Annual Report (10-k)

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-K

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

For the fiscal year ended December 31, 2018

☐	TRANSITIONAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the transitional period from _____________ to ______________

Commission file number 333-189731

DIEGO PELLICER WORLDWIDE, INC.

(Exact name of registrant as specified in its charter)

Delaware		33-1223037
(State or other jurisdiction of incorporation or organization)		(I.R.S. Employer Identification No.)

9030 Seward Park Ave S. #501, Seattle, Washington 98118

(Address of principal executive offices) (Zip Code)

(516) 900-3799

(Registrant's telephone number, including area code)

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

Title of each class registered:		Name of each exchange on which registered:
None		None

Securities registered pursuant to section 12(g) of the Act: None

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

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

Indicate by check mark whether the registrant (1) has filed all reports required by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 day. Yes ☐ No ☒

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (Section 232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). Yes ☒ No ☐

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

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See the definitions of "large accelerated filer," "accelerated filer" and "smaller reporting company" in Rule 12b-2 if the Exchange Act.

Large Accelerated filer	☐	Accelerated filer	☐
Non-accelerated filer	☒	Smaller reporting company	☒

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

There was no active public trading market as of the last business day of the Company's second fiscal quarter, so there was no aggregate market value of common stock held by non-affiliates.

As of April 12, 2019, the registrant had 47,038,274 shares issued and outstanding.

DOCUMENTS INCORPORATED BY REFERENCE

None.

TABLE OF CONTENTS

		Page
PART I		4

Item 1.	Business	4
Item 1A.	Risk Factors	16
Item 1B.	Unresolved Staff Comments	16
Item 2.	Location	16
Item 3.	Legal Proceedings	16
Item 4.	Mine Safety Disclosures	16

PART II		17

Item 5.	Market For Registrant’s Common Equity, Related Shareholder Matters and Issuer Purchases of Equity Securities	17
Item 6.	Selected Financial Data	18
Item 7.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	19
Item 7A.	Quantitative and Qualitative Disclosures About Market Risk	32
Item 8.	Financial Statements and Supplementary Data	33
Item 9.	Changes in and Disagreements with Accountants on Accounting and Financial Disclosure	34
Item 9A.	Controls and Procedures	34
Item 9B.	Other Information	35

PART III		36

Item 10.	Directors, Executive Officers and Corporate Governance	36
Item 11.	Executive Compensation	37
Item 12.	Security Ownership of Certain Beneficial Owners and Management and Related Shareholder Matters	38
Item 13.	Certain Relationships and Related Transactions, and Director Independence	39
Item 14.	Principal Accountant Fees and Services	39

PART IV		40

Item 15.	Exhibits and Financial Statement Schedules	40

CAUTIONARY NOTE REGARDING FORWARD LOOKING STATEMENTS

This Annual Report on Form 10-K (the "Annual Report") contains “forward-looking statements” within the meaning of the Private Securities Litigation Reform Act of 1995, Section 27A of the Securities Act of 1933, as amended, or the Securities Act, and Section 21E of the Securities Exchange Act of 1934, as amended (the “Exchange Act”). Forward-looking statements discuss matters that are not historical facts. Because they discuss future events or conditions, forward-looking statements may include words such as “anticipate,” “believe,” “estimate,” “intend,” “could,” “should,” “would,” “may,” “seek,” “plan,” “might,” “will,” “expect,” “anticipate,” “predict,” “project,” “forecast,” “potential,” “continue” negatives thereof or similar expressions. Forward-looking statements speak only as of the date they are made, are based on various underlying assumptions and current expectations about the future and are not guarantees. Such statements involve known and unknown risks, uncertainties and other factors that may cause our actual results, level of activity, performance or achievement to be materially different from the results of operations or plans expressed or implied by such forward-looking statements.

We cannot predict all of the risks and uncertainties. Accordingly, such information should not be regarded as representations that the results or conditions described in such statements or that our objectives and plans will be achieved and we do not assume any responsibility for the accuracy or completeness of any of these forward-looking statements. These forward-looking statements are found at various places throughout this Annual Report on Form 10-K and include information concerning possible or assumed future results of our operations, including statements about potential acquisition or merger targets; business strategies; future cash flows; financing plans; plans and objectives of management; any other statements regarding future acquisitions, future cash needs, future operations, business plans and future financial results, and any other statements that are not historical facts.

These forward-looking statements represent our intentions, plans, expectations, assumptions and beliefs about future events and are subject to risks, uncertainties and other factors. 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. In light of 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. You are cautioned not to place undue reliance on these forward-looking statements, which speak only as of the date of the Annual Report on Form 10-K. All subsequent written and oral forward-looking statements concerning other matters addressed in this Annual Report on Form 10-K 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 Annual Report on Form 10-K.

Unless otherwise provided in this Annual Report, references to the “Company,” “Diego,” “we,” “us” and “our” refer to Diego Pellicer Worldwide, Inc.

PART I

Item 1. Business

Overview of the Market

The cannabis market has a multi-billion dollar potential. The industry is in its infancy and is rapidly being propelled towards its potential by the state legalization and the rush by suppliers to meet the pent-up demand. Most suppliers are small unsophisticated but capable operators. The federal legal constraints provide an opportunity to those companies early to the market to gain a first mover advantage and to the successful ones, an opportunity to be a consolidator in the industry. How can a company establish itself as a prestigious national brand when federal laws prohibit the sale of these products? How can a legitimate company respect these laws and be the first mover in the retail and wholesale trade in this industry?

What is Diego's Strategy, Phases One and Two?

Diego is a real estate and a consumer retail development company that is focused on high quality recurring revenues resulting from leasing real estate to licensed cannabis operators, and the management of operations for these and other third party cannabis operators deriving income from management and royalty fees. Diego provides a competitive advantage to these operators by developing “Diego Pellicer” as the world’s first premium marijuana brand and by establishing the highest quality standards for its facilities and products.

The Company's first phase strategy is to acquire and develop the most prominent and convenient real estate locations for the purposes of leasing them to state licensed operators in the cannabis industry. Diego's first phase revenues result from leasing real estate and selling non-cannabis related accessories to our tenants. The company has developed a brand name strategy, providing training, design services, branded accessories, systems and systems training, locational selection, and other advisory services to their tenants. We enter into branding agreements with our tenants. In addition, part of the vetting process in finding the proper tenant is selecting a tenant that shares the Company's values and strictly complies with state laws, follows strict safety and testing requirements and provides consistent, high-quality products. If the tenants do not comply, they will not be allowed to use the brand.

The second phase of our strategy is to secure options to purchase the tenant's operations when it becomes legal on a federal level to operate cannabis distribution operations. When mutually advantageous for Diego and the tenant, Diego will negotiate acquisition contracts with selected Diego operators/tenants. When it becomes federally legal to do so, Diego will execute the acquisition contracts, consolidate our selected tenants and become a nationally branded marijuana retailer and producer concurrent with the change of federal law.

Diego Pellicer Management Company, will license the upscale Diego Pellicer brand to qualified operators and receive royalty payments, while providing expertise in retail, product and manufacturing from Diego’s accomplished management team with extensive industry experience

Value Proposition

Value proposition 1: By providing branding, management experience, training, unique accessories, purchasing services, locational experience, standardized design, and experienced construction supervision, the tenant reduces his startup time, reduces cash drain, increases his efficiency, and builds his gross margin. Diego provides the capital for preopening lease costs and tenant improvements. This results in a turnkey retail location for the tenant. Thus, Diego’s real estate, management, consulting and accessory sales are positioned to deliver a premium return on our investment.

Value proposition 2: With each lease, Diego negotiates an acquisition contract with selected licensed tenants to acquire their operations. This contract will be executed at Diego's option, and upon changes to federal law, introduces our second value proposition-ownership of operations in an industry that is projected to exceed $8 billion by 2018.

Revenue Generation and Growth

Diego generates current revenue and stages future revenue streams through the following processes:

●

Acquire target properties to be improved for the growing, processing, distribution, and sale of medical and recreational marijuana, extracts and ancillary products.

●

Build and lease turnkey Retail, Processing and/or Growing facilities.

●

The Company may choose to secure management contracts with other retail and grow facilities to manage the business the “Diego Way.” This will generate additional revenue with which we can further expand our network of stores.

●

Negotiate merger agreements with favored partners that will trigger when marijuana commerce becomes legal federally.

●

Own DP Brands and other intellectual property.

●

Charge reasonable rents and management fees to tenants or operators to recover all build-out, start-up investment plus profit margin, and management expertise over the lease term.

●

Sell non-cannabis branded products lines such as apparel and edibles to Diego stores.

●

Create an e-commerce platform selling non-cannabis branded merchandise

●

Continue to build and market the brand utilizing all forms of media including traditional and digital media, social media, e-commerce, and strategic partners.

Why We Believe this is a Winning Strategy

When the US and countries around the world legalize the commerce of marijuana on a national and international platform, Diego is positioning itself to be a dominate player in the marijuana marketplace. Diego will accomplish this by being a fully integrated marijuana retail operation and premium brand, capitalizing on the beautifully designed retail stores offering the finest quality products at competitive prices.

Most industries evolve through the same business cycle. Many small independent companies initially operate in fragmented markets in the early stages. Then there is a consolidation of the industry, with the consolidators thriving and the independent companies dwindling. The larger companies have access to cheaper capital, lower costs, better merchandising, brand name recognition, and more efficient operations. This what we offer out tenants when negotiating the lease: an agreement to acquire them when marijuana is legalized. This gives the tenant the ultimate opportunity to participate in the rapid consolidation that we believe will happen when marijuana is legalized. This consolidation will result in companies that have heretofore been unable to participate in the rapidly growing industry to be scrambling to enter the space. Diego and its tenants will already be established and consolidated. As an exit strategy, we want to position Diego to be a likely candidate for acquisition or a major player in the marketplace.

What we accomplished in 2018:

In 2018, Diego operated three Colorado facilities, and a Washington facility having received prestigious awards for “Most Valuable Brand of the Year” and “Best Retail Center” by the 2018 National Cannabis Business Awards. Diego now has four facilities generating rent in 2018 for the full year. The tenants in their first and second years of operations were quickly growing their sales and improving operational efficiency. Diego worked with these tenants, partially forbearing on their rent so as to allow these operators to strengthen their position and become capable of paying full rents. The properties generating rents in 2018 are as follows:

Table 1: Property Portfolio

Purpose	Size	City	State
Retail (recreational and medical)	3,300 sq.	Denver	CO
Grow Warehouse	18,600 sq.	Denver	CO
Grow Warehouse	14,800 sq.	Denver	CO
Retail (recreational and medical)	4,500 sq.	Seattle	WA

Diego's Washington tenant opened our first flagship store in Seattle in October 2016. The Colorado tenant opened the Diego Denver branded flagship store in February 2017. In addition, Diego's two cultivation facilities in Denver, CO began production in late 2016.

Recurring lease revenues from signed agreements are amenable to forecast. Likewise, forecasting expenses of lease obligations for which Diego has signed contracts are also amenable to forecasting. Diego's leases will be generating cash of over $120,000 monthly net of lease costs. After amortization of construction costs, gross income from leases will be over $100,000. In addition to this, there will be income from accessory sales.

Diego Pellicer Seattle

Diego Pellicer Denver

Diego will continue this strategy in states where recreational or medical marijuana sales and cultivation is legal under state law. Our business model is recurring lease revenue, royalties, management fees, and is entirely scalable. Our success will dependent upon continuing to raise capital for expansion, continual improvement of our business model, standardizing store design, controlling costs, new store management opportunities, and continuing to develop the brand.

What does our premium branding accomplish?

A very important aspect of our marketing plan is to build Diego Pellicer as a luxury brand. This not only enables us to establish a premium brand, but also to generate significant revenues from non- cannabis products.

The Company is establishing several levels of branding and will use these to appeal to the various segments of the marketplace depending upon the location, competition, legal constraints, and budget. Standard store templates are being developed, complimentary accessories selectively designed, and customer preferences and segments analyzed.

Our Seattle and Denver stores have been met with enthusiastic demand growing revenues quickly. This is proving the initial Diego concept.

The Industry: Retail Sales Continue to Rise Rapidly

Legalization of marijuana is a very recent movement. California was the first to legalize in 1996 when medical marijuana was approved. Nine states and the District of Columbia have legalized the drug for recreational purposes, according to the National Conference of State Legislatures. More than half the states (31) – plus the District of Columbia, Guam and Puerto Rico – have legalized it for medical purposes. The list of states that have legalized marijuana could expand this November. Voters in Michigan and North Dakota will decide whether to allow recreational use. Marijuana remains illegal under U.S. federal law.

Source: 2018 Marijuana Business Daily, a division of Anne Holland Ventures Inc.

DESCRIPTION: A CLOSE UP OF A MAP

DESCRIPTION AUTOMATICALLY GENERATED

The growth in public support for legal marijuana comes as a growing number of states have legalized the drug for medical or recreational purposes in recent years.

About six-in-ten Americans (62%) say the use of marijuana should be legalized, reflecting a steady increase over the past decade, according to a new Pew Research Center survey. The share of U.S. adults who support marijuana legalization is little changed from about a year ago – when 61% favored it – but it is double what it was in 2000 (31%).

As in the past, there are wide generational and partisan differences in views of marijuana legalization. Majorities of Millennials (74%), Gen Xers (63%) and Baby Boomers (54%) say the use of marijuana should be legal. Members of the Silent Generation continue to be the least supportive of legalization (39%), but they have become more supportive in the past year.

Source: Pew Research Center

Annual cannabis retail sales continue to grow year-over-year as new markets emerge and more states legalize medical and recreational marijuana. Sales in 2018 are projected to increase by roughly 35% from 2017, on pace to reach more than $8 billion by the end of the year.

By 2022, annual retail marijuana sales in the United States could top $22 billion, which would represent more than a 250% increase from 2017.

Source: 2018 Marijuana Business Daily, a division of Anne Holland Ventures Inc.

In 2018, retail marijuana sales in the United States are expected to increase by roughly 35%, on pace to reach over $8 billion by the end of the year. Despite the rocky rollout of California's new recreational industry, the market is massive and will be a major driver of sales growth this year. In mature markets like Washington state and Colorado, rec sales have continued rising - though at a slower rate than in previous years. In 2018, combined sales in those two states will easily eclipse $2 billion. Ongoing growth in Nevada's red-hot recreational market and the launch of adult-use sales in Massachusetts in late 2018 will further buoy sales in 2018. Based on our estimates, recreational sales will surpass medical sales for the first time in 2018, a major milestone for the cannabis industry.

Overall, medical marijuana sales are expected to decrease for the first time in 2018 - driven by the massive transition taking place in California. Prior to 2018, all sales in the state were in the MMJ market, but now that recreational sales are underway, early reports suggest the vast majority of purchases taking place in licensed, regulated stores are to adult-use customers.

Outside of California, however, sales are expected to continue climbing, bolstered by ongoing growth in mature markets like New Mexico and Arizona, increased patient access in Florida and new MMJ programs coming online in Maryland and Pennsylvania. The transition to fully regulated, state-licensed MMJ sales in Michigan has caused some short-term instability, but it remains one of the largest medical markets in the country and will likely continue to form the foundation of the MMJ industry for years to come.

Ohio could begin MMJ sales at the very end of 2018, though it will take time for the program to fully develop. The state's MMJ market is particularly noteworthy, as it has the potential to generate upwards of $300 million in annual retail sales a few years down the road.

Setbacks in Arkansas and Maine have pushed back the start of their MMJ and adult-use sales, respectively, until 2019. More states will legalize marijuana in the near future, as New Jersey is on the short list to pass a recreational marijuana measure through the legislature and Arizona is likely to have an adult-use cannabis initiative on the 2020 ballot.

By 2022, we project total retail marijuana sales in the United States will reach approximately $22 billion annually - more than a threefold increase from estimated annual sales in 2017. Our estimates account for the fact that more states will likely legalize medical or adult-use marijuana in the coming years - though it's difficult to predict when that will happen and how big those markets will be. Using a range of estimates that incorporate several factors - such as the likelihood of a given state passing a legalization measure, the size of the customer/patient base and time frame for the launch of sales - helps account for this uncertainty. Our approach is refined over time as more information becomes available.

It's important to point out that the marijuana industry has a big and growing impact on the economy at large as the revenue it generates ripples across a community, city and/ or state - as well as the nation. To understand an industry's economic impact, traditional macroeconomic multipliers can range anywhere from 10 to 20 times the original dollar spent. Based on new data from other industries, we've settled on a standard multiplier of 3.5 for the marijuana industry - a slight revision from last year's multiplier of four.

In other words, for every $1 consumers/patients spend at dispensaries and rec stores, an additional $2.50 of economic value will be injected into the economy - much of it at the local level.

Source: 2018 Marijuana Business Daily, a division of Anne Holland Ventures Inc. (Note that our goal is to provide conservative, realistic financial forecasts that reflect the high degree of uncertainty in the industry. Total cannabis sales in any given calendar year are highly dependent upon progress made - or not made - in each individual state. California is currently the big wild card, as the slow rollout of its statewide regulatory system makes it difficult to get a handle on the exact size of this enormous market. As more information comes to light over time, it could change our estimates for California and, therefore, the industry at large.)

Where are the Greatest Market Opportunities?

All eyes are on California.

That's the reality for nearly everyone involved in the global marijuana market. Companies around the world - from Europe to Canada to Israel and beyond - want a piece of the California market. But there are plenty of practical ramifications. No other state or federal government in the world has tried to implement such a wide-ranging regulatory system that affects tens of thousands of existing black- and gray-market businesses.

The bottom line: The sheer immensity of the California cannabis market is topped only by its complexity. And that complexity has led to major struggles and big wait times for entrepreneurs looking to tap the California market potential. California's MJ regulatory system covers a population of 40 million and includes incentives for existing businesses to transition to the licit tax-paying industry.

There are plenty of other hurdles for existing and future businesses as well, including local license caps from towns and counties that are hesitant to grant permits to any type of cannabis companies. As of early October 2018, only a fraction of local governments had opted to allow rec companies to set up shop within their borders, and state business permits are dependent on a company first obtaining local authorization of some sort. Plenty of companies are striving to play by the rules, but they're often unable to stay in business while doing so because they haven't been able to find locations that fit all the legal parameters for licensing.

The same is true for thousands of small-scale growers in California, as well as edibles makers, concentrate producers and other plant-touching businesses. One option for such companies, at least for now, is to focus on the medical marijuana market instead of rec. Far more local governments allow limited medical companies than adult-use businesses. Obtaining such permits could be a stopgap move, because as time goes on, it's likely that more and more local governments will decide to permit rec. Another option could be to pivot into an alternate cannabis sector, such as distribution or testing labs, given that there's a dearth of both key business types in the state.

Hemp and CBD

Hemp was once prized for making rope. Two hundred years later, the plant still has us tied in knots. From a patchwork of state hemp rules to confusion among cannabis entrepreneurs about the definition of hemp, uncertainty reigns in the hemp industry. Hemp has long been bedeviled by its conflation with marijuana, and the Controlled Substances Act banned its production for decades. That changed in 2014, when the U.S. Farm Bill opened the door for a hemp revival in states willing to experiment (and control) the crop's return to legal production. The federal government defines hemp as cannabis sativa with a THC content at or below 0.3%.

The Farm Bill set off an explosion of hemp production and experimentation and has given cannabis entrepreneurs new opportunities to grow, sell and buy cannabis in a nonintoxicating form. As of October 2018, hemp production is legal under at least limited circumstances in 41 states. The Farm Bill allows limited interstate commerce for hemp - something still off-limits to marijuana entrepreneurs. And hemp businesses report fewer banking and regulatory headaches (though barriers certainly exist in these areas), compared to their marijuana-producing colleagues.

The U.S. hemp experiment is still unfolding. Market conditions vary widely. Some states ban all hemp production; others allow some but not all farmers to grow it; and a handful of states invite all farmers to try hemp and even offer to help market the crop and find companies to process it. U.S. agriculture authorities consider hemp legal only if it is grown as part of a state-backed pilot project, so the USDA keeps no records of the nation's nascent hemp industry.

Not all U.S. states use the federal THC guidelines to define hemp, and the 0.3% THC threshold has little basis in science, meaning that scientists don't agree how much THC a plant needs to produce a high when heated and consumed. Cannabis plants have more than 100 cannabinoids, of which THC is only one, and hemp products with no detectable THC can still be considered psychoactive if they contain cannabinoids that relieve anxiety or depression. At least one state, Iowa, explicitly dictates that cannabidiol is legal but highTHC marijuana is not legal - then goes on to say it accepts cannabidiol with a THC limit 10 times higher than the federal threshold for legal hemp.

Still, the 0.3% THC threshold is a useful metric for dividing marijuana from hemp, and it is the standard used in this Factbook.

Longtime hemp prohibition in the United States has left the industry frozen in time. There is little modern agricultural equipment appropriate for hemp harvesting and processing, and the crop likely won't match the market share it enjoyed before the Industrial Revolution, when hemp fibers were commonly used in commercial fabrics. Today, hemp's value comes mostly from its flower, rich in cannabinoids beyond THC. The most valuable as of this report is CBD, a cannabinoid with established therapeutic uses including pain relief and reducing muscle spasms associated with epilepsy or muscular sclerosis.

Hemp Industry Daily estimates that the U.S. market for hemp-derived CBD will hit approximately $500 million in 2018, with the potential to eclipse $3 billion annually by 2022 - a 500% increase in just four years.

Expect hemp-derived cannabinoid products low in THC to take increasing market share (and media attention) in the overall cannabis industry.

Source: 2018 Marijuana Business Daily, a division of Anne Holland Ventures Inc.

What Benchmarks could Diego be Measured Against?

Diego was one of the first to the market with a real estate holding and branding business model; however, other companies have since adopted similar strategies. Key differentiators between Diego and its competitors are superior branding, optimized build-out and turnkey grow and retail development, pre-negotiated acquisition contracts, and most importantly a branded management company. Table 4 provides a financial benchmark of other cannabis.

Table 4: Financial Benchmark-millions

	Market Cap at 3/24/2016			Most Recent Revenue		Cost of Revenue		Gross Margin %			Net Profit			For the year ended
General Cannabis Corp(CANN)	$	105.24	M	$	3.511	$	2.785		21	%	$	(8.22	)	12/31/2017

Mountain High Acquisitions Corp. (MYHB)		5.67	M		23,057		2,204		90	%		(0.94	)	3/31/2017

Agritek Holdings, Inc.(AGTK)		10.708	M		3.228		3.161		2	%		(2.98	)	12/31/2016

Innovative Industrial Properties, Inc.(HPR)		176.47	M		1.560		N/A		N/A			(1.37	)	12/31/2016

M J Holdings Inc.(MJNE)		22.01	M		9.039		0.000		100	%		(0.08	)	12/31/2016

Status of Federal Law

While marijuana is legal under the laws of several U.S. States, at the present time the concept of “medical marijuana” and “retail marijuana” do not exist under U.S. federal law. The United States Federal Controlled Substance Act classifies marijuana as a Schedule I drug. As defined under U.S. federal law, a Schedule I drug or substance has a high potential for abuse, no accepted medical use in the United States, and a lack of safety for the use of the drug under medical supervision.

The United States Supreme Court has ruled in several cases that the federal government does not violate the federal constitution by regulating and criminalizing cannabis, even for medical purposes. Therefore, federal law criminalizing the use of marijuana pre-empts state laws that legalizes its use for medicinal and recreational purposes.

Attorney General Jeff Sessions' January 2018 decision to rescind the Cole Memo raised some concerns in the marijuana industry that federal officials may try to interfere with legal cannabis. Those concerns, for the most part, haven't materialized, but the scare did get many marijuana businesses thinking about the possibility of federal interference and what could be done about it.

The memo was drafted during the Obama administration by former U.S. Deputy Attorney General James Cole in 2013 as a way to minimize the threat of federal crackdowns against legal marijuana businesses. The document essentially instructed federal law enforcement not to interfere with state-licensed marijuana businesses complying with state laws and certain conditions, such as not selling product to minors or into the black market.

While the Cole Memo clearly expressed an Obama administration policy of leaving legal marijuana businesses alone, it was not a legal change - which only Congress can do. Therefore, the Cole Memo technically allowed U.S. attorneys to go after marijuana businesses if they wanted. With the sending of the Cole Memo to the proverbial shredder, U.S. attorneys no longer have guidelines on how to deal with state-licensed marijuana businesses. But in an April 2018 conversation with Republican U.S. Sen. Cory Gardner, President Donald Trump pledged to keep the Department of Justice from interfering with state cannabis laws and, perhaps more significantly, support legislation protecting state-legal marijuana businesses. White House officials later confirmed the president's policy stance.

The news is being celebrated by advocates working to reform marijuana laws, but many are wary of taking President Trump at his word as nothing has been codified that would prevent him from reversing course.

Several bills have been introduced to Congress seeking to reform federal marijuana laws in different ways, including the removal of cannabis from the list of controlled substances, allowing MJ companies to access traditional banking services and amending the IRS code to more fairly tax cannabis businesses. Similar bills have been introduced in previous sessions of Congress, but none have gained significant traction. This time, however, may be different, as marijuana reform has become a bipartisan issue that has the support of many prominent Republicans.

Senate Majority Leader Mitch McConnell, for example, introduced a bill in April to remove federal barriers on hemp, while former Republican House Speaker John Boehner recently disclosed his involvement with a large, multistate cannabis company.

Whether any significant reform of federal marijuana policy happens in 2018 and what shape it could take remains an open question, but it's clear that attitudes toward cannabis on Capitol Hill are shifting.

Source: 2018 Marijuana Business Daily, a division of Anne Holland Ventures Inc.

Item 1A. Risk Factors

We are a smaller reporting company as defined by Rule 12b-2 of the Exchange Act and are not required to provide the information under this item.

Item 1B. Unresolved items

None.

Item 2. Location

Our principal executive office is located at 9030 Seward Park Ave S. #501, Seattle, Washington 98118.

Item 3. Legal proceedings

We currently are not a party to any material litigation or other material legal proceedings. From time to time, we may become involved in various lawsuits and legal proceedings which arise in the ordinary course of business. However, litigation is subject to inherent uncertainties and an adverse result in these or other matters may arise from time to time that may harm our business. We are currently not aware of any such legal proceedings or claims that we believe will have a material adverse effect on our business, financial condition or operating results.

Item 4. Mine Safety

Not applicable.

PART II

Item 5. Market for Registrant's Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities

There is no established public trading market for our common stock. As of the date of this Report, there are outstanding options and warrants to purchase 11,176,493 shares of common stock of the Registrant.

Record Holders

As of April 12, 2019, there were approximately 193 shareholders of record holding a total of 47,423,790 shares of common stock. The holders of the common stock are entitled to one vote for each share held of record on all matters submitted to a vote of shareholders. Holders of the common stock have no preemptive rights and no right to convert their common stock into any other securities. There are no redemption or sinking fund provisions applicable to the common stock.

Dividends

The Registrant has not declared any cash dividends since inception and does not anticipate paying any dividends in the foreseeable future. The payment of dividends is within the discretion of the Board of Directors and will depend on the Company's earnings, capital requirements, financial condition, and other relevant factors. There are no restrictions that currently limit the Registrant's ability to pay dividends on its common stock other than those generally imposed by applicable state law.

Unregistered Sale of Equity Securities

We sold 41,054 shares of common stock and received proceeds of $20,872. Additionally 5,000 valued at $2,648 were not issued as of December 31, 2018. We issued 16,804 shares of common stock that were sold in 2017 and classified as shares to be issued at December 31, 2017.

Holders of convertible notes converted $1,019,933 of notes and $78,107 of accrued interest into 15,230,423 shares of common stock valued at $2,726,567. Additionally, 85,110 shares, valued at $168,862, for the conversion of notes, were authorized but not issued as of December 31, 2018.

2,116,857 shares of common stock were returned in connection with Debt Restructure Agreements dated On July 17, 2018, additionally 675,759 shares of common stock, valued at $108,121, were agreed to be cancelled, has not been returned as of December 31, 2018.

We issued 40,500 common shares as security for the payment of convertible notes. The shares, valued at $26,730 are held in escrow, are refundable and are recorded in a contra equity account.

We issued 1,780,074 shares of common stock, valued at $618,532, for services. Additionally, 1,980,179 shares, valued at $322,433 for services, were authorized but not issued as of December 31, 2018.

We issued 669,082 shares of common stock for payment of a former employee note in the amount of $166,354, plus accrued interest of $21,658. In addition, 273,245 excessive shares of common stock were issued, these shares are in the process of being cancelled.

We issued 75,000 shares of common stock, valued at $47,254, to settle accounts payable to a consultant.

We issued 125,000 shares of common stock, valued at $20,500, for an inducement of extension of sublease.

We issued 2,308,938 shares of common stock, valued at $202,443 as share-based compensation to related parties. Additionally, 29,486 shares, valued at $95,983 were authorized to be issued for related party services, but were not issued as of December 31, 2018.

As a condition of management employment, the Board of Directors approved employment agreements with two key executives. This agreement provided that additional shares will be granted each year at February 1 over the term of the agreement should their shares as a percentage of the total shares outstanding fall below prescribed ownership percentages. The CEO received an annual grant of additional shares each year to maintain his ownership percentage at 10% of the outstanding stock. The other two executives receive a similar grant to maintain each executive’s ownership percentage at 7.5% of the outstanding stock. During the year ended December 31, 2018, 2,732,106 shares were issued. At December 31, 2018, there is $229,031 accrued for the annual grants, representing 649,541 shares authorized not issued. The Company recorded compensation expense of $610,284 for the year ended December 31, 2018.

In connection with the issuances of the foregoing securities, the Company relied on the exemptions from registration provided by Section 4(a) (2) of, and Rule 506 of Regulation D promulgated under, the Securities Act of 1933, as amended, for transactions not involving a public offering.

Item 6. Selected Financial Data

We are a smaller reporting company as defined by Rule 12b-2 of the Exchange Act and are not required to provide the information under this item.

Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations

The following discussion and analysis of the results of operations and financial condition of Diego Pellicer Worldwide, Inc. (the “Company”, “we”, “us” or “our”) should be read in conjunction with the financial statements of Diego Pellicer Worldwide, Inc. and the notes to those financial statements that are included elsewhere in this Form 10-K This discussion includes forward-looking statements based upon current expectations that involve risks and uncertainties, such as our plans, objectives, expectations and intentions. Actual results and the timing of events could differ materially from those anticipated in these forward-looking statements as a result of a number of factors, including those under sections in the financial statements and footnotes included in the Company’s Form 10-K filed on March 31, 2018 for the year ended December 31, 2018. Words such as “anticipate,” “estimate,” “plan,” “project,” “continuing,” “ongoing,” “expect,” “believe,” “intend,” “may,” “will,” “should,” “could,” and similar expressions are used to identify forward-looking statements.

Overview

Diego Pellicer Worldwide, Inc. was established on August 26, 2013 to take advantage of growing market for legalized cannabis being made possible by the escalating legislation allowing for the legalization of cannabis operations in the majority of states:

The industry is operating under stringent regulations within the various state jurisdictions. The Company’s primary business plan is twofold: First to lease various properties to licensed operators in these jurisdictions to grow, process and sell cannabis and related products, and the second the Diego Pellicer Management Company, will license the upscale Diego Pellicer brand to qualified operators and receive royalty payments, while providing expertise in retail, product and manufacturing from Diego’s accomplished management team with extensive industry experience, The Company will also provide educational training, compliance consultation, branding, and related accessories to their tenants. These leases and management agreements are expected to provide substantial streams of income. We believe that as laws evolve, it is possible that we will have the opportunity to participate directly in these operations. Accordingly, the Company will selectively negotiate an option on our tenants’ operating company.

The Company has already established four facilities in markets that have experienced high growth, Washington and Colorado. This growth is illustrated in the tables below:

Source: Headset & 2018 Marijuana Business Daily, a division of Anne Holland Ventures Inc.

The legalization taking place in other states such as California and Florida present opportunities many times that of Washington and Colorado. The Company is exploring opportunities in Oregon, California and Florida and is getting inquiries from other potential operators in other jurisdictions.

This market is projected to grow rapidly in the future as this chart below illustrates:

Source: Marijuana Business Daily

Summary

The Company’s primary business objective is to lease various properties to licensed operators to grow, process and retail cannabis and related products. By developing a premium brand name, building upscale facilities, and providing quality accessories to a market where financing is difficult to obtain, these subleases are designed to provide a substantial stream of income. We believe that as laws evolve, it is possible that we will have the opportunity to participate directly in these operations as well.

2018 has been a year of growth for Diego Pellicer Worldwide. Four tenants were open and generating lease revenue. The tenants were showing steady revenue increases and operating improvements. The business model was being proven. The brand name was getting national recognition and garnered the “Most Valuable Brand of the Year” at the 2018 National Cannabis Business Awards beating out tough national competition including MedMen™, The Clinic, Lightshade and Olio. Diego was also honored as the “Best Retail Center” for the second year in a row, defeating other highly regarded names including LiveWell, The Clinic, The Green Solutions, Euflora and Kind Love.

Following this stabilization and growth, in 2019 Diego expects that its revenues from existing tenants, new management agreements and retail acquisitions by the Company and, or it’s tenants will continue to improve the bottom line for the Company. General and administrative expenses should continue to decline also resulting in improved operating results.

Diego is exploring opportunities in California, Colorado, Nevada, Washington and other states. The Company will continue to raise capital to finance that expansion. This should result in increased revenues for the future and increased opportunities into new markets.

Opportunity in an untapped industry with multi-billion-dollar potential

The demand for marijuana products is a multi-billion-dollar market that has only recently begun to become mainstream. Many challenges face the marijuana entrepreneur. Therein lies the opportunity.

Regulation and reality

Total demand for marijuana in the United States, including the black market, is around $52.5 billion, according to the estimates.. That becomes a very conservative estimate of the size of the market in the United States. Distribution was driven underground for years by the Controlled Substance Act passed by Congress nearly 50 years ago. The favorable public opinion towards the legalization is rapidly changing the political attitude toward marijuana not only on the state level but on the federal level. If the Federal Government legalized marijuana nationwide, sales might start out around that level, but would likely rise as cannabis gained mainstream acceptance and the market evolved. Eventually, marijuana could surpass cigarette sales with the potential to rival beer in terms of overall sales.

Financing and banking

As doubts remain, financing is still a challenge for this industry with banks in many states not only avoiding lending to these businesses but also refusing deposits because of complicated FDIC requirements. Financing has been largely equity raises, vendor financing, and expensive convertible debt. However, with the legalization and subsequent public capital raises in Canada and the change in the political attitude, there has been an indication of more interest by institutional investors in providing capital to this industry and more banks are accepting deposits.

A fragmented industry

Most industries evolve through the same business cycle. Many small independent companies initially operate in fragmented markets in the early stages. Then there is a consolidation of the industry, with the consolidators thriving and the independent companies dwindling. The larger companies have access to less expensive capital, lower costs, better merchandising, brand name recognition, and more efficient operations. This what we offer our tenants when negotiating the lease: an agreement to acquire them when marijuana is federally legalized. This gives the tenant the ultimate opportunity to participate in the rapid consolidation that we believe will happen when marijuana is federally legalized. This consolidation will result in companies that have heretofore been unable to participate in the rapidly growing industry to be scrambling to enter the space. Diego and its tenants will already be established and consolidated. As an exit strategy, we want to position Diego to be a likely candidate for acquisition or a major player in the marketplace.

The opportunity

The first mover advantage will continue to be possible for those willing to deal with the regulatory, banking, and financial challenges in today’s market. The fragmented market, the shortage of executives skilled in challenges of the industry, scarcity of brand names, provides a company like Diego, who has proven their business model, to be a consolidator in this industry.

States with legalized marijuana

Thirty three states and the District of Columbia have laws broadly legalizing marijuana in some form. Ten states and the District of Columbia have legalized marijuana for recreational use with the largest market by far, California, becoming legal.

The majority of all states allow for use of medical marijuana under certain circumstances. Some states have also decriminalized the possession of small amounts of marijuana. The industry is operating under stringent regulations within the various state jurisdictions.

This map shows current state laws and recently approved ballot measures legalizing marijuana for medical or recreational purposes. ²

There are 9,397 active licenses for marijuana businesses in the U.S., according to Ed Keating, chief data officer for Cannabiz Media, which tracks marijuana licenses. This includes cultivators, manufacturers, retailers, dispensaries, distributors, deliverers and test labs. Now 306 million Americans live in a jurisdiction that has legalized some form of cannabis use. ³ BDS Analytics estimates that the industry paid $1 billion in state taxes in 2016 and owes another $1.4 billion for 2017. ⁴

¹ “Illegal Pot Sales Topped $46.4 Billion in 2016, and that’s Good News for Marijuana Entrepreneurs,” Inc., January 17, 2017, Will Yakowicz.

² CNN Money , “The Legal Marijuana Market is Booming,” January 31, 2018, by Aaron Smith

³ Frontier Financial Group, ‘The Cannabis Industry Annual Report: 2017 Legal Marijuana Outlook,”

⁴ CNN Money , “The Legal Marijuana Market is Booming,” January 31, 2018, by Aaron Smith

The recent legalization in states such as California and probable legalization in Florida present opportunities many times that of Washington and Colorado. The Company is exploring opportunities in Oregon, California and Florida and is getting inquiries from other potential operators in other jurisdictions such as Michigan.

States introducing and expanding legalized marijuana laws

The legalized cannabis market has grown considerably bigger, with Canada federally legalizing recreational marijuana in 2018 and Eastern states in the U.S. rushing towards legalization.

Recent developments at the federal level

Pressures from the states with legalized cannabis industries have been exerted by those state’s Senators and Congressmen. Both informal and formal efforts have been increased by these states. The following are the most recent:

In an April 2018 conversation with Republican U.S. Sen. Cory Gardner, President Donald Trump pledged to keep the Department of Justice from interfering with state cannabis laws and, perhaps more significantly, support legislation protecting state-legal marijuana businesses. White House officials later confirmed the president's policy stance.

Similar bills have been introduced in previous sessions of Congress, but none have gained significant traction. This time, however, may be different, as marijuana reform has become a bipartisan issue that has the support of many prominent Republicans.

New York Democratic Senator Chuck Schumer introducing legislation to remove cannabis from the DEA’s list of controlled substances, to decriminalize pot at a federal level and effectively allow states to decide how to regulate the use of medical or recreational marijuana without concern for federal law.

President Trump cut a deal with Colorado Senator Corey Gardner, R-Colo. to allow states to decide what to do about cannabis.

Former Speaker of the House John Boehner became a director with cannabis company Acreage Holdings.

The Food and Drug Administration setting up for an approval of the first cannabis-based drug from GW Pharmaceuticals Plc (“ GWPH” )

The Veteran’s Administration now wants to study the effectiveness of cannabis for chronic pain and PTSD. ⁽ The Street, “Cannabis Industry Sits on Precipice of Major Expansion, March 28, 2018, by Bill Meagher)

Source: 2018 Marijuana Business Daily, a division of Anne Holland Ventures Inc.

The projected U.S. cannabis industry’s growth

The Cannabis Industry’s Annual Report for 2017 projects the following robust growth of legal marijuana sales:

New Frontier, “The Cannabis Industry Annual Report: 2017 Legal Marijuana Outlook,”

Diego’s value proposition

Value proposition 1: By providing branding, training, unique accessories, purchasing services, site selection, standardized design, and experienced construction supervision, the tenant reduces his startup time, reduces expenses, increases their efficiency, and builds their gross margin. Diego provides the capital for preopening lease costs and tenant improvements. This results in a turnkey retail location for the tenant. Thus, Diego’s real estate, consulting and accessory sales are positioned to deliver a premium return on our investment.

Value proposition 2: With a demonstrated profitability, Diego has the choice of selling the operations of a selected facility in combination with the tenant and then securing a management contract for that facility. The proceeds can be used to further expand our branded stores and production facilities.

Value proposition 3: On select leases, Diego negotiates an acquisition contract with selected licensed tenants to acquire their operations. This contract will be executed at Diego’s option, and upon changes to federal law, introduces our second value proposition—ownership of operations in an industry that is projected to exceed $8 billion by 2018.

What is Diego’s Strategy?

Phase 1 - brand and develop facilities and lease to licensed operators

Diego is initially a real estate and a consumer retail development company that is focused on high quality recurring revenues resulting from leasing real estate to licensed cannabis operators. Diego provides a competitive advantage to these operators by developing Diego Pellicer as the world’s first premium marijuana brand and by establishing the highest quality standards for its facilities and products.

The Company’s first phase strategy is to acquire and develop the most prominent and convenient real estate locations for the purposes of leasing them to state licensed operators in the cannabis industry. Diego’s first phase revenues result from leasing real estate and selling non-cannabis related accessories to our tenants. The company has developed a brand name strategy, providing training, design services, branded accessories, systems and systems training, locational selection, and other advisory services to their tenants. We enter into branding agreements with our tenants. In addition, part of the vetting process in finding the proper tenant is selecting a tenant that shares the Company’s values and strictly complies with state laws, follows strict safety and testing requirements and provides consistent, high-quality products. If the tenants do not comply, they will not be allowed to use the brand.

Simultaneous to the signing of the lease, Diego may secure an option to purchase the tenant’s operations with selected Diego operators/tenants.

Phase 2 - Sell facilities and retain a management contract

Having developed a brand name and demonstrated operational excellence, the Company has facilities with a proven superior earning power. The Company, in combination with the licensed tenant, may choose to sell the real estate and the operating company and secure a management contract to manage the property the “Diego Way.” This will generate capital with which we can further expand our network of stores.

Phase 3 - Exercise the option to purchase and roll up licensed cannabis operations

When it becomes federally legal to do so, Diego will execute the acquisition contracts, consolidate our selected tenants and become a nationally branded marijuana retailer and producer concurrent with the change of federal law. We expect this to be a frantic time for larger companies to look for acquisitions, the opportunity to raise capital for further expansion or the exercise an exit strategy.

What does our premium branding accomplish?

Our Seattle and Denver stores have been met with enthusiastic demand growing revenues quickly. This is proving the initial Diego concept.

We have proven this to be a winning strategy

Diego is positioning itself to be a dominate player in the marijuana marketplace. Diego has proven this by being a fully integrated marijuana retail operation and premium brand, capitalizing on the beautifully designed retail stores offering the finest quality products at competitive prices.

What we accomplished in 2018

2018 was a time of new growth for the Company. An effective and experienced team had to be assembled from within our operators to develop our newly formed management company, and to complement the current executives with knowledge and experience in real estate operations, banking, site selection, branding, facility design, corporate finance, investor relations, store management, and grow expertise, Additional capital needed to be raised in order to have sufficient capital to help support our operators expand within their markets, and do begin the expansion into different markets in the US. Much of the Company’s debt was renegotiated, and additional commitments were formalized for the expansion in the Colorado market. New markets had to be explored, new alliances forged, and opportunities prioritized.

$1,173,750 in new capital was raised. New markets were explored. Four facilities continued to see year upon year increases in revenues, which lead to increased rental revenue cash-flow to the Company. All delinquent notes were renegotiated, consolidated, and extended. In 2018, Diego had received revenues from three Colorado facilities, and our Washington store. Diego now had four facilities generating rent in 2018 for the full year and we have actively been expanding in those markets with potential acquisitions for our tenants, and our management company. The tenants growing their sales and improving operational efficiency. Diego worked with these tenants, partially forbearing on their rent so as to allow these operators to strengthen their position and become capable of paying full rents. The properties generating rents in 2018 are as follows:

Table 1: Property Portfolio

Purpose

Size

City

State

Retail store (recreational and medical)

3,300 sq.

Denver

Cultivation warehouse

18,600 sq.

Denver

Cultivation warehouse

14,800 sq.

Denver

Retail store (recreational and medical)

4,500 sq.

Seattle

Diego’s Washington tenant opened our first flagship store in Seattle in October 2016. The Colorado tenant opened the Diego Denver branded flagship store in February 2017. In addition, Diego’s two cultivation facilities in Denver, CO began production in late 2016. The retail facilities have shown steady growth in sales since their opening.

Diego Pellicer Seattle

Diego Pellicer Denver

Diego will continue this strategy in states where recreational or medical marijuana sales and cultivation are legal under state law. Our business model is recurring lease revenue and is entirely scalable. Our success will dependent upon continuing to raise capital for expansion, continual improvement of our business model, standardizing store design, controlling costs, and continuing to develop the brand.

RESULTS OF OPERATIONS

Year ended December 31, 2018 compared to year ended December 31, 2017

After rental expense the gross margins on the lease were as follows:

	Year Ended			Year Ended			Increase (Decrease)			Increase (Decrease)
	December 31, 2018			December 31, 2017			$			%
Revenues
Net rental revenue	$	1,456,939		$	1,486,997		$	(30,058	)		(2.0	)%
Rental expense		(1,130,135	)		(1,212,161	)		82,0326			6.8	%
Gross profit		326,804			274,836			51,968			18.9	%
General and administrative expenses		2,786,615			5,704,621			2,918,006			51.2	%
Selling expense		66,511			95,606			29,095			30.4	%
Depreciation expense		498,400			456,918			(41,482	)		(9.1	)%
Loss from operations	$	(3,024,722	)	$	(5,982,309	)	$	2,957,587			49.4	%

Revenues. For the year ended December 31, 2018 and 2017, the Company leased three facilities to licensees in Colorado and one in Washington. The year ended December 31, 2018 is the beginning of the second year of operations for these licensees and Diego is now collecting some premium rents. Diego, however, is still forbearing on the premium rents contractually due from the tenant as a result of the cost of leasehold improvements and the deferral of preopening rents. These will become recorded as revenue when the Company considers the premium rents collectible considering the relative success of the tenant’s operations. These licensees have now had their opening year behind them and are experiencing increasing revenues in the second year of operations. This is a significant event for the Company. For the first time in the Company’s history there are four facilities generating some premium rental revenue. As a result, total revenue for the year ended December 31, 2018 was $1,456,939, as compared to $1,486,997 for the year ended December 31, 2017, a decrease of $30,058. The Company is assessing the potential impact of ASU 2018-10 Leases (Topic 842), Codification Improvements and ASU 2018-11 Leases (Topic 842), Targeted Improvements which will likely have an impact on revenue recognition during 2019.

Gross profit. Rental revenue for the periods ended December 31, 2018 increased over the prior year ended December 31, 2017, resulting in a gross profit of $326,804.

General and administrative expense. Our general and administrative expenses for the year ended December 31, 2018 were $2,786,615, compared to $5,704,621 for the year ended December 31, 2017. The decline of $2,918,006 was largely attributable a reduction in executive stock compensation and consulting fees during year ended December 31, 2018.

Selling expense. Our selling expenses for the year ended December 31, 2018 were $66,511, compared to $95,606 for the year ended December 31, 2017. The decline of $29,095 was due to reduction of services used related to selling and marketing

	Year Ended			Year Ended			Increase (Decrease)			Increase (Decrease)
	December 31, 2018			December 31, 2017			$			%
Other income (expense)
Other income (expense)		2,984			85,084			(82,100	)		(96.5	)%
Interest expense		(2,758,160	)		(2,576,211	)		(181,949	)		7.1	%
Loss on debt issuance		(2,892,033	)		—			(2,892,033	)		N/A
Write off of accounts receivable		(23,966	)		—			(23,966	)		N/A
Impairment loss		—			(82,478	)		82,478			(100.0	)%
Extinguishment of debt		121,217			(4,180,253	)		4,301,470			(102.9	)%
Change in derivative liabilities		1,493,962			(1,817,277	)		3,311,239			(182.2	)%
Change in value of warrants		175,774			(150,517	)		326,291			(216.8	)%
Net other income	$	(3,880,222	)	$	(8,721,652	)		4,841,430			(55.5	)%

The Net Other Income was the effect of the decline in market value of the Company’s stock had on the derivative liability of $6,000,830 offset by recording the cost of triggering technical default penalties on certain convertible notes and the financing costs of new debt incurred by the Company.

LIQUIDITY AND CAPITAL RESOURCES

	Year Ended			Year Ended			Increase (Decrease)
	December 31, 2018			December 31, 2017			$			%
Net Cash used in operating activities	$	(1,201,618	)	$	(1,040,532	)	$	(161,086	)		15	%
Net Cash used in investing activities		—			(125,000	)		125,000			(100	)%
Net Cash provided by financing activities		1,103,353			1,272,901			(169,548	)		(13	)%
Net Increase (Decrease) in Cash		(98,265	)		107,369			(205,634	)		(192	)%
Cash - beginning of period		158,702			51,333			107,369			209	%
Cash - end of period	$	60,437		$	158,702		$	(98,265	)		(62	)%

Operating Activities. For the year ended December 31, 2018, the net cash used of $1,201,618 was an increase over the same period of the prior year of $1,040,532. The loss from operations after non-cash adjustments increased by $282,030 over the prior year, offset by a decrease in net assets and liabilities of $443,116.

Investing Activities. There were no investing activities for the year ended December 31, 2018.

Financing Activities. During the year ended December 31, 2018, $1,173,750 in proceeds were from convertible notes payable and $20,872 from the sale of common stock. Payments of convertible notes payable was $135,000 and debt cost was $16,000. For the year ended December 31, 2017, $1,403,500 in proceeds were from convertible notes payable and $65,951 were from sale of common stock. Payments of notes payable was $129,050 and debt cost was 58,500.

Non-Cash Investing and Financing Activities. Non-cash activities for the year ended December 31, 2018 was the conversion of convertible notes of $1,019,933 plus interest of $78,107 to common stock valued at $2,431,547. The issuance of common stock for accounts payable, and the assuming of a tenant’s liabilities for leasehold improvements of $228,866.

Off-Balance Sheet Arrangements

We have no off-balance sheet arrangements.

Item 7A. Quantitative and Qualitative Disclosure about Market Risk.

We are a smaller reporting company as defined by Rule 12b-2 of the Exchange Act and are not required to provide the information under this item.

Item 8. Financial Statements and Supplementary Data.

Diego Pellicer Worldwide, Inc.

December 31, 2018 and 2017

Index to the Consolidated Financial Statements

Contents		Page(s)

Reports of Independent Registered Public Accounting Firm		F-1

Consolidated Balance Sheets at December 31, 2018 and 2017		F-2

Consolidated Statements of Operations for the Year Ended December 31, 2018 and 2017		F-3

Consolidated Statements of Stockholders' Deficit for the Year Ended December 31, 2018 and 2017		F-4

Consolidated Statements of Cash Flows for the Year Ended December 31, 2018 and 2017		F-5

Notes to the Consolidated Financial Statements		F-6

RBSM-LOGO-RGB

REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

To the Shareholders and Board of Directors of

Diego Pellicer Worldwide, Inc.

Opinion on the Financial Statements

We have audited the accompanying consolidated balance sheet of Diego Pellicer Worldwide, Inc. (the “Company”), as of December 31, 2018 and 2017, and the related consolidated statements of operations, stockholders’ deficit and cash flows for each of the two-years in the period ended December 31, 2018 and the related notes (collectively referred to as the “consolidated financial statements”). In our opinion, the consolidated financial statements present fairly, in all material respects, the financial position of the Company as of December 31, 2018 and 2017, and the results of its operations and its cash flows for each of the two years in the period ended December 31, 2018, in conformity with accounting principles generally accepted in the United States of America.

The Company’s Ability to Continue as a Going Concern

The accompanying consolidated financial statements have been prepared assuming the Company will continue as a going concern. As discussed in Note 3 to the accompanying consolidated financial statements, the Company has suffered recurring losses from operations, generated negative cash flows from operating activities, has an accumulated deficit and that raised substantial doubt exists about Company’s ability to continue as a going concern. Management’s evaluation of the events and conditions and management’s plans in regarding these matters are also described in Note 3. The consolidated financial statements do not include any adjustments that might result from the outcome of this uncertainty.

Basis for Opinion

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

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

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

/s/ RBSM LLP

RBSM LLP

We have served as the Company’s auditor since 2017

Larkspur, CA

April 16, 2019

RBSM, LLP – 101 Larkspur Landing Circle, Suite 321 Larkspur, CA 94939

Other Offices: New York City, NY, Washington DC, Las Vegas, NV, San Francisco, CA, Kansas City, KS, Athens, GRE, Beijing, CHN, Mumbai and Pune, IND

Member of ANTEA with affiliated offices worldwide

F- 1

Diego Pellicer Worldwide, Inc.

Consolidated Balance Sheets

	December 31,			December 31,
	2018			2017
Assets

Current assets:
Cash and cash equivalents	$	60,437		$	158,702
Accounts receivable		148,859			170,677
Other receivable		344,761			—
Prepaid expenses		54,170			21,621
Inventory		—			32,945

Total current assets		608,227			383,945

Property and equipment, net		139,595			409,128
Security deposits		270,000			320,000

Total assets	$	1,017,822		$	1,113,073

Liabilities and deficiency in stockholders' equity

Current liabilities:
Accounts payable	$	612,580		$	626,258
Accrued payable - related party		414,106			449,064
Accrued expenses		354,121			207,558
Notes payable - related party		140,958			307,312
Notes payable		133,403			133,403
Convertible notes, net of discount and costs		1,173,319			468,116
Deferred rent		178,210			251,878
Derivative liabilities		6,000,830			4,106,521
Contingent liabilities		257,910			—
Warrant liabilities		16,576			192,350

Total current liabilities		9,282,013			6,742,460

Total liabilities		9,282,013			6,742,460

Deficiency in stockholders' equity:

Preferred stock, Series A and B, par value $.0001 per share; 5,000,000 shares authorized, none issued and outstanding		—			—
Common stock, par value $.000001 per share; 840,000,000 shares authorized, 28,287,414 and 7,128,849 shares issued, respectively		28			7
Additional paid-in capital		40,378,973			34,422,474
Stock to be issued		710,838			2,397,218
Accumulated deficit		(49,354,030	)		(42,449,086	)

Total deficiency in stockholders' equity		(8,264,191	)		(5,629,387	)

Total liabilities and deficiency in stockholders' equity	$	1,017,822		$	1,113,073

See accompanying notes are integral to these consolidated financial statements

F- 2

Diego Pellicer Worldwide, Inc.

Consolidated Statements of Operations

	Year Ended			Year Ended
	December 31, 2018			December 31, 2017
Revenues
Net rental revenue	$	1,456,939		$	1,486,997
Rental expense		(1,130,135	)		(1,212,161	)
Gross profit		326,804			274,836

Operating expenses:
General and administrative expenses		2,786,615			5,704,621
Selling expense		66,511			95,606
Depreciation expense		498,400			456,918
Loss from operations		(3,024,722	)		(5,982,309	)

Other income (expense)
Other income (expense)		2,984			85,084
Interest expense		(2,758,160	)		(2,576,211	)
Loss on debt issuance		(2,892,033	)		—
Write off of accounts receivable		(23,966	)
Impairment loss		—			(82,478	)
Extinguishment of debt		121,217			(4,180,253	)
Change in derivative liabilities		1,493,962			(1,817,277	)
Change in value of warrants		175,774			(150,517	)
Total other income (loss)		(3,880,222	)		(8,721,652	)

Provision for taxes
Net income (loss)	$	(6,904,944	)	$	(14,703,961	)

Income (loss) per share - basic and diluted	$	(0.45	)	$	(4.69	)

Weighted average common shares outstanding - basic and diluted		15,301,015			3,137,337

See accompanying notes are integral to these consolidated financial statements

F- 3

Diego Pellicer Worldwide, Inc.

Consolidated Statements of Stockholders' Deficit

For the Years Ended December 31, 2018 and 2017

	SHARES							$
	Common			Treasury		Preferred		Common			Treasury			Preferred		Additional			Accumulated			Common Stock			Subscription
	Shares			Shares		Shares		Shares			Shares			Shares		Paid-in Capital			Deficit			to be issued			Receivable		Total
Balance - December 31, 2016		2,454,094			—		—	$	3		$	—		$	—	$	24,508,411		$	(28,114,125	)	$	—		$	—	$	(3,605,711	)
Sale of common stock		99,750							—								48,276						8,675					56,951
Issuance of common shares for services		8,000							—								5,521											5,521
Issuance of common shares for services - related parties		171,525							—								740,763						1,960,643					2,701,406
Shares issued for finance cost		180,500							—								256,327											256,327
Common stock issued upon conversion of notes payable		4,152,480							4								7,293,243						33,400					7,326,647
Fair value of warrants and options granted for services		—							—								1,277,088											1,277,088
Shares Issued to settle accrued compensation - related parties		50,000							—								245,600						394,500					640,100
Shares Issued to settle accounts payable		12,500							—								47,245											47,245
Adjustment per ASC 606																				369,000								369,000
Net loss																				(14,703,961	)							(14,703,961	)
Balance - December 31, 2017		7,128,849			—		—		7			—			—		34,422,474			(42,449,086	)		2,397,218			—		(5,629,387	)
Sale of common stock		41,054			—		—		—			—			—		19,770			—			1,102			—		20,872
Issuance of common shares for services		1,780,074			—		—		22			—			—		1,045,569			—			(427,039	)		—		618,532
Issuance of common shares for services - related parties		5,041,044			—		—		5			—			—		2,108,064			—			(1,295,342	)		—		812,727
Common stock issued upon conversion of notes payable		16,172,750			—		—		16			—			—		2,771,543			—			143,020			—		2,914,579
Fair value of warrants and options granted for services		—			—		—		—			—			—		279,528			—			—			—		279,528
Shares Issued to settle accounts payable		75,000			—		—		—			—			—		47,254			—			—			—		47,254
Issuance of common shares for inducement of lease extension		125,000			—		—		—			—			—		20,500			—			—			—		20,500
Security shares		40,500			—		—		—			(26,730	)		—		26,730			—			—			—		—
Shares to be cancelled for convertible note		(2,116,857	)		—		—		(2	)		—			—		(335,729	)		—			(108,121	)		—		(443,852	)
Net loss																				(6,904,944	)							(6,904,944	)
Balance - December 31, 2018		28,287,414			—		—	$	28		$	(26,730	)	$	—	$	40,405,703		$	(49,354,030	)	$	710,838		$	—	$	(8,264,191	)

See accompanying notes are integral to these consolidated financial statements

F- 4

Diego Pellicer Worldwide, Inc.

Consolidated Statements of Cash Flows

	Year Ended			Year Ended
	December 31, 2018			December 31, 2017

Cash flows from operating activities:
Net income (loss)	$	(6,904,944	)	$	(14,703,961	)
Adjustments to reconcile net income (loss) to net
Depreciation		498,400			456,918
Impairment		—			82,478
Change in fair value of derivative liability		(1,493,962	)		1,817,277
Change in value of warrants		(175,774	)		150,517
Write off of inventory		(23,966	)
Write off of accounts receivable		23,966
Amortization of discount		2,518,134			1,026,628
Extinguishment of debt		(121,217	)		5,729,836
Loss on debt issuance		2,892,033			—
Stock based compensation		1,731,267			3,984,014
Changes in operating assets and liabilities:
Accounts receivable		45,784			(170,677	)
Inventory		8,979			14,080
Prepaid expenses		(32,549	)		461,144
Other assets		(294,761	)		—
Accounts payable		23,069			(150,294	)
Accrued liability - related parties		83,262			579,870
Accrued expenses		(163,581	)		(992,842	)
Deferred rent		(73,668	)		143,921
Derivative liabilities		—			488,726
Warrant liabilities		—			41,833
Contingent liabilities		257,910			—

Cash used by operating activities		(1,201,618	)		(1,040,532	)

Cash flows from investing activities:
Purchase of property and equipment		—			(125,000	)

Cash used by investing activities		—			(125,000	)

Cash flows from financing activities:
Debt costs		(16,000	)		(58,500	)
Proceeds from convertible notes payable		1,173,750			1,403,500
Repayments of convertible notes payable		(75,269	)
Repayments of notes payable		—			(129,050	)
Proceeds from sale of common stock		20,872			56,951

Cash provided by financing activities		1,103,353			1,272,901

Net increase (decrease) in cash		(98,265	)		107,369
Cash, beginning of period		158,702			51,333
Cash, end of period	$	60,437		$	158,702

Cash paid for interest	$	—		$	—
Cash paid for taxes	$	—		$	—


Supplemental schedule of noncash financial activities:
Stock issued for debt settlement	$	—		$	50,000
Notes converted to stock	$	1,019,933		$	3,031,843
Accrued interest converted to stock	$	78,107		$	122,311
Value of common stock to be issued for conversion of notes and accrued interest	$	168,862		$	6,655,028
Value of derivative liability extinguished upon conversion of notes and accrued interest	$	1,807,899		$	5,509,516
Accounts payable and accrued expenses paid with common stock	$	165,474		$	—
Leasehold improvements paid by tenant	$	228,866		$	—
Debt issuance costs deducted from proceeds of notes	$	35,250		$	—

See accompanying notes are integral to these consolidated financial statements

F- 5

Diego Pellicer Worldwide, Inc.

December 31, 2018 and 2017

Notes to the Consolidated Financial Statements

Note 1 - Organization and Operations

History

On March 13, 2015, Diego Pellicer Worldwide, Inc. (the Company) (f/k/a Type 1 Media, Inc.) closed on a merger and share exchange agreement by and among (i) the Company, and (ii) Diego Pellicer World-wide 1, Inc., a Delaware corporation, (“Diego”), and (iii) Jonathan White, the majority shareholder of the Company. Diego was merged with and into the Company with the Company to continue as the surviving corporation in the merger. The Company succeeded to and assumed all the rights, assets, liabilities, debts, and obligations of Diego.

Prior to the merger, 3,135,000 shares of Type 1 Media, Inc. were issued and outstanding. The principal owners of the Company agreed to transfer their 2,750,000 issued and outstanding shares to a third party in consideration for $169,000 and cancellation of their 2,750,000 shares. The remaining issued and outstanding shares are still available for trading in the marketplace. At the time of the merger, Type 1 Media, Inc. had no assets or liabilities. Accordingly, the business conducted by Type 1 prior to the merger is not being operated by the combined entity post-merger.

At the closing of the merger, Diego common stock issued and outstanding immediately prior to the closing of the merger was exchanged for the right to receive one share of the surviving corporation for each share of Diego. An aggregate of 1,081,613 common shares of the surviving corporation were issued to the holders of Diego in exchange for their common shares representing approximately 74% of the combined entity.

The merger has been accounted for as a reverse merger and recapitalization in which Diego is treated as the accounting acquirer and Diego Pellicer Worldwide, Inc. is the surviving corporation.

Business Operations

The Company leases real estate to licensed marijuana operators providing complete turnkey growing space, processing space, recreational and medical retail sales space and related facilities to licensed marijuana growers, processors, dispensary and recreational store operators. Additionally, the Company plans to explore ancillary opportunities in the regulated marijuana industry as well as offering for wholesale distribution branded non-marijuana clothing and accessories.

Until Federal law allows, the Company will not grow, harvest, process, distribute or sell marijuana or any other substances that violate the laws of the United States of America or any other country.

Note 2 - Significant and Critical Accounting Policies and Practices

The management of the Company is responsible for the selection and use of appropriate accounting policies and the appropriateness of accounting policies and their application. Critical accounting policies and practices are those that are both most important to the portrayal of the Company's financial condition and results and require management's most difficult, subjective, or complex judgments, often because of the need to make estimates about the effects of matters that are inherently uncertain. The Company's significant and critical accounting policies and practices are disclosed below as required by generally accepted accounting principles.

Basis of Presentation

The accompanying consolidated financial statements and related notes have been prepared pursuant to the rules and regulations of the Securities and Exchange Commission (the “SEC”).

Reclassifications

Certain prior year amounts were reclassified to conform to the manner of presentation in the current period. These reclassifications had no effect on the Company's balance sheet, net loss or stockholders' equity.

F- 6

Use of Estimates

The preparation of the financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the dates of the financial statements and the reported amounts of revenue and expenses during the reporting periods. Actual results could differ from those estimates. These estimates and assumptions include valuing equity securities and derivative financial instruments issued in financing transactions and share based payment arrangements, determining the fair value of the warrants received for a licensing agreement, the collectability of accounts receivable and deferred taxes and related valuation allowances.

Certain estimates, including evaluating the collectability of accounts receivable, could be affected by external conditions, including those unique to our industry, and general economic conditions. It is possible that these external factors could influence our estimates that could cause actual results to differ from our estimates. The Company intends to re-evaluate all its accounting estimates at least quarterly based on these conditions and record adjustments when necessary.

Fair Value Measurements

The Company evaluates its financial instruments to determine if such instruments are derivatives or contain features that qualify as embedded derivatives. For derivative financial instruments that are accounted for as liabilities, the derivative instrument is initially recorded at its fair value and is then re-valued at each reporting date, with changes in the fair value reported in the consolidated statements of operations. The classification of derivative instruments, including whether such instruments should be recorded as liabilities or as equity, is evaluated at the end of each reporting period. Derivative instrument liabilities are classified in the balance sheet as current or non-current based on whether net-cash settlement of the derivative instrument could be required within 12 months of the balance sheet date.

Fair Value of Financial Instruments

As required by the Fair Value Measurements and Disclosures Topic of the FASB ASC, fair value is measured based on a three-tier fair value hierarchy, which prioritizes the inputs used in measuring fair value as follows:

Level 1: Unadjusted quoted prices in active markets that are accessible at the measurement date for identical, unrestricted assets or liabilities;

Level 2: Quoted prices in markets that are not active, or inputs that are observable, either directly or indirectly, for substantially the full term of the asset or liability; and

Level 3: Prices or valuation techniques that require inputs that are both significant to the fair value measurement and unobservable (supported by little or no market activity).

Fair value estimates discussed herein are based upon certain market assumptions and pertinent information available to management as of December 31, 2018 and December 31, 2017. The respective carrying value of certain on-balance-sheet financial instruments approximated their fair values. These financial instruments include cash, prepaid expenses and accounts payable. Fair values were assumed to approximate carrying values for cash and payables because they are short term in nature and their carrying amounts approximate fair values or they are payable on demand.

Cash

The Company maintains cash balances at various financial institutions. Accounts at each institution are insured by the Federal Deposit Insurance Corporation, and the National Credit Union Share Insurance Fund, up to $250,000. The Company's accounts at these institutions may, at times, exceed the federal insured limits. The Company has not experienced any losses in such accounts.

Revenue recognition

The Company has adopted the new revenue recognition guidelines in accordance with ASC 606, Revenue from Contracts with Customers (ASC 606), commencing from the period under this report. The adoption of ASU 2016-10 did not have a material impact on the financial statements and related disclosures since the Company is primary a lessor for revenue purposes.

F- 7

The Company analyzes its contracts to assess that they are within the scope and in accordance with ASC 606. In determining the appropriate amount of revenue to be recognized as the Company fulfills its obligations under each of its agreements, whether for goods and services or licensing, the Company performs the following steps: (i) identification of the promised goods or services in the contract; (ii) determination of whether the promised goods or services are performance obligations including whether they are distinct in the context of the contract; (iii) measurement of the transaction price, including the constraint on variable consideration; (iv) allocation of the transaction price to the performance obligations based on estimated selling prices; and (v) recognition of revenue when (or as) the Company satisfies each performance obligation.

Thus, during the initial term of the lease, management has a policy of partial rent forbearance when the tenant first opens the facility to assure that the tenant has the opportunity for success. Management may be required to exercise considerable judgment in estimating revenue to be recognized.

When the collectability is reasonably assured, in accordance with ASC Topic 840 “Leases” as amended and interpreted, minimum annual rental revenue is recognized for rental revenues on a straight-line basis over the term of the related lease.

When management concludes that the Company is the owner of tenant improvements, management records the cost to construct the tenant improvements as a capital asset. In addition, management records the cost of certain tenant improvements paid for or reimbursed by tenants as capital assets when management concludes that the Company is the owner of such tenant improvements. For these tenant improvements, management records the amount funded or reimbursed by tenants as deferred revenue, which is amortized as additional rental income over the term of the related lease. When management concludes that the tenant is the owner of tenant improvements for accounting purposes, management records the Company’s contribution towards those improvements as a lease incentive, which is amortized as a reduction to rental revenue on a straight-line basis over the term of the lease.

The Company records rents due from the tenants on a current basis. The Company has deferred collection of such rents until the tenants receive the proper governmental licenses to begin operation. Prior to 2017, management had reserved these deferred amounts due to the unlikelihood of collection.

Leases as Lessor

The Company currently leases properties to licensed cannabis operators for locations that meet the regulatory criteria applicable by the respective regulatory jurisdiction for the sale, production, and development of cannabis products. The Company evaluates the lease to determine its appropriate classification as an operating or capital lease for financial reporting purposes. The Company leases are currently all classified as operating leases.

Minimum base rent is recorded on a straight-line basis over the lease term after an initial period during which the tenant is establishing the business and during which the Company may forbear some or all of the rent. The Company is more likely than not to forbear some or all of the rental income which it considers uncollectable during the tenant's initial ramp-up period (see Revenue Recognition above). The tenant is still liable for the full rent, although the collectability may be unlikely and the Company may not expect to collect it.

Leases as Lessee

The Company recognizes rent expense on a straight-line basis over the non-cancelable lease term and certain option renewal periods where failure to exercise such options would result in an economic penalty in such amount that renewal appears, at the inception of the lease, to be reasonably assured. Deferred rent is presented on current liabilities section on the consolidated balance sheets.

Income Taxes

Income taxes are provided for using the liability method of accounting in accordance with the Income Taxes Topic of the FASB ASC. Deferred tax assets and liabilities are determined based on differences between the financial reporting and tax basis of assets and liabilities and are measured using the enacted tax rates and laws that will be in effect when the differences are expected to reverse. A valuation allowance is established when necessary to reduce deferred tax assets to the amount expected to be realized and when, in the opinion of management, it is more likely than not that some portion or all of the deferred tax assets will not be realized. The computation of limitations relating to the amount of such tax assets, and the determination of appropriate valuation allowances relating to the realizing of such assets, are inherently complex and require the exercise of judgment. As additional information becomes available, the Company continually assesses the carrying value of their net deferred tax assets.

F- 8

Common Stock Purchase Warrants and Other Derivative Financial Instruments

The Company classifies as equity any contracts that require physical settlement or net-share settlement or provide us a choice of net cash settlement or settlement in our own shares (physical settlement or net-share settlement) provided that such contracts are indexed to our own stock as defined in ASC Topic 815-40 "Contracts in Entity's Own Equity." The Company classifies as assets or liabilities any contracts that require net-cash settlement including a requirement to net cash settle the contract if an event occurs and if that event is outside our control or give the counterparty a choice of net-cash settlement or settlement in shares. The Company assesses classification of its common stock purchase warrants and other free-standing derivatives at each reporting date to determine whether a change in classification between assets and liabilities is required.

Stock-Based Compensation

The Company recognizes compensation expense for stock-based compensation in accordance with ASC Topic 718. The Company calculates the fair value of the award on the date of grant using the Black-Scholes method for stock options and the quoted price of our common stock for unrestricted shares; the expense is recognized over the service period for awards expected to vest. The estimation of stock-based awards that will ultimately vest requires judgment, and to the extent actual results or updated estimates differ from original estimates, such amounts are recorded as a cumulative adjustment in the period estimates are revised. The Company considers many factors when estimating expected forfeitures, including types of awards, employee class, and historical experience.

Income (loss) per common share

The Company utilizes ASC 260, “Earnings Per Share” for calculating the basic and diluted loss per share. In accordance with ASC 260, the basic and diluted loss per share is computed by dividing net loss available to common stockholders by the weighted average number of common shares outstanding. Diluted net loss per share is computed similar to basic loss per share except that the denominator is adjusted for the potential dilution that could occur if stock options, warrants, and other convertible securities were exercised or converted into common stock. Potentially dilutive securities are not included in the calculation of the diluted loss per share if their effect would be anti-dilutive. The Company has 60,158,160 and 3,054,490 common stock equivalents at December 31, 2018 and 2017, respectively. For the three month periods ended December 31, 2018 and 2017 and for the nine month period ended June 30, 2017, the potential shares were excluded from the shares used to calculate diluted earnings per share as their inclusion would reduce net loss per share.

Legal and regulatory environment

The cannabis industry is subject to numerous laws and regulations of federal, state and local governments. These laws and regulations include, but are not limited to, matters such as licensure, accreditation, and different taxation between federal and state. Federal government activity may increase in the future with respect to companies involved in the cannabis industry concerning possible violations of federal statutes and regulations.

Management believes that the Company is in compliance with local, state and federal regulations, while no regulatory inquiries have been made, compliance with such laws and regulations can be subject to future government review and interpretation, as well as regulatory actions unknown or unasserted at this time.

Recent accounting pronouncements.

Leasing

In July 2018, the FASB issued ASU 2018-10 Leases (Topic 842), Codification Improvements and ASU 2018-11 Leases (Topic 842), Targeted Improvements, to provide additional guidance for the adoption of Topic 842. ASU 2018-10 clarifies certain provisions and correct unintended applications of the guidance such as the application of implicit rate, lessee reassessment of lease classification, and certain transition adjustments that should be recognized to earnings rather than to stockholders' equity. ASU 2018-11 provides an alternative transition method and practical expedient for separating contract components for the adoption of Topic 842. In February 2016, the FASB issued ASU 2016-02 Leases (Topic 842) which requires an entity to recognize assets and liabilities arising from a lease for both financing and operating leases with terms greater than 12 months. ASU 2018-11, ASU 2018-10, and ASU 2016-02 (collectively, "the new lease standards") are effective for fiscal years beginning after December 15, 2018, with early adoption permitted.

The Company has elected to adopt certain of the optional practical expedients, including the package of practical expedients, which, among other things, gives the option not to reassess: 1) whether expired or existing contracts are or contain leases; 2) the lease classification for expired or existing leases; and 3) initial direct costs for existing leases. Management has evaluated the impact of the adoption of this standard and expects to record the right of use assets of $4,294,180 and lease obligations of $4,763,529.

For sub-lease arrangements where the Company is the lessor, the same practical expedients apply to both lessor and lessee. Therefore, the sub-lease is classified as an operating lease under ASC 842. The Company does not make any accounting entries for the subleases at the adoption date which is Jan 1, 2019, as all the expected sublease income exceeded the expected lease costs for the head leases over the remaining period of the original lease term, and therefore, no impairment of the ROU is needed upon the adoption of ASC 842. Rental revenue will be recognized on a straight-line basis (or another systematic basis if that basis is more representative of the pattern in which income is earned from the underlying asset over the term of the respective lease). The difference between the cash received, and the straight-line lease income recognized, if any, will be recorded as rent receivable. Or, if cash received is higher than the straight line lease income, deferred rent will be recorded on the balance sheet.

F- 9

Stock Compensation

In June 2018, the FASB issued ASU 2018-07, Compensation - Stock Compensation (Topic 718): Improvements to Nonemployee Share-Based Payment Accounting, to expand the scope of Topic 718 to include share-based payment transactions for acquiring goods and services from nonemployees and supersedes the guidance in Subtopic 505-50, Equity - Equity-Based Payments to Non-Employees . Under ASU 2018-07, equity-classified nonemployee share-based payment awards are measured at the grant date fair value on the grant date. The probability of satisfying performance conditions must be considered for equity-classified nonemployee share-based payment awards with such conditions. ASU 2018-07 is effective for fiscal years beginning after December 15, 2018, with early adoption permitted. The Company is currently evaluating the impact of the new standard on the Company’s Consolidated Financial Statements.

In July 2018, the FASB issued ASU 2018-09, Codification Improvements. The amendments in ASU 2018-09 affect a wide variety of Topics in the FASB Codification and apply to all reporting entities within the scope of the affected accounting guidance. The Company has evaluated ASU 2018-09 in its entirety and determined that the amendments related to Topic 718-740, Compensation-Stock Compensation-Income Taxes, are the only provisions that currently apply to the Company. The amendments in ASU 2018-09 related to Topic 718-740, Compensation-Stock Compensation-Income Taxes, clarify that an entity should recognize excess tax benefits related to stock compensation transactions in the period in which the amount of the deduction is determined. The amendments in ASU 2018-09 related to Topic 718-740 are effective for fiscal years beginning after December 15, 2018, with early adoption permitted. The Company does not expect the adoption of the new standard to have a material impact on the Company’s Consolidated Financial Statements.

Income Taxes

In March 2018, the FASB issued ASU 2018-05, Income Taxes (Topic 740) - Amendments to SEC Paragraphs Pursuant to SEC Staff Accounting Bulletin No. 118. This standard amends Accounting Standards Codification 740, Income Taxes (ASC 740) to provide guidance on accounting for the tax effects of the Tax Cuts and Jobs Act (the Tax Reform Act) pursuant to Staff Accounting Bulletin No. 118, which allows companies to complete the accounting under ASC 740 within a one-year measurement period from the Tax Act enactment date. This standard is effective upon issuance. As described in the footnotes to the Annual Report on Form 10-K, the Company’s accounting for the tax effects of enactment of the Tax Reform Act is being assessed; however, in certain cases, as described below, we made a reasonable estimate of the effects on our existing deferred tax balances and valuation allowance.

Revenue from Contracts with Customers

Adoption of New Accounting Standards: On January 1, 2018, the Company adopted ASU 2014-09 Revenue from Contracts with Customers and all subsequent amendments to the ASU (collectively, “ASC 606”), which (i) creates a single framework for recognizing revenue from contracts with customers that fall within its scope. The majority of the Company’s revenues come from rental income that are outside the scope of ASC 606. The Company’s licensing revenue that fall within the scope of ASC 606 are presented within other income and are recognized as revenue as the time of grant. The Company adopted ASC 606 using the full retrospective method applied to all contracts not completed as of January 1, 2018. Results for reporting periods beginning after January 1, 2018 are presented under ASC 606 while prior period amounts continue to be reported in accordance with legacy GAAP. The Company recorded a net change in retained earnings of $369,000 as of January 1, 2017 due to the cumulative effect of adopting ASC 606. The income statement impact of adopting ASC 606 for the period ending $54,000 is outlined below:

F- 10

	For the Year Ended December 31, 2017
	As reported			Under Legacy GAAP			Impact of ASC 606
Other income (expense)		$			$			$
Licensing revenue		—			54,000			(54,000	)
Total other income (loss)		(8,721,652	)		(8,667,652	)		(54,000	)

Net income (loss)	$	(14,703,961	)	$	(14,649,961	)	$	(54,000	)

Income (loss) per share - basic and diluted	$	(4.69	)	$	(4.67	)	$	(0.02	)

The Company believes that other recently issued accounting pronouncements and other authoritative guidance for which the effective date is in the future either will not have an impact on its accounting or reporting or that such impact will not be material to its financial position, results of operations and cash flows when implemented.

Note 3 - Going Concern

The accompanying financial statements have been prepared assuming that the Company will continue as a going concern. The Company has incurred losses since inception, its current liabilities exceed its current assets by $8,673,786, and has an accumulated deficit of $49,354,030 at December 31, 2018. These factors, among others raise substantial doubt about its ability to continue as a going concern over the next twelve months. The financial statements do not include any adjustments that might result from the outcome of this uncertainty.

The Company believes that it has sufficient cash on hand and cash generated by real estate leases to sustain operations provided that management and board members continue to agree to be paid company stock in exchange for accrued compensation. Through March 31, 2019, management and board members have accepted stock for accrued compensation at the same discount that has been extended to the convertible noteholders of fifty percent. There are other future noncash charges in connection with financing such as a change in derivative liability that will affect income but have no effect on cash flow.

Although the Company has been successful raising additional capital, there is no assurance that the company will sell additional shares of stock or borrow additional funds. The Company's inability to raise additional cash could have a material adverse effect on its financial position, results of operations, and its ability to continue in existence. These financial statements do not include any adjustments that might result from the outcome of this uncertainty. Management believes that the Company's future success is dependent upon its ability to achieve profitable operations, generate cash from operating activities and obtain additional financing. There is no assurance that the Company will be able to generate sufficient cash from operations, sell additional shares of stock or borrow additional funds. However, cash generated from lease revenues is currently exceeding lease costs, but is insufficient to cover operating expenses.

Note 4 - Investment

In January 2014, the Company entered into an agreement with Plandai Biotechnology, Inc. (a publicly traded company) to license to them certain intellectual property rights in exchange for warrants to purchase 1,666,667 shares of Plandai Biotechnology, Inc. common stock. This licensing agreement carries a 10-year term with an exercise price of $0.01 per share. The Company was to obtain certain trademark rights certified by the government. The warrant has a restriction on them requiring that the sale of such shares must reach a certain traded price of $0.50 per share. In 2014, the Company used a third-party appraisal firm to ascertain the fair value of warrants held by the Company, which was determined to be $525,567 at the date of issuance. During the years ended December 31, 2018 and 2017, the Company recorded impairment losses of $0 and $43,333, respectively.

Note 5 - Property and Equipment

As of December 31, 2018 and 2017, fixed assets and the estimated lives used in the computation of depreciation are as follows:

	Estimated
	Useful Lives	December 31, 2018			December 31, 2017
Leasehold improvements	10 years		1,082,280			853,413
Less: Accumulated depreciation and amortization			(942,685	)		(444,285	)

Property and equipment, net		$	139,595		$	409,128

During the year ended December 31, 2018 and 2017, the Company recorded depreciation expense of 498,400 and 456,918, respectively.

F- 11

Note 6 – Other Assets

Security deposits: Security deposits reflect the deposits on various property leases, most of which require for two months’ rental expense in the form of a deposit. These have remained unchanged at $170,000 for December 31, 2018 and 2017.

Deposits – end of lease: These deposits represent an additional two months of rent on various property leases that apply to the “end-of- lease” period. During 2018, we applied $50,000 deposit against monthly rent. As of December 31, 2018 and 2017, the remining balance was $100,000 and $150,000.

Note 7 – Related Party

As of December 31, 2018 and December 31, 2017, the Company has accrued fees to related parties in the amount of $414,106 and $449,064, respectively. For the year ended December 31, 2018 and 2017, total cash-based compensation to related parties was $716,753 and $693,093, respectively. For the year ended December 31, 2018 and 2017, total share-based compensation to related parties was $960,915 and $4,618,594 respectively. These amounts are included in general and administrative expenses in the accompanying financial statements.

During the year ended December 31, 2018, we issued 669,082 shares of common stock for payment of a related party note in the amount of $166,354, plus accrued interest of $21,658.

At December 31, 2018, the Company owed Mr. Throgmartin $140,958 pursuant to a promissory note dated August 12, 2016. This note accrued interest at the rate of 8% per annum and payable upon the earlier date of (i) the second anniversary date of the promissory notes, (ii) the date all of the current investor notes, in the outstanding aggregate principal and accrued interest amount of approximately $1,480,000 at June 30, 2016, have been paid in full and the Company has achieved gross revenues of at least $3,000,000 over any consecutive 12-month period.

The balance of related party notes was $140,958 and $307,312 at December 31, 2018 and December 31, 2017, respectively. As of April 16, 2019, the note was past the maturity date, and no default notice was received.

Note 8 – Notes Payable

On August 31, 2015, the Company issued a note in the amount of $126,000 with third parties for use as operating capital. The note was amended to include accrued interest on October 31, 2016 and extended the maturity date to October 31, 2018. As of December 31, 2018 and December 31, 2017 the outstanding principal balance of the note was $133,403. As of April 16, 2019, the note was past the maturity date, and no default notice was received.

Note 9 – Convertible Notes Payable

The Company has issued several convertible notes which are outstanding. The note holders shall have the right to convert principal and accrued interest outstanding into shares of common stock at a discounted price to the market price of our common stock. The conversion feature was recognized as an embedded derivative and was valued using a Black Scholes model that resulted in a derivative liability of $5,701,831 at December 31, 2018. In connection with the issuance of certain of these notes, the Company also issued warrants to purchase its common stock. The Company allocated the proceeds of the notes and warrants based on the relative fair value at inception.

Several convertible note holders elected to convert their notes to stock during the year ended December 31, 2018. The table below provides a reconciliation of the beginning and ending balances for the liabilities measured using fair significant unobservable inputs (Level 3) for the year ended December 31, 2018:

	Convertible notes			Discount			Convertible Note Net of Discount			Derivative Liabilities
Balance, December 31, 2017		971,455			503,339			468,116			4,106,521
Issuance of convertible notes		3,520,234			3,480,525			23,709			5,388,426
Conversion of convertible notes		(1,019,933	)		(255,295	)		(836,638	)		(1,807,899	)
Repayment of convertible notes		(75,269	)		—			(75,269	)		—
Change in fair value of derivatives		—			—			—			(1,686,218	)
Amortization		—			(1,577,401	)		1,577,401			—
Balance December 31, 2018	$	3,324,487		$	2,115,168		$	1,173,319		$	6,000,830

During the year ended December 31, 2018, $1,019,933 of notes and $78,107 of accrued interest was converted into 15,230,423 shares of common stock. A gain on extinguishment of debt of $121,217 has been recorded related to these conversions. As of April 16, 2019, several convertible notes in aggregate principal of $217,500 was past the maturity date, and no default notice was received.

F- 12

On July 17, 2018, the Company entered into a certain Equity and Debt Restructure Agreement with two, long-time investors in the Company (the “Restructure Agreement”). Pursuant to the material terms of the Restructure Agreement, the investors agreed to return and cancel their collective 2,774,093 restricted Company common shares, which had been received from the prior conversion of their older convertible notes, in exchange for the Company’s issue to them of recast convertible promissory notes. Accordingly, on the same date, these investors were each issued a First Priority Secured Promissory Note (the “Note” or “Notes”), in the principal amount of $1,683,557.77 and $545,606.96, respectively. In connection with this transaction, one of these investors agreed to loan the Company an additional $700,000. To date the Company has received $220,000 cash proceeds of the additional $700,000 loan. Fair value of 2,774,093 restricted Company common shares were determined in the amount of $443,855 using market price and fair value of the embedded conversion feature were determined in the amount of $3,555,888 using Black Sholes Merton Option Model. As the result of the transaction, the Company recorded $2,892,033 in financing costs, and $2,449,275 as debt discount.

The following assumptions were used in calculations of the Black Scholes model for the periods ended December 31, 2018 and December 31, 2017.

	December 31, 2018			December 31, 2017
Risk-free interest rates		1.89 - 2.81	%		1.28-1.76	%
Expected life (years)		0.03 - 2.00			0.02-1.23
Expected dividends		0	%		0	%
Expected volatility		100 - 629	%		211-354
Diego Pellicer Worldwide, Inc. Common Stock fair value	$	0.13		$	1.60

Note 10 – Stockholders’ Equity (Deficit)

On January 14, 2018, the Company’s Board of Directors approved an amendment to our Certificate of Incorporation to increase the number of authorized shares of common stock from 195,000,000 to 495,000,000 shares.

On June 25, 2018, the Company’s Board of Directors approved an amendment to our Certificate of Incorporation to increase the number of authorized shares of common stock from 495,000,000 to 840,000,000 shares. In addition, the Board of Directors approved a 20 for 1 reverse split of the outstanding common shares of the Company.

On October 29, 2018, the Company effected a 20 for 1 reverse stock split on its shares of common stock. The par value and number of authorized shares of the common and preferred stock were not adjusted as a result of the reverse stock split. Unless otherwise noted, impacted amounts and share information included in the financial statements and notes thereto have been retroactively adjusted for the stock split as if such stock split occurred on the first day of the first period presented. Certain amounts in the notes to the financial statements may be slightly different than previously reported due to rounding of fractional shares as a result of the reverse stock split.

During the year ended December 31, 2018:

We sold 41,054 shares of common stock and received proceeds of $20,872. Additionally, 5,000 valued at $2,648 were not issued as of December 31, 2018. We issued 16,804 shares of common stock that were sold in 2017 and classified as shares to be issued at December 31, 2017.

We issued 40,500 common shares as security for the payment of convertible notes. The shares, valued at $26,730 are held in escrow, are refundable and are recorded in a contra equity account.

F- 13

We issued 1,780,074 shares of common stock, valued at $618,532, for services. Additionally, 1,980,179 shares, valued at $322,433 for services, were authorized but not issued as of December 31, 2018.

We issued 75,000 shares of common stock, valued at $47,254, to settle accounts payable to a consultant.

We issued 125,000 shares of common stock, valued at $20,500, for an inducement of extension of sublease.

During the year ended December 31, 2017:

During 2017, 85,500 common shares valued at $256,327 were issued as payment of finance cost related to convertible notes.

During 2017, 95,000 common shares were issued as security for the payment of convertible notes. The shares, valued at $257,259 are held in escrow, are refundable and are recorded in a contra equity account.

During 2017, we sold 116,554 shares of common stock and received proceeds of $56,951. Of these shares, 16,804 valued at $8,675, were not issued as of December 31, 2017.

During 2017, 171,525 shares of common stock, valued at $740,762 were issued as share-based compensation to related parties. Additionally, 1,248,669 shares, valued at $1,960,643, were authorized to be issued for related party services, but were not issued as of December 31, 2017.

During 2017, 8,000 shares of common stock, valued at $5,521, were issued for service.

During 2017 the Company recorded total option expense of $1,277,088.

During 2017, 50,000 shares of common stock, valued at $245,600, were issued for a related party debt settlement. 1,051,263 shares valued at $394,500, were authorized but not issued.

During 2017, 12,500 shares of common stock, valued at $47,245, were issued to settle accounts payable to a consultant.

During 2017, owners of convertible notes have converted $2,986,387 of notes and $139,263 of accrued interest into 4,195,813 shares of common stock valued at $7,553,246. Additionally, 28,372 shares, valued at $33,401, for the conversion of notes, were authorized but not issued as of December 31, 2018. 43,333 shares valued at $260,000 were cancelled due to reclassify the fund received to a note payable.

As a condition of their employment, the Board of Directors approved employment agreements with three key executives. This agreement provided that additional shares will be granted each year at February 1 over the term of the agreement should their shares as a percentage of the total shares outstanding fall below prescribed ownership percentages. The CEO received an annual grant of additional shares each year to maintain his ownership percentage at 10% of the outstanding stock. The other two executives receive a similar grant to maintain each executive’s ownership percentage at 7.5% of the outstanding stock. At December 31, 2017 there is $1,779,943 accrued for the annual grant at February 1, 2018, representing 1,171,065 shares.

F- 14

Common stock warrant activity:

The Company has determined that certain of its warrants are subject to derivative accounting. The table below provides a reconciliation of the beginning and ending balances for the warrant liabilities measured using fair significant unobservable inputs (Level 3) for the year ended December 31, 2018:

Balance at December 31, 2017	$	192,350
Issuance of warrants		—
Change in fair value during period		(175,774	)
Balance at December 31, 2018	$	16,576

The following assumptions were used in calculations of the Black Scholes model for the periods ended December 31, 2018 and December 31, 2017.

	December 31, 2018			December 31, 2017
Annual dividend yield		0	%		0	%
Expected life (years)		1.42 - 8.9			3 - 10
Risk-free interest rate		2.46 - 3.05	%		1.50 – 2.40	%
Expected volatility		188 - 300	%		177 - 284	%

Common stock option activity:

During the year ended December 31, 2018, the Company recorded total option expense of $279,528.

The Company maintains an Equity Incentive Plan pursuant to which 124,000 shares of common stock are reserved for issuance thereunder. This Plan was established to award certain founding members, who were instrumental in the development of the Company, as well as key employees, directors and consultants, and to promote the success of the Company’s business. The terms allow for each option to vest immediately, with a term no greater than 10 years from the date of grant, at an exercise price equal to par value at date of the grant. As of December 31, 2018, 88,750 shares had been granted, with 10,000 of those shares granted with warrants attached. There remain 35,250 shares available for future grants.

The following represents a summary of all common stock option activity:

	Number of Options		Weighted Average Exercise Price		Weighted Average Remaining Contractual Term
Balance outstanding, January 1, 2017		50,000		6.00		4.50
Granted		244,959		5.00		5.00
Balance outstanding, December 31, 2017		294,959	$	5,17		8.16
Granted		—		—
Balance outstanding, December 31, 2018		294,959	$	5.17		7.15
Exercisable, December 31, 2018		274,959	$	6.00		7.48

During the years ended December 31, 2018 and 2017, the Company incurred total option expense of $279,528 and $1,277,088, respectively. Unamortized stock option expense at December 31, 2018 is $249,022, which will be charged to expense in 2018.

Note 11 – COMMITMENTS AND CONTINGENCIES

Leasing Activity

The Company’s business is to lease property in appropriate and desirable locations, and to make available such property for sub-lease to specifically assigned businesses that grow, process, and sell certain products to the public. Currently the Company has four separate properties under lease in the states of Colorado and Washington.

F- 15

As Lessee

In Colorado, there are three properties leased in 2013-2017. Properties were leased for a three (3) to five (5) year period with an option for an additional five years, and carry terms requiring triple net payments. Each of the properties have fixed monthly rentals with periodic increases in the monthly rental rate. Two of the leases were extended to 2024-2025. In Washington, there is one property which was leased in 2014, which were extended to 2023. The property was leased for a five (5) year period with an option for an additional five (5) years, and carry terms requiring triple net (NNN) conditions. The property has an escalating annual rental. As of December 31, 2018, the aggregate remaining minimal annual lease payments under these operating leases were as follows:

2019	$	1,258,009
2020		1,098,903
2021		964,621
2022		808,840
2023		800,840
2024		498,665
2025		263,808
Total	$	5,693,126

Rent expense for the Company’s operating leases for the years ended December 31, 2018 and 2017 was $1,130,135 and $1,212,161, respectively.

Employment Agreements

As a condition of their employment, the Board of Directors approved employment agreements with three key executives. This agreement provided that additional shares will be granted each year over the term of the agreement should their shares as a percentage of the total shares outstanding fall below prescribed ownership percentages. The CEO received an annual grant of additional shares each year to maintain his ownership percentage at 10% of the outstanding stock. One other executive receive a similar grant each to maintain his ownership percentage at 7.5% of the outstanding stock.

Departure of Executive Officer

On January 30, 2019, the Company executed a Separation Agreement and Release with David Thompson, its former Senior Vice President- Finance, finalizing his departure from the Company as an employee. Pursuant to its material terms, the Company will pay to Mr. Thompson aggregate cash payments of $206,250, based upon the Company’s receipt of certain gross sales receipts derived from its Alameda Store in Colorado, and certain stock grants based upon the Company’s outstanding common shares as of February 1, 2019, including a stock grant of 53,717 restricted common shares for accrued salary and 122,934 restricted common shares in exchange for his approximate 50,000,000 of stock options.

Note 12 – Deferred Tax Assets and Income Tax Provision

The U.S. tax reform bill that Congress voted to approve December 20, 2017, also known as the “Tax Cuts and Jobs Act”, made sweeping modifications to the Internal Revenue Code, including a much lower corporate tax rate, changes to credits and deductions, and a move to a territorial system for corporations that have overseas earnings.

The act replaced the prior-law graduated corporate tax rate, which taxed income over $10 million at 35%, with a flat rate of 21%.

The reconciliation of income tax benefit at the U.S. statutory rate of 21% for the year ended December 31, 2018 and for the year ended December 31, 2017 respectively to the Company’s effective tax rate is as follows:

	Year Ended			Year Ended
	December 31, 2018			December 31, 2017
Statutory federal income tax rate		(21	)%		(34	)%
State income tax, net of federal benefits		(5	)%		(6	)%
Change in federal tax rate		—	%		13	%
Change in valuation allowance		26	%		27	%
Income tax provision (benefit)		—	%		—	%

The benefit for income tax is summarized as follows:

	Year Ended December 31, 2018			Year Ended December 31, 2017
Federal
Current	$	—		$	—
Deferred		278,000			1,212,219
State
Current		—			—
Deferred		51,775			106,961
Change in valuation allowance		(329,775	)		(1,319180	)
Income tax provision (benefit)	$	—		$	—

F- 16

Deferred tax assets (liabilities) consist of the following:

	Year Ended			Year Ended
	December 31, 2018			December 31, 2017
Net operating loss carry forwards	$	(5,934,619	)	$	(5,657,043	)
Warrants issued for services		1,232,477			1,480,740
Impairment of investment		311,365			476,760
Depreciation		95,159			38,280
Interest expense on convertible notes		2,034,683			1,162,320
Change in fair value of derivative liability					-
Loss on sales of assets		-			-
Total gross deferred tax asset/liabilities		(2,260,935)			(2,498,943	)
Valuation allowance		2,260,935			2,498,943
Net deferred taxes	$	-		$	-

As of December 31, 2018, the Company had accumulated Federal net operating loss carryovers (“NOLs”) of $28,260,090. These NOLs can be carried forward indefinitely and the utilization of NOLs may be subject to limitation under the Internal Revenue Code Section 382 should there be a greater than 50% ownership change as determined under the regulations.

The Tax Cuts and Jobs Act (the "Act") was enacted on December 22, 2017. Among other things, the Act reduces the U.S. federal corporate tax rate from 34 percent to 21 percent, eliminates the alternative minimum tax (“AMT”) for corporations, and creates a one-time deemed repatriation of profits earned outside of the U.S. The tax rate reduction also resulted in a write-down of the net deferred tax asset of approximately $5 million. The write-down of the net deferred tax asset related to the rate reduction resulted in a corresponding write-down of the valuation allowance of approximately $4 million. The Company fully reserves its deferred tax assets as such there was no impact.

In assessing the realization of deferred tax assets, management considers whether it is more likely than not that some portion or all of the deferred tax assets will be realized. The ultimate realization of deferred tax assets is dependent upon the generation of future taxable income during the periods in which those temporary differences become deductible. Management considers the scheduled reversal of deferred tax liabilities, projected future taxable income and tax planning strategies in making this assessment. Based on the assessment, management has established a full valuation allowance against the entire deferred tax asset relating to NOLs for every period because it is more likely than not that all of the deferred tax asset will not be realized.

The Company files U.S. Federal and various State tax returns that are subject to audit by tax authorities beginning with the year ended December 31, 2014. The Company’s policy is to classify assessments, if any, for tax and related interest and penalties as tax expense.

Note 13 – Subsequent Events

From January 3, 2019 to March 26, 2019, holders of convertible notes converted $450,212 of notes and $31,345 of accrued interest into 12,242,678 shares of common stock. Additionally, 49,266 share were issued for shares authorized but not issued as of December 31, 2018.

On March 28, 2019, the Company executed a Settlement Agreement and Release with KCSA Strategic Communications. In connection with this settlement, the Company paid KCSA $80,000 and issued 875,504 shares of common stock, with each party releasing all claims against each other.

On April 2, 2019, the Company issued 3,611,665 shares of common stock to three executives for services rendered.

On January 2, 2019, we entered into a convertible note agreement with an unrelated party, pursuant to which we borrowed $115,500 at an annual percentage rate of 12% with a maturity date on August 5, 2019.

On January 31, 2019, we entered into a convertible note agreement with an unrelated party, pursuant to which we borrowed $150,000 at an annual percentage rate of 12% with a maturity date on January 28, 2020.

F- 17

Item 9. Changes in and Disagreement with Accountants on Accounting and Financial Disclosure.

None.

Item 9A. Controls and Procedures.

We carried out an evaluation required by Rule 13a-15 of the Securities Exchange Act of 1934, as amended (the "Exchange Act") under the supervision and with the participation of our management, including our principal executive officer and principal financial officer, of the effectiveness of the design and operation of the Company's "disclosure controls and procedures” and “internal control over financial reporting” as of the end of the period covered by this Annual Report.

Evaluation of Disclosure Controls and Procedures

We maintain disclosure controls and procedures as defined in Rules 13a-15(e) and 15d-15(e) of the Exchange Act that are designed to ensure that information required to be disclosed in our reports filed or submitted to the SEC under the Exchange Act is recorded, processed, summarized and reported within the time periods specified by the SEC's rules and forms, and that information is accumulated and communicated to management, including the principal executive and financial officer as appropriate, to allow timely decisions regarding required disclosures. Our principal executive officer and principal financial officer evaluated the effectiveness of disclosure controls and procedures as of the end of the period covered by this Annual Report (the “Evaluation Date”), pursuant to Rule 13a- 15(b) under the Exchange Act. Based on that evaluation, our principal executive officer and principal financial officer concluded that, as of the Evaluation Date, our disclosure controls and procedures were not effective to ensure that information required to be disclosed in our reports under the Exchange Act is recorded, processed, summarized, and reported within the time periods specified in the SEC's rules and forms, and that such information is accumulated and communicated to management, including our principal executive officer and principal financial officer, as appropriate to allow timely decisions regarding required disclosure, due to material weaknesses in our control environment and financial reporting process.

Limitations on the Effectiveness of Controls

Our management, including our principal executive officer and principal financial officer, does not expect that our Disclosure Controls and internal controls will prevent all errors and all fraud. A control system, no matter how well conceived and operated, can provide only reasonable, not absolute, assurance that the objectives of the control system are met. Further, the design of a control system must reflect the fact that there are resource constraints, and the benefits of controls must be considered relative to their costs. Because of the inherent limitations in all control systems, no evaluation of controls can provide absolute assurance that all control issues and instances of fraud, if any, within the Company have been detected. These inherent limitations include the realities that judgments in decision- making can be faulty, and that breakdowns can occur because of a simple error or mistake. Additionally, controls can be circumvented by the individual acts of some persons, by collusion of two or more people, or by management or board override of the control.

The design of any system of controls also is based in part upon certain assumptions about the likelihood of future events, and there can be no assurance that any design will succeed in achieving its stated goals under all potential future conditions; over time, controls may become inadequate because of changes in conditions, or the degree of compliance with the policies or procedures may deteriorate.

Because of the inherent limitations in a cost-effective control system, misstatements due to error or fraud may occur and not be detected.

Management's Annual Report on Internal Control over Financial Reporting

Our management is responsible for establishing and maintaining adequate internal control over financial reporting, as such term is defined in Exchange Act Rule 13a-15(f). Under the supervision and with the participation of our management, including our principal executive officer and principal financial officer, we conducted an evaluation of the effectiveness of our internal control over financial reporting based on the framework Company to confirm what framework was used in connection with its evaluation of internal controls over financial reporting. Internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles and includes those policies and procedures that (a) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the Company; (b) provide reasonable assurance that transactions are recorded as necessary to permit the preparation of financial statements in accordance with generally accepted accounting principles and that receipts and expenditures of the Company are being made only in accordance with authorizations of the our management and directors; and (c) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use or disposition of the Company's assets that could have a material effect on the financial statements.

Based on our evaluation under the framework described above, our management concluded that we had “material weaknesses” (as such term is defined below) in our control environment and financial reporting process consisting of the following as of the Evaluation Date:

	1)	lack of a functioning audit committee due to a lack of a majority of independent members and a lack of a majority of outside directors on our Board of Directors, resulting in ineffective oversight in the establishment and monitoring of required internal control and procedures;

	2)	inadequate segregation of duties consistent with control objectives;

	3)	ineffective controls over period end financial disclosure and reporting processes; and

	4)	lack of accounting personnel with adequate experience and training.

A “material weakness” is defined under SEC rules as a deficiency, or a combination of deficiencies, in internal control over financial reporting such that there is a reasonable possibility that a material misstatement of a company's annual or interim financial statements will not be prevented or detected on a timely basis by the company's internal controls.

As of the date of this Annual Report, the Company does not intend to remedy the foregoing and therefore such material weaknesses in our control environment and financial reporting process will continue. A system of controls, no matter how well designed and operated, cannot provide absolute assurance that the objectives of the system of controls are met, and no evaluation of controls can provide absolute assurance that all control issues and instances of fraud, if any, within a company have been detected.

Attestation report of the registered public accounting firm

This Annual Report does not include an attestation report of the Company's independent registered public accounting firm regarding internal control over financial reporting. Management's report was not subject to attestation by the Company's independent registered public accounting firm pursuant to temporary rules of the SEC that permit the Company to provide only management's report on internal control in this Annual Report.

Changes in Internal Controls

There were no changes in our internal control over financial reporting during the fiscal year ended December 31, 2018 that have affected, or are reasonably likely to affect, our internal control over financial reporting.

Item 9B. Other Information

None.

PART III

Item 10. Directors, Executive Officers and Corporate Governance

The following table sets forth the names and ages of all of our directors, executive officers and key employees; and all positions and offices held as of the date of this Report. The directors will hold such office until the next annual meeting of shareholders and until his or her successor has been elected and qualified.

Name	Age	Position
Ron Throgmartin	55	Chief Executive Officer, Director
Christopher Strachan	55	Chief Financial Officer
Nello Gonfiantini	61	Director

Business Experience

The following summarizes the occupation and business experience during the past five years for our officers, directors and key employees as of the date of this Report:

Officers and Directors

Ron Throgmartin joined as CEO of Diego Pellicer Worldwide Inc. in August 2013. In May 2010 Mr. Throgmartin began serving as an independent consultant for a medical marijuana company in Colorado where he managed State licensing, compliance, retail operations and production. From 2003-2008 Mr. Throgmartin was involved with the largest privately owned cattle producers in the United States with operations that encompassed 11 states. In 1989, Mr. Throgmartin started his own commercial development company, where over a span of 20 years he developed over 3 million square feet of commercial projects, working with some of the top rated retailers in the country, including Lowes, Home Depot, HH Gregg, Staples, McDonalds, Steak-n-Shake. From 1981-1989 Mr. Throgmartin worked for his family business HH Gregg, where he served in many roles including Operations and new and store development. Today HH Gregg (HHG) is a publicly owned and operated appliance and electronics retailer covering 16 states, and over $2.4 billion in annual sales. Mr. Throgmartin is a graduate of Ball State University with a Bachelor of Science degree. We believe that Mr. Throgmartin should serve as a member of the board of directors due to the perspective and experience he brings as our COO and his experience in the medical marijuana industry.

Christopher Strachan joined as CFO of Diego Pellicer Worldwide Inc. in January 2016. Mr. Strachan is an accomplished CFO, CEO, and manager with 30 years in corporate operations, marketing, securities, finance and 20 years of executive management experience. He has worked largely with developing and startup corporations, where he has honed his skills. For the past five years, Mr. Strachan has served as the President of Helisports LLC, a business development consulting company. In addition, he served as the CEO of Rhodes Architectural Stone from 2011 to 2012, the Director of Marketing and Sales of Glasair Aviation from 2012 to 2014 and the Director of Flight Operations and R&D at RotorWay Helicopters from 2009 to 2011.

Nello Gonfiantini joined Diego Pellicer Worldwide, Inc. as a consultant in 2016, on February 1, 2017 he was made Vice President of Real Estate and was elected as a director of the Company in March 2018. He has more than forty years of experience in the real estate and financial sector including president and chairman of the board of Home Federal Saving Bank of Nevada which was later purchased by American Federal Savings Bank. He also formed Specialty Mortgage Trust, Inc., a real estate investment trust. In 2015 he founded Crystal Bay Financial to assist corporate and real estate clients find solutions to complex and multifaceted financial challenges.

Family Relationships

No family relationship has ever existed between any director, executive officer of the Company, and any person contemplated to become such.

Committees

The board of directors has no standing committees. However, the Company intends to implement a comprehensive corporate governance program, including establishing various board committees and adopting a Code of Ethics in the future.

Section 16(a) of the Securities Exchange Act of 1934

As of the date of this report, we are not subject to Section 16(a) of the Securities Exchange Act of 1934.

Item 11. Executive Compensation

The following table shows for the period ended December 31, 2018, the compensation awarded (earned) or paid by the Company to its named executive officers or acting in a similar capacity as that term is defined in Item 402(a)(2) of Regulation S-K.

Name and Principal Position	Fiscal Year		Salary ($)		Bonus		Option Awards		All Other Compensation		Total ($)

Ron Throgmartin - CEO	2018	Accrued	$	279,996		-		-		1,115,705		1,395,701
		Paid	$	50,000		-		-		-		50,000
	2017	Accrued	$	453,161		-		-		748,099		1,201,260
		Paid	$	127,560		-		-		-		125,560

Christopher Strachan - CFO	2018	Accrued	$	74,200		-		-		205,068		279,268
		Paid	$	67,200		-		-		-		67,200
	2017	Accrued	$	53,500		-		-		-		53,500
		Paid	$	51,993		72,078		-		-		126,112

Employment and Director Agreements

Mr. Ron Throgmartin and Mr. Alan Valdes entered into agreements with the Company, for the position of Chief Executive Officer and Chairman of the Board respectively. Following the Merger, Mr. Throgmartin's position was changed to Chief Operating Officer. The other terms of his agreement remained in place.

On October 4, 2016, Alan Valdes, the Chairman of the Board of Directors of Diego Pellicer Worldwide, Inc. (the "Company") and Ronald Throgmartin, the Chief Executive Officer and a Director of the Company, executed Deferred Compensation Agreements pursuant to which they agreed to convert 50% of their accrued salaries into restricted Company securities at a conversion rate of $0.30, and 50 % of these accruals into Company promissory notes. The Company promissory notes accrue interest at the rate of eight (8%) percent, per annum, and are payable upon the earlier date of (i) the second anniversary date of the Promissory notes, (ii) the date all current investor notes in the aggregate principal and accrued interest amount of approximately $1,480,000, at June 30, 2016, are paid in full and the Company has achieved gross revenues of at least $3,000,000 over any 12-month period, provided further that the Company shall not make any payments against the Chairman Valdes note or the CEO Throgmartin note until the Company pays the $100,000 in accrued fees due to the independent director of the Company, Steve Norris, in full.

In June 2016 the Chairman Alan Valdes, converted 50% ($166,354) of his accrued salary of $332,708 into Company securities and the Company issued Chairman Valdes a promissory note in the outstanding principal amount of $166,355. In addition, Chairman Valdes agreed to amend his employment agreement, lowering his annual salary from $250,000 to $120,000, payable (a) $5,000 in cash, and (b) $5,000, at the executive's election, in the form of (i) a grant of 16,667 shares of the Company's restricted common shares (calculated at the rate of $0.30 per share), or (ii) a 5-year stock option to purchase 5,000 restricted common shares at the exercise price of $0.30 per share, or (iii) a 5-year Warrant to purchase 5,000 restricted common shares at the exercise price of $0.30 per share. Chairman Valdes also agreed to eliminate his employment agreement right to have his annual salary increase to $280,000 per year.

In June 2016, CEO Ron Throgmartin converted 50% ($140,958) of his accrued salary of $281,916 into Company securities and the Company issued to CEO Throgmartin a promissory note in the principal amount of $140,958. On November 29 2017 Mr. Throgmartin elected to convert $200,000 of his accrued salary into 14,234,875 shares of the Company's common stock.

On November 29 2017, Chairman Valdes elected to convert $250,255 of his accrued salary and Note into Company securities.

Each of Chairman Valdes and CEO Throgmartin has a choice to elect to receive their Company securities from the conversion of 50% of their accrued salaries in the form of a restricted common share grant, at the conversion rate of $0.30 per share, or a stock option or common stock purchase warrant, at the exercise price of $0.30 per underlying restricted common share.

In exchange for Mr. Norris' service on the Board and resignation on January 18, 2018, he received 50,000 warrants with an exercise price of $0.0001. In addition, Mr. Norris currently receives $5,000 per month in exchange for his services on the Board, consisting of $2,500 in cash and $2,500 in Company securities.

Option Plan

The Company established an Equity Incentive Plan to provide additional incentive to key employees, directors and consultants, and to promote the success of the Company's business. The terms of each option shall be no more than 10 years from the date of grant at an exercise price equal to the fair market value on the date of the grant.

Director Compensation

On October 4, 2016 the Board of Directors also adopted a resolution, establishing a payment plan for all members of the Company's Board of Directors, fixing the monthly payment at $5,000, payable $2,500 in cash and $2,500 in the form of a restricted common share grant, at the conversion rate of $0.30 per share, or a stock option or common stock purchase warrant, at the exercise price of $0.30 per underlying restricted common share.

Item 12. Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters

The following table sets forth certain information as of April 12, 2019, with respect to the holdings of: (1) each person known to us to be the beneficial owner of more than 5% of our Common stock; (2) each of our directors, nominees for director and named executive officers; and (3) all directors and executive officers as a group. To the best of our knowledge, each of the persons named in the table below as beneficially owning the shares set forth therein has sole voting power and sole investment power with respect to such shares, unless otherwise indicated.

Name of Beneficial Owner and Address (1)	Amount and Nature of Beneficial Ownership of Common Stock		Percent of Common Stock (2)
Ron Throgmartin		4,653,348		9.89	%
Christopher Strachan		1,737,163		3.69	%
Nello Gonfiantini		2,618,322		5.57	%
*All directors and officers as a group (4 people)*				19.15	%
5% Shareholders
David Thompson		2,690,684		5.72	%

(1)	Unless otherwise noted, the address of each beneficial owner is c/o 9030 Seward Park Ave S. #501, Seattle, Washington 98118.

(2)	Based on 47,038,274 shares of common stock issued and outstanding as of April 12, 2019.

Item 13. Certain Relationships and Related Transactions, and Director Independence

Except as disclosed below, none of the following persons has any direct or indirect material interest in any transaction to which we are a party since our incorporation or in any proposed transaction to which we are proposed to be a party:

	(A)	Any of our directors or officers;

	(B)	Any proposed nominee for election as our director;

	(C)	Any person who beneficially owns, directly or indirectly, shares carrying more than 10% of the voting rights attached to our Common Stock; or

	(D)	Any relative or spouse of any of the foregoing persons, or any relative of such spouse, who has the same house as such person or who is a director or officer of any parent or subsidiary of our Company.

Director Independence

Because our common stock is not currently listed on a national securities exchange, we have used the definition of "independence" of The NASDAQ Stock Market to make this determination. NASDAQ Listing Rule 5605(a) (2) provides that an "independent director" is a person other than an officer or employee of the Company or any other individual having a relationship which, in the opinion of the Company's board of directors, would interfere with the exercise of independent judgment in carrying out the responsibilities of a director. The NASDAQ listing rules provide that a director cannot be considered independent if:

	●	the director is, or at any time during the past three years was, an employee of the company;

	●	the director or a family member of the director accepted any compensation from the company in excess of $120,000 during any period of 12 consecutive months within the three years preceding the independence determination (subject to certain exclusions, including, among other things, compensation for board or board committee service);

	●	a family member of the director is, or at any time during the past three years was, an executive officer of the company;

	●	the director or a family member of the director is a partner in, controlling stockholder of, or an executive officer of an entity to which the company made, or from which the company received, payments in the current or any of the past three fiscal years that exceed 5% of the recipient's consolidated gross revenue for that year or $200,000, whichever is greater (subject to certain exclusions);

	●	the director or a family member of the director is employed as an executive officer of an entity where, at any time during the past three years, any of the executive officers of the company served on the compensation committee of such other entity; or the director or a family member of the director is a current partner of the company's outside auditor, or at any time during the past three years was a partner or employee of the company's outside auditor, and who worked on the company's audit.

We do not have any independent directors. We do not have an audit committee, compensation committee or nominating committee. We currently do not have a code of ethics that applies to our officers, employees and director.

Item 14. Principal Accounting Fees and Services

Audit Fees

For the Company’s fiscal years ended December 31, 2018 and 2017, we were billed approximately $57,500 and $32,080 for professional services rendered for the audit and quarterly reviews of our financial statements.

Audit Related Fees

None.

Tax Fees

None.

All Other Fees

None.

PART IV

Item 15. Exhibits and Financial Statement Schedules

EXHIBIT
NUMBER		DESCRIPTION

3.1		Articles of Incorporation (1)
3.2		By-Laws (1)
10.1		Form of Sponsor Agreement (1)
10.2		Animas Canada Sponsorship Agreement dated April 9, 2012 (2)
23.1		Consent of Independent Registered Public Accounting Firm
31.1		Certification of Principal Executive Officer and Principal Financial Officer, pursuant to 18 U.S.C. Section 1350 as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
31.2		Certification of Principal Executive Officer and Principal Financial Officer, pursuant to 18 U.S.C. Section 1350 as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
32.1		Certification of Principal Executive Officer and Principal Financial Officer, pursuant to 18 U.S.C. Section 1350 as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
32.2		Certification of Principal Executive Officer and Principal Financial Officer, pursuant to 18 U.S.C. Section 1350 as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
101.INS		XBRL Instance Document.
101.SCH		XBRL Taxonomy Extension Schema Document.
101.CAL		XBRL Taxonomy Extension Calculation Linkbase Document.
101.DEF XBRL		Taxonomy Extension Definition Linkbase Document.
101.LAB		XBRL Taxonomy Extension Label Linkbase Document.
101.PRE		XBRL Taxonomy Extension Presentation Linkbase Document.

(1)	Incorporated by reference to the Company's Registration Statement on Form S-1 filed on July 1, 2013.

(2)	Incorporated by reference to the Company's Registration Statement on Form S-1 filed on August 12, 2013.

SIGNATURES

Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.

	DIEGO PELLICER WORLDWIDE, INC.

Date: April 16, 2019	By:	/s/ Ron Throgmartin
		Ron Throgmartin
		Chief Executive Officer

Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following person on behalf of the Registrant and in the capacities and on the dates indicated.

Signature	Title	Date

/s/ Ron Throgmartin	Chief Executive Officer	April 16, 2019
Ron Throgmartin

/s/ Christopher Strachan	Chief Financial Officer	April 16, 2019
Christopher Strachan