Table of Contents

PART I

ITEM 1. BUSINESS.

Overview

Medicine Man Technologies, Inc., doing business as Schwazze (“we,” “us,” “our,” the “Company,” or “Schwazze”), is a vertically integrated multi-state cannabis operator focused on growth through expansion into existing and new markets. The Company’s business involves the cultivation, manufacturing, distribution, and retail sale of cannabis and cannabis related products. The Company sells products it manufactures and cultivates and a variety of other cannabis goods through wholly-owned retail stores, licensing arrangements, and/or third-party operators and retailers.

The Company is focused on organic growth as well as growing through geographic expansion, acquisition, and application for new licenses in the Colorado and New Mexico cannabis markets. The Company concentrates on building a premier vertically integrated cannabis company in Colorado and New Mexico with the goal of expanding into new and emerging markets, potentially including new states, compatible with the Company’s business strategy. The Company’s leadership team has deep expertise in mainstream consumer packaged goods, retail, manufacturing, and product development at Fortune 500 companies as well as at companies of various sizes in the cannabis sector. The Company's leadership team has deep expertise in mainstream consumer packaged goods, retail, and product development at Fortune 500 companies as well as in the cannabis sector. The Company strives to build and maintain a high-performance culture and a focus on analytical decision making, supported by data. Customer-centric thinking inspires the Company’s strategy and provides the foundation for the Company’s operational playbook.

The Company currently has operations in Colorado and New Mexico. As of March 1, 2024, the Company owned and operated (i) 63 retail dispensaries, 30 in Colorado under the banners Star Buds, Emerald Fields, and Standing Akimbo and 33 in New Mexico under the banner R. Greenleaf and Everest Cannabis Co.; (ii) six cultivation facilities, four in Colorado and two in New Mexico; and (iii) three manufacturing facilities, one in Colorado and two in New Mexico.

Schwazze is a reporting issuer in the United States and Canada. The Company’s common stock, par value $0.001 (“Common Stock”) is listed for trading in the United States on the OTCQX Best Market under the symbol “SHWZ” and listed for trading in Canada on the NEO Exchange under the symbol “SHWZ.” Schwazze is a smaller reporting company under U.S. federal securities laws and has elected to follow scaled disclosure requirements.

History

The Company was incorporated in Nevada on March 20, 2014, under the name Medicine Man Technologies, Inc., and it rebranded its name to Schwazze in April 2020. The Company’s operations began through the licensing of proprietary processes developed, implemented, and practiced at other cannabis facilities relating to the commercial growth, cultivation, marketing and distribution of medical and recreational marijuana pursuant to relevant state laws. The Company continued early expansion with the acquisition of Success Nutrients™ and Pono Publications, including the rights to the book titled “Three A Light” and the proprietary cultivation techniques documented therein. The Company then entered into the retail market by way of its acquisition of Two J’s LLC d/b/a The Big Tomato in 2018, a leading supplier of hydroponics and indoor gardening supplies in the Denver metro area.

Prior to 2020, the Company was focused on cannabis dispensary and cultivation consulting and providing equipment and nutrients to cannabis cultivators. In 2019, the Company made a strategic decision to move toward direct plant-touching operations due to changes in Colorado law expanding permitted investments into plant-touching cannabis companies. The Company developed a plan to roll up a number of direct plant-touching dispensaries, manufacturing, and cultivation facilities with the goal of being one of the largest seed-to-sale cannabis businesses in Colorado. The Company developed a plan to roll up a number of direct plant-touching dispensaries, manufacturing facilities, and cannabis cultivations with a target to be one of the largest seed to sale cannabis businesses in Colorado. In April 2020, the Company acquired its first plant-touching business, Mesa Organics Ltd. d/b/a Purplebee’s (“Purplebee’s”), which consisted of four dispensaries and one manufacturing infused products facility. Following the acquisition of Purplebee’s, the Company established a substantial retail presence in Colorado with its acquisition of 13 Star Buds branded dispensaries between December 2020 and March 2021 and its acquisition of two Emerald Fields branded dispensaries in February 2022, which it has continued to build through additional acquisitions. In September 2022, the Company opened its internal distribution center to better service and supply product to each of the dispensaries in the state of Colorado. The Company entered the New Mexico cannabis market in 2022 when it acquired ten R. Greenleaf branded dispensaries, one manufacturing facility, and four cultivation facilities. From May 2023 to September 2023, the Company acquired three

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more retail dispensaries, one Standing Akimbo medical dispensary, two retail dispensaries from Smokey’s, and opened one more dispensary under the Star Buds banner in Colorado, as described in more detail below. In June 2023, the Company continued its growth in New Mexico, when it acquired 16 Everest Cannabis Company branded dispensaries, one manufacturing facility and one cultivation facility. Since its first plant-touching acquisition in April 2020, the Company has completed a number of acquisitions in an effort to expand its market presence and achieve complete vertical integration.

Financings

The Company has two classes of stock: the Common Stock, par value $0.001 per share and the Series A Cumulative Convertible Preferred Stock, par value $0.001 per share (the “Preferred Stock”). The Preferred Stock votes with the Common Stock as a single class on an as-converted basis. Among other terms, each share of Preferred Stock (i) earns an annual dividend of 8% on the “preference amount,” which initially was equal to the $1,000 per-share purchase price and subject to increase, by having such dividends automatically accrete to, and increase, the outstanding preference amount; (ii) is entitled to a liquidation preference under certain circumstances, (iii) is convertible into shares of Common Stock by dividing the preference amount by $1.20 per share under certain circumstances, and (iv) is subject to a redemption right or obligation under certain circumstances.

From June 5, 2019 through May 21, 2020, the Company completed a private placement of shares of Common Stock and warrants to purchase shares of Common Stock for aggregate gross cash proceeds of approximately $18.575 million. In the private placement, the Company issued and sold an aggregate of 9,287,000 shares of Common Stock at a price of $2.00 per share and warrants to purchase an aggregate of 9,287,000 additional shares of Common Stock at an exercise price of $3.50 per share.

On December 16, 2020, the Company entered into a convertible promissory note and security agreement (the “Convertible Promissory Note and Security Agreement”) pursuant to which it sold a convertible promissory note in the original principal amount of $5.0 million to Dye Capital & Company, LLC (“Dye Capital”). On February 26, 2021, Dye Capital converted all outstanding amounts under the note into 5,060 shares of Preferred Stock.

From December 2020 through March 2021 the Company completed a private placement of Preferred Stock for aggregate gross proceeds of $52.7 million dollars.” From December 2020 through March 2021 the Company completed a private placement of Preferred Stock for aggregate gross proceeds of $52.7 million dollars. In the private placement, the Company issued and sold an aggregate of 52,700 shares of Preferred Stock at a price of $1,000 per share under securities purchase agreements with Dye Capital Cann Holdings II, LLC (“Dye Cann II”) and CRW Capital Cann Holdings, LLC (“CRW”) as well as subscription agreements with unaffiliated investors.

On February 26, 2021, the Company entered into a loan agreement with SHWZ Altmore, LLC (“Altmore”), as lender, and GGG Partners LLC, as collateral agent (the “Loan Agreement”). Upon execution of the Loan Agreement, the Company received $10.0 million of loan proceeds. In connection with the Company’s acquisition of Southern Colorado Growers (“SCG”), the Company received an additional $5.0 million of loan proceeds under the Loan Agreement. The loan carries an interest rate of 15% per annum, and the Company is required to make principal payments in the amount of $750,000 quarterly starting June 1, 2023. The Loan Agreement is secured by a first priority security interest in the assets of PBS Holdco LLC (“PBS”), a wholly-owned subsidiary of the company and the Company’s Colorado manufacturing operation, and the SCG Cultivation (as defined under “Item 1-Business-Current Operations and Developments” below) (collectively the “Altmore Collateral”).

On December 3, 2021, the Company and all its direct and indirect subsidiaries (the “Subsidiary Guarantors”) entered into a note purchase agreement (the “Note Purchase Agreement”) with 31 accredited investors (the “Note Investors”), pursuant to which the Company agreed to issue and sell to the Note Investors 13% senior secured convertible notes due December 7, 2026 (the “Investor Notes”) in an aggregate principal amount of $95 million for an aggregate purchase price of $93.1 million (reflecting an original issue discount of $1.9 million, or 2%) in a private placement. On December 7, 2021, the Company consummated the private placement and issued and sold the Investor Notes pursuant to the Indenture entered into among the Company, Chicago Admin, LLC, as collateral agent (the “Indenture Collateral Agent”), Ankura Trust Company, LLC, as trustee (the “Indenture Trustee”), and the Subsidiary Guarantors (the “Indenture”). The Company received net proceeds of approximately $92 million at the closing, after deducting a commission to the placement agent

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and certain offering expenses. Such net proceeds are required to be used to fund previously identified acquisitions and other growth initiatives. The Company’s obligations under the Indenture and the Investor Notes are secured by (i) junior security interest in the Altmore Collateral and the Star Buds Collateral (as defined under “Item 1-Business-Material Acquisitions & Investments” below), and (ii) a first priority security interest in all assets owned by the Company and the Subsidiary Guarantors on or after December 7, 2021.

Material Acquisitions & Investments

On June 3, 2017, the Company issued 7,000,000 shares of its Common Stock as consideration for the acquisitions of Pono Publications Ltd and Success Nutrients, Inc. (“Success Nutrients”), pursuant to which the Company acquired the rights to its proprietary cultivation techniques codified in the proprietary work Three A Light and nutrients brand line offered by Success Nutrients.

On July 26, 2017, the Company issued 2,258,065 shares of its Common Stock for 100% ownership of Denver Consulting Group, Inc., a cannabis industry consultant that expanded the Company’s consulting offerings.

On September 20, 2018, the Company issued 1,933,329 shares of its Common Stock and paid approximately $307,000 in cash for 100% ownership of Two J’s LLC d/b/a The Big Tomato (“The Big Tomato”), the Company’s retail store that provides the industry with cultivation supplies and equipment.

On April 20, 2020, the Company, through its wholly-owned subsidiary PBS Holdco, LLC, formerly known as PBS Merger Sub, LLC (“PBS Purchaser”), acquired from Mesa Organics Ltd. (“Mesa Organic”) four retail dispensaries and one manufacturing facility located in Las Animas, Colorado, Ordway, Colorado, Rocky Ford, Colorado and Pueblo, Colorado, respectively. The acquired assets were at the time of the acquisition branded under the banner Mesa Organics and Purplebee’s. Under the terms of the Merger Agreement dated November 23, 2019, as amended on April 16, 2020 (the “Merger Agreement”) by and between Medicine Man Technologies, Inc., PBS Merger Sub, LLC, Mesa Organics Ltd., James Parco and Pamela Parco, the aggregate purchase price was $2.60 million of cash and 2,594,754 shares of Common Stock.

Between December 17, 2020, and March 3, 2021, the Company acquired 13 retail dispensaries and one cultivation facility located primarily in and around Denver, Colorado branded under the Star Buds banner. The Company refers to this series of acquisitions collectively as the “Star Buds Acquisition” and refers to the entities acquired generically as “Star Buds” unless otherwise specified. In connection with the Star Buds Acquisition, the Company also acquired the exclusive right to use the Star Buds tradename in Colorado. The purchase price for the Star Buds Acquisitions was paid in a combination of cash, Preferred Stock, and deferred payments referred to in this report as “seller note(s)”. The seller notes are secured by a first priority security interest in substantially all of the assets owned by SBUD LLC, a wholly-owned subsidiary of the Company that acquired the Star Buds assets (the “Star Buds Collateral”). The aggregate purchase price for the Star Buds Acquisition was $118.0 million, paid as follows: (i) $44.25 million in cash at the applicable closings, (ii) $44.25 million in deferred cash, also referred to in this report as “seller note(s),” (iii) 29,506 shares of Preferred Stock, of which 25,078 shares were issued at the applicable closings and 4,428 shares were held back by the Company as collateral for potential indemnification obligations pursuant to the applicable purchase agreements. In addition, the Company issued warrants to purchase an aggregate of 5,531,250 shares of Common Stock to the sellers under the applicable purchase agreement. The escrowed portion of the Preferred Stock was released in its entirety on April 3, 2023, and January 9, 2024; there were no outstanding claims for indemnity.

On July 21, 2021, the Company acquired the cultivation assets and real property of SCG, which included approximately 36 acres of real property with outdoor cultivation capacity located in Huerfano County, Colorado, for a total purchase price of approximately $5.8 million in cash and 2,197,978 shares of Common Stock.

On December 21, 2021, the Company, through its wholly-owned subsidiary Double Brow, LLC (“Double Brow”), acquired one retail dispensary located in Glendale, Colorado from Smoking Gun, LLC (“SG”) and Smoking Gun Land Company, LLC (“SG Land,” and together with SG, “Smoking Gun”) for a total purchase price of $4.0 million in cash and 100,000 shares of Common Stock.

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On January 26, 2022, the Company, through Double Brow, acquired two retail dispensaries located in Boulder, Colorado from BG3 Investments, LLC, d/b/a Drift (“Drift”), and Black Box Licensing, LLC. The acquired assets include (i) the assets used in or related to Drift’s business of distributing, marketing, and selling recreational cannabis products and (ii) the leases for two retail dispensaries located in Boulder, Colorado. The aggregate closing consideration for the acquisition was (i) $1.92 million in cash, and (ii) 1,146,099 shares of Common Stock issued to Drift. The aggregate closing consideration for the acquisition was (i) $1,915,750 in cash, and (ii) 912,666 shares of Common Stock issued to Drift.

On February 9, 2022, the Company, through its wholly-owned subsidiary Emerald Fields Merger Sub, LLC (“Emerald Fields Sub”), acquired two retail dispensaries located in Manitou Springs, Colorado and Glendale, Colorado branded under the banner Emerald Fields from MCG, LLC (“MCG”). Under the terms of the merger agreement, MCG merged with and into Emerald Fields Sub, with Emerald Fields Sub continuing as the surviving entity. Under the MCG Merger Agreement, Emerald Fields Merger Sub, LLC merged with and into MCG, with Emerald Fields Merger Sub, LLC continuing as the surviving entity. The aggregate closing consideration for the merger was $29.00 million, consisting of: (i) $16.00 million in cash; (ii) 6,547,239 shares of the Common Stock issued to the members of MCG; and (iii) an aggregate of $2.32 million was held back as collateral for potential claims for indemnification under the MCG Merger Agreement as follows: (y) $1.39 million in cash and (z) 569,325 shares of Common Stock. The aggregate closing consideration for the merger was $29 million, consisting of: (i) $16,008,000 in cash; (ii) 6,547,239 shares of the Common Stock issued to the members of MCG at a price of $1.63 per share; and (iii) an aggregate of $2,320,000 was held back as collateral for potential claims for indemnification under the MCG Merger Agreement as follows: (y) $1,392,000 in cash and (z) 569,325 shares of Common Stock. The escrowed portion of the purchase price was released in its entirety on August 9, 2023, and there were no outstanding claims for indemnity.

On February 8, 2022, the Company entered the New Mexico market with its acquisition of ten retail dispensaries located throughout the State of New Mexico operating under the banner R. Greenleaf, one manufacturing facility, and four cultivation facilities from Reynold Greenleaf & Associates, LLC (“RGA”) and Elemental Kitchen and Laboratories, LLC (“Elemental”). The Company, acting through indirect wholly-owned subsidiaries, acquired substantially all of the operating assets of RGA and all of the equity of Elemental and assumed specified liabilities of RGA and Elemental. Pursuant to existing laws and regulations in New Mexico, the cannabis licenses for certain facilities managed by RGA are held by two not-for-profit entities: Medzen Services, Inc. (“Medzen”) and R. Greenleaf Organics, Inc. (“R. Greenleaf” and together with Medzen, the “NFPs”). At the closing, Nuevo Holding, LLC, an indirect wholly-owned subsidiary of the Company, gained control over the NFPs by becoming the sole member of each of the NFPs and replacing the directors of the two NFPs with the Company’s Chief Executive Officer, the Company’s Chief Financial Officer, and the Company’s General Counsel. At the closing, Nuevo Holding, LLC gained control over the NFPs by becoming the sole member of each of the NFPs and replacing the directors of the two NFPs with Justin Dye, the Company’s Chief Executive Officer and one of its directors, Nancy Huber, the Company’s Chief Financial Officer, and Dan Pabon, the Company’s General Counsel, Chief Government Affairs Officer and Corporate Secretary. The business acquired from RGA consists of serving as a branding, marketing and consulting company, licensing certain intellectual property related to the business of THC-based products to Elemental and the NFPs, providing consulting services to Elemental and the NFPs, and supporting Elemental and the NFPs to promote, support, and develop sales and distribution of products. Elemental is engaged in the business of creating and distributing cannabis-derived products to licensed cannabis producers. Elemental and the NFPs are in the business of cultivating, processing, and dispensing marijuana in New Mexico, with 10 dispensaries, four cultivation facilities (three operating and one under development) and one manufacturing facility. The dispensaries are located in Albuquerque, Santa Fe, Roswell, Las Cruces, Grants and Las Vegas, New Mexico. The cultivation and manufacturing facilities are located in Albuquerque, New Mexico and consists of approximately 70,000 square feet of cultivation and 6,000 square feet of manufacturing. On February 8, 2022, Nuevo Holding, LLC entered into two separate call option agreements (each, a “Call Option Agreement”) containing substantially identical terms with each of the NFPs. Each Call Option Agreement gives Nuevo Holding, LLC the right to acquire 100% of the equity or 100% of the assets of the applicable NFP for a purchase price of $100 if, in the future, the New Mexico legislature adopts legislation that permits a NFP to (i) convert to a for-profit corporation and maintain its cannabis license or (ii) sell its assets (including its cannabis license) to a for-profit corporation. The aggregate closing consideration for the acquisitions was approximately (i) $32.20 million in cash, which included a $4.50 million cash earnout based on EBITDA of the acquired businesses for the calendar year 2021, and (ii) $17.00 million in the form of an unsecured promissory note issued by Nuevo Holding, LLC to RGA, the principal amount of which is payable on February 8, 2025 with interest payable monthly at an annual interest rate of 5% (the “Nuevo Note”).

On February 15, 2022, the Company acquired substantially all of the operating assets of Brow 2, LLC (“Brow”) related to its indoor cannabis cultivation operations located in Denver, Colorado and assumed certain liabilities for contracts acquired. The acquired assets included a 37,000 square foot building, the associated lease and equipment designed for indoor cultivation. After purchase price adjustments for pre-closing inventory, the aggregate consideration was $6.70 million, of which Double Brow paid $6.20 million at closing and held back $500,000 as collateral for potential claims for indemnification. After purchase price adjustments for pre-closing inventory, the aggregate consideration was $6.7 million, of which Double Brow paid $6.2 million at closing and held back $500,000 as collateral for potential claims for indemnification under the Purchase Agreement. The portion of the purchase price that was held back to satisfy indemnification claims was fully released on February 15, 2023, plus 3% simple interest, and there were no outstanding indemnification claims.

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On May 31, 2022, the Company acquired substantially all of the operating assets of Urban Dispensary, which operates a dispensary and indoor cultivation in Colorado, pursuant to the terms of an Asset and Personal Goodwill Purchase Agreement, dated March 11, 2022, with Double Brow, Urban Health & Wellness, Inc. d/b/a Urban Dispensary (“Urban Dispensary”), Productive Investments, LLC, and Patrick Johnson (the “Urban Purchase Agreement”). Urban Dispensary operated an indoor cannabis cultivation facility and a single retail dispensary, each located in Denver, Colorado. The aggregate consideration for the Urban Dispensary Purchase was $1.32 million in cash and 1,230,534 shares of Common Stock. The Company held back $288,000 of the stock consideration at closing as collateral for potential claims for indemnification. On December 12, 2023, the Company claimed $49,236 in damages which were indemnifiable expenses from Urban Dispensary. Pursuant to the Urban Purchase Agreement, the Company satisfied the claim for damages by way of the cancellation of a total of 37,586 shares of Common Stock. On December 15, 2023, the Company released 182,262 of the held back shares to the Seller and there were no outstanding indemnification claims.

On July 13, 2022, the Company entered into a strategic relationship with Mission Holdings US, Inc. (“Mission Holdings”), an entity affiliated with MCG, by purchasing a non-controlling equity interest in Mission Holdings. Mission Holdings offers various cannabis products and brands, including proprietary cannabis-infused gummies and premium flower for medical and recreational sale in Colorado and California. The Company has the right to acquire 100% of the equity interest in Mission Holdings on or after July 13, 2025.

On December 15, 2022, the Company acquired substantially all of the operating assets associated with two retail dispensaries located in Denver, Colorado and Aurora, Colorado owned by Lightshade Labs LLC (“Lightshade”). After purchase price adjustments for transaction and related expenses, the aggregate consideration for the acquisition was approximately $2.75 million, all of which was paid in cash. The Company deposited $300,000 of the purchase price in escrow as collateral for potential claims for indemnification from Lightshade. The portion of the purchase price placed in escrow was released in its entirety on December 15, 2023, and there were no outstanding indemnification claims.

On May 10, 2023, the Company acquired substantially all of the operating assets associated with two retail and medical dispensaries located in Garden City, Colorado and Fort Collins, Colorado owned by Cannabis Care Wellness Centers, LLC and Green Medicals Wellness Center #5 (collectively, “Smokey’s"). After purchase price adjustments for transaction and related expenses, the aggregate consideration for this transaction was approximately $7.5 million, of which approximately $3.75 million was paid in cash and $3.15 million was paid in shares of Common Stock. The Company held back $600,000 of stock consideration and $150,000 of cash consideration at the closing as collateral for potential claims for indemnification. Any purchase price held back and not used to satisfy indemnification will be issued and released on November 11, 2024.

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On June 1, 2023, the Company acquired substantially all of the operating assets associated with 14 retail dispensaries located throughout the State of New Mexico, one manufacturing facility, and one cultivation facility (the “Everests Acquisition”) under the terms of the associated asset purchase agreement, dated April 21, 2023, as amended (collectively, “Everest Purchase Agreement”). Pursuant to existing laws and regulations in New Mexico, the cannabis licenses for the facilities managed by Everest Seller are held by a not-for-profit entity, Everest Apothecary, Inc. Pursuant to existing laws and regulations in New Mexico, the cannabis licenses for certain facilities managed by RGA are held by two not-for-profit entities: Medzen Services, Inc. , d/b/a Everest Cannabis Co. (“Everest Apothecary”). At the closing, an affiliate of the Company (“Everest Purchaser”) gained control over the management and operations of Everest Apothecary by replacing the officers and directors of Everest Apothecary with officers and directors designated by the Company. At the closing, Everest Purchaser entered into a separate call option agreement (the “Call Agreement”) with the sellers under the Everest Purchase Agreement (collectively, “Everest Seller”). The Call Agreement gives Everest Purchaser the right to acquire 100% of the equity or 100% of the assets of Everest Apothecary for a purchase price of $100 if, in the future, the New Mexico legislature adopts legislation that permits Everest Apothecary to (i) convert to a for-profit corporation and maintain its cannabis license or (ii) sell its assets (including its cannabis license) to a for-profit corporation. Each Call Option Agreement gives Nuevo Holding, LLC the right to acquire 100% of the equity or 100% of the assets of the applicable NFP for a purchase price of $100 if, in the future, the New Mexico legislature adopts legislation that permits a NFP to (i) convert to a for-profit corporation and maintain its cannabis license or (ii) sell its assets (including its cannabis license) to a for-profit corporation. Everest Purchaser will have one year after receipt of notice of the approval of such legislation from Everest Apothecary to exercise its call option. Everest Apothecary is in the business of cultivating, processing, and dispensing marijuana in New Mexico, with 14 dispensaries, one cultivation facility, and one manufacturing facility. The dispensaries are located in Albuquerque, Santa Fe, Los Lunas, Belen, Texico, Las Cruces, and Sunland Park, New Mexico. The dispensaries are located in Albuquerque, Santa Fe, Roswell, Las Cruces, Grants and Las Vegas, New Mexico. The cultivation and manufacturing facilities are located in Albuquerque, New Mexico and consist of approximately 49,000 square feet of cultivation and 8,700 square feet of manufacturing. After purchase price adjustments and subject to post-closing adjustments, the aggregate purchase price under the Everest Purchase Agreement and Call Option paid at closing was approximately $41.0 million, of which $12.5 million was paid in cash, $17.5 million was paid

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in the form of an unsecured promissory note issued by Everest Purchaser to Everest Seller (the “Everest Note”), $8.00 million was paid in the Company’s Common Stock in the amount of 7,619,047 shares, and $3.0 million is payable in two installment payments of $1.25 million due to Everest Seller on August 30, 2023 and November 28, 2023 (the “Everest Deferred Purchase Price”). The Everest Note is payable on the last day of the calendar quarter following the fourth anniversary of the closing of the Everest Acquisition with interest payable quarterly at an annual interest rate of 5%. The Company is required to make installment payments of principal and interest on the Everest Note starting June 30, 2025, and the total outstanding principal will be due on May 31, 2027. In addition to the foregoing, Everest Purchaser may be required to make a potential “earn-out” payment of up to an additional $8.00 million payable in Company Common Stock priced as of the closing of the Everest Acquisition. The earn-out is based on the revenue performance of certain retail stores of Everest for the 12-month period following such stores opening for business and is revalued quarterly. Management currently estimates the expected earn-out payment to equal approximately $2.13 million based on current projections.

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On June 15, 2023, the Company acquired substantially all of the operating assets associated with a single medical dispensary located in Denver, Colorado owned by Standing Akimbo, LLC (“Standing Akimbo Seller”) pursuant to the terms of an asset purchase agreement, dated April 13, 2023 (the “Standing Akimbo Purchase Agreement”). After purchase price adjustments for transaction and related expenses, the aggregate consideration for the transaction was approximately $9.35 million, of which $3.81 was million is payable in cash and approximately $5.54 million payable in the form of the Company’s Common Stock. At the closing of the transaction, the Company paid $1.0 million of the Purchase Price in cash and approximately $4.50 million of the Purchase Price in the Company’s Common Stock. The Company is obligated to pay the remainder of the cash consideration over 12 months starting on July 15, 2023 as set forth in the Standing Akimbo Purchase Agreement (the “Deferred Cash Consideration”) in which the Company reserved from issuance approximately $1.00 million from the consideration to be paid in stock, as collateral for potential claims for indemnification from Standing Akimbo Seller and the certain other parties thereto under the Standing Akimbo Purchase Agreement (the “Stock Holdback”). Any portion of the Stock Holdback not used to satisfy indemnification claims will be issued by the Company on the date that is the later of (i) 18 months from the closing of the transaction or (ii) satisfaction of all outstanding obligations associated with certain excluded liabilities set forth in the Standing Akimbo Purchase Agreement.

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Current Operations and Developments

Operating Segments

The Company’s operations are organized into three different segments as follows: (i) Retail, consisting of retail locations for sale of cannabis products; (ii) Wholesale, consisting of manufacturing, cultivation, and sale of both wholesale cannabis and non-cannabis products; and (iii) Other, consisting of all other income and expenses, which derives its revenue from general corporate operations, in-store advertisements, and vendor promotions offered in the Company’s retail dispensaries. Each of our operating segments are discussed in further detail below.

SEGMENT 1 –Retail – This segment currently includes our Retail dispensaries located in Colorado and New Mexico.

As of December 31, 2023, the Company owned and operated 30 retail cannabis dispensaries in the State of Colorado, 22 cannabis dispensaries under the banner name Star Buds, six retail cannabis dispensaries under the banner name Emerald Fields and two medical cannabis dispensaries under the banner name Standing Akimbo. As of December 31, 2023, the Company owned 33 retail cannabis dispensaries in the State of New Mexico, 19 of which operate under the banner name R. Greenleaf and 14 retail cannabis dispensaries under the banner name Everest.

Our dispensaries sell a wide variety of cannabis products directly to tens of thousands of consumers. These products include loose flower, concentrates, edibles, pre-rolls, topicals, infused beverages, and other associated cannabis products produced by a large variety of cannabis vendors. These products include loose flower, concentrates, edibles, pre-rolls, topicals, and other associated cannabis products produced by a large variety of cannabis vendors throughout Colorado and New Mexico. In Colorado, our retail dispensaries sell products sourced from our internal wholesale operations, investment partners, licensing arrangements, and other third-party suppliers. In New Mexico, our retail dispensaries sell products predominantly sourced through internal wholesale operations and a small percentage of third-party products.

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SEGMENT 2 – Wholesale – This segment includes consolidated Wholesale, Cultivation, and Manufacturing.

The Company supports its retail operations and growth through the operation of wholly-owned manufacturing and cultivation facilities. The Company’s wholly-owned manufacturing and cultivation facilities also engage with the wholesale markets in Colorado and New Mexico. The Company’s wholesale business includes cannabis and non-cannabis operations, although the Company’s cannabis wholesale operations are more substantial than its non-cannabis activities.

Wholesale

The Company participates in the wholesale market through both its cultivation and manufacturing operations based on market conditions and internal needs.

The wholesale cannabis market is influenced by a number of factors outside of the Company’s control largely due to the cyclical nature of the agricultural industry. The Company has acquired robust cultivation capacity such that it can expand production and sell its cultivation products to the wholesale market during certain market cycles when advantageous to do so, and it also has the ability to scale back production when the wholesale market is less profitable.

The Company’s manufacturing operations are used to extract oil from the cannabis plant and refine the oil into distillate oil. It sells this distillate oil to other product manufacturers. In addition, the Company’s manufacturing operations produce consumer packaged goods, such as pre-rolled joints, edibles, salves, and vape cartridges. Like its cultivation facilities, the Company can increase or curtail its production capacity to adjust to market conditions.

Lastly, the Company also supplies the wholesale markets through the sale of cannabis cultivation materials, nutrients, and equipment. The Company sells a variety of indoor gardening supplies and hydroponics through its online and retail store, The Big Tomato, located in Aurora, Colorado. While these wholesale activities were a meaningful component of the Company’s operations in the past, the Company’s business strategy has trended away from these revenue sources in recent years due to growth and expansion of the Company’s retail, manufacturing, and cultivation activities as well as the impact of the greater wholesale market downturn in Colorado and nationwide. Management is assessing the ongoing value and anticipated future utilization of these particular wholesale operations.

Cultivation

As of December 31, 2023, the Company owned seven cultivation facilities: four in Colorado and three in New Mexico. The Company leverages its cultivating capacity in both states where it operates to participate in the wholesale market and/or support internal operations based on market conditions and profitability in wholesale transactions.

The Company operated two active cultivations in Colorado throughout 2023. The Company maintains four active cultivation licenses in Colorado as of March 1, 2024.

The Company’s primary cultivation facilities in Colorado include (i) a 37,000 square foot building located in Denver, Colorado leased by the Company for indoor cultivation (the “Brow Cultivation”) and (ii) 36 acres of land in Huerfano County, Colorado owned by the Company and designed for indoor and outdoor cultivation (the “SCG Cultivation”). The SCG Cultivation includes a greenhouse and 34 hoop houses, and the Company has the potential to expand the SCG Cultivation to include additional hoop houses for increased outdoor cultivation capacity.

The Company operated three active indoor cultivations and one outdoor cultivation in New Mexico during 2023, and it discontinued operations at one of its cultivation facilities located in Albuquerque, New Mexico during 2023 to consolidate production activities and drive synergies. The Company maintains four active cultivation licenses in New Mexico as of March 1, 2024.

The Company’s primary cultivation facility in New Mexico is a 40,000 square foot building located in Albuquerque, New Mexico (the “Edith Grow”). The Company completed the second phase of the planned renovation in 2023 which expanded the cultivation capacity of the Edith Grow to increase synergies and reduce costs. A third phase of planned renovations started in 2023 and is anticipated to finish in 2024. In 2023, the Company acquired an additional cultivation facility which

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has approximately seven acres that includes two greenhouses and seven hoop houses located in Albuquerque, New Mexico. The Company’s cultivation facilities in New Mexico, primarily support the Company’s manufacturing operations and the New Mexico retail wholesale segment operations.

Manufacturing and Extraction

As of December 31, 2023, the Company owned and operated three manufacturing facilities: one in Colorado and two in New Mexico.

The Company’s manufacturing facilities primarily conduct cannabis extraction, distillation, manufacturing, and infusion operations for incorporation into retail cannabis products or sale through internal and external channels. The Company purchases cannabis biomass and trim to support manufacturing operations both internally from its cultivation operations as well as from a number of different vendors across Colorado and New Mexico. The Company maintains the ability to strategically adjust the number of materials sourced from internal and external sources based on market conditions due to vertical integration in both states.

The Company’s Colorado manufacturing facility is owned and operated by PBS. PBS leases a facility in Pueblo, Colorado comprising of approximately 7,000 square feet of space where PBS conducts ethanol extraction, distillation, and manufacturing of cannabis plants and biomass for sale and distribution to external buyers and internally to support the Company’s retail segment. PBS also supports the Colorado Retail and Wholesale segments by processing and packaging products for retail distribution. The Company acquires cannabis biomass and trim to support PBS’s manufacturing operations both internally from its cultivation operations at the SCG Cultivation and the Brow Cultivation as well as from a number of different vendors across Colorado. However, manufacturing operations in Colorado source raw materials from external vendors to a greater degree than manufacturing operations in New Mexico due to pricing and market conditions. PBS produces pre-rolled joints, salves, vape cartridges, and syringes for internal and external distribution, including the Company’s proprietary brand of vape products: Purplebee’s and Autograph by Purplebee’s.

The Company’s two New Mexico manufacturing facilities are located in Alburquerque, New Mexico. One is owned and operated by Elemental, a wholly-owned subsidiary of the Company and the other is owned and operated by Everest Purchaser, a wholly-owned subsidiary of the Company. Elemental leases a manufacturing facility located in Albuquerque, New Mexico representing approximately 6,000 square feet and Everest Purchaser leases a manufacturing facility representing approximately 8,700 square feet. Both facilities perform extraction, infusion, and manufacturing operation and produce several cannabis products that are sold in R. Greenleaf and Everest Apothecary dispensaries, as well as to third parties, including pre-rolled joints, edibles, salves, and vape cartridges. They primarily source raw materials used for their operations through the Company’s cultivation and wholesale operations due to increased vertical integration in New Mexico, although Elemental and Everest Purchaser do purchase biomass and trim from external sources to support its operations.

SEGMENT 3 – Other – This segment includes General Corporate and Other.

General Corporate and Other

The Other segment encompasses the Company’s general corporate operations not otherwise categorized as retail or wholesale, and it also includes revenue from in-store advertisements and certain vendor promotions offered in the Company’s retail dispensaries. This segment also includes the Company’s research and development subsidiary, Schwazze Biosciences LLC, which is committed to pursuing a program of basic and applied research focused on bringing consumers, as well as pets, the most beneficial properties of the cannabis plant.

Marketing

The Company markets its products, retail establishments and services to consumers through a variety of channels, including: digital marketing efforts, print advertising, outdoor billboards, coupons, a consolidated loyalty program across all states and retail banners, ecommerce websites, budtender appreciation events, universal gift card program, “search engine optimization” activities, grand opening or newly remodeled store events, brand pop-up events, and in-store

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promotions. In 2023, the Company’s Colorado retail banner, Star Buds, continued its support of The Colorado Summit, a professional ultimate frisbee sporting team. Star Buds was the first cannabis sponsor of a professional ultimate frisbee team in 2022.

Schwazze has created and maintains a database of marketing collateral materials and resources used for the Schwazze parent company brand, its in-house products/brands, and across all retail banners in the states in which it operates. The Company also coalesces interest and a presence within the industry through participation in various industry events, building relationships with key regulatory and government affairs officials, and through direct promotion. There are several laws protecting the confidentiality of certain patient health information and other personal information, including patient records, and restricting the use and disclosure of that protected information.

The Company continues to enhance its online presence via its house of brands website, http://www.schwazze.com, and its investor relations website, http://ir.schwazze.com. The Company’s website includes an overview of its retail and wholesale brands, features on management and its Board of Directors, latest investor relations presentations, links to media, analyst coverage and press relations, Securities and Exchange Commission (“SEC”) reports, and our industry partners.

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Intellectual Property, Brand Development, and Licensing

Our operational success and business strategy incorporates various pieces of proprietary intellectual property, including trademarks, trade names, and copyrights owned by the Company and licensing of third-party intellectual property pursuant to licensing agreements. We also acknowledge that certain protections normally available to us related to design or other utility patents in the cannabis industry are not currently enforceable under federal law. We attempt to protect our intellectual property via the deployment of robust non-disclosure agreements with both prospective partners, employees, and licensees prior to engagement. We attempt to protect our intellectual property via the deployment of robust non-disclosure agreements with both prospects and licensees. We also register our owned intellectual property in the states where we operate in an effort to enhance protection against infringement. There are no assurances that these non-disclosure agreements will prevent a third-party from infringing upon our rights, and we also cannot enforce our owned cannabis-related intellectual property outside of the states of Colorado and New Mexico where our marks are registered. We intend to register for federal patent and trademark protection that is otherwise currently prohibited if and when the federal government eliminates the cannabis prohibition.

Schwazze is actively building a house of brands that includes both our active retail banners as well as products for sale at both the retail and wholesale level, manufacturing all products and controlling the quality for such brands through its vertical integration. The Company has developed three internally-owned product brands as of March 1, 2024. These brands include: (i) Purplebee’s and (ii) Autograph by Purplebee’s, the Company’s distillate vaporizer product line, and (iii) EDW (Every Day Weed), which is a pre-packaged pouch of loose-ground flower offered in half-ounce increments at an affordable price point. Purplebee’s, Autograph by Purplebee’s, and EDW are available for sale in indica, sativa, and hybrid strains.

In addition to internal brand development efforts, we also enter into advantageous licensing agreements with other cannabis companies with recognizable brand value to maximize the success of our product offerings and sales. Schwazze has an exclusive licensing partnership with the premium California-based cannabis flower brand, Lowell Herb Company, which gives the Company exclusive right to manufacture, distribute, and promote Lowell Farms products in the Colorado and New Mexico markets. Current products include Quicks, Classics, and Singles. Quicks and Classics are sold in 3.5g multi-units packs in blends of strains of indica, sativa, and hybrid dominances, while “singles” are 1g, single strain pre-rolls. The Lowell Farms brand is promoted through in-store advertising and promotion, customer loyalty programming, and budtender appreciation events. The Company also has an exclusive licensing partnership with Star Buds Brands, LLC d/b/a Kaviar (“Kaviar”) in New Mexico that gives the Company exclusive right to manufacture, distribute, and promote Kaviar products in the New Mexico market. Such Kaviar products includes Kaviar Cones, which are sold in 1.5g single packs in blends of hybrid, sativa, and hybrid dominances. Kaviar products are promoted through in-store advertising and promotion, customer loyalty programming, and budtender appreciation events. Additionally, the Company holds an exclusive licensing agreement with The Cima Group, LLC d/b/a Wana Brands in New Mexico that gives the Company exclusive right to manufacture, distribute, and promote Wana Brands products in the New Mexico market. Such Wana Brands products include: Wana “Classic” gummies, Wana Quick, fast-acting gummies, Wana Optimals gummies, and Wana Spectrum, live rosin-gummies all of which are sold in 100mg, 10pk containers in CBD, indica, sativa, and hybrid dominances. Wana Brands products are promoted through in-store advertising and promotion, customer loyalty

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programming, and budtender appreciation events. We also maintain a non-exclusive branding partnership with Mission Holdings pursuant to which we sell Mission Holdings’ proprietary brand of low-cost edibles, Nfuzed gummies, and premium flower, Level 10, in our retail dispensaries in the states where we operate.

The Company also acquired a number of brands through previous acquisitions of existing dispensaries with varying degrees of brand recognition and loyalty that we actively utilize in our house of brands. In connection with the Star Buds acquisitions, we acquired the exclusive right to use the Star Buds brand in Colorado pursuant to a licensing agreement with the owners of the Star Buds intellectual property. We also acquired all of the rights in and interest to the Emerald Fields intellectual property owned by MCG. In Colorado, we currently operate all of our retail cannabis dispensaries under the Star Buds, Emerald Fields and Standing Akimbo banners. In New Mexico, we acquired the intellectual property associated with R. Greenleaf and Everest Cannabis Co. and operate existing dispensaries under the R. Greenleaf and Everest Cannabis Co. banners.

Government Regulations

Below is a discussion of the federal and state-level U.S. regulatory regimes in those jurisdictions where we are currently involved in the cannabis industry. The Company is directly engaged in the cultivation, manufacture, possession, sale, and distribution of cannabis in the adult-use cannabis marketplace in the State of Colorado and the State of New Mexico. The Company is directly engaged in the manufacture, possession, sale, and distribution of cannabis in the adult-use cannabis marketplace in the State of Colorado.

Federal Regulations

The United States federal government regulates drugs through the federal Controlled Substances Act (the “CSA”), which places controlled substances, including cannabis, in one of five different schedules. Cannabis, except hemp containing less than .3% (on a dry weight basis) of the psychoactive ingredient in cannabis, is classified as a Schedule I drug. As a Schedule I drug, the federal Drug Enforcement Agency (“DEA”) considers cannabis to have a high potential for abuse, no currently accepted medical use in treatment in the United States, and a lack of accepted safety for use of the drug under medical supervision. The classification of cannabis as a Schedule I drug is inconsistent with what the Company believes to be many valuable medical uses for cannabis accepted by physicians, researchers, patients, and others. As evidence of this, on June 25, 2018, the Federal Drug Administration (“FDA”) approved Epidiolex (CBD) oral solution with an active ingredient derived from the cannabis plant for the treatment of seizures associated with two rare and severe forms of epilepsy, Lennox-Gastaut syndrome, and Dravet syndrome, in patients two years of age and older. This is the first FDA-approved drug that contains a purified drug substance derived from the cannabis plant. CBD is a chemical component of cannabis that does not contain the intoxication properties of tetrahydrocannabinol (“THC”), the primary psychoactive component of cannabis. The Company believes categorization of cannabis as a Schedule I drug is not reflective of the medicinal properties of cannabis or the public perception thereof, and numerous studies show cannabis is not able to be abused in the same way as other Schedule I drugs, has medicinal properties, and can be safely administered.

In a major change to federal policy, in October of 2022, the Biden Administration announced its intention to review the regulation of marijuana under the CSA by directing the Secretary of Health and Human Services (“HHS”) and the Attorney General to initiate the administrative process to expeditiously review marijuana’s Schedule I status. Concurrently, President Biden also announced a pardon of all prior federal simple possession of marijuana offenses and urged governors to do the same at the state level.

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In response to President Biden’s directive, on August 29, 2023, HHS recommended that the DEA reschedule marijuana to Schedule III. HHS concluded that cannabis satisfies the criteria for a Schedule III drug, meaning that it has (1) a currently accepted medical use in treatment, (2) a lower potential for abuse than Schedule I or II, and (3) a possibility of abuse that may lead to moderate or low physical dependence or high psychological dependence.

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The DEA’s decision on rescheduling or de-scheduling of cannabis is pending.

The evolving federal position is more consistent with democratic approval of cannabis at the state government level in the United States. Unlike in Canada, which has federal legislation uniformly governing the cultivation, manufacture, distribution, sale, and possession of cannabis, cannabis is largely regulated at the state and local level in the United

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States. Certain state laws regulating cannabis conflict with the CSA, which makes cannabis use and possession federally illegal. Although certain states and territories of the United States authorize medical or adult-use cannabis production and distribution by licensed or registered entities, under United States federal law, the possession, use, cultivation, and transfer of cannabis and any related drug paraphernalia is illegal, and any such acts are criminal acts. Although the Company’s activities are compliant with applicable state and local laws, strict compliance with state and local laws with respect to cannabis will neither absolve the Company of liability under United States federal law nor provide a defense to federal criminal charges that may be brought against the Company. The Supremacy Clause of the United States Constitution establishes that the United States Constitution and federal laws made pursuant to it are paramount and, in case of conflict between federal and state law, federal law shall apply.

Nonetheless, 44 U.S. states, the District of Columbia, and the territories of Puerto Rico, the U.S. Virgin Islands, Guam, and the Northern Mariana Islands have legalized some form of cannabis for medical use, while 24 states and the District of Columbia have legalized the adult-use of cannabis for recreational purposes. As more and more states legalized medical and/or adult-use cannabis, the federal government attempted to provide clarity on the incongruity between federal prohibition and these state-legal regulatory frameworks.

Until 2018, the federal government provided guidance to federal law enforcement agencies and banking institutions regarding cannabis through a series of memoranda from the Department of Justice (“DOJ”). The most recent such memorandum was drafted by former Deputy Attorney General James Cole on August 29, 2013 (the “Cole Memorandum”). The Cole Memorandum offered guidance to federal enforcement agencies as to how to prioritize civil enforcement, criminal investigations, and prosecutions regarding cannabis in all states, and acknowledged that, notwithstanding the designation of cannabis as a Schedule I controlled substance at the federal level, several states have enacted laws authorizing the use of cannabis. The Cole Memorandum also noted that jurisdictions that have enacted laws legalizing cannabis in some form have also implemented strong and effective regulatory and enforcement systems to control the cultivation, processing, distribution, sale, and possession of cannabis. As such, conduct in compliance with those laws and regulations is less likely to be a priority at the federal level. The Cole Memorandum was seen by many state-legal cannabis companies as a safe harbor for their licensed operations that were conducted in full compliance with all applicable state and local regulations. However, on January 4, 2018, former U.S. Attorney General Jeff Sessions rescinded the Cole Memorandum. In the absence of a uniform federal policy, as had been established by the Cole memorandum, enforcement priorities are determined by respective United States Attorneys.

Following his election, President Biden appointed Merrick Garland to serve as the U.S. Attorney General. While Attorney General Garland indicated in his confirmation hearing that he did not feel that enforcement of the federal cannabis prohibition against state-licensed business would be a priority target of the DOJ resources, no formal enforcement policy has been issued to date. There is no guarantee that state laws legalizing and regulating the sale and use of cannabis will not be repealed or overturned. Unless and until the U.S. Congress amends the CSA or the DEA announces a rescheduling of cannabis (and as to the timing or scope of any such potential changes there can be no assurance), there is a risk that federal authorities may enforce current U.S. federal law.

As an industry best practice, despite the rescission of the Cole Memorandum, the Company abides by the following standard operating policies and procedures:

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In addition, the Company conducts background checks to ensure that the principals and management of its operating subsidiaries are of good character, have not been involved with other illegal drugs, engaged in illegal activity or activities involving fraud, violence, or use of firearms in cultivation, manufacturing, or distribution of cannabis. The Company has conducted and will continue to conduct ongoing reviews of the activities of its cannabis businesses, the premises on which they operate, and the policies and procedures that are related to possession of cannabis or cannabis products outside of the licensed premises, including the cases where such possession is permitted by regulation.

One legislative safeguard for the medical cannabis industry remains in place: Congress has passed a so-called “rider” provision in the fiscal year 2015, 2016, 2017, 2018, 2019, 2020, and 2021 Consolidated Appropriations Acts to prevent the federal government from using congressionally appropriated funds to enforce federal cannabis laws against regulated medical cannabis actors operating in compliance with state and local law. The rider is known as the "Rohrabacher-Farr" Amendment after its original lead sponsors. In 2021, President Biden became the first president to propose a budget with the Rohrabacher-Farr Amendment included. On January 19, 2024, the amendment was renewed through the signing of a continuing resolution, effective through March 8, 2024.

Nevertheless, for the time being, cannabis remains a Schedule I controlled substance at the federal level. The federal government of the U.S. has always reserved the right to enforce federal law regarding the sale and disbursement of medical or adult-use cannabis, even if state law sanctions such sale and disbursement. If the U.S. federal government begins to enforce U.S. federal laws relating to cannabis in states where the sale and use of cannabis is currently legal, or if existing applicable state laws are repealed or curtailed, the Company’s business, results of operations, financial condition, and prospects could be materially adversely affected.

There is a growing consensus among cannabis businesses and numerous members of Congress that prosecutorial discretion is not law and temporary legislative riders, such as the Rohrabacher-Farr Amendment, are an inappropriate way to protect lawful medical cannabis businesses. Numerous bills have been introduced in Congress in recent years to decriminalize aspects of state-legal cannabis trades. The Company has observed that each year more congressmen and congresswomen sign on and co-sponsor cannabis legalization bills. In light of all this, it is anticipated that the federal government will eventually repeal the federal prohibition on cannabis and thereby leave the states to decide for themselves whether to permit regulated cannabis cultivation, production, and sale, just as states are free today to decide policies governing the distribution of alcohol or tobacco.

Recently, the U.S. Senate introduced the SAFE Banking Act in 2023, which has been renamed by the Senate Banking Committee as the SAFER Banking Act. The bill must still pass the full Senate and the House of Representatives, of which there can be no guarantee. The SAFER Banking Act (or a similar bill) would allow financial institutions to provide their services to state-legal cannabis clients and ancillary businesses serving state-legal cannabis businesses without fear of federal sanctions. There is no guarantee the SAFER Banking Act will become law in its current form or at all.

Colorado Regulations

On November 7, 2000, Colorado voters approved Amendment 20, which amended the state constitution to allow the use of marijuana in the state by approved patients with written medical consent. On November 6, 2012, Colorado voters approved Amendment 64, which amended the state constitution to establish an adult-use cannabis program in Colorado which permits the commercial cultivation, manufacture, and sale of marijuana to adults 21 years of age or older. The commercial sale of marijuana for adult-use to the general public began on January 1, 2014, at cannabis businesses licensed under the regulatory framework. Medical and adult-use marijuana are regulated together under a single statute – the Colorado Marijuana Code.

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Under the Colorado Marijuana Code, the Colorado Department of Revenue – Marijuana Enforcement Division (“MED”) is empowered to grant licenses to both adult-use and medical marijuana businesses, including cultivation facilities, products manufacturers, testing facilities, transporters, researchers and developers, and (in the adult-use context) accelerator cultivators, accelerator stores, and hospitality businesses.

Cannabis businesses must also comply with local licensing requirements. Colorado localities are allowed to limit or prohibit the operation of marijuana businesses.

The Company is in compliance with applicable licensing requirements and the regulatory framework enacted by the State of Colorado.

Colorado License Requirements

An application for a license from the MED to operate a marijuana business in Colorado requires submission of (1) a copy of any local license required for the marijuana business, (2) a certificate of good standing from the jurisdiction in which the business was formed, (3) the identity and address of the registered agent in Colorado, (4) organizational documents such as articles of incorporation, bylaws, articles of organization, and similar documents, (5) corporate governance documents, (6) a deed, lease, or similar document establishing the applicant’s ability to use the proposed premises, (7) a facility diagram, (8) findings of suitability with respect to the business’ owners, (8) information regarding securities listings (if the business is publicly traded), (9) financial statements, and (10) documents related to payments of taxes. A business is required to obtain permission from the locality in which it proposes to operate as part of the licensing process.

With respect to the renewal process, provided that the requisite renewal fees are paid and the renewal application is submitted in a timely manner, the Company has no reason to believe it would not receive the applicable renewed licenses in the ordinary course of business.

Regulatory Requirements

The regulations establish requirements applicable to all Colorado marijuana businesses, along with specific requirements for each type of business.

All marijuana businesses in Colorado are required to (1) create and enforce limited access areas for the protection of marijuana and marijuana products; (2) maintain security alarm systems installed and maintained by a licensed alarm installation company, as well as approved locks and surveillance equipment maintained in good working condition; (3) follow all applicable laws regarding waste disposal (including cannabis-containing waste); (4) implement an inventory tracking system used for inventory tracking and recordkeeping; (5) comply with both state and local requirements as to hours of operation; (6) comply with sanitary requirements applicable to employees and production spaces, including sanitation audits; (7) comply with recordkeeping requirements; (8) prohibit on-site consumption of marijuana and marijuana products (excepting licensed marijuana hospitality businesses); (9) ensure all visitors, patients, and customers have proper identification prior to entering the business premises; and (10) maintain and provide procedures for dealing with product recalls.

Cultivation facilities are additionally required to (1) provide and maintain copies of standard operating procedures for cultivation, harvesting, drying, curing, trimming, packaging, storing, and sampling; (2) comply with requirements related to pesticides; and (3) comply with additional sanitary and product safety requirements. Marijuana products manufacturers are required to (1) comply with labeling and dosing requirements related to standardized doses of marijuana; (2) comply with specific prohibitions regarding the shapes, colors, and similar characteristics of edible products; (3) refrain from use of prohibited additives and ingredients; (4) comply with child-resistant packaging requirements; and (5) maintain and provide standard operating procedures related to manufacturing of each category of products. Marijuana dispensaries are subject to additional requirements regarding (1) methods of accepting orders; (2) payments by customers; and (3) methods for age and identification verification of customers.

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The MED and local licensing authorities may conduct announced or unannounced inspections of licensees to determine compliance with applicable laws and regulations. Licensees may also be subject to inspection of the licensed premises by the local fire department, building inspector, or code enforcement officer to confirm that no health or safety concerns are present.

Colorado uses METRC as the Marijuana Enforcement Division’s marijuana inventory tracking system for all medical and adult-use licensees. Marijuana is required to be tracked and reported with specific data points from seed-to-sale through METRC for compliance purposes under Colorado marijuana laws and regulations. This tracking is conducted by using electronic tags on plants and shipments between licensees and facilities.

New Mexico Regulations

Until 2021, New Mexico’s cannabis industry was regulated under the Lynn and Erin Compassionate Use Act (the “LECUA”), which permitted and regulated the use of cannabis for qualified and registered patients with certain medical conditions. The LECUA was administrated by the New Mexico Department of Health.

On April 12, 2021, Governor Michelle Lujan Grisham signed the Cannabis Regulation Act, which became effective on June 29, 2021 (the “CRA”). The CRA decriminalized the possession, use, manufacturing, cultivation, and sale of cannabis for recreational or adult-use and created the New Mexico Cannabis Control Division (“CCD”) a new division of the New Mexico Regulation & Licensing Department, to administer the rules for regulation of the State’s medical and adult-use cannabis industry, including licensure, sales, testing, security, advertising, and labeling of cannabis products. Other than maintenance of the patient registry for medical cannabis under the LECUA, the CRA vested CCD with all authority to administer and regulate New Mexico’s medical and adult-use cannabis activities. Consequently, parties licensed pursuant to the CCD rules can sell both medical and adult-use cannabis with the most substantive differences being: (i) medical cannabis is not subject to the New Mexico Cannabis Excise Tax; (ii) persons under 21 can only legally purchase cannabis products if they are a qualified medical patient; and (iii) the CCD has the authority to effectively reserve some cannabis to ensure an “adequate supply” for medical patients.

The CRA permits local jurisdictions to adopt reasonable time, place and manner rules that do not conflict with the CRA, but such rules must not completely prohibit operation of an entity licensed under the CRA or impose criminal, civil, or administrative penalties on any such licensee for the use of a property licensed by the CCD. The CRA provides for the following types of licenses: courier, testing laboratory, manufacturer, producer, retailer, research laboratory, vertically integrated, producer microbusiness, integrated microbusiness and cannabis consumption area. The CRA does not create a limit on the number of licenses issued but does limit the number of plants that can be grown under each producer license and requires as a condition of licensure that each producer applicant demonstrate the legal right to enough water for its proposed operation as determined by the CCD and validated by documents from the New Mexico Office of the State Engineer.

Per the CRA’s express requirement, retail sales of adult-use cannabis products in New Mexico began on April 1, 2022. In January and March of 2022, the CCD amended its rules to increase plant counts for most license types and modified the testing requirements for cannabis products. Since April 1, 2022, there have been no substantive changes in New Mexico’s regulatory framework. During the 2024 legislative session, Senate Bill 6 was passed in both the New Mexico State House and State Senate which would create a definition of illegal cannabis and give the CCD the power to deny, suspend or revoke, or discipline a licensee involved in producing, selling, or manufacturing illegal cannabis. Senate Bill 6 would also make trafficking cannabis products in quantities of more than fifteen ounces of flower, one hundred and twenty grams of cannabis extract, or six thousand milligrams of edibles a criminal offense. The Company expects the Governor to sign the bill and the Company believes it will provide New Mexico law enforcement and the CCD with tools to appropriately police the sale of marijuana.

The Company is in compliance with applicable licensing requirements and the regulatory framework enacted by the State of New Mexico. Any non-compliance citations or notices of violation which may have a material impact on the Company’s licensing, business activities, or operations are required by Staff Notice 51-352 to be promptly disclosed by the Company.

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New Mexico Licensing Requirements

In New Mexico, licenses are renewed annually. In order to operate in New Mexico an operator is required to obtain a license from the CCD, a certificate of occupancy from the applicable local government, and a certificate of fitness from the State Fire Marshall. Each year, licensees are required to submit a renewal application per guidelines published by CCD. While renewals are annual, there is no limit to the number of renewals a licensee may obtain. Assuming requisite renewal fees are paid, renewal applications are submitted in a timely manner, and if the establishment has not been cited for material violations, renewal applicants can anticipate approval in the ordinary course of business. However, any unexpected denials, delays, or costs associated with a licensing renewal could impede planned operations and may have a material adverse effect on the Company’s business, financial condition, results of operations, or prospects.

A vertically integrated cannabis establishment license permits the holder to conduct one or more of the following: (i) production of cannabis; (ii) manufacturing of cannabis products; (iii) retail establishment; or (iv) courier of cannabis products. Only certified physicians may provide medicinal marijuana recommendations. An adult-use retailer license permits the sale of cannabis and cannabis products to any individual older than 21 years of age who does not possess a physician’s recommendation.

Holders of licenses in New Mexico are subject to a detailed regulatory scheme encompassing security, staffing, sales, manufacturing standards, inspections, inventory, advertising and marketing, product packaging and labeling, records and reporting, and more.

Any non-compliance citations or notices of violation which may have a material impact on the Company’s licensing, business activities, or operations are required by Staff Notice 51-352 to be promptly disclosed by the Company.

Cannabis Production Requirements

A producer license permits the holder to cultivate cannabis, including planting, growing, and harvesting cannabis. A licensee must submit to the CCD a premises diagram that shows the location of all entrances, exits, rooms, cultivation areas, light locations, and security camera locations, among other things. A producer must develop and implement policies and procedures that include, at a minimum, cannabis testing criteria and procedures consistent with the CRA, employee training materials, training requirements, recordkeeping protocols, transportation, testing protocols, employee policies, and procedures.

Licensees must also develop a cultivation plan that details, among other things, the cultivation areas, water usage, pesticide storage areas, processing areas, packaging areas, a light diagram, if applicable, pest management and cannabis waste procedures. A producer must follow stringent health and safety requirements that cover premises, equipment and employees. The use of pesticides is permitted so long as they are used in accordance with the New Mexico Pesticide Control Act.

Manufacturing Requirements

There are four classes of manufacturing licenses in New Mexico:

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A manufacturing license permits the holder to manufacture cannabis in accordance with the Class of a license held. A licensee must submit to the CCD a premises diagram that shows the location of all entrances, exits, rooms, cultivation areas, light locations, and security camera locations, among other things. A manufacturer must develop and implement policies and procedures that include, at a minimum cannabis testing criteria and procedures consistent with the CRA, employee training materials, training requirements, recordkeeping protocols, transportation, testing protocols, employee policies and procedures, and training documentation. The CCD sets forth requirements regarding purity and materials used and requires all extractions to be performed in a closed loop system.

Retail Requirements

Adult-use retail licenses permit the sale of cannabis and cannabis products to any individual age 21 years of age or older or to any individual 18 years of age or older if such person possesses a valid qualified patient, primary caregiver, or reciprocal participant registry card. As with all state-legal cannabis programs, only cannabis grown in New Mexico can be sold in New Mexico.

Cannabis retailers may only display cannabis goods for inspection and sale in the retail area. Such goods may be removed from their packaging and placed in containers to allow for customer inspection, so long as the containers are not readily accessible to customers without the assistance of retailer personnel. A container must be provided to the customer by the licensed retailer or its employees, who must remain with the customer at all times that the container is being inspected by the customer. Cannabis goods removed from their packaging in this way may not be sold or consumed. They must be destroyed appropriately when they are no longer being used for display. Retailers may also sell live, immature cannabis plants and seeds. A retailer may not sell more than two ounces of cannabis, sixteen grams of cannabis extract, eight hundred milligrams of edible cannabis, or six immature cannabis plants to a customer in a single purchase.

Courier Requirements

A licensee may deliver cannabis products directly to a qualified patient who is at least 18 years of age, a primary caregiver or a reciprocal participant, or to a consumer who is at least 21 years of age. Payment for cannabis and cannabis products cannot be requested or received by a cannabis courier. Licensees may only deliver cannabis products to the person who is identified by the retail cannabis licensee as an intended, authorized recipient.

Licensees must obtain cannabis from a licensed retailer and the courier must be employed by the retailer or have established a delivery agreement. Licensees must comply with any local laws restricting the time of deliveries and restricting location of the delivery to a residential address.