TREES Corp (Colorado) - Quarter Report: 2017 March (Form 10-Q)

10-Q

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

(Mark One)


þ	Quarterly report pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934 for quarterly period ended March 31, 2017.

o	Transition report pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934

for the transition period from __________ to __________.

Commission file number: 000-54457

GENERAL CANNABIS CORPORATION

(Exact name of registrant as specified in its charter)


Colorado		90-1072649
(State of incorporation)		(IRS Employer Identification No.)

6565 East Evans Avenue
Denver, CO 80224
(Address of principal executive offices) (Zip Code)

Indicate by check mark whether the registrant (1) has filed all reports required to be filed 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 the filing requirements for the past 90 days. Yes þ No o

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 (§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 þ No o

Indicate by check mark whether the registrant is a large 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 of the Exchange Act.


Large accelerated filer o		Accelerated filer o
Non-accelerated filer o		Smaller reporting company þ

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

As of May 9, 2017, there were 19,771,714 issued and outstanding shares of the Company’s common stock.

GENERAL CANNABIS CORP

FORM 10-Q

TABLE OF CONTENTS


PART I. FINANCIAL INFORMATION

Item 1.	Financial Statements	3
Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	14
Item 3.	Quantitative and Qualitative Disclosures about Market Risk	19
Item 4.	Controls and Procedures	19

PART II. OTHER INFORMATION		21

Item 1.	Legal Proceedings	21
Item 1A.	Risk Factors	21
Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	21
Item 3.	Defaults Upon Senior Securities	21
Item 4.	Mine Safety Disclosures	21
Item 5.	Other Information	21
Item 6.	Exhibits	21

	Signatures	22

PART I. FINANCIAL INFORMATION

ITEM 1. FINANCIAL STATEMENTS

GENERAL CANNABIS CORP

CONDENSED CONSOLIDATED BALANCE SHEETS


		March 31, 2017 (Unaudited)		December 31, 2016
ASSETS
Current Assets
Cash and cash equivalents	$	407,636	$	773,795
Accounts receivable, net		239,421		182,214
Note receivable – related party		–		77,202
Prepaid expenses and other current assets		109,306		76,493
Inventory		9,725		7,981
Total current assets		766,088		1,117,685

Note receivable – related party		107,875		–
Property and equipment, net		1,711,170		1,714,803
Intangible assets, net		16,827		25,383
Total Assets	$	2,601,960	$	2,857,871

LIABILITIES & STOCKHOLDERS’ EQUITY (DEFICIT)

Current Liabilities
Accounts payable and accrued expenses	$	281,842	$	363,618
Interest payable		17,939		9,806
Deferred rental revenue and customer deposits		62,775		46,155
Derivative warrant liability		12,160,000		23,120,000
Total current liabilities		12,522,556		23,539,579

Notes payable (net of discount)		841,532		815,250
Infinity Note – related party		1,370,126		1,370,126
Tenant deposits		8,854		8,854
Total Liabilities		14,743,068		25,733,809

Commitments and Contingencies		–		–

Stockholders’ Equity (Deficit)
Preferred stock, no par value; 5,000,000 share authorized; no shares issued and outstanding at March 31, 2017 and December 31, 2016		–		–
Common Stock, $0.001 par value; 100,000,000 shares authorized; 19,417,064 shares and 17,128,778 shares issued and outstanding on March 31, 2017 and December 31, 2016, respectively		19,417		17,129
Additional paid-in capital		34,894,715		26,333,988
Accumulated deficit		(47,055,240)		(49,227,055)
Total Stockholders’ Equity (Deficit)		(12,141,108)		(22,875,938)

Total Liabilities & Stockholders’ Equity (Deficit)	$	2,601,960	$	2,857,871

See Notes to condensed consolidated financial statements.

GENERAL CANNABIS CORP

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS

(Unaudited)


		Three months ended March 31,
		2017		2016
REVENUES
Service	$	663,334	$	636,219
Tenant		32,484		36,369
Product Sales		23,287		19,524
Total revenues		719,105		692,112

COSTS AND EXPENSES
Cost of service revenues		457,696		452,584
Cost of goods sold		18,611		12,492
Selling, general and administrative		723,907		432,137
Share-based expense		1,434,835		600,469
Professional fees		246,606		105,729
Depreciation and amortization		24,572		97,266
Total costs and expenses		2,906,227		1,700,677

OPERATING LOSS		(2,187,122)		(1,008,565)

OTHER (INCOME) EXPENSE
Amortization of debt discount		695,032		135,837
Interest expense		78,031		43,830
Gain on derivative warrant liability		(5,132,000)		–
Total other (income) expense, net		(4,358,937)		179,667

NET INCOME (LOSS)	$	2,171,815	$	(1,188,232)

PER SHARE DATA
Net income (loss) per share:
Basic	$	0.11	$	(0.08)
Diluted		(0.10)		(0.08)
Weighted average number of common shares outstanding:
Basic		18,895,657		14,930,256
Diluted		29,825,559		14,930,256

See Notes to condensed consolidated financial statements.

GENERAL CANNABIS CORP

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(Unaudited)


		Three months ended March 31,
		2017		2016
OPERATING ACTIVITIES
Net income (loss)	$	2,171,815	$	(1,188,232)
Adjustments to reconcile net income (loss) to net cash (used in) provided by operating activities:
Amortization of debt discount		695,032		135,837
Gain on derivative warrant liability		(5,132,000)		–
Depreciation and amortization expense		24,572		97,266
Share-based payments		1,434,835		600,469
Changes in operating assets and liabilities:
Accounts receivable		(57,207)		(24,824)
Prepaid expenses and other assets		(36,986)		30,141
Inventory		(1,744)		6,162
Accounts payable and accrued liabilities		(57,023)		95,882
Net cash used in operating activities:		(958,706)		(247,299)

INVESTING ACTIVITIES
Purchase of property and equipment		(12,383)		(2,616)
Lending on Note receivable – related party		(26,500)		–
Net cash used in investing activities		(38,883)		(2,616)

FINANCING ACTIVITIES
Proceeds from exercise of warrants and stock options		631,430		–
Increase in Infinity Note – related party		–		207,500
Payments on notes payable		–		(1,670)
Net cash provided by financing activities		631,430		205,830

NET DECREASE IN CASH		(366,159)		(44,085)
CASH, BEGINNING OF PERIOD		773,795		58,711
CASH, END OF PERIOD	$	407,636	$	14,626

SUPPLEMENTAL SCHEDULE OF CASH FLOW INFORMATION
Cash paid for interest	$	69,496	$	24,435

NON-CASH TRANSACTIONS
Portion of warrant derivative liability recorded as additional paid-in capital upon exercise of warrants	$	5,828,000	$	–
12% Note principal used to exercise 12% Warrants		668,750		–
Issuance of common stock for accrued stock payable		–		25,000

See Notes to condensed consolidated financial statements.

GENERAL CANNABIS CORP

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

NOTE 1. NATURE OF OPERATIONS, HISTORY AND PRESENTATION

Nature of Operations

General Cannabis Corp, a Colorado Corporation (the “Company,” “we,” “us,” “our,” or “GCC”) (formerly, Advanced Cannabis Solutions, Inc.), was incorporated on June 3, 2013, and provides services and products to the regulated cannabis industry. On April 28, 2015, our common stock was uplisted and on May 6, 2015, resumed quotation on the OTC Market’s OTCQB. Our operations are segregated into the following four segments:

Security and Cash Transportation Services (“Security Segment”)

In March 2015, we acquired substantially all of the assets of Iron Protection Group, LLC, a Colorado limited liability company, and will continue to do business as “Iron Protection Group.” Iron Protection Group, or IPG, provides advanced security, including on-site professionals and cash transport, to licensed cannabis cultivators and retail shops.

Marketing Consulting and Apparel (“Marketing Segment”)

Chiefton Design provides design, branding and marketing strategy consulting services to the cannabis industry. We assist clients in developing a comprehensive marketing strategy, as well as designing and sourcing client-specific apparel and products.

Chiefton’s apparel business, Chiefton Supply, strives to create innovative, unique cannabis-inspired t-shirts, hats, hoodies and accessories. Our apparel is sold through our on-line shop, cannabis retailers, and specialty t-shirt and gift shops. The apparel sold by Chiefton is purchased and screen printed by third parties, for which there are numerous suppliers.

Operations Consulting and Products (“Operations Segment”)

Through Next Big Crop (“NBC”), we deliver comprehensive consulting services to the cannabis industry that include obtaining licenses, compliance, cultivation, retail operations, logistical support, facility design and construction, and expansion of existing operations. Our business plan for NBC is based on the future growth of the regulated cannabis market in the United States.

NBC oversees our wholesale equipment and supply business, operated under the name “GC Supply,” which provides turnkey sourcing and stocking services to cultivation, retail and infused products manufacturing facilities. Our products include infrastructure, equipment, consumables, and compliance packaging. GC Supply operates out of a leased, 1,800 square foot warehouse located in Colorado Springs, Colorado.

Finance and Real Estate (“Finance Segment”)

Real Estate Leasing

We own a cultivation property in a suburb of Pueblo, Colorado, consisting of approximately three acres of land, which currently includes a 5,000 square foot steel building and a parking lot. The property is zoned for cultivating cannabis and is leased to a medical cannabis grower until December 31, 2022.

Our real estate leasing business plan includes the potential future acquisition and leasing of cultivation space and related facilities to licensed marijuana growers and dispensary owners for their operations. Management anticipates that these facilities would range in size from 5,000 to 50,000 square feet. These facilities would only be leased to tenants that possess the requisite state licenses to operate cultivation facilities. The leases with the tenants would include certain requirements that permit us to continually evaluate our tenants’ compliance with applicable laws and regulations.

Shared Office Space, Networking and Event Services

In October 2014, we purchased a former retail bank located at 6565 East Evans Avenue, Denver, Colorado 80224, which has been branded as “The Greenhouse”. The building is a 16,056 square foot facility, which we use as our corporate headquarters.

The Greenhouse has approximately 10,000 square feet of existing office space and 5,000 square feet on its ground floor that is dedicated to a consumer banking design. We continue to assess the opportunity to lease shared workspace for entrepreneurs, professionals and others serving the cannabis industry. Clients would be able to lease space to use as offices, meeting rooms, lecture, educational and networking facilities, and individual workstations. We expect to continue the renovation of The Greenhouse in 2017.

We plan to continue to acquire commercial real estate and lease office space to participants in the cannabis industry. These participants may include media, internet, packaging, lighting, cultivation supplies and financial services-related companies. In exchange for certain services that may be provided to these tenants, we expect to receive rental income in the form of cash. In certain cases, we may acquire equity interests or provide debt capital to these businesses.

Industry Finance

Our industry finance strategy includes evaluating opportunities to make direct term loans or to provide revolving lines of credit to businesses involved in the cultivation and sale of cannabis and related products. These loans would generally be secured to the maximum extent permitted by law. We believe there is a significant demand for this type of financing. We are assessing other finance services including customized finance, capital formation and banking, for participants in the cannabis industry.

Basis of Presentation

The accompanying (a) condensed consolidated balance sheet at December 31, 2016, has been derived from audited financial statements and (b) condensed consolidated unaudited financial statements as of March 31, 2017 and 2016, have been prepared in accordance with generally accepted accounting principles for interim financial information and with the instructions to Form 10-Q and Article 8 of Regulation S-X. Accordingly, they do not include all of the information and footnotes required by generally accepted accounting principles for complete financial statements, and should be read in conjunction with the audited consolidated financial statements and related footnotes included in our Annual Report on Form 10-K for the year ended December 31, 2016 (the “2016 Annual Report”), filed with the Securities and Exchange Commission (the “SEC”) on March 31, 2017. It is management’s opinion, however, that all material adjustments (consisting of normal recurring adjustments), have been made which are necessary for a fair financial statements presentation. The condensed consolidated financial statements include all material adjustments (consisting of normal recurring accruals) necessary to make the condensed consolidated financial statements not misleading as required by Regulation S-X, Rule 10-01. Operating results for the three months ended March 31, 2017, are not necessarily indicative of the results of operations expected for the year ending December 31, 2017.

The condensed consolidated financial statements include the results of GCC and its five wholly-owned subsidiary companies: (a) ACS Colorado Corp., a Colorado corporation formed in 2013; (b) Advanced Cannabis Solutions Corporation, a Colorado corporation formed in 2013; (c) 6565 E. Evans Avenue LLC, a Colorado limited liability company formed in 2014; (d) General Cannabis Capital Corporation, a Colorado corporation formed in 2015; and (e) GC Security LLC (“GCS”), a Colorado limited liability company formed in 2015. Advanced Cannabis Solutions Corporation has one wholly-owned subsidiary company, ACS Corp., which was formed in Colorado on June 6, 2013. Intercompany accounts and transactions have been eliminated.

Reclassifications

Certain reclassifications have been made to the prior period segment reporting to conform to the current period presentation related to now including GC Supply in our Operations Segment. Additionally, we classified $15,775 as selling, general and administrative expense, which was previously shown as costs of goods sold in the condensed consolidated statement of operations for the three months ended March 31, 2016. The reclassifications had no effect on net loss, total assets, or total stockholders’ equity (deficit).

Related Parties

Related parties are any entities or individuals that, through employment, ownership or other means, possess the ability to direct or cause the direction of the management and policies of the Company. We disclose related party transactions that are outside of normal compensatory agreements, such as salaries or board of director fees. We had related party transactions with the following individuals / companies:

Michael Feinsod – Chairman of our Board of Directors (“Board”).

Infinity Capital West, LLC (“Infinity Capital”) – An investment management company that was founded and is controlled by Michael Feinsod.

DB Arizona – A company that has borrowed $825,000 from Infinity Capital. While we do not possess the ability to influence DB Arizona, and DB Arizona does not possess the ability to influence us, we are including DB Arizona as a related party due to our relationship with Michael Feinsod and Infinity Capital, and their relationship with DB Arizona.

Going Concern

The condensed consolidated financial statements have been prepared on a going concern basis, which assumes we will be able to realize our assets and discharge our liabilities in the normal course of business for the foreseeable future. The ability to continue as a going concern is dependent upon our generating profitable operations in the future and / or obtaining the necessary financing to meet our obligations and repay our liabilities arising from normal business operations when they come due. Management believes that actions presently being taken to further implement our business plan and generate additional revenues provide opportunity for the Company to continue as a going concern. While we believe in the viability of our strategy to generate additional revenues and our ability to raise additional funds, there can be no assurances to that effect.

We had an accumulated deficit of $47,055,240 and $49,227,055, respectively, at March 31, 2017 and December 31, 2016, and further losses are anticipated in the development of our business. Accordingly, there is substantial doubt about our ability to continue as a going concern. The accompanying condensed consolidated financial statements do not include any adjustments that might be necessary if we are unable to continue as a going concern.

Recently Issued Accounting Standards

Financial Accounting Standards Board, or FASB, Accounting Standards Update, or FASB ASU 2017-04 “Simplifying the Test for Goodwill Impairment (Topic 350)” – In January 2017, the FASB issued 2017-04. The guidance removes “Step Two” of the goodwill impairment test, which required a hypothetical purchase price allocation. A goodwill impairment will now be the amount by which a reporting unit’s carrying value exceeds its fair value, not to exceed the carrying amount of goodwill. The ASU is effective for annual reporting periods beginning after December 15, 2019, and for interim periods within those years, with early adoption permitted. We do not expect this ASU to have a significant impact on our consolidated financial statements and related disclosures.

FASB ASU 2017-01 “Clarifying the Definition of a Business (Topic 805)” – In January 2017, the FASB issued 2017-1. The new guidance that changes the definition of a business to assist entities with evaluating when a set of transferred assets and activities is a business. The guidance requires an entity to evaluate if substantially all of the fair value of the gross assets acquired is concentrated in a single identifiable asset or a group of similar identifiable assets; if so, the set of transferred assets and activities is not a business. The guidance also requires a business to include at least one substantive process and narrows the definition of outputs by more closely aligning it with how outputs are described in ASC 606. The ASU is effective for annual reporting periods beginning after December 15, 2017, and for interim periods within those years. Adoption of this ASU is not expected to have a significant impact on our consolidated results of operations, cash flows and financial position.

FASB ASU 2016-15 “Statement of Cash Flows (Topic 230)” – In August 2016, the FASB issued 2016-15. Stakeholders indicated that there is a diversity in practice in how certain cash receipts and cash payments are presented and classified in the statement of cash flows. ASU 2016-15 addresses eight specific cash flow issues with the objective of reducing the existing diversity in practice. This ASU is effective for annual reporting periods beginning after December 15, 2017, and interim periods within those fiscal years. Early adoption is permitted. Adoption of this ASU will not have a significant impact on our statement of cash flows.

FASB ASU 2016-12 “Revenue from Contracts with Customers (Topic 606)” – In May 2016, the FASB issued 2016-12. The core principle of the guidance is that an entity should recognize revenue to depict the transfer of promised goods or services to customers in an amount that reflects the consideration to which the entity expects to be entitled in exchange for those goods or services. ASU 2016-12 provides clarification on assessing collectability, presentation of sales taxes, noncash consideration, and completed contracts and contract modifications. This ASU is effective for annual reporting periods beginning after December 15, 2017, with the option to adopt as early as December 15, 2016. We are currently assessing the impact of adoption of this ASU on our consolidated results of operations, cash flows and financial position.

FASB ASU 2016-11 “Revenue Recognition (Topic 605) and Derivatives and Hedging (Topic 815)” – In May 2016, the FASB issued 2016-11, which clarifies guidance on assessing whether an entity is a principal or an agent in a revenue transaction. This conclusion impacts whether an entity reports revenue on a gross or net basis. This ASU is effective for annual reporting periods beginning after December 15, 2017, with the option to adopt as early as December 15, 2016. We are currently assessing the impact of adoption of this ASU on our consolidated results of operations, cash flows and financial position.

FASB ASU 2016-10 “Revenue from Contracts with Customers (Topic 606)” – In April 2016, the FASB issued ASU 2016-10, clarify identifying performance obligations and the licensing implementation guidance, while retaining the related principles for those areas. This ASU is effective for annual reporting periods beginning after December 15, 2017, with the option to adopt as early as December 15, 2016. We are currently assessing the impact of adoption of this ASU on our consolidated results of operations, cash flows and financial position.

FASB ASU 2016-09 “Compensation – Stock Compensation (Topic 718)” – In March 2016, the FASB issued ASU 2016-09, which includes multiple provisions intended to simplify various aspects of accounting for share-based payments. The new guidance will require entities to recognize all income tax effects of awards in the income statement when the awards vest or are settled. It also will allow entities to make a policy election to account for forfeitures as they occur. This ASU is effective for fiscal years beginning after December 15, 2016, including interim periods within those fiscal years. Adopting this ASU did not have a significant impact on our consolidated financial statements and related disclosures.

FASB ASU 2016-02 “Leases (Topic 842)” – In February 2016, the FASB issued ASU 2016-02, which will require lessees to recognize almost all leases on their balance sheet as a right-of-use asset and a lease liability. For income statement purposes, the FASB retained a dual model, requiring leases to be classified as either operating or finance. Classification will be based on criteria that are largely similar to those applied in current lease accounting, but without explicit bright lines. Lessor accounting is similar to the current model, but updated to align with certain changes to the lessee model and the new revenue recognition standard. This ASU is effective for fiscal years beginning after December 18, 2018, including interim periods within those fiscal years. We are currently evaluating the potential impact this standard will have on our consolidated financial statements and related disclosures.

FASB ASU 2015-17”Income Taxes (Topic 740)” – In November 2015, the FASB issued ASU 2015-17, which simplifies the presentation of deferred tax assets and liabilities on the balance sheet. Previous GAAP required an entity to separate deferred income tax liabilities and assets into current and noncurrent amounts on the balance sheet. The amendment requires that deferred tax liabilities and assets be classified as noncurrent in a classified balance sheet. This ASU is effective for annual periods beginning after December 15, 2017, and interim periods within annual periods beginning after December 15, 2018. We are currently evaluating the potential impact this standard will have on our consolidated financial statements and related disclosures.

FASB ASU 2015-16 “Business Combinations (Topic 805),” or ASU 2015-16 - In September 2015, the FASB issued ASU 2015-16, which requires that an acquirer recognize adjustments to provisional amounts that are identified during the measurement period in the reporting period in which the adjustment amounts are determined. This ASU is effective for interim and annual reporting period beginning after December 15, 2016, including interim periods within those fiscal years, with the option to early adopt for financial statements that have not been issued. We will apply this guidance to any business combinations that may occur.

FASB ASU 2015-11 “Inventory (Topic 330): Simplifying the Measurement of Inventory,” or ASU 2015-11 - In July 2015, the FASB issued ASU 2015-11, which requires an entity to measure in scope inventory at the lower of cost and net realizable value. Net realizable value is the estimated selling prices in the ordinary course of business, less reasonably predictable costs of completion, disposal, and transportation. The amendments apply to inventory that is measured using first-in, first-out (FIFO) or average cost. This ASU is effective for interim and annual reporting periods beginning after December 15, 2016, with the option to early adopt as of the beginning of an annual or interim period. Adopting this ASU did not have a significant impact on our financial position, results of operations and cash flows.

NOTE 2. NOTE RECEIVABLE – RELATED PARTY

Our note receivable – related party consists of principal of $101,500 and $75,000, respectively, and accrued interest of $6,375 and $2,202, respectively, as of March 31, 2017, and December 31, 2016, due from DB Arizona. The loan bears interest at 14%, with principal and interest due on May 30, 2017.

DB Arizona is financed with significant debt and has yet to generate positive cash flows from operations. We have classified the note as long-term, because they do not currently have sufficient resources to satisfy their obligation to us. These conditions do not meet the level of probable loss required to reduce the carrying value. In the future, however, they may be unable to generate sufficient cash flows from operations or to restructure their capital. Accordingly, there is a reasonable possibility that we may be unable to recover all or a portion of our note receivable from DB Arizona.

NOTE 3. LONG-LIVED ASSETS

Property and Equipment

Depreciation expense was $16,016 and $12,159, respectively, for the three months ended March 31, 2017 and 2016. We have not recognized any impairment as of March 31, 2017.

Intangible Assets

Intangible assets $16,827 as of March 31, 2017, consisted of Chiefton brand and graphic designs, with a gross value of $69,400 and accumulated amortization of $52,573, which are being amortized over an estimated useful life of two years.

Amortization expense was $8,556 and $85,107, respectively, for the three months ended March 31, 2017 and 2016.

NOTE 4. DEBT

Infinity Note – Related Party

In February 2015, we issued a senior secured note to Infinity Capital, as amended in April 2015, bearing interest at 5% payable monthly in arrears commencing June 30, 2015, until the maturity date of August 31, 2015 (the “Infinity Note”). On December 31, 2016, the Infinity Note was amended to aggregate principal and interest, and extend the due date of principal and interest to September 21, 2018. No additional advances may be made after December 31, 2016. The Infinity Note is collateralized by a security interest in substantially all of our assets. Interest expense for the Infinity Note for the three months ended March 31, 2017 and 2016, was $16,892 and $11,700, respectively, and $16,892 was accrued as of March 31, 2017.

Notes Payable


		March 31, 2017		December 31, 2016
12% Notes	$	2,081,250	$	2,750,000
Unamortized debt discount		(1,239,718)		(1,934,750)
Long-term portion	$	841,532	$	815,250

12% Notes

In September 2016, we completed a $3,000,000 private placement pursuant to a promissory note and warrant purchase agreement (the “12% Agreement”) with certain accredited investors, bearing interest at 12%, with principal due September 21, 2018, and interest payable quarterly (each such note, a “12% Note,” and collectively, the “12% Notes”). In the event of default, the interest rate increases to 18%. The 12% Notes are collateralized by a security interest in substantially all of our assets. We may prepay the 12% Notes at any time, but in any event must pay at least one year of interest.

Subject to the terms and conditions of the 12% Agreement, each investor was granted fully-vested warrants equal to their note principal times three (the “12% Warrants”), or nine million warrants, with a life of three years. 4.5 million warrants have an exercise price of $0.35 per share and the other 4.5 million warrants have an exercise price of $0.70 per share. Should we issue any equity-based instruments at a price lower than the exercise price(s) of the 12% Warrants, other than under our Incentive Plan, the exercise price(s) of the 12% Warrants will be adjusted to the lower price. The 12% Warrants may be exercised at the option of the holder (a) by paying cash, (b) by applying the amount due under the 12% Notes as consideration, or (c) if there is no effective registration statement for the 12% Warrants within six months of being granted, the holder may exercise on a cashless basis. The registration statement related to the 12% Warrants was declared effective on December 23, 2016. If our common stock closes above $5.00 for ten consecutive days, we may call the warrants, giving the warrant holders 30 days to exercise. Since the 12% Warrants include a clause requiring repricing, the warrants are considered to be a derivative that is recorded as a liability at fair value.

We received $2,450,000 of cash for issuing the 12% Notes. $300,000 of 10% Notes and $250,000 of the 14% Greenhouse Mortgage were converted into 12% Notes. We concluded that these conversions met the criteria for a debt extinguishment and, accordingly, recorded a loss on extinguishment of $1,728,280 during the year ended December 31, 2016. The loss on extinguishment represents the fair value of the 12% Warrants issued to the previous 10% Note holders and the 14% Greenhouse Mortgage lender. The initial fair value of the 12% Warrants not associated with the conversions was recorded as a debt discount of $2,450,000 and interest expense of $5,189,000. The 12% Notes are otherwise treated as conventional debt.

The Infinity Note and the 12% Notes, totaling $3,451,376, are due and payable on September 21, 2018.

NOTE 5. DERIVATIVE WARRANT LIABILITY

On September 21, 2016, in connection with the 12% Notes, we issued the 12% Warrants, which are treated as a derivative liability and adjusted to fair value at the end of each period. The underlying assumptions used in the binomial model to determine the fair value of the derivative warrant liability during the three months ended March 31, 2017 were:


Stock price on valuation date	$ 2.21 – 3.25
Risk-free interest rate	1.3 – 1.5 %
Expected dividend yield	–
Expected term (in years)	2.5 – 2.7
Expected volatility	146 – 153 %
Number of iterations	5

Changes in the derivative warrant liability were as follows:


December 31, 2016	$	23,120,000
Decrease in fair value		(5,132,000)
Reclassification to additional paid-in capital upon exercise of warrants		(5,828,000)
March 31, 2017	$	12,160,000

NOTE 6. COMMITMENTS AND CONTINGENCIES

Legal

To the best of our knowledge and belief, no material legal proceedings of merit are currently pending or threatened.

DB Option Agreement

On November 4, 2015, we entered into an agreement (the “DB Option Agreement”) with Infinity Capital, a related party, which was amended on March 29, 2016 (the “Amended DB Option Agreement”) and on September 16, 2016 (the “Second Amended DB Option Agreement”). Pursuant to the Amended DB Option Agreement, we have the right to purchase all of Infinity Capital’s interest in DB Arizona at Infinity Capital’s actual cost, plus $1.00, or $915,001. The interests for which the option has been granted are Infinity Capital’s 50% equity interest in the membership interests of DB Arizona, and any outstanding unpaid principal and interest owed on promissory note(s) issued by DB Arizona in favor of Infinity Capital for up to $915,000. DB Arizona is involved in the production and distribution of Dixie Brands, Inc.’s full line of medical cannabis “Dixie Elixirs and Edibles” products in Arizona. DB Arizona began sales in 2016. We have no obligation to exercise the option, which expires September 30, 2018.

NOTE 7. STOCKHOLDERS’ EQUITY

Share-based expense consisted of the following:


		Three months ended March 31,
		2017		2016
Employee Awards	$	1,409,395	$	452,621
Consulting Awards		25,440		10,100
Feinsod Agreement		–		82,648
DB Option Agreement		–		55,100
	$	1,434,835	$	600,469

Employee Stock Options

On October 29, 2014, the Board authorized the adoption of, and on June 26, 2015, our stockholders ratified, our 2014 Equity Incentive Plan (the “Incentive Plan”). The Incentive Plan provides for the issuance of up to 10 million shares of our common stock, and is designed to provide an additional incentive to executives, employees, directors and key consultants, aligning our long term interests with participants. In April 2016, we filed a Registration Statement on Form S-8 (the “Registration Statement”), which automatically became effective in May 2016. The Registration Statement relates to 10,000,000 shares of our common stock, which are issuable pursuant to, or upon exercise of, options that have been granted or may be granted under our Incentive Plan.

Share-based compensation costs for award grants to employees and directors (“Employee Awards”) are recognized on a straight-line basis over the service period for the entire award, with the amount of compensation cost recognized at any date equaling at least the portion of the award that is vested. The following summarizes the Black-Scholes assumptions used for Employee Awards granted during the three months ended March 31, 2017:


Exercise price	$ 2.41 – 3.00
Stock price on date of grant	$ 2.41 – 3.00
Volatility	148 – 153 %
Risk-free interest rate	1.7 – 1.9 %
Expected life (years)	4.0 – 5.0
Dividend yield	–

The following summarizes Employee Awards activity:


	Number of Shares		Weighted-average Exercise Price per Share	Weighted-average Remaining Contractual Term (in years)		Aggregate Intrinsic Value
Outstanding at December 31, 2016	8,818,400	$	1.04
Granted	277,400		2.48
Exercised	(116,000)		1.02
Forfeited	(131,650)		0.71
Outstanding at March 31, 2017	8,848,150		1.09	2.4	$	6,557,028

Exercisable at March 31, 2017	4,776,500	$	1.07	2.2	$	3,887,165

Based on our estimated forfeiture rates, we expect 4,052,292 Employee Awards will vest. As of March 31, 2017, there was approximately $1,904,753 of total unrecognized compensation expense related to unvested Employee Awards, which is expected to be recognized over a weighted-average period of five months.

Warrants for Consulting Services

As needed, we may issue warrants to third parties in exchange for consulting services. Stock-based compensation costs for award grants to third parties for consulting services (“Consulting Awards”) are recognized on a straight-line basis over the service period for the entire award, with the amount of compensation cost recognized at any date equaling at least the portion of the award that is vested. Consulting Awards are revalued at each reporting date until fully vested, which may generate an expense or benefit.

No Consulting Award warrants were issued during the three months ended March 31, 2017.

Stock for Consulting Services

During the three months ended March 31, 2017, we issued 8,000 shares to a third party for marketing services.

Warrants with Debt

The following summarizes warrants issued with debt:


	Number of Shares		Weighted-average Exercise Price per Share	Weighted-average Remaining Contractual Term (in years)		Aggregate Intrinsic Value
Outstanding at December 31, 2016	9,025,843	$	0.63
Exercised	(2,164,286)	$	0.56
Outstanding and exercisable at March 31, 2017	6,861,557	$	0.64	2.5	$	12,224,080

NOTE 8. NET INCOME (LOSS) PER SHARE

Basic net income (loss) per share is computed by dividing net loss by the weighted-average number of common shares outstanding during the reporting period. Diluted net loss per share is computed similarly to basic loss per share, except that it includes the potential dilution that could occur if dilutive securities are exercised as of the first day of the reporting period, along with the impact of those dilutive securities on net income (loss).


		Three months ended March 31,
		2017		2016
Net income (loss)	$	2,171,815	$	(1,188,232)
Gain on derivative warrant liability		(5,132,000)		–
	$	(2,960,185)	$	(1,188,232)

Weighted average outstanding shares of common stock		18,895,657		14,930,256
Warrants – Debt		5,979,496		–
Stock options		4,821,906		–
Other warrants		128,500		–
Common stock and equivalents		29,825,559		14,930,256

Net income (loss) per share
Basic	$	0.11	$	(0.08)
Diluted		(0.10)		(0.08)

In 2016, outstanding stock options and common stock warrants are considered anti-dilutive because we were in a net loss position.

NOTE 9. SUBSEQUENT EVENTS

Subsequent to March 31, 2017, and up to the date of this filing, 300,000 shares of our common stock were issued upon the exercise of 12% Warrants for consideration of $175,000 in cash.

NOTE 10. SEGMENT INFORMATION

Our operations are organized into four segments: Security and Cash Management Services; Marketing and Products; Consulting and Advisory; and Finance and Real Estate. All revenue originates and all assets are located in the United States. We have revised our disclosure to correspond to the information provided to the chief operating decision maker.

Three months ended March 31


2017		Security		Marketing		Operations		Finance		Total
Revenues, net	$	425,138	$	44,287	$	217,196	$	32,484	$	719,105
Costs and expenses		(483,881)		(140,567)		(210,264)		(13,047)		(847,759)
	$	(58,743)	$	(96,280)	$	6,932	$	19,437		(128,654)
Corporate										2,300,469
								Net income	$	2,171,815


2016		Security		Marketing		Operations		Finance		Total
Revenues, net	$	507,531	$	49,147	$	99,065	$	36,369	$	692,112
Costs and expenses		(541,396)		(55,831)		(93,738)		(11,786)		(702,751)
Other expense		–		–		–		(3,352)		(3,352)
	$	(33,865)	$	(6,684)	$	5,327	$	21,231		(13,991)
Corporate										(1,174,241)
								Net loss	$	(1,188,232)


Total assets		March 31, 2017		December 31, 2016
Security	$	209,703	$	141,140
Marketing		73,785		50,919
Operations		157,840		55,750
Finance		537,480		515,205
Corporate		1,623,152		2,094,857
	$	2,601,960	$	2,857,871

All assets are located in the United States.

ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

This Management’s Discussion and Analysis (“MD&A”) is intended to provide an understanding of our financial condition, results of operations and cash flows by focusing on changes in certain key measures from year to year. This discussion should be read in conjunction with the Condensed Consolidated Unaudited Financial Statements contained in this Quarterly Report on Form 10-Q and the Consolidated Financial Statements and related notes and MD&A of Financial Condition and Results of operations appearing in our Annual Report on Form 10-K as of and for the years ended December 31, 2016 and 2015. The results of operations for an interim period may not give a true indication of results for future interim periods or for the year.

Cautionary Statement Regarding Forward Looking Statements

This Quarterly Report on Form 10-Q, Financial Statements and Notes to Financial Statements contain forward-looking statements that discuss, among other things, future expectations and projections regarding future developments, operations and financial conditions. All forward-looking statements are based on management’s existing beliefs about present and future events outside of management’s control and on assumptions that may prove to be incorrect. If any underlying assumptions prove incorrect, our actual results may vary materially from those anticipated, estimated, projected or intended. We undertake no obligation to publicly update or revise any forward-looking statements to reflect actual results, changes in expectations or events or circumstances after the date this Quarterly Report on Form 10-Q is filed.

When this report uses the words “we,” “us,” “our,” or “GCC” and the “Company,” they refer to General Cannabis Corp (formerly, “Advanced Cannabis Solutions, Inc.”).

Our Products, Services and Customers

We operate in a rapidly evolving and highly regulated industry that, as has been estimated by some, will exceed $30 billion in revenue by the year 2020. We have been and will continue to be aggressive in executing acquisitions and pursuing other opportunities that we believe will benefit us in the long-term.

Through our reporting segments, we provide products and services to the regulated cannabis industry, which include the following:

Security and Cash Transportation Services (“Security Segment”)

We provide advanced security, including on-site professionals and cash transport, to licensed cannabis cultivators and retail shops, under the business name Iron Protection Group (“IPG”). The drop in wholesale prices in Colorado has negatively impacted security services in Colorado, as grow facilities and retailers seek cheaper alternatives or curtail services. We have taken the initial steps to begin providing security services in California, which recently legalized recreational cannabis, in addition to previously legal medical marijuana.

Marketing Consulting and Apparel (“Marketing Segment”)

Chiefton’s apparel business, Chiefton Supply, strives to create innovative, unique cannabis-inspired t-shirts, hats, hoodies and accessories. Our apparel is sold through our on-line shop, our physical store, cannabis retailers, and specialty t-shirt and gift shops. The apparel sold by Chiefton is purchased and screen printed by third parties, for which there are numerous suppliers.

In the fourth quarter of 2016 and the first quarter of 2017, we have added personnel to the Marketing Segment in advance of trying to expand our goods and services nationwide. We now have the capacity of a full service marketing agency as well as the resources to expand our clothing lines. Chiefton also supports our other segments with marketing designs and apparel.

Operations Consulting and Products (“Operations Segment”)

Finance and Real Estate (“Finance Segment”)

Real Estate Leasing

Shared Office Space, Networking and Event Services

Industry Finance

Results of Operations

The following table sets forth, for the periods indicated, condensed statements of operations data. The table and the discussion below should be read in conjunction with the accompanying condensed financial statements and the notes thereto appearing elsewhere in this report.

Consolidated Results


		Three months ended March 31,					Percent
		2017		2016		Change	Change
Revenues	$	719,105	$	692,112	$	26,993	4%
Costs and expenses		(2,906,227)		(1,700,677)		(1,205,550)	71%
Other income (expense)		4,358,937		(179,667)		4,538,604	N/A
Net income (loss)	$	2,171,815	$	(1,188,232)	$	3,360,047	N/A

Revenues

Revenue for 2017 increased primarily due to (a) a $118,000 increase in revenue in our Operations Segment, related primarily to assisting companies acquire licenses in states that recently legalized cannabis; offset by (b) an $82,000 decrease in revenue for our Security Segment, related primarily to the loss of a significant customer due to the drop in wholesale cannabis prices in Colorado.

Costs and expenses


		Three months ended March 31,					Percent
		2017		2016		Change	Change
Cost of service revenues	$	457,696	$	452,584	$	5,112	1%
Cost of goods sold		18,611		12,492		6,119	49%
Selling, general and administrative		723,907		432,137		291,770	68%
Share-based expense		1,434,835		600,469		834,366	139%
Professional fees		246,606		105,729		140,877	133%
Depreciation and amortization		24,572		97,266		(72,694)	(75)%
	$	2,906,227	$	1,700,677	$	1,205,550	71%

Cost of service revenues remained relatively flat, as the increase in costs for our Operations Segment were offset by a decrease in costs for our Securities Segment. Cost of goods sold increased due to an increase in product sales, including an increase in products sold by Operations Segment, which have smaller margins than apparel sold by our Marketing Segment.

Selling, general and administrative expense increased in 2017 primarily due to increases for (a) marketing and promotion; (b) premiums for liability, and directors and officers insurance; (c) legal fees associated with our stock registration and general corporate purposes, and (d) additional personnel added to our corporate and segment teams.

Share-based expense included the following:


		Three months ended March 31,
		2017		2016
Employee Awards	$	1,409,395	$	452,621
Consulting Awards		25,440		10,100
Feinsod Agreement		–		82,648
DB Option Agreement warrants		–		55,100
	$	1,434,835	$	600,469

Employee awards are issued under our 2014 Equity Incentive Plan, which was approved by shareholders on June 26, 2015. Consulting Awards are granted to third parties in lieu of cash for services provided. On August 4, 2014, pursuant to an agreement with Michael Feinsod (“Feinsod”), our Board of Directors (the “Board”) appointed Feinsod Chairman of the Board and approved a compensatory agreement with Infinity Capital, LLC (“Infinity Capital”), an investment management company founded and controlled by him. Under the agreement, we issued 200,000 shares of our common stock in 2014 and committed to issuing an additional 150,000 shares in 2015 and 150,000 shares in 2016. The 200,000 shares were expensed immediately, while the additional shares are being expensed ratably through their issue date. Additionally, when our common stock was uplisted to the OTC Market’s OTCQB in May 2015, we issued 1,000,000 shares of our common stock to Infinity Capital and recorded expense of $2,966,500. In March 2016, we extended the DB Option Agreement and issued 100,000 warrants for our common stock.

Professional fees consist primarily of accounting and legal expenses, and increased in 2017 due to our registration statements and general corporate matters.

Depreciation and amortization expense decreased because the intangibles from the IPG acquisition were fully impaired as of December 31, 2016, and are no longer being amortized.

Other (Income) Expense


		Three months ended March 31,
		2017		2016
Amortization of debt discount	$	695,032	$	135,837
Interest expense		78,031		48,830
Gain on derivative warrant liability		(5,132,000)		–
	$	(4,358,937)	$	179,667

Interest expense and amortization of debt discount are both higher in 2017 compared to 2016, because outstanding debt as of March 31, 2017 and 2016, was $3.5 million and $1.4 million, respectively. Amortization of debt discount in 2017 also includes amounts immediately expensed upon the exercise of 12% Warrants through the reduction of principal for the related 12% Notes. A decrease in the fair value of the derivative warrant liability, associated with the warrants issued with the 12% Notes in September 2016, results in a gain. The fair value decreased primarily due to a decrease in the price of our common stock between December 31, 2016 and March 31, 2017.

Security and Cash Transportation Services


		Three months ended March 31,					Percent
		2017		2016		Change	Change
Revenues	$	425,138	$	507,531	$	(82,393)	(16)%
Costs and expenses		(483,881)		(541,396)		(57,515)	(11)%
	$	(58,743)	$	(33,865)	$	(24,878)	73%

Revenues decreased in 2017 primarily from the loss of a significant customer due to the drop in wholesale cannabis prices in Colorado. The decrease in costs and expenses corresponds to the decrease in revenue, as it relates primarily to direct costs associated with providing services.

Marketing Consulting and Apparel


		Three months ended March 31,					Percent
		2017		2016		Change	Change
Revenues	$	44,287	$	49,147	$	(4,860)	(10)%
Costs and expenses		(140,567)		(55,831)		(84,736)	152%
	$	(96,280)	$	(6,684)	$	(89,596)	1,340%

In 2017, we have been focusing on launching our marketing agency and developing our spring clothing line. This led to a drop in apparel sales and a slight increase in consulting revenue. Adding personnel to staff a full service marketing agency significantly increased our costs and expenses, along with expanded marketing efforts associated with the launch.

Operations Consulting and Products


		Three months ended March 31,					Percent
		2017		2016		Change	Change
Revenues	$	217,196	$	99,065	$	118,131	119%
Costs and expenses		(210,264)		(93,738)		(116,526)	124%
	$	6,932	$	5,327	$	1,605	30%

Increased revenues in 2017 primarily related to assisting companies submitting applications to acquire licenses in states that recently legalized cannabis. Costs and expenses increased in 2017 primarily due to hiring new consultants to meet current and future demand for services.

Finance and Real Estate


		Three months ended March 31,					Percent
		2017		2016		Change	Change
Revenues	$	32,484	$	36,369	$	(3,885)	(11)%
Costs and expenses		(13,047)		(11,786)		(1,261)	11%
Interest expense		–		(3,352)		3,352	(100)%
	$	19,437	$	21,231	$	(1,794)	(8)%

Revenue from leasing our Pueblo facility remained steady between 2017 and 2016. Revenue fluctuates in 2017 compared to 2016, due to lease revenue for The Greenhouse. We continue to renovate The Greenhouse and are pursuing new tenants in anticipation of being able to generate additional revenue from currently available space. Costs and expenses increased in 2017 compared to 2016, associated with The Greenhouse. Interest expense represents the interest for the mortgage on our Pueblo facility, which was paid off in September 2016.

Liquidity and Capital Resources

We had cash of $407,636 and $773,795, respectively, as of March 31, 2017 and December 31, 2016. Our cash flows from operating, investing and financing activities were as follows:


		Three months ended March 31,
		2017		2016
Net cash used in operating activities	$	(958,706)	$	(247,299)
Net cash used in investing activities		(38,883)		(2,616)
Net cash provided by financing activities	$	631,430	$	205,830

Net cash used in operating activities increased in 2017 by $711,407 compared to 2016, primarily due to a larger operating loss. We have added personnel to our Operations Segment and Marketing Segment in advance of growth opportunities. We also continue to add personnel to our corporate infrastructure and expanded our corporate marketing efforts. Where possible, we continue to use non-cash equity-based instruments to obtain consulting services and compensate employees.

Net cash used in investing activities in 2017 relates primarily to our loan to DB Arizona.

Net cash provided by financing activities in 2017 was from the exercise of warrants and stock options. In 2016, we borrowed $207,500 from Infinity Capital.

Non-GAAP Financial Measures

For the non-GAAP Adjusted EBITDA (Earnings (loss) Before Interest, Taxes, Depreciation and Amortization) per share-basic and diluted measures presented above, we have provided (1) the most directly comparable GAAP measure; (2) a reconciliation of the differences between the non-GAAP measure and the most directly comparable GAAP measure; (3) an explanation of why our management believes this non-GAAP measure provides useful information to investors; and (4) additional purposes for which we use this non-GAAP measure.

We believe that the disclosure of Adjusted EBITDA per share-basic and diluted provides investors with a better comparison of our period-to-period operating results. We exclude the effects of certain items from net loss per share-basic and diluted when we evaluate key measures of our performance internally, and in assessing the impact of known trends and uncertainties on our business. We also believe that excluding the effects of these items provides a more balanced view of the underlying dynamics of our business. Adjusted EBITDA per share-diluted excludes the impacts of interest expense, tax expense, depreciation and amortization, gain (loss) on its derivative liability, and share-based compensation. Weighted average number of common shares outstanding - basic and diluted (adjusted) excludes the impact of shares issued in connection with share-based compensation.

Tabular reconciliations of this supplemental non-GAAP financial information to our most comparable GAAP information are contained in this Quarterly Report on Form 10-Q. We present such non-GAAP supplemental financial information, as we believe such information provides additional meaningful methods of evaluating certain aspects of our operating performance from period-to-period on a basis that may not be otherwise apparent on a non-GAAP basis. This supplemental financial information should be considered in addition to, not in lieu of, our Condensed Consolidated Financial Statements.


		Three months ended March 31,
		2017		2016
Net income (loss)	$	2,171,815	$	(1,188,232)
Adjustments:
Share-based expense		1,434,835		600,469
Depreciation and amortization		24,572		97,266
Amortization of debt discount		695,032		135,837
Interest expense		78,031		43,830
Net gain on derivative liability		(5,132,000)		–
Total adjustments		(2,899,530)		877,402
Adjusted EBITDA	$	(727,715)	$	(310,830)

Per share:
Net income (loss) – Basic	$	0.11	$	(0.08)
Net income (loss) – Diluted		(0.10)		(0.08)
Adjusted EBITDA – Basic and Diluted		(0.04)		(0.02)

Weighted-average shares outstanding:
Net income (loss) – Basic		18,895,657		14,930,256
Net income (loss) – Diluted		29,825,559		14,930,256
Adjusted EBITDA – Basic and Diluted		17,128,778		14,915,421

Critical Accounting Policies

Our condensed consolidated financial statements and accompanying notes have been prepared in accordance with U.S. GAAP. The preparation of these financial statements requires management to make estimates, judgments and assumptions that affect reported amounts of assets, liabilities, revenues and expenses. We continually evaluate the accounting policies and estimates used to prepare the condensed financial statements. The estimates are based on historical experience and assumptions believed to be reasonable under

current facts and circumstances. Actual amounts and results could differ from these estimates made by management. Certain accounting policies that require significant management estimates and are deemed critical to our results of operations or financial position are discussed in our Annual Report on Form 10-K for the year ended December 31, 2016, and Note 1 to the Condensed Consolidated Financial Statements in this Form 10-Q.

Off-Balance Sheet Arrangements

We did not have any off-balance sheet arrangements that are reasonably likely to have a current or future material effect on our financial condition, revenue or expenses, results of operations, liquidity, capital expenditures or capital resources.

ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

As a “smaller reporting company” as defined by Item 10 of Regulation S-K, we are not required to provide information required by this Item.

ITEM 4. CONTROLS AND PROCEDURES

Evaluation of Disclosure Controls and Procedures

We maintain disclosure controls and procedures (as defined in Rules 13a-15(e) and 15d-15(e) under the Securities Exchange Act of 1934, as amended (the “Exchange Act”) that are designed to ensure that information required to be disclosed in our reports filed under the Exchange Act, is recorded, processed, summarized and reported within the time periods specified in the Securities and Exchange Commission’s rules and forms, and that such information is accumulated and communicated to our management, including our Chief Executive Officer and Chief Accounting Officer, as appropriate to allow timely decisions regarding required disclosure.

We carried out an evaluation under the supervision and with the participation of management, including our Chief Executive Officer and Chief Accounting Officer, of the effectiveness of the design and operation of our disclosure controls and procedures as of March 31, 2017, the end of the period covered by this report. Based on that evaluation, our Chief Executive Officer and Chief Accounting Officer concluded that our disclosure controls and procedures were not effective at the reasonable assurance level due to the material weaknesses discussed below.

Internal Control over Financial Reporting

Our management is responsible for establishing and maintaining adequate internal control over financial reporting as defined in Rules 13a-15(f) and 15d-15(f) promulgated under the Exchange Act as a process designed by, or under the supervision of, our principal executive officer and principal financial officer and effected by the Board, management, and other personnel, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with GAAP and includes those policies and procedures that:

Pertain to the maintenance of records that in reasonable detail accurately and fairly reflect the transactions and dispositions of the assets of the Company;

Provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that our receipts and expenditures of are being made only in accordance with authorizations of our management and directors; and

Provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of our assets that could have a material effect on the financial statements.

Because of our inherent limitations, our internal control over financial reporting may not prevent or detect misstatements. Therefore, even those systems determined to be effective can provide only reasonable assurance with respect to financial statement preparation and presentation. Projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.

Management identified the following material weaknesses:

We have not performed a risk assessment and mapped our processes to control objectives;

We have not implemented comprehensive entity-level internal controls;

We have not implemented adequate system and manual controls; and

We do not have sufficient segregation of duties.

Assessment of Internal Control over Financial Reporting

Our management assessed the effectiveness of our internal control over financial reporting as of March 31, 2017. In making this assessment, management used the criteria set forth by the Committee of Sponsoring Organizations of the Treadway Commission (“COSO”) in Internal Control - Integrated Framework (2013). Based on management’s assessment, management concluded that the above material weaknesses have not been remediated and, accordingly, our internal control over financial reporting is not effective as of March 31, 2017.

Remediation of Material Weaknesses

We have designed and plan to implement, or in some cases have already implemented, the specific remediation initiatives described below:

We intend to allocate resources to perform a risk assessment and map processes to control objectives and, where necessary, implement and document internal controls in accordance with COSO.

Our entity-level controls are, generally, informal and we intend to evaluate current processes, supplement where necessary, and document requirements.

While we have implemented procedures to identify, evaluate and record significant transactions, we need to formally document these procedures and evidence the performance of the related controls.

We plan to evaluate system and manual controls, identify specific weaknesses, and implement a comprehensive system of internal controls.

We are assessing our current staffing and evaluating our personnel requirements to improve our segregation of duties.

Management understands that in order to remediate the material weaknesses, additional segregation of duties, changes in personnel, and technologies are necessary. We do not expect to have fully remediated these material weaknesses until management has tested those internal controls and found them to have been remediated.

Our Annual Report on Form 10-K 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 SEC that permits us to provide only management’s report in our Annual Report on Form 10-K.

Changes in Internal Control over Financial Reporting

We have implemented an informal process of preparation and review of balance sheet reconciliations, as well as informal procedures to identify, evaluate and record significant transactions; however, these changes do not meet the strict requirements to overcome the material weaknesses identified above.

PART II. OTHER INFORMATION

ITEM 1. LEGAL PROCEEDINGS

None.

ITEM 1A. RISK FACTORS

As of the date of this report, there have been no material changes to the Risk Factors disclosed in our Annual Report on Form 10-K for the year ended December 31, 2016.

ITEM 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS

On January 6, 2017, we issued 8,000 shares of our common stock to Lumentus LLC in exchange for marketing services.

The issuance of such shares was exempt from the registration requirements of the Securities Act of 1933, as amended, or the Securities Act, pursuant to Section 4(a)(2) of the Securities Act. The shares of common stock have not been registered under the Securities Act, or state securities laws, and may not be offered or sold in the United States without being registered with the SEC or through an applicable exemption from SEC registration requirements.

ITEM 3. DEFAULTS UPON SENIOR SECURITIES

None.

ITEM 4. MINE SAFETY DISCLOSURES

Not applicable.

ITEM 5. OTHER INFORMATION

None.

ITEM 6. EXHIBITS


Exhibits		Description
31.1		Certification pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
31.2		Certification pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
32.1		Certification pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
101		The following financial information from the Quarterly Report on Form 10-Q of General Cannabis Corporation for the quarter ended March 31, 2016, formatted in XBRL (eXtensible Business Reporting Language): (i) Condensed Consolidated Balance Sheets (ii) Condensed Consolidated Statements of Operations; (iii) Condensed Consolidated Statements of Cash Flows, and (iv) Notes to the Condensed Consolidated Financial Statements.

SIGNATURES

Pursuant to the requirements 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.


	GENERAL CANNABIS CORP

Date: May 12, 2017	By:	/s/Robert Frichtel
		Robert Frichtel, Principal Executive Officer

	By:	/s/ Shelly Whitson
		Shelly Whitson, Principal Financial and Accounting Officer