grwg-20220630

U.S. SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

FORM 10-Q


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

For Quarter Ended: June 30, 2022


☐			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: 333-207889

GROWGENERATION CORP.

(Exact name of registrant as specified in its charter)


Colorado						46-5008129
(State of other jurisdiction of incorporation)						(IRS Employer ID No.)

5619 DTC Parkway, Suite 900

Greenwood Village, Colorado 80111

(Address of principal executive offices)

(800) 935-8420

(Issuer’s Telephone Number)

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

Title of each class

Trading symbol

Name of each exchange on which registered

Common Stock, par value $0.001 per share

GRWG

The NASDAQ Stock Market LLC

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

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

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 such filing requirements for the past 90 days: Yes ☒ No ☐

Indicate by check mark whether the registrant has submitted electronically 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 such files). Yes ☒ No ☐

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


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

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐

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

As of August 4, 2022 there were 60,794,463 shares of the registrant’s common stock issued and outstanding.

TABLE OF CONTENTS


		Page No.

	PART I FINANCIAL INFORMATION

Item 1.	Unaudited Interim Condensed Consolidated Financial Statements	1
	Condensed Consolidated Balance Sheets	1
	Condensed Consolidated Statements of Operations	2
	Condensed Consolidated Statements of Stockholders' Equity	3
	Condensed Consolidated Statements of Cash Flows	5
	Notes to Condensed Consolidated Financial Statements	6
Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	26
Item 3.	Quantitative and Qualitative Disclosures About Market Risk	33
Item 4.	Controls and Procedures	33

PART II OTHER INFORMATION

Item 1.	Legal Proceedings	35
Item 1A.	Risk Factors	35
Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	35
Item 3.	Defaults Upon Senior Securities	35
Item 4.	Mine Safety Disclosures	35
Item 5.	Other Information	35
Item 6.	Exhibits	36
	Signatures	37

PART I – FINANCIAL INFORMATION

ITEM 1. FINANCIAL STATEMENTS

GROWGENERATION CORP.

CONDENSED CONSOLIDATED BALANCE SHEETS

(Unaudited)

(in thousands, except shares and per share amounts)


	June 30, 2022		December 31, 2021
ASSETS
Current assets:
Cash and cash equivalents	$	55,594	$	41,372
Marketable securities	10,000		39,793
Accounts receivable, net of allowance for doubtful accounts of $0.9 million and $0.6 million at June 30, 2022 and December 31, 2021	8,313		5,741
Notes receivable, current, net of allowance for doubtful accounts of $1.3 million and $0.5 million at June 30, 2022 and December 31, 2021	1,372		2,440
Inventory	99,086		105,571
Prepaid income taxes	5,872		5,856
Prepaids and other current assets	9,209		16,116
Total current assets	189,446		216,889

Property and equipment, net	29,338		24,116
Operating leases right-of-use assets	47,367		43,730
Intangible assets, net	34,798		48,402
Goodwill	15,843		125,401
Other assets	875		800
TOTAL ASSETS	$	317,667	$	459,338

LIABILITIES & STOCKHOLDERS’ EQUITY
Current liabilities:
Accounts payable	$	17,373	$	17,033
Accrued liabilities	1,268		2,044
Payroll and payroll tax liabilities	4,374		7,440
Customer deposits	6,294		11,686
Sales tax payable	1,739		1,923
Current maturities of lease liability	8,312		6,858
Current portion of long-term debt	96		92
Total current liabilities	39,456		47,076
Commitments and contingencies (Note 14)
Deferred tax liability	440		2,359
Operating lease liability, net of current maturities	41,028		38,546
Long-term debt, net of current portion	17		66
Total liabilities	80,941		88,047

Stockholders’ equity:
Common stock; $0.001 par value; 100,000,000 shares authorized, 60,782,525 and 59,928,564 shares issued and outstanding as of June 30, 2022 and December 31, 2021	61		60
Additional paid-in capital	368,077		361,087
Retained earnings (deficit)	(131,412)		10,144
Total stockholders’ equity	236,726		371,291
TOTAL LIABILITIES AND STOCKHOLDERS’ EQUITY	$	317,667	$	459,338

The accompanying notes are an integral part of these Condensed Consolidated Financial Statements.

GROWGENERATION CORP.

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS

(Unaudited)

(in thousands, except shares and per share amounts)


	Three Months Ended June 30,				Six Months Ended June 30,
	2022		2021		2022		2021

Net sales	$	71,093	$	125,885	$	152,860	$	215,907
Cost of sales (exclusive of depreciation and amortization shown below)	50,866		90,172		110,493		154,817
Gross profit	20,227		35,713		42,367		61,090

Operating expenses:
Store operations and other operational expenses	13,767		12,624		28,299		20,806
Selling, general, and administrative	10,647		10,563		20,970		17,968
Depreciation and amortization	4,783		2,917		9,289		4,971
Impairment loss	127,831		—		127,831		—
Total operating expenses	157,028		26,104		186,389		43,745

Income (Loss) from operations	(136,801)		9,609		(144,022)		17,345

Other income (expense):
Other income (expense)	104		(8)		513		(46)
Interest income	45		36		47		40
Interest expense	(10)		(4)		(13)		(6)
Total non-operating income (expense), net	139		24		547		(12)

Net income (loss) before taxes	(136,662)		9,633		(143,475)		17,333

Benefit (provision) for income taxes	283		(2,920)		1,919		(4,473)

Net income (loss)	$	(136,379)	$	6,713	$	(141,556)	$	12,860

Net income (loss) per share, basic	$	(2.24)	$	0.11	$	(2.33)	$	0.22
Net income (loss) per share, diluted	$	(2.24)	$	0.11	$	(2.33)	$	0.22

Weighted average shares outstanding, basic	60,756		59,061		60,742		58,588
Weighted average shares outstanding, diluted	60,756		60,223		60,742		59,794

The accompanying notes are an integral part of these Condensed Consolidated Financial Statements.

GROWGENERATION CORP.

CONDENSED CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY

SIX MONTHS ENDED JUNE 30, 2022 AND 2021

(Unaudited)

(in thousands, except shares and per share amounts)


	Common Stock			Additional Paid-In Capital		Retained Earnings (Deficit)		Total Stockholders’ Equity
	Shares	Amount
Balances, March 31, 2022	60,728	$	61	$	367,064	$	4,967	$	372,092
Common stock issued for share based compensation	28	—		—		—		—
Common stock withheld for employee payroll taxes	—	—		(93)		—		(93)
Share based compensation	—	—		1,106		—		1,106
Common stock issued upon cashless exercise of options	12	—		—		—		—
Common stock issued upon cashless exercise of warrants	14	—		—		—		—
Net income (loss)	—	—		—		(136,379)		(136,379)
Balances, June 30, 2022	60,782	$	61	$	368,077	$	(131,412)	$	236,726


	Common Stock			Additional Paid-In Capital		Retained Earnings (Deficit)		Total Stockholders’ Equity
	Shares	Amount
Balances, March 31, 2021	58,394	$	58	$	346,176	$	3,505	$	349,739
Common stock issued upon warrant exercise	216	$	—	$	224	—		224
Common stock issued upon cashless warrant exercise	119	—		—		—		—
Common stock issued upon exercise of options	460	1		1,729		—		1,730
Common stock issued upon cashless exercise of options	272	—		—		—		—
Common stock issued in connection with business combinations	101	1		3,938		—		3,939
Share based compensation	—	—		1,508		—		1,508
Net income	—	—		—		6,713		6,713
Balances, June 30, 2021	59,562	$	60	$	353,575	$	10,218	$	363,853


	Common Stock			Additional Paid-In Capital		Retained Earnings (Deficit)		Total Stockholders’ Equity
	Shares	Amount
Balances, December 31, 2021	59,929	$	60	$	361,087	$	10,144	$	371,291
Common stock issued in connection with business combination	650	1		5,749		—		5,750
Common stock issued for share based compensation	177	—		—		—		—
Common stock withheld for employee payroll taxes	—	—		(1,448)		—		(1,448)
Share based compensation	—	—		2,689		—		2,689
Common stock issued upon cashless exercise of options	12	—		—		—		—
Common stock issued upon cashless exercise of warrants	14	—		—		—		—
Net income (loss)	—	—		—		(141,556)		(141,556)
Balances, June 30, 2022	60,782	$	61	$	368,077	$	(131,412)	$	236,726


	Common Stock			Additional Paid-In Capital		Retained Earnings (Deficit)		Total Stockholders’ Equity
	Shares	Amount
Balances, December 31, 2020	57,151	$	57	$	319,582	$	(2,642)	$	316,997
Common stock issued upon warrant exercise	256	—		335		—		335
Common stock issued upon cashless warrant exercise	654	1		(1)		—		—
Common stock issued upon exercise of options	461	1		1,731		—		1,732
Common stock issued upon cashless exercise of options	277	—		—		—		—
Common stock issued in connection with business combinations	649	1		33,187		—		33,188
Common stock issued for assets	300	—		—		—		—
Common stock issued for services	(90)	—		—		—		—
Common stock issued for share based compensation	(96)	—		(3,954)		—		(3,954)
Share based compensation	—	—		2,695		—		2,695
Net income	—	—		—		12,860		12,860
Balances, June 30, 2021	59,562	$	60	$	353,575	$	10,218	$	363,853

The accompanying notes are an integral part of these Condensed Consolidated Financial Statements.

GROWGENERATION CORP.

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(Unaudited)

(in thousands, except shares and per share amounts)


	Six Months Ended June 30,
	2022		2021
Cash flows from operating activities:
Net income (loss)	$	(141,556)	$	12,860
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation and amortization	9,289		4,971
Stock-based compensation expense	2,689		3,241
Bad debt expense, net of recoveries	1,602		313
Gain on asset disposition	12		—
Impairment loss	127,831		—
Deferred taxes	(1,919)		947
Changes in operating assets and liabilities (net of the effect of acquisitions):
Accounts and notes receivable	(3,106)		(2,883)
Inventory	10,616		(32,763)
Prepaid expenses and other assets	7,482		(14,487)
Accounts payable and accrued liabilities	(1,805)		23,280
Operating leases	299		838
Payroll and payroll tax liabilities	(3,066)		1,757
Income taxes payable	—		1,846
Customer deposits	(6,634)		1,469
Sales tax payable	(184)		885
Net cash provided by (used in) operating activities	1,550		2,274
Cash flows from investing activities:
Acquisitions, net of cash acquired	(6,806)		(48,045)
Purchase of marketable securities	—		(57,357)
Maturities from marketable securities	29,793		—
Purchase of property and equipment	(8,822)		(4,428)
Purchase of intangibles	—		(1,262)
Net cash provided by (used in) investing activities	14,165		(111,092)
Cash flows from financing activities:
Principal payments on long term debt	(45)		(52)
Common stock withheld for employee payroll taxes	(1,448)		(3,954)
Proceeds from the sale of common stock and exercise of warrants, net of expenses	—		2,067
Net cash provided by (used in) financing activities	(1,493)		(1,939)
Net change	14,222		(110,757)
Cash and cash equivalents at the beginning of period	41,372		177,912
Cash and cash equivalents at the end of period	$	55,594	$	67,155

Supplemental disclosures of non-cash activities:
Cash paid for interest	$	13	$	6
Common stock issued for business combination	$	5,750	$	33,187
Right of use assets acquired under new operating leases	$	6,221	$	19,573

The accompanying notes are an integral part of these Condensed Consolidated Financial Statements.

GrowGeneration Corp.

Notes To Condensed Consolidated Financial Statements

June 30, 2022

(Unaudited)

1.GENERAL

GrowGeneration Corp. (the “Company”, “we”, or “our”) is the largest chain of hydroponic garden centers in North America and is a leading marketer and distributor of nutrients, growing media, advanced indoor and greenhouse lighting, ventilation systems, and accessories for hydroponic gardening. As of June 30, 2022, the Company owns and operates a chain of 64 retail hydroponic/gardening stores across 14 states, an online e-commerce platform, and proprietary businesses that market grow solutions through our platforms and other wholesale customers. The Company’s plan is to continue to acquire, open and operate hydroponic/gardening stores and related businesses throughout the United States.

Basis of Presentation

The accompanying interim unaudited Condensed Consolidated Financial Statements have been prepared in accordance with accounting principles generally accepted in the United States of America (“U.S. GAAP”) and the rules and regulations of the Securities and Exchange Commission (“SEC”). Accordingly, they do not include all of the information and notes required by U.S. GAAP for complete financial statements. In the opinion of management, all adjustments (consisting of normal recurring adjustments) considered necessary for a fair presentation have been included. These statements should be read in conjunction with our Annual Report on Form 10-K for the fiscal year ended December 31, 2021. There were no significant changes to our significant accounting policies as disclosed in our 2021 Form 10-K, except for the immaterial out-of-period adjustments discussed below. The results of operations for our interim periods are not necessarily indicative of results for the full fiscal year.

All amounts included in the accompanying footnotes to the consolidated financial statements, except share and per share data, are in thousands (000).

Use of Estimates

Management uses estimates and assumptions in preparing these consolidated financial statements in accordance with generally accepted accounting principles. These estimates and assumptions affect the reported amounts of assets and liabilities, the disclosure of contingent assets and liabilities at the date of the consolidated financial statements, and the reported revenues and expenses during the reporting period. Actual results could vary from the estimates that were used.

Risk and Uncertainties

The COVID-19 pandemic has created significant public health concerns as well as economic disruption, uncertainty, and volatility that may negatively affect our business operations and financial results. As a result, if the pandemic or its effects persist or worsen, our accounting estimates and assumptions could be impacted in subsequent interim reports and upon final determination at year-end, and it is reasonably possible such changes could be significant (although the potential effects cannot be estimated at this time). The Company has experienced minimal business interruption as a result of the COVID-19 pandemic. We have been deemed an “essential” business by state and local authorities in the areas in which we operate and as such have not been subject to business closures. The COVID-19 pandemic to date has resulted in supply chain delays of our inventory, higher operating costs and increased shipping costs, among other impacts. As events surrounding the COVID-19 pandemic can change rapidly we cannot predict how it may disrupt our operations or the full extent of the disruption.

Immaterial out-of-period adjustments

During the six months ended June 30, 2022, the Company recorded an immaterial out-of period adjustment that impacted the prior year Consolidated Balance Sheets. The adjustment related to a change in the calculation of operating lease right-of-use assets and operating lease liabilities. This adjustment corrected an understatement of operating lease right-of-use assets of $1.3 million and an understatement of operating lease liabilities of $1.3 million as of December 31, 2021 during the period ended June 30, 2022. The Company assessed the materiality of this adjustment on the previously issued annual financial statements in accordance with SEC Staff Accounting Bulletin No. 99. The Company concluded that the changes were not material to any of the previously issued consolidated financial statements.

During the six months ended June 30, 2022, the Company identified an omission regarding the disclosure of reportable segments under ASC 280 related to the year ended December 31, 2021. During the year ended December 31, 2021 the Company inappropriately reported a single segment, aggregating multiple operating segments. The impact at June 30, 2021 was that $25.8 million of revenue, $8.6 million of gross margin, and $2.4 million of operating income should have been reported as a separate “Distribution and other segment.” The Company assessed the materiality of this omission on the previously issued interim and annual financial statements in accordance with SEC Staff Accounting Bulletin No. 99. The Company concluded that the omission was not material to any of the previously issued consolidated financial statements and will begin reporting segments results in accordance with ASC 280 on a prospective basis starting with the quarter ending March 31, 2022.

GrowGeneration Corp.

Notes To Unaudited Condensed Consolidated Financial Statements

June 30, 2022

2.FAIR VALUE MEASUREMENTS

Fair Value Measurements

Fair value is defined as the exchange price that would be received for an asset or paid to transfer a liability (an exit price) in the principal or most advantageous market for the asset or liability in an orderly transaction between market participants on the measurement date. Valuation techniques used to measure fair value must maximize the use of observable inputs and minimize the use of unobservable inputs. Financial assets and liabilities carried at fair value are to be classified and disclosed in one of the following three levels of the fair value hierarchy, of which the first two are considered observable and the last is considered unobservable:

•Level 1—Quoted prices in active markets for identical assets or liabilities.

•Level 2—Observable inputs (other than Level 1 quoted prices), such as quoted prices in active markets for similar assets or liabilities, quoted prices in markets that are not active for identical or similar assets or liabilities, or other inputs that are observable or can be corroborated by observable market data.

•Level 3—Unobservable inputs that are supported by little or no market activity and that are significant to determining the fair value of the assets or liabilities, including pricing models, discounted cash flow methodologies and similar techniques.

To the extent that the valuation is based on models or inputs that are less observable or unobservable in the market, the determination of fair value requires more judgement. Accordingly, the degree of judgement exercised by the Company in determining fair value is greatest for instruments categorized in Level 3. A financial instrument’s level within the fair value hierarchy is based on the lowest level of any input that is significant to the fair value measurement.

The carrying amounts of cash and cash equivalents, accounts receivable, available for sale securities, accounts payable and all other current liabilities approximate fair values due to their short-term nature. The fair value of notes receivable approximates the outstanding balance and are reviewed for impairment at least annually. The fair value of impaired notes receivable is determined based on estimated future payments discounted back to present value using the notes' effective interest rate.


	Level	June 30, 2022		December 31, 2021
Marketable securities	2	$	10,000	$	39,793

GrowGeneration Corp.

Notes To Unaudited Condensed Consolidated Financial Statements

June 30, 2022

3.RECENT ACCOUNTING PRONOUNCEMENTS

New Accounting Pronouncements

From time to time, the Financial Accounting Standards Board (“FASB”) or other standard setting bodies issue new accounting pronouncements. Updates to the FASB Accounting Standards Codification (“ASC”) are communicated through issuance of an Accounting Standards Update (“ASU”). We have implemented all new accounting pronouncements that are in effect and that may impact our financial statements. We have evaluated recently issued accounting pronouncements and determined that there is no material impact on our financial position or results of operations.

Accounting Pronouncements Not Yet Adopted

In June 2016, the FASB issued ASU No. 2016-13, “Financial Instruments — Credit Losses (Topic 326),” changing the impairment model for most financial instruments by requiring companies to recognize an allowance for expected losses, rather than incurred losses as required currently by the other-than-temporary impairment model. The ASU will apply to most financial assets measured at amortized cost and certain other instruments, including trade and other receivables, loans, available-for-sale and held-to-maturity debt securities, net investments in leases, and off-balance sheet credit exposures. The Company is in the process of evaluating the impact of this standard.

Refer to Note 3 to the Consolidated Financial Statements reported in Form 10-K for the year ended December 31, 2021 for recently issued accounting pronouncements that are pending adoption.

4.REVENUE RECOGNITION

The following table disaggregates revenue by source:


	Three Months Ended June 30, 2022		Three Months Ended June 30, 2021		Six Months Ended June 30, 2022		Six Months Ended June 30, 2021
Sales at company owned stores	$	55,354	$	108,911	$	119,650	$	190,138
Distribution and other	12,044		4,988		24,247		7,823
E-commerce sales	3,695		11,986		8,963		17,946
Total Net Sales	$	71,093	$	125,885	$	152,860	$	215,907

The opening and closing balances of the Company’s customer trade receivables and customer deposit liability are as follows:


	Receivables		Customer Deposit Liability
Opening balance, January 1, 2022	$	5,741	$	11,686
Closing balance, June 30, 2022	8,313		6,294
Increase (decrease)	$	2,572	$	(5,392)

Opening balance, January 1, 2021	$	3,901	$	5,155
Closing balance, June 30, 2021	4,377		6,793
Increase (decrease)	$	476	$	1,638

Of the total amount of customer deposit liability as of January 1, 2022, $11.1 million was reported as revenue during the six months ended June 30, 2022. Of the total amount of customer deposit liability as of January 1, 2021, $2.9 million was reported as revenue during the six months ended June 30, 2021.

GrowGeneration Corp.

Notes To Unaudited Condensed Consolidated Financial Statements

June 30, 2022

5.INVESTMENTS

Marketable securities have maturities of less than one year as of June 30, 2022. There were no significant realized or unrealized gains or losses for the six months ended June 30, 2022.

The components of investments, available for sale securities, as of June 30, 2022 were as follows:


	Adjusted Cost Basis		Unrealized Gain (Loss)		Recorded Basis
Corporate notes and bonds	$	10,000	$	—	$	10,000

6.NOTES RECEIVABLE

The Company also has notes receivables under longer term financing arrangements at interest rates ranging from 8% to 12% with repayment terms ranging for 12 to 18 months. Notes receivables as of June 30, 2022 and December 31, 2021 are as follows:


	June 30, 2022		December 31, 2021
Notes receivable	$	2,605	$	2,962
Allowance for losses	(1,233)		(522)
Notes receivable, net	$	1,372	2,440

The following table summarizes changes in notes receivable balances that have been deemed impaired:


	June 30, 2022		December 31, 2021
Note receivable	$	1,500	$	1,500
Allowance for losses	(1,233)		(522)
Notes receivable, net	$	267	978

7.PROPERTY AND EQUIPMENT


	June 30, 2022		December 31, 2021
Vehicles	$	2,451	$	2,258
Building	2,121		1,187
Leasehold improvements	11,536		9,186
Furniture, fixtures and equipment	12,937		10,992
Capitalized software	2,585		4,753
Construction-in-progress	8,618		2,948
Total property and equipment, gross	40,248		31,324
Accumulated depreciation	(10,910)		(7,208)
Property and equipment, net	$	29,338	$	24,116

Depreciation expense for the three and six months ended June 30, 2022 was $2.0 million and $3.7 million. Depreciation expense for the three and six months ended June 30, 2021 was $0.8 million and $1.4 million.

GrowGeneration Corp.

Notes To Unaudited Condensed Consolidated Financial Statements

June 30, 2022

8.GOODWILL AND INTANGIBLE ASSETS

The Company performs its goodwill impairment testing annually during the fourth quarter, or more frequently if events or if circumstances were to occur that would more likely than not reduce the fair value of our reporting unit below its carrying amount. The Company would recognize an impairment charge for the amount by which the carrying amount exceeds the reporting unit’s fair value, not to exceed the total amount of goodwill. The adjusted carrying amount of goodwill shall be its new accounting basis.

During the second quarter of 2022, the Company’s market capitalization fell below total net assets. In addition, financial performance continued to weaken during the quarter, which is contrary to prior experience. Management reassessed business performance expectations, following persistent adverse developments in equity markets, deterioration in the environment in which we operate, inflation, lower than expected sales, and an increase in operating expenses. These indicators, in the aggregate, required impairment testing for finite-lived intangible assets at the asset group level and goodwill at the reporting unit level.

Under ASC 360, we performed a cash recoverability test on the following intangible assets: customer relationships, trade name, and non-compete. The carrying amounts of any assets that are not within the scope of ASC 360-10, other than goodwill, were adjusted for impairment, as necessary, prior to testing long-lived assets and goodwill. The Company recognized impairment losses as disclosed in the table below.

For goodwill impairment testing purposes, the Company determined four reporting units, three of which were subject to a quantitative assessment. We determined fair value using the income approach, where estimated future returns are discounted to present value at an appropriate rate of return. The Company completed its interim goodwill impairment test as of June 30, 2022 and recognized impairment losses as disclosed in the table below.

The changes in goodwill are as follows:


	June 30, 2022		December 31, 2021
Balance, beginning of period	$	125,401	$	62,951
Goodwill additions and measurement period adjustments	7,099		62,450
Impairment	$	(116,657)	$	—
Balance, end of period	$	15,843	$	125,401

The goodwill balance and impairment by segment are as follows:


	Retail		E-commerce		Distribution		Total
Gross carrying value December 31, 2020	$	55,180	$	2,911	$	4,860	$	62,951
Acquisitions & measurement period adjustments	47,583		8,748		6,119		62,450
Gross carrying value December 31, 2021	102,763		11,659		10,979		125,401
Acquisitions & measurement period adjustments	331		(341)		7,109		7,099
Gross carrying value June 30, 2022	$	103,094	$	11,318	$	18,088	$	132,500

Accumulated impairment losses December 31, 2020	$	—	$	—	$	—	$	—
Impairment	—		—		—		—
Accumulated impairment losses December 31, 2021	—		—		—		—
Impairment	(103,094)		(9,848)		(3,715)		(116,657)
Accumulated impairment losses June 30, 2022	$	(103,094)	$	(9,848)	$	(3,715)	$	(116,657)

Net carrying value at December 31, 2021	$	102,763	$	11,659	$	10,979	$	125,401
Net carrying value at June 30, 2022	$	—	$	1,470	$	14,373	$	15,843

GrowGeneration Corp.

Notes To Unaudited Condensed Consolidated Financial Statements

June 30, 2022

A summary of intangible assets is as follows:


						Weighted-Average
						Amortization Period
						of Intangible Assets
						as of June 30, 2022
						(in years)
Trade names						3.68
Patents						3.59
Customer relationships						5.00
Non-competes						2.33
Intellectual property						3.67
Total						3.90

Intangible assets consist of the following:


	June 30, 2022
	Gross Carrying Amount		Accumulated Amortization		Net Carrying Amount
Trade names	$	28,774	$	(7,815)	$	20,959
Patents	100		(49)		51
Customer relationships	17,102		(5,317)		11,785
Non-competes	932		(444)		489
Intellectual property	2,065		(551)		1,514
Total	$	48,973	$	(14,176)	$	34,798


	December 31, 2021
	Gross Carrying Amount		Accumulated Amortization		Net Carrying Amount
Trade names	$	28,300	$	(4,948)	$	23,352
Patents	100		(42)		58
Customer relationships	25,175		(3,055)		22,120
Non-competes	1,384		(233)		1,151
Intellectual property	2,065		(344)		1,721
Total	$	57,024	$	(8,622)	$	48,402

GrowGeneration Corp.

Notes To Unaudited Condensed Consolidated Financial Statements

June 30, 2022

Intangibles and impairment by segment are as follows:


	Retail		E-commerce		Distribution		Total
Gross carrying value December 31, 2020	$	17,635	$	—	$	3,481	$	21,116
Acquisitions & measurement period adjustments	20,190		2,501		13,217		35,908
Gross carrying value December 31, 2021	37,825		2,501		16,698		57,024
Acquisitions & measurement period adjustments	(57)		—		3,181		3,124
Gross carrying value June 30, 2022	$	37,768	$	2,501	$	19,879	$	60,148

Accumulated amortization December 31, 2020	$	(540)	$	—	$	(27)	$	(567)
Amortization	(5,745)		(354)		(1,956)		(8,055)
Accumulated amortization December 31, 2021	(6,285)		(354)		(1,983)		(8,622)
Amortization	(3,554)		(237)		(1,763)		(5,554)
Accumulated amortization June 30, 2022	$	(9,839)	$	(591)	$	(3,746)	$	(14,176)

Accumulated impairment losses December 31, 2020	$	—	$	—	$	—	$	—
Impairments	—		—		—		—
Accumulated impairment losses December 31, 2021	—		—		—		—
Impairments	(11,079)		(95)		—		(11,174)
Accumulated impairment losses June 30, 2022	$	(11,079)	$	(95)	$	—	$	(11,174)

Net carrying value at December 31, 2021	$	31,540	$	2,147	$	14,715	$	48,402
Net carrying value at June 30, 2022	$	16,850	$	1,815	$	16,133	$	34,798

Amortization expense for the three and six months ended June 30, 2022 was $2.8 million and $5.6 million. Amortization expense for the three and six months ended June 30, 2021 was $2.1 million and $3.5 million.


Future amortization expense is as follows:
2022, remainder	$	4,383
2023	8,785
2024	8,668
2025	8,295
2026	3,532
Thereafter	1,135
Total	$	34,798

9. INCOME TAXES

For the six months ended June 30, 2022, the effective tax rate is 1.34%, which decreased from 25.80% at June 30, 2021. The decrease in the effective tax rate is primarily due to the Company recording a valuation allowance against deferred tax assets. The effective tax rate for the six months ended June 30, 2022 is lower than the US federal statutory rate of 21.0%, which is also primarily due to the Company recording a valuation allowance against deferred tax assets.The Company has evaluated positive and negative evidence and has concluded that its deferred tax assets are not expected to be realizable and has recorded a valuation allowance in the current period.

GrowGeneration Corp.

Notes To Unaudited Condensed Consolidated Financial Statements

June 30, 2022

10. LEASES

We determine if a contract contains a lease at inception. Our material operating leases consist of retail and warehouse locations as well as office space. Our leases generally have remaining terms of 1 to 10 years, most of which include options to extend the leases for additional 3 to 5-year periods. Generally, the lease term is the minimum of the non-cancellable period of the lease or the lease term inclusive of reasonably certain renewal periods.

Operating lease assets and liabilities are recognized at the lease commencement date. Operating lease liabilities represent the present value of remaining lease payments over the lease term. Operating lease assets represent our right to use an underlying asset and are based upon the operating lease liabilities adjusted for prepayments or accrued lease payments, initial direct costs, lease incentives, and impairment of operating lease assets. To determine the present value of lease payments not yet paid, we estimate incremental secured borrowing rates corresponding to the maturities of the leases. Our leases typically contain rent escalations over the lease term. We recognize expense for these leases on a straight-line basis over the lease term.

We have elected the practical expedient to account for lease and non-lease components as a single component for our entire population of leases.

Short-term disclosures include only those leases with a term greater than one month and 12 months or less, and expense is recognized on a straight-line basis over the lease term. Leases with an initial term of 12 months or less that do not include an option to purchase the underlying asset that we are reasonably certain to exercise are not recorded on the balance sheet.

Lease expense is recorded within our consolidated statements of operations based upon the nature of the assets. Where assets are used to directly serve our customers, such as facilities dedicated to customer contracts, lease costs are recorded in “store operating costs.” Facilities and assets which serve management and support functions are expensed through general and administrative expenses.


	June 30, 2022		December 31, 2021
Right of use assets, operating lease assets	$	47,367	$	43,730

Current lease liability	$	8,312	$	6,858
Non-current lease liability	41,028		38,546
Total lease liability	$	49,340	$	45,404


	June 30, 2022		June 30, 2021
Weighted average remaining lease term	6.60 years		7.17 years
Weighted average discount rate	5.6	%	6.0	%


	Six Months Ended June 30,
	2022		2021
Operating lease costs	$	5,445	$	3,548
Variable lease costs	1,340		—
Short-term lease costs	237		1,109
Total operating lease costs	$	7,022	$	4,657

GrowGeneration Corp.

Notes To Unaudited Condensed Consolidated Financial Statements

June 30, 2022

The following table presents the maturity of the Company’s operating lease liabilities as of June 30, 2022:


2022 (remainder of the year)	$	5,452
2023	10,527
2024	9,346
2025	8,299
2026	6,687
Thereafter	18,985
Total lease payments	59,296
Less: Imputed interest	(9,956)
Lease Liability at June 30, 2022	$	49,340

11. SHARE BASED PAYMENTS

The Company maintains long-term incentive plans for employees, non-employee members of our Board of Directors and consultants. The plans allows us to grant equity-based compensation awards, including stock options, stock appreciation rights, performance share units, restricted stock units, restricted stock awards, or a combination of awards (collectively, share-based awards).

The Company accounts for share-based payments through the measurement and recognition of compensation expense for share-based payment awards made to employees and directors of the Company, including stock options and restricted shares. The Company also issues share based payments in the form of common stock warrants to non-employees.

The following table presents share-based payment expense for the six months ended June 30, 2022 and 2021:


	Six months ended June 30,
	2022		2021
Restricted stock	$	1,951	$	1,935
Stock options	59		559
Warrants	679		747
Total	$	2,689	$	3,241

As of June 30, 2022, the Company had approximately $7.6 million of unamortized share-based compensation for option awards and restricted stock awards, which is expected to be recognized over a weighted average period of approximately 3.5 years. As of June 30, 2022, the Company also had approximately $1.9 million of unamortized share-based compensation for common stock warrants issued to consultants, which is expected to be recognized over a weighted average period of 1.5 years.

Restricted Stock

The Company issues shares of restricted stock to eligible employees, which are subject to forfeiture until the end of an applicable vesting period. The awards generally vest on the first, second, third, or fourth anniversary of the date of grant, subject to the employee’s continuing employment as of that date. Restricted stock is valued using market value on the grant date.

GrowGeneration Corp.

Notes To Unaudited Condensed Consolidated Financial Statements

June 30, 2022

Restricted stock activity for the six months ended June 30, 2022 is presented in the following table:


	Shares	Weighted Average Grant Date Fair Value
Nonvested, December 31, 2021	483,750	$	20.19
Granted	611,500	$	10.76
Vested	(279,500)	$