AmeriCann, Inc. - Annual Report: 2020 (Form 10-K)

PART I

Forward-Looking Statements

This report contains or incorporates by reference forward-looking statements, concerning our financial condition, results of operations and business.  These statements include, among others:

You can find many of these statements by looking for words such as “believes”, “expects”, “anticipates”, “estimates” or similar expressions used in this report.

These forward-looking statements are subject to numerous assumptions, risks and uncertainties that may cause our actual results to be materially different from any future results expressed or implied in those statements.  Because the statements are subject to risks and uncertainties, actual results may differ materially from those expressed or implied.  We caution you not to put undue reliance on these statements, which speak only as of the date of this report.

AmeriCann, Inc. (“AmeriCann”) is a specialized cannabis company that is developing state-of-the-art product manufacturing and greenhouse cultivation facilities. Our business plan is based on the continued growth of the regulated marijuana market in the United States.

AmeriCann uses greenhouse technology which is superior to the current industry standard of growing cannabis in warehouse facilities under artificial lights. According to industry experts, by capturing natural sunlight, greenhouses use 25 percent fewer lights, and utility bills are up to 75 percent less than in typical warehouse cultivation facilities. As such, AmeriCann’s Canopy System enables cannabis to be produced with a greatly reduced carbon footprint, making the final product less expensive. Additionally, greenhouse construction costs are nearly half of warehouse construction costs. AmeriCann’s business is committed to sustainable, clean cultivation of medical cannabis and to social and environmental ethics, transparency and accountability.

AmeriCann’s team includes board members, expert consultants, engineers and architects who specialize in real estate development, traditional horticulture, lean manufacturing, medical research, facility construction, regulatory compliance, security, marijuana cultivation and genetics, extraction processes, and infused product development.

AmeriCann’s flagship project is the Massachusetts Cannabis Center. The Massachusetts Cannabis Center (“MCC”) is being developed on a 52-acre parcel located in Southeastern Massachusetts. AmeriCann’s MCC project is permitted for 987,000 sq. ft. of cannabis cultivation and processing infrastructure, which is being developed in phases to support both the existing medical cannabis and the newly emerging adult-use cannabis marketplace.

The first phase of the million square foot project, Building 1, a 30,000 square foot cultivation and processing facility, is fully-operational and is currently 100% leased by a vertically-integrated Massachusetts cannabis company.

See “Massachusetts Cannabis Center” below for more information.

Massachusetts Cannabis Center

On October 17, 2016, we closed on the acquisition of the 52.6-acre parcel of undeveloped land in Freetown, Massachusetts. The property is located approximately 47 miles southeast of Boston. We are developing the property as the Massachusetts Cannabis Center (“MCC”). 

As part of a simultaneous transaction, we assigned the property rights to Massachusetts Medical Properties, LLC (“MMP”) for a nominal fee and entered a lease agreement pursuant to which MMP agreed to lease the property to us for an initial term of fifty (50) years. We have the option to extend the term of the lease for four (4) additional ten (10) year periods. The lease is a triple net lease, with the Company paying all real estate taxes, repairs, maintenance and insurance.

The lease payments are the greater of (a) $30,000 per month; (b) $0.38 per square foot per month of any structure built on the property; or (c) 1.5% of all gross monthly sales of products sold by the Company, any assignee of the Company, or any subtenant of the Company. The lease payments will be adjusted up (but not down) every five (5) years by any increase in the Consumer Price Index.

We received a credit for the $925,000 paid towards the purchase price of the land in the form of discounted lease payments. For the initial fifty (50) year term of the lease, the lease payments are reduced by $1,542 each month.

In connection with the sale of the property to MMP and the lease, we entered into a Share Purchase Agreement pursuant to which we issued to MMP 100,000 shares of our common stock, and a warrant to purchase up to 3,640,000 shares of common stock at an exercise price of $1.00 per share. The warrant can be exercised at any time on or before October 17, 2021. The warrant does not contain a cashless exercise provision.

Under the terms of the lease, the Company had six (6) months to obtain $2.6 million in capital funding for the construction of the first phase building. In the event that the Company was unable to raise these funds within the six (6) month period, the Company had an additional six (6) month period to do so; provided, that the Company paid accrued lease payments and closing costs. If the Company was then unable to raise these funds on or before twelve (12) months from October 17, 2016, the lease would terminate. On October 17, 2017, the lease agreement was amended to provide that the Company would have until 16 months from October 17, 2016 to raise $2.6 million in capital funding. In addition to extending the funding deadline, this amendment granted MMP warrants to purchase up to 100,000 shares of common stock at an exercise price of $1.50 per share. The warrants can be exercised at any time on or before October 17, 2022. In February and April, 2018, the lease agreement was amended to provide that the Company would have until 20 months from October 17, 2016 to raise $2.6 million in capital funding. In addition to extending the funding deadline, this amendment granted MMP warrants to purchase up to 100,000 shares of the Company’s common stock at an exercise price of $1.50 per share. The warrants can be exercised at any time on or before October 17, 2022. The Company recognized an expense of $0 during the three months ended December 31, 2018 related to those warrants. In July 2018, the Company fulfilled the $2.6 million capital funding commitment.

The MCC is a one million square foot sustainable greenhouse facility in Freetown, Mass which we are developing. Plans for the MCC include the construction of sustainable greenhouse cultivation and processing facilities that will be leased to Registered Marijuana Dispensaries under the Massachusetts Medical Marijuana and Adult Use Programs

The Town of Freetown Planning Board has approved our site plan application for the MCC. The site plan application requested 977,000 square feet of infrastructure for medical marijuana cultivation, processing, testing and associated administration in Freetown's Industrial Park. 

We are developing MCC in phases that will consist of three different building sites. The buildings have been approved for the following approximate sizes:

Building 1: 30,000 square feet

Building 2: 370,000 square feet

Building 3: 600,000 square feet.

Building 1 is a fully-constructed and operational, state-of-the-art greenhouse cultivation and product manufacturing facility.

On July 26, 2019 we entered into a Triple Net Lease for Building 1 with BASK, Inc. ("BASK"), a related party. Building 1, an Adult-Use and Medical cannabis cultivation and processing facility, is the first phase of the MCC. BASK commenced operations in Building 1 in February of 2020 and is licensed by the Massachusetts Cannabis Control Commission to cultivate, process and sell medical marijuana.

The 15-year lease for Building 1 with BASK provides, in addition to a monthly Base Rent, a Revenue Participation Fee to us of 15% of all gross monthly sales of cannabis, cannabis-infused products and non-cannabis products produced at Building 1.

Building 2 is the next phase of the MCC development where AmeriCann will occupy space for cannabis cultivation and product manufacturing. Designs for Building 2 include 370,000 square feet of greenhouses for cultivation and GMP certified product manufacturing and extraction capabilities.

On November 19, 2020, AmeriCann received two licenses from the Massachusetts Cannabis Control Commission. The licenses are for Cannabis Cultivation and a license for Cannabis Product Manufacturing. The Cannabis Cultivation and Cannabis Product Manufacturing licenses awarded to AmeriCann are designated to be operated in Building 2 of the MCC.

For the remainder of the project we intend to enter into agreements with other licensed cannabis businesses in Massachusetts to occupy space in the MCC. We will generate revenue through lease arrangements with the operators that include base rents and revenue participation fee payments up to 15% of gross revenue generated from products produced at the MCC. We plan to replicate the brands, technology and innovations developed at the MCC to new markets.

Market Conditions

Adult-Use marijuana is now legal in 15 states and the District of Columbia, and medical marijuana is legal in 36 states.

While the industry is growing rapidly, the cannabis industry faces several major obstacles that challenge its growth and profitability. First, the cultivation of cannabis is a very capital-intensive enterprise. Many cannabis entrepreneurs do not have access to the capital required to build the infrastructure required to meet growing demand and sales projections. Traditional sources of financing, such as banks, are not available currently to cannabis producers and retailers in the United States. Second, there is a significant shortage of knowledge related to virtually all areas of the cannabis business. When new states are added to the list of regulated cannabis markets, there is a scarcity of experience and expertise to serve the needs of cultivators, processors and retailers in these states. As explained below, marijuana is illegal under federal law. These obstacles to the cannabis industry require financial resources, expertise and dedicated advocacy to change regulations on the state level.

Government Regulation

Marijuana is a Schedule-I controlled substance and is illegal under federal law.  Even in those states in which the use of marijuana has been legalized, its use remains a violation of federal law.

A Schedule I controlled substance is defined as a substance that has no currently accepted medical use in the United States, a lack of safety for use under medical supervision and a high potential for abuse.  The Department of Justice defines Schedule 1 controlled substances as “the most dangerous drugs of all the drug schedules with potentially severe psychological or physical dependence.”  If the federal government decides to enforce the Controlled Substances Act with respect to marijuana, persons that are charged with distributing, possessing with intent to distribute, or growing marijuana could be subject to fines and terms of imprisonment, the maximum being life imprisonment and a $50 million fine.

As of November 30, 2020, 36 states and the District of Columbia allow their citizens to use Medical Marijuana. Additionally, 15 states and the District of Columbia have legalized cannabis for recreational use by adults. The state laws are in conflict with the federal Controlled Substances Act, which makes marijuana use and possession illegal on a national level. Although previous administrations have indicated that they are not opposed to the legalization of marijuana any change in the federal government’s enforcement of current federal laws could cause significant financial damage to us and our shareholders.

Competition

Currently, there are a number of other companies that are involved in the marijuana industry, many of which we consider to be our competition. Many of these companies provide services similar to those which we provide or plan to provide.  We expect that other companies will recognize the value of serving the marijuana industry and become our competitors.

General

We were incorporated in Delaware on June 25, 2010.

Our offices are located at 1555 Blake Street, Unit 502, Denver, CO 80202. We lease this space on a month-to-month basis at a rate of $2,500 per month.

As of November 30, 2020, we had three full time employees, that being Timothy Keogh, our Chief Executive Officer, Benjamin Barton, Chief Financial Officer and Jane Roach, our Office Manager.  As of November 30, 2020, Mr. Keogh was spending approximately 90% of his time on our business, Mr. Barton was spending approximately 95% of his time on our business, and Jane Roach was spending approximately 100% of her time on our business. 

COVID-19 Pandemic

The Company believes that the COVID- 19 pandemic has had certain impacts on its business, but management does not believe there has been a material long-term impact from the effects of the pandemic on the Company’s business and operations, results of operations, financial condition, cash flows, liquidity or capital and financial resources.

The Company has established policies to monitor the pandemic and has taken a number of actions to protect its employees, including restricting travel, encouraging quarantine and isolation when warranted, and directing employees to work from home.

In an effort to mitigate the COVID- 19 pandemic Massachusetts implemented a “Stay at Home Advisory.” The advisory commenced March 24, 2020 and concluded May 25, 2020. Massachusetts Governor Baker deemed medical cannabis businesses as an essential service and, therefore, Building 1 has continued to operate in a standard manner without interruption, while management implemented guidelines from the CDC and Massachusetts. Adult use recreational sales of cannabis are once again legal in Massachusetts.

We are a smaller reporting company as defined by Rule 12b-2 of the Securities Exchange Act of 1934 and are not required to provide the information under this item. However, our activities are subject to significant risks and uncertainties including failure to secure funding to properly fund our business plan. 

Not applicable.

See Item 1. Business.

None

Not applicable

PART II

Our common stock is quoted on the OTCQB under the trading symbol “ACAN”. Shown below is the range of high and low closing prices for our common stock as reported by the OTCQB for the periods presented:

Holders of our common stock are entitled to receive dividends as may be declared by the Board of Directors.  Our Board of Directors is not restricted from paying any dividends but is not obligated to declare a dividend.  No cash dividends have ever been declared and it is not anticipated that cash dividends will ever be paid.  We currently intend to retain any future earnings to finance future growth.  Any future determination to pay dividends will be at the discretion of our directors and will depend on our financial condition, results of operations, capital requirements and other factors the board of directors considers relevant.

Our Articles of Incorporation authorize the Board of Directors to issue up to 20,000,000 shares of preferred stock.  The provisions in the Articles of Incorporation relating to the preferred stock allow our directors to issue preferred stock with multiple votes per share and dividend rights, which would have priority over any dividends paid to the holders of our common stock.  The issuance of preferred stock with these rights may make the removal of management difficult even if the removal would be considered beneficial to shareholders generally, and will have the effect of limiting shareholder participation in certain transactions such as mergers or tender offers if these transactions are not favored by management.

As of December 15, 2020, we had 139 shareholders of record and 23,696,310 outstanding shares of common stock.

Not applicable.

Total Revenues

During the year ended September 30, 2020, we generated $503,512 in revenue, as compared to $11,564 for the year ended September 30, 2019. The increase in revenue is due to the rental revenue and participation fee revenue due to completion of Building 1.

Advertising and Marketing Expenses

Advertising and marketing expenses were $38,179 for the year ended September 30, 2020, as compared to $126,993 for the year ended September 30, 2019. The decrease is due to a decrease in public relations costs.

Professional Fees

Professional fees were $405,920 for the year ended September 30, 2020, as compared to $866,116 for the year ended September 30, 2019. The decrease in professional fees is primarily due a decrease in legal and consulting fees.

General and Administrative Expenses

General and administrative expenses were $2,007,642 for the year ended September 30, 2020, as compared to 1,626,596 for the year ended September 30, 2019.  The increase is primarily a result of an increase in depreciation expense and property tax expense.

Provisions for Doubtful Accounts/Recovery of Provision for Doubtful Accounts

(Recovery)/Provision for doubtful accounts was $(1,761,675) for the year ended September 30, 2020, as compared to $783,905 for the year ended September 30, 2019. The decrease is a result of a reversal of the reserve on the receivable balance with WGP, as the payment was received in February 2020.

Interest Income

Interest income was $333,681 for the year ended September 30, 2020, as compared to $29,109 for the year ended September 30, 2019. The increase is attributable primarily due to the interest on the WGP litigation settlement.

Interest Expense

Interest expense was $856,470 for the year ended September 30, 2020, as compared to $560,591 for the year ended September 30, 2019. The increase is primarily attributable to interest on the $4,000,000 loan and the amortization of debt discounts.

Loss on extinguishment of debt

On September 30, 2019, we recognized loss on extinguishment of debt of $977,110 representing the fair value of 1,500,000 warrants issued as part of the loan amendment and modification.

Net Loss

We had a net loss of $709,343 for the year ended September 30, 2020, as compared to a net loss of $4,903,668 for the year ended September 30, 2019. The decrease in net loss is attributable to changes in revenues, operating expenses, and interest income and expense each of which is described above.

LIQUIDITY AND CAPITAL RESOURCES

Loans

In August 2020, we borrowed $153,000 from an unrelated party, inclusive of $3,000 of debt issuance costs. The loan bears an interest rate of 10% per year and is due on August 21, 2021.

On September 30, 2019, we amended and modified two notes payable due to Strategic Capital Partners, LLC, a company controlled by Benjamin J. Barton, one of our officers and directors with balances of $1,000,000 and $756,646 into one note, in the principal amount of $1,756,646, bearing interest of 9% per year and maturing on December 31, 2022. Additionally, the conversion option in the first note was eliminated. As additional consideration for the modification of the notes, the note holder received warrants to purchase 1,500,000 shares of the Company's common stock. The warrants are exercisable at a price of $1.25 per share and expire on December 31, 2022. The fair value of the 1,500,000 warrants was $977,110 and was recognized as loss on extinguishment of debt.

On August 2, 2019 we secured a $4,000,000 loan from an unrelated third party. The loan was evidenced by a note which bears interest at the rate of 11% per year, is due and payable on August 2, 2022 and is secured by a first lien on Building 1 at the MCC.

The note holder also received a warrant which allows the holder to purchase 600,000 shares of the Company’s common stock at a price of $1.50 per share. The warrant will expire on the earlier of (i) August 2, 2024 or (ii) twenty days after written notice of the holder that the daily Volume Weighted Average Price of the Company’s common stock was at least $4.00 for twenty consecutive trading days and the average daily volume of trades of the Company’s common stock during the twenty trading days was at least 150,000 shares.

In May 2019, we borrowed a total of $236,000 from an unrelated party. The loan bore an interest rate of 12% per year and was due one year from the borrowing date. The loan was repaid during 2019 prior to the due date. The Company incurred debt issuance costs of $6,000 related to these loans.

Sale of Common Stock and Warrants

Currently the company has 7,490,650 warrants issued and outstanding with exercise prices ranging from $1.00 to $5.00 and expiration dates ranging from November 4, 2020 to July 10, 2023 associated with transactions prior to October 1, 2018.

During the year ended September 30, 2020, we issued 191,490 shares of stock for services valued $90,000.

During the year ended September 30, 2019, we converted debt and interest of $261,513 into 174,342 shares of common stock.

Equity line agreement

On December 12, 2017, we entered into an amended and restated equity line agreement with Mountain States Capital, LLC (MSC). Under the equity line agreement, MSC agreed to provide us with up to $10,000,000 of funding through the purchase of shares of the Company's common stock.

The equity line agreement terminated in August 2019.

During the year ended September 30, 2019, we received $1,211,000 from the sale of 715,981 shares of common stock to MSC.

Contractual obligations

The Company leases land under an operating lease commencing October 17, 2016, for an initial term of fifty (50) years. We have the option to extend the term of the lease for four (4) additional ten (10) year periods. The lease is a triple net lease, with the Company paying all real estate taxes, repairs, maintenance and insurance. The lease payments are the greater of (a) $30,000 per month; (b) $0.38 per square foot per month of any structure built on the property; or (c) 1.5% of all gross monthly sales of products sold by the Company, any assignee of the Company, or any subtenant of the Company. The Company received a credit for the $925,000 paid towards the purchase price of the land in the form of discounted lease payments. For the initial fifty (50) year term of the lease, the lease payments are reduced by $1,542 each month. 

Analysis of Cash Flows

During the year ended September 30, 2020, cash provided by operations was $518,333 as compared to net cash used in operations of $2,188,594 for the year ended September 30, 2019. The increase is primarily due to the collection of an arbitration award, timing of working capital payments and depreciation (a non-cash) expense during the year ended September 30, 2020.

Cash flows used in investing activities were $357,236 for the year ended September 30, 2020, consisting primarily of additions to property, plant and equipment. Cash flows used in investing activities was $5,861,793 for the year ended September 30, 2019, consisting primarily of additions to construction in progress.

Cash flows used in financing activities were $1,260,000 for the year ended September 30, 2020, consisting primarily of payments on notes payable. Cash flows provided by financing activities was $5,325,500 for the year ended September 30, 2019, consisting primarily of net proceeds from note payable, the exercise of warrants and stock options and proceeds from common stock issued for cash, partially offset by payments on notes payable.

Going concern

The accompanying consolidated financial statements have been prepared assuming the Company will continue as a going concern, which contemplates, among other things, the realization of assets and satisfaction of liabilities in the normal course of business. The Company had a working capital deficit of $232,158 as of September 30, 2020, an accumulated deficit of $18,722,552 and $18,013,209 at September 30, 2020 and 2019, respectively, and had a net loss of $709,343 for the year ended September 30, 2020.

Management believes that the actions presently being taken to further implement the Company’s business plan and generate additional revenues provide the opportunity for the Company to continue as a going concern. While the Company believes in the viability of its strategy to generate additional revenues and in its ability to raise additional funds, there can be no assurances to that effect. The ability of the Company to continue as a going concern is dependent upon the Company's ability to further implement its business plan and generate additional revenues. The consolidated financial statements do not include any adjustments that might be necessary if the Company is unable to continue as a going concern.

Trends

The factors that will most significantly affect our future operating results, liquidity and capital resources will be:

Other than the foregoing, we do not know of any trends, events or uncertainties that have had, or are reasonably expected to have, a material impact on:

RECENT ACCOUNTING PRONOUNCEMENTS

Recent accounting pronouncements which may be applicable to us are described in Note 1 to the Consolidated Financial Statements included as part of this report.

SIGNIFICANT ACCOUNTING POLICIES

Our significant accounting policies are set forth below. We have consistently applied these policies in all material respects.

Use of Estimates

The preparation of consolidated financial statements in conformity with U.S. generally accepted accounting principles 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 date of the consolidated financial statements and the reported amounts of revenues and expenses during the reporting period. The more significant estimates and assumptions made by management are valuation of equity instruments, deferred tax asset valuation and allowance and collectability of long-lived assets. Actual results could differ from those estimates as the current economic environment has increased the degree of uncertainty inherent in these estimates and assumptions.  

Cash and Cash Equivalents

Cash and cash equivalents include cash on hand, demand deposit accounts and temporary cash investments with maturities of ninety days or less at the date of purchase.

Income Taxes

In accordance with ASC Topic 740 - Income Taxes, the provision for income taxes is computed using the asset and liability method. The liability method measures deferred income taxes by applying enacted statutory rates in effect at the consolidated balance sheet date to the differences between the tax basis of assets and liabilities and their reported amounts on the consolidated financial statements.  The resulting deferred tax assets or liabilities have been adjusted to reflect changes in tax laws as they occur.  A valuation allowance is provided when it is more likely than not that a deferred tax asset will not be realized.

We expect to recognize the financial statement benefit of an uncertain tax position only after considering the probability that a tax authority would sustain the position in an examination. For tax positions meeting a "more-likely-than-not" threshold, the amount to be recognized in the consolidated financial statements will be the benefit expected to be realized upon settlement with the tax authority. For tax positions not meeting the threshold, no financial statement benefit is recognized. As of September 30, 2020 and 2019, we had no uncertain tax positions. We recognize interest and penalties, if any, related to uncertain tax positions as general and administrative expenses. We currently have no federal or state tax examinations nor have we had any federal or state examinations since our inception. To date, we have not incurred any interest or tax penalties.

For federal tax purposes, our 2017 through 2019 tax years remain open for examination by the tax authorities under the normal three-year statute of limitations.

Concentration of Credit Risks and Significant Customers

Financial instruments that potentially subject us to concentrations of credit risk consist principally of cash, notes receivables, deposits, and tenant receivables. We place our cash with high credit quality financial institutions. As of September 30, 2020, we had outstanding notes receivable of $119,512 and a tenant receivable of $124,617 with, a related party.

Financial Instruments and Fair Value of Financial Instruments

We adopted ASC Topic 820, Fair Value Measurements, for assets and liabilities measured at fair value on a recurring basis. ASC Topic 820 requires the use of fair value measurements, establishes a framework for measuring fair value and expands disclosure about such fair value measurements. 

ASC Topic 820 defines fair value as the price that would be received upon the sale of an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. Additionally, ASC Topic 820 requires the use of valuation techniques that maximize the use of observable inputs and minimize the use of unobservable inputs. These inputs are prioritized below:

The carrying value of financial assets and liabilities recorded at fair value is measured on a recurring or nonrecurring basis. Financial assets and liabilities measured on a non-recurring basis are those that are adjusted to fair value when a significant event occurs. We had no financial assets or liabilities carried and measured on a nonrecurring basis during the reporting periods. Financial assets and liabilities measured on a recurring basis are those that are adjusted to fair value each time a financial statement is prepared. We had no financial assets or liabilities carried and measured on a recurring basis during the reporting periods. The carrying value of short-term financial instruments, including cash, tenant and notes receivable, accounts payable and accrued expenses, and short-term borrowings approximate fair value due to the relatively short period to maturity for these instruments. The long-term borrowings approximate fair value since the related rates of interest approximates current market rates.

Derivative Liabilities

We evaluate stock options, stock warrants or other contracts to determine if those contracts or embedded components of those contracts qualify as derivatives to be separately accounted for under the relevant sections of ASC Topic 815-40, Derivative Instruments and Hedging: Contracts in Entity’s Own Equity. The result of this accounting treatment could be that the fair value of a financial instrument is classified as a derivative instrument and is marked-to-market at each consolidated balance sheet date and recorded as a liability. In the event that the fair value is recorded as a liability, the change in fair value is recorded in the consolidated statement of operations as other income or other expense. Upon conversion or exercise of a derivative instrument, the instrument is marked to fair value at the conversion date and then that fair value is reclassified to equity. Financial instruments that are initially classified as equity that become subject to reclassification under ASC Topic 815-40 are reclassified to a liability account at the fair value of the instrument on the reclassification date. We determined that none of our financial instruments meet the criteria for derivative accounting as of September 30, 2020 and 2019.

Operating leases

Effective October 1, 2019, we adopted ASC 842 Lease Accounting using the effective date method. Under the method, periods prior to adoption remain unchanged. We determine if an arrangement is a lease at inception. 

ROU assets represent our right to use an underlying asset for the lease term and lease liabilities represent our obligation to make lease payments arising from the lease. Operating lease ROU assets and liabilities are recognized at commencement date based on the present value of lease payments over the lease term. Variable lease payments are not included in the calculation of the right-of-use asset and lease liability due to uncertainty of the payment amount and are recorded as lease expense in the period incurred. As most of our leases do not provide an implicit rate, we use our incremental borrowing rate based on the information available at commencement date in determining the present value of lease payments. We use the implicit rate when readily determinable. Our lease terms may include options to extend or terminate the lease when it is reasonably certain that we will exercise that option. Lease expense for lease payments is recognized on a straight-line basis over the lease term.

Under the available practical expedient, we account for the lease and non-lease components as a single lease component for all classes of underlying assets as both a lessee and lessor. Further, we elected a short-term lease exception policy on all classes of underlying assets, permitting us to not apply the recognition requirements of this standard to short-term leases (i.e. leases with terms of 12 months or less).

Long-lived assets

Our long-lived assets consist of property and equipment and are reviewed for impairment in accordance with the guidance of the Topic ASC Topic 360, Property, Plant, and Equipment. We test for impairment losses on long-lived assets used in operations whenever events or changes in circumstances indicate that the carrying amount of the asset may not be recoverable. Recoverability of an asset to be held and used is measured by a comparison of the carrying amount of an asset to the future undiscounted cash flows expected to be generated by the asset. If such asset is considered to be impaired, the impairment to be recognized is measured by the amount by which the carrying amount of the asset exceeds its fair value. Impairment evaluations involve management's estimates on asset useful lives and future cash flows. Actual useful lives and cash flows could be different from those estimated by management which could have a material effect on our reporting results and financial positions. Fair value is determined through various valuation techniques including discounted cash flow models, quoted market values and third-party independent appraisals, as considered necessary. There were no impairment losses recognized for the years ended September 30, 2020 and 2019.

Property, Plant and Equipment

Property, plant and equipment are stated at cost. Depreciation of property, plant and equipment begins in the month following the month when the asset is placed into service and is provided using the straight-line method for financial reporting purposes at rates based on the estimated useful lives of the assets. Estimated useful lives range from three to twenty years.

Non-Cash Equity Transactions

Shares of equity instruments issued for noncash consideration are recorded at the estimated fair market value of the consideration granted based on the estimated fair market value of the equity instrument, or at the estimated fair market value of the goods or services received, whichever is more readily determinable.

Stock-Based Compensation

We account for share-based awards to employees in accordance with ASC Topic 718, Stock Compensation. Under this guidance, stock compensation expense is measured at the grant date, based on the fair value of the award, and is recognized as an expense over the estimated service period (generally the vesting period) on the straight-line attribute method. Share-based awards to non-employees are accounted for in accordance with ASU 2018-07 Compensation – Stock Compensation (Topic 718): Improvements to Nonemployee Share-based Payment Accounting, which aligns the accounting for nonemployee share-based payments with accounting of share-based payments to employees,

Related Parties

A party is considered to be related to us if the party directly or indirectly or through one or more intermediaries, controls, is controlled by, or is under common control with us. Related parties also include our principal owners, our management, members of the immediate families of our principal owners and our management and other parties with which we may deal if one party controls or can significantly influence the management or operating policies of the other to an extent that one of the transacting parties might be prevented from fully pursuing its own separate interests. A party which can significantly influence the management or operating policies of the transacting parties, or if it has an ownership interest in one of the transacting parties and can significantly influence the other to an extent that one or more of the transacting parties might be prevented from fully pursuing its own separate interests, is also a related party.

Revenue Recognition

Effective October 1, 2018, we adopted ASU 2014-09, Revenue from Contracts with Customers (Topic 606). Under the new standard, we recognize revenues when the following criteria are met: (i) persuasive evidence of a contract with a customer exists, (ii) identifiable performance obligations under the contract exist, (iii) the transaction price is determinable for each performance obligation, (iv) the transaction price is allocated to each performance obligation, and (v) when the performance obligations are satisfied. Currently, we derive all of our revenues from property leases. Property leases are not within the scope of ASC 606.

Property lease revenue is earned through annual leases for facilities used in agricultural/manufacturing activities and the Company records revenues on a straight-line basis over the term of these leases.  Property lease revenues from these sources are recurring on an annual basis.  Unearned property lease revenues were $0 at both September 30, 2020 and 2019.

The Company also receives a revenue participation fee which is considered a variable payment and thus is recorded in the period earned in accordance with ASC 842.

Advertising Expense

Advertising, promotional and selling expenses consist of sales and marketing expenses, and promotional activity expenses. Expenses are recognized when incurred.

General and Administrative Expense

General and administrative expenses consist of professional service fees, rent and utility expenses, meals, travel and entertainment expenses, and other general and administrative overhead costs. Expenses are recognized when incurred.

Loss per Share

We compute net loss per share in accordance with the ASC Topic 260. The ASC specifies the computation, presentation and disclosure requirements for loss per share for entities with publicly held common stock.

Basic loss per share amounts is computed by dividing the net loss by the weighted average number of common shares outstanding. Shares issuable upon the exercise of equity instruments such as warrants and options were not included in the loss per share calculations for 2020 and 2019 because the inclusion would have been anti-dilutive.

OFF-BALANCE SHEET ARRANGEMENTS

As of September 30, 2020, we did not have any off-consolidated balance sheet arrangements.

Attached.

None.

Disclosure Controls and Procedures

An evaluation was carried out under the supervision and with the participation of our management, including our Principal Executive Officer and Principal Financial Officer, of the effectiveness of our disclosure controls and procedures as of the end of the period covered by this report on Form 10-K.  Disclosure controls and procedures are procedures designed with the objective of ensuring that information required to be disclosed in our reports filed under the Securities Exchange Act of 1934, such as this Form 10-K, is recorded, processed, summarized and reported within the time period specified in the Securities and Exchange Commission’s rules and forms, and that such information is accumulated and is communicated to our management, including our Principal Executive Officer and Principal Financial Officer, or persons performing similar functions, as appropriate, to allow timely decisions regarding required disclosure.  Based on that evaluation, our management concluded that, as of September 30, 2020, our disclosure controls and procedures were not effective for the same reasons that our internal control over financial reporting was not adequate.

Management’s Report on Internal Control Over Financial Reporting

Our management is responsible for establishing and maintaining adequate internal control over financial reporting as required by Sarbanes-Oxley (SOX) Section 404.A. Our internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of consolidated financial statements in accordance with generally accepted accounting principles in the United States and includes those policies and procedures that:

We carried out an evaluation under the supervision and with the participation of management, including our Principal Executive Officer and Principal Financial Officer, of the effectiveness of the design and operation of our internal control over financial reporting as of September 30, 2020, the end of the period covered by this Annual Report on Form 10-K for the year ended September 30, 2020. In making this evaluation, management used the criteria set forth by the Committee of Sponsoring Organizations of the Treadway Commission (COSO) in Internal Control - Integrated Framework, published in 2013. Based on that evaluation, our Principal Executive Officer and Principal Financial Officer concluded that our internal control over financial reporting was not effective as of September 30, 2020 at the reasonable assurance level, as a result of material weaknesses related to a lack of a sufficient number of personnel with appropriate training and experience in accounting principles generally accepted in the United States of America, or GAAP, limited or no segregation of duties, and lack of independent directors. As a result, we did not adequately document or test whether our financial activity level controls or our information technology general controls were operating sufficiently to identify a deficiency, or combination of deficiencies, that may result in a reasonable possibility that a material misstatement of the consolidated financial statements would not be prevented or detected on a timely basis. In addition, we did not properly evaluate the accounting and valuation for certain equity instruments. While Management has reviewed the consolidated financial statements and underlying information included in this Annual Report on Form 10-K in detail and believes the procedures performed are adequate to fairly present our financial position, results of operations and cash flows for the periods presented in all material respects, the material weaknesses that existed in fiscal 2020 could have led to an error in the original accounting of the estimated fair market value of certain equity instruments.

Remediation of Material Weaknesses 

A material weakness is a control deficiency (within the meaning of the Public Company Accounting Oversight Board (“PCAOB”) Auditing Standard No. 2201), or combination of control deficiencies, that result in more than a remote likelihood that a material misstatement of the annual or interim consolidated financial statements will not be prevented or detected. While management believes that the Company’s consolidated financial statements previously filed in the Company’s SEC reports have been properly recorded and disclosed in accordance with US GAAP, we have designed and plan to implement, or in some cases have already implemented, the specific remediation initiatives described below:

We plan to obtain and hire additional accounting personnel, and continue to enhance our internal finance and accounting organizational structure. 

We have hired a third-party consultant who has the required background and experience in accounting principles generally accepted in the United States of America and with SEC rules and regulations.

We are in the process of further enhancing the supervisory procedures to include additional levels of analysis and quality control reviews within the accounting and financial reporting functions.

We are in the process of strengthening our internal policies and enhancing our processes for ensuring consistent validation of our conclusions regarding significant accounting policies and their application to our business transactions are carried out by personnel with an appropriate level of accounting knowledge, experience and training.

While we have not yet remediated these material weaknesses, we will continue our remediation efforts during fiscal 2021.

This Annual Report does not include an attestation report of our independent registered public accounting firm regarding internal control over financial reporting. Management’s report was not subject to such attestation pursuant to rules of the Securities and Exchange Commission that permits us to provide only management’s report in this Annual Report.

Changes in Internal Control over Financial Reporting

No changes in our internal control over financial reporting have come to management's attention during our last fiscal quarter that have materially affected, or are likely to materially affect, our internal control over financial reporting.

None. 

PART III

The following is a brief summary of the background of each officer and director including their principal occupations during the past several years.  All directors will serve until their successors are elected and qualified or until they are removed.

Timothy Keogh was appointed our Chief Executive Officer and a director on March 25, 2014. As our Chief Executive Officer, Mr. Keogh has developed sustainable practices and traditional horticultural approaches to the production of medical cannabis to benefit patients and adults (21+) in regulated markets. Prior to joining AmeriCann, Mr. Keogh was the Chief Executive Office and a director of Bask, Inc (f/k/a Coastal Compassion, Inc.), a non-profit corporation that has entered the medical marijuana business in Massachusetts. BASKS’s efforts began in September of 2012 and was formalized under Massachusetts G.L. Chapter 180 in August of 2013.  Under the direction of Mr. Keogh, Bask, Inc. received a limited number Final Certificates for cultivation, processing and dispensing medical cannabis in Massachusetts.

Between November 2010 and November 2013 Mr. Keogh owned and managed Dock Promotions, LLC, a company which provided consulting services to waterfront developments and marinas in the areas of design, construction, and operations.   Between 2003 and 2010, Mr. Keogh was the Director of Business Services for Marina Management Services, Inc., a corporation which provided management and consulting solutions to waterfront developments, marinas and boatyards throughout the Americas and the Caribbean. 

Mr. Keogh was recognized by Marijuana Business Daily as one of the top entrepreneurs in the cannabis industry, is a board member of the Responsible Regulation Alliance in Massachusetts, and continues to be an invited speaker at investment and cannabis industry event throughout the United States.  Mr. Keogh holds a Bachelor of Science in Business Administration from Mount St. Mary’s College.

Ben Barton was appointed a director on January 14, 2014 and Chief Financial Officer on January 22, 2014. Since 1986, Mr. Barton has been active in all aspects of venture capital and public stock offerings. Since 2005, Mr. Barton has been the Managing Director of Strategic Capital Partners, LLC, a private investment company specializing in emerging companies. Mr. Barton was one of the founders of Synergy Resources Corporation, an energy company that traded on the NYSE. Prior to earning an MBA in Finance from UCLA, Mr. Barton received his Bachelor of Science degree in Political Science from Arizona State University.

J. Tyler Opel was appointed to the Board of Directors of AmeriCann, Inc. in January of 2019. Prior to joining AmeriCann, Mr. Opel received his business administration degree from the University of Missouri. After working as a financial analyst in the bulk commodity industry, Mr. Opel received his Juris Doctorate from the Southern Illinois School of Law with a specialization in Business and Transactional Law. Mr. Opel is licensed to practice law in Colorado and Missouri and has represented clients in various real estate, construction, administrative, and transactional proceedings.

Effective March 25, 2014, we entered into an employment agreement with Mr. Keogh.  The agreement had an initial term of three years and provided that we would pay Mr. Keogh $12,000 per month during the term of the agreement.  Pursuant to the employment agreement, Strategic Capital Partners, LLC, our largest shareholder, sold 1,200,000 shares of our common stock to Mr. Keogh at a price of $0.001 per share.

See Item 12 of this report for information concerning options granted to Mr. Keogh.

Our directors serve until the next annual meeting of our shareholders and until their successors have been duly elected and qualified.  Our officers serve at the discretion of our directors.  

We believe our directors are qualified to act as such for the following reasons:

Timothy Keogh – experience in marijuana industry

Benjamin J. Barton – experience in the capital markets

J. Tyler Opel – experience in business and transaction law

Timothy Keogh and Benjamin J. Barton are not independent as that term is defined in Section 803 of the NYSE American Company Guide.

We do not have a financial expert as that term is defined by the Securities and Exchange Commission.

Our Board of Directors does not have standing audit, nominating or compensation committees, committees performing similar functions, or charters for such committees. Instead, the functions that might be delegated to such committees are carried out by our Board of Directors, to the extent required. Our Board of Directors believes that the cost of associated with such committees has not been justified under our current circumstances.

Our Board of Directors believes that its current members have sufficient knowledge and experience to fulfill the duties and obligations of an audit committee. None of the current Board members is an “audit committee financial expert” within the meaning of the rules and regulations of the Securities and Exchange Commission. The Board has determined that each of its members is able to read and understand fundamental consolidated financial statements and has substantial business experience that results in that member’s financial sophistication.

Our Board of Directors does not have a “leadership structure” since each board member is free to introduce any resolution at any meeting of our directors and is entitled to one vote at any meeting.

Holders of our common stock may send written communications to our entire board of directors, or to one or more board members, by addressing the communication to “the Board of Directors” or to one or more directors, specifying the director or directors by name, and sending the communication to our offices in Denver, Colorado.  Communications addressed to the Board of Directors as whole will be delivered to each board member.  Communications addressed to a specific director (or directors) will be delivered to the director (or directors) specified.

Security holder communications not sent to the Board of Directors as a whole or to specified board members will be relayed to board members.

The Company’s directors received the following compensation during the years ended September 30, 2020 and September 30, 2019:

During the years ended September 30, 2020 and 2019 the following amounts were earned by our officers:

The following shows the amounts we expect to pay to our officers during the year ended September 30, 2020 and the amount of time these persons expect to devote to our business.

(1) represents amounts to be paid to Strategic Capital Partners, LLC, as consulting fees

Our executive officers are compensated through the following three components:

These components provide a balanced mix of base compensation and compensation that is contingent upon the executive officer’s individual performance. A goal of the compensation program is to provide executive officers with a reasonable level of security through base salary and benefits. We want to ensure that our compensation program is appropriately designed to encourage executive officer retention and motivation to create shareholder value. Salaries generally have been targeted to be competitive when compared to the salary levels of persons holding similar positions in other publicly traded companies of comparable size. The executive officer’s responsibilities, experience, expertise and individual performance are also considered.

The Company has a Stock Incentive Plan (“the plan”) that provides for the grant of Incentive Stock Options, Non-Qualified Stock Options or Stock Bonuses to persons who are employees of the Company, employees of subsidiaries of the Company, directors, officers, and consultants. Under the plan, the Company may grant up to 2,500,000 options, each to purchase one share of common stock, subject to an exercise price and vesting schedule to be established by the board of directors at the time of the grant.

The Plan is administered by our Board of Directors which has the authority to determine the number of shares to be issued as a stock bonus, and the number of shares issuable upon the exercise of options, the exercise price and expiration date of options, and when, and upon what conditions options granted under the Plan will vest or otherwise be subject to forfeiture and cancellation.

The following table shows information concerning the options granted to the Company’s officers or directors during the fiscal year ended September 30, 2020:

The following table shows the weighted average exercise price of the outstanding options granted pursuant to the Company’s Stock Incentive Plan as of September 30, 2020, the Company’s recently completed fiscal year:

The Company’s Stock Incentive Plan has not been approved by the Company’s shareholders.

The following shows certain information as of December 15, 2020 concerning the stock options and stock bonuses granted pursuant to the Stock Incentive Plan. Each option represents the right to purchase one share of our common stock.

The following table shows the ownership, as of December 15, 2020, of those persons owning beneficially 5% or more of our common stock and the number and percentage of outstanding shares owned by each of our directors and officers and by all officers and directors as a group.  Each owner has sole voting and investment power over their shares of common stock.

On September 30, 2019, we amended and modified two notes payable due to Strategic Capital Partners, LLC a company controlled by Benjamin J. Barton, one of our officers and directors with balances of $1,000,000 and $756,646, into one note, in the principal amount of $1,756,646, bearing interest of 9% per year and maturing on December 31, 2022.  Additionally, the conversion option in the first note was eliminated.  As additional consideration for the modification of the notes we issued SCP warrants to purchase 1,500,000 shares of our common stock.  The warrants are exercisable at a price of $1.25 per share at any time on or before December 31, 2022.

On April 7, 2016, we signed agreements with BASK (formerly Coastal Companion, Inc). BASK is one of a limited number of organizations that has received a provisional or final registration to cultivate, process and sell medical cannabis by the Massachusetts Cannabis Control Commission.

Pursuant to the agreements, we provided BASK with financing for construction and working capital required for BASK’s approved dispensary and cultivation center in Fairhaven, MA.

On August 15, 2018, the Company combined the construction and working capital advances of $129,634 and accrued interest of $44,517 into a new loan with payments over 5 years with 18% interest. As of September 30, 2020, the outstanding loan balance was $119,512.

BASK has entered into a 15-Year NNN lease of Building 1 of the MCC. The lease commenced on September 1, 2019 and includes a base rent and a revenue participation fee. As of September 30, 2020, the BASK tenant receivable balance was $124,617.

Tim Keogh, our Chief Executive Officer, is a Board Member of BASK.

For the years ended September 30, 2020 and 2019, MaloneBailey, LLP served as our independent registered public accounting firm.

The following table sets forth the aggregate fees paid or accrued for professional services rendered by our independent accountants for the audit of our annual consolidated financial statements for the years ended September 30, 2020 and 2019, and the aggregate fees paid or accrued for audit-related services and all other services rendered by our independent accountants for those years. 

The category of “Audit fees” includes fees for our annual audit, quarterly reviews of our 10-Q reports, and services rendered in connection with statutory or regulatory filings with the SEC. “Tax fees” include fees incurred in the review and preparation of our annual income tax filings.

Our Board of Directors, which serves as our audit committee, pre-approves the scope and estimated costs of all services rendered by our Principal Accountants.

PART IV

Consolidated Financial Statements

The following exhibits are filed with this Report:

REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

To the Shareholders and Board of Directors of

AmeriCann, Inc.

Denver, CO

Opinion on the Financial Statements

We have audited the accompanying consolidated balance sheets of AmeriCann, Inc and its subsidiaries (collectively, the “Company”) as of September 30, 2020 and 2019, and the related consolidated statements of operations, changes in stockholders’ equity, and cash flows for the years then ended, and the related notes (collectively referred to as the “financial statements”). In our opinion, the financial statements present fairly, in all material respects, the financial position of the Company as of September 30, 2020 and 2019, and the results of their operations and their cash flows for the years then ended, in conformity with accounting principles generally accepted in the United States of America.

Going Concern Matter

The accompanying financial statements have been prepared assuming that the Company will continue as a going concern. As discussed in Note 2 to the financial statements, the Company has suffered recurring losses from operations and has a net capital deficiency that raises substantial doubt about its ability to continue as a going concern. Management's plans in regard to these matters are also described in Note 2. The financial statements do not include any adjustments that might result from the outcome of this uncertainty.

Basis for Opinion

These financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on the Company’s 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 its 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 audits 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 provide a reasonable basis for our opinion.

/s/ MaloneBailey, LLP

www.malonebailey.com

We have served as the Company's auditor since 2016.

Houston, Texas

December 21, 2020

AMERICANN, INC.

CONSOLIDATED BALANCE SHEETS

See accompanying notes to consolidated financial statements. 

AMERICANN, INC.

CONSOLIDATED STATEMENTS OF OPERATIONS

See accompanying notes to consolidated financial statements. 

AMERICANN, INC.

CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY

See accompanying notes to consolidated financial statements.

AMERICANN, INC.

CONSOLIDATED STATEMENTS OF CASH FLOWS

(unaudited)

See accompanying notes to consolidated financial statements. 

AMERICANN, INC.

 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

SIGNATURES

In accordance with Section 13 or 15(d) of the Exchange Act, the Registrant has caused this Report to be signed on its behalf by the undersigned, thereunto duly authorized on the 21^st day of December, 2020.

Pursuant to the requirements of the Securities Exchange Act of l934, this Report has been signed below by the following persons on behalf of the Registrant and in the capacities and on the dates indicated.