Item 8.01 Other Matters.
Closing of Smoking Gun Asset Purchase
On December 21, 2021, the Company completed its
previously announced asset purchase from Smoking Gun, LLC (“Smoking Gun”) and Smoking Gun Land Company, LLC (“SG Land”),
pursuant to the terms of the asset purchase agreement, dated November 13, 2021 (the “Smoking Gun APA”), with Double Brow,
LLC, a wholly-owned subsidiary of the Company (the “Purchaser”), Smoking Gun, SG Land, and Deborah Dunafon, Ralph Riggs, George
Miller, Lindsey Mintz, Terry Grossman and Annette Gilman (collectively, the “Members”).
At the closing, the Purchaser purchased (i) all
of Smoking Gun’s assets used or held for use in Smoking Gun’s business of distributing and marketing recreational cannabis
products through Smoking Gun’s retail marijuana store located in Glendale, Colorado, and (ii) all of SG Land’s tangible and
intangible assets related to certain leased property which included, but was not limited to, fixtures, furniture and equipment related
to the leased property on the terms and subject to the conditions set forth in the Smoking Gun APA (the “Smoking Gun Asset Purchase”),
and assume obligations under contracts acquired as part of the Smoking Gun Asset Purchase.
The aggregate closing consideration for the Smoking
Gun Asset Purchase was $4 million in cash and 100,000 shares of the Company’s common stock. The Company held back $100,000 of the
cash consideration and deposited it with an escrow agent as collateral for potential claims for indemnification from Smoking Gun under
the Smoking Gun APA. Any portion of the held back cash consideration not used to satisfy indemnification claims will be released to Smoking
Gun on December 21, 2022. The Company funded the cash portion of the closing consideration from the net proceeds of the Company’s
recent issuance and sale of 13% senior secured convertible notes due December 7, 2026 as previously reported in the Company’s Current
Report on Form 8-K filed with the SEC on December 9, 2021.
The Company entered into mutually agreeable lock-up
agreements with the recipients of the stock consideration providing limitations on the resale of the shares of Company common stock received
as part of the consideration.
The issuances of the shares of common stock was
exempt from the registration requirements of the Securities Act of 1933, as amended (the “Securities Act”), pursuant to Section
4(a)(2) of the Securities Act. The Company issued the shares in a privately negotiated transaction and the Members acquired the securities
for their own accounts for investment purposes. A legend was placed on the certificates representing shares of common stock referencing
the restricted nature of the shares.
Star Buds Acquisition Security Agreements
As previously reported, between December 17, 2020
and March 2, 2021, the Company completed the acquisition of various assets in a series of transactions that the Company collectively refers
to as the “Star Buds acquisition.” The Company previously reported the terms of the applicable acquisition agreements and
the consummation of the Star Buds acquisition in the Company’s Current Reports on Form 8-K filed on June 8, 2020, September 21,
2020, December 23, 2020, February 9, 2021 and March 8, 2021. As previously reported, part of the consideration for the Star Buds acquisition
consisted of deferred cash, also referred to as “seller notes,” and the Company and its wholly-owned subsidiary SBUD LLC entered
into a total of thirteen security agreements with the sellers in the Star Buds acquisition at the separate closings pursuant to which
the Company and SBUD LLC granted security interests in substantially all of their respective assets to the sellers. The Company is attaching
copies of the security agreements to this Current Report on Form 8-K.
Update to Risk Factors
If we are unable to service or repay our indebtedness
when due, the applicable lenders may execute on the collateral.
We and our subsidiaries are either borrowers
or guarantors of indebtedness owed under (i) a Loan Agreement, as amended, with SHWZ Altmore, LLC, as lender, and GGG Partners LLC, as
collateral agent, (ii) the seller notes associated with the purchase of the Star Buds assets by SBUD LLC, and (iii) our 13% senior secured
convertible notes due December 7, 2026 (the “Notes”). The Notes provide that on the fourth anniversary of the issuance date,
the Note holders will have the right to require us to repurchase some or all of their Notes for cash in an amount equal to the principal
amount of the Notes being repurchased plus accrued and unpaid interest up to the date of repurchase. This indebtedness, as a whole, is
secured by substantially all current and future assets of ours and our subsidiaries. If the borrowers and we are unable to pay the debt
service or repay the indebtedness when due, the lenders may, among other remedies, sell the collateral and use the proceeds to satisfy
amounts owed under the indebtedness.