TABLE OF CONTENTS

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FORWARD-LOOKING STATEMENTS

This Annual Report on Form 10-K (the “Report”) contains “forward-looking statements” within the meaning of Section 27A of the Securities Act of 1933, as amended (the “Securities Act”), and Section 21E of the Securities Exchange Act of 1934, as amended (the “Exchange Act”), adopted pursuant to the Private Securities Litigation Reform Act of 1995. Forward-looking statements are based upon our good faith assumptions, expectations and beliefs concerning future developments and their potential effect on our business. In some cases, you can identify forward-looking statements by the following words: “may,” “will,” “could,” “would,” “should,” “expect,” “intends,” “plans,” “strategy,” “prospects,” “anticipate,” “believe,” “approximately,” “estimate,” “predict,” “project,” “potential,” “continue,” “ongoing,” or the negative of these terms or other words of similar meaning in connection with a discussion of future events or future operating or financial performance, although the absence of these words does not necessarily mean that a statement is not forward-looking. In particular, such statements include those relating to, among other things, (i) regulatory limitations on our products and services and the uncertainty in the application of federal, state, and local laws to our business, and any changes in such laws; (ii) our ability to manufacture our products and product candidates on a commercial scale on our own or in collaboration with third parties; (iii) our ability to identify, consummate, and integrate anticipated acquisitions; (iv) general industry and economic conditions; (v) our ability to access adequate capital upon terms and conditions that are acceptable to us; (vi) our ability to pay interest and principal on outstanding debt when due; (vii) volatility in credit and market conditions; (viii) the loss of one or more key executives or other key employees; and (ix) other risks and uncertainties related to the cannabis market and our business strategy. This information may involve known and unknown risks, uncertainties and other factors which may cause actual events or our actual results, performance or achievements to be materially different from the future events, results, performance or achievements expressed or implied by any forward-looking statements. There can be no assurance that future events, results, performance or achievements will be in accordance with our expectations or that the effect of future events, results, performance or achievements will be those anticipated by us.

These forward-looking statements represent our intentions, plans, expectations, assumptions and beliefs about future events and are subject to risks, uncertainties and other factors, including, but not limited to, those discussed in “Item 1. Business”, “Item 1A. Risk Factors”, “Item 3. Legal Proceedings,” “Item 7. Management’s Discussion and Analysis of Operations,” and elsewhere in this report. Many of those factors are outside of our control and could cause actual results to differ materially from the results expressed or implied by those forward-looking statements. Considering these risks, uncertainties and assumptions, the events described in the forward-looking statements might not occur or might occur to a different extent or at a different time than we have described. Although we believe that our plans, intentions and expectations reflected in or suggested by the forward-looking statements in this Report are reasonable, we cannot assure stockholders and potential investors that these plans, intentions or expectations will be achieved. These cautionary statements qualify all forward-looking statements attributable to us or persons acting on our behalf. You are cautioned not to place undue reliance on these forward-looking statements. All subsequent written and oral forward-looking statements concerning other matters addressed in this Report and attributable to us or any person acting on our behalf are expressly qualified in their entirety by the cautionary statements contained or referred to in this Report.

All forward-looking statements speak only as of the date of this Report. Except to the extent required by law, we undertake no obligation to update or revise any forward-looking statements, whether because of new information, future events, a change in events, conditions, circumstances or assumptions underlying such statements, or otherwise. Stockholders and potential investors should not place undue reliance on these forward-looking statements.

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Risk Factors Summary

Our business faces significant risks and uncertainties. If any of the following risks are realized, our business, financial condition and results of operations could be materially and adversely affected. You should carefully review and consider the full discussion of our risk factors in “Item 1A. Risk Factors” of this Report. Set forth below is a summary list of the principal risk factors as of the date of the filing of this Report:

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PART I

ITEM 1. BUSINESS.

Overview

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

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

The Company currently has operations in Colorado and New Mexico. As of March 1, 2023, the Company owned and operated (i) 42 retail dispensaries, 25 in Colorado under the banners Star Buds and Emerald Fields and 17 in New Mexico under the banner R. Greenleaf; (ii) five cultivation facilities, two in Colorado and three in New Mexico; and (iii) two manufacturing facilities, one in Colorado and one in New Mexico.

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

History

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

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

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facilities. Since its first plant-touching acquisition in April 2020, the Company has completed a number of acquisitions in an effort to expand its market presence and achieve complete vertical integration.

Financings

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

From June 5, 2019 through May 21, 2020, the Company completed a private placement of shares of Common Stock and warrants to purchase shares of Common Stock for aggregate gross cash proceeds of approximately $18,575,000. In the private placement, the Company issued and sold an aggregate of 9,287,000 shares of Common Stock at a price of $2.00 per share and warrants to purchase an aggregate of 9,287,000 additional shares of Common Stock at an exercise price of $3.50 per share.

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

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

On February 26, 2021, the Company entered into a Loan Agreement with SHWZ Altmore, LLC (“Altmore”), as lender, and GGG Partners LLC, as collateral agent (the “Loan Agreement”). Upon execution of the Loan Agreement, the Company received $10,000,000 of loan proceeds. In connection with the Company’s acquisition of Southern Colorado Growers (“SCG”), the Company received an additional $5,000,000 of loan proceeds under the Loan Agreement. The loan carries an interest rate of 15% per annum, and the Company is required to make principal payments in the amount of $750,000 quarterly starting June 1, 2023. The Loan Agreement is secured by a first priority security interest in the assets of PBS Holdco LLC (“PBS”), a wholly owned subsidiary of the company and the Company’s Colorado manufacturing operation, and the SCG Cultivation (the “Altmore Collateral”).

On December 3, 2021, the Company and all its direct and indirect subsidiaries (the “Subsidiary Guarantors”) entered into a Securities Purchase Agreement (the “Note Purchase Agreement”) with 31 accredited investors (the “Note Investors”), pursuant to which the Company agreed to issue and sell to the Note Investors 13% senior secured convertible notes due December 7, 2026 (the “Investor Notes”) in an aggregate principal amount of $95,000,000 for an aggregate purchase price of $93,100,000 (reflecting an original issue discount of $1,900,000, or 2%) in a private placement. On December 7, 2021, the Company consummated the private placement and issued and sold the Investor Notes pursuant to the Indenture entered into among the Company, Chicago Admin, LLC, as collateral agent (the “Indenture Collateral Agent”), Ankura Trust Company, LLC, as trustee (the “Indenture Trustee”), and the Subsidiary Guarantors (the “Indenture”). The Company received net proceeds of approximately $92 million at the closing, after deducting a commission to the placement agent and estimated offering expenses. Such net proceeds are required to be used to fund previously identified acquisitions and other growth initiatives. The Company’s obligations under the Indenture and the Investor Notes are secured by (i) junior security interest in the Altmore Collateral and the Star Buds Collateral, and (ii) a first priority security interest in all assets owned by the Company and the Subsidiary Guarantors on or after December 7, 2021.

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Material Acquisitions & Investments

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

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

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

Between December 17, 2020 and March 3, 2021, the Company acquired 13 retail dispensaries and one cultivation facility located primarily in and around Denver, Colorado branded under the Star Buds banner. On December 17, 2020, the Company acquired the assets of (i) Starbuds Pueblo LLC, and (ii) Starbuds Alameda LLC. On December 18, 2020, the Company acquired the assets of (i) Starbuds Commerce City LLC, (ii) Lucky Ticket LLC, (iii) Starbuds Niwot LLC, and (iv) LM MJC LLC. On February 4, 2021, the Company acquired the assets of (i) Colorado Health Consultants LLC, and (ii) Mountain View 44th LLC. On March 2, 2021, the Company acquired the assets of (i) Starbuds Aurora LLC, (ii) SB Arapahoe LLC, (iii) Citi-Med LLC, (iv) Starbuds Louisville LLC, and (v) KEW LLC. The Company refers to this series of acquisitions as the “Star Buds Acquisition” and each of the aforementioned entities generically as “Star Buds” unless otherwise specified. In connection with the Star Buds Acquisition, the Company also acquired the exclusive right to use the Star Buds tradename in Colorado. The purchase price for the Star Buds Acquisitions was paid in cash, Preferred Stock, and deferred payments referred to in this report as “seller note(s)”. The seller notes are secured by a first priority security interest in substantially all of the assets owned by SBUD LLC, a wholly-owned subsidiary of the Company that acquired the Star Buds assets (the “Star Buds Collateral”). The aggregate purchase price for the Star Buds Acquisition was $118,000,000, paid as follows: (i) $44,250,000 in cash at the applicable closings, (ii) $44,250,000 in deferred cash, also referred to in this report as “seller note(s),” (iii) 29,506 shares of Preferred Stock, of which 25,078 shares were issued at the applicable closings and 4,428 shares were held back by the Company as collateral for potential indemnification obligations pursuant to the applicable purchase agreements. In addition, the Company issued warrants to purchase an aggregate of 5,531,250 shares of Common Stock to the sellers under the applicable purchase agreement.

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

On December 21, 2021, the Company, through its wholly-owned subsidiary Double Brow, LLC (“Double Brow”), acquired one retail dispensary located in Glendale, Colorado from Smoking Gun, LLC (“SG”) and Smoking Gun Land Company, LLC (“SG Land,” and together with SG, “Smoking Gun”) for a total purchase price of $4 million in cash and 100,000 shares of Common Stock.

On January 26, 2022, the Company, through Double Brow, acquired two retail dispensaries located in Boulder, Colorado from BG3 Investments, LLC, d/b/a Drift (“Drift”), and Black Box Licensing, LLC pursuant to an Asset Purchase Agreement entered into on June 25, 2021 with Double Brow, Drift, Black Box Licensing, LLC and Brian Searchinger, the sole equity holder of Drift and an equity holder of Black Box Licensing, LLC, as amended on October 28, 2021 (the “Drift Purchase Agreement”). The acquired assets include (i) the assets used in or related to Drift’s business of distributing, marketing, and selling recreational cannabis products and (ii) the leases for two retail dispensaries located in Boulder, Colorado. The aggregate closing consideration for the acquisition was (i) $1.92 million in cash, and (ii) 1,146,099 shares of Common Stock issued to Drift.

On February 9, 2022, the Company, through its wholly-owned subsidiary Emerald Fields Merger Sub, LLC (“Emerald Fields Sub”), acquired two retail dispensaries located in Manitou Springs, Colorado and Glendale, Colorado branded under the banner Emerald Fields pursuant to the terms of an Agreement and Plan of Merger, dated November 15, 2021, with Emerald Fields Sub, MCG, LLC (“MCG”), MCG’s owners, and Donald Douglas Burkhalter and James Gulbrandsen in

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their capacity as the Member Representatives, as amended on February 9, 2022 (the “MCG Merger Agreement”). Under the MCG Merger Agreement, MCG merged with and into Emerald Fields Sub, with Emerald Fields Sub continuing as the surviving entity. The aggregate closing consideration for the merger was $29 million, consisting of: (i) $16.0 million in cash; (ii) 6,547,239 shares of the Common Stock issued to the members of MCG; and (iii) an aggregate of $2.32 million was held back as collateral for potential claims for indemnification under the MCG Merger Agreement as follows: (y) $1.39 million in cash and (z) 569,325 shares of Common Stock. The MCG Merger Agreement provides for the escrowed portion of the purchase price (less any claims for indemnity) to be released 50% on February 9, 2023 and 50% on August 9, 2023.

On February 8, 2022, the Company entered the New Mexico market with its acquisition of ten retail dispensaries located throughout the State of New Mexico operating under the banner R. Greenleaf, one manufacturing facility, and four cultivation facilities under the terms of a Purchase Agreement, dated November 29, 2021, with Nuevo Holding, LLC and Nuevo Elemental Holding, LLC, both of which are indirect wholly-owned subsidiaries of the Company (collectively, the “Nuevo Purchasers”), Reynold Greenleaf & Associates, LLC (“RGA”), Elemental Kitchen and Laboratories, LLC (“Elemental”), the equity holders of RGA and Elemental, and William N. Ford, in his capacity as Representative, as amended on February 8, 2022 (the “Nuevo Purchase Agreement”). The Nuevo Purchasers acquired substantially all of the operating assets of RGA and all of the equity of Elemental and assumed specified liabilities of RGA and Elemental. Pursuant to existing laws and regulations in New Mexico, the cannabis licenses for certain facilities managed by RGA are held by two not-for-profit entities: Medzen Services, Inc. (“Medzen”) and R. Greenleaf Organics, Inc. (“R. Greenleaf” and together with Medzen, the “NFPs”). At the closing, Nuevo Holding, LLC gained control over the NFPs by becoming the sole member of each of the NFPs and replacing the directors of the two NFPs with the Company’s Chief Executive Officer, the Company’s Chief Financial Officer, and the Company’s General Counsel. The business acquired from RGA consists of serving as a branding, marketing and consulting company, licensing certain intellectual property related to the business of THC-based products to Elemental and the NFPs, providing consulting services to Elemental and the NFPs, and supporting Elemental and the NFPs to promote, support, and develop sales and distribution of products. Elemental is engaged in the business of creating and distributing cannabis-derived products to licensed cannabis producers. Elemental and the NFPs are in the business of cultivating, processing and dispensing marijuana in New Mexico, with 10 dispensaries, four cultivation facilities (three operating and one under development) and one manufacturing facility. The dispensaries are located in Albuquerque, Santa Fe, Roswell, Las Cruces, Grants and Las Vegas, New Mexico. The cultivation and manufacturing facilities are located in Albuquerque, New Mexico and consists of approximately 70,000 square feet of cultivation and 6,000 square feet of manufacturing. On the same date, Nuevo Holding, LLC entered into two separate Call Option Agreements containing substantially identical terms with each of the NFPs. Each Call Option Agreement gives Nuevo Holding, LLC the right to acquire 100% of the equity or 100% of the assets of the applicable NFP for a purchase price of $100 if, in the future, the New Mexico legislature adopts legislation that permits a NFP to (i) convert to a for-profit corporation and maintain its cannabis license or (ii) sell its assets (including its cannabis license) to a for-profit corporation. The aggregate closing consideration for the acquisitions was approximately (i) $32.2 million in cash,  which included a $4.5 million cash earnout based on EBITDA of the acquired businesses for the calendar year 2021, and (ii) $17.0 million in the form of an unsecured promissory note issued by Nuevo Holding, LLC to RGA, the principal amount of which is payable on February 8, 2025 with interest payable monthly at an annual interest rate of 5% (the “Nuevo Note”).

On February 15, 2022, the Company acquired substantially all of the operating assets of Brow 2, LLC (“Brow”) related to its indoor cannabis cultivation operations located in Denver, Colorado (other than assets expressly excluded) and assumed certain liabilities for contracts acquired pursuant to the terms of the Asset Purchase Agreement, dated August 20, 2021, among Double Brow, Brow, and Brian Welsh, as the owner of Brow (the “Brow Purchase Agreement”). The acquired assets included a 37,000 square foot building, the associated lease and equipment designed for indoor cultivation. After purchase price adjustments for pre-closing inventory, the aggregate consideration was $6.7 million, of which Double Brow paid $6.2 million at closing and held back $500,000 as collateral for potential claims for indemnification under the Brow Purchase Agreement. Any of the purchase price held back and not used to satisfy indemnification claims will be released on February 15, 2023 plus 3% simple interest.

On May 31, 2022, the Company acquired one retail dispensary operating under the banner Urban Dispensary and one cultivation facility, each located in Denver, Colorado, pursuant to an Asset and Personal Goodwill Purchase Agreement (the “Urban Dispensary Purchase Agreement”) with Double Brow, Urban Health & Wellness, Inc. d/b/a Urban Dispensary (“Urban Dispensary”), Productive Investments, LLC (“Productive Investments”), and Patrick Johnson (together with

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Productive Investments, the “Urban Equityholders”), pursuant to which the Purchaser acquired (i) all of Urban Dispensary’s assets used or held for use in Urban Dispensary’s business of owning and operating a retail marijuana store and a grow facility, each located in Denver, Colorado, and (ii) all of Equityholders’ personal goodwill arising from Equityholders’ independent, separate, individual and personal efforts relating to Urban Dispensary’s business on the terms and subject to the conditions set forth in the Purchase Agreement (the “Urban Dispensary Purchase”), and assume obligations under contracts acquired as part of the Urban Dispensary Purchase. The aggregate consideration for the Urban Dispensary Purchase was $1.32 million in cash and 1,230,534 shares of Common Stock. The Company held back $288,000 of the stock consideration at closing as collateral for potential claims for indemnification from Urban Dispensary under the Urban Dispensary Purchase Agreement. Any portion of the held back consideration not used to satisfy indemnification claims will be released to Urban Dispensary on November 30, 2023.

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

On December 15, 2022, the Company acquired substantially all of the operating assets associated with two retail dispensaries located in Denver, Colorado and Aurora, Colorado owned by Lightshade Labs LLC (“Lightshade”) pursuant to the terms of two Asset Purchase Agreements, dated September 9, 2022, among Double Brow, the Company, Lightshade, and Lightshade’s owners, Thomas Van Alsburg, Steve Brooks, and John Fritzel, as amended on December 15, 2021 (the “Lightshade Purchase Agreements”). After purchase price adjustments for transaction and related expenses, the aggregate consideration for the acquisition was approximately $2.75 million, all of which was paid in cash. The Company deposited $300,000 of the purchase price in escrow as collateral for potential claims for indemnification from Lightshade under the Lightshade Purchase Agreements. Any of the purchase price placed in escrow and not used to satisfy indemnification claims will be released on December 15, 2023.

Current Operations and Developments

Operating Segments

The Company’s operations are organized into three different segments as follows: (i) Retail, consisting of retail locations for sale of cannabis products; (ii) Wholesale, consisting of manufacturing, cultivation and sale of both wholesale cannabis and non-cannabis products; and (iii) Other, consisting of all other income and expenses, which primarily includes those related to in-store advertising and general corporate operations. Each of our operating segments are discussed in further detail below.

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

As of December 31, 2022, the Company owned and operated 25 retail cannabis dispensaries in the State of Colorado—19 retail dispensaries under the banner name Star Buds and six retail dispensaries under the banner name Emerald Fields—and  16 retail cannabis dispensaries in the State of New Mexico, all under the banner name R. Greenleaf.

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

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

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

Wholesale

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

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

The Company’s manufacturing operations are used to extract oil from the cannabis plant and refine the oil into distillate oil.  It sells this distillate oil to other product manufacturers. Like its cultivation facilities, the Company can increase or curtail its production capacity to adjust to market conditions. 

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

Cultivation

As of December 31, 2022, the Company owned eight cultivation facilities: four in Colorado and four in New Mexico. The Company leverages its cultivating capacity in both states where it operates to participate in the wholesale market and/or support internal operations based on market conditions and profitability in wholesale transactions.

The Company operated four active cultivations in Colorado throughout 2022, but it ceased operations at two of its facilities located in Denver, Colorado during the year to consolidate production activities and drive synergies. The Company maintains four active cultivation licenses in Colorado as of March 1, 2023.

The Company’s primary cultivation facilities in Colorado include (i) a 37,000 square foot building located in Denver, Colorado leased by the Company for indoor cultivation (the “Brow Cultivation”) and (ii) 36 acres of land in Huerfano County, Colorado owned by the Company and designed for indoor and outdoor cultivation (the “SCG Cultivation”). The SCG Cultivation includes a greenhouse and 24 hoop houses, and the Company is expanding the SCG Cultivation to include additional hoop houses for increased outdoor cultivation capacity.

The Company operated four active indoor cultivations in New Mexico during 2022, and it discontinued operations at one of its cultivation facilities located in Albuquerque, New Mexico during 2022 to consolidate production activities and drive synergies. The Company maintains three active cultivation licenses in New Mexico as of March 1, 2023.

The Company’s primary cultivation facility in New Mexico is a 40,000 square foot building located in Albuquerque, New Mexico (the “Edith Grow”). The Company completed the first phase of planned renovation of the Edith Grow in 2022 with the goal of completing additional phases of construction and renovation to expand the cultivation capacity of the Edith Grow for increased synergies and cost savings. The Edith Grow, together with the Company’s other indoor

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cultivation facilities in New Mexico, primarily support Elemental’s manufacturing operations and the New Mexico Retail segment operations.

Manufacturing and Extraction

As of December 31, 2022, the Company owned and operated two manufacturing facilities: one in Colorado and one in New Mexico.

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

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

The Company’s New Mexico manufacturing facility is owned and operated by Elemental, a wholly-owned subsidiary of the Company. Elemental leases a manufacturing facility located in Albuquerque, New Mexico representing approximately 6,000 square feet where it performs extraction, infusion, and manufacturing operations. Elemental produces a number of cannabis products that are sold in R. Greenleaf dispensaries, including edibles and vapes. Elemental primarily sources the raw materials used for its operations through the Company’s cultivation and wholesale operations due to increased vertical integration in New Mexico, although Elemental does purchase biomass and trim from external sources to support its operations.

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

General Corporate and Other

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

Marketing

The Company markets its products, retail establishments and services to consumers through a variety of channels, including: digital marketing efforts, print advertising, outdoor billboards, coupons, a consolidated loyalty program across all states and retail banners, ecommerce websites, budtender appreciation events, universal gift card program, “search engine optimization” activities, grand opening or newly remodeled store events, brand pop-up events, and in-store promotions. In 2022, the Company’s Colorado retail banner, Star Buds, was the first cannabis sponsor of a professional ultimate frisbee sporting team, The Colorado Summit.

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Schwazze has created and maintains a database of marketing collateral materials and resources used for the Schwazze parent company brand, its in-house products/brands, and across all retail banners in the states in which it operates. The Company also coalesces interest and a presence within the industry through participation in various industry events, building relationships with key regulatory and government affairs officials, and through direct promotion.

The Company continues to enhance its online presence via its house of brands website, http://www.schwazze.com, and its investor relations website, http://www.ir.schwazze.com. During 2022, the Company revamped its website to include an overview of its retail and wholesale brands, features on management and its Board of Directors, latest investor relations presentations, links to media, analyst coverage and press relations, Securities and Exchange Commission (“SEC”) reports, and our industry partners.

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Intellectual Property, Brand Development, and Licensing

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

Schwazze is actively building a house of brands that includes both our active retail banners as well as products for sale at both the retail and wholesale level, manufacturing all products and controlling the quality for such brands through its vertical integration. The Company has developed three internally owned product brands as of March 1, 2023. These brands include: (i) Purplebee’s and (ii) Autograph by Purplebee’s, the Company’s distillate vaporizer product line, and (iii) EDW (Every Day Weed), which is a pre-packaged pouch of loose-ground flower offered in half-ounce increments at an affordable price point. Purplebee’s, Autograph by Purplebee’s, and EDW are available for sale in Indica, Sativa and Hybrid strains.

In addition to internal brand development efforts, we also enter into advantageous licensing agreements with other cannabis companies with recognizable brand value to maximize the success of our product offerings and sales. Schwazze has an exclusive licensing partnership with the premium California-based cannabis flower brand, Lowell Herb Company, which gives the Company exclusive right to manufacture, distribute and promote Lowell Farms products in the Colorado and New Mexico markets. Current products include: Quicks, Classics and Singles. Quicks and Classics are sold in 3.5g multi-units packs in blends of strains of indica, sativa, and hybrid dominances, while “singles” are 1g, single strain pre-rolls. The Lowell Farms brand is promoted through in-store advertising and promotion, customer loyalty programming, and budtender appreciation events. We also maintain a non-exclusive branding partnership with Mission Holdings pursuant to which we sell Mission Holdings’ proprietary brand of low-cost edibles, Nfuzed gummies, and premium flower, Level 10, in our retail channels in the states where we operate.

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

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Government Regulations

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

Federal Regulations

The UnitedStatesfederalgovernmentregulatesdrugsthroughthefederalControlledSubstancesAct(21U.S.C.§811)(the“CSA”),whichplaces controlledsubstances,includingcannabis,inoneoffivedifferent schedules.Cannabis,except hempcontaininglessthan.3%(onadryweightbasis)ofthepsychoactiveingredientincannabis,isclassifiedasaScheduleIdrug.AsaScheduleIdrug,thefederalDrugEnforcementAgency (“DEA”)considerscannabistohaveahighpotentialforabuse,nocurrentlyacceptedmedicaluseintreatmentintheUnitedStates,andalackofacceptedsafetyforuseofthedrugundermedicalsupervision.TheclassificationofcannabisasaScheduleIdrugisinconsistentwithwhattheCompanybelievestobemanyvaluablemedicalusesforcannabisacceptedbyphysicians,researchers,patients,andothers.Asevidenceofthis,theFDAonJune25,2018approvedEpidiolex(CBD)oralsolutionwithanactiveingredientderivedfromthecannabisplantforthetreatmentofseizuresassociatedwithtworareandsevereformsofepilepsy,Lennox-Gastaut syndrome,andDravet syndrome,inpatients twoyears ofageandolder.This is thefirst FDA-approveddrugthatcontainsapurifieddrugsubstancederivedfromthecannabisplant.CBDisachemicalcomponentofcannabisthatdoesnotcontaintheintoxicationpropertiesofTHC(“THC”),theprimarypsychoactivecomponentofcannabis.TheCompanybelievestheCSAcategorizationasaScheduleIdrugisnotreflectiveofthemedicinalpropertiesofcannabisorthepublicperceptionthereof,andnumerous studies show cannabis is not abletobeabusedinthesamewayas otherScheduleIdrugs,has medicinal properties,andcanbesafelyadministered.

ThefederalpositionisalsonotnecessarilyconsistentwithdemocraticapprovalofcannabisatthestategovernmentlevelintheUnited States. Unlike in Canada, whichhas federal legislation uniformlygoverningthe cultivation, distribution, sale, andpossession ofcannabisundertheCannabisAct,S.C.2018,c.16,(Canada)andtheCannabisforMedicalPurposesRegulations,cannabisislargelyregulatedat thestateandlocal levelintheUnited States.Statelawsregulating cannabisconflictwiththeCSA,which makescannabisuseandpossessionfederallyillegal.Althoughcertainstates andterritoriesoftheUnitedStatesauthorizemedicaloradult-usecannabisproductionanddistributionbylicensedorregisteredentities,underUnitedStatesfederallaw,thepossession,use,cultivation,andtransferofcannabisandanyrelateddrugparaphernaliaisillegal,andanysuchactsarecriminalacts.AlthoughtheCompany’sactivitiesarecompliantwithapplicablestateandlocallaws,strictcompliancewithstateandlocallawswithrespecttocannabismayneitherabsolvetheCompanyofliabilityunderUnitedStatesfederallawnorprovideadefensetofederalcriminalchargesthatmaybebroughtagainsttheCompany.TheSupremacyClauseoftheUnitedStatesConstitutionestablishesthattheUnitedStatesConstitutionandfederallawsmadepursuanttoitareparamountand,incaseofconflictbetweenfederalandstatelaw,federallawshallapply.

Nonetheless,44U.S.states,theDistrictofColumbia,andtheterritoriesofPuertoRico,theU.S.VirginIslands,Guam,andthe NorthernMarianaIslandshavelegalizedsomeformofcannabisformedicaluse,while21statesandtheDistrictofColumbiahave legalized the adult-use of cannabis for recreational purposes. As more and more states legalized medical and/or adult-use cannabis, the federalgovernmentattemptedtoprovideclarityontheincongruitybetweenfederalprohibitionundertheCSAandthesestate-legal regulatoryframeworks.Notwithstandingtheforegoing,cannabisremainsillegalunderU.S.federallaw,withcannabislistedasa Schedule I drug under the CSA.

Until2018,thefederalgovernmentprovidedguidancetofederallawenforcementagenciesandbankinginstitutionsregardingcannabisthroughaseriesofmemorandafromtheDepartmentofJustice(“DOJ”).Themostrecentsuchmemorandum wasdraftedbyformerDeputyAttorneyGeneralJamesColeonAugust29,2013(the“ColeMemorandum”).TheColeMemorandumofferedguidancetofederalenforcementagenciesastohowtoprioritizecivilenforcement,criminalinvestigations,andprosecutionsregardingcannabisinallstates,andacknowledgedthat,notwithstandingthedesignationofcannabisasaScheduleIcontrolledsubstanceatthefederallevel,severalstateshaveenactedlawsauthorizingtheuseofcannabis.TheColeMemorandumalsonotedthatjurisdictionsthathaveenactedlawslegalizingcannabisinsomeformhavealsoimplementedstrongandeffectiveregulatoryandenforcementsystemsto

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controlthecultivation,processing,distribution,sale,andpossessionofcannabis.Assuch,conductincompliancewiththoselawsandregulations is less likelytobea priorityatthe federal level.The Cole Memorandumwas seen bymanystate-legal cannabis companiesasasafeharborfortheirlicensedoperationsthatwereconductedinfullcompliancewithallapplicablestateandlocalregulations.However,onJanuary4,2018,formerU.S.AttorneyGeneralJeffSessionsrescindedtheColeMemorandum.Intheabsenceofauniformfederalpolicy, as had been established by the Cole memorandum, enforcement priorities are determined by respective United States Attorneys.

Followinghiselection,PresidentBidenappointedMerrickGarlandtoserveastheU.S.AttorneyGeneral.WhileAttorneyGeneralGarlandindicatedinhisconfirmationhearingthathedidnotfeelthatenforcementofthefederalcannabisprohibitionagainststate-licensedbusinesswouldbeaprioritytargetof the DOJ resources,noformalenforcementpolicyhasbeenissuedtodate.Thereisnoguarantee thatstatelawslegalizingandregulatingthesaleanduseofcannabiswillnotberepealedoroverturned,or that local governmental authorities will not limit theapplicabilityof state laws withintheir respective jurisdictions.Unless and untiltheU.S.CongressamendstheCSAwithrespecttocannabis(andastothetimingorscopeofanysuchpotentialamendmentstherecanbenoassurance),thereisariskthatfederalauthoritiesmayenforcecurrentU.S.federallaw.

Asanindustrybestpractice,despitetherescissionoftheColeMemorandum,theCompanyabidesbythefollowingstandard operating policies and procedures:

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

Onelegislativesafeguardforthemedicalcannabisindustryremainsinplace:Congresshaspassedaso-called“rider”provisioninthefiscal year2015,2016,2017,2018,2019,2020and2021ConsolidatedAppropriationsActstopreventthefederalgovernmentfromusingcongressionallyappropriatedfundstoenforcefederalcannabislawsagainstregulatedmedicalcannabisactorsoperatingincompliancewithstateandlocallaw.Theriderisknownasthe"Rohrabacher-Farr"Amendmentafteritsoriginalleadsponsors(itisalsosometimesreferredtoasthe“Rohrabacher-Blumenauer”or“Joyce-Leahy”Amendment).In2021,PresidentBidenbecamethefirstpresidenttoproposeabudgetwiththeRohrabacher-FarrAmendmentincluded.OnFebruary18,2022,theamendmentwasrenewedthroughthesigningofastopgapspendingbill,effectivethroughMarch11,2022.

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Nevertheless,forthetimebeing,cannabisremainsaScheduleIcontrolledsubstanceatthefederallevel.ThefederalgovernmentoftheU.S.hasalwaysreservedtherighttoenforcefederallawregardingthesaleanddisbursementofmedicaloradult-usecannabis,evenifstatelawsanctionssuchsaleanddisbursement.IftheU.S.federalgovernmentbeginstoenforceU.S.federallawsrelatingtocannabisinstateswherethesaleanduseofcannabisiscurrentlylegal,orifexistingapplicablestatelawsarerepealedorcurtailed, theCompany’sbusiness, resultsof operations,financialcondition,andprospectscouldbematerially adverselyaffected.

Thereis a growing consensus among cannabis businesses and numerous members of Congress that prosecutorial discretion isnotlawandtemporarylegislativeriders,suchastheRohrabacher-FarrAmendment,areaninappropriatewaytoprotectlawfulmedicalcannabis businesses.Numerous bills havebeenintroduced inCongress inrecentyears todecriminalizeaspects ofstate-legalcannabistrades. The Companyhas observed thateach year more congressmen and congresswomen sign onand co-sponsor cannabis legalizationbills.Inlightofallthis,itisanticipatedthatthefederalgovernmentwilleventuallyrepealthefederalprohibitiononcannabisandtherebyleavethestatestodecideforthemselveswhethertopermitregulatedcannabiscultivation,production,andsale,justasstatesarefreetodaytodecidepoliciesgoverningthedistributionofalcoholortobacco.

ThemostcomprehensiveproposalforreformoffederallegislationoncannabiswasintroducedonJuly14,2021,bySenateMajorityLeaderChuckSchumer(D-NY)alongwithCoryBooker(D-NJ),andRonWyden(D-OR)whentheyreleaseddraftlegislationtitledtheCannabisAdministrationandOpportunityAct(the“CAOA”).TheCAOAremovescannabisfromScheduleIoftheControlledSubstancesActwhichwouldpermititsdecriminalizationandallowtheexpungementoffederalnon-violentmarijuanacrimes.TheCAOAwouldimposeafederaltaxoncannabisof10%initsfirstyearofenactment,eventuallyincreasingto25%in5%increments.Thetaxesraisedwouldbeusedtopetitionfundprogramstobenefitcommunitiesdisproportionatelyimpactedbythe“WaronDrugs”.

TheCAOAenshrinesthecurrentstatecannabislicensingregimesbutintroducesadditionalfederalpermittingof cannabiswholesalers. Regulatory responsibility for cannabis controlwould betransferred from theDEA totheAlcoholandTobaccoTaxandTradeBureau(“TTB”) ortheBureauofAlcohol,Tobacco,Firearms,andExplosives(“ATF”).The publicationoftheCAOAbyDemocraticcongressionalleadersrepresentsasignificantmilestoneinthemovetowardfederallegalizationofcannabis.WhiletheCAOAindicatesthatlegalizationmaycomewithsignificantfederaltaxburden,federallegalizationwillalsobringlong-awaitedbenefitstotheindustryoftheremovaloftheSection280Etaxburden,clarityastothestatusofstate-licensedcannabisbusinesses, broad accessto thebanking andcardpaymentsystem, and increased availability, and reducedcost, of capital.

AtthetimeoftheCAOAannouncement,SenatorSchumer indicatedthebillcurrentlydidnothavesufficientsupportintheCongresstopass.AlthoughheoriginallytargetedSpring2022forpassageoflegislationbasedontheCAOAdraft,hethen shifted tointroducingofareviseddraftoftheCAOAintheSenateinApril2022.  As introduced, theCAOAlackedclarityregardingthetransitionof cannabiscontrol from theDEAtoTTBandthe FDA,whichpresentsthe riskthatexisting operatorsmayfaceaperiod ofregulatoryuncertainiflegislationsimilartotheCAOAisenacted.Suchuncertaintymayimpedegrowthof,andinvestmentin,incumbentcannabisbusinesses,whileexposingthemtoincreasedcompetitionfromtheillicitmarket.

Ultimately,theCAOA did not pass and there can be no assurance thatsimilarcomprehensivelegislationthatwouldde-schedulecannabis andde-criminalizewillbepassedinthenearfutureoratall.Ifsuchlegislationispassed,thereisnoguaranteethatitwillinclude provisionsthatpreservethecurrentstate-basedcannabisprograms under which the Company’s subsidiaries operate or that such legislation will be otherwise favorable to the Company and its business.

Colorado Regulations

On November 7, 2000, Colorado voters approved Amendment 20, which amended the state constitutionto allow the use of marijuanain the state by approved patients with written medical consent. On November 6, 2012, Colorado voters approved Amendment 64, which amended the state constitutionto establishan adult use cannabis program in Colorado and permit the commercialcultivation,manufactureand sale of marijuanato adults 21 years of age or older. The commercialsale of marijuanafor adult use to the general public began on January 1, 2014 at cannabis businesses licensed

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under the regulatoryframework. As of January 1, 2020, medical and adult use marijuanaare regulated together under a single statute – the Colorado MarijuanaCode.

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

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

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

Colorado License Requirements

An applicationfor a marijuanabusiness in Colorado requires submission of (1) a copy of any local license required for the marijuanabusiness, (2) a certificateof good standing from the jurisdictionin which the business was formed, (3) the identity and address of the registeredagent in Colorado, (4) organizationaldocuments such as articlesof incorporation,bylaws, articlesof organization,and similardocuments, (5) corporate governance documents, (6) a deed, lease, or similardocument establishingthe applicant’sability to use the proposed premises,(7) a facilitydiagram, (8) findings of suitabilitywith respect to the business’ owners, (8) information regarding securitieslistings(if the business is publicly traded), (9) financialstatements,and documents related to payments of taxes. A business is required to obtain permissionfrom its localityas part of the licensing process.

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

Regulatory Requirements

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

All marijuanabusinesses in Colorado are required to (1) create and enforce limitedaccess areas for the protection of marijuanaand marijuanaproducts, (2) maintainsecurity alarm systems installedand maintainedby a licensed alarm installationcompany, as well as approved locks and surveillanceequipment, (3) follow all applicablelaws regarding waste disposal (including cannabis-containingwaste), (4) implementan inventory tracking system used for inventory tracking and recordkeeping,(5) comply with both state and local requirementsas to hours of operation, (6) comply with sanitary requirementsapplicableto employees and production spaces, including sanitationaudits, (7) comply with recordkeepingrequirements,and (8) maintainand provide procedures for dealing with product recalls.

Cultivation facilitiesare additionallyrequired to (1) provide and maintaincopies of standard operating procedures for cultivation,harvesting, drying, curing, trimming,packaging, storing, and sampling, (2) comply with requirementsrelated to pesticides,and (3) comply with additionalsanitary and product safety requirements. Marijuanaproducts manufacturersare required to (1) comply with labeling and dosing requirementsrelated to standardizeddoses of marijuana,(2) comply with specificprohibitionsregarding the shapes, colors, and similar characteristicsof edible products, refrainfrom use of prohibited additives and ingredients,(3) maintainand provide standard operating procedures related to manufacturingof each category of products. Marijuana dispensariesare subject to additionalrequirementsregarding (1) methods of accepting orders, (2) payments by customers,and (3) identificationof customers.

The Marijuana Enforcement Division and local licensing authorities may conduct announced or unannounced inspections of licensees to determine compliance with applicable laws and regulations. Licensees may also be subject to

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inspection of the licensed premises by the local fire department, building inspector, or code enforcement officer to confirm that no health or safety concerns are present.

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

New Mexico

Until2021,NewMexico’scannabisindustrywasregulatedundertheLynnandErinCompassionateUseAct(the “LECUA”),whichpermittedandregulatedtheuseofcannabisforqualifiedandregisteredpatientswithcertain medical conditions.The LECUAwasadministrated bythe NewMexico DepartmentofHealth.

OnApril12,2021,GovernorMichelleLujanGrishamsignedtheCannabisRegulationAct,whichbecameeffectiveonJune29,2021(the“CRA”).TheCRAdecriminalizedthepossession,useandcultivationofcannabisforrecreationaloradultuseandcreatedtheCannabisControlDivision(the“CCD”)asanewdivisionoftheNewMexicoRegulation&LicensingDepartment,toadministertheCRAandpromulgate,byorbeforeJanuary1,2022,asinglesetofrulesforregulationoftheState’smedicalandadultusecannabisindustry,includinglicensure,sales,testing,security,advertisingandlabelingofcannabisproducts.OtherthanmaintenanceofthepatientregistryformedicalcannabisundertheLECUA,theCRAvestedCCDwithallauthoritytoadministrateandregulateNewMexico’smedicalandadultusecannabisactivities.Consequently,partieslicensedpursuanttotheCCDrulescansellbothmedicaland adult usecannabis withthe most substantivedifferencesbeing:(i)medicalcannabisis notsubjectto theNewMexicoCannabisExciseTax;(ii)personsunder21canonlylegallypurchasecannabisproductsiftheyareaqualifiedmedicalpatient;and(iii)theCCDhastheauthoritytoeffectivelyreservesomecannabistoensurean“adequatesupply” formedical patients.

TheCRApermitslocaljurisdictionstoadoptreasonabletime,placeandmannerrulesthatdonotconflictwiththeCRA, but such rules must not completelyprohibit operationof an entity licensed under the CRA or impose criminal,civiloradministrativepenaltiesonanysuchlicenseefortheuseofapropertylicensedbytheCCD.TheCRAprovidesforthefollowingtypesoflicenses:courier,testinglaboratory,manufacturer,producer,retailer,researchlaboratory, vertically integrated, producermicrobusiness, integratedmicrobusiness andcannabis consumption area. The CRA does not create a limit on thenumberof licenses issued butdoes limit thenumber of plants that can be grown undereachproducerlicenseandrequiresasaconditionoflicensurethateachproducerapplicantdemonstratethelegalrighttoenoughwaterforitsproposedoperationasdeterminedbytheCCDandvalidatedbydocumentsfromtheNewMexico Office ofthe State Engineer.

PertheCRA’sexpressrequirement,retailsalesofadultusecannabisproductsinNewMexicobeganonApril1,2022. InJanuaryandMarchof2022,theCCDamendeditsrulestoincreaseplantcountsformostlicensetypesandmodified thetesting requirements forcannabisproducts.SinceApril1,2022, therehavebeennosubstantivechanges inNew Mexico’sregulatoryframework.

The CompanyisincompliancewithapplicablelicensingrequirementsandtheregulatoryframeworkenactedbytheStateof NewMexico.Anynon-compliancecitationsornoticesofviolationwhichmayhaveanimpactonthe Company’s licensing,businessactivitiesoroperationsarerequiredbyStaffNotice51-352tobepromptlydisclosedbythe Company.

New Mexico Licensing Requirements

InNewMexico,licensesarerenewed annually.Inorder tooperateinNewMexico anoperatorisrequiredtoobtainalicensefromtheCCD,acertificateofoccupancyfromtheapplicablelocalgovernmentandacertificateoffitnessfromtheStateFireMarshall.Eachyear,licenseesarerequiredtosubmitarenewalapplicationperguidelinespublishedbyCCD.Whilerenewalsareannual,thereisnolimittothenumberofrenewalsalicenseemayobtain.Assumingrequisiterenewalfees are paid, renewal applications are submitted in a timely manner, and the establishmenthas not

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beencitedformaterialviolations,renewalapplicantscananticipateapprovalintheordinarycourseofbusiness.However,anyunexpecteddenials,delaysorcostsassociatedwithalicensingrenewalcouldimpedeplannedoperationsandmay haveamaterialadverse effectthe Company’s business,financialcondition,resultsof operations orprospects.

A verticallyintegrated cannabisestablishmentlicensepermitstheholderto conductoneor moreofthe following:(i)production of cannabis, (ii)manufacturing of cannabis products,(iii) retail establishment,or(iv) courier of cannabisproducts. Onlycertified physicians mayprovide medicinal marijuanarecommendations. Anadult-useretailerlicensepermitsthe saleof cannabisandcannabisproducts to anyindividualolder than21 yearsof age who doesnotpossessaphysician’srecommendation.

HoldersoflicensesinNewMexicoaresubjecttoadetailedregulatoryschemeencompassing:security,staffing,sales, manufacturing standards, inspections, inventory, advertising and marketing, product packaging and labeling, records and reporting, and more.

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

Cannabis Production Requirements

Aproducerlicensepermitstheholdertocultivatecannabis,includingplanting,growingandharvestingcannabis.AlicenseemustsubmittotheCCDapremisesdiagramthatshowsthelocationofallentrances,exits,rooms,cultivationareas,lightlocations,andsecuritycameralocations,amongotherthings.Aproducermustdevelopandimplementpoliciesandproceduresthatinclude,ataminimum,cannabistestingcriteriaandproceduresconsistentwiththeCRA,employeetrainingmaterials,trainingrequirements,recordkeepingprotocols,transportation,testingprotocols,employeepoliciesand procedures.

Licenseesmustalsodevelopacultivationplanthatdetails,amongotherthings,thecultivationareas,waterusage,pesticidestorageareas,processingareas,packagingareas,alightdiagram,ifapplicable,pestmanagementandcannabiswasteprocedures.Aproducermustfollowstringenthealthandsafetyrequirementsthatcoverpremises,equipmentandemployees.TheuseofpesticidesispermittedsolongastheyareusedinaccordancewiththeNewMexico PesticideControl Act.

Manufacturing Requirements

There are four classes of manufacturing licenses:

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Amanufacturinglicensepermitstheholderto manufacturecannabisinaccordancewiththeClassofalicenseheld. AlicenseemustsubmittotheCCDapremisesdiagramthatshowsthelocationofallentrances,exits,rooms,cultivationareas,lightlocations,securitycameralocations,amongotherthings.Amanufacturermustdevelopandimplementpoliciesand proceduresthatinclude,ataminimumcannabis testingcriteriaand proceduresconsistent withthe CRA,employeetrainingmaterials,trainingrequirements,recordkeepingprotocols,transportation,testingprotocols,employeepoliciesandproceduresandtrainingdocumentation.TheCCDsetsforthrequirementsregardingpurityandmaterials used and requiresall extractionsto beperformed inaclosed loop system.

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Retail Requirements

Adult use retailed licenses permit the sale of cannabis and cannabis products to any individual age 21 yearsof age or olderortoanyindividual18 yearsofageorolderifsuchpersonpossessesavalidqualified patient,primarycaregiver orreciprocalparticipantregistrycard.Aswithallstate-legalcannabisprograms,onlycannabisgrowninNewMexico can be sold in New Mexico.

Cannabisretailersmayonlydisplaycannabisgoodsforinspectionandsaleintheretailarea.Suchgoodsmayberemovedfromtheirpackagingandplacedincontainerstoallowforcustomerinspection,solongasthecontainersarenotreadily accessibletocustomerswithouttheassistanceofretailerpersonnel.Acontainermustbeprovidedtothecustomer bythe licensed retailer or its employees,whomust remain with the customer atall times thatthe containerisbeinginspectedbythecustomer.Cannabisgoodsremovedfromtheirpackaginginthiswaymaynotbesoldorconsumed. They must be destroyed appropriately when they are no longer being used for display. Retailers may alsoselllive,immaturecannabisplantsandseeds.Aretailermaynotsellmorethantwoouncesofcannabis,sixteengramsof cannabisextract,eighthundredmilligramsofediblecannabis,orsiximmaturecannabis plantstoacustomerina single purchase.

Courier Requirements

Alicenseemaydelivercannabisproductsdirectlytoaqualifiedpatientwhoisatleast18yearsofage,aprimarycaregiverorareciprocalparticipant,ordirectly toaconsumerwhoisatleast21years of age.Paymentforcannabisandcannabisproductscannotberequestedorreceivedbyacannabiscourier.Licenseesmayonlydelivercannabisproductsto theperson who isidentified bytheretailcannabislicensee asanintended, authorized recipient.

Licenseesmustobtaincannabisfromalicensedretailerandthecouriermustbeemployedbytheretailerorhave establishedadelivery agreement.Licenseesmustalsocomplywithanylocallawsrestrictingtimeofdeliveriesand can onlybe delivered to a residential address.

Reporting Requirements

NewMexicousesBioTrackTHC(“BioTrack”)asthestate’strack-and-tracesystemusedtotrackcommercial cannabis activity andmovement acrossthe distribution chain forallsate-issuedannuallicensees.The system allows forotherthird-partysystemintegrationviaapplicationprogramminginterface.Onlylicenseeshaveaccessto BioTrack.

Storage, Transportation and Security Requirements

Toensurethesafetyandsecurityofcannabisbusinesspremisesandtomaintainadequatecontrolsagainstthe diversion, theft and loss of cannabis or cannabis products, the CCD requires licensed businesses to do the following:

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InadditiontoCCDstorageandsecurityrequirements,localjurisdictionsmayhaveadditionalstorageandsecurity requirements. Suchrequirements, to the extent theyexist, mayvary fromone localityto another.

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Site Visits and Inspections

TheCCDanditsauthorizedrepresentativeshavebroadauthority,withor without notice,toinspectlicensedcannabisoperations,includingpremises,facilities,equipment,booksandrecords(whichmaybecopied,andsuchcopiesretained)andcannabisproducts.Inaddition,alicensedproducermustsubmitannualreportstotheCCDoninventory,sales,revenue,andothermatters.FailuretograntrepresentativesfromCCDfullandimmediateaccesstofacilities,propertyandpremises,ortocooperatewithinspectionsandinvestigations,mayresultindisciplinaryactionandreferralto lawenforcement. Anynon-compliancecitationsornoticesofviolation which mayhaveanimpactonthe Company’slicensing,businessactivitiesoroperationsarerequiredbyStaffNotice51-352tobepromptlydisclosedbythe Company