UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-K

☒ ANNUAL REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the Fiscal year ended December 31, 2019

2020 

OR

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

For the transition period from _________ to __________

Commission File Number 333-207889

GROWGENERATION CORP.

(Exact name of registrant as specified in its charter)

(800) 935-8420

(Registrant’s telephone number, including area code)

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

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

Title of class

Not Applicable

Not Applicable

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

Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act. Yes ☐☒ No ☒

☐ 

Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Act. Yes ☒☐ No ☐

☒ 

Indicate by check mark whether the registrant (1) filed all reports required to be filed by Section 13 or 15(d) of the Exchange Act during the past 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.  Yes ☒ No ☐

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

Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K (§ 229.405 of this chapter) is not contained herein, and will not be contained, to the best of registrant’s knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K. ☒☐ 

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

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

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

State the aggregate market value of the voting and non-voting common equity held by non-affiliates computed by reference to the price at which the common equity was last sold, or the average bid and asked price of such common equity, as of June 30, 2019: $90,776,147.

2020: $236,600,250. 

As of March 26, 2020, the Company had 38,135,40858,459,742 shares of its common stock issued and outstanding, par value $0.001 per share.

Document Incorporated by Reference

Portions of a definitive proxy relating to the registrant’s 20202021 Annual Meeting of Shareholders, which will be filed with the Securities and Exchange Commission within 120 days after the close of the fiscal year covered by this Form 10-K, are incorporated into Part III of this Form 10-K.

TABLE OF CONTENTS

PART I

Forward-Looking Information

This Annual Report of GrowGeneration Corp.  on Form 10-K contains forward-looking statements, particularly those identified with the words, “anticipates,” “believes,” “expects,” “plans,” “intends,” “objectives,” and similar expressions. These statements reflect management’s best judgment based on factors known at the time of such statements. The reader may find discussions containing such forward-looking statements in the material set forth under “Management’s Discussion and Analysis and Plan of Operations,” generally, and specifically therein under the captions “Liquidity and Capital Resources” as well as elsewhere in this Annual Report on Form 10-K. Actual events or results may differ materially from those discussed herein. The forward-looking statements specified in the following information have been compiled by our management on the basis of assumptions made by management and considered by management to be reasonable. Our future operating results, however, are impossible to predict and no representation, guaranty, or warranty is to be inferred from those forward-looking statements. The assumptions used for purposes of the forward-looking statements specified in the following information represent estimates of future events and are subject to uncertainty as to possible changes in economic, legislative, industry, and other circumstances. As a result, the identification and interpretation of data and other information and their use in developing and selecting assumptions from and among reasonable alternatives require the exercise of judgment. To the extent that the assumed events do not occur, the outcome may vary substantially from anticipated or projected results, and, accordingly, no opinion is expressed on the achievability of those forward-looking statements. No assurance can be given that any of the assumptions relating to the forward-looking statements specified in the following information are accurate, and we assume no obligation to update any such forward-looking statements.

Unless the context otherwise requires, the terms “we”, “our”, “ours” “us” and “GrowGeneration”, refer to GrowGeneration Corp. and its subsidiaries, including GrowGeneration Pueblo Corp, GrowGeneration California Corp., Grow Generation Nevada Corp., GrowGeneration Washington Corp., GrowGeneration Rhode Island Corp., GrowGeneration Michigan Corp, GrowGeneration Oklahoma Corp, GrowGeneration New England Corp, GrowGeneration Canada Corp, GrowGeneration HG Corp, GrowGeneration Hemp Corp, GGen Distribution Corp., GrowGeneration Management Corp., and GrowGeneration Florida Corp., and Charcoir, Inc. on a combined basis.

ITEM 1. BUSINESS

Background

GrowGeneration Corp. (together with all of its wholly-ownedwholly owned subsidiaries, collectively “GrowGeneration” or the “Company”) was incorporated in Colorado in 2014 and is the largest chain of hydroponic garden centers in North America and is a leading marketer and distributor of nutrients, growing media, advanced indoor and greenhouse lighting, ventilationenvironmental control systems and accessories for hydroponic gardening. As of March 27, 2020,Currently, the Company owns and operates a chain of twenty seven (27)fifty two (52) retail and commercial hydroponic/gardening centers,stores across 12 states, with five (5)eighteen (18) in the state of California, six (6) in the state of Michigan, eight (8) located in the state of Colorado, four (4)five (5) in the stateState of California, four (4)Oklahoma, five (5) in the state of Michigan,Maine, two (2) in the state of Nevada, one (1)two (2) in the state of Washington, one (1)two (2) in the state of Oregon, four (4) in the State of Oklahoma, one (1) in the state of Rhode Island, three (3)one (1) in Maine, (1) inthe state of Florida, one (1) distribution center in California andthe state of Arizona, one (1) in the state of Massachusetts, one (1) in the state of Arizona, an online e-commerce store, GrowGen.Pro. GrowGeneration.com and a commercial e-commerce platform, Agron.io. We recently announced the signing of two leases in Los Angeles and Rancho Dominguez, CA, which are our 53^rd and 54^th locations. Proprietary brands owned by the Company include Canopy Crop Management Corp, CharCoir Inc, and the Company introduced several private-label brands across multiple product categories from LED lighting to nutrients and additives and other products for indoor cultivation.

Our plan is to continue to acquire, open and operate hydroponic/gardening centersstores and related businesses throughout the United States and Canada.

Today, our 27 centers operate in 10 states, each state considered an operating region.North America.

ProductsMarkets

GrowGeneration is the largest retailers of hydroponic products in the United States and is engaged in the business of marketing and distributing horticultural, organics, lighting and hydroponics products, including lighting fixtures, nutrients, seeds and growing media systems, trays, fans, filters, humidifiers and dehumidifiers, timers, instruments, water pumps, irrigation supplies and hand tools.

GrowGeneration is also actively developing a line of private labeled products, which would be sold through GrowGeneration garden centers under brands owned or controlled by the Company. In this regard, the Company acquired a variety of trademarks in March 2019 to bolsters its ability to supply branded ‘house’ products to our customers.  From trellis netting, to plastic pots, to organic nutrients, GrowGeneration introduced its first private-labeled products in the first quarter of 2020, expects to roll out a complete line of private labeled products to offer our customers at great prices, which is expected to have a positive impact on margins and profitability in the near term.

A list of the product trademarks the Company acquired are listed as follows: Blueprint,Carbide, DuraBreeze, Elemental Solutions, GrowXcess, GaurdenWare, Harvester’s Edge, Hydro Thrive, Ion, MixSure +, OptiLUME, Pioneer, Predator Lighting, Smart Support, Sunleaves Garden, Sunspot, Super Starter, Utopian Systems, VitaLUME, and VitaPlant.

Markets

Our stores sell thousands of products, that includeincluding nutrients, growing media, advanced indoor and greenhouse lighting, ventilationenvironmental control systems, vertical benching and accessories for hydroponic gardening, as well as other indoor and outdoor growing products, that are designed and intended for growing a wide range of plants. Hydroponics is a specialized method of growing plants using mineral nutrient solutions in a water solvent, as opposed to soil. This method is typically used for indoor cultivation to give growers the ability to better regulate and control nutrient delivery, light, air, water, humidity, pests, and temperature. Hydroponic growers benefit from these techniques by producing crops faster and with higher crop yields per acre as compared to traditional soil-based growers. Indoor growing techniques and hydroponic products are being utilized in new and emerging industries or segments, including the growing of cannabis and hemp. In addition, vertical farms producing organic fruits and vegetables also utilize hydroponics due to a rising shortage of farmland as well as environmental vulnerabilities including drought, other products needed to grow indoorssevere weather conditions and outdoors. Our strategy is to target two distinct groups of customers, namely commercial growers and smaller growers that require a local store to fulfill their daily and weekly growing needs. Our supply chain includes over 10,000 sku’s across 12 product departments. We can deliver directly to the grower’s facility, and they can pick up the products at one of our stores or order online.insect pests.

GrowGeneration serves a new, yet sophisticated community of commercial and urban cultivators growing specialty crops including organics, greens and plant-based medicines. Unlike the traditional agricultural industry, these cultivators use innovative indoor and outdoor growing techniques to produce specialty crops in highly controlled environments. This enables them to produce crops at higher yields without having to compromise quality, regardless of the season or weather and drought conditions.

Controlled-environment agriculture (CEA) is a technology-based approach to maintain optimal growing conditions throughout the development of the crop. Production takes place within an enclosed growing structure such as a greenhouse or building. Plants are often grown using hydroponic methods in order to supply the proper amounts of water and nutrients to the root zone. CEA optimizes the use of resources such as water, energy, space, capital and labor. Different techniques are available for growing in controlled environment agriculture. The more viable option is vertical farming. Vertical farming has the ability to produce crops all year round in a controlled environment, with the possibility of increased yield by adjusting the amount of carbon and nutrients the plants receive.

Our target marketcustomer segments include the commercial growers in the plant-based medicine market, the homecraft grower and businesses and individualsvertical farms who grow organically grown herbs and leafy green vegetables. The landscape for hydroponic retail stores is very fragmented, with numerous single stores which we consider very ripe“targets” for our roll upacquisition strategy. Further, the products we sell are in demand due to the ever-increasing legalization of pant-basedplant-based medicines, primarily cannabis and hemp, and the increasing number of licensed cultivation facilities in both the US and Canada.North America. Total sales for the hydroponic equipment industry were wellare projected to surpass $16 billion by 2025. The Company believes there are over $8 billion15,000 active cannabis cultivation licenses in 2019.North America. The average cultivation facility is approximately 36,000 sq. ft. and over 34,000,000 pounds of cannabis is projected to be cultivated by 2025.

Indoor growing techniquesOur retail operations are driven by a wide selection of all hydroponic products, service and solutions driven staff and pick, pack and ship distribution and fulfillment capabilities. We employ approximately 590 employees, a majority of them we have primarily beenbranded as “Grow Pros”. Currently, our operations span over 800,000 square feet of retail and warehouse space.

We operate our business through the following business units:

Store Acquisitions and New Store Openings

Core to our growth strategy is to expand the number of our retail garden centers throughout North America. The hydroponic retail landscape is fragmented, which allows us to acquire the “best of breed” hydroponic operations. In addition to the 12 states we are currently operating in, we have identified new market opportunities in states that include Ohio, Illinois, Pennsylvania, New York, New Jersey, Mississippi and Missouri. In 2020, we opened a second hydroponic/gardening center in Tulsa, Oklahoma, a 40,000 square feet store operation and fulfillment center, and completed eight (8) acquisitions, adding 14 new locations in 2020. The Company acquired 14 new locations in the first quarter of 2021 and has an active target pipeline of acquisitions which are planned to close in 2021.

Commercial Sales Division

Our commercial division is focused on selling end to end solutions for large commercial cultivators. When a commercial customer gains a new cultivation license, they will need to purchase lighting, benching, environmental control systems, irrigation, fertigation and other products to outfit their cultivation facility. Commercial customers typically purchase in larger dollar amounts and sizes of products. We offer commercial customers volume pricing, terms and financing. Our commercial team manages thousands of commercial accounts across North America. Our commercial division collectively contributed approximately $49 million in revenue for 2020 compared to approximately $17 million for 2019, a 189% year over year increase. We have identified over 15,000 active licensed growers in North America and believe there is significant room for us to expand our base of commercial customers.

E-Commerce/Omni-Channel Division

Our digital strategy is focused on capturing the home, craft and commercial grower online. GrowGeneration.com offers over 10,000 hydroponic products, all curated by our product team. GrowGeneration.com offer customers the option to have their orders shipped directly to their locations, anywhere in North America or alternatively customers can buy online and pick up in store. Revenue for 2020 was approximately $10.6 million compared to approximately $4.8 million for 2019, an increase of 123%. New visitors to our website were 1.2 million in 2020 versus 477,000 in 2019, an increase of 152% year over year. Our online garden center closed 17,000 transactions in 2020 versus 6,300 in 2019, an increase of 170%. On March 19, 2021, the Company purchased, Agron.io. a leading wholesale agriculture portal that allows commercial growers to manage their purchasing and logistics in one platform. Powered by proprietary ERP technology, Agron.io offers commercial pricing, real-time inventory and one of the largest product catalog in the industry, with over 10,000 products in over 60 categories, including greenhouses, extraction, hemp, and commercial equipment. The platform manages real-time product updates, tier-pricing changes, case quantities, pallet quantities, profit margin projections, hazmat fees, ETL/UL listings and state chemical regulations, as well as guarantees the latest shipping rates using API Pallet.  

Supply Chain

Our supply chain currently spans 800,000 sq. ft. of retail and warehouse space, across 52 locations and 12 states. Today, we operate distribution and fulfillment out of our 60,000 sq. ft location in Sacramento, CA and 40,000 sq. ft. in Tulsa, OK. The Company announced on March,9, 2021 the addition of a total of 122,000 sq. ft., including 52,000 sq. ft. in downtown Los Angeles, CA and 70,000 sq. ft. in Rancho Dominguez, CA, that will serve as warehousing for our private-label products, distribution and fulfillment for the Company. We are in the process of building several additional locations that will serve as fulfillment service centers, that include a 25,000 sq. ft. location in Phoenix, AZ. and a 58,000 sq. ft. location in Medley, FL. The Company expects these locations to be open by the summer of 2021. 

Proprietary Brands and Private Label

GrowGeneration purchased Canopy Crop Management Corp., in December 2020, the developer of the popular Power Si line of monosilicic acid products, a widely used nutrient additive for plants. On March 12, 2021, the Company purchased Char Coir, a line of premium coco pots, cubes and medium. Both Power Si and Char Coir are brands that generate over $10,000,000 in annual sales. We believe that expanding our private label offerings will have a positive impact on our margins and profitability in the near term. We use various trademarks, trade names in our private- label business, including Ion Lighting, Sunleaves, powder nutrients and additive line, Optilime Bulbs, Blueprint controllers and timers, Growxcess pots and containers, Harvest Edge, pruners, trellis and other gardening accessories, and Durabreeze fans and dehumidifiers. Both “GrowGeneration” and “Where the Pros Go to Grow” are trademarks used to cultivate plant-based medicines. Plant-based medicines often require high-degreebrand and market our garden centers across North America.

Competitive Advantages

As the largest chain of regulationhydroponic garden centers by revenue and controlsnumber of stores in the United States based on management’s estimates, we believe that we have the following core competitive advantages over our competitors:

Community Service and Charity

The Company has recently announced its partnership with Whole Cities Foundation. Founded by Whole Foods Market in 2014, the independent, nonprofit organization is based in Austin, Texas, and has partnered with more than 190 community organizations in 100 cities across the U.S. to build thriving local food systems and improve health. The first project, with Whole Cities, through its Fresh, Healthy Food Access Grant program, has been with Newark Science & Sustainability and Greater Newark Conservancy over the past 4 years.  Both organizations had identified hydroponic growing as a goal for their community plans.  Each group will benefit from an equipment grant. These first two opportunities are part of a pilot that we expect will yield learnings over the course of the year. GrowGeneration will provide equipment and expertise and partner with Whole Cities to evaluate community impact.

As we have built a national chain of hydroponic garden centers, it has always been our mission to give back to the local communities. In our day-to-day operations, we see the results growing hydroponically. We could not be prouder to partner with Whole Cities to donate hydroponic equipment and supplies to their local communities to help them with their gardens and increase the quality of their food production. Our staff of approximately 590 dedicated team members, the majority of whom are experienced in how to grow hydroponically, are energized to lend a hand and their personal time to support Whole Cities. It is rewarding to watch a community, come together, parents and children, and produce the largest tomatoes and produce in their community!

Further, in December 2020, the Company donated $10,000 to the Make- A- Wish Foundation to grant “a wish” to a child. The Company is an active contributor and supporter of the Make-A-Wish Foundation.

How We Evaluate Our Operations

Sales

The Company generates sales primarily from the sale of hydroponic garden products, including government compliance, security,nutrients, growing media, advanced indoor and crop consistency, makinggreenhouse lighting, environmental control systems, vertical benching, and accessories for hydroponic gardening, as well as other indoor and outdoor growing techniques a preferred method. Cultivatorsproducts. The Company recognizes revenue, net of estimated returns and sales tax, at the time the customer takes possession of merchandise or receives services at which point, the performance obligation is satisfied. Sales and other taxes collected concurrent with revenue producing activities are excluded from revenue. Customer deposits and lay away sales are not reported as revenue until final payment is received and the merchandise has been delivered.

Our sales depend on the type of products we sell and the mix between consumables and non-consumables. Due to their nature, purchases of consumables result in repeat orders as customers seek to replenish their supplies. In 2020, approximately 60% of our sales were consumables. Generally, in new markets where legalization of plant-based medicines often makeis recent and licensors are ramping up their grow operations, there are more purchases of non-consumables for buildouts compared to purchases of consumables. In more mature markets, there are generally more purchases of consumables than non-consumables. Our sales are also impacted by our customer mix of commercial and non-commercial customers, as larger commercial customers may receive volume discounts. More than a significant investment to designmajority of our sales are derived from our commercial customers.

Gross Profit

We calculate gross profit as sales less cost of goods sold. Cost of goods sold consists of cost of product sold and build-out their facilities. They look to workfreight. Gross profit excludes depreciation and amortization, which are presented separately in our consolidated statement of operations.

Our overall gross profit margin varies with companiesour product mix, in particular the percentage of sales of consumable products versus non-consumables, such as GrowGenerationin connection with buildouts, during a particular quarter. In addition, our customer mix impacts gross profit margin due to larger commercial customers receiving discounts.

Operating Expenses

Operating expenses are comprised of store operations, primarily payroll, rent and utilities, and corporate overhead. Corporate overhead is comprised of share-based compensation, depreciation and amortization, general and administrative costs and corporate salaries and related expenses. General and administrative expenses (“G&A”) consist mainly of advertising and promotions, travel & entertainment, professional fees and insurance. G&A as a percentage of sales does not increase commensurate with an increase in sales. Our largest expenses are payroll and rent and these are largely fixed and not variable. Our advertising and marketing expenses are controllable and variable depending on the particular market.

Same-Store Sales

We assess the organic growth of our sales on a same-store basis. We believe that understand their specific needsour assessment on a same-store basis represents an important indicator of comparative financial results and can help mitigate risks that could jeopardize their crops. Plant-based medicines are believedprovides relevant information to be among the fastest-growing marketassess our performance. New and acquired stores become eligible for inclusion in the U.S.comparable store base if the store has been under our ownership for the entire period in the same-store base periods for which we are including the store. For example, our same store sales for the full year 2020 and several industry pundits believe2019 includes 21 stores that plant-based medicines may even displace prescription pain medication by providing patients withoperated for the entire year. We do not include any stores that were closed or consolidated during a safer, more affordable alternative.particular period.

Indoor growing techniques, however, are not limited to plant-based medicines. Vertical farms producing organic fruits and vegetables are beginning to emerge in the market due to a rising shortage of farmland, and environmental vulnerabilities including drought, other severe weather conditions and insect pests. Indoor growing techniques enable cultivators to grow crops all-year-round in urban areas and take up less ground while minimizing environmental risks. Indoor growing techniques typically require a more significant upfront investment to design and build-out these facilities than traditional farmlands. If new innovations lower the costs for indoor growing, and the costs to operate traditional farmlands continue to rise, then indoor growing techniques may be a compelling alternative for the broader agricultural industry.

Research and Development 

The Company has not incurred any research and development expenses during the period covered by this report.

Customers and Suppliers

Our key customers vary by state and are expected to be more defined as the Company moves from its retail walk-in purchasing sales strategy to serving cultivation facilities directly and under predictable purchasing activity. Currently, none of our customers accounted for more than 5% of our sales in 20192020 or 2018.2019.

Our key suppliers include several manufacturers and distributors such as Hawthorne Garden Supply, Hydrofarm, Fluence Engineering, Advanced Nutrients, House and Gardens, FoxFarm Fertilizer, Canna, USA, Mills Nutrients, Hawthorne Garden Supply, Hydrofarm, and others. All the products purchased and sold are applicable to indoor and outdoor growing for organics, greens, and plant-based medicines. As of December 31, 2019, and 2018,2020, two suppliers represent 51% and 56%, respectivelyrepresented 41% of all our purchases.purchases, a decrease of 18% from 2019. The Company is of the opinion that the loss of either supplier would not have a material adverse impact on our business, because both suppliers provide the same products and thebusiness. The Company maintains direct manufacturing agreements with many vendors.

DemandAcquisitions

The Company purchased a total of 14 stores in 2020 and 14 stores through March 12, 2021. The Company also completed the acquisitions of two leading product companies, Canopy Crop Management in December 2020 and Char Coir, on March 14, 2021.

Acquisition completed in 2021, Subsequent to year-end December 31, 2020

On March 19, 2021 the Company purchased the assets of Agron, LLC, an online seller of growing equipment. The total consideration for Productsthe purchase of Agron was approximately $11.3 million, including $6 million in cash and common stock valued at approximately $5.3 million.

On March 15, 2021 the Company purchased the assets of 55 Hydroponics, a hydroponic and organic superstore located in Santa Ana, CA. The total consideration for the purchase of 55 Hydroponics was approximately $6.1 million, including $5 million in cash and common stock valued at approximately $1.1 million.

On March 15, 2021 the Company purchased the assets of Aquarius, a hydroponic and organic garden store in Springfield, MA. The total consideration for the purchase of Aquarius was approximately $3.6 million, including $2.4 million in cash and common stock valued at approximately $1.2 million.

On March 12, 2021 the Company purchased the assets of Charcoir Corporation, who sells an RHP-certified growing medium made from the highest-grade coconut fiber. The total consideration for the purchase of Charcoir was approximately $16.3 million, including $9.8 million in cash and common stock valued at approximately $6.5 million.

On February 22, 2021 the Company purchased the assets of San Diego Hydroponics & Organics, a four-store chain of hydroponic and organic garden stores in San Diego, CA. The total consideration for the purchase of San Diego Hydroponics was approximately $9.3 million, including $4.8 million in cash and common stock valued at approximately $4.5 million.

On February 15, 2021 the Company purchased the assets of Grow Warehouse LLC, a four-store chain of hydroponic and organic garden stores in Colorado (3 stores) and Oklahoma (1 store). The total consideration for the purchase of Grow Warehouse LLC was approximately $17.8 million, including $8.1 million in cash and common stock valued at approximately $9.7 million.

On February 1, 2021 the Company purchased the assets of J.A.R.B., Inc d/b/a Grow Depot Maine, a two-store chain in Auburn and Augusta, Maine. The total consideration for the purchase of Grow Depot Maine was approximately $2.1 million, including $1.7 million in cash and common stock valued at approximately $411,000.

On January 25, 2021 the Company purchased the assets of Indoor Garden & Lighting, Inc, a two-store chain of hydroponic and equipment and indoor gardening supply stores serving the Seattle and Tacoma, Washington area. The total consideration for the purchase of Garden & Lighting was approximately $1.63 million, including $1.1 million in cash and common stock valued at approximately $526,000.

Acquisitions completed in 2020

On December 23, 2020, the Company acquired the assets of Canopy Crop Management and its complete portfolio of products including the Power SI brand of momo-silicic acid-enriched fertilizers. The total consideration for the purchase of Canopy Crop was approximately $9.2 million, including $5.4 million in cash and common stock valued at approximately $3.8 million.

On December 14, 2020, the Company acquired the assets of Grassroots, a three-store chain in California. The total consideration for the purchase of Grassroots was approximately $10 million, including $7.5 million in cash and common stock valued at approximately $2.5 million.

On November 17, 2020, the Company acquired the assets of The GrowBiz, a five-store chain with four stores in California and one store in Oregon. The total consideration for the purchase of The GrowBiz was approximately $44.7 million, including $17.4 million in cash and common stock valued at approximately $27.3 million.

On October 20, 2020 the Company acquired the assets of Big Green Tomato (“BGT”), a two-store chain in Battle Creek and Taylor, Michigan. The total consideration for the purchase of BGT was approximately $9.1 million, including $6.0 in cash and common stock valued at approximately $3.1 million.

DemandOn October 12, 2020, the Company acquired the assets of Hydroponics Depot, LLC, a single store located in Phoenix Arizona. The total consideration for indoorthe purchase of Hydroponics Depot, LLC was approximately $1.54 million, including $987,500 in cash and outdoor growing equipment is currently high due to legalizationcommon stock valued at approximately $548,000.

On August 10, 2020 the Company acquired certain assets of plant-based medicines, primarily cannabis and hemp, which requires equipment purchases for build-out and repeat purchasesBenzakry Family Corp, d/b/a Emerald City Garden, in a transaction valued at $1 million. Acquired goodwill of consumable nutrients needed duringapproximately $618,000 represents the growing period. This demand is projected to continue to increase as a result of the approval of a comprehensive, publicly available medical marijuana/cannabis programs laws in 33 states and 11 states for adult-use plus the District of Columbia as of the date thereof. Continued innovation and more efficient build-out technologies along with larger and consolidated cultivation facilities arevalue expected to furtherrise from organic growth and an opportunity to expand into a well-established market demand for GrowGeneration products and services. We expect the market to continue to segment into urban farmers serving groups of individuals, community cultivators, and large-scale cultivation facilities acrossCompany. Cash consideration was funded from the states. Each segment will be optimized to different distribution channels that GrowGeneration currently provides. We are of the opinion that as our volume increases, we will obtain volume discounts on purchasing that should allow us to maximize our revenues and expand gross profit margins.Company’s existing working capital.

E-Commerce StrategyOn June 16, 2020 the Company acquired certain assets of H2O Hydroponics, LLC in a transaction valued at approximately $1.99 million. Acquired goodwill of approximately $1 million represents the value expected to rise from organic growth and an opportunity to expand into a well-established market for the Company. Cash consideration was funded from the Company’s existing working capital.

The Company has developed its e-commerce website and portal,www.GrowGen.Pro which offers for sale hydroponic, specialty and organic gardening products. Online shoppers are able to shop from product departments, from nutrients to lighting to hydroponic and greenhouse equipment, delivering an easy and quick method to find the products that they want to purchase. Our e-commerce site is designed to appeal to the professional growers. Each product listed on the site contains product descriptions, product reviews and a picture so the customers can make an informed and educated purchase. Our product filters allow the customers to search by brand, manufacturer, or by function such as wattage. Designed as an information portal as well as an e-commerce store, the customers will find videos, articles, blogs and other relevant content, all generated by GrowGeneration’s internal staff, which we call our “Grow Pros”. The GrowGeneration customers are able to shop and order online 24/7 and, choose to receive products delivered directly to their grow operations, or for pick up at one of the GrowGeneration retail stores. In addition, customers may simply use our site as a resource and shop with our Grow Pros at one of our retail locations. Google advertising, social media and in store advertising are the primary advertising tools we use to drive traffic towww.GrowGen.Pro.

Acquisitions

Subsequent to year end, onOn February 26, 2020, the Company entered into an asset purchase agreement through its wholly-owned subsidiary, GrowGeneration Florida Corp, to purchase the assets of Healthy & Harvest, LLC, with one location in Pembroke Pines, FL. The total consideration for the purchase of Healthy Harvest was approximately $2.9 million, including $1.8 million in cash and common stock valued at approximately $1.1 million. In connection with the purchase of the assets, the Company also entered a three-year commercial lease for warehouse space, effective February 26, 2020 and subleased the store space whose current lease expires July 31, 2020.

On December 18, 2019, the Company entered into an asset purchase agreement through its wholly-owned subsidiary, GrowGeneration Washington Corp, to purchase the assets of GrowWorld with one location in Portland, OR. In connection with the purchase of the assets, the Company also entered into an assignment of lease, effective December 18, 2019, to rent the premises in Portland, OR. The lease terminates on December 31, 2026.

On September 3, 2019, the Company entered into an asset purchase agreement through its wholly-owned subsidiary, GrowGeneration Michigan Corp, to purchase the assets of Grand Rapids Hydroponics with one location in Grand Rapids, MI. In connection with the purchase of the assets, the Company also entered into a ten-year commercial lease agreement, effective from September 9, 2019, to rent the premises in Grand Rapids, MI.2021.

On April 23, 2019, the Company entered into an asset purchase agreement through its wholly-owned subsidiary, GrowGeneration Rhode Island Corp., to purchase the assets of GreenLife Garden Supply Corp., with two store locations in Maine and one in New Hampshire. In connection with the purchase of the assets, the Company also entered into five-year commercial lease agreements, effective from May 9, 2019 and July 1, 2019, respectively, to rent the premises in York and Biddeford, Maine where store assets are located.Seasonality

On January 26, 2019, the Company entered into an asset purchase agreement through its wholly-owned subsidiary, GrowGeneration California Corp., to purchase the assets from Palm Springs Hydroponics, Inc. located in Palm Springs, California. The acquisition was completed on February 7, 2019. In connection with the purchase of the assets, the Company also entered into a commercial lease agreement with a term of five years and three months, effective from February 7, 2019 to April 30, 2024, to rent the premises where the assets were located to open a new store.

On January 26, 2019, the Company entered into an asset purchase agreement through its wholly-owned subsidiary, GrowGeneration Nevada Corp., to purchase the assets from Reno Hydroponics, Inc. located in Reno, Nevada. The acquisition was completed on February 11, 2019. In connection with the purchase of the assets, the Company also entered into a one-year commercial lease agreement, effective from February 1, 2019 to January 31, 2020, to rent the premises where the assets were located to open a new store. The Company has since entered into a new lease expiring March 31, 2021.

On November 28, 2018, the Company entered into an asset purchase agreement through its wholly-owned subsidiary, GrowGeneration Pueblo Corp., to purchase the assets of Chlorophyll, Inc., located in Denver, Colorado. The acquisition was completed on January 21, 2019. In connection with the purchase of the assets, the Company also entered into a five-year commercial lease agreement, effective from January 21, 2019, to rent the premises where the assets are located to open a new store

On August 30, 2018, the Company entered into an asset purchase agreement, amended on September 14, 2018, with Virgus, Inc. d/b/a/ Heavy Gardens, an online store of hydroponic and garden supplies (“Heavy Gardens”), to purchase the assets of Heavy Gardens through its wholly-owned subsidiary, GrowGeneration HG Corp. The closing of the asset purchase took place on September 14, 2018.

On June 28, 2018, the Company entered into a restated and amended asset purchase agreement to purchase the assets of a retail hydroponic store, Santa Rosa Hydroponics & Grower Supply Inc., located in Santa Rosa, California. On July 13, 2018, the parties entered into an amendment to the purchase agreement and conducted the closing of the asset purchase. In connection with the purchase of the assets, the Company also entered into a commercial lease agreement, effective from July 14, 2018 to July 13, 2023, to rent the premises where the assets were located to open the new store.

On April 12, 2018, the Company entered into an asset purchase agreement through its wholly-owned subsidiary, GrowGeneration Michigan Corp., to purchase substantially all of the assets of Superior Growers Supply, Inc.’s business located in Michigan. In connection with the purchase of the assets, the Company also entered into a commercial lease, effective from April 12, 2018 to April 11, 2023, to rent the premises where a part of the assets are located. The Company entered into two additional leases. Following this acquisition, the Company opened three stores in the state of Michigan.

Seasonality

Our business is subject to some seasonal influences. Generally,Historically, our highest volume of sales occurs in our second and third fiscal quarter,quarters, and the lower volume occurs during our first or fourth fiscal quarter. 

Competition

The markets in which we sell our products are highly competitive. Our key competitors include many local and national vendors of gardening supplies, local product resellers of hydroponic and other specialty growing equipment, as well as online product resellers and large online marketplaces such as Amazon.com and eBay. Our industry is a highly fragmented industry with over 1,000 retail outletshydroponic retailers throughout the U.S. We compete with companies that have greater capital resources, facilities and diversity of product lines. Our competitors may also introduce new hydroponic growing equipment, manufacturers may sell equipment direct to consumers, and our distributers could cease sales of product to us.

Notwithstanding the foregoing, we do believe thatare the largest chain of hydroponic garden centers in North America and our pricing, inventory and product availability and overall customer service, provide us with the ability to compete in this marketplace.our industry. In addition, as we continue to increase ourthe number of storesgarden centers and inventory per store, we expect to be able to continue to purchase larger amounts of inventory at lower volume sale prices, which we expect will enable us to price competitively and deliver the products that our customers are seeking. We compete on supply chain competency, field sales support,The Company competes by delivering the widest selection of hydroponics products, end to end solutions for all types of cultivation environments, in-store sales and product support, the strength of our relationships with major manufacturers, distributorsdirect manufacturer pricing and advertising.world-class customer service.

Based on our knowledge and communication with our suppliers, we do not believe our suppliers sell directly to the retail market or our customers.

Intellectual Property and Proprietary Rights

Our intellectual property consists of our brands and their related trademarks, domain names and websites, customer lists and affiliations, product know-howknowledge and technology, and marketing intangibles. We also hold rights to website addresses related to our business including websites that are actively used in our day-to-day business such as www.GrowGeneration.com. We own the federally registered trademark for “GrowGeneration®” “Where the Pros Go to Grow®” and GrowGen.Pro.. In addition, we own several registered trademarks acquired in March 2019 as detailed previously under the caption Products.2019.

Government Regulation

We sell products, including hydroponic gardening products, that end users may purchase for use in new and emerging industries or segments, including the growing of cannabis and hemp, that may not grow or achieve market acceptance in a manner that we can predict. The demand for these products depends on the uncertain growth of these industries or segments. 

In addition, we sell products that end users may purchase for use in industries or segments, including the growing of cannabis and hemp, that are subject to varying, inconsistent, and rapidly changing laws, regulations, administrative practices, enforcement approaches, judicial interpretations, and consumer perceptions.  For example, certain countries and 3336 U.S. states have adopted frameworks that authorize, regulate, and tax the cultivation, processing, sale, and use of cannabis for medicinal and/or non-medicinal use, while the U.S. Controlled Substances Act and the laws of other U.S. states prohibit growing cannabis. In addition, with the passage of the Farm Bill in December 2018, hemp cultivation is now broadly permitted. The Farm Bill explicitly allows the transfer of hemp-derived products across state lines for commercial or other purposes. It also puts noremoves restrictions on the sale, transport, or possession of hemp-derived products, so long as those items are produced in a manner consistent with the law. We believe the recent passage of the 2018 Farm Bill will allow the Company to expand its marketplace opportunities.

Our gardening products, including our hydroponic gardening products, are multi-purpose products designed and intended for growing a wide range of plants and are purchased by cultivators who may grow any variety of plants, including cannabis and hemp.  Although the demand for our products may be negatively impacted depending on how laws, regulations, administrative practices, enforcement approaches, judicial interpretations, and consumer perceptions develop, we cannot reasonably predict the nature of such developments or the effect, if any, that such developments could have on our business.

Employees

As of December 31, 2019,2020, we had 184360 full time employees and 2147 part-time employees. No employees are subject to collective bargaining agreements. As of March 19, 2021, the Company has 590 employees.

Principal Offices

Our principal offices are located at 1000930 W Mississippi Ave.7^th Ave, Suite A., Denver, CO 80223. As of December 31, 2019,80204. Currently, we leased six (6)lease ten (10) facilities in the State of Colorado, eight (8)twenty (20) in the State of California, one (1)three (3) in the State of Nevada, one (1)two (2) in the State of Washington, one (1)two (2) in the State of Oregon, two (2) in the state of Arizona, one (1) in the State of Rhode Island, four (4)six (6) in the State of Oklahoma, four (4)six (6) in the State of Michigan, three (3)five (5) in the State of Maine, two (2)three (3) in the State of Florida, all for our corporate and retail operations. In total the Company currently leases approximately 350,000800,000 square feet of space, which consists primarily of 3,0009,000 feet of corporate office space, 100,000 square feet of warehouse space and 247,000approximately 700,000 square feet of store space.

ITEM 1A. RISK FACTORS

The risks and uncertainties described below could materially and adversely affect our business, financial condition and results of operations and could cause actual results to differ materially from our expectations and projections. You should read these Risk Factors in conjunction with “Management’s Discussion and Analysis of Financial Condition and Results of Operations” in Item 7 and our Consolidated Financial Statements and related notes in Item 8. There also may be other factors that we cannot anticipate or that are not described in this report generally because we do not currently perceive them to be material. Those factors could cause results to differ materially from our expectations.

Actual or threatened epidemics, pandemics, outbreaks, or other public health crisesThe COVID-19 pandemic and the efforts to mitigate its impact may adversely affecthave an adverse effect on our customers’business, liquidity, results of operations, financial condition and the operationsprice of our business.securities.

OurThe pandemic involving the novel strain of coronavirus, or COVID-19, and the measures taken to combat it, may have adverse effect on our business. Public health authorities and governments at local, national and international levels have announced various measures to respond to this pandemic. Some measures that directly or indirectly impact our business could be materiallyinclude:

Congestion at all ports, product delays from overseas.

Although we have been deemed an “essential” business by state and adversely affected bylocal authorities in the risks, orareas in which we operate, we have undertaken the public perceptionfollowing measures in an effort to mitigate the spread of COVID-19 including limiting store business hours and encouraging employees to work remotely if possible. We also have enacted our business continuity plans, including implementing procedures requiring employees working remotely where possible which may make maintaining our normal level of corporate operations, quality controls and internal controls difficult. Moreover, the risks, related to an epidemic,COVID-19 pandemic outbreak, or other public health crisis, such as the recent outbreak of novel coronavirus (COVID-19). The risk of a pandemic, or public perception of the risk, could cause customers to avoid public places, including retail properties, and could causehas caused temporary or long-term disruptions in our supply chains and/or delays in the delivery of our inventory. Further, such risks couldthe COVID-19 pandemic and mitigation efforts have also adversely affectaffected our customers’ financial condition, resulting in reduced spending for the products we sell. Moreover, an epidemic,

As events are rapidly changing, we do not know how long the COVID-19 pandemic outbreakand the measures that have been introduced to respond to it will disrupt our operations or other public health crisis, suchthe full extent of that disruption.  Further, once we are able to restart normal business hours and operations doing so may take time and will involve costs and uncertainty. We also cannot predict how long the effects of COVID-19 and the efforts to contain it will continue to impact our business after the pandemic is under control. Governments could take additional restrictive measures to combat the pandemic that could further impact our business or the economy in the geographies in which we operate. It is also possible that the impact of the pandemic and response on our suppliers, customers and markets will persist for some time after governments ease their restrictions. These measures have negatively impacted, and may continue to impact, our business and financial condition as the responses to control COVID-19 could cause employees to avoid our properties, whichcontinue.

Economic conditions could adversely affect our ability to adequately staff and manage our businesses. Risks related to an epidemic, pandemic or other health crisis, such as COVID-19, could also lead to the complete or partial closure of one or more of our stores, facilities or operations of our sourcing partners. The ultimate extentbusiness.

Uncertain global economic conditions, in particular in light of the impact of any epidemic,COVID-19 pandemic, or other health crisis on our business, financial condition and results of operations will depend on future developments, which are highly uncertain and cannot be predicted, including new information that may emerge concerning the severity of such epidemic, pandemic or other health crisis and actions taken to contain or prevent their further spread, among others. These and other potential impacts of an epidemic, pandemic or other health crisis, such as COVID-19, could therefore materially and adversely affect our business. Negative global economic trends, such as decreased consumer and business financial conditionspending, high unemployment levels and results of operations.declining consumer and business confidence, pose challenges to our business and could result in declining revenues, profitability and cash flow. Although we continue to devote significant resources to support our brands, unfavorable economic conditions may negatively affect demand for our products.

We face intense competition that could prohibit us from developing or increasing our customer base.

The specialty gardening and hydroponic product industry within which we compete is highly competitive. We compete with companies that have greater capital resources, facilities and diversity of product lines. We compete in the specialty gardening industry, selling hydroponic and organic nutrients, soils and other gardening related products. Additionally, if demand for our hydroponic growing equipment and products continues to grow, we expect many new competitors to enter the market, as there are no significant barriers to retail sales of hydroponic growing equipment and related gardening products. More established gardening companies with much greater financial resources which do not currently compete with us may be able to easily adapt their existing operations to sales of hydroponic growing equipment. Our competitors may also introduce new hydroponic growing equipment, and manufacturers may sell equipment direct to consumers. Due to this competition, there is no assurance that we will not encounter difficulties in increasing revenues and maintaining and/or increasing market share. In addition, increased competition may lead to reduced prices and/or margins for products we sell. Our competitors may also introduce new hydroponic growing equipment, manufacturers may sell equipment direct to consumers, and our distributers could cease sales of product to us.

If we need additional capital to fund our operations, we may not be able to obtain sufficient capital and may be forced to limit the scope of our operations.

In connection with our growth strategies, we may experience increased capital needs and accordingly, we may not have sufficient capital to fund our future operations without additional capital investments. There can be no assurance that additional capital will be available to us. If we cannot obtain sufficient capital to fund our operations, we may be forced to limit the scope of our expansion.

Our business depends substantially on the continuing efforts of our executive officers and our business may be severely disrupted if we lose their services.

Our future success depends substantially on the continued services of our executive officers, especially our Chief Executive Officer, Darren Lampert, our President, Michael Salaman, our Chief Financial Officer, Monty Lamirato, and our Chief Operating Officer, Tony Sullivan. We do not maintain key man life insurance on any of our executive officers and directors. 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. Therefore, our business may be severely disrupted, and we may incur additional expenses to recruit and retain new officers.

If we are not successful in attracting and retaining highly qualified personnel, we may not be able to successfully implement our business strategy.

Our ability to compete in the highly competitive hydroponics and gardening industry depends in large part upon our ability to attract highly qualified managerial and sales personnel. In order to induce valuable employees to come and work for us or to remain with us, we intend to provide employees with stock options that vest over time. However, the value to employees of stock options that vest over time will be significantly affected by movements in our stock price that we will not be able to control and may at any time be insufficient to counteract more lucrative offers from other companies. Our success also depends on our ability to continue to attract, retain and motivate highly skilled junior, mid-level, and senior personnel.

In order to increase our sales and marketing infrastructure, we will need to grow the size of our organization, and we may experience difficulties in managing this growth.

As we continue to work to open and/or acquire additional retail store locations, we will need to expand the size of our employee base for managerial, operational, sales, marketing, financial and other resources. Future growth would impose significant added responsibilities on members of management, including the need to identify, recruit, maintain, motivate and integrate additional employees. In addition, our management may have to divert a disproportionate amount of its attention away from our day-to-day activities and devote a substantial amount of time to managing these growth activities. Our future financial performance and our ability to continue to grow our operation and compete in the hydroponics industry effectively will depend, in part, on our ability to effectively manage any future growth.

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 operation 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. As a result, litigation may adversely affect our business, financial condition and results of operations.

Some of our customers are cannabis growers. Disruption to the cannabis industry could have a negative impact on our revenue.

Our products are sold to growers of various crops and someCertain of our products may be utilized by cannabis growers. Disruptionpurchased for use in new and emerging industries or segments and/or be subject to the cannabis industry could cause some current and/or potential customers to be more reluctant to invest in growing equipment, including equipment we sell.varying, inconsistent, and rapidly changing laws, regulations, administrative practices, enforcement approaches, judicial interpretations, and consumer perceptions.

There areWe sell hydroponic gardening products that end users may purchase for use in new and emerging industries or segments, including the growing of cannabis, that may not grow or achieve market acceptance in a significant numbermanner that we can predict. The demand for these products depends on the uncertain growth of shares of common stock eligible for sale, which could depress the market price of such shares.these industries or segments.

Our Registration Statement on Form S-1 has registered a totalIn addition, we sell products that end users may purchase for use in industries or segments, including the growing of 1,242,756 sharescannabis, that are subject to varying, inconsistent, and rapidly changing laws, regulations, administrative practices, enforcement approaches, judicial interpretations, and consumer perceptions. For example, certain countries and 34 U.S. states have adopted frameworks that authorize, regulate, and tax the cultivation, processing, sale, and use of our common stock availablecannabis for sale inmedicinal and/or non-medicinal use, while the public market. The availabilityU.S. Controlled Substances Act and the laws of such a large number of shares of common stock for sale in the public market could harm the market price of the stock. Further, additional shares may be offered from time to time in the open market pursuant to Rule 144, and these sales may have a depressive effect as well.other U.S. states prohibit growing cannabis.

Our hydroponic gardening products are multi-purpose products designed and intended for growing a wide range of plants and are generally purchased from retailers by end users who may grow any variety of plants, including cannabis. Although the demand for our products may be negatively impacted depending on how laws, regulations, administrative practices, enforcement approaches, judicial interpretations, and consumer perceptions develop, we cannot reasonably predict the nature of such developments or the effect, if any, that such developments could have on our business.

Acquisitions, other strategic alliances and investments could result in operating difficulties, dilution, and other harmful consequences that may adversely impact our business and results of operations.

Acquisitions are an important element of our overall corporate strategy and use of capital, and these transactions could be material to our financial condition and results of operations. We expect to continue to evaluate and enter into discussions regarding a wide array of potential acquisitions and strategic transactions. The areas where we may face risks in connection with acquisitions include, but are not limited to, the failure to successfully further develop the acquired business, the implementation or remediation of controls, procedures and policies at the acquired business, the transition of operations, users and customers onto our existing platforms, and cultural challenges associated with integrating employees from the acquired business into our organization, and retention of employees from the businesses we acquire. Our failure to address these risks or other problems encountered in connection with our acquisitions could cause us to fail to realize the anticipated benefits of such acquisitions, investments or alliances, incur unanticipated liabilities, and harm our business generally.

Our acquisitions could also result in dilutive issuances of our equity securities, the incurrence of debt, contingent liabilities or amortization expenses, or impairment of goodwill and purchased long-lived assets, and restructuring charges, any of which could harm our financial condition or results of operations and cash flows. Also, the anticipated benefits and synergies of many of our acquisitions may not materialize.

If product liability lawsuits are brought against us, we may incur substantial liabilities.

We face a potential risk of product liability as a result of any of the products that we offer for sale. For example, we may 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. If we cannot successfully defend ourselves against product liability claims, we may incur substantial liabilities. Even successful defense would require significant financial and management resources. Regardless of the merits or eventual outcome, liability claims may result in:

We do not maintain any product liability insurance. Our inability to obtain and retain sufficient product liability insurance at an acceptable cost to protect against potential product liability claims could prevent or inhibit the commercialization of products we developed. Even if we obtain product liability insurance in the future, we may have to pay amounts awarded by a court or negotiated in a settlement that exceed our coverage limitations or that are not covered by our insurance, and we may not have, or be able to obtain, sufficient capital to pay such amounts.

We may acquire businesses or products, or form strategic alliances, in the future, and we may not realize the benefits of such acquisitions.

We may acquire additional businesses or products, form strategic alliances or create joint ventures with third parties that we believe will complement or augment our existing business. If we acquire businesses with promising markets or products, we may not be able to realize the benefit of acquiring such businesses if we are unable to successfully integrate them with our existing operations and company culture. We may encounter numerous difficulties in developing, manufacturing and/or marketing any new products resulting from a strategic alliance or acquisition that delay or prevent us from realizing their expected benefits or enhancing our business. We cannot assure you that, following any such acquisition, we will achieve the expected synergies to justify the transaction.

Risks Related to Our Common Stock

There are risks, including stock market volatility, inherent in owning our common stockstock.

The market price and volume of our common stock have been, and may continue to be, subject to significant fluctuations. These fluctuations may arise from general stock market conditions, the impact of risk factors described in this Item 1Aherein on our results of operations and financial position, or a change in opinion in the market regarding our business prospects or other factors, many of which may be outside our immediate control.

The shares of our common stock may experience substantial dilution by exercises of outstanding warrants and options.

As of the date hereof, we had outstanding warrants to purchase an aggregate of 3,387,7011,393,472 shares of our common stock at a weighted average exercise price of $2.96$7.49 per share, and options to purchase an aggregate of 2,109,1701,803,108 shares of our common stock (out of which 1,210,8371,057,734 are vested as of this date) at a weighted average exercise prices of $2.97$3.92 per share. The exercise of such outstanding options and warrants will result in substantial dilution of your investment. In addition, our shareholders may experience additional dilution if we issue common stock in the future. Any of such dilution may have adverse effect on the price of our common stock. 

We are an “emerging growth company,” and will be able take advantage of reduced disclosure requirements applicable to “emerging growth companies,” which could make our common stock less attractive to investors.

We are an “emerging growth company,” as defined in the Jumpstart Our Business Startups Act of 2012, or JOBS Act, and, for as long as we continue to be an “emerging growth company,” we intend to take advantage of certain exemptions from various reporting requirements applicable to other public companies but not to “emerging growth companies,” including, but not limited to, not being required to comply with the auditor attestation requirements of Section 404 of the Sarbanes-Oxley Act, reduced disclosure obligations regarding executive compensation in our periodic reports and proxy statements, and exemptions from the requirements of holding a nonbinding advisory vote on executive compensation and stockholder approval of any golden parachute payments not previously approved. We could be an “emerging growth company” for up to five years, or until the earliest of (i) the last day of the first fiscal year in which our annual gross revenues exceed $1 billion, (ii) the date that we become a “large accelerated filer” as defined in Rule 12b-2 under the Exchange Act, which would occur if the market value of our common stock that is held by non-affiliates exceeds $700 million as of the last business day of our most recently completed second fiscal quarter, or (iii) the date on which we have issued more than $1 billion in non-convertible debt during the preceding three year period.

For as long as we remain an “emerging growth company” as defined in the JOBS Act, we intend to take advantage of certain exemptions from various reporting requirements that are applicable to other public companies that are not “emerging growth companies.”

Additionally, we are a “smaller reporting company” as defined in Item 10(f)(1) of Regulation S-K. Smaller reporting companies may take advantage of certain reduced disclosure obligations, including, among other things, providing only two years of audited financial statements. We will remain a smaller reporting company until the last day of the fiscal year in which (1) the market value of our ordinary shares held by non-affiliates exceeds $250 million as of the prior June 30, or (2) our annual revenues exceeded $100 million during such completed fiscal year and the market value of our ordinary shares held by non-affiliates exceeds $700 million as of the prior June 30. To the extent we take advantage of such reduced disclosure obligations, it may also make comparison of our financial statements with other public companies difficult or impossible.

After we are no longer an “emerging growth company,” we expect to incur additional management time and cost to comply with the more stringent reporting requirements applicable to companies that are deemed accelerated filers or large accelerated filers, including complying with the auditor attestation requirements of Section 404 of the Sarbanes-Oxley Act. We cannot predict or estimate the amount of additional costs we may incur or the timing of such costs.

ITEM 1B. UNRESOLVED STAFF COMMENTS

None.

ITEM 2. PROPERTIES

Description of Property

Our principal offices are located at 1000930 W Mississippi Ave.7^th Ave, Suite A., Denver, CO 80223. As of the date of this report,80204. Currently, we lease six (6)ten (10) facilities in the State of Colorado, eight (8)twenty (20) in the State of California, one (1)three (3) in the State of Nevada, one (1)two (2) in the State of Washington, one (1) in the State of Rhode Island, one (1)two (2) in the State of Oregon, two (2) in the state of Arizona, one (1) in the State of Florida, four (4)Rhode Island, five (5) in the State of Oklahoma, four (4)six (6) in the State of Michigan, andfive (5) in the State of Maine, three (3) in the State of MaineFlorida, all for our corporate and retail operations. Information relating to our stores is set forthIn total the Company currently leases approximately 800,000 square feet of space, which consists primarily of 9,000 feet of corporate office space, 100,000 square feet of warehouse space and 691,000 square feet of store space. The Company also owns a 10,000 square foot store in the table below:Battle Creek, MI acquired in 2020. 

ITEM 3. LEGAL PROCEEDINGS

There are no current, past, pending or threatened legal proceedings or administrative actions either by or against the issuer that could have a material effect on the issuer’s business, financial condition, or operations.

ITEM 4. MINE SAFETY DISCLOSURES

Not applicable.

PART II

ITEM 5. MARKET FOR REGISTRANT’S COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND ISSUER PURCHASES OF EQUITY SECURITIES

MARKET INFORMATION

The Company commenced trading on the Nasdaq Capital Market on December 2, 2019 under the symbol “GRWG”. Prior to that date, our stock traded on the OTCQBOTCQX Best Market since October 10, 2017, prior to which it was traded on the OTCQB Market since November 11, 2016.

The following table sets forth, for each quarter for the years ended December 31, 20192020 and 2018,2019, the reported high and low bid prices of our Common Stock.

Future sales of substantial amounts of our shares in the public market could adversely affect market prices prevailing from time to time and could impair our ability to raise capital through the sale of our equity securities.

HOLDERS

The approximate number of stockholders of record as of December 31, 2019March 24, 2021 was 140.114.  The number of stockholders of record does not include beneficial owners of our Common Stock, whose shares are held in the names of various dealers, clearing agencies, banks, brokers and other fiduciaries.

DIVIDEND POLICY

We have never paid any cash dividends on our Common Stock. We anticipate that we will retain funds and future earnings to support operations and to finance the growth and development of our business. Therefore, we do not expect to pay cash dividends in the foreseeable future. Any future determination to pay dividends will be at the discretion of our board of directors and will depend on our financial condition, results of operations, capital requirements and other factors that our board of directors deems relevant. In addition, the terms of any future debt or credit financings may preclude us from paying dividends.

RECENT SALES OF UNREGISTERED SECURITIES

2019 Private Placement

On June 26, 2019, the Company completed a private placement of a total of 4,123,257 units of the Company’s securities at the price of $3.10 per unit pursuant to Section 4(a)(2) of the Securities Act and Rule 506 of Regulation D promulgated under the Securities Act. Each unit consisted of (i) one share of Common Stock and (ii) one 3-year warrant, each entitling the holder to purchase one half share of Common Stock, at a price of $3.50 per share. The Company raised a total of $12,782,099 from 19 accredited investors.

2018 Private Placement

On January 17, 2018, the Company completed a private placement of a total of 36 units of its securities at the price of $250,000 per unit. Each unit consists of (i) a .1% unsecured convertible promissory note of the principal amount of $250,000, and (ii) a 3-year warrant entitling the holder to purchase 37,500 shares of Common Stock, at a price of $.01 per share or through cashless exercise. The Company raised gross proceeds of $9,000,000 from 23 accredited investors in the offering. 

On May 9, 2018, the Company completed a private placement of a total of 33.33 units of its securities at a price of $300,000 per unit to 3 accredited investors. Each unit consists of (i) 100,000 share of the Company’s Common Stock and (ii) 50,000 3-year warrant to purchase one share of Common Stock at an exercise price of $.35 per share. The Company raised an aggregate of $10,000,000 gross proceeds in the offering.

2017 Private Placements

On March 10, 2017, the Company completed a private placement of a total of 825,000 units of its securities to 4 accredited investors. Each unit consists of (i) one share of the Company’s Common Stock and (ii) one 5-year warrant to purchase one share of Common Stock at an exercise price of $2.75 per share. The Company raised an aggregate of $1,650,000 gross proceeds in the offering.

On May 16, 2017, the Company completed a private placement of a total of 1,000,000 units of its securities to 27 accredited investors through GVC Capital LLC (“GVC Capital”) as its placement agent. Each unit consists of (i) one share of the Company’s Common Stock and (ii) one 5-year warrant to purchase one share of Common Stock at an exercise price of $2.75 per share. The Company raised an aggregate of $2,000,000 gross proceeds in the offering. The Company paid GVC Capital total compensation for its services, (i) for a price of $100, 5-year warrants to purchase 75,000 shares at $2.00 per share and 5-year warrants to purchase 75,000 shares at $2.75 per share, (ii) a cash fee of $150,000, (iii) a non-accountable expense allowance of $60,000, and (iv) a warrant exercise fee equal to 3% of all sums received by the Company from the exercise of 750,000 warrants (not including 250,000 warrants issued to one investor) when they are exercised.

Stock Options and Stock Awards

The Company has a 2014 Equity Compensation Plan (the “2014 Plan”) and an Amended and Restated 2018 Equity Compensation Plan (which is pending shareholder approval) (the “2018 Plan”).

From inception to December 31, 2019, we have granted stock options under our 2014 Plan to purchase an aggregate of 2,273,500 shares at exercise prices ranging from $0.60 to $5.11 per share. Of the total options granted as of December 31, 2019, 1,778,333 have been exercised and 159,667 have been forfeited, resulting in 335,500 options outstanding. In addition, as of December 31, 2019, 375,000 stock awards have been issued under our 2014 Plan.

From inception to December 31, 2019, we have granted stock options under our 2018 Plan to purchase an aggregate of 1,661,500 shares at exercise prices ranging from $2.25 to $4.45 per share. As of December 31, 2019, 7,500 options have been exercised and 11,667 forfeited under the 2018 Plan. In addition, as of December 31, 2019, 69,750 stock awards have been issued under our 2018 Plan. On February 7, 2020, the Board approved the amendment and restatement of the 2018 Plan to increase the number of shares issuable thereunder from 2,500,000 to 5,000,000, which amendment is pending shareholder approval.was approved by shareholders on May 11, 2020.

From inception to December 31, 2020, we have granted stock options under our 2014 Plan to purchase an aggregate of 2,113,833 shares at exercise prices ranging from $0.60 to $5.11 per share. Of the total options granted as of December 31, 2020, 2,058,833 have been exercised and 5,000 have been forfeited, resulting in 50,000 options outstanding. In addition, as of December 31, 2020, 375,000 stock awards have been issued under our 2014 Plan.

From inception to December 31, 2020, we have granted stock options under our 2018 Plan to purchase an aggregate of 1,963,000 shares at exercise prices ranging from $2.25 to $17.39 per share. As of December 31, 2020, 438,895 options have been exercised and 37,667 forfeited under the 2018 Plan. In addition, as of December 31, 2020, 1,112,979 stock awards have been issued under our 2018 Plan.

ITEM 6. SELECTED FINANCIAL DATA

Not applicable.

ITEM 7. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATION

The following discussion and analysis of our financial condition and results of operations should be read together with our financial statements and the related notes and the other financial information included elsewhere in this report. This discussion contains forward-looking statements that involve risks and uncertainties. Our actual results could differ materially from those anticipated in these forward-looking statements as a result of various factors, including those discussed below and elsewhere in this report, particularly those under “Risk Factors.” Dollars in tabular format are presented in thousands, except per share data, or otherwise indicated.

OVERVIEW

GrowGeneration Corp. (“GrowGeneration, together(together with all of its wholly-wholly owned subsidiaries, collectively “GrowGeneration” or the “Company”) was incorporated in Colorado in 2014 to build a national chain of hydroponic equipment and supply garden centers in the U.S. GrowGeneration is the largest and fastest growing chain of hydroponic garden centers in North America. Today, GrowGenerationAmerica and is a service provider of a wide selection of supplies and equipment for commercial and home growers and a leading marketer and distributor of nutrients, growing media, advanced indoor garden,and greenhouse lighting, and ventilationenvironmental control systems and accessories for hydroponic gardening. As of March 27, GrowGeneration also owns and operates e-commerce platforms,www.growgeneration.com and www.agron.io, Canopy Crop Management Corp, CharCoir Inc, and several proprietary private-label brands across multiple product categories from LED lighting to nutrients and additives and environmental control systems for indoor cultivation.

2020 Store Footprint

Currently, the Company owns and operates a chain of twenty seven (27)fifty two (52) retail hydroponic/gardening centers,stores, with five (5)eighteen (18) in the state of California, six (6) in the state of Michigan, eight (8) located in the state of Colorado, four (4)five (5) in the stateState of California, four (4)Oklahoma, five (5) in the state of Michigan,Maine, two (2) in the state of Nevada, one (1)two (2) in the state of Washington, one (1)two (2) in the state of Oregon, four (4) in the State of Oklahoma, one (1) in the state of Rhode Island, three (3) in Maine,one (1) in the state of Florida, , one (1) distribution facility in California andthe state of Arizona, one (1) in the state of Massachusetts, an online e-commerce store, GrowGen.Pro.GrowGeneration.com and a B2B e-commerce platform, agron.io We recently announced the signing of two leases in downtown Los Angeles and Rancho Dominguez, CA, which are our 53^rd and 54^th locations. Our plan is to continue to acquire, open and operate hydroponic/gardening stores and related businesses throughout the United States and Canada. The Florida location was acquiredNorth America. Revenue in February 2020 and the fourth Oklahoma store was open in March 2020.

In 2019, we added Tony Sullivan, an experienced and proven multi-store operator, as our Chief Operating Officer. His initiatives include, but not be limited to, providing unwavering support to the 27 GrowGeneration Stores, adding new locations, integrating our e-commerce and store supply channels and leveraging synergies amongst interconnected departments, working to drive more cost efficiencies across all areas of our company.

We saw triple-digit growth in revenue in Colorado, Michigan and Nevada and double-digit growth in all other markets. Our online business has risen over 100% for the same period year over year. GrowGeneration Management Corp, our commercial division, is now approaching sales of $5.0 million per quarter, and we added hundreds of new commercial accounts in 2019. With our success in Oklahoma, we opened our fourth location in the state, located in Tulsa, OK, a 40,000 Sq. ft. super garden center, the largest hydroponic garden center in the US. Our private label program, under the Sunleaves brand, began to be stocked on our shelves and online in the fourth quarter of 2019. Our initial private label lineup includes a one- part micro and macro nutrient+ Cal mag powder line, for both cannabis and hemp farmers, a silica+ micronutrient booster and a root stimulant, all additives that can be used with any nutrient regimen. Additional private level products that will be on shelf in second quarter of 2020 include, rope rachets for hoisting lighting, breathable fabric pots and T5 florescent lights for indoor gardens.

We improved the financial performance of the Company in all areas in 2019. Revenue was up 175%142.5% year over year, at $79.7to $193.4 million. Adjusted EBITDA, for 20192020 was slightly over $6,600,000, a positive $.20 per share. Our same store sales were up approximately 36% year over year. Gross profit margins increased to 28.3%,$19.2 million an increase of 610 basis points yearapproximately $13.9 million over year. We believe our strategies to increase margins are working, by purchasing in larger volumes and buying more efficiently.2019, a 265% increase. We saw significant revenue increases in all key markets. Coloradomarkets, Maine was up 114%144%, California 70%Oklahoma was up 255%, Nevada 126 %, Michigan 200%was up 243%, and Rhode Island 79% was up 150%. Same store revenues include 13 stores that generated $72.3 million in revenues for the year ended December 31, 2020, compared to $44.3 million in revenues for 2019, an increase of 63%.

Store Acquisitions and New Store Openings

Core to our growth strategy is to expand the number of our retail garden centers throughout North America. The hydroponic retail landscape is fragmented, which allows us to acquire the “best of breed” hydroponic operations. In addition to the 12 states we are currently operating, we have identified new market opportunities in states that include Ohio, Illinois, Pennsylvania, New York, New Jersey, Mississippi and Missouri. In 2020, we opened a second hydroponic/gardening center in Tulsa, Oklahoma, a 40,000 square feet store operation and fulfillment center, and completed eight (8) acquisitions, adding 14 locations in 2020. To-date, the Company has acquired 14 new locations in the first quarter of 2021 and has an active target pipeline of acquisitions for the remainder of the year.

Commercial Sales Division

Our commercial division is focused on selling end-to-end solutions for large commercial cultivators. When a commercial customer gains a new stores in Oklahomacultivation license, they will need to purchase lighting, benching, environmental control systems, irrigation, fertigation and other products to outfit their cultivation facility. Commercial customers typically purchase larger amounts and sizes of products. We offer commercial customers volume pricing, terms and financing. Our commercial team manages thousands of commercial accounts across North America. Our commercial division collectively contributed $11.8approximately $49 million in revenue for 2020 compared to approximately $17 million for 2019, a 189% year over year increase. We have identified over 15,000 active licensed growers in North America and believe there is significant room for us to expand our storesbase of commercial customers.

E-Commerce/Omni Channel Division

Our digital strategy is focused on capturing the home, craft and commercial growers online. GrowGeneration.com offers over 10,000 hydroponic products all curated by our product team. GrowGeneration.com offer customers the option to have their orders shipped directly to their locations, anywhere in North America or alternatively customers can buy online and pick up in store. Revenues for 2020 was approximately $10.6 million compared to $4.8 million for 2019, an increase of 123%. New visitors to our website were 1.2 million versus 477,000, an increase of 152% year over year. Our online garden center closed 17,000 transaction versus 6,300, an increase of 170%. On March 19, 2021, the Company purchased the business-to-business ERP platform, Agron.io. a leading wholesale agriculture portal that allows commercial growers to manage their purchasing and logistics in one platform. Agron.io offers commercial pricing, real-time inventory, and the largest product catalog in the industry, with over 10,000 products in over 60 categories, including greenhouses, extraction, hemp, and commercial equipment. The platform manages real-time product updates, tier-pricing changes, case quantities, pallet quantities, profit margin projections, hazmat fees, ETL/UL listings and state chemical regulations, as well as guarantees the latest shipping rates using API Pallet.

Supply Chain

Our supply chain currently spans approximately 800,000 sq. ft. of retail and warehouse space, across 52 locations and 12 states. Today, we operate distribution and fulfillment out of our 60,000 sq. ft location in Sacramento, CA and 40,000 sq. ft. in Tulsa, OK. We announced on March 9, 2021, the addition of a total of 122,000 sq. ft., including 52,000 sq. ft. in downtown Los Angeles, CA and 70,000 sq. ft. in Rancho Dominguez, CA that will serve as distribution and fulfillment locations for the Company. We are in the process of building several additional locations that will serve as fulfillment service centers, that includes a 25,000 sq. ft. location in Phoenix, AZ. and a 58,000 sq. ft. location in Medley, FL. We expect these locations to be opened by the summer of 2021.

Proprietary Brands and Private Label

GrowGeneration purchased Canopy Crop Management Corp., in December 2020, the developer of the popular Power Si line of monosilicic acids products, a nutrient additive for plants On March 12, 2021, the Company purchased Char Coir, a line of premium coco pots, cubes and medium. Both Power Si and Char Coir are brands that generate over $10,000,000 in annual sales. We believe that expanding our private label offerings will have a positive impact on our margins and profitability in the near term. We use various trademarks, trade names and service marks in our private- label business, including Ion Lighting, Sunleaves, powder nutrient and additive line, Optilume Bulbs, Blueprint controllers and timers, Growxcess pots and containers, Harvest Edge, pruners, trellis and other gardening accessories, and Durabreeze fans and dehumidifiers. Both GrowGeneration and Where the Pros Go to Grow are the trademarks used brand and market our garden centers across North America.

2020 Financial Results

Revenue in 2020 was up 142.5% year over year, to $193.4 million. Adjusted EBITDA, for 2020 was approximately $19.2 million an increase of approximately $13.9 million or 265% over 2019. Adjusted EBITDA per basic share, for 2020 was $0.44 compared to $0.16 for 2019. Our same store sales were up approximately 63% year over year. Store income as a percentage of revenue increased from 14.9% of revenues in 2019 to 16.7 % of revenues in 2020. Income from store operations increased $20.4 million, from $11.9 million in 2019 to $32.3 million in 2020. We saw significant revenue increases in all key markets, Maine added $6.2 million.up 144%, Oklahoma up 255%, Michigan up 243%, and Rhode Island up 150%. Our e-commerce store, GrowGen.Pro addedGrowGeneration.com had revenues of approximately $4.8$10.6 million in revenue.2020 up 123% from 2019. Our commercial division generated approximately $17$49 million in revenue all of which is reflected in store revenues.revenues versus $17 million in 2019, an increase of 188%. With our significant top and bottom-lineline revenue growth, we reduced our store operating expenses to 12.7%9.7% of revenues in 20192020 compared to 18%12.7% in 20182019 and our corporate overhead, excluding non-cash share-based compensation and depreciation, declined to 8.5%7% as a percentage of our revenue not including non-cash expenditures. The Company has successfully completed the implementationfor 2020 compared to 8.5% of our Enterprise Resource Planning (“ERP”) platform, designed to lower costs, integrate our online and store sales and supply channels, improve departmental productivity, and provides forecasting and reporting tools.revenues for 2019.

Management focuses on a variety of key indicators and operating metrics to monitor the financial condition and performance of the continuing operations of our business. These metrics include consumer purchases (point-of-sale data), market share, category growth, net sales, gross profit margins, income from operations, net income and earnings per share. We also focus on measures to optimize cash flow and return on invested capital, including the management of working capital and capital expenditures.

In 2019, the Company continued focusing its efforts on increasing its distributions through acquisitions and opening of new locations. We increased our store footprint from 21 to 26 locations in 2019, which included three store closing/consolidations. Sales increased 175% between 2018 and 2019. The Company’s acquired e-commerce operation, HeavyGarden.com, rebranded as GrowGen.Pro, is the basis for an omni-channel strategy that is being developed now to enable e-commerce at all of the GrowGeneration locations. We expect this omni-channel rollout to commence in the second quarter of 2020. We formed wholly-owned subsidiaries GrowGeneration Canada Corp and GrowGeneration Hemp Corp in order to develop supply chain and sales strategies for both of these high value markets, in the U.S and Canada. Furthermore, the Company completed its implementation of an ERP system in all its operations, which is business process management software that allows an organization to use a system of integrated applications to manage the business and automate many back office functions related to technology, services and human resources.Acquisitions

Capital raisedThe Company purchased a total of 14 stores in 2019 included a $12.8 million raise from2020 and 12 stores in 2021, as of March 19, accredited investors. Capital raised2021. The Company also completed the acquisitions of two leading product companies, Canopy Crop Management in 2018 totaled $19 million, which was raised primarily from the three largest private equity firms, Gotham Green Partners, Navy CapitalDecember 2020 and Merida Capital Partners.Char Coir in March 2021.

On December 2, 2019, the Company was approved to commence trading its Common Stock on the Nasdaq Capital Market under the ticker symbol of “GRWG”. Prior to that date, the Company’s stock traded on the OTCQX Best Market since October 10, 2017, prior to which it traded on the OTCQB Market since November 11, 2016.

Subsequent to December 31, 2019, on February 26, 2020, the Company entered into an asset purchase agreement through its wholly-ownedwholly owned subsidiary, GrowGeneration Florida Corp, to purchase the assets of Healthy & Harvest, LLC, with one location in Pembroke Pines, FL. In connection with the purchase of the assets, the Company also entered a three-year commercial lease for warehouse space, effective February 26, 2020 and subleased the store space whose current lease expires July 31, 2020.

On December 18, 2019, the Company entered into an asset purchase agreement through its wholly-owned subsidiary, GrowGeneration Washington Corp, to purchase theJune 16, 2020 we acquired certain assets of GrowWorld with one locationH2O Hydroponics, LLC in Portland, OR. In connection witha transaction valued at approximately $1.99 million. Acquired intangibles and goodwill of approximately $1.4 million represents the purchase of the assets, the Company also entered intovalue expected to rise from organic growth and an assignment of lease, effective December 18, 2019,opportunity to rent the premises in Portland, OR. The lease terminates on December 31, 2026.

On September 3, 2019, the Company entered into an asset purchase agreement through its wholly-owned subsidiary, GrowGeneration Michigan Corp, to purchase the assets of Grand Rapids Hydroponics with one location in Grand Rapids, MI. In connection with the purchase of the assets, the Company also enteredexpand into a ten-year commercial lease agreement, effectivewell-established market for the Company. Cash consideration was funded from September 9, 2019, to rent the premises in Grand Rapids, MI.

On April 23, 2019, the Company entered into an asset purchase agreement through its wholly-owned subsidiary, GrowGeneration Rhode Island Corp., to purchase the assets of GreenLife Garden Supply Corp., with two store locations in Maine and one in New Hampshire. In connection with the purchase of the assets, the Company also entered into five-year commercial lease agreements, effective from May 9, 2019 and July 1, 2019, respectively, to rent the premises in York and Biddeford, Maine where store assets are located.

On January 26, 2019, the Company entered into an asset purchase agreement through its wholly-owned subsidiary, GrowGeneration California Corp., to purchase the assets from Palm Springs Hydroponics, Inc. located in Palm Springs, California. The acquisition was completed on February 7, 2019. In connection with the purchase of the assets, the Company also entered into a commercial lease agreement with a term of five years and three months, effective from February 7, 2019 to April 30, 2024, to rent the premises where the assets were located to open a new store.

On January 26, 2019, the Company entered into another asset purchase agreement through its wholly-owned subsidiary, GrowGeneration Nevada Corp., to purchase the assets from Reno Hydroponics, Inc. located in Reno, Nevada. The acquisition was completed on February 11, 2019. In connection with the purchase of the assets, the Company also entered into a one-year commercial lease agreement, effective from February 1, 2019 to January 31, 2020, to rent the premises where the assets were located to open a new store. The Company has since entered into a new lease expiring March 31, 2021.

In March 2019, the Companyconsolidated its store located in Canon City, CO with its Pueblo West, CO store.

Effective January 1, 2019 our two Santa Rosa, CA stores were consolidated into a single store at our Santa Rosa Moorland location acquired in July 2018.Company’s existing working capital.

On December 1, 2018,August 10, 2020 we acquired certain assets of Benzakry Family Corp, d/b/a Emerald City Garden, in a transaction valued at $1 million. Acquired intangibles and goodwill of approximately $840,000 represents the value expected to rise from organic growth and an opportunity to expand into a well-established market for the Company. Cash consideration was funded from the Company’s existing working capital.

On October 20, 2020 the Company entered into acquired the assets of Big Green Tomato (“BGT”), a lease agreement through its wholly-owned subsidiary, GrowGeneration Rhode Island, Corp., to rent certain premisestwo-store chain in Battle Creek and Taylor, Michigan. The total consideration for the purchase of BGT was approximately $9.1 million, including $6.0 in cash and common stock valued at approximately $3.1 million.

On October 12, 2020, the Company acquired the assets of Hydroponics Depot, LLC, a single store located in Brewer, Maine, to be effective from December 1, 2018 to February 28, 2023. This premises will be used byPhoenix Arizona. The total consideration for the Company to open a new store.purchase of Hydroponics Depots LLC was approximately $1.54 million, including $987,500 in cash and common stock valued at approximately $548,000.

On November 28, 2018,17, 2020, the Company entered into an asset purchase agreement through its wholly-owned subsidiary, GrowGeneration Pueblo Corp., to purchaseacquired the assets of Chlorophyll, Inc., locatedThe GrowBiz, a five-store chain with four stores in Denver, Colorado. In connection withCalifornia and one store in Oregon. The total consideration for the purchase of the assets, the Company also entered into a five-year commercial lease agreement, effective from January 21, 2019, to rent the premises where the assets are located to open a new store.

In November 2018, the Company signed a commercial lease to open a 9,600 Sq. Ft. warehouseThe GrowBiz was approximately $44.7 million, including $17.4 million in cash and product showroom in Tulsa to service the emerging legal cannabis cultivators in the State of Oklahoma. The lease is effective from January 1, 2019 to December 31, 2024. The Company opened this store for business on February 1, 2019.

In October 2018, the Companyconsolidated its store located in Boulder, CO with our Denver, CO store.common stock valued at approximately $27.3 million.

On August 30, 2018,December 14, 2020, the Company entered into an assetacquired the assets of Grassroots, a three-store chain in California. The total consideration for the purchase agreement, amended on September 14, 2018, with Virgus, Inc. d/b/a/ Heavy Gardens, an online storeof Grassroots was approximately $10 million, including $7.5 million in cash and common stock valued at approximately $2.5 million.

On December 23, 2020, the Company acquired the assets of Canopy Crop Management and its complete portfolio of products including the Power SI brand of mono-silicic acid-enriched fertilizers. The total consideration for the purchase of Canopy Crop was approximately $9.2 million, including $5.4 million in cash and common stock valued at approximately $3.8 million.

On January 25, 2021, the Company purchased the assets of Indoor Garden & Lighting, Inc, a two-store chain of hydroponic and garden supplies (“Heavy Gardens”) toequipment and indoor gardening supply stores serving the Seattle and Tacoma, Washington area. The total consideration for the purchase of Garden & Lighting was approximately $1.63 million, including $1.1 million in cash and common stock valued at approximately $526,000.

On February 1, 2021, the Company purchased the assets of Heavy Gardens through its wholly-owned subsidiary, GrowGeneration HG Corp.J.A.R.B., Inc d/b/a Grow Depot Maine, a two-store chain in Auburn and Augusta, Maine. The closingtotal consideration for the purchase of the asset purchase took place on September 14, 2018.Grow Depot Maine was approximately $2.1 million, including $1.7 million in cash and common stock valued at approximately $411,000.

On August 23, 2018,February 15, 2021, the Company signedpurchased the assets of Grow Warehouse LLC, a commercial lease to open a 10,000 Sq. Ft. warehousefour-store chain of hydroponic and product showroomorganic garden stores in Colorado (3) and Oklahoma City to service(1). The total consideration for the emerging legal cannabis cultivatorspurchase of Grow Warehouse LLC was approximately $17.8 million, including $8.1 million in the State of Oklahoma. The lease is effective from October 1, 2018 to September 30, 2023. The Company opened this store for business on October 1, 2018.cash and common stock valued at approximately $9.7 million.

On June 28, 2018,February 22, 2021, the Company entered into a restated and amended asset purchase agreement to purchasepurchased the assets of a retail hydroponic store, Santa RosaSan Diego Hydroponics & Grower Supply Inc.,Organics, a four-store chain of hydroponic and organic garden stores in San Diego, CA. The total consideration for the purchase of San Diego Hydroponics was approximately $9.3 million, including $4.8 million in cash and common stock valued at approximately $4.5 million.

On March 12, 2021 the Company purchased the assets of Charcoir Corporation, who sells an RHP-certified growing medium made from the highest-grade coconut fiber. The total consideration for the purchase of Charcoir was approximately $16.3 million, including $9.8 million in cash and common stock valued at approximately $6.5 million.

On March 15, 2021 the Company purchased the assets of 55 Hydroponics, a hydroponic and organic superstore located in Santa Rosa, California. On July 13, 2018, the parties entered into an amendment to the purchase agreement and conducted the closing of the asset purchase. In connection withAna, CA. The total consideration for the purchase of the assets, the Company also entered into a commercial lease agreement, effective from July 14, 2018 to July 13, 2023, to rent the premises where the assets were located.

In May 2018, the Companyconsolidated its store located55 Hydroponics was approximately $6.1 million, including $5 million in Colorado Springs, CO with our Denver, CO storecash and in April 2018, consolidated its store located in Pueblo West with its Pueblo Downtown store.

On May 9, 2018, GrowGeneration Corp. (the “Company”) completed a private placement (the “Offering”) of a total of 33.33 units (the “Units”) of the Company’s securities at the price of $300,000 per Unit pursuant to Section 4(a)(2) of the Securities Act of 1933, as amended (the “Securities Act”) and Rule 506 of Regulation D promulgated under the Securities Act. Each Unit consists of (i) 100,000 shares of the Company’s $.001 par value common stock (the “Shares”) and (ii) 50,000 3-year warrants (the “Warrants”), each entitling the holder to purchase one share of the Company’s common stock,valued at a price of $.35 per share or through cashless exercise. The Company raised a total of $10,000,000 from three accredited investors.

On April 12, 2018, the Company entered into an asset purchase agreement through its wholly-owned subsidiary, GrowGeneration Michigan Corp., to purchase substantially all of the assets of Superior Growers Supply, Inc.’s business located in Michigan. In connection with the purchase of the assets, the Company also entered into a commercial lease, effective from April 12, 2018 to April 11, 2023, to rent the premises where a part of the assets are located. The Company entered into two additional leases. Following this acquisition, the Company opened three stores in the state of Michigan.approximately $1.1 million.

On March 15, 2021 the Company purchased the assets of Aquarius, a hydroponic and organic garden store in Springfield, MA. The total consideration for the purchase of Aquarius was approximately $3.6 million, including $2.4 million in cash and common stock valued at approximately $1.2 million.

On March 19, 2021 the Company purchased the assets of Agron, LLC, an online seller of growing equipment. The total consideration for the purchase of Agron was approximately $11.3 million, including $6 million in cash and common stock valued at approximately $5.3 million.

CONDENSED RESULTS OF OPERATIONS

Revenue

Net revenuerevenues for the year ended December 31, 2020 were approximately $193.4 million, compared to approximately $79.7 million for the year ended December 31, 2019, were approximately $79.7 million, compared to approximately $29 million for the year ended December 31, 2018, an increase of $50.7approximately $113.6 million, or 175%142.5%. The increase in revenues is due to 1) the addition of 1014 new retail stores opened or acquired during 20192020 for which thererevenues were no sales for these retail$31 million, 2) 11 stores for the year ended December 31, 2018, and 8 stores and the e-commerce site opened or acquired at various times during 20182019 that were open for all of 2019. Sales2020 which had an increase in the 10 new stores opened orrevenues of $51 million, 3) same store sales which increase 63% comparing 2020 to 2019, which had an increase in revenues of approximately $28 million, 4) an increase in our ecommerce sales of $5.9 million from 2019 to 2020 and 5) revenues of $300,000 from Canopy Crop Management Corp/Power SI, acquired in 2019 were $26 million. Sales from the e-commerce site and the 8 stores opened in 2018 were approximately $38.3 million for the year endedlater December 31, 2019, compared to approximately $14.5 million for the year ended December 31, 2018. The Company also had store closures and consolidations in 2019 and 2018. Sales of the closed and consolidated stores was approximately $909,000 for the year ended December 31, 2019 and approximately $4.5 million for the year ended December 31, 2018.2020.

While the Company continues to focus on the 911 geographic markets noted below and the growth opportunities that exist in each market, we also are focusing on new store acquisitions, proprietary products, private label products, and developing our online salesrevenues with GrowGen.ProGrowGeneration.com and Amazon sales.revenues.

Overall salesrevenues in the Colorado market increased approximately $8.8$4.2 million or 132%27%, as noted above, comparing the year ended December 31, 20192020 to the year ended December 31, 2018, with a majority of that increase, $6 million, attributable to the acquisition of our new Denver north store location in January 2019. The remaining Colorado stores saw an increase of approximately $2.8 million from 2018in revenues was due to 2019. We continue toour continued focus on selling efforts in building growth in this market primarily the commercial market.

Our salesrevenues in the California market have seen growth of approximately $9.6$11.4 million or 161%74% and the increase was primarily from 1) the addition of 58 new stores through acquisitions during 2018, these 5 stores2020 that contributed revenue of $15.6$5 million in revenues, 2) 3 stores that comprise same store sales that had an increase in revenues of $4.4 million and 3) 1 store acquired in 2019 compared to $6 millionthat had an increase in 2018,revenues of $2 million. The California market experienced slower growth in 2018 as a result of a changeis the largest market in the regulatory environment,US and the implementationis a continuous focus of new rules and regulations which slowed the issuance of new licenses. However, the Company positioned itself well in 2018 withrelative to its acquisitions to take advantage of the new licenses issued.growth strategy.

Revenues in the Rhode Island market increased approximately $12.6 million or 150%. The primary reason for the increase in revenues in the Rhode Island market was primarily due to an increase in commercial sales with new regional and multi-state commercial customers.

Revenues in the Michigan markets are the resultmarket increased approximately $22.6 million or 244%. The increase was primarily from 1) increase in same store sales of $4.6 million, 2) two new acquisitionsstores acquired in 2018 and2020, that had revenues of $1.9 million, 3) one acquisition in Michiganthe third quarter of 2019 that resulted in 2019. Rhode Island sales increased $3.7 million from 2018 to 2019, an increase in revenues of 79%$9.7 million and sales4) an acquisition of a new store in MichiganLansing in 2020 that was consolidated with an existing store in Lansing that had an increase in revenues of $6.4 million.

Revenues in the Maine market increased $6.2approximately $8.9 million or 200% from 2018 to 2019. In both Rhode Island and Michigan increases in commercial sales are primarily responsible for the overall increase.

144%. Maine was a new market in 2019 as a result of us opening a new store opening in February 2019 and the acquisition of two stores in May 2019. 2020 represented a full year of revenues for the three stores.

Our revenuerevenues in the Nevada market increased by approximately $2.4 million, comparing$590,000 or 13.5%, with the year ended December 31, 2019 to year ended December 31, 2018, primarily because of the acquisition of our Reno location in February 2019 that contributed $2.1 million in revenues in 2019. Theincrease pretty evenly split between or Las Vegas store saw an increase of $329,000 or 17% from 2018 to 2019. The Company continues to focus on adding commercial customers in the Nevada market.and Reno stores.

Revenues in the Washington market increased $344,000$262,000 or 37% from 2018 to 2019,21%, as the Company continues to focus on adding commercial customers in this location.market.

Oregon was a new market in 2019, with an acquisition of a new store in December 2019.

The Company opened its first store in Oklahoma in October 2018, followed by new store openings in February 2019, November 2019 and November 2019.March 2021. Oklahoma has been a significant new market for the Company contributing sales of $41.8 million in 2020 compared to $11.8 million infor 2019, compared to $463,000 in 2018.an increase for $30 million or 255%. The Company has a very strong presence in this market and opened its fourth location in March 2020. Oklahoma has generated strong sales in both commercial and non-commercial customers.

Florida was a new market for us in 2020 as a result of an acquisition in that market in February 2020. Revenues were approximately $9 million for 2020. The market serves a large number of commercial customers.

Revenues in the Oregon market were $8.2 million in 2020 compared to $154,000 in 2019. Oregon was a new market with an acquisition in late December 2019, and an additional acquisition in November 2020.

Arizona was also a new market for the Company in 2020, with an acquisition in October 2020. Revenues were $2.4 million, and we service both commercial and retail customers from this location.

The ecommerce revenues generated for GrowGeneration.com had an increase in revenue in 2020 of approximately $5.9 million or 123% from $4.8 million in 2019 to $10.6 million in 2020. The ecommerce growth is a result of marketing driving a significant number of new customers to the website.

Same Store Sales

The Company had the same 613 stores (four(4 in Colorado, one3 in California, 2 in Michigan, 1 in Washington, 1 in Oklahoma, 1 in Rhode Island and one1 in Nevada) opened for the entire year ended December 31, 20192020 and 2018.2019. These same stores generated $13$72.3 million in salesrevenues for the year ended December 31, 2019,2020, compared to $9.5$44.3 million in salesrevenues for the same period ended December 31, 2018,2019, an increase of 36.4%63%. The increase in revenues in these six13 same store sales was primarily an increase in the commercial sales.sales and from an increase in walk in traffic.

Cost of Goods SoldSales

Cost of goods soldsales for the year ended December 31, 20192020 increased approximately $34.6$84.6 million or 153.5%146.5%, to $57.2approximately $142.3 million, compared to $22.6$57.7 million for the year ended December 31, 2018.2019. The increase in cost of goods sold was duedirectly attributable to the 174.9%142.5% increase in revenues, as detailed above, comparing the year ended December 31, 20182020 to 2019 primarily due to the increase in the number of stores between 2018 and 2019 as noted in more detail above.2019.

Gross profit was $22.6$51 million for the year ended December 31, 2020, as compared to $22 million for the year ended December 31, 2019, as compared to $6.4 million for the year ended December 31, 2018, an increase of approximately $16.1$29 million or 250.1%132%. Gross profit as a percentage of sales was 28.3%26.4% for the year ended December 31, 2019,2020, compared to 22.2%27.6% for the year ended December 31, 2018.2019. The increasedecrease in the gross profit margin percentage in 20192020 was due to (1) reduced pricing from vendorsa greater percentage of commercial and ecommerce revenues as a resultpercent of our increasing purchases from those vendors,total revenue both of which have lower margins than in retail sales. Commercial and (2)ecommerce represented 31% of all revenues for the sale of product acquired in a large bulk purchase in the first quarter of 2019 at a substantial discount. The increase in the gross profit percentage was also due to the slight decrease in non-cash inventory valuation adjustments of approximately $870,000 in 2018,year ended December 31, 2020 compared to $809,000 in28% for the year ended December 31, 2019. The inventory valuation adjustments consist of a reserve for obsolete inventory as well as the write down of inventory resulting from physical inventory counts and to its current fair market value where that is lower than cost.

Operating Expenses

Operating expenses are comprised of store operations, primarily payroll, rent and utilities, and corporate overhead. Store operating costs were approximately $18.7 million for the year ended December 31, 2020 and approximately $10.1 million for the year ended December 31, 2019, compared to approximately $5.2 million for the year ended December 31, 2018, an increase of approximately $4.9$8.6 million or 94%85%. The increase in store operating costs was duedirectly attributable to 1) the addition of 1014 new retail stores inopened or acquired during 2020 and 2) 11 stores opened or acquired at various times during 2019 and 9 newthat were open for all of 2020. The addition of these stores, 2018. Revenues increased 174.9%, butas discussed above, were the primary reasons for the increase in store operating costs increased only 94%.costs. Store operating costs as a percentage of salesrevenues were 9.7% for the year ended December 31, 2020, compared to 12.7% for the year ended December 31, 2019, compared to 18% for the year ended December 31, 2018, a 41% improvement.24% reduction. Store operating costs were positively impacted by 1) the acquisitionsopening of new and acquired stores in 2018 and 2019throughout 2020 which have a lower percentage of operating costs to revenues due to their larger size and higher volume. The net impact, as noted above, resulted in lowervolume and 2) same store revenues increased 63% comparing the year ended December 31, 2020 to the year ended December 31, 2019, which also contributed significantly to lowering of the store operating costs as a percentage of revenues. revenues since the majority of store operating costs are fixed.

Corporate overhead, is comprised of share-basedgeneral and administrative costs, share based compensation, depreciation and amortization general and administrative costs and corporate salaries, and related expenses and werewas approximately $23.9 million for the year ended December 31, 2020, compared to approximately $10.3 million for the year ended December 31, 2019, compared to approximately $5.5 million for the year ended December 31, 2018.2019. Corporate overhead costs were 13%was 12.4% of revenue for the year ended December 31, 2019, compare to 18.9%2020 and 13% for the year ended December 31, 2018.2019. Corporate overhead, excluding non-cash share-based compensation and depreciation and amortization, was 7.0% of revenues compared to 8.5% of revenues for 2019 shows that non-cash expenses was a larger component of overhead cost in 2020 compared to 2019. Non-cash costs included in corporate overhead was 5.3% of revenues for 2020 compared to 4.4% of revenues for 2019. The increase in salaries and related expense from 2018 to 2019 was due to the increasenon-cash expenses in corporate staff, primarily, accounting and finance, inventory management, sales and information technology, store operations, to support both current and future operations and to increase stores commercial sales. Corporate salariesoverhead as a percentage of sales were 4.5%revenues for the year ended December 31, 2020 was primarily due to 1) the increase in non-cash share-based compensation from approximately $2.5 million for the year ended December 31, 2019 and 5.7%to approximately $7.9 million for the year ended December 31, 2018. The decrease in this percentage is because corporate staff costs do not rise directly commensurate with2020, an increase of $5.4 million and 2) the increase in revenues. Currentdepreciation and amortization from approximately $1 million for the year ended December 31, 2019 to approximately $2.4 million for the year ended December 31, 2020. The increase in non-cash share-based compensation was primarily the result of several new executive employment agreements which became effective January 1, 2020, which resulted in the vesting of common stock and common stock options at the start of the first quarter, as well as options issued in 2018 and 2019 for options vesting in 2020. The share-based awards associated with the new executive employment agreements resulted in approximately one-third of the award being recognized as an expense in the first three months of 2020, due to vesting, and the remaining two-thirds on the share-based awards are being recognized over a 24-month period commencing January 2020 and ending December 2021, based on shared based award vesting in future periods. The vesting of these shares and options was significantly higher in 2020 than they will be in the periods subsequent to 2020. The increase in depreciation and amortization is due to the significant increase in both depreciable assets and acquired intangible assets being amortized over their useful lives. Salaries as a percentage of revenues were 4.4% for 2020 and 4.5% for 2019. The increase in salaries expense from 2019 to 2020, which increased $5.0 million, from $3.6 million for the year ended December 31, 2019 to $8.6 million for the year ended December 31, 2020 was due primarily to the increase in corporate staff levels will not rise commensurate with increase into support expanding store operations, including management, purchased store integrations, accounting and finance, information systems, purchasing and commercial revenues insupport staff. It should be noted that when we consummate a new acquisition, purchasing and back-office accounting functions are stripped from the futurenew acquisitions and the percentage of salaries to sales will decline. those functions are absorbed into our existing centralized purchasing and centralized accounting and finance departments, thus delivering cost savings.

General and administrative expenses comprised mainly of advertising and promotions,marketing, travel & entertainment, professional fees and insurance, was approximately $5 million for the year ended December 31, 2020 and approximately $3.2 million for the year ended December 31, 2019, and approximately $1.6 million for the year ended December 31, 2018 with a majority of the increase related to marketing, insurance (both property and casualty and director and officers liability insurance), professional and legal fees. The increase in advertisingprofessional and promotionlegal fees was due to the increase in acquisitions in 2020 and travel and entertainment.consulting fees for SOX 404 compliance. General and administrative costs as a percentage of revenue waswere 2.6% for the year ended December 31, 2020, and 4% for the year ended December 31, 2019, compared to 5.5% for the year ended December 31, 2018. The decrease in this percentage once again is because the general and administrative costs do not rise commensurate with the increase in revenues.2019.

Corporate overhead includes non-cash expenses, consisting primarily of depreciation and share-based compensation, which was approximately $3.5 million for the year ended December 31, 2019, compared to approximately $2.2 million for the year ended December 31, 2018.

Net Income (Loss)

Net income for the year ended December 31, 20192020 was approximately $1.9$5.3 million, compared to a lossnet income of approximately $5.1$1.3 million for the year ended December 31, 2018,2019, an increase of $6.9$4 million. Net income for 20192020 compared to the net loss for 20182019 was primarily due toimpacted by a 174.9%142.5% increase in revenues, with only a 153.5%offset slightly by an increase in cost of goods sold thereby increasing margin % and margin dollars by $16.1 million in 2019.of 147%. Store operating costs as a percentage of revenue was 9.7% in 2020 compared to 12.7% offsetting the increase in cost of goods sold. Store income as a percentage of revenue increased only $4.9from 14.9% of revenues in 2019 to 16.7 % of revenues in 2020. Income from store operations increased $20.4 million, from $11.9 million in 2019 to $32.3 million in 2020. Corporate overhead, including non-cash costs, increased $13.6 million from $10.3 million in 2019 to $23.9 million in 2020. In addition, net income was impacted by the provision for income taxes which was $3.3 million for 2020 compared to 2018, so the store operations contributed $11.6 million more in profit$0 for 2019. The Company had significant net operating loss carryforwards which offset taxable income in 2019 than in 2018. As noted previously, corporate overhead increased $4.9 million over 2018thus resulting in netno provision for income of $1.9 million for 2019, compared to a loss of $5.1 million for 2018.taxes.

Operating ActivitiesCONDENSED Q4 2020 AND Q4 2019 RESULTS OF OPERATIONS

Highlights of Results of Operations Comparing Q4 2020 to Q4 2019.

Cash Flow

Net cash used in operating activities for the year ended December 31, 20192020 was approximately $3.3 million,$214,000, compared to $1.5$3.3 million for the year ended December 31, 2018, an increase2019, a decrease of approximately $1.8$3.1 million. Cash provided by operating activities is driven by our net income (loss) and adjusted by non-cash items as well as changes in operating assets and liabilities. Non-cash adjustments primarily include depreciation, amortization of intangible assets, share based compensation expense and changes in valuation allowances. Non-cash adjustment totaled approximately $4.4$11.1 million and approximately $3.4$4.4 million for the years ended December 31, 20192020 and 2018,2019, respectively, so non-cash adjustments had a greater positive impact on net cash provided byused in operating activities for the year ended December 31, 20192020 than the same period in 2018.2019. Despite net income of $1.9approximately $5.3 million and non-cash adjustments of $4.4$11.1 million for 2019,2020, these positive adjustments were offset by increases in inventory of $10.5$19.2 million, increases in trade accounts and notes receivable of $3.5 million and increases in prepaids and other current assets of $9 million, offset by increases in trade accounts payable of $10 million, customer deposits of $2.6 million and other current liabilities of $3.3 million. Despite net income of $1.3 million for the year ended December 31, 2019 and non-cash adjustments totaling $4.4 million, these positive adjustments were offset by increases in inventory of $10 million, increases in trade receivable of $3.8 million and increases in prepaids and other current assets of $2.1 million, offset by increases in trade accounts payable of $4.2 million, customer deposits of $2 million and other current liabilities of $500,000. For the year ended December 31, 2018 the net loss of $5.1 million was offset by non-cash adjustments totaling $3.4 million and the increases in current assets of $1.2 million were offset the increase in current liabilities of $1.3 million, so the net cash used in operating activities in 2018 was primarily related to the net loss.$495,000.

Net cash used in investing activities was approximately $11.8 for the year ended December 31, 2019 and approximately $6.4$45.8 million for the year ended December 31, 2018.2020 and approximately $11.8 million for the year ended December 31, 2019. The increase in 20192020 was due to the multiple asset acquisitions throughout 20192020, 8 in total, in which we acquired inventory, fixed assets, goodwill and other intangibles of $40.8 million and the purchase of vehicles and store equipment to support new store operations.operations of approximately $4 million. During 2019, we opened or acquired 108 new stores in which we purchased inventory, fixed assets, goodwill and as such we incurred expenditures for store rackingother intangibles of $9.5 million and displays,the purchase of vehicles and other store furniture and fixtures. During 2018, we opened or acquired 9equipment to support new stores and as such we incurred expenditures for store racking and displays, vehicles and other store furniture and fixtures.operations of approximately $2.2 million.

Net cash provided by financing activities for the year ended December 31, 20192020 was approximately $13$211 million and represented proceeds from the sale of Common Stock and exercise of warrants, net of offering costs of $13.9$211.2 million, offset by payments of long-term debt of $460,000.approximately $114,400 and stock redemptions of approximately $118,800. Net cash provided by financing activities for the year ended December 31, 20182019 was approximately $21.3$13.5 million and was comprised of primarily from proceeds from the sales of Common Stock and exercise of warrants, net of offering costs of $12.9 million and proceeds from convertible debt of $8.9$13.9 million, net of payments of long-term debt of $455,000.$460,000.

Use of Non-GAAP Financial Information

The Company believes that the presentation of results excluding certain items in “Adjusted EBITDA,” such as non-cash equity compensation charges, provides meaningful supplemental information to both management and investors, facilitating the evaluation of performance across reporting periods. The Company uses these non-GAAP measures for internal planning and reporting purposes. These non-GAAP measures are not in accordance with, or an alternative for, generally accepted accounting principles and may be different from non-GAAP measures used by other companies. The presentation of this additional information is not meant to be considered in isolation or as a substitute for net income or net income per share prepared in accordance with generally accepted accounting principles.

As previously note, the Company has not been materially impacted by COVID, as such EBITDA has been adjusted to show the impact of covid costs which we believe to be non-recurring.

Set forth below is a reconciliation of Adjusted EBITDA to net income (loss):

LIQUIDITY AND CAPITAL RESOURCES

As of December 31, 2019,2020, we had working capital of approximately $30.6$222.9 million, compared to working capital of approximately $21.6$29 million as of December 31, 2018,2019, an increase of approximately $9$193.9 million. The increase in working capital from December 31, 20182019 to December 31, 20192020 was due primarily to the net proceeds from the sale of Common Stock proceeds for a convertible debt offeringof $207.1 million and exercise of warrants totaling approximately $13.9$3.8 million. At December 31, 2019,2020, we had cash and cash equivalents of approximately $13$177.9 million. Currently, we have no demands, commitments or uncertainties that would reduce our current working capital. Our core strategy continues to focus on expanding our geographic reach across the United States through organic growth and acquisitions. Based on our strategy we may need to raise additional capital in the future through equity offerings and/or debt financings. We believe that existingsome of our store acquisitions and new store openings can come from cash and cash equivalents are sufficient to fund existing operations for the next twelve months.flow from operations.

We anticipate that we will need additional financing in the future to continue to acquire and open new stores. To date we have financed our operations through the issuance of the sale of Common Stock, warrants and convertible debentures.

Financing Activities

On December 11, 2020 the Company consummated an underwritten public offering of 5,750,000 shares of its common stock, which included the exercise in full of the underwriters’ option to purchase an additional 750,000 shares of common stock to cover over-allotments. The shares were sold at a public offering price of $30 per share, generating gross proceeds of $172.5 million, before deducting the underwriting discounts and commissions and other offering expenses. Net proceeds from the sales of common stock, net of all offering costs and expenses was approximately $162.5 million.

On July 2, 2020 the Company consummated an underwritten public offering of 8,625,000 shares of its common stock, which included the exercise in full of the underwriters’ option to purchase an additional 1,125,000 shares of common stock to cover over-allotments. The shares were sold at a public offering price of $5.60 per share, generating gross proceeds of $48.3 million, before deducting the underwriting discounts and commissions and other offering expenses. Net proceeds from the sales of common stock, net of all offering costs and expenses was approximately $44.6 million.

2019 Offerings

On June 26, 2019, the Company completed a private placement of a total of 4,123,257 units of the Company’s securities at the price of $3.10 per unit pursuant to Section 4(a)(2) of the Securities Act and Rule 506 of Regulation D promulgated under the Securities Act. Each unit consisted of (i) one share of Common Stock and (ii) one 3-year warrant, each entitling the holder to purchase one half share of Common Stock, at a price of $3.50 per share. The Company raised a total of $12,782,099 from 19 accredited investors.

2018 Offerings

On January 17, 2018, the Company completed a private placement of a total of 36 units of its securities at the price of $250,000 per unit. Each unit consists of (i) a .1% unsecured convertible promissory note of the principal amount of $250,000, and (ii) a 3-year warrant entitling the holder to purchase 37,500 shares of Common Stock, at a price of $.01 per share or through cashless exercise. The Company raised gross proceeds of $9,000,000 from 23 accredited investors in the offering.

On May 9, 2018, (the Company completed a private placement of a total of 33.33 units of the Company’s securities at the price of $300,000 per unit pursuant to Section 4(a)(2) of the Securities Act and Rule 506 of Regulation D promulgated thereunder. Each unit consists of (i) 100,000 shares of the Company’s $.001 par value common stock and (ii) 50,000 3-year warrants, each entitling the holder to purchase one share of the Company’s common stock, at a price of $.35 per share or through cashless exercise. The Company raised a total of $10,000,000 from three accredited investors.

OFF-BALANCE SHEET ARRANGEMENTS

We do not have any off-balance sheet arrangements (as that term is defined in Item 303 of Regulation S-K) that are reasonably likely to have a current or future material effect on our financial condition, revenue or expenses, results of operations, liquidity, capital expenditures or capital resources.

RECENTLY ISSUED ACCOUNTING STANDARDS

Recently Adopted Accounting Pronouncements

During the first quarterAs of January 1, 2019, the Company adopted the Financial Accounting Standards Board (FASB) Accounting Standards Update (ASU)FASB ASU 2016-02,Leases(ASC 842), which introduces the balance sheet recognition of lease assets and lease liabilities by lessees for those leases classified as operating leases under previous guidance. The Company has adopted the new lease standard using the new transition option issued under the amendments in ASU 2018-11,Leases, which allowed the Company to continue to apply the legacy guidance in Accounting Standards Codification (ASC)ASC 840,Leases, in the comparative periods presented in the year of adoption. The Company elected the package of practical expedients permitted under the transition guidance within the new standard, which among other things, allowed the Company to carry forward the historical lease classification. The Company made an accounting policy election to keep leases with an initial term of 12 months or less off the balance sheet. The Company will recognize those lease payments on a straight-line basis over the lease term. The impact of the adoption was an increase to the Company’s operating lease assets and liabilities on January 1, 2019 of $3.2 million.

On January 1, 2019, the Company also adopted ASU 2018-07, “Improvements to Nonemployee Share-Based Payment Accounting.” ASU 2018-07 more closely aligns the accounting for employee and nonemployee share-based payments. The amendment is effective commencing in 2019 with early adoption permitted. The adoption of this new guidance did not have a material impact on our Financial Statements.

In August 2018, the SEC adopted amendments to certain disclosure requirements in Securities Act Release No. 33-10532, Disclosure Update and Simplification. These amendments eliminate, modify, or integrate into other SEC requirements certain disclosure rules. Among the amendments is the requirement to present an analysis of changes in stockholders’ equity in the interim financial statements included in Quarterly Reports on Form 10-Q. The analysis, which can be presented as a footnote or separate statement, is required for the current and comparative quarter and year-to-date interim periods. The amendments are effective for all filings made on or after November 5, 2018. The Company adopted these amendments in its Quarterly Report on Form 10-Q for the quarter ended September 30,March 31, 2019.

In January 2016, the FASB issued ASU 2016-01,Financial Instruments-Overall: Recognition and Measurement of Financial Assets and Financial Liabilities, which requires that (i) all equity investments, other than equity-method investments, in unconsolidated entities generally be measured at fair value through earnings and (ii) when the fair value option has been elected for financial liabilities, changes in fair value due to instrument-specific credit risk will be recognized separately in other comprehensive income. Additionally, the ASU 2016-01 changes the disclosure requirements for financial instruments. The new standard was effective for the Company starting in the first quarter of fiscal 2019. The adoption of this standard on January 1, 2019 did not have any effect on the consolidated financial statements and footnote disclosure.

On August 28, 2017, the FASB issued ASU 2017-12, “Derivatives and Hedging,” which better aligns risk management activities and financial reporting for hedging relationships through changes to both the designation and measurement guidance for qualifying hedging relationships and the presentation of hedge results. The amendments expand and refine hedge accounting for both nonfinancial and financial risk components and in some situations better align the recognition and presentation of the effects of the hedging instrument and the hedged item in the financial statements. The new standard was effective for the Company as of January 1, 2019. The adoption of this new standard on January 1, 2019 did not have any impact on our consolidated financial statements and footnote disclosures.

Recently Issued Accounting Pronouncements – Pending Adoption

In June 2016, the FASB issued ASU 2016-13,Financial Instruments-Credit Losses: Measurement of Credit Losses on Financial Instruments, which changes the impairment model for most financial assets and certain other instruments. For trade receivables and other instruments, entities will be required to use a new forward-looking expected loss model that generally will result in the earlier recognition of allowances for losses. For available-for-sale debt securities with unrealized losses, the losses will be recognized as allowances rather than as reductions in the amortized cost of the securities. This guidance is effective for annual reporting periods beginning after December 15, 2019, including interim periods within those years, with early adoption permitted only as of annual reporting periods beginning after December 15, 2018. The Company is currently evaluating the impact of the adoption of this guidance on the Company’s consolidated financial statements. 

In August 2018, the FASB issued ASU 2018-13,Fair Value Measurement (Topic 820): Disclosure Framework - Changes to the Disclosure Requirements for Fair Value Measurement. The new guidance modifies the disclosure requirements on fair value measurements in Topic 820. The amendments in ASU 2018-13 are effective for all entities for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2019. The Company does not anticipate that the adoption of ASU 2018-13 willthis new guidance, effective January 1, 2020, did not have a material impact on our Financial Statements.

Recently Issued Accounting Pronouncements – Pending Adoption

As an emerging growth company, the Company is permitted to delay the adoption of new or revised accounting standards until such time as those standards apply to private companies. The Company has chosen to take advantage of the extended transition period for complying with new or revised accounting standards.

In June 2016, the FASB issued ASU No. 2016-13, “Financial Instruments — Credit Losses (Topic 326),” changing the impairment model for most financial instruments by requiring companies to recognize an allowance for expected losses, rather than incurred losses as required currently by the other-than-temporary impairment model. The ASU will apply to most financial assets measured at amortized cost and certain other instruments, including trade and other receivables, loans, available-for-sale and held-to-maturity debt securities, net investments in leases, and off-balance-sheet credit exposures. In November 2019, the FASB issued ASU No. 2019-10, changing effective dates for the new standards to give implementation relief to certain types of entities. The Company is required to adopt the new standards no later than January 1, 2023 according to ASU 2019-10, with early adoption allowed. We are currently evaluating the impact of adopting this new accounting guidance on our condensed consolidated financial statements.

In January 2017, the FASB issued ASU 2017-04, Intangibles - Goodwill and Other (Topic 350): Simplifying the Test for Goodwill Impairment. The guidance in ASU 2017-04 eliminates the requirement to determine the fair value of individual assets and liabilities of a reporting unit to measure goodwill impairment. Under the amendments in the new ASU, goodwill impairment testing will be performed by comparing the fair value of the reporting unit with its carrying amount and recognizing an impairment charge for the amount by which the carrying amount exceeds the reporting unit’s fair value. ASU 2017-04 is effective for annual and interim goodwill impairment tests in fiscal years beginning after December 15, 2022 and should be applied on a prospective basis. The Company is currently evaluating the impact of adopting this guidance on the Company’s consolidated financial statements.

In December 2019, the FASB issued ASU 2019-02, Simplifying the Accounting for Income Taxes, to simplify the accounting for income taxes by removing certain exceptions to the general principles and also simplification of areas such as franchise taxes, step-up in tax basis goodwill, separate entity financial statements and interim recognition of enactment of tax laws or rate changes. The standard will be effective for annual reporting periods beginning after December 15, 2020, including interim reporting periods within those periods. We are currently evaluating the impact of adopting this new accounting guidance on our condensed consolidated financial statements.

In August 2020, the FASB issued ASU 2020-06, Debt with Conversion and Other Options: Accounting for Convertible Instruments and Contracts in an Entity’s Own Equity, which simplifies the accounting for certain instruments with characteristics of liabilities and equity, including convertible instruments and contracts on an entity’s own equity. ASU 2020-06 removes from U.S. GAAP the separation models for (1) convertible debt with a cash conversion feature and (2) convertible instruments with a beneficial conversion feature. ASU 2020-06 requires entities to provide expanded disclosures about “the terms and features of convertible instruments,” how the instruments have been reported in the entity’s financial statements, and “information about events, conditions, and circumstances that can affect how to assess the amount or timing of an entity’s future cash flows related to those instruments.”

ASU 2020-06 is effective for public business entities that are not smaller reporting companies for fiscal years beginning after December 15, 2021 and interim periods within those fiscal years. For all other entities, ASU 2020-06 is effective for fiscal years beginning after December 15, 2023 and interim periods within those fiscal years. We are currently evaluating the impact of adopting this new accounting guidance on our condensed consolidated financial statement disclosures.statements.

ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

Not applicable.

ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA

TABLE OF CONTENTS

Report of Independent Registered Public Accounting Firm

To the Stockholders and Board of Directors of GrowGeneration Corp.

Opinion on the Financial Statements

We have audited the accompanying consolidated balance sheets of GrowGeneration Corp. (the “Company”) as of December 31, 2020, the related consolidated statements of operations, stockholders' equity, and cash flows for the year ended December 31, 2020, and the related notes (collectively referred to as the “financial statements”). In our opinion, the financial statements referred to above present fairly, in all material respects, the financial position of the Company as of December 31, 2020, and the results of its operations and its cash flows for the year ended December 31, 2020, in conformity with accounting principles generally accepted in the United States of America.

Basis for Opinion

The Company's management is responsible for these financial statements. Our responsibility is to express an opinion on the Company’s financial statements based on our audit. We are a public accounting firm registered with the Public Company Accounting Oversight Board (United States) (“PCAOB”) and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.

We conducted our audit in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement, whether due to error or fraud. The Company is not required to have, nor were we engaged to perform, an audit of its internal control over financial reporting. As part of our audit we are required to obtain an understanding of internal control over financial reporting but not for the purpose of expressing an opinion on the effectiveness of the Company's internal control over financial reporting. Accordingly, we express no such opinion.

Our audit included performing procedures to assess the risks of material misstatement of the financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the financial statements. Our audit also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the financial statements. We believe that our audit provides a reasonable basis for our opinion.

/s/ Plante & Moran, PLLC

We have served as the Company’s auditor since 2020.

Denver, Colorado

March 28, 2021 

REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

To the Board of Directors and

Stockholders of GrowGeneration Corp and Subsidiaries

Opinion on the Financial Statements

We have audited the accompanying consolidated balance sheets of GrowGeneration Corp and Subsidiaries (the Company) as of December 31, 2019, and 2018, and the related consolidated statements of operations, stockholder s’changes in stockholders’ equity, and cash flows for each of the years in the two-year periodyear then ended December 31, 2019, and the related notes (collectively referred to as the financial statements). In our opinion, the financial statements present fairly, in all material respects, the financial position of the Company as of December 31, 2019, and 2018, and the results of its operations and its cash flows for each of the years in the two-year periodyear then ended, December 31, 2019, in conformity with accounting principles generally accepted in the United States of America.

Basis for Opinion

These financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on the Company’s financial statements based on our audits. We are a public accounting firm registered with the Public Company Accounting Oversight Board (United States) (PCAOB) and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.

We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the consolidated financial statements are free of material misstatement, whether due to error or fraud. The Company is not required to have, nor were we engaged to perform, an audit of its internal control over financial reporting. As part of our audits, we are required to obtain an understanding of internal control over financial reporting, but not for the purpose of expressing an opinion on the effectiveness of the Company’s internal control over financial reporting. Accordingly, we express no such opinion.

OurauditsOur audits included performing procedures to assesstherisksassess the risks of material misstatement of the financialstatements,financial statements, whether duetodue to error or fraud, and performing procedures that respond to those risks. Such procedures includedexamining,included examining, on atesta test basis,evidence regarding the amounts and disclosures in the consolidated financialstatements.Ourfinancial statements. Our audits also included evaluatingtheaccountingevaluating the accounting principles used and significant estimates made by management,as wellasevaluating theoverallwell as evaluating the overall presentation of thefinancialstatements.the financial statements. We believe thatourauditsthat our audits provide a reasonable basis for our opinion.

/s/ Connolly Grady & Cha, P.C

Certified Public Accountants

We haveservedas the Company'sauditorsince2014

Springfield, Pennsylvania

March 27, 2020

We have served as the Company's auditor since 2014

GrowGeneration Corp. and SubsidiariesGROWGENERATION CORP. AND SUBSIDIARIES

CONSOLIDATED BALANCE SHEETS

The accompanying notes are an integral part of these audited consolidated financial statements.

GrowGeneration Corp. and SubsidiariesGROWGENERATION CORP. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF OPERATIONS

The accompanying notes are an integral part of these audited consolidated financial statements.

GrowGeneration Corp. and SubsidiariesGROWGENERATION CORP. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY

FOR THE YEARS ENDED DECEMBER 31, 20192020 and 20182019