AMERICAN CANNABIS : MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (form 10-Q/A)

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The statements contained in this report that are not statements of historical
fact, including without limitation, statements containing the words “believes,”
“expects,” “anticipates” and similar words, constitute forward looking
statements that are subject to a number of risks and uncertainties. From time to
time we may make other forward-looking statements. Investors are cautioned that
such forward looking statements are subject to an inherent risk that actual
results may materially differ as a result of many factors, including the risks
discussed from time to time in this report, including the risks described under
“Risk Factors” in any filings we have made with the SEC.

Government Regulation

Currently, there are thirty-six states plus the District of Columbia that have
laws and/or regulation that recognize in one form or another legitimate medical
uses for cannabis and consumer use of cannabis in connection with medical
treatment. There are currently sixteen states and the District of Columbia that
allow recreational use of cannabis. As of June 30, 2021, the policy and
regulations of the Federal Government and its agencies is that cannabis has no
medical benefit and a range of activities including cultivation and use of
cannabis for personal use is prohibited on the basis of federal law and may or
may not be permitted on the basis of state law. Active enforcement of the
current federal regulatory position on cannabis on a regional or national basis
may directly and adversely affect the willingness of customers of the Company’s
medicinal cannabis products to invest in or buy products. Active enforcement of
the current federal regulatory position on cannabis may thus indirectly and
adversely affect revenues and profits of the Company.

Our discussion and analysis of our financial condition and results of operations
are based upon our unaudited condensed consolidated financial statements, which
have been prepared in accordance with accounting principles generally accepted
in the United States. The preparation of these unaudited condensed consolidated
financial statements requires us to make estimates and judgments that affect the
reported amounts of assets, liabilities, revenues and expenses. On an ongoing
basis, we evaluate these estimates, including those related to useful lives of
real estate assets, bad debts, impairment, net lease intangibles, contingencies,
and litigation. We base our estimates on historical experience and on various
other assumptions that are believed to be reasonable under the circumstances,
the results of which form the basis for making judgments about the carrying
values of assets and liabilities that are not readily apparent from other
sources. There can be no assurance that actual results will not differ from
those estimates.

BACKGROUND

American Cannabis Company, Inc. and subsidiary company, Hollister & Blacksmith,
Inc., doing business as American Cannabis Consulting (“American Cannabis
Consulting”), (collectively “the “Company”, “we”, “us”, or “our”) are based in
Denver, Colorado and operate a fully integrated business model that features end
to end solutions for businesses operating in the regulated cannabis industry in
states and countries where cannabis is regulated and/or has been decriminalized
for medical use and/or legalized for recreational use. The Company provides
advisory and consulting services specific to this industry, manufactures
proprietary industry solutions including? the Satchel™, SoHum Living Soils™,
Cultivation Cube™ and the High Density Cultivation System.™ The Company also
sells 3rd party industry specific products and manages a strategic group
partnership that offers both exclusive and nonexclusive customer products
commonly used in the industry. American Cannabis Company, Inc. is a publicly
listed company quoted on the OTCQB Tier under the symbol “AMMJ”.

Naturaleaf Acquisition

On April 30, 2021, the Company closed its acquisition of the assets of Medihemp,
LLC, and its wholly owned subsidiary SLAM Enterprises, LLC, and Medical Cannabis
Caregivers, Inc., each an entity organized and operating under the laws of the
State of Colorado, and all doing business as “Naturaleaf” in the medicinal
cannabis industry in Colorado.

Medihemp and SLAM, respectively own fixed assets and operate two retail Medical
Marijuana Centers located in Colorado Springs, Colorado. Medical Cannabis owns
fixed assets and operates a retail Medical Marijuana Center located in Colorado
Springs, Colorado. Medical Cannabis also owns and operates a Medical Marijuana
Optional Premises Cultivation license, and a Medical Marijuana-Infused Product
Manufacturer license.

Naturaleaf agreed to sell or assign to the Company the following assets:

1. Three Medical Marijuana (MMC) Store Licenses;

2. One Marijuana Infused Product Licenses (MIPS); and,

3. One Option Premises Cultivation License (OPC); and,

4. Related real property assets, goodwill, and related business assets.

As a result, the Company has expanded its business model to include the
cultivation and retail sale of cannabis in the medicinal cannabis industry.

The aggregate consideration paid for the Assets was $2,890,000, which consisted
of (i) a cash payment of $1,100,000, (ii) the issuance of a promissory note to
the owner of Naturaleaf in the principal amount of $1,100,000 (the “Seller
Note”), and (iii) the issuance of 3,000,000 shares of the Company’s restricted
common stock valued at $0.23 per share or $690,000.

The asset acquisition was accounted for under the acquisition method of
accounting in accordance with ASC Topic 805, Business Combinations. As the
acquirer for accounting purposes, the Company has estimated the fair value of
Medihemp LLC and Medical Cannabis Caregivers, Inc.’s (hereafter “Naturaleaf’s”)
assets acquired and conformed the accounting policies of Naturaleaf to its own
accounting policies.

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As part of the acquisition, the owners of Naturaleaf retained the outstanding
cash balance on the date of the acquisition and had agreed to the payment of all
outstanding accounts payables and related party advances.

The Company has performed a preliminary valuation analysis of the fair market
value of Naturaleaf’s assets. The following table summarizes the allocation of
the preliminary purchase price as of the acquisition date:

Cash $ —
Inventory 150,000
Property, plant and equipment 92,523
Long Term Deposits 6,000
Identifiable intangible assets 1,111,161
Goodwill 1,530,316
Accounts payable —
Total consideration $ 2,890,000

Preliminary goodwill from the acquisition primarily relates to the future
economic benefits arising from the assets acquired and is consistent with the
Company’s stated intentions and strategy. Other assets include inventory and
fixed assets.

The preliminary fair value of Naturaleaf’s identifiable intangible assets was
$1,111,161 million at April 30, 2021, consisting of $$694,476 in licenses and
$416,875 in brand names.

The estimated fair values assigned to identifiable assets acquired assumed are
provisional and are based on the information that was available as of the
acquisition date to estimate the fair value of assets acquired and liabilities
assumed. The Company believes that information provides a reasonable basis for
estimating the fair values of assets acquired and liabilities assumed, but the
Company is waiting for additional information necessary to finalize those fair
values. Therefore, the provisional measurements of fair value reflected are
subject to change and such changes could be significant. The Company expects to
finalize the valuation and complete the purchase price allocation as soon as
practicable, but no later than one year from the acquisition date.

RESULTS OF OPERATIONS

Revenues

Total revenues were $945,958 for the six months ended June 30, 2021 as compared
to $990,295 for the six months ended June 30, 2020. Total revenues were $619,978
for the three months ended June 30, 2021 as compared to $549,913 for the three
months ended June 30, 2021. The decreases in total revenue of $44,337,
represents a decrease of $154,221 in consulting revenue combined with a $197,193
decrease in product and equipment revenue offset by the revenue stream from the
sale of cannabis products.

Costs of Revenues

Costs of revenues primarily consists of labor, travel, cost of equipment and
soil sold, and other costs directly attributable to providing services or soil
products. Costs of revenues related to our cannabis products include cultivation
costs, including labor, utilities, supplies and cultivation facility rent.
During the six months ended June 30, 2021, our total costs of revenues were
$503,037 compared to $538,168 for the six months ended June 30, 2020. Decreases
in costs of consulting services and products and equipment were offset by
$146,074 in costs associated with the Company’s cannabis products.

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Consulting Services

Consulting service revenues during the six months ended June 30, 2021 were
$201,393 versus $335,613 for the six months ended June 30, 2020. Decreases in
consulting services is a direct result of the effects of COVID-19 on clients
plans. Management had started to see an op tick in services as a result of
several states legalizing cannabis for medicinal and/or recreational use in late
2020, but during the last six months the use of such services has been effected
by delays in finalization of rules for implementation in those states that in
2020 legalized cannabis for either medicinal or recreational purposes.

Costs of Services were $26,706 compared to $114,555 for the six months ended
June 30, 2021 and 2020. Costs associated with consulting services decreased
$87,849 as the Company has focused on the use of internal staff, rather than
consultants for a majority of this work.

Soil Product and Equipment Revenues

Our product and equipment revenues for the six months ended June 30, 2021 were
$437,489 revenues versus $634,682 for the six months ended June 30, 2020. As a
result of changes in warehousing and production practices, soil sales are seeing
a decrease in the sales recognized during the period due to the timing of sales
requiring prepayment at the end of the quarter not being ready for shipment in
the last days of the quarter and therefor not recognizable as revenue at the
prior to the end of the period.

Costs of Products and Equipment were $330,257 and $423,609, during the six
months ended June 30, 2021 and 2020. Costs associated with products and
equipment decreased $93,352, from as a result of the change in the products
being offered offset by an increase in cost per bag for one product.

Cannabis Product Revenues

Cannabis product revenues during the six and three months ended June 30, 2020
were $307,077, respectively. The Company acquired the assets of Naturaleaf on
April 30, 2021 and only began recognizing revenues from these operations on May
1, 2021.

Costs associated with cannabis products consists of those costs incurred in the
cultivation of the plants and the retail sale of the products. During the six
months ended June 30, 2021 such costs were $146,074.

Gross Profit

Total gross profit was $442,921 for the six months ended June 30, 2021,
compromised of consulting services gross profit of $174,687, products and
equipment gross profit of $107,232 and a gross profit of $161,003 for cannabis
products. This compares to total gross profit of $452,131 for the six months
ended June 30, 2020, compromised of consulting services gross profit of $241,058
and products and equipment gross profit of $211,073. The relative decreases are
a result of the actions described above.

The decrease in our consulting services gross profits reflects the effects of
COVID-19 which has been compounded by delays in finalization of rules for
implementation in states that in 2020 legalized cannabis for either medicinal or
recreational purposes The decrease in gross profits for products and equipment
was due to the Company expanding its product line in large quantity container
(“Tote”) selling at lower margins as a promotion to clients during the period.

Operating Expenses

Total operating expenses were $1,027,002, for the six months ended June 30,
2021, and $747,963 for the six months ended June 30, 2020. The increase in
operating expenses is attributed to increases legal, accounting and other third
party consultant costs associated with the closing of the Naturaleaf asset
acquisition. The Company has seen additional increases in sales and marketing
expenses and web site design during the period.

Other Income (Expense)

Other income (expense) for the six months ended June 30, 2021 was $93,532 as
compared with $16,522 for the six months ended June 30, 2020. The increase is a
direct result of the forgiveness of the Company’s then outstanding PPP loan by
the Small Business Administration offset by increases in interest expenses
resulting from the $1,100,000 promissory note issued in connection with the
asset acquisition from Naturaleaf.

Net Loss

Net loss for the six months ended June 30, 2021 was ($490,549) as compared to a
net loss of ($279,310) for the six months ended June 30, 2020.

LIQUIDITY AND CAPITAL RESOURCES

As of June 30, 2021, our primary internal sources of liquidity were our working
capital, which included cash and cash equivalents of $1,131,833 and accounts
receivable of $23,331. We have seen an increase is liquidity as a result of the
asset acquisition of Naturaleaf due to the immediacy the receipt of funds as a
result of retail revenue. Additionally, considering that our fixed overhead
costs are low, we have the ability to issue stock to compensate employees and
management. In prospective, due to the delay in additional states enacting
legalization for cannabis products management has initiated raising additional
capital as needed to offset general and administrative expenses for at least the
next 12 months. Management believes this strategy will adequately provide the
necessary liquidity and capital resources to fund our operational and general
and administrative expenses for at least the next 12 months.

During the six months ended June 30, 2021, the Company issued 6,050,000
registered shares of common stock in exchange for net proceeds of $1,083,542
pursuant to the Common Stock Purchase Agreement entered into on October 11, 2019
with White Lion Capital LLC. The Company has registered 34,000,000 million
shares of its common stock to sell to White Lion Capital, LLC on as needed basis
for funds to support operational activities.

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Operating Activities

Net cash used by operating activities for the six months ended June 30, 2021 was
a use of ($340,990), compared to net cash used by operating activities of
($119,471), for the six months ended June 30, 2020. Increases in cash used were
a result of the increases in inventory, prepaid expenses, and prepaid
acquisition costs offset by decreases in advances from clients.

Investing Activities

For the six months ended June 30, 2021 and 2020, investing activities were a use
of cash of ($1,464,036) and ($231) respectively. The increases were result of
the cash payment in the acquisition of the assets of Naturaleaf of $1,100,000,
expenditures of equipment and leasehold improvements for the cultivation and
dispensary facilities of $360,015.

Financing Activities

During the six months ended June, 2021 proceeds received from financing
activities was $1,213,541 and $69,503 for the six months ended June 30, 2020.
Funds received during the six months ended June 30, 2021 were from the sale of
shares of the Company’s registered common stock and a receipt of funds from the
Company’s second SBA PPP Loan.

Off Balance Sheet Arrangements

As of June 30, 2021, and December 31, 2020, we did not have any off balance
sheet arrangements that have or are reasonably likely to have a current or
future effect on our financial condition, changes in financial condition,
revenues or expenses, results of operations, liquidity, capital expenditures or
capital resources.

Non-GAAP Financial Measures

We use Adjusted EBITDA, a Non-GAAP metric, to monitor our overall business
performance. We define Adjusted EBITDA as net income (loss) before interest
expense, net, provision for (benefit from) income taxes, stock-based
compensation, and certain nonrecurring expenses, which to date have been limited
to costs associated with the Reverse Merger. We believe that such adjustments to
arrive at Adjusted EBITDA provides us with a more comparable measure for
managing our business. We also believe that it is a useful measure for
securities analysts, investors, and other interested parties in the evaluation
of our Company.

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A reconciliation of net income(loss) to Adjusted EBITDA is provided below:

Six Months Six Months
Ended June 30, Ended June 30,
2021 2020

Adjusted EBITDA reconciliation:
Net income (loss) $ (490,549 ) $ (279,310 )
Bad Debt Expense – —
Depreciation 8,979 7,095
Interest Expense – –
Stock-based compensation to employees 28,690 24,162
Adjusted EBITDA $ (452,880 ) $ (248,053 )

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