Equity Incentive Plan, dated as of February 14, 2020.†
8-K
2/18/2020
10.5
10.4
2019 Equity Incentive Plan of UMBRLA, Inc.†
10-Q
8/16/2021
10.22
10.5
Amendment to 2019 Equity Incentive Plan of UMBRLA, Inc., dated March 1, 2020.†
10-Q
8/16/2021
10.23
10.6
Amendment to 2019 Equity Inventive Plan of UMBRLA, Inc., dated October 22, 2020.†
10-Q
8/16/2021
10.24
10.7
Sublease, dated March 29, 2016, by and between Black Oak Gallery and CCIG Properties, LLC .
8-K/A
4/5/2016
10.27
10.8
Employment Agreement between Terra Tech Corp. and Jeffrey Batliner, dated June 7, 2021.
8-K
6/10/2021
10.6
10.9
Loan Agreement Amendment, dated January 7, 2021.
8-K
1/13/2021
10.1
10.10
Indemnification Agreement (Jeffrey Batliner), dated January 7, 2021.†
8-K
1/13/2021
10.2
10.11
Form of Registration Rights Agreement.
8-K
1/25/2021
10.2
10.12
Independent Director Agreement between Terra Tech Corp. and Nicholas Kovacevich, dated February 1, 2021.†
8-K
2/4/2021
10.1
10.13
Stock Option Agreement between Terra Tech Corp. and Tiffany Davis, dated April 6, 2021.
8-K
4/9/2021
10.3
10.14
Form of Six-Month Note.
8-K
6/10/2021
10.2
10.15
Form of Twelve-Month Note.
8-K
6/10/2021
10.3
10.16
Independent Director Agreement, dated as of July 1, 2021, by and between the Company and Eric Baum.†
8-K
7/8/2021
10.2
10.17
Director Indemnification Agreement, dated as of July 1, 2021, by and between the Company and Eric Baum (5)†
8-K
7/8/2021
10.4
10.18
Promissory Note issued by Unrivaled Brands, Inc. in favor of Arthur Chan, dated July 27, 2021.
8-K
8/2/2021
10.2
10.19
Six-Month Note (Sterling Harlan)
8-K
10/5/2021
10.1
10.20
Six-Month Note (Matthew Guild)
8-K
10/5/2021
10.2
10.21
Twelve-Month Note (Sterling Harlan)
8-K
10/5/2021
10.3
10.22
Twelve-Month Note (Matthew Guild)
8-K
10/5/2021
10.4
10.23
Form of Securities Purchase Agreement (11)
8-K
11/29/2021
10.1
10.24
Form of Security Agreement.
8-K
11/29/2021
10.2
10.25
Form of Guaranty
8-K
11/29/2021
10.3
10.26
People’s Security Agreement, dated November 22, 2021.
8-K
11/29/2021
10.4
10.27
People’s Guaranty, dated November 22, 2021.
8-K
11/29/2021
10.5
10.28
Separation Agreement between the Company and Francis Knuettel II, dated April 12, 2022.†
10-K
4/15/2022
10.19
10.29
Letter Agreement, dated April 11, 2022, by and among the Company and People's California, LLC.
10-K
4/15/2022
10.23
10.30
Letter Agreement, dated April 8, 2022, by and Among the Company, and People's California, LLC, and New Patriot Holdings, LLC.
10-K
4/15/2022
10.24
10.31
Engagement Letter between the Company and Adnant, LLC dated August 12, 2022.†
8-K
8/12/2022
10.1
10.32
Securities Purchase Agreement dated December 28, 2022, by and among the Company, Buchanan Group, LLC, and an unaffiliated third party.
8-K
1/4/2023
10.1
10.33
Secured Promissory Note dated December 28, 2022, by and among the Company and Buchanan Group, LLC.
8-K
1/4/2023
10.2
10.34
Membership Interest Purchase Agreement dated December 28, 2022, by and among the Company and Joseph Gerlach.
8-K
1/4/2023
10.3
10.35
Unsecured Promissory Note dated December 28, 2022, between the Company and Joseph Gerlach.
8-K
1/4/2023
10.4
10.36
Management Services Agreement dated December 28, 2022, by and among the Company and Brick City Productions, Inc.
8-K
1/4/2023
10.5
10.37
Letter of Intent by and between Cookies Oakland and the Company.
8-K
1/5/2023
10.1
10.38
Letter of Intent by and between Cookies Redding and the Company.
8-K
1/5/2023
10.2
10.39
Form of Securities Purchase Agreement dated December 30, 2022, by and among the Company and the purchasers named therein, including Exhibit 10.53.1.
8-K
1/6/2023
4.1
10.39.1
Exhibit 10.53.1
10-K
4/7/2023
10.53.1
10.40
Form of Amended and Restated Voting Agreement by and among the Company, holders of shares of Series V Preferred Stock, and Sabas Carrillo, including Exhibit 10.54.1.*
10.40.1
Exhibit 10.54.1
10-K
4/7/2023
10.54.1
10.41
Settlement Agreement and Release, dated April 30, 2023.
8-K
5/4/2023
10.1
10.42
Amended and Restated Engagement Letter between the Company and Adnant dated June 30, 2023.†
8-K
7/7/2023
10.1
10.43
Indemnification Agreement (Sabas Carrillo), dated January 12, 2024.†*
10.44
Indemnification Agreement (Patty Chan), dated January 12, 2024.†*
10.45
Indemnification Agreement (James Miller), dated January 12, 2024.†*
10.46
Indemnification Agreement (Matthew Barron), dated January 12, 2024.†*
10.47
Operators Only LOI.
8-K
1/16/2024
10.1
14.1
Code of Ethics.
8-K
11/5/2015
14.1
21.1
List of Subsidiaries*
23.1
Consent of Marcum LLP*
31.1
Certification of Chief Executive Officer, pursuant to Section 302 of the Sarbanes-Oxley Act of 2002. *
31.2
Certification of Chief Financial Officer, pursuant to Section 302 of the Sarbanes-Oxley Act of 2002. *
32.1
Certification of Chief Executive Officer, pursuant to Sections 906 of the Sarbanes-Oxley Act of 2002, 18 U.S.C. Section 1350. *
32.2
Certification of Chief Financial Officer, pursuant to Sections 906 of the Sarbanes-Oxley Act of 2002, 18 U.S.C. Section 1350. *
101.INS
Inline XBRL Instance Document *
101.SCH
Inline XBRL Taxonomy Extension Schema Document *
101.CAL
Inline XBRL Taxonomy Extension Calculations 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 Presentation Linkbase Document *
Cover Page Interactive Data File (Formatted as Inline XBRL and contained in Exhibit 101)
__________________
*
Filed herewith.
† Indicates a management contract or compensatory plan or arrangement.