10-Q: TREES Corporation Reports Q3 2024 Results with Revenue Decline and Continued Losses

TREES Corporation's Q3 2024 results show a decrease in revenue and continued net losses, impacted by the reversal of a previous acquisition and changes in cultivation operations.

Summary

• TREES Corporation reported a net loss of $509,009 for the three months ended September 30, 2024, and a net loss of $3,051,103 for the nine months ended September 30, 2024.
• Total revenue for the quarter was $3,310,259, a decrease from $4,111,583 in the same period last year.
• For the nine months ended September 30, 2024, total revenue was $10,685,262, down from $14,320,196 in the prior year period.
• The company's operating loss for the quarter was $271,639, and for the nine months was $535,185.
• The decrease in revenue and increase in losses are partly attributed to the reversal of a portion of the Green Tree acquisition in Q3 2023.
• The company's cash and cash equivalents decreased to $245,367 as of September 30, 2024, from $969,676 at the end of 2023.
• The company has an accumulated deficit of $103,535,443 as of September 30, 2024.
• The company's ability to continue as a going concern is dependent on its ability to raise additional capital.

Sentiment

Score: 3

Explanation: The document indicates significant financial challenges, including declining revenue, continued losses, and a precarious cash position. The company's dependence on raising capital to continue operations further lowers the sentiment.

Positives

• The company's retail segment operating income increased significantly for the nine months ended September 30, 2024, compared to the same period in 2023.
• The company's operating loss decreased for both the three and nine months ended September 30, 2024, compared to the same periods in 2023.
• The company's net loss decreased for both the three and nine months ended September 30, 2024, compared to the same periods in 2023.
• The company recognized a gain on lease termination of $6,770 during the nine months ended September 30, 2024.
• The company recognized a gain of $34,876 during the nine months ended September 30, 2024, due to the exchange of debt for professional accounting fees.

Negatives

• The company experienced a significant decrease in revenue for both the three and nine months ended September 30, 2024, compared to the same periods in 2023.
• The company's cash and cash equivalents decreased significantly from the end of 2023 to September 30, 2024.
• The company has a substantial accumulated deficit of $103,535,443 as of September 30, 2024.
• The company's cultivation segment continues to operate at a loss.
• The company's ability to continue as a going concern is dependent on its ability to raise additional capital.
• The company terminated a lease at the MLK retail location due to lack of payment of rent.

Risks

• The company's ability to continue as a going concern is dependent on its ability to raise additional capital.
• The company has incurred recurring losses and negative cash flows from operations since inception.
• The company's operating losses are expected to continue into the foreseeable future.
• The company's ability to obtain additional funding is uncertain.
• If the company is unable to obtain additional funding, it may be forced to delay, reduce, or eliminate some or all of its acquisition efforts.
• The company is subject to the limits of Internal Revenue Code (IRC) Section 280E for U.S. federal income tax purposes, which limits deductible expenses.
• The company is involved in a legal dispute regarding the interpretation of IRC Section 280E.
• The company's customer base is concentrated, with a significant portion of revenue coming from a small number of customers.

Future Outlook

The company expects operating losses to continue into the foreseeable future as it continues to execute its acquisition and growth strategy. The company's ability to continue as a going concern is dependent on its ability to raise additional capital.

Management Comments

• Management believes the results for the nine months ended September 30, 2024, are not necessarily indicative of the operating results for the year ending December 31, 2024, or any other interim or future periods.
• Management has concluded that there is substantial doubt about the company's ability to continue as a going concern.

Industry Context

The cannabis industry is facing challenges including regulatory uncertainty and market competition. TREES Corporation's results reflect these challenges, particularly in the context of its acquisition strategy and operational adjustments.

Comparison to Industry Standards

• Compared to other cannabis companies, TREES Corporation's revenue decline and continued losses are concerning, especially given the company's reliance on acquisitions for growth.
• Companies like Curaleaf and Trulieve, while also facing challenges, have demonstrated more robust revenue figures and stronger balance sheets.
• The company's cultivation segment struggles are not unique, as many cannabis companies face difficulties in optimizing cultivation operations and managing costs.
• The company's reliance on a small number of customers is a risk, similar to other smaller cannabis companies that have not yet established a broad customer base.
• The company's high debt levels and negative cash flow are also common in the cannabis industry, but the severity of these issues for TREES Corporation is notable.

Legal Proceedings

• The company is not currently subject to any material legal proceedings outside the ordinary course of business.

Related Party Transactions

• The company has a consulting agreement with its Interim CEO, Adam Hershey.
• The company has a lease agreement with Dalton Adventures, LLC, owned by a principal shareholder and former board member.
• The company had a related party lease with a principal shareholder and former board member.

Stakeholder Impact

• Shareholders are at risk due to the company's financial instability and dependence on raising capital.
• Employees may be impacted by potential cost-cutting measures or restructuring.
• Customers may be affected by potential changes in operations or service.
• Suppliers and creditors face increased risk due to the company's financial challenges.

Next Steps

• The company needs to secure additional funding to continue operations.
• The company needs to improve its revenue and profitability.
• The company needs to address its debt obligations.
• The company needs to optimize its cultivation operations.

Key Dates

Keywords

cannabis, retail, cultivation, financial results, revenue, net loss, operating loss, going concern, debt, leases, acquisition, capital raise