INLB Item 9 Labs Corporation (CE)

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, DC 20549

 

FORM 10-Q

 

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

 

For the quarterly period ended June 30, 2023

 

OR

 

☐	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 000-54730

 

ITEM 9 LABS CORP.

(Exact name of registrant as specified in its charter)

 

Delaware (State or other jurisdiction of incorporation or organization)

96-0665018 (I.R.S. Employer Identification No.)

 

 

2111 E. Highland Ave., Suite B375, Phoenix, AZ 85016

(Address of principal executive offices and zip code)

 

1-833-867-6337

(Registrant’s telephone number, including area code)

 

Securities registered pursuant to Section 12(b) of the Act: None

 

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 pursuant to Rule 405 of Regulation S-T 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, 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

 

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 by Rule 12b-2 of the Exchange Act). Yes ☐ No ☑

 

As of August 21, 2023, there were 102,362,271 shares of the issuer's common stock, $0.0001 par value per share, outstanding.

  

 

 

 

SPECIAL NOTE REGARDING FORWARD-LOOKING STATEMENTS

 

Certain information included in this Quarterly Report on Form 10-Q and other filings of the Registrant under the Securities Act of 1933, as amended (the "Securities Act"), and the Securities Exchange Act of 1934, as amended (the "Exchange Act"), as well as information communicated orally or in writing between the dates of such filings, contains or may contain "forward-looking statements" within the meaning of Section 27A of the Securities Act and Section 21E of the Exchange Act. Forward-looking statements in this Quarterly Report on Form 10-Q, including without limitation, statements related to our plans, strategies, objectives, expectations, intentions and adequacy of resources, are made pursuant to the safe harbor provisions of the Private Securities Litigation Reform Act of 1995. Such statements are subject to certain risks, trends and uncertainties that could cause actual results to differ materially from expected results. Among these risks, trends and uncertainties are the availability of working capital to fund our operations, the competitive market in which we operate, the efficient and uninterrupted operation of our computer and communications systems, our ability to generate a profit and execute our business plan, the retention of key personnel, our ability to protect and defend our intellectual property, the effects of governmental regulation, and other risks identified in the Registrant's filings with the Securities and Exchange Commission from time to time.

 

In some cases, forward-looking statements can be identified by terminology such as "may," "will," "should," "could," "expects," "plans," "anticipates," "believes," "estimates," "predicts," "potential" or "continue" or the negative of such terms or other comparable terminology. Although the Registrant believes that the expectations reflected in the forward-looking statements contained herein are reasonable, the Registrant cannot guarantee future results, levels of activity, performance or achievements. Moreover, neither the Registrant, nor any other person, assumes responsibility for the accuracy and completeness of such statements. The Registrant is under no duty to update any of the forward-looking statements contained herein after the date of this Quarterly Report on Form 10-Q.

 

 

 

 

 

 

 

ITEM 9 LABS CORP.

FORM 10-Q

June 30, 2023

 

 

INDEX

 

		Page
Part I - Financial Information
Item 1.	Financial Statements	F-1
Item 2.	Management's Discussion and Analysis of Financial Condition and Results of Operations	26
Item 3.	Quantitative and Qualitative Disclosures about Market Risk	32
Item 4.	Controls and Procedures	32
Part II - Other Information
Item 1.	Legal Proceedings	33
Item 1A.	Risk Factors	33
Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	33
Item 3.	Defaults Upon Senior Securities	33
Item 4.	Mine Safety Disclosures	34
Item 5.	Other Information	34
Item 6.	Exhibits	34
Signatures		35
Certifications

 

  

 

 

 

PART I - FINANCIAL INFORMATION

 

Item 1. Financial Statements.

 

INDEX		F-1
Condensed Consolidated Balance Sheets as of June 30, 2023 (Unaudited) and September 30, 2022		F-2
Unaudited Condensed Consolidated Statements of Operations for the Three and Nine Months Ended June 30, 2023 and 2022		F-3
Unaudited Condensed Consolidated Statements of Changes in Stockholders’ Equity for the Three and Nine Months Ended June 30, 2023 and 2022		F-4
Unaudited Condensed Consolidated Statements of Cash Flows for the Nine Months Ended June 30, 2023 and 2022		F-5
Notes to Condensed Consolidated Financial Statements (Unaudited)		F-6

 

 

 

ITEM 9 LABS CORP. AND SUBSIDIARIES

CONDENSED CONSOLIDATED BALANCE SHEETS

 

			June 30,				September 30,
			2023				2022
			(unaudited)
ASSETS
Current Assets:
Cash and cash equivalents		$	183,429			$	85,637
Accounts receivable, net			968,016				586,270
Inventory			1,898,603				2,464,222
Prepaid expenses and other current assets			297,265				417,096
Total current assets			3,347,313				3,553,225
Property and equipment, net			24,602,289				21,019,724
Right of use asset			365,980				938,687
Construction escrow deposits			4,784,752				7,717,908
Deposits			44,114				86,604
Other assets			3,138,397				655,598
Assets held for sale			6,815,000				6,815,000
Intangible assets, net			10,852,835				11,741,487
Goodwill			58,064,816				58,233,386
Total Assets		$	112,015,496			$	110,761,619
LIABILITIES AND STOCKHOLDERS' EQUITY
Current Liabilities:
Accounts payable		$	6,852,306			$	6,422,196
Accrued payroll and payroll taxes			1,680,418				2,086,051
Accrued interest			8,387,582				3,070,415
Accrued expenses			2,048,325				3,328,222
Deferred revenue, current portion			174,997				219,992
Notes payable, current portion, net of discounts			29,522,607				15,924,033
Income tax payable			19,145				13,221
Operating lease liability, current portion			247,586				271,573
Convertible notes payable, net of discounts			4,380,000				3,750,000
Liabilities related to assets held for sale			5,500,000				5,500,000
Total current liabilities			58,812,966				40,585,703
Deferred revenue, net of current portion			413,359				335,859
Operating lease liability, net of current portion			144,867				682,752
Notes payables, net of current portion and discounts			—				7,216,710
Total liabilities			59,371,192				48,821,024
Commitments and Contingencies
Stockholders' Equity:
Common stock, par value $.0001 per share, 2,000,000,000 shares authorized; 114,662,271 and 109,950,509 shares issued and 102,362,271 and 97,650,509 shares outstanding at June 30, 2023 and September 30, 2022			11,421				10,995
Additional paid-in capital			143,689,979				140,417,114
Accumulated deficit			(77,602,297	)			(65,016,698	)
Treasury stock			(13,450,000	)			(13,450,000	)
Total Item 9 Labs Corp. Stockholders' Equity			52,649,103				61,961,411
Non-controlling interest			(4,799	)			(20,816	)
Total Stockholders' Equity			52,644,304				61,940,595
Total Liabilities and Stockholders' Equity		$	112,015,496			$	110,761,619

 

 

The accompanying notes are an integral part of these condensed consolidated financial statements.

 

ITEM 9 LABS CORP. AND SUBSIDIARIES

UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS

 

		For the three months ended				For the three months ended				For the nine months ended				For the nine months ended
		June 30, 2023				June 30, 2022				June 30, 2023				June 30, 2022
Revenues, net		$	5,022,375			$	4,931,322			$	15,689,261			$	17,755,519
Cost of revenues			2,203,560				3,341,367				6,530,438				11,089,560
Gross profit			2,818,815				1,589,955				9,158,823				6,665,959
Operating expenses
Professional fees and outside services			378,864				993,452				2,392,382				2,207,618
Payroll and employee related expenses			2,653,133				2,683,722				7,045,596				7,889,672
Sales and marketing			322,193				207,213				995,164				1,260,551
Depreciation and amortization			378,155				439,052				1,135,519				1,320,664
Other operating expenses			1,883,945				1,114,323				3,269,109				2,747,158
Impairment loss			168,571				—				168,571				—
Provision for (recovery of) bad debt			—				—				—				(5,000	)
Total expenses			5,784,861				5,437,762				15,006,341				15,420,663
Loss from operations			(2,966,046	)			(3,847,807	)			(5,847,518	)			(8,754,704	)
Other income (expense)
Interest expense			(2,950,462	)			(1,625,155	)			(6,719,625	)			(3,932,918	)
Other income (expense)			—				—				3,485				318
Total other income (expense), net			(2,950,462	)			(1,625,155	)			(6,716,140	)			(3,932,600	)
Net loss, before income tax provision (benefit)			(5,916,508	)			(5,472,962	)			(12,563,658	)			(12,687,304	)
Income tax provision (benefit)			(1,435	)			4,624				5,924				7,948
Net loss			(5,915,073	)			(5,477,586	)			(12,569,582	)			(12,695,252	)
Less: Net income (loss) attributable to non-controlling interest			(3,879	)			(7,109	)			16,017				(1,683	)
Net loss attributable to Item 9 Labs Corp.		$	(5,911,194	)		$	(5,470,477	)		$	(12,585,599	)		$	(12,693,569	)
Basic net loss per common share		$	(0.06	)		$	(0.06	)		$	(0.13	)		$	(0.13	)
Basic weighted average common shares outstanding			101,840,276				96,162,616				100,565,818				95,446,846
Diluted net loss per common share		$	(0.06	)		$	(0.06	)		$	(0.13	)		$	(0.13	)
Diluted weighted average common shares outstanding			101,840,276				96,162,616				100,565,818				95,446,846

 

 

The accompanying notes are an integral part of these condensed consolidated financial statements.

 

ITEM 9 LABS CORP. AND SUBSIDIARIES

UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY

THREE AND NINE MONTHS ENDED JUNE 30, 2023 AND 2022

		Item 9 Labs Corp. Equity
										Additional																Non-
		Common Stock								Paid-in				Treasury Stock								Accumulated				Controlling
		Shares				Amount				Capital				Shares				Amount				(Deficit)				Interest				Total
Balance at September 30, 2021			107,074,417			$	10,707			$	133,414,830				(12,300,000	)		$	(13,450,000	)		$	(33,874,094	)		$	—			$	86,101,443
Stock issued for debt inducement			142,365				14				128,348				—				—				—				—				128,362
Warrants issued with debt			—				—				574,239				—				—				—				—				574,239
Beneficial conversion features			—				—				470,047				—				—				—				—				470,047
Issuance of shares for services			16,666				2				25,830				—				—				—				—				25,832
Stock based compensation			—				—				507,294				—				—				—				—				507,294
Stock issued on exercise of options			9,896				1				(1	)			—				—				—				—				—
Net loss			—				—				—				—				—				(3,345,014	)			—				(3,345,014	)
Balance at December 31, 2021			107,243,344				10,724				135,120,587				(12,300,000	)			(13,450,000	)			(37,219,108	)			—				84,462,203
Stock issued for cash, net			278,000				28				288,813				—				—				—				—				288,841
Stock issued for acquisition			69,892				7				64,993				—				—				—				—				65,000
Stock issued for licenses			300,000				30				335,970				—				—				—				—				336,000
Stock issued for debt issuance			25,000				2				24,998				—				—				—				—				25,000
Beneficial conversion features			—				—				25,000				—				—				—				—				25,000
Issuance of shares for services			335,159				34				328,466				—				—				—				—				328,500
Stock based compensation			—				—				1,091,560				—				—				—				—				1,091,560
Stock issued on exercise of options			18,033				2				(2	)			—				—				—				—				—
Non-controlling interest			—				—				—				—				—				—				15,633				15,633
Net loss			—				—				—				—				—				(3,878,078	)			5,426				(3,872,652	)
Balance at March 31, 2022			108,269,428				10,827				137,280,385				(12,300,000	)			(13,450,000	)			(41,097,186	)			21,059				82,765,085
Stock issued for cash, net			263,313				26				254,311				—				—				—				—				254,337
Issuance of shares for services			29,965				3				30,017				—				—				—				—				30,020
Stock based compensation			—				—				934,681				—				—				—				—				934,681
Net loss			—				—				—				—				—				(5,470,477	)			(7,109	)			(5,477,586	)
Balance at June 30, 2022			108,562,706			$	10,856			$	138,499,394				(12,300,000	)		$	(13,450,000	)		$	(46,567,663	)		$	13,950			$	78,506,537
Balance at September 30, 2022			109,950,509			$	10,995			$	140,417,114				(12,300,000	)		$	(13,450,000	)		$	(65,016,698	)		$	(20,816	)		$	61,940,595
Stock issued for debt conversion			1,164,032				116				309,463				—				—				—				—				309,579
Stock issued for debt issuance			1,045,000				105				246,715				—				—				—				—				246,820
Beneficial conversion features			—				—				5,000				—				—				—				—				5,000
Issuance of shares for services			142,723				14				49,986				—				—				—				—				50,000
Stock based compensation			—				—				1,053,190				—				—				—				—				1,053,190
Net loss			—				—				—				—				—				(3,257,684	)			10,111				(3,247,573	)
Balance at December 31, 2022			112,302,264				11,230				142,081,468				(12,300,000	)			(13,450,000	)			(68,274,382	)			(10,705	)			60,357,611
Stock issued for debt issuance			337,500				34				42,876				—				—				—				—				42,910
Issuance of stock for services			1,348,455				135				229,865				—				—				—				—				230,000
Stock based compensation			—				—				459,460				—				—				—				—				459,460
Net loss			—				—				—				—				—				(3,416,721	)			9,785				(3,406,936	)
Balance at March 31, 2023			113,988,219				11,399				142,813,669				(12,300,000	)			(13,450,000	)			(71,691,103	)			(920	)			57,683,045
Issuance of shares for services			674,052				22				15,978				—				—				—				—				16,000
Stock based compensation			—				—				860,332				—				—				—				—				860,332
Net loss			—				—				—				—				—				(5,911,194	)			(3,879	)			(5,915,073	)
Balance at June 30, 2023			114,662,271			$	11,421			$	143,689,979				(12,300,000	)		$	(13,450,000	)		$	(77,602,297	)		$	(4,799	)		$	52,644,304

 

 

The accompanying notes are an integral part of these condensed consolidated financial statements.

 

ITEM 9 LABS CORP. AND SUBSIDIARIES

UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

 

		For the nine months ended				For the nine months ended
		June 30, 2023				June 30, 2022
Operating Activities:
Net loss		$	(12,569,582	)		$	(12,695,252	)
Adjustments to reconcile net loss to net cash used in operating activities:
Depreciation			246,867				217,363
Amortization of intangible assets			888,652				1,103,301
Amortization of right of use assets			182,946				89,844
Amortization of debt discounts			1,503,304				2,311,783
Loss on impairment			168,570				—
Common stock issued for services			296,000				498,983
Stock based compensation expense			2,372,982				2,533,535
Recovery of bad debt			—				(5,000	)
Employee retention credits received			(952,805	)			—
Loss on disposal of fixed assets			137,109				10,841
Changes in operating assets and liabilities:
Accounts receivable			(381,746	)			856,776
Inventory			565,619				2,276,205
Prepaid expenses and other assets			137,032				(339,994	)
Deposits			42,490				(86,604	)
Accounts payable			801,731				2,107,137
Accrued payroll and payroll taxes			547,172				(832,080	)
Income tax payable			5,924				7,948
Accrued interest			3,975,146				542,841
Accrued expenses			1,290,276				(316,760	)
Deferred revenue			32,505				(214,994	)
Operating lease liability			(172,111	)			(82,021	)
Net Cash Used in Operating Activities			(881,919	)			(2,016,148	)
Investing Activities:
Cash paid for acquisition			—				(140,726	)
Purchases of property, equipment and construction in progress			(68,176	)			(2,918,584	)
Cash received for note receivable			—				5,000
Cash received from construction escrow accounts			—				816,227
Cash acquired in acquisition			—				6,143
Cash paid to acquisition escrow accounts			—				(406,932	)
Purchase of license			—				(1,130,872	)
Net Cash Used in Investing Activities			(68,176	)			(3,769,744	)
Financing Activities:
Proceeds from the sale of common stock			—				555,911
Costs for sale of common stock			—				(12,733	)
Payment of debt discount			(55,000	)			(50,750	)
Proceeds from the issuance of debt			1,834,183				7,282,763
Payment of debt			(731,296	)			(3,002,097	)
Net Cash Provided by Financing Activities			1,047,887				4,773,094
Net Increase (Decrease) in Cash			97,792				(1,012,798	)
Cash and cash equivalents - Beginning of Period			85,637				1,454,460
Cash and cash equivalents - End of Period		$	183,429			$	441,662
Supplemental disclosure of cash flow information:
Interest paid in cash		$	995,812			$	3,855,724
Income taxes paid in cash		$	—			$	—
Supplemental disclosure of non-cash investing and financing activities:
Stock issued for acquisitions		$	—			$	65,000
Stock issued for acquisition of a license		$	93,611			$	336,000
Stock and warrants issued for debt and acquisition		$	289,730			$	797,453
Non-controlling interest		$	—			$	15,633
Stock issuance costs paid in stock		$	—			$	89,645
Debt issued for acquisition of a license		$	—			$	200,000
Debt proceeds used to pay debt discounts		$	327,817			$	80,000
Transfer of accrued interest to debt		$	1,029,837			$	1,762
Land purchased with escrow funds and deposit		$	6,719,625			$	3,000,000
Stock issued to pay accounts payable and prepay expenses		$	296,000			$	292,500
Operating lease right of use asset and liability		$	283,861			$	934,098
Cancellation of operating lease right of use asset and liability		$	673,622			$	—
Issuance of debt to repay bank overdraft		$	185,949			$	—
Beneficial conversion feature on convertible debt		$	5,000			$	495,047
Construction in progress paid with escrow funds		$	2,933,156			$	6,426,063
Stock issued for conversion of debt		$	309,579			$	—
Accrued debt discount fees		$	30,000			$	75,000
Debt discount amortization capitalized to construction in progress		$	1,041,448			$	2,620,476
Accounts payable and accrued liabilities capitalized in construction in progress		$	2,856,917			$	612,158
Debt proceeds used to fund other assets		$	2,500,000			$	—
Accounts payable converted debt		$	294,837			$	—

 

 

The accompanying notes are an integral part of these condensed consolidated financial statements.

 

 

ITEM 9 LABS CORP. AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

 

Note 1 - Description of Business and Summary of Significant Accounting Policies

 

Description of Business

 

Item 9 Labs Corp. ("Item 9 Labs" or, including its subsidiaries, the "Company"), formerly Airware Labs Corp., is a Delaware corporation. The Company was incorporated under the laws of the State of Delaware on June 15, 2010 as Crown Dynamics Corp.

 

Item 9 Labs is a holding company, investing in cannabis and cannabis-related businesses. Its subsidiaries currently compete in two different market segments: (1) producing of cannabis and cannabis-derived products and technologies through its Item 9 Labs brand (“Cultivation”), which is currently distributed throughout the State of Arizona in licensed medical and adult-use dispensaries; and (2) sell medical and adult-use cannabis dispensary franchises under its franchise brand “Unity Rd.” (“Franchising”).

 

In March 2021, the Company closed on the acquisition of OCG, Inc, dba Unity Rd., a dispensary franchisor, with the effect of OCG, Inc. becoming a wholly owned subsidiary of the Company. Unity Rd. has agreements with more than twenty (20) entrepreneurial groups to open more than thirty (30) Unity Rd. retail dispensary locations in more than ten (10) states. The majority of the locations are in the licensing process. We currently have two franchisees operating in Hartford, South Dakota and Boulder, Colorado. Unity Rd will be the vehicle to bring Item 9 Labs products across the United States and internationally, while keeping dispensaries locally owned and operated, empowering entrepreneurs to operate their business and contribute to their local communities. As the Unity Rd dispensaries achieve sufficient market penetration, Item 9 Labs aims to offer its products in those locations to expand the distribution footprint of its premium product offerings.

 

On July 11, 2023, a motion was filed, requesting the Superior Court of Arizona, in the County of Maricopa, to appoint a receiver over Item 9 Labs. The Company stipulated and agreed to the receiver appointment. On July 14, 2023, the Superior Court of Arizona appointed a receiver and the receiver was granted, effective immediately, possession, custody, and control of all the real, personal, tangible and intangible property owned by Item 9 Labs or in which Item 9 Labs has an interest (the “Property”). The receiver is authorized and is entitled to exercise all of Item 9 Labs’ rights in any and all Property in which the Company has an interest. The receiver is appointed to manage, maintain and preserve the Property for the duration of this receivership in a reasonable, prudent, diligent and efficient manner to maximize its value for the benefit of Item 9 Labs’ equity interest holders and creditors.

 

Principles of Consolidation

 

The accompanying condensed consolidated financial statements of the Company as of June 30, 2023 have been prepared by us without audit pursuant to the rules and regulations of the Securities and Exchange Commission ("SEC") and do not include all of the information and notes necessary for a presentation of financial position and results of operations in accordance with US GAAP and should be read in conjunction with our September 30, 2022 audited financial statements filed with the SEC on our Form 10-K on January 13, 2023. It is management's opinion that all material adjustments (consisting of normal recurring adjustments) have been made, which are necessary for a fair financial statement presentation. We derived the September 30, 2022 condensed consolidated balance sheet data from audited financial statements, however, we did not include all disclosures required by US GAAP. The results for the interim periods ended June 30, 2023 are not necessarily indicative of the results to be expected for the year ending September 30, 2023.

 

The condensed consolidated financial statements of the Company include the accounts of the Company, and its wholly-owned subsidiaries and a consolidated variable interest entity (“VIE”). Intercompany balances and transactions have been eliminated.

 

Item 9 Labs consolidates a VIE in which the Company is deemed to be the primary beneficiary.  An entity is generally a VIE if it meets any of the following criteria: (i) the entity has insufficient equity to finance its activities without additional subordinated financial support from other parties, (ii) the equity investors cannot make significant decisions about the entity’s operations or (iii) the voting rights of some investors are not proportional to their obligations to absorb the expected losses of the entity or receive the expected returns of the entity and substantially all of the entity’s activities involve or are conducted on behalf of the investor with disproportionately few voting rights. The Company makes significant judgments in determining whether an entity is a VIE and, for each reporting period, the Company assesses whether it is the primary beneficiary of the VIE.

 

Effective February 1, 2022, the Company was deemed the primary beneficiary of Elevated Connections, Inc. The equity in Elevated Connections, Inc. held by its stockholder has been presented on the balance sheet and the statement of operations as a non-controlling interest. See Note 5.

 

 

F-6

 

Accounting Estimates

 

The preparation of financial statements in conformity with US GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenue and expenses during the reporting period. Actual results could materially differ from those estimates. Significant estimates of the Company include but are not limited to accounting for depreciation and amortization, current and deferred income taxes, inventory, accruals and contingencies, carrying value of fixed assets, construction in progress, goodwill and intangible assets, the fair value of common stock and the estimated fair value of stock options and warrants. Due to the uncertainties in the formation of accounting estimates, and the significance of these items, it is reasonably possible that these estimates could be materially changed in the near term. 

 

Inventory

 

Inventory is stated at the lower of cost or net realizable value with cost being determined on the first in first out method. Inventory primarily consists of the costs directly related to the production and cultivation of cannabis crops, cannabis oils, and cannabis concentrate products. Inventory is relieved to cost of revenues as products are delivered to dispensaries. Inventory consists primarily of labor, utilities, costs of raw materials, packaging, nutrients and overhead.

 

The Company routinely evaluates the carrying value of inventory for slow moving and potentially obsolete inventory and, when appropriate, will record an adjustment to reduce inventory to its estimated net realizable value.

 

Impairment of Long-Lived Assets

 

We analyze long-lived assets, including property and equipment and definite-lived intangible assets, for impairment whenever events or changes in circumstances indicate that the carrying amounts may not be recoverable. We review the amortization method and estimated period of useful life at least at annually at the balance sheet date. We record the effects of any revision to operations when the change arises. We recognize impairment when the estimated undiscounted cash flow generated by those assets is less than the carrying amount of such assets. The amount of impairment is the excess of the carrying amount over the fair value of such assets, which is generally calculated using discounted cash flows.

 

During and subsequent to the three months ended June 30, 2023, the Company has noted indicators of the possible impairment of its property and equipment and definite-lived intangible assets. The Company will analyze these indicators during the fourth quarter of the year ended September 30, 2023 and determine if any impairment has occurred. Given the carrying value of the Company’s property and equipment and definite-lived intangible assets at June 30, 2023, the occurrence of an impairment may be material to the Company’s financial position and results of operations.

 

Goodwill and Intangible Assets Not Subject to Amortization

 

Goodwill represents the excess of the purchase price paid for the acquisition of a business over the fair value of the net tangible and intangible assets acquired. Indefinite life intangible assets represent licenses purchased for cultivation, processing, distribution and sale of cannabis and cannabis related products. Goodwill and indefinite life intangibles are not subject to amortization, however, annually, or whenever there is an indication that goodwill or the indefinite life intangible assets may be impaired, we evaluate qualitative factors to determine whether it is more likely than not that the fair value of the goodwill or indefinite life intangible assets is less than its carrying amount. Our test of goodwill and indefinite life intangible assets includes assessing qualitative factors and the use of judgment in evaluating economic conditions, industry and market conditions, cost factors, and entity-specific events, as well as overall financial performance. Upon the determination of a likely impairment, management assesses the recorded goodwill or indefinite life intangibles balance with the fair value of the reporting unit or assets acquired.

 

During and subsequent to the three months ended June 30, 2023, the Company has noted indicators of impairment of its goodwill and intangible assets not subject to amortization, including its licenses. The Company will analyze these indicators during the fourth quarter of the year ended September 30, 2023 and determine the extent to which an impairment has occurred. Given the carrying value of the Company’s goodwill and intangible assets not subject to amortization at June 30, 2023, the occurrence of an impairment will likely be material to the Company’s financial position and results of operations and may result in an impairment charge in excess of $50 million.

 

F-7

 

Revenue Recognition

 

Cultivation revenue

 

The core principle of ASC 606 requires that an entity recognize revenue to depict the transfer of promised goods or services to customers in an amount that reflects the consideration to which the company expects to be entitled in exchange for those goods or services. ASC 606 defines a five-step process to achieve this core principle, including identifying the contract with the customer, identifying the performance obligations in the contract, determining the transaction price, including estimating the amount of variable consideration to include in the transaction price, allocating the transaction price to each separate performance obligation and recognizing revenue when (or as) the performance obligation is satisfied.

 

All of the Company's cultivation revenue is associated with a customer contract that represents an obligation to provide cannabis products that are delivered at a single point in time.  For the three and nine months ended June 30, 2023 and 2022, 96% of the Company's net revenue was generated from performance obligations completed in the state of Arizona.

 

The Company recognizes revenue once the products are delivered. Revenue is considered earned upon successful delivery of the product to the dispensary as the Company has no further performance obligations at this point in time and collection is reasonably assured. The Company records revenue at the amount it expects to collect, 100% of the wholesale sales. Beginning April 1, 2020, the Company entered into a three-year agreement with a dispensary, which calls for monthly payments of $40,000 to be paid by the Company. The fees paid for operating under the contract are expensed to cost of revenues. See Note 8.

 

The Company's revenues accounted for under ASC 606 do not require significant estimates or judgments based on the nature of the Company's revenue stream. The sales price is generally fixed at the point of sale and all consideration from the contract is included in the transaction price. The Company's contracts do not include multiple performance obligations, variable consideration, a significant contract, rights of return or warranties.

 

Franchising revenue

 

The Company enters into franchise agreements and consulting agreements. The franchise agreement allows the franchisee to, among other things, establish a franchised outlet under the Company’s Unity Rd. brand. Under the consulting agreements, the Company assists customers with applying for and being awarded a retail cannabis license through the state license application process. The initial franchise fee and the consulting fee are due upon execution of the related agreement. These payments are deferred on the condensed consolidated balance sheet. The initial franchise fee is recognized into revenue ratably over the term of the agreement and the consulting fee is recognized at the time the performance obligation has been satisfied. Revenue recognized during the three months ended June 30, 2023 and 2022 that was included in deferred revenue at September 30, 2022 and 2021 was $6,250 and $4,998, respectively. Revenue recognized during the nine months ended June 30, 2023 and 2022 that was included in deferred revenue at September 30, 2022 and 2021 was $67,496 and $214,994, respectively.

 

Disaggregation of Revenue

 

The following table presents our revenue disaggregated by source.

		Three months ended June 30,								Nine months ended June 30,
		2023				2022				2023				2022
Cultivation segment
Flower		$	648,730			$	611,970			$	1,865,879			$	2,633,138
Vape products			3,661,855				3,648,315				11,667,650				12,553,206
Concentrates and other cannabis products			437,161				523,816				1,372,816				1,993,758
Accessories			75,620				77,636				218,525				180,742
			4,823,366				4,861,737				15,124,870				17,360,844
Franchising segment
Franchising revenue			60,837				22,031				221,822				280,529
Corporate
Dispensary sales revenue			138,172				40,245				342,569				73,567
Other			—				7,309				—				40,579
			138,172				47,554				342,569				114,146
		$	5,022,375			$	4,931,322			$	15,689,261			$	17,755,519

 

 

F-8

 

Net Loss Per Share 

 

Basic net loss per share does not include dilution and is computed by dividing net loss available to common stockholders by the weighted average number of common shares outstanding for the period. Diluted net loss per share reflects the potential dilution of securities that could share in the losses of an entity. Dilutive securities are not included in the weighted average number of shares when inclusion would be anti-dilutive. The following table summarizes the securities outstanding at June 30, 2023 and 2022 that were excluded from the diluted net loss per share calculation for the three and nine months ended June 30, 2023 and 2022 because the effect of including these potential shares was antidilutive due to the Company’s net loss.

 

		2023				2022
Potentially dilutive common share equivalents
Options			9,057,715				8,594,805
Warrants			49,370,537				49,870,537
Convertible notes			36,168,666				9,968,931
Potentially dilutive shares outstanding			94,596,918				68,434,273

  

 

Warrants, Conversion Options, Debt Discounts and Amendments

 

The Company analyzes warrants issued with debt to determine if the warrants are required to be bifurcated and accounted for at fair value at each reporting period. When bifurcation is not required, the Company records a debt discount, based on the relative fair values of the warrants and the debt, with a corresponding charge to equity unless the terms of the warrant require it to be classified as a liability. The warrants and corresponding note discounts are valued using the Black-Scholes option-pricing model. This model uses estimates of volatility, risk free interest rate and the expected term of the warrants, along with the current market price of the Company's stock, to estimate the value of the outstanding warrants. The Company estimates the expected term using an average of the contractual term and vesting period of the award. The expected volatility is measured using the average historical daily changes in the market price of the Company's common stock over the expected term of the award or, if earlier, since March 20, 2018, the day of the merger between BSSD Group LLC ("BSSD") and Airware Labs Corp, and the risk-free interest rate is equivalent to the implied yield on zero-coupon U.S. Treasury bonds with a remaining maturity equal to the expected term of the awards.

  

The Company also analyzes conversion options embedded with debt to determine if the conversion options are required to be bifurcated and accounted for at fair value at each reporting period or to determine if there is a beneficial conversion feature. At June 30, 2023 and September 30, 2022, none of the conversion options embedded in the Company’s debt were required to be bifurcated.

 

The Company analyzes the terms of its debt amendments to determine if the changes made to the terms have affected the debt’s cash flows. If the debt’s cash flows have been affected, the Company then determines if the amendment should be accounted for as a troubled debt restructuring, an extinguishment or a modification and the appropriate accounting model is applied.

Segment Reporting

 

The Company defines operating segments as components about which separate financial information is available that is evaluated regularly by the chief operating decision maker in deciding how to allocate resources and in assessing performance. The Company allocates its resources and assesses the performance of its sales activities based on the services performed by its subsidiaries. For the three and nine months ended June 30, 2023 and 2022, the Company has identified two segments: the cultivation, production and sale of cannabis and cannabis derived products and technologies (“Cultivation”) and the sales of Unity Rd. franchises to dispensaries (“Franchising”).

 

Held for sale

The Company classifies long-lived assets or disposal groups and related liabilities as held-for-sale when management having the appropriate authority, generally our Board of Directors or certain of our Executive Officers, commits to a plan of sale, the disposal group is ready for immediate sale, an active program to locate a buyer has been initiated and the sale is probable and expected to be completed within one year. Once classified as held-for-sale disposal groups are valued at the lower of their carrying amount or fair value less estimated selling costs. Depreciation on these properties, if placed into service, is discontinued at the time they are classified as held for sale.

 

Employer Retention Credit

 

During the nine months ended June 30, 2023, the Company received $952,805 of tax credits in accordance with the Employer Retention Credit (“ERC”) program, authorized by the Coronavirus Aid, Relief, and Economic Security (CARES) Act, as amended. The Company’s policy is to account for the ERC as a grant using guidance analogous to government grants found in IAS 20, Accounting for Government Grants and Disclosure of Government Assistance. In accordance with this guidance, the ERC is recognized as a reduction to Payroll and employee related expenses on the statement of operations when there is reasonable assurance that the Company will receive the ERC.

 

F-9

 

Leases

 

The Company determines if an arrangement is a lease at inception. Operating leases are included in operating lease right-of-use (“ROU”) assets and current and long-term operating lease liabilities on our condensed consolidated balance sheets. We currently do not have any material finance lease arrangements.

 

Operating lease ROU assets and lease liabilities are recognized based on the present value of the future minimum lease payments over the lease term at commencement date. Generally, our leases do not provide an implicit rate. As such, we use our incremental borrowing rate in effect at the commencement date of the lease in determining the present value of future payments.

 

When we have the option to extend the lease term, terminate the lease before the contractual expiration date, or purchase the leased asset, and if it is reasonably certain that we will exercise the option, we consider these options in determining the classification and measurement of the lease.

 

Recently Issued Accounting Pronouncements

 

Pending Adoption

 

In June 2016, the FASB issued ASU No. 2016-13, Financial Instruments – Credit Losses (Topic 326), which provides guidance on measuring credit losses on financial instruments. The amended guidance replaces current incurred loss impairment methodology of recognizing credit losses when a loss is probable with a methodology that reflects expected credit losses and requires a broader range of reasonable and supportable information to assess credit loss estimates. ASU 2016-13 is effective for the Company on October 1, 2023, with early adoption permitted on October 1, 2019. We are assessing the provisions of this amended guidance; however, the adoption of the standard is not expected to have a material effect on our condensed consolidated financial statements.

 

In August 2020, the FASB issued ASU No. 2020-06, Debt with Conversion and Other Options (Subtopic 470-20) and Derivatives and Hedging – Contracts in Entity’s Own Equity (Subtopic 815-40). This standard eliminates the beneficial conversion and cash conversion accounting models for convertible instruments. It also amends the accounting for certain contracts in an entity’s own equity that are currently accounted for as derivatives because of specific settlement provisions. In addition, the new guidance modifies how particular convertible instruments and certain contracts that may be settled in cash or shares impact the diluted EPS computation. For public business entities, excluding entities eligible to be smaller reporting companies, it is effective for fiscal years beginning after December 15, 2021, including interim periods within those fiscal years using the fully retrospective or modified retrospective method. For all other entities, the amendments are effective for fiscal years beginning after December 15, 2023. Early adoption is permitted but no earlier than fiscal years beginning after December 15, 2020, including interim periods within those fiscal years. We are currently evaluating the impact of adoption of this standard on the Company’s condensed consolidated financial statements and disclosures.

 

In October 2021, the FASB issued ASU No. 2021-08, Business Combinations (Topic 805): Accounting for Contract Assets and Contract Liabilities from Contracts with Customers. This standard requires contract assets and contract liabilities acquired in a business combination to be recognized in accordance with Topic 606 as if the acquirer had originated the contracts. For public business entities, ASU 2021-08 is effective for fiscal years beginning after December 15, 2022, including interim periods within those years and early adoption is permitted. We are currently evaluating the impact of adoption of this standard on the Company’s condensed consolidated financial statements and disclosures.

 

There have been no other recent accounting pronouncements or changes in accounting pronouncements that have been issued but not yet adopted that are of significance, or potential significance, to us.

 

 

Note 2 – Going Concern

 

The accompanying condensed consolidated financial statements have been prepared in conformity with US GAAP, which contemplates continuation of the Company as a going concern. The Company has not yet established an ongoing source of revenue sufficient to cover its operating costs and has incurred net losses since its inception. These losses, with the associated substantial accumulated deficit, are a direct result of the Company’s planned ramp up period as it is pursuing market acceptance and geographic expansion. In view of these matters, realization of a major portion of the assets in the accompanying condensed consolidated balance sheets is dependent upon continued operations of the Company which in turn is dependent upon the Company’s ability to meet its financing requirements, and the success of its future operations. The Company operates in a new, developing industry with a variety of competitors. The Company is in default on substantially all financial obligations, its property in Arizona is currently in the foreclosure process and a receiver was appointed to the Company by the Superior Court of Arizona. These factors raise substantial doubt about the Company’s ability to continue as a going concern.

 

In order to continue as a going concern, the Company will need to generate additional revenue and obtain additional capital to fund its operating losses and service its debt. Management’s plans in regard to these matters are described as follows:

 

F-10

 

Sales and Marketing. Historically, the Company has generated the majority of its revenues by providing the products it produces to dispensaries throughout the state of Arizona. The Company’s revenues have increased significantly since its inception in May 2017. Management will continue its plans to increase revenues in the Arizona market by providing superior products. Additionally, as capital resources become available, the Company plans to expand into additional markets outside of Arizona.

 

Financing. To date, the Company has financed its operations primarily with loans from third parties and shareholders, private placement financings and sales revenue. Management believes that with continued production efficiencies, production growth, and continued marketing efforts, sales revenue will grow, thus enabling the Company to reverse its negative cash flow from operations and raise additional capital as needed. However, there is no assurance that the Company’s overall efforts will be successful. 

 

If the Company is unable to generate additional sales growth in the near term and raise additional capital, there is a risk that the Company could default on additional obligations and could be required to discontinue or significantly reduce the scope of its operations if no other means of financing operations are available. The condensed consolidated financial statements do not include any adjustments relating to the recoverability and classification of recorded asset amounts or the amount and classification of liabilities or any other adjustment that might be necessary should the Company be unable to continue as a going concern.

 

 

Note 3 – Inventory 

 

Inventory consisted of the following at June 30, 2023 and September 30, 2022.

 

		June 30,				September 30,
		2023				2022
Raw materials and work in process		$	923,976			$	1,209,892
Finished goods			636,240				835,420
Packaging and other			338,387				418,910
		$	1,898,603			$	2,464,222

 

 

Note 4 – Pending Acquisitions

 

The Herbal Cure pending acquisition

 

On March 11, 2022, the Company entered into an Asset Purchase Agreement with The Herbal Cure LLC (“Seller”), pursuant to which, the Company is purchasing certain assets from the Seller. The total purchase price for the assets to be acquired is $5,750,000, payable as follows:

 

	(i) Upon mutual execution and delivery of the Asset Purchase Agreement, the Company shall convey to the Seller a down payment in the amount of $250,000;
	(ii) At the Closing, the Company shall pay to Seller $3,700,000 in immediately available funds;
	(iii) $700,000 shall be financed by the Seller and paid pursuant to the terms and conditions of the Secured Promissory Note (the "Herbal Cure Note"), which interest shall accrue at a rate of 5% per annum, for a term of 18 months commencing on the Closing Date, and payable in even monthly installments until paid in full; and
	(iv) the Company shall pay the remainder of the purchase price in shares of its common stock on the Closing Date, in such amount of Shares as is the quotient of $1,100,000 divided by the product of the 10 day volume weighted average price of the shares as of the Closing Date, and 85%.

 

The $250,000 down payment has been paid. At June 30, 2023, this acquisition has not yet been finalized. As such, the effects of this acquisition, which is expected to be accounted for under ASC 805, Business Combinations, have not been included in the Company’s condensed consolidated balance sheet or statement of operations as of and for the three and nine months ended June 30, 2023. Given the current capital constraints of the Company and the market as a whole, it is unlikely that this acquisition will be closed. As such, the $250,000 down payment was expensed and is included in Other operating expenses on the unaudited condensed consolidated statements of operations for the three and nine months ended June 30, 2023.

 

F-11

 

Sessions terminated acquisition

 

On May 18, 2022, the Company and its wholly owned subsidiary, OCG Management Ontario, Inc., a corporation formed under the laws of the Province of Ontario (“Purchaser”) solely for the purpose of completing this transaction, entered into a Share Purchase Agreement pursuant to which the Purchaser is purchasing all, but not less than all, of the issued and outstanding shares in the capital of Wild Card Cannabis Incorporated, a corporation formed under the laws of the Province of Ontario free and clear of all Liens from the Shareholders.

 

The total purchase price for the Shares is $12,800,000 (the "Purchase Price"), as adjusted, plus the Earnout Payment, if any (collectively, the “Purchase Price”) payable as follows:

 

	(i) The Company has delivered the Exclusivity Deposit in the amount of $156,902 to the Escrow Agent on March 4, 2022.
	(ii) At the Closing, Purchaser shall pay to Shareholders the Estimated Purchase Price of $12,800,000, as adjusted, in immediately available funds;
	(iii) $4,100,000, as adjusted, payable by the delivery of the Company’s common stock, the number of which will be calculated on the basis of a deemed price per common share equal to the 10-Day VWAP of the trading price of the Company’s common stock on the stock exchange upon which the Company’s common stock is listed, with the last day of the First Earnout Period (the date that is 12 months following the Closing Date) as the measurement date less a 15% discount, if actual Net Revenue is respect of the First Earnout Period is greater than or equal to the Target Net Revenue for the First Earnout Period; and
	(iv) $4,100,000, as adjusted, payable by the delivery of the Company’s common stock, the number of which will be calculated on the basis of a deemed price per common share equal to the 10-Day VWAP of the trading price of the Company’s common stock on the stock exchange upon which the Company’s common stock is listed, with the last day of the Second Earnout Period (the date that is 24 months following the Closing Date) as the measurement date less a 15% discount, if actual Net Revenue is respect of the Second Earnout Period is greater than or equal to the Target Net Revenue for the Second Earnout Period.

 

 

The $156,902 Exclusivity Deposit has been paid. In addition, at June 30, 2023, the Company previously placed $3.0 million in a deposit account related to the potential financing for this acquisition. The $3.0 million deposit is included in Other assets on the condensed consolidated balance sheet at June 30, 2023. On May 25, 2023, this acquisition was terminated by the sellers as a consequence of the Company’s failure to provide evidence that it had sufficient cash on hand or other sources of immediately available funds to make payment of all amount to be paid under the agreement on the closing date, including the purchase price. As a result of the cancellation, the Company has accrued the termination fee in the amount of $543,098 and expensed the $156,902 Exclusivity Deposit. The termination fee and the Exclusivity Deposit expenses are included in Other operating expenses on the unaudited condensed consolidated statement of operations for the three and nine months ended June 30, 2023.

 

 

Note 5 – Variable Interest Entity

 

In January 2022, the Company signed a Co-Management Agreement with a dispensary in Oklahoma for a term of three years. Under the terms of the Co-Management Agreement, the Company purchased substantially all of the assets of a dispensary, excluding cannabis and cannabis related products and licenses, and assumed the dispensary’s lease. Further, under the Co-Management Agreement, the Company is to operate, staff, and otherwise manage the day-to-day operations of the dispensary. The Company shall also pay all claims, costs and liabilities associated with operating the dispensary. This dispensary was permanently closed in April 2023.

 

The terms of the Co-Management Agreement provide the Company with, in its judgment, the ability to manage and make decisions that most significantly affect the operations of Elevated Connections and to absorb losses that could potentially be significant to Elevated Connections. As such, the Company has consolidated Elevated Connections effective February 1, 2022. The purpose of Elevated Connections, as a licensed dispensary, is to hold the cannabis and cannabis related products and licenses of the dispensary.

 

The assets of the VIE cannot be used to settle obligations of the Company or its wholly owned subsidiaries. However, liabilities recognized as a result of consolidating the VIE do represent additional claims on the Company’s general assets.

 

F-12

 

The following table presents the carrying values of the assets and liabilities of the entity that is a VIE and consolidated by the Company at June 30, 2023 and September 30, 2022.

 

		June 30,				September 30,
Assets		2023				2022
Current assets
Inventory		$	—			$	26,909
Total assets		$	—			$	26,909
Liabilities
Current liabilities
Income tax payable		$	19,145			$	13,221
Total liabilities		$	19,145			$	13,221

 

The following table presents the operations (after intercompany eliminations) of the entity that is a VIE and consolidated by the Company for the three and nine months ended June 30, 2023.

		Three months ended June 30,								Nine months ended June 30,
		2023				2022				2023				2022
Revenues, net		$	10,585			$	40,245			$	70,940			$	73,582
Cost of revenue			15,899				21,111				48,999				44,128
Gross profit (loss)			(5,314	)			19,134				21,941				29,454
Income tax expense (benefit)			(1,435	)			4,624				5,924				7,948
Net income (loss)		$	(3,879	)		$	14,510			$	16,017			$	21,506

 

 

Note 6 - Property and Equipment, Net

 

The following represents a summary of our property and equipment as of June 30, 2023 and September 30, 2022:

 

		June 30,				September 30,
		2023				2022
Cultivation and manufacturing equipment		$	619,670			$	612,137
Computer equipment and software			270,795				270,795
Leasehold improvements			14,121				63,788
Buildings and improvements			2,811,340				2,811,340
			3,715,926				3,758,060
Accumulated Depreciation			(1,004,307	)			(777,473	)
			2,711,619				2,980,587
Land			3,455,563				3,455,563
Construction on progress			18,435,107				14,583,574
Property and Equipment, Net		$	24,602,289			$	21,019,724

 

During the nine months ended June 30, 2022, the Company completed the purchase of 44 acres of land from a related party for $3.0 million plus expenses. The land-owner is one of the original members of BSSD and a current employee of the Company.

 

Construction in progress relates to multiple capital projects ongoing during the nine months ended June 30, 2023, including the construction of the Nevada facility and the expansion of the Arizona facility. Construction in progress also includes interest and fees on debt that is directly related to the financing of the Company’s capital projects. Given the status and the continued delays of the projects, the Company has ceased capitalizing interest and fees on the debt that is directly related to the financing of the Company’s projects beginning on April 1, 2023.

 

Depreciation expense for the three months ended June 30, 2023 and 2022 was $80,552 and $74,710, respectively. Depreciation expense for the nine months ended June 30, 2023 and 2022 was $246,867 and $146,078, respectively.

 

During and subsequent to the three months ended June 30, 2023, the Company has noted indicators of the possible impairment of its property and equipment. The Company will analyze these indicators during the fourth quarter of the year ended September 30, 2023 and determine if any impairment has occurred. Given the carrying value of the Company’s property and equipment at June 30, 2023, the occurrence of an impairment may be material to the Company’s financial position and results of operations.

 

 

Note 7 – Debt

 

							Maturity				Annual Interest				Balance at				Balance at				Conversion
				Effective Date			Date				Rate				June 30, 2023				September 30, 2022				Price
	C-2			3/23/2020			9/23/2020				15	%		$	1,100,000			$	1,100,000				See C-2
	C-3			8/15/2011			8/15/2012				8	%			—				20,000				$0.50
	C-7			9/29/2021			1/1/2023				10	%			325,000				275,000				0.35
	C-8			9/29/2021			1/1/2023				10	%			650,000				550,000				0.35
	C-9			10/1/2021			1/1/2023				10	%			975,000				825,000				0.35
	C-10			10/29/2021			5/31/2023				18	%			750,000				750,000				1.50
	C-11			2/21/2022			8/31/2022				24	%			230,000				230,000				1.10
	C-12			10/24/2022			10/24/2024				15	%			250,000				—				0.31
	C-13			12/13/2022			12/13/2024				15	%			50,000				—				0.25
	C-14			12/13/2022			12/13/2024				15	%			50,000				—				0.25
														$	4,380,000			$	3,750,000

 

(C-2) Convertible Viridis Note

 

On March 23, 2020 the Company borrowed proceeds from a related party, Viridis I9 Capital LLC (“Viridis”), in the amount of $1.1 million. The note is convertible at the lesser of a) $1.00 per share or, b) 20% discount to the ten day average closing price of the Company’s common stock, immediately prior to the conversion date. All principal and interest were due on the maturity date. The Company is not in compliance with the terms of the Viridis note. The convertible Viridis note included a provision for the issuance of 5,000,000 warrants exercisable into the Company’s common stock. The exercise price on the warrants is $0.75 and the warrants have a term of 5 years.

 

(C-3) Other Convertible Note

 

The outstanding principal and accrued interest of C-3 was converted into 5,714 shares of the Company’s common stock during the nine months ended June 30, 2023.

 

(C-7, C-8) Convertible Lucas Ventures and LGH Investments Notes

 

 These two convertible notes were amended effective January 1, 2023 to, among other terms, extend the maturity date to June 30, 2023 and to pledge the Company’s Colorado Retail Marijuana License as security for the note. As part of the amendment for C-7, the Company increased the principal amount due on the note to $325,000. As part of the amendment for C-8, the Company issued 168,750 shares of common stock, valued at $21,455 and increased the outstanding principal balance to $650,000. The value of the stock issuance and the increase in principal amounts were recorded as a convertible debt discount and are being amortized to interest expense over the term of the notes. The Company is not in compliance with the terms of these notes.

(C-9) Convertible Tysadco Note

 

This note was amended effective January 1, 2023 to, among other terms, extend the maturity date to June 30, 2023 and to pledge the Company’s Colorado Retail Marijuana License as security for the note. As part of the amendment, the Company issued 168,750 shares of common stock, valued at $21,455 and increased the outstanding principal amount to $975,000. The value of the stock issuance and the increase in principal amount were recorded as a convertible debt discount and are being amortized to interest expense over the term of the note. The Company is not in compliance with the terms of this note.

 

 

(C-10) Convertible *Individual* Note

 

This note was amended effective March 31, 2023 to, among other terms, extend the maturity date to May 31, 2024 and to increase the interest rate to 17.5%. As part of this amendment, combined with the amendments for notes (x) and (dd) below, the Company agreed to pay an extension fee of $75,000 on June 1, 2023. The resulting discount is being amortized to interest expense over the term of the notes. The unpaid balance of this extension fee was accrued at June 30, 2023 in the amount of $30,000. The Company is not in compliance with the terms of this note.

 

F-14

 

(C-11) Convertible *Individual* Note

 

Note C-11 is in default.

 

(C-12) *Individual* Note

 

On October 24, 2022, the Company entered into a Secured Convertible Promissory Note in the amount of $250,000, which is payable at maturity on October 24, 2024. Interest on the note is 15% per annum and is payable quarterly. This note is secured by a first priority security interest in all assets of OCG Management Ontario Inc., a wholly owned subsidiary of the Company. The outstanding principal and any accrued interest are convertible into shares of the Company’s common stock at $0.31 per share. The Company issued 75,000 shares of its common stock, valued at $15,000, as part of the note agreement. The debt and shares of common stock were recorded at their relative fair values. The resulting discount of $15,000 is amortized to interest expense over the term of the debt. The Company is not in compliance with the terms of this note.

 

(C-13) *Individual* Note

 

On December 13, 2022, the Company entered into a Secured Convertible Promissory Note in the amount of $50,000, with a member of its board of directors. The note is payable at maturity on December 13, 2024. Interest on the note is 15% per annum and is payable quarterly. This note is secured by a first priority security interest in all assets of OCG Management Ontario Inc., a wholly owned subsidiary of the Company. The outstanding principal and any accrued interest is convertible into shares of the Company’s common stock at $0.25 per share. The Company issued 10,000 shares of its common stock, valued at $2,500, as part of this note agreement. The debt included a beneficial conversion feature after consideration of the relative fair value of the shares of common stock. The debt and shares of common stock were recorded at their relative fair values, along with the beneficial conversion feature. The resulting discount of $5,000 is amortized to interest expense over the term of the debt. The Company is not in compliance with the terms of this note.

 

(C-14) *Individual* Note

 

On December 13, 2022, the Company entered into a Secured Convertible Promissory Note in the amount of $50,000, which is payable at maturity on December 13, 2024. Interest on the note is 15% per annum and is payable quarterly. This note is secured by a first priority security interest in all assets of OCG Management Ontario Inc., a wholly owned subsidiary of the Company. The outstanding principal and any accrued interest is convertible into shares of the Company’s common stock at $0.25 per share. The Company issued 10,000 shares of its common stock, valued at $2,500, as part of this note agreement. The debt included a beneficial conversion feature after consideration of the relative fair value of the shares of common stock. The debt and shares of common stock were recorded at their relative fair values, along with the beneficial conversion feature. The resulting discount of $5,000 is amortized to interest expense over the term of the debt. The Company is not in compliance with the terms of this note.

 

The future minimum payments of the Company’s convertible debt obligations as of June 30, 2023 are as follows. The unamortized discount will be amortized through December 2024.

 

June 30,		Amount
2024		$	4,380,000
		$	4,380,000

 

F-15

 

Notes Payable

 

						Maturity		Annual Interest				Balance at				Balance at
				Effective Date		Date		Rate				June 30, 2023				September 30, 2022				Secured by
	f			5/1/2020		11/1/2023			10	%		$	1,386,370			$	1,386,370			2nd DOT AZ property
	h			5/1/2020		5/1/2023			15	%			283,666				283,666			N/A
	l			7/22/2022		7/31/2023			36	%			2,203,167				1,823,405			Future revenues; shares of Company stock
	o			3/19/2021		4/1/2024			10	%			238,023				637,114			N/A
	p			2/1/2021		7/15/2023			15	%			155,446				220,590			N/A
	q			8/6/2021		3/1/2023			16	%			13,500,000				13,500,000			1st AZ property and other personal property
	r			8/6/2021		3/1/2023			16	%			5,500,000				5,500,000			1st NV property and other personal property
	s			9/30/2021		12/31/2021			18	%			—				500,000			Restricted common stock
	u			11/2/2022		7/18/2024			25	%			414,046				548,082			Future revenues
	w			3/4/2022		5/21/2024			15	%			6,203,930				5,253,256
	x			3/10/2022		5/31/2024			18	%			250,000				250,000			N/A
	y			3/2/2022		8/1/2023			5	%			145,388				165,388			N/A
	z			7/20/2022		4/30/2023			36	%			638,460				426,558			Future revenues
	aa			10/28/2022		1/31/2023			70	%			2,000,000				—			Deposit account holding the funds
	bb			11/2/2022		3/28/2023			41	%			593,412				—			Future revenues
	cc			10/26/2022		11/16/2022			71	%			326,680				—			Deposit account holding the funds
	dd			11/3/2022		5/3/2023			18	%			500,000				—			N/A
	ee			11/1/2022		12/20/2022			1	%			25,922				—			N/A
	ff			2/17/2023		11/1/2025			18	%			222,148				—			N/A
	gg			4/6/2023		5/31/2024			30	%			250,000				—			N/A
	hh			6/22/2023		12/22/2023			10	%			185,949				—
													35,022,607				30,494,429
				Less: liabilities related to assets held for sale									(5,500,000	)			(5,500,000	)
					Less: unamortized discounts								—				(1,853,686	)
												$	29,522,607			$	23,140,743

 

(f) Viridis AZ

 

On September 13, 2018, the Company entered into a Loan and Revenue Participation Agreement with Viridis Group I9 Capital LLC ("Viridis"), a related party, in which Viridis agreed to loan the Company up to $1.2 million for the expansion of the Company's Arizona property. In exchange for the loan, Viridis was to be repaid in the form of waterfall revenue participation schedules. Viridis was to receive 5% of the Company's gross revenues from the Arizona operations until the loan was repaid, 2% until repaid 200% of the amount loaned, and 1% of gross revenues in perpetuity or until a change in control. The loan was originally collateralized with a Deed of Trust on the Company's 5-acre parcel in Coolidge, AZ and its two 10,000 square foot buildings. In August 2019, Viridis agreed to subordinate its first priority Deed of Trust and move into a 2^nd position. At that time, the loan was amended to include 6% annualized interest.

 

On May 1, 2020, under a troubled debt restructuring, the Company renegotiated the $1,200,000 note payable. As part of the restructuring, the Company issued 1,555,556 warrants exercisable into the Company's common stock. The warrants have an exercise price of $1.00 and a term of 5 years. Accrued interest in the amount of $186,370 was added to the principal balance of the note, making the total principal $1,386,370. Interest only payments of $11,553 shall be paid monthly until November 1, 2020 at which time monthly principal and interest payments of $28,144 are required for 36 months, with a balloon payment of all outstanding principal and interest due upon the note's maturity. The note also entitles Viridis to a gross revenue participation of the Arizona Operations equal to 1% of the gross sales (up to $20,000 monthly) upon the maturity of the note and for the subsequent 5 year period. The debt and warrants were recorded at their relative fair values. The resulting discount is amortized to interest expense over the term of the debt. The Company is not in compliance with the terms of the Viridis AZ note.

 

(h) Viridis (unsecured)

 

The Company's subsidiary, BSSD Group, LLC borrowed $269,000 from Viridis, a related party, in December 2019. This note bears annualized interest at 15%. On May 1, 2020, under a troubled debt restructuring, the Company renegotiated the $269,000 note payable. Accrued interest in the amount of $14,666 was added to the principal balance of the note, making the total principal $283,666. As part of the restructuring, the Company issued 400,000 warrants exercisable into the Company's common stock. The warrants have an exercise price of $.05 and a term of 5 years. Payments of principal and interest in the amount of $9,833 are due monthly, with a balloon payment of all outstanding principal and interest is due upon the note's maturity. The debt and warrants were recorded at their relative fair values. The resulting discount is amortized to interest expense over the term of the debt. The Company is not in compliance with the terms of this note.

 

(l) Upwise Capital

 

The Company is not in compliance with the terms of this note.

 

F-16

 

(o) OCG Officers Debt

 

As part of the OCG transaction in March 2021, the Company assumed the debt that OCG, Inc. owed to its officers. Principal and interest payments are due monthly with a balloon payment of all outstanding principal and interest due at maturity. The Company is not in compliance with the terms of these notes. One of these officers is a director and officer of the Company. See Note 10.

(p) Stockbridge Amended Debt

 

In February 2021, the Company and Stockbridge Enterprises, a related party, under a troubled debt restructuring, agreed to restructure and settle its outstanding notes. The total outstanding balance of $1,660,590, including accrued interest, were to be repaid under a new promissory note, calling for a down payment of $300,000 (paid at time of signing), $120,000 monthly payments for 11 months with the remaining balance of $40,590 payable on February 1, 2022. This agreement was amended to extend the maturity date to March 31, 2022 and starting with the October 1, 2021 payment, the loan payments are interest only at an interest rate of 15% per annum until January 25, 2022. Principal payments in the amount of $50,000 were due on January 25, 2022, February 15, 2022 and March 15, 2022, with a final payment of the remaining principal and accrued interest due on March 31, 2022. Upon closing of an equity raise of at least $750,000, the Company will repay the outstanding balance plus any accrued interest immediately. As part of the amendment, the Company issued 164,744 warrants to purchase the Company’s common stock. The warrants have a two-year period and an exercise price of $1.00. The resulting discount of $58,352 was fully amortized to interest expense during the year ended September 30, 2022.

 

Effective March 31, 2022, the debt was amended to extend the maturity date to June 30, 2022, interest payments were due on April 1, May 1 and June 1, 2022. Principal payments in the amount of $50,000 were due on April 15, May 15 and June 15, 2022 and a final balloon payment of outstanding principal and interest in the amount of $223,972 was due on June 30, 2022. On January 20, 2023, the Company and Stockbridge Enterprises, a related party, entered into the third amendment of the outstanding promissory note. The amendment calls for monthly principal and interest payments of $25,000 with a final balloon payment of all outstanding principal and interest of $102,156 due at maturity on July 15, 2023. This note is in default.

 

(q, r) Pelorus Notes

 

The Company entered into two notes payable with Pelorus Fund REIT, LLC in August 2021. The total $19,000,000 borrowing has a term of 18 months. Interest only payments in the amount of $253,333 are due monthly and all outstanding principal and interest are due on the maturity date. Upon payment in full of these notes, an exit fee of 1% of the then outstanding balance is payable to the lender. The Company has accrued this success fee and it was amortized to interest expense over the term of the notes. The notes included warrants to purchase a total of 2,850,000 shares of the Company’s common stock for $1.75 per share, with a 3.5 year term. The debt and warrants were recorded at their relative fair values. The resulting discount was amortized to interest expense over the term of the debt. The Pelorus notes are currently in default.

 

On March 30, 2023, the Company and the Company’s Board of Directors became aware that Pelorus Fund REIT, LLC (“Pelorus”) filed a Notice of Trustee’s Sale on March 16, 2023 with respect to the Construction Loan and Security Agreement dated as of August 25, 2021 by and between 938287AZ and Pelorus and the trust deed recorded October 29, 2021.

 

The Company has taken steps to protect its interests in the property, including retaining legal counsel to represent the Company in the Foreclosure, which is set to occur August 29, 2023. The Company is currently evaluating the potential impact of the Foreclosure on its financial statements, liquidity, and operations. See Item 3. Defaults Upon Senior Securities in Part II, Other Information, of this Form 10-Q.

 

(s) Viridis $500,000

 

On September 30, 2021, the Company borrowed $500,000 from Viridis Group I9 Capital LLC, a related party. The proceeds of the debt were used to make a payment on the then outstanding unpaid payroll tax liability. The debt and warrants were recorded at their relative fair values. The resulting discount in the amount of $284,534 was amortized to interest expense over the term of the debt. During the nine months ended June 30, 2023, this debt and related accrued interest were combined with other Viridis outstanding debt and related accrued interest into one Unsecured Promissory Note. See (w) below.

 

(u) Lendspark

 

On November 2, 2022, the Company entered into a third short-term financing arrangement with Lendspark. The proceeds of $0.58 million were used to repay the previous Lendspark short-term financing. Payments of $7,967 are due weekly until $0.725 million has been repaid. This results in an effective interest rate of 25%. Fees in the amount of $12,000 have been recorded as a discount and are being amortized to interest expense over the term of the arrangement. The Company is not in compliance with the terms of this note.

 

F-17

 

(w) Viridis note

 

Effective December 1, 2022, the Company entered into an Unsecured Promissory Note with Viridis Group Holdings, LLC, a related party. The purpose of the Unsecured Promissory Note was to agree upon the terms for the short term loans that this related party had previously provided to the Company. Including interest accrued from the date of the short-term loans to the effective date of the agreement, the principal amount of the Unsecured Promissory Note is $6,203,930. Interest only payments in the amount $82,396 will begin on May 21, 2023 with a final balloon payment of all outstanding principal and interest to be paid at maturity on May 21, 2024. The Company is not in compliance with the terms of this note.

 

(x) *Individual* Note

 

On March 10, 2022, the Company entered into a short-term promissory note for $250,000. The short-term promissory note was due and payable in monthly payments of interest only, with all principal and any accrued and unpaid interest due at maturity. Effective September 30, 2022, this note was amended to extend the maturity date to March 31, 2023. As part of the amendment, the Company issued 100,000 shares of its common stock, valued at $40,000. This note was amended effective March 31, 2023 to, among other terms, extend the maturity date to May 31, 2024 and to decrease the interest rate to 17.5%. As part of this amendment, combined with the amendments for notes (C-10) above and (dd) below, the Company agreed to pay an extension fee of $75,000 on June 1, 2023. The resulting discount is being amortized to interest expense over the term of the notes. The unpaid balance of this extension fee was accrued at June 30, 2023 in the amount of $30,000. The Company is not in compliance with the terms of this note.

 

(y) Nebrina Adams County Note

 

Effective with the close of the Adams County acquisition, the Company entered into a note for $200,000 with the seller as part of the purchase price. The note is payable in six installments on the last day of each three-month period following the Closing Date. This note is in default. 

 

(z) Capybara Capital

 

The Company is not in compliance with the terms of this note.

 

(aa) *Individual* Note

 

On October 28, 2022, the Company entered into a Secured Short Term Promissory Note in the amount of $2.0 million. Principal and interest in the amount of $2.35 million was due at maturity on January 31, 2023. The Company issued 650,000 shares of its common stock, valued at $166,819, to the lender as part of the note agreement. The debt and shares of common stock were recorded at their relative fair values. The resulting discount of $166,819 was amortized to interest expense over the term of the debt. During the nine months ended June 30, 2023, the maturity date of this note was extended to the earlier of: (1) June 1, 2023; or (2) the outcome of the Sessions transaction, whether it closes or, alternatively, is terminated. The Company is not in compliance with the terms of this note.

 

(bb) Lendspark 2 Note

 

On November 2, 2022, the Company entered into a short-term financing arrangement with Lendspark. The Company received proceeds of $750,000. Payments of $1,720 were paid daily for the first three months, and were extended through May 19, 2023, and then payments of $19,658 are to be paid daily until a total of $862,500 has been repaid. The Company is not in compliance with the terms of this note.

 

(cc) Viridis Note

 

On October 26, 2022, the Company entered into a Secured Short Term Promissory Note with Viridis Group I9 Capital LLC, a related party, in the amount of $500,000. The note was due on November 16, 2022 and carried an interest rate of $1.94 per day per $1,000 outstanding. In addition, the note required a principal payment of $150,000 on November 4, 2022. The Secured Short Term Promissory Note is in default.

 

(dd) *Individual* Note

 

On November 3, 2022, the Company entered into a short-term promissory note in the amount of $500,000. Interest only payments are due monthly and all principal and any unpaid interest are due at maturity. The Company issued 300,000 shares of its common stock, valued at $60,000, to the lender as part of the note agreement. The debt and shares of common stock were recorded at their relative fair values. The resulting discount of $60,000 is amortized to interest expense over the term of the debt. This note was amended effective March 31, 2023 to, among other terms, extend the maturity date to May 31, 2024 and to decrease the interest rate to 17.5%. As part of this amendment, combined with the amendments for notes (C-10) and (x) above, the Company agreed to pay an extension fee of $75,000 on June 1, 2023. The resulting discount is being amortized to interest expense over the term of the notes. The unpaid balance of this extension fee was accrued at June 30, 2023 in the amount of $30,000. The Company is not in compliance with the terms of this note.

 

F-18

 

(ee) VGI Citadel Note

 

As part of the lease termination of the Company’s corporate office (see Note 9), the Company entered into a note payable with VGI Citadel LLC, a related party, for $25,922, the amount of rent owed at the time of termination. The note carries an interest rate of 1% per annum, compounding weekly, and matured on December 20, 2022. This note is in default.

 

(ff) Accounts payable converted to a Note

 

On February 17, 2023, the Company converted outstanding accounts payable owed to a single vendor to a note payable in the amount of $256,415. Principal and interest payments in the amount of $10,000 are due monthly. The Company is not in compliance with the terms of this note.

 

(gg) *Individual* Note 

 

In April 2023, the Company received $250,000 as part of an anticipated promissory note, which as of the date of this Form 10-Q has not been finalized. It is currently anticipated that this note will require weekly interest payment with all principal and accrued but unpaid interest due at maturity. The Company is not in compliance with the terms of this note.

 

(hh) Illinois National Bank Note

 

On June 22, 2023, the Company entered into a Business Loan Agreement and Promissory Note with Illinois National Bank (“INB”). The proceeds from the note were used to pay the bank overdrafts that the Company had with INB. Subsequent to June 30, 2023, the Company was in default on this note.

 

The future minimum payments of the Company’s notes payable obligations as of June 30, 2023 are as follows. The unamortized discount will be amortized through July 2024.

 

June 30,		Amount
2024		$	35,182,377
Less: liabilities related to assets held for sale			(5,500,000	)
Less: imputed interest			(159,770	)
		$	29,522,607

 

A summary of interest expense for the three and nine months ended June 30, 2023 and 2022 is as follows.

		Three months ended June 30,								Nine months ended June 30,
		2023				2022				2023				2022
Amortization of debt discounts		$	373,326			$	1,440,535			$	2,462,587			$	4,932,259
Stated interest paid or accrued			2,579,114				1,508,210				6,638,359				4,073,665
Finance charges and other interest			(1,978	)			22,021				20,183				25,016
			2,950,462				2,970,766				9,121,129				9,030,940
Less: interest capitalized to construction in progress			—				(1,345,611	)			(2,401,504	)			(5,098,022	)
		$	2,950,462			$	1,625,155			$	6,719,625			$	3,932,918

 

 

Note 8 - Concentrations

 

For the nine months ended June 30, 2023 and 2022, 96% and 98%, respectively, of the Company's revenue was generated from a single customer. Given the agreement with the license holder, although the Company’s products are distributed to numerous dispensaries throughout Arizona, all sales are made through the license holder. The Company's wholly owned subsidiary provides cannabis products to this customer under a three-year Cultivation Management Services Agreement that commenced on April 1, 2020. This agreement has been extended through August 11, 2023. Provisions of the agreement require 30-day written notice to terminate except for the following circumstances, in which case the agreement is cancellable with no notice: (i) uncured default; (ii) gross negligence, intentional, or willful misconduct by either party; (iii) federal or state enforcement action against either party; (iv) any change or revocation of state or local law that has the effect of prohibiting the legal operation of the Cultivation Facility; (v) the dispensary license renewal is not approved; (vi) the dispensary fails to maintain its dispensary license in good standing with the regulators resulting in the revocation of the dispensary license. Three of our license holder’s customers that the Company’s products are distributed to account for approximately 49%, 11% and 9%, respectively, of our cultivation revenue for the nine months ended June 30, 2023. Should our products no longer be distributed to these customers of our license holder, it would have a material adverse effect on our operations.

 

Effective June 29, 2023, the Company entered into a Contractor and License Agreement. The term of this agreement is for a term of three years and continue through June 30, 2026. This agreement may be extended for one additional three year period, provided that no event of default has occurred. Provisions of the agreement require a six month written notice to terminate except in certain circumstances, in which case the agreement can be immediately terminated.

Note 9 - Commitments and Contingencies

 

The production and possession of cannabis is prohibited on a national level by the Controlled Substances Act, though the state of Arizona allows these activities to be performed at licensed facilities such as BSSD. If the federal government decides to change its policy on the enforcement of the Controlled Substances Act, it would have a material adverse effect on our business.

 

The Company entered into a 60 month lease with VGI Citadel LLC, a related party, to rent office space for its corporate headquarters which began in June 2019. The monthly lease payments were $6,478 for the first twelve months and include all utilities and an estimated amount for common area maintenance and real estate taxes. The monthly lease payments increase to $6,653, $6,828, $7,003, and $7,178 for years two through five, respectively. Rent expense for the three months ended June 30, 2023 and 2022 on this lease was nil and $20,782, respectively. Rent expense for the nine months ended June 30, 2023 and 2022 on this lease was $6,348 and $64,939, respectively. Interest was imputed using a discount rate of 20%. The lease does not include renewal options.

 

The Company and VGI Citadel LLC entered into an Agreement to Terminate Lease for its corporate offices which called for the termination of the lease with VGI Citadel LLC, a related party, effective December 20, 2022.

 

In February 2022, the Company assumed a lease to rent approximately 3,100 square feet of retail space in Oklahoma City, Oklahoma as part of the Oklahoma City acquisition. The lease calls for base rent payments of $21 per square foot ($5,483), plus a prorated share of taxes, insurance and common area maintenance expenses, per month and increasing each year by 3% through the end of the lease term on February 28, 2029. The lease may be extended for two additional 5 year periods. Rent expense for the three months ended June 30, 2023 and 2022 on this lease was $19,975 and $22,129, respectively. Rent expense for the nine months ended June 30, 2023 and 2022 on this lease was $64,616 and $36,406, respectively. Interest was imputed using a discount rate of 18%. During the nine months ended June 30, 2023, the Company has closed this dispensary and the Company has removed the remaining balance of the right of use asset and liability from the condensed consolidated balance sheet.

 

In March 2022, the Company assumed a lease to rent approximately 2,650 square feet of retail space in Adams County, Colorado as part of the Adams County acquisition. The lease calls for base rent payments of $15,450, plus a prorated share of operating costs of the building, per month and escalate each year to $15,913 in the final year which ends on February 1, 2024. The lease may be extended for one additional 3 year period. Rent expense for the three months ended June 30, 2023 and 2022 on this lease was $49,604 and $52,822, respectively. Rent expense for the nine months ended June 30, 2023 and 2022 on this lease was $150,917 and $68,870, respectively. Interest was imputed using a discount rate of 18%. At and subsequent to June 30, 2023, the Company is past due on its monthly lease payments.

 

In September 2021, the Company signed a seven-year lease to rent approximately 3,000 square feet of retail space in Biddeford, Maine. The lease calls for base rent payments of $6,604, plus taxes and operating expenses, per month for the first year and escalate each year to $7,886 per month in year seven. The lease may be extended for two terms of 5 years each. The commencement of this lease was contingent upon the issuance and receipt of a license and city approval. The agreement will terminate if the contingency is not met. At June 30, 2023, the contingency was not met and the lease was terminated. As such, the Company has removed the remaining balance of the right of use asset and liability from the condensed consolidated balance sheet. Rent expense for the three and nine months ended June 30, 2023 on this lease was $22,677. Interest was imputed using a discount rate of 18%.

 

F-20

 

In October 2021, the Company entered into a commercial lease agreement to rent 12,000 square feet located in Denver, Colorado. The lease has a term of five years with escalating monthly base rent beginning at $6,354 and escalating each year to $7,295 in year five. Commencement of the lease was contingent upon the Company receiving an approved retail license within 120 days from October 22, 2021. The agreement was to terminate if the contingency was not met. The contingency was met during the three months ended December 31, 2022 and the Company had recorded the right of use asset and liability to the condensed consolidated balance sheet at March 31, 2023. During the three months ended June 30, 2023, the agreement was terminated and the Company removed the ROU asset and liability from the condensed consolidated balance sheet at June 30, 2023. Rent expense for the three and nine months ended June 30, 2023 on this lease was $18,266 and $59,939, respectively. Interest was imputed using a discount rate of 18%. At and subsequent to June 30, 2023, the Company is past due on its monthly lease payments.

 

The Company believes it is probable that a break-up fee will be payable related to this Denver, Colorado location. However, the amount of the break-up fee cannot currently be reasonably estimated. The Company believes that the break-up fee will be in the range of $50,000 - $250,000.

 

In March 2023, the Company entered into a commercial lease agreement to rent 6,159 square feet located in Phoenix, Arizona. The lease has a term of 27 months with escalating monthly base rent beginning at $13,601 plus parking fees and escalating each to $14,114 plus parking fees in the second year. The Company has recorded the right of use asset and liability to the condensed consolidated balance sheet at June 30, 2023. Rent expense for the three and nine months ended June 30, 2023 on this lease was $32,471 and $45,562, respectively. Interest was imputed using a discount rate of 18%. At and subsequent to June 30, 2023, the Company is past due on its monthly lease payments.

 

The future lease payments are as follows.

 

Year ended
June 30,				Amount
	2024			$	294,784
	2025				158,228
					453,012
	Less: imputed interest				(60,559	)
					392,453
	Less: current portion:				(247,586	)
				$	144,867

 

As of June 30, 2023 and September 30, 2022, the Company has accrued unpaid payroll taxes and estimated penalties and interest of approximately $1,380,000 and $1,450,000, respectively, and is included in accrued payroll and payroll taxes in the accompanying condensed consolidated balance sheets. During the nine months ended June 30, 2023, the Company received approximately $953,000 of Employee Retention Credits ("ERCs") that were used to reduce the unpaid payroll tax liability. In addition, as a result of the ERCs, the Company reduced its accrued payroll tax liability in the amount of approximately $316,000 related to the reduction of estimated penalties and interest. The ERCs were recorded to payroll and employee related expenses and the reduction of the estimated penalties and interest was recorded to other operating expenses on the condensed consolidated statement of operations. At June 30, 2023, an asset for the overpayment of certain payroll taxes was recorded to other assets on the condensed consolidated balance sheet in the amount of approximately $119,000.

 

There are no material pending legal proceedings, other than the Foreclosure discussed in Note 7 (q, r) above and various legal actions from creditors and vendors, in which the Company or any of its subsidiaries is a party or in which any director, officer or affiliate of the Company, any owner of record or beneficially of more than 5% of any class of its voting securities, or security holder is a party adverse to us or has a material interest adverse to the Company.

 

Note 10 - Related Party Transactions

 

As discussed in Note 6, the Company completed the purchase of 44 acres of land from a related party for $3.0 million plus expenses. The land-owner is one of the original members of BSSD and a former employee of the Company.

 

As discussed in Note 7, the Company has entered into various loan agreements with Viridis or its related entities. A member of Viridis served on the Company’s board of directors.

 

As discussed in Note 7, the Company has a loan agreement with Stockbridge Enterprises. Stockbridge Enterprises holds more than 5% of the Company’s common stock.

 

F-21

 

As discussed in Note 7, the Company has a convertible loan agreement with a former member of the Company’s board of directors.

 

As discussed in Note 7, as part of the OCG transaction in March 2021, the Company assumed the debt that OCG, Inc. owed to its officers. One of these officers is a former director and former officer of the Company. This officer’s note had a maturity date of April 1, 2024 and an interest rate of 10% per annum. Principal and interest payments were due monthly with a balloon payment of all outstanding principal and interest due at maturity. On November 2, 2022, the outstanding amount owed on this note of $289,579 was converted at $0.25 per share into 1,158,318 shares of the Company’s common stock.

 

As discussed in Note 9, the Company previously had a lease agreement with VGI Capital LLC. As part of the lease termination, the Company entered into a note payable with VGI Citadel LLC. See Note 7. One member of VGI Capital LLC served on the Company’s board of directors.

 

During the nine months ended June 30, 2023 and 2022, the Company purchased cultivation supplies from a related party in the amount of $0 and $31,708, respectively. No purchases were made from this related party during the three months ended June 30, 2023 and 2022. This related party is owned by the parent of a stockholder that holds more than 5% of the Company’s common stock.

 

Included in our accounts payable at June 30, 2023 and September 30, 2022 is approximately $148,000, and $243,000, respectively in amounts due to related parties. In addition, at June 30, 2023, $430,833 was accrued on the condensed consolidated balance sheet related to the severance agreements for our two former Chief Executive Officers and our former Chief Financial Officer.

 

In February 2023, the Company entered into an Executive Employment Agreement (“Agreement”) with its Chief Operating Officer. The Agreement is for a period of two years and contains provisions customary with similar agreements including a six month severance and non-competition period upon a termination without cause. Compensation under the Agreement provides for an annual salary of $225,000, a signing bonus of $50,000 paid in the Company’s common stock and a transaction bonus in the event that the Company closes a transaction in which there is a Change of Control. During February 2023, 319,900 shares of the Company’s common stock were issued for payment of the signing bonus.

 

In May 2023, the Company entered into a Severance Agreement and Release of Claims with an employee who is also a greater than 5% stockholder of the Company. The severance agreement calls for payments totaling $17,538 and the continuation of health benefits until March 2024. 

 

On May 16, 2023, the Company entered into a Separation Agreement and General Release (the “Agreement”) with the Company’s Chief Executive Officer, Michael Weinberger. The Agreement provides for thirty (30) equal biweekly installments of $7,500 and payment of Mr. Weinberger’s previously unreimbursed expenses. Further, Mr. Weinberger is to remain on the Company employee benefit plan, including health insurance for the duration of the period until Mr. Weinberger has been paid in full under the Agreement. Finally, Mr. Weinberger is to receive his 2023 fiscal year option to purchase up to 200,000 shares of the Company’s common stock with a strike price based on the current 10-day VWAP. These options vest over a two (2) year period and have a term of five (5) years. The Chairman of the Company’s Board of Directors, Douglas Bowden, will serve as the Company’s Interim Chief Executive Officer.

 

On June 30, 2023, the Company entered into a Separation Agreement and General Release (the “Agreement”) with the Company’s Chief Financial Officer, Robert Mikkelsen. The Agreement provides for twenty-four (24) equal biweekly installments of $5,000 and payment of Mr. Mikkelsen’s previously unreimbursed expenses. Further, Mr. Mikkelsen is to remain on the Company employee benefit plan, including health insurance for the duration of the period until Mr. Mikkelsen has been paid in full under the Agreement. Mr. Mikkelsen is to receive his 2023 fiscal year option to purchase up to 200,000 shares of the Company’s common stock with a strike price based on the current 10-day VWAP. These options vest over a two (2) year period and have a term of five (5) years. Mr. Mikkelsen’s options to purchase the Company’s common stock will become fully vested. In exchange for the cancellation of one-half of Mr. Mikkelsen’s outstanding stock options, the Company granted 456,088 shares of common stock. Finally, this agreement includes a transaction bonus upon the Company’s completion of a transaction resulting in a net positive change of control.

 

 

Note 11 – Assets Held for Sale

 

During the year ended September 30, 2022, as a result of a shift in the Company’s business plan, the Company approved a plan to sell its newly constructed Nevada facility and the related cannabis licenses. The Company controls these cannabis licenses through the Asset and Equity Purchase and Contribution Agreement dated February 14, 2020. This sale is expected to occur in the next 12 months. The assets held for sale are recorded at fair value less cost to sell. Fair value was determined based on the value included in a prior letter of intent. The following assets and liability are included under “Corporate” in Note 13.

 

F-22

 

		June 30,
		2023
Assets held for sale
Construction in progress - land and building		$	9,646,612
Licenses			6,703,981
			16,350,593
Valuation allowance			(9,535,593	)
		$	6,815,000
Liabilities related to assets held for sale
Debt		$	5,500,000

 

 

Note 12 - Stockholders' Equity

 

Warrants

 

The following table summarizes the Company’s warrant activity for the nine months ended June 30, 2023:

 

		Common Shares Issuable Upon Exercise of Warrants				Weighted Average Exercise Price				Weighted Average Contractual Term in Years				Aggregate Intrinsic Value
Balance of warrants at September 30, 2022			49,870,537			$	2.05				3.7			$	315,000
Warrants granted			2,300,000				0.50				2.0
Forfeited/Cancelled			(2,800,000	)			2.57				3.4
Balance of warrants at June 30, 2023			49,370,537			$	1.95				3.6			$	—

  

(1)

The aggregate intrinsic value is calculated as the difference between the exercise price of the underlying awards and the closing price of the Company’s common stock as of June 30, 2023, for those awards that have an exercise price currently below the closing price as of June 30, 2023. Awards with an exercise price above the closing prices as of June 30, 2023 are considered to have no intrinsic value.

 

 

The following range of assumptions were used to estimate the fair value of warrants issued during the nine months ended June 30, 2023, using the Black-Scholes option-pricing model.

 

		Nine months ended
		June 30, 2023
Expected stock price volatility			127%
Risk-free interest rate			4%
Expected term (years)			2.0
Expected dividend yield			0%
Black-scholes value			$0.23

 

Stock Options

 

On June 21, 2019, the Company’s shareholders voted to approve the 2019 Equity Incentive Plan (the “2019 Plan”). Pursuant to the 2019 Plan, the maximum aggregate number of Shares available under the Plan through awards is the lesser of: (i) 6,000,000 shares, increased each anniversary date of the adoption of the plan by 2 percent of the then-outstanding shares, or (b) 10,000,000 shares. The maximum contractual term of the award is 10 years. The vesting period for options outstanding at June 30, 2023 ranges from vesting immediately to three years.

 

F-23

 

The following table summarizes the Company’s stock option activity for the nine months ended June 30, 2023:

 

		Common Shares Issuable Upon Exercise of Options				Weighted Average Exercise Price				Weighted Average Remaining Contractual Term in Years				Aggregate Intrinsic Value (1)
Balance of Options at September 30, 2022			8,594,805			$	1.08				8.3			$	33,162
Options granted			1,152,612				0.19				7.0				2,000
Forfeited/Cancelled			(689,702	)			1.55				—				—
Balance of Options at June 30, 2023			9,057,715			$	0.93				7.5			$	5,401
Exercisable at June 30, 2023			4,598,511			$	0.97				6.9			$	4,751
Unvested at June 30, 2023			4,459,204			$	0.87

 

			Number of Options				Weighted Average Grant Date Fair Value
Unvested at June 30, 2023			4,459,204			$	0.83
Granted during the nine months ended June 30, 2023			1,152,612			$	0.20
Forfeited during the nine months ended June 30, 2023			689,702			$	0.76

 

(1)

The aggregate intrinsic value is calculated as the difference between the exercise price of the underlying awards and the closing price of the Company’s common stock as of June 30, 2023, for those awards that have an exercise price currently below the closing price as of June 30, 2023. Awards with an exercise price above the closing prices as of June 30, 2023 are considered to have no intrinsic value.

   

The following range of assumptions were used to estimate the fair value of stock options granted during the nine months ended June 30, 2023, using the Black-Scholes option-pricing model.

 

		Nine months ended
		June 30, 2023
Expected stock price volatility		151% - 167%
Risk-free interest rate		3.6% - 4.3%
Expected term (years)		2.5 - 5.0
Expected dividend yield		0%
Black-scholes value		$0.03 - $0.37

 

During the three months ended June 30, 2023 and 2022, the Company recognized compensation expense of $860,332 and $934,681, respectively. During the nine months ended June 30, 2023 and 2022, the Company recognized compensation expense of $2,372,982 and $2,533,535, respectively. At June 30, 2023, there was $996,988 of total unrecognized compensation cost. This unrecognized cost is expected to be recognized over the weighted average vesting period of approximately 1 year. 

 

Note 13 – Segment Information

 

The Company has identified two segments: the cultivation, production and sale of cannabis products (Cultivation) and the sales of Unity Rd. franchises to dispensaries (Franchising). The following tables presents segment information at and for the three and nine months ended June 30, 2023 and 2022.

 

		Cultivation				Franchising				Corporate				Total
Nine months ended June 30, 2023
Revenues from external customers		$	15,124,870			$	221,822			$	342,569			$	15,689,261
Operating income (loss)			6,304,567				(2,078,880	)			(10,073,205	)			(5,847,518	)
Interest expense			1,060,873				6,103				5,652,649				6,719,625
Depreciation and amortization			80,307				894,805				160,407				1,135,519
Additions to property, equipment and construction in progress			—				—				3,829,432				3,829,432
Three months ended June 30, 2023
Revenues from external customers		$	4,823,366			$	60,837			$	138,172			$	5,022,375
Operating income (loss)			1,863,500				(707,362	)			(4,122,184	)			(2,966,046	)
Interest expense			344,479				—				2,605,983				2,950,462
Depreciation and amortization			26,767				300,740				50,648				378,155
At June 30, 2023
Property, equipment and construction in progress, net		$	223,841			$	13,813			$	24,364,635			$	24,602,289
Total assets (after intercompany eliminations)			3,229,417				66,709,346				42,076,733				112,015,496
Nine months ended June 30, 2022
Revenues from external customers		$	17,360,844			$	280,529			$	114,146			$	17,755,519
Operating income (loss)			3,993,350				(2,705,153	)			(10,042,901	)			(8,754,704	)
Interest expense			460,524				79,993				3,392,401				3,932,918
Depreciation and amortization			90,362				901,675				328,627				1,320,664
Additions to property, equipment and construction in progress			25,623				—				15,631,945				15,657,568
Three months ended June 30, 2022
Revenues from external customers		$	4,861,737			$	22,031			$	47,554			$	4,931,322
Operating income (loss)			983,533				(1,001,768	)			(3,829,572	)			(3,847,807	)
Interest expense			303,462				36,777				1,284,916				1,625,155
Depreciation and amortization			27,830				300,150				111,072				439,052
At June 30, 2022
Property, equipment and construction in progress, net		$	421,757			$	20,899			$	25,864,556			$	26,307,212
Total assets (after intercompany eliminations)			5,102,841				68,217,019				47,207,983				120,527,843

 

 

Note 14 - Subsequent Events 

 

Subsequent to June 30, 2023 the following events have occurred.

 

On July 11, 2023, a motion was filed, requesting the Superior Court of Arizona, in the County of Maricopa, to appoint a receiver over Item 9 Labs. The Company stipulated and agreed to the receiver appointment. On July 14, 2023, the Superior Court of Arizona appointed a receiver and the receiver was granted, effective immediately, possession, custody, and control of all the real, personal, tangible and intangible property owned by Item 9 Labs or in which Item 9 Labs has an interest (the “Property”). The receiver is authorized and is entitled to exercise all of Item 9 Labs’ rights in any and all Property in which the Company has an interest. The receiver is appointed to manage, maintain and preserve the Property for the duration of this receivership in a reasonable, prudent, diligent and efficient manner to maximize its value for the benefit of Item 9 Labs’ equity interest holders and creditors.

 

 

ITEM 2.

MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

 

The following discussion and analysis of our financial condition and results of operations should be read in conjunction with our unaudited condensed consolidated financial statements and related notes included in this Quarterly Report on Form 10-Q and the audited financial statements and notes thereto as of and for the year ended September 30, 2022 and the related Management's Discussion and Analysis of Financial Condition and Results of Operations, both of which are contained in the Company's Annual Report on Form 10-K for the year ended September 30, 2022, filed with the Securities and Exchange Commission (the "SEC") on January 13, 2023.

 

Forward-Looking Statements

 

The information in this discussion contains forward-looking statements and information within the meaning of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the securities Exchange Act of 1934, as amended, (the "Exchange Act"), which are subject to the "safe harbor" created by those sections. The words "anticipated," "believes," "estimates," "expects," "intends," "may," "plans," "projects," "will," "should," "could," "predicts," "potential," "continue," "would," and similar expressions are intended to identify forward-looking statements, although not all forward-looking statements contain these identifying words. We may not actually achieve the plans, intentions, or expectations disclosed in our forward-looking statements that we make. The forward-looking statements are applicable only as of the date on which they are made, and we do not assume any obligation to update any forward-looking statements. All forward-looking statements in this Form 10-Q are made based on our current expectations, forecasts, estimates and assumptions, and involve risks, uncertainties and other factors that could cause results or events to differ materially from those expressed in the forward-looking statements. In evaluating these statements, you should specifically consider various factors, uncertainties and risks that could affect our future results or operations. These factors, uncertainties and risks may cause our actual results to differ materially from any forward-looking statement set forth in this quarterly report on Form 10-Q. You should carefully consider these risks and uncertainties described and other information contained in the reports we file with or furnish to the SEC before making any investment decision with respect to our securities. All forward-looking statements attributable to us or persons acting on our behalf are expressly qualified in their entirety by this cautionary statement.

 

Overview

 

Item 9 Labs Corp. (OTC: INLB) is a vertically integrated cannabis operator and dispensary franchisor delivering premium products from its large-scale cultivation and production facilities in the United States. The award-winning Item 9 Labs brand specializes in best-in-class products and user experience across several cannabis categories. The company also offers a unique dispensary franchise model through the national Unity Rd. retail brand. Easing barriers to entry, the franchise provides an opportunity for both new and existing dispensary owners to leverage the knowledge, resources, and ongoing support needed to thrive in their state compliantly and successfully. Item 9 Labs brings the best industry practices to markets nationwide through distinctive retail experience, cultivation capabilities, and product innovation. The veteran management team combines a diverse skill set with deep experience in the cannabis sector, franchising, and the capital markets to lead a new generation of public cannabis companies that provide transparency, consistency, and well-being.

 

The award-winning Item Nine Labs brand seeks to offer best-in-class products and user experience across several cannabis categories. The product catalog includes an extensive range of premium cannabis products comprised of responsibly cultivated flower, Orion vape technology, concentrates and more. The highly regarded brand has received more than thirty-five (35) wins and podium placements in Arizona marijuana competitions, including Cannabis Cup, Errl Cup and 710 Degree Cup, across its suite of high-quality cannabis products. Item Nine Labs has delivered over 3 million packaged goods in its history, and over 290,000 units during the quarter ended June 30, 2023.

  

With its national Unity Rd. retail dispensary franchise brand, the Company believes it offers a unique value proposition through both the sale of Item Nine Labs products and its Unity Rd dispensary franchise model. Easing barriers to entry, the franchise approach seeks to provide an opportunity for both new and existing dispensary owners to leverage the knowledge, resources, and ongoing support needed to compliantly thrive in their state. With many years of experience in the legal cannabis industry and franchising, Unity Rd.’s standard operating procedures guide franchise partners through every operational function of the business. Unity Rd. has agreements with more than twenty (20) entrepreneurial groups to open more than thirty (30) Unity Rd. retail dispensary locations in more than ten (10) states. The majority of the locations are in the licensing process. The Company makes its best efforts to obtain these dispensary licenses, though it can make no assurances that the licenses will be awarded. We currently have two franchisees operating in Hartford, South Dakota and Boulder, Colorado. Additionally, the Company has one (1) dispensary owned and operated by its wholly owned subsidiary in North Denver, CO.

 

 

		Nine months ended June 30,
		2023				2022				$ Change				% Change
Revenues, net		$	15,689,261			$	17,755,519			$	(2,066,258	)			-12	%
Cost of revenues			6,530,438				11,089,560				(4,559,122	)			-41	%
Gross profit			9,158,823				6,665,959				2,492,864				37	%
Operating expenses
Professional fees and outside services			2,392,382				2,207,618				184,764				8	%
Payroll and employee related expenses			7,045,596				7,889,672				(844,076	)			-11	%
Sales and marketing			995,164				1,260,551				(265,387	)			-21	%
Depreciation and amortization			1,135,519				1,320,664				(185,145	)			-14	%
Other operating expenses			3,269,109				2,747,158				521,951				19	%
Loss on impairment			168,571				—				168,571				100	%
Provision for bad debt			—				(5,000	)			5,000				100	%
Total operating expenses			15,006,341				15,420,663				(414,322	)			-3	%
Loss from operations			(5,847,518	)			(8,754,704	)			2,907,186				-33	%
Other expense, net			(6,716,140	)			(3,932,600	)			(2,783,540	)			71	%
Net loss, before income tax provision (benefit)			(12,563,658	)			(12,687,304	)			123,646				-1	%
Income tax provision (benefit)			5,924				7,948				(2,024	)			0	%
Net loss			(12,569,582	)			(12,695,252	)			125,670				-1	%
Less: Net loss attributable to non-controlling interests			16,017				(1,683	)			17,700				100	%
Net loss attributable to Item 9 Labs Corp.		$	(12,585,599	)		$	(12,693,569	)		$	107,970				-1	%

 

		Three months ended June 30,
		2023				2022				$ Change				% Change
Revenues, net		$	5,022,375			$	4,931,322			$	91,053				2	%
Cost of revenues			2,203,560				3,341,367				(1,137,807	)			-34	%
Gross profit			2,818,815				1,589,955				1,228,860				77	%
Operating expenses
Professional fees and outside services			378,864				993,452				(614,588	)			-62	%
Payroll and employee related expenses			2,653,133				2,683,722				(30,589	)			-1	%
Sales and marketing			322,193				207,213				114,980				55	%
Depreciation and amortization			378,155				439,052				(60,897	)			-14	%
Other operating expenses			1,883,945				1,114,323				769,622				69	%
Loss on impairment			168,571				—				168,571				100	%
Total operating expenses			5,784,861				5,437,762				347,099				6	%
Loss from operations			(2,966,046	)			(3,847,807	)			881,761				-23	%
Other expense, net			(2,950,462	)			(1,625,155	)			(1,325,307	)			82	%
Net loss, before income tax provision (benefit)			(5,916,508	)			(5,472,962	)			(443,546	)			8	%
Income tax provision (benefit)			(1,435	)			4,624				(6,059	)			0	%
Net loss			(5,915,073	)			(5,477,586	)			(437,487	)			8	%
Less: Net loss attributable to non-controlling interests			(3,879	)			(7,109	)			3,230				100	%
Net loss attributable to Item 9 Labs Corp.		$	(5,911,194	)		$	(5,470,477	)		$	(440,717	)			8	%

Revenues

 

The decrease in revenue for the three and nine months ended June 30, 2023 was primarily due to the effects of the Arizona cannabis market stabilizing, causing price compression, as well as the Company’s addition of product lines with lower unit sales prices. The impact of the changing market conditions in Arizona was countered by an increase in the number of units sold during the three and nine month periods compared to the same periods in the prior year. Further, during the three months ended June 30, 2023, the decrease in revenue in cannabis product sales was offset by revenues generated at the Company’s North Denver dispensary, which began operations subsequent to June 30, 2022.

Cost of Revenues

 

Cost of revenues consist primarily of labor, materials, supplies and utilities. Cost of revenues as a percentage of revenues was 43% and 41% for the three and nine months ended June 30, 2023 compared to 68% and 62% for the three and nine months ended June 30, 2022. This is primarily the result of decreases in the unit costs the Company pays for materials resulting from additional competition in material suppliers. Management will remain focused on reducing costs through bulk purchasing, implementing additional efficiencies in production and making additional investments in property and equipment.

 

Gross Profit

 

The increase in gross profit as a percentage of revenue for the three and nine months ended June 30, 2023 was due to decreases in cost of revenue being greater than the decreases in revenue. As the Company experienced decreases in its unit sales price due to increased competition, so too did the Company’s suppliers, though the decreased costs have proven to be greater than the decreased unit sales prices. As a result, and given the production efficiencies achieved in previous quarters, the Company has been able to increase gross profit on decreased revenues.

 

Operating Expenses

 

Professional fees and outside services for the nine months ended June 30, 2023 were consistent with the nine months ended June 30, 2022. The consistency was due to increases during the first six months of fiscal year 2023 in the amount accrued for consulting services received related to the Company’s employee retention credits, legal fees incurred on the pending Sessions acquisition and legal and consulting fees incurred related to the default on the Pelorus debt. These increases during the first six months of fiscal year 2023 were offset in the third quarter of fiscal year 2023 by the decreases in consulting and legal expenses discussed below.

 

Professional fees and outside services decreased for the three months ended June 30, 2023 compared to the three months ended June 30, 2022, primarily due to a significant decrease in legal fees and the use of consultants during the current three month period. The decrease in legal expenses was the result of the termination of the Sessions acquisition during the quarter. The decrease in consulting expenses was the result of a reduction of expenses incurred for investor and public relations services.

 

Payroll and employee related expenses decreased when comparing the nine months ended June 30, 2023 and the nine months ended June 30, 2022. The decrease was primarily due to a decrease in salaries and benefits due to a reduction in employee headcount and the Employee Retention Credits (“ERCs”) received during the first six months of fiscal year 2023. Further, the Company recorded less expense during the nine months ended June 30, 2023 related to employee stock based compensation.

 

Payroll expenses and employee related expenses for the three months ended June 30, 2023 were consistent with the three months ended June 30, 2022. The reductions in payroll expenses and employee related expenses during the first six months of fiscal year 2023 were offset in the three months ended June 30, 2023 as a result of the accrual of expenses incurred related to separation agreements entered into with the resignation of our Chief Executive Officer and Chief Financial Officer, along with our Chief Legal Officer and various other employees. These additional expenses were offset by the reduction of employee headcount.

 

Sales and marketing expenses decreased for the nine months ended June 30, 2023 compared to the nine months ended June 30, 2022 due to an overall decrease of promotional items and a general decrease in spending on third party marketing vendors. Sales and marketing expenses increased for the three months ended June 30, 2023 compared to the three months ended June 30, 2022 due to an increase in promotional items, offset by the general decrease in overall spending for sales and marketing.

 

The decrease in depreciation and amortization is due primarily to a decrease in amortization expense as a result of the intangible asset impairment recorded during the year ended September 30, 2022.

 

Other operating expenses increased during the three and nine months ended June 30, 2023 compared to the same period of the prior year primarily due to the accrual of the Session’s acquisition break-up fee and the write-off of both The Herbal Cure and Sessions acquisition deposits totaling approximately $950,000. These accruals were offset by the reversal of penalties and interest on previously unpaid payroll taxes as a result of receiving the ERCs during the nine months ended June 30, 2023.

 

Loss on impairment increased for the three and nine months ended June 30, 2023 compared to the three and nine months ended June 30, 2022 due to the impairment of the goodwill related to the Company’s dispensary in Oklahoma City, Oklahoma. The Company closed this dispensary in April 2023.

 

Total operating expenses as a percentage of gross profit decreased from 342% and 231% for the three and nine months ended June 30, 2022 compared to 201% and 163% for the three and nine months ended June 30, 2023. Management believes this ratio will decrease for profit center segments going forward due to management’s plans to continue to decrease operating expenses and as the expectation is that revenues will grow at a higher rate than operating expenses.

 

Other Expense, net 

 

Other expenses consist primarily of interest expense of $2,950,462 and $6,719,625 for the three and nine months ended June 30, 2023 and $1,625,155 and $3,932,918 for the three and nine months ended June 30, 2022. The increase in interest expense was the result of 1.) the interest expense and amortization of discounts on the debt financing the Nevada construction and Arizona expansion. The interest and discount amortization expense related to the Nevada construction debt was capitalized into construction in progress during the first three months of the nine months ended June 30, 2022. The interest and discount amortization expense related to the Arizona expansion was capitalized into construction in progress during the nine months ended June 30, 2022. As the Nevada expansion is substantially complete, the related interest and discount amortization are recorded to interest expense for all of the nine months ended June 30, 2023. Given the status and delays of the Arizona expansion, the Company ceased capitalizing the related interest and discount amortization during the three months ended June 30, 2023. In addition, the Company incurred additional interest expense on the debt financing the Nevada construction and Arizona expansion during the three and nine months ended June 30, 2023 as a result of the debt going into default during the year ended September 30, 2022 and incurring default interest and other fees. Further, interest expense increased as the Company incurred an acceleration of the amortization of debt discounts as a result of various note agreements going into default. Finally, additional interest expense was incurred during the three and nine months ended June 30, 2023 as a result of the additional debt incurred subsequent to July 1, 2022.

 

Adjusted EBITDA

 

Management uses the non-GAAP measurement of earnings before interest, taxes, depreciation, amortization, stock-related compensation expense, acquisition-related costs, impairment charges, severance agreement expenses, employee retention credits and other adjustments, or “Adjusted EBITDA,” to evaluate the Company’s performance.  Adjusted EBITDA is a non-GAAP measure that is also frequently used by analysts, investors and other interested parties to evaluate the market value of companies considered to be in similar businesses. The Company suggests that Adjusted EBITDA be viewed in conjunction with its reported financial results or other financial information prepared in accordance with accounting principles generally accepted in the United States, or “US GAAP.”

 

The following table reflects the reconciliation of net loss to Adjusted EBITDA for the three and nine months ended June 30, 2023 and 2022:

 

		Three months ended June 30,								Nine months ended June 30,
		2023				2022				2023				2022
Net loss		$	(5,915,073	)		$	(5,477,586	)		$	(12,569,582	)		$	(12,695,252	)
Depreciation and amortization			378,155				439,052				1,135,519				1,320,664
Loss on impairment			168,571				—				168,571				—
Interest expense			2,950,462				1,625,155				6,719,625				3,932,918
Income tax expense (benefit)			(1,435	)			4,624				5,924				7,948
Stock-based expense			876,332				1,161,739				2,668,982				3,032,518
Acquisition related costs			1,062,168				479,904				1,930,146				499,904
Severance agreements			527,000				94,500				770,750				94,500
Employee retention credits			—				—				(952,805	)			—
Adjusted EBITDA		$	46,180			$	(1,672,612	)		$	(122,870	)		$	(3,806,800	)

 

FINANCIAL CONDITION, LIQUIDITY AND CAPITAL RESOURCES

 

Liquidity and Capital Resources 

 

The Company’s primary need for liquidity is to fund working capital requirements of its business, capital expenditures, acquisitions, debt service, and for general corporate purposes. The Company’s primary source of liquidity is funds generated from revenues, financing activities and from private placements. The Company’s ability to fund its operations, to make planned capital expenditures, to make planned acquisitions, to make scheduled debt payments, and to repay or refinance indebtedness depends on its future operating performance and cash flows, which are subject to prevailing economic conditions and financial, business and other factors, some of which are beyond the Company’s control.

 

The accompanying condensed consolidated financial statements have been prepared in conformity with US GAAP, which contemplates continuation of the Company as a going concern. The Company has not yet established an ongoing source of revenue sufficient to cover its operating costs and has incurred net losses since its inception. These losses, with the associated substantial accumulated deficit, are a direct result of the Company’s planned ramp up period as it is pursuing market acceptance and geographic expansion. In view of these matters, realization of a major portion of the assets in the accompanying condensed consolidated balance sheets is dependent upon continued operations of the Company which in turn is dependent upon the Company’s ability to meet its financing requirements, and the success of its future operations. The Company operates in a new, developing industry with a variety of competitors. The Company is in default on substantially all financial obligations, its property in Arizona is currently in the foreclosure process and a receiver was appointed to the Company by the Superior Court of Arizona. These factors raise substantial doubt about the Company’s ability to continue as a going concern.

 

In order to continue as a going concern, the Company will need to generate additional revenue and obtain additional capital to fund its operating losses and service its debt. Management’s plans in regard to these matters are described as follows:

 

Sales and Marketing. Historically, the Company has generated the majority of its revenues by providing the products it produces to dispensaries throughout the state of Arizona. The Company’s revenues have increased significantly since its inception in May 2017. Management will continue its plans to increase revenues in the Arizona market by providing superior products. Additionally, as capital resources become available, the Company plans to expand into additional markets outside of Arizona. The Company believes that it will continue reducing the overall costs of revenues and costs of revenues will increase at a lower rate than revenues in future periods, which is expected to lead to increased profit margins.

 

Financing. To date, the Company has financed its operations primarily with loans from third parties and shareholders, private placement financings and sales revenue. Management believes that with continued production efficiencies, production growth, and continued marketing efforts, sales revenue will grow, thus enabling the Company to reverse its negative cash flow from operations and raise additional capital as needed. However, there is no assurance that the Company’s overall efforts will be successful.

 

If the Company is unable to generate additional sales growth in the near term and raise additional capital, there is a risk that the Company could default on additional obligations, and could be required to discontinue or significantly reduce the scope of its operations if no other means of financing operations are available. The condensed consolidated financial statements do not include any adjustments relating to the recoverability and classification of recorded asset amounts or the amount and classification of liabilities or any other adjustment that might be necessary should the Company be unable to continue as a going concern.

 

As of June 30, 2023, the Company had $183,429 of cash and cash equivalents and negative working capital of ($55,465,653) (current assets minus current liabilities), compared with $85,637 of cash and cash equivalents and negative working capital of ($37,032,478) as of September 30, 2022. The decrease of $18,433,175 in the Company’s working capital is primarily due to increases in the amount of the Company’s debt maturing within the next 12 months. The decrease is also due to decreases in the Company’s inventory and prepaid balances and increases in the Company’s other operating liabilities. The $97,798 increase in cash and cash equivalents was primarily due to the net cash used in operating activities offset by proceeds from the issuance of debt. The Company is an early-stage growth company. It is generating cash from sales and is investing its capital reserves in current operations and new acquisitions that are expected to generate additional earnings in the long term. The Company expects that its cash on hand and cash flows from operations, along with private and/or public financing, will be adequate to meet its capital requirements and operational needs for the next 12 months, although no assurance can be given that private and/or public financing can be obtained on terms acceptable to the Company, or at all.

 

Cash Flows

 

The following table summarizes the sources and uses of cash for each of the periods presented:

 

		Nine months ended June 30,
		2023				2022				$ Change				% Change
Net cash used in operating activities		$	(881,919	)		$	(2,016,148	)		$	1,134,229				-56	%
Net cash used in investing activities			(68,176	)			(3,769,744	)			3,701,568				-98	%
Net cash provided by financing activities			1,047,887				4,773,094				(3,725,207	)			-78	%
Net increase (decrease) in cash and cash equivalents		$	97,792			$	(1,012,798	)		$	1,110,590				-110	%

 

Operating Activities

 

During the nine months ended June 30, 2023, operating activities used $881,919 of cash and cash equivalents, primarily resulting from a net loss of $12,569,582 which was offset by net cash provided by operating assets and liabilities of $6,028,342. There was significant non-cash activity that contributed to the net loss totaling $4,843,625 including depreciation and amortization of $1,318,465, amortization of debt discount of $1,503,304, stock-based compensation of $2,668,982, loss on disposal fixed assets of $137,109 and a loss on impairment of $168,570. These non-cash expenses were offset by the non-cash employee retention credits of $952,805.

  

During the nine months ended June 30, 2022, operating activities used $2,016,148 of cash and cash equivalents, primarily resulting from a net loss of $12,695,252 which was offset by net cash provided by operating assets and liabilities of $3,918,454. There was significant non-cash activity that contributed to the net loss totaling $6,760,650 including depreciation and amortization of $1,410,508, amortization of debt discount of $2,311,783, and stock-based compensation of $3,032,518. 

Investing Activities

 

During the nine months ended June 30, 2023, investing activities used $68,176 of cash and cash equivalents, consisting entirely of purchases of property, equipment and construction in progress.

 

During the nine months ended June 30, 2022, investing activities used $3,769,744 of cash and cash equivalents, consisting primarily of $2,918,584 in purchases of property, equipment and construction in progress, the purchase of a dispensary license in the amount of $1,130,872, cash payments for acquisitions of $140,726 and cash paid to acquisition escrow accounts of $406,932, offset by $816,227 of cash received from the escrow deposit accounts. 

 

Financing Activities

 

During the nine months ended June 30, 2023, financing activities provided $1,047,887, consisting of $1,834,183 in proceeds from the issuance of debt and offset by $731,296 of debt payments made and payments made for debt discounts of $55,000.

 

During the nine months ended June 30, 2022, financing activities provided $4,773,094, consisting of $7,282,763 in proceeds from the issuance of debt, $555,911 in proceeds from the issuance of stock and offset by $3,002,097 of debt payments made.

 

Given that our cash needs are strongly driven by our growth requirements, we also intend to maintain a cash reserve for other risk contingencies that may arise.

 

We intend to meet our cash requirements for the next 12 months through the use of the cash we have on hand and through business operations, future equity financing, debt financing, or other sources, which may result in further dilution in the equity ownership of our shares. We are also in discussions with various potential capital partners to provide additional debt capital for accretive acquisitions. We do not have any other arrangements in place to complete any private placement financings of debt and equity. There is no assurance that we will be successful in finding a capital partner to provide additional debt capital or any other such financings on terms that will be acceptable to us.

 

Off-Balance Sheet Arrangements

 

We are not currently a party to, or otherwise involved with, any off-balance sheet arrangements that have or are reasonably likely to have a current or future material effect on our financial condition, changes in financial condition, revenues or expenses, results of operations, liquidity, capital expenditures or capital resources.

 

Critical Accounting Policies

 

Our discussion and analysis of our financial condition and results of operations are based on our condensed consolidated financial statements, which have been prepared in accordance with US GAAP. The preparation of our condensed consolidated financial statements requires us to make estimates and judgements that affect the reported amounts of assets, liabilities, revenue, expenses and related disclosure of contingent assets and liabilities. On an ongoing basis, we evaluate our estimates, including those related to areas that require a significant level of judgment or are otherwise subject to an inherent degree of uncertainty. Critical accounting policies and estimates in these condensed consolidated financial statements are those related to revenue recognition, valuation of options, warrants and debt discounts, carrying value of intangible assets subject to amortization, infinite life intangible assets and goodwill, stock-based compensation, and income taxes. We base our estimates on historical experience, our observance of trends in particular areas, and information or valuations and various other assumptions that we believe to be reasonable under the circumstances and which form the basis for making judgments about the carrying value of assets and liabilities that may not be readily apparent from other sources. Actual amounts could differ significantly from amounts previously estimated. For a discussion of our critical accounting policies, refer to Part I, item 7, "Management's Discussion and Analysis of Financial Condition and Results of Operations" in our annual report on Form 10-K for the year ended September 30, 2022. Management believes that there have been no material changes in our critical accounting policies during the three months ended June 30, 2023.

 

Recently Issued Accounting Pronouncements

 

See Note 1 to our condensed consolidated financial statements, included in Part I, Item 1, Financial Information for this quarterly report on Form 10-Q.

 

Contractual Obligations

 

We are a smaller reporting company as defined by Rule 12b-2 of the Securities Exchange Act of 1934 and are not required to provide the information under this item.

 

ITEM 3.

QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK.

 

We are a smaller reporting company as defined by Rule 12b-2 of the Securities Exchange Act of 1934 and are not required to provide the information under this item.

 

 

ITEM 4.

CONTROLS AND PROCEDURES

 

Evaluation of Disclosure Controls and Procedures

 

Disclosure controls and procedures are controls and procedures 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 SEC's rules and forms. Disclosure controls and procedures include, without limitation, controls and procedures designed to ensure that information required to be disclosed by our company in the reports that it files or submits under the Exchange Act is accumulated and communicated to our management, including its principal executive and principal financial officers, or persons performing similar functions, as appropriate to allow timely decisions regarding required disclosure. Our management carried out an evaluation under the supervision and with the participation of our Principal Executive Officer and Principal Financial Officer, of the effectiveness of the design and operation of our disclosure controls and procedures pursuant to Rules 13a-15(e) and 15d-15(e) under the Securities Exchange Act of 1934 ("Exchange Act"). Based upon that evaluation, our Principal Executive Officer and Principal Financial Officer have concluded that our disclosure controls and procedures were not effective as of June 30, 2023.

 

Identified Material Weaknesses

 

A material weakness in our internal control over financial reporting is a control deficiency, or combination of control deficiencies, that results in more than a remote likelihood that a material misstatement of the financial statements will not be prevented or detected.

 

Management identified the following material weaknesses during its assessment of internal controls over financial reporting, which are primarily due to the size of the Company and available resources:

 

	•	lack of properly controlled segregation of duties
	•	lack of risk assessment procedures on internal control to detect financial reporting risks in a timely manner; and
	•	lack of documentation on policies and procedures that are critical to the accomplishment of financial reporting objectives.

 

Changes in Internal Control over Financial Reporting

 

There have been no changes in our internal control over financial reporting subsequent to the fiscal year ended September 30, 2022, which were identified in connection with our management's evaluation required by paragraph (d) of rules 13a-15 and 15d-15 under the Exchange Act, that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.

 

Limitations of the Effectiveness of Disclosure Controls and Internal Controls

 

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

 

The design of any system of controls is also based in part upon certain assumptions about the likelihood of future events, and there can be no assurance that any design will succeed in achieving our stated goals under all potential future conditions; over time, a control may become inadequate because of changes in conditions, or the degree of compliance with the policies or procedures may deteriorate. Because of inherent limitations in a cost-effective control system, misstatements due to error or fraud may occur and not be detected. 

 

 

PART II - OTHER INFORMATION

 

ITEM 1.

LEGAL PROCEEDINGS

 

From time to time, the Company may become subject to various legal proceedings that are incidental to the ordinary conduct of its business. Although the Company cannot accurately predict the amount of any liability that may ultimately arise with respect to any of these matters, it makes provision for potential liabilities when it deems them probable and reasonably estimable. These provisions are based on current information and legal advice and may be adjusted from time to time according to developments.

 

See Item 3. Defaults Upon Senior Securities below.

 

 

ITEM 1A.

RISK FACTORS

 

We are a smaller reporting company as defined by Rule 12b-2 of the Securities Exchange Act of 1934 and are not required to provide the information under this item.

 

 

ITEM 2.

UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS

 

Unless otherwise indicated, all of the following sales or issuances of Company securities were conducted under the exemption from registration as provided under Section 4(2) of the Securities Act of 1933 (and also qualified for exemption under 4(5), formerly 4(6) of the Securities Act of 1933, except as noted below). All of the shares issued were issued in transactions not involving a public offering, are considered to be restricted stock as defined in Rule 144 promulgated under the Securities Act of 1933 and stock certificates issued with respect thereto bear legends to that effect.  

 

1.

Quarterly Issuances:

 

The Company issued 674,052 shares of common stock for services during the three months ended June 30, 2023.

 

2.

Subsequent Issuances:

 

Subsequent to June 30, 2023, no shares of common stock were issued.

 

 

ITEM 3.

DEFAULTS UPON SENIOR SECURITIES

 

Pelorus Loan Default and Trustee Sale

 

 

On March 30, 2023, Item 9 Labs Corp., a Delaware corporation (the “Company”), and its wholly owned subsidiary, 938287AZ, LLC (“938287AZ”), an Arizona limited liability company (collectively, the Company and 938287AZ are referred to as the “Borrower”), and the Company’s Board of Directors (the “Board”), became aware that Pelorus Fund REIT, LLC, a Delaware limited liability company (“Pelorus”) filed a Notice of Trustee’s Sale on March 16, 2023 (the “Foreclosure”) with respect to that certain Construction Loan and Security Agreement dated as of August 25, 2021 (the “Loan Agreement”) by and between 938287AZ and Pelorus (the “Pelorus Notice”) and the trust deed recorded October 29, 2021. The Company had been in discussions with Pelorus to restructure the loan and to avoid the Foreclosure, but those discussions have not yet resulted in an agreement. As of the date of the filing of this Form 10-Q, none of the Company, the Board or the Company’s management have received any formal notice from Pelorus or any regulatory bodies regarding this Foreclosure.

 

The Company has taken steps to protect its interests in the property, including retaining legal counsel to represent the Company in the Foreclosure, which is set to occur August 29, 2023. The Company is currently evaluating the potential impact of the Foreclosure on its financial statements, liquidity, and operations. The Company will provide additional information as it becomes available.

 

The Company previously disclosed that the Loan Agreement was in default in a Form 10-Q filed with the SEC on February 14, 2023 and Form 10-K for year ended September 30, 2022 filed with the SEC on January 13, 2023, as well as in a Form 8-K on March 7, 2023.

 

The foregoing description of the Loan Agreement is not complete and is qualified in its entirety by reference to the full text of the Loan Agreement, a copy of which was filed as Exhibit 10.1 to the Company’s Current Report on Form 8-K filed with the SEC on August 31, 2021, which report is incorporated herein by reference.  The Company is not aware of any other foreclosure actions involving the Company or any of its subsidiaries.

 

Viridis Group Holdings, LLC and Viridis Group I9 Capital LLC vs Item 9 Labs Corp

 

As disclosed on Form 8-K filed July 20, 2023, on July 11, 2023, Viridis Group Holdings, LLC (“VGH”) and Viridis Group I9 Capital LLC (“VI9”) collectively filed a motion, requesting the Superior Court of Arizona (“Court”), in the County of Maricopa, to appoint a receiver over Item 9 Labs Corp., a Delaware Corporation. The Company stipulated and agreed to the receiver appointment. On July 14, 2023, the Superior Court of Arizona, in the County of Maricopa appointed Jeremiah Foster, Resolute Commercial (“Receiver”). Effective immediately, the Receiver was granted possession, custody, and control of all the real, personal, tangible and intangible property owned by Item 9 Labs Corp. (“Item 9”, or the “Receivership Entity”), or in which the Receivership Entity has an interest. The Receiver is authorized and is entitled to exercise all of the Receivership Entity’s rights in any and all Property in which the Receivership Entity has an interest. The Receiver is appointed to manage, maintain and preserve the Property for the duration of this receivership in a reasonable, prudent, diligent and efficient manner to maximize its value for the benefit of the Receivership Entity’s equity interest holders and creditors.

 

 

ITEM 4.

MINE SAFETY DISCLOSURES

 

N/A.

 

 

ITEM 5.

OTHER INFORMATION

 

N/A.

 

 

ITEM 6.

EXHIBITS

 

The exhibits required to be filed herewith by Item 601 of Regulation S-K, as described in the following index of exhibits, are attached hereto unless otherwise indicated as being incorporated by reference, as follows:

 

	Exhibit
	Number		Description of Exhibit
	3.01a		Articles of Incorporation dated June 15, 2010		Filed with the SEC on May 12, 2011 as part of our Registration Statement on Form S-1/A.
	3.01b		Certificate of Amendment to Articles of Incorporation dated October 22, 2012		Filed with the SEC on November 13, 2012 as part of our Current Report on Form 8-K
	3.01c		Certificate of Amendment to Articles of Incorporation dated March 15, 2018		Filed with the SEC on June 27, 2019 as an exhibit to our Registration Statement on Form 10-12G
	3.01d		Certificate of Amendment to Articles of Incorporation dated March 19, 2018		Filed with the SEC on June 27, 2019 as an exhibit to our Registration Statement on Form 10-12G
	3.01e		Certificate of Amendment to Articles of Incorporation dated April 3, 2018		Filed with the SEC on June 27, 2019 as an exhibit to our Registration Statement on Form 10-12G
	3.01f		Certificate of Amendment to Articles of Incorporation dated October  9, 2018		Filed with the SEC on June 27, 2019 as an exhibit to our Registration Statement on Form 10-12G
	3.02		Bylaws		Filed with the SEC on May 12, 2011 as part of our Registration Statement on Form S-1/A.
	31.01		Certification of Principal Executive Officer Pursuant to Rule 13a-14		Filed herewith.
	31.02		Certification of Principal Financial Officer Pursuant to Rule 13a-14		Filed herewith.
	32.01		CEO Certification Pursuant to Section 906 of the Sarbanes-Oxley Act		Filed herewith.
	32.02		CFO Certification Pursuant to Section 906 of the Sarbanes-Oxley Act		Filed herewith.
	101.INS*		Inline XBRL Instance Document		Filed herewith.
	101.SCH*		Inline XBRL Taxonomy Extension Schema Document		Filed herewith.
	101.CAL*		Inline XBRL Taxonomy Extension Calculation Linkbase Document		Filed herewith.
	101.LAB*		Inline XBRL Taxonomy Extension Labels Linkbase Document		Filed herewith.
	101.PRE*		Inline XBRL Taxonomy Extension Presentation Linkbase Document		Filed herewith.
	101.DEF*		Inline XBRL Taxonomy Extension Definition Linkbase Document		Filed herewith.
	104*		Cover Page Interactive Data File (formatted as Inline XBRL and contained in Exhibit 101)

 

 

*Pursuant to Regulation S-T, this interactive data file is deemed not filed or part of a registration statement or prospectus for purposes of Sections 11 or 12 of the Securities Act of 1933, is deemed not filed for purposes of Section 18 of the Securities Exchange Act of 1934, and otherwise is not subject to liability under these sections.

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.

 

Item 9 Labs Corp.

 

Date: August 21, 2023	By:	/s/ Robert Mikkelsen
	Name: Title:	Robert Mikkelsen Chief Financial Officer (Principal Executive and Financial Officer)

 

 

 

35

EXHIBIT 31.1

 

SECTION 302 CERTIFICATIONS

 

I, Robert Mikkelsen, certify that:

 

1. I have reviewed this quarterly report on Form 10-Q of Item 9 Labs Corp.;

 

2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;

 

3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;

 

4. The registrant’s other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:

 

a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;

 

b) Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;

 

c) Evaluated the effectiveness of the registrant's disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and

 

d) Disclosed in this report any change in the registrant's internal control over financial reporting that occurred during the registrant's most recent fiscal quarter (the registrant's fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant's internal control over financial reporting; and

 

5. The registrant’s other certifying officer(a) and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant's auditors and the audit committee of the registrant's board of directors (or persons performing the equivalent functions):

 

a) All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant's ability to record, process, summarize and report financial information; and

 

b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant's internal control over financial reporting.

 

Date: August 21, 2023

/s/ Robert Mikkelsen

Robert Mikkelsen

Principal Executive Officer

EXHIBIT 31.2

 

SECTION 302 CERTIFICATIONS

 

I, Robert Mikkelsen, certify that:

 

1. I have reviewed this quarterly report on Form 10-Q of Item 9 Labs Corp.;

 

2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;

 

3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;

 

4. The registrant’s other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:

 

a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;

 

b) Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;

 

c) Evaluated the effectiveness of the registrant's disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and

 

d) Disclosed in this report any change in the registrant's internal control over financial reporting that occurred during the registrant's most recent fiscal quarter (the registrant's fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant's internal control over financial reporting; and

 

5. The registrant’s other certifying officer(a) and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant's auditors and the audit committee of the registrant's board of directors (or persons performing the equivalent functions):

 

a) All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant's ability to record, process, summarize and report financial information; and

 

b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant's internal control over financial reporting.

 

Date: August 21, 2023

/s/ Robert Mikkelsen

Robert Mikkelsen

Chief Financial Officer

EXHIBIT 32.1

CERTIFICATION PURSUANT TO 18 U.S.C. SECTION 1350, AS ADOPTED

PURSUANT TO SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002

 

In connection with the Quarterly Report of Item 9 Labs Corp. (the "Company") on Form 10-Q for the quarter ended June 30, 2023 as filed with the Securities and Exchange Commission on the date hereof (the "Report"), I, Robert Mikkelsen, Chief Financial Officer of the Company, certify, pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, to the best of my knowledge, that:

 

1. The Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934, as amended; and

 

2. The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company for the dates and periods covered by the Report.

 

This certificate is being made for the exclusive purpose of compliance by the Principal Executive and Financial and Accounting Officer of the Company with the requirements of Section 906 of the Sarbanes-Oxley Act of 2002, and may not be disclosed, distributed or used by any person or for any reason other than as specifically required by law.

 

/s/ Robert Mikkelsen

Robert Mikkelsen

Principal Executive Officer

August 21, 2023

 

EXHIBIT 32.2

 

CERTIFICATION PURSUANT TO 18 U.S.C. SECTION 1350, AS ADOPTED

PURSUANT TO SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002

 

In connection with the Quarterly Report of Item 9 Labs Corp. (the "Company") on Form 10-Q for the quarter ended June 30, 2023 as filed with the Securities and Exchange Commission on the date hereof (the "Report"), I, Robert Mikkelsen, Chief Financial Officer of the Company, certify, pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, to the best of my knowledge, that:

 

1. The Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934, as amended; and

 

2. The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company for the dates and periods covered by the Report.

 

This certificate is being made for the exclusive purpose of compliance by the Principal Executive and Financial and Accounting Officer of the Company with the requirements of Section 906 of the Sarbanes-Oxley Act of 2002, and may not be disclosed, distributed or used by any person or for any reason other than as specifically required by law.

 

/s/ Robert Mikkelsen

Robert Mikkelsen

Chief Financial Officer

August 21, 2023

v3.23.2

Cover - shares	9 Months Ended
	Jun. 30, 2023	Aug. 21, 2023
Cover [Abstract]
Document Type	10-Q
Amendment Flag	false
Document Quarterly Report	true
Document Transition Report	false
Document Period End Date	Jun. 30, 2023
Document Fiscal Period Focus	Q3
Document Fiscal Year Focus	2023
Current Fiscal Year End Date	--09-30
Entity File Number	000-54730
Entity Registrant Name	ITEM 9 LABS CORP.
Entity Central Index Key	0001500123
Entity Tax Identification Number	96-0665018
Entity Incorporation, State or Country Code	DE
Entity Address, Address Line One	2111 E. Highland Ave.
Entity Address, Address Line Two	Suite B375
Entity Address, City or Town	Phoenix
Entity Address, State or Province	AZ
Entity Address, Postal Zip Code	85016
City Area Code	833
Local Phone Number	867-6337
Entity Current Reporting Status	Yes
Entity Interactive Data Current	Yes
Entity Filer Category	Non-accelerated Filer
Entity Small Business	true
Entity Emerging Growth Company	false
Entity Shell Company	false
Entity Common Stock, Shares Outstanding		102,362,271

v3.23.2

CONDENSED CONSOLIDATED BALANCE SHEETS (Unaudited) - USD ($)	Jun. 30, 2023	Sep. 30, 2022
Current Assets:
Cash and cash equivalents	$ 183,429	$ 85,637
Accounts receivable, net	968,016	586,270
Inventory	1,898,603	2,464,222
Prepaid expenses and other current assets	297,265	417,096
Total current assets	3,347,313	3,553,225
Property and equipment, net	24,602,289	21,019,724
Right of use asset	365,980	938,687
Construction escrow deposits	4,784,752	7,717,908
Deposits	44,114	86,604
Other assets	3,138,397	655,598
Assets held for sale	6,815,000	6,815,000
Intangible assets, net	10,852,835	11,741,487
Goodwill	58,064,816	58,233,386
Total Assets	112,015,496	110,761,619
Current Liabilities:
Accounts payable	6,852,306	6,422,196
Accrued payroll and payroll taxes	1,680,418	2,086,051
Accrued interest	8,387,582	3,070,415
Accrued expenses	2,048,325	3,328,222
Deferred revenue, current portion	174,997	219,992
Notes payable, current portion, net of discounts	29,522,607	15,924,033
Income tax payable	19,145	13,221
Operating lease liability, current portion	247,586	271,573
Convertible notes payable, net of discounts	4,380,000	3,750,000
Liabilities related to assets held for sale	5,500,000	5,500,000
Total current liabilities	58,812,966	40,585,703
Deferred revenue, net of current portion	413,359	335,859
Operating lease liability, net of current portion	144,867	682,752
Notes payables, net of current portion and discounts		7,216,710
Total liabilities	59,371,192	48,821,024
Stockholders' Equity:
Common stock, par value $.0001 per share, 2,000,000,000 shares authorized; 114,662,271 and 109,950,509 shares issued and 102,362,271 and 97,650,509 shares outstanding at June 30, 2023 and September 30, 2022	11,421	10,995
Additional paid-in capital	143,689,979	140,417,114
Accumulated deficit	(77,602,297)	(65,016,698)
Treasury stock	(13,450,000)	(13,450,000)
Total Item 9 Labs Corp. Stockholders' Equity	52,649,103	61,961,411
Non-controlling interest	(4,799)	(20,816)
Total Stockholders' Equity	52,644,304	61,940,595
Total Liabilities and Stockholders' Equity	$ 112,015,496	$ 110,761,619

v3.23.2

CONDENSED CONSOLIDATED BALANCE SHEETS (Unaudited) (Parenthetical) - $ / shares	Jun. 30, 2023	Sep. 30, 2022	Sep. 20, 2022
Statement of Financial Position [Abstract]
Common Stock, Par or Stated Value Per Share	$ 0.0001	$ 0.0001
Common Stock, Shares Authorized	2,000,000,000	2,000,000,000
Common Stock, Shares, Issued	114,662,271		109,950,509
Common Stock, Shares, Outstanding	102,362,271	97,650,509

v3.23.2

UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS - USD ($)	3 Months Ended		9 Months Ended
	Jun. 30, 2023	Jun. 30, 2022	Jun. 30, 2023	Jun. 30, 2022
Income Statement [Abstract]
Revenues, net	$ 5,022,375	$ 4,931,322	$ 15,689,261	$ 17,755,519
Cost of revenues	2,203,560	3,341,367	6,530,438	11,089,560
Gross profit	2,818,815	1,589,955	9,158,823	6,665,959
Operating expenses
Professional fees and outside services	378,864	993,452	2,392,382	2,207,618
Payroll and employee related expenses	2,653,133	2,683,722	7,045,596	7,889,672
Sales and marketing	322,193	207,213	995,164	1,260,551
Depreciation and amortization	378,155	439,052	1,135,519	1,320,664
Other operating expenses	1,883,945	1,114,323	3,269,109	2,747,158
Impairment loss	168,571		168,571
Provision for (recovery of) bad debt				(5,000)
Total expenses	5,784,861	5,437,762	15,006,341	15,420,663
Loss from operations	(2,966,046)	(3,847,807)	(5,847,518)	(8,754,704)
Other income (expense)
Interest expense	(2,950,462)	(1,625,155)	(6,719,625)	(3,932,918)
Other income (expense)			3,485	318
Total other income (expense), net	(2,950,462)	(1,625,155)	(6,716,140)	(3,932,600)
Net loss, before income tax provision (benefit)	(5,916,508)	(5,472,962)	(12,563,658)	(12,687,304)
Income tax provision (benefit)	(1,435)	4,624	5,924	7,948
Net loss	(5,915,073)	(5,477,586)	(12,569,582)	(12,695,252)
Less: Net income (loss) attributable to non-controlling interest	(3,879)	(7,109)	16,017	(1,683)
Net loss attributable to Item 9 Labs Corp.	$ (5,911,194)	$ (5,470,477)	$ (12,585,599)	$ (12,693,569)
Basic net loss per common share	$ (0.06)	$ (0.06)	$ (0.13)	$ (0.13)
Basic weighted average common shares outstanding	101,840,276	96,162,616	100,565,818	95,446,846
Diluted net loss per common share	$ (0.06)	$ (0.06)	$ (0.13)	$ (0.13)
Diluted weighted average common shares outstanding	101,840,276	96,162,616	100,565,818	95,446,846

v3.23.2

UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY - USD ($)	Common Stock [Member]	Additional Paid-in Capital [Member]	Treasury Stock, Common [Member]	Retained Earnings [Member]	Noncontrolling Interest [Member]	Total
Beginning balance, value at Sep. 30, 2021	$ 10,707	$ 133,414,830	$ (13,450,000)	$ (33,874,094)		$ 86,101,443
Shares, Outstanding, Beginning Balance at Sep. 30, 2021	107,074,417		(12,300,000)
Stock issued for debt inducement	$ 14	128,348				128,362
[custom:StockIssuedForDebtInducementShares]	142,365
Warrants issued with debt		574,239				574,239
Beneficial conversion features		470,047				470,047
Issuance of shares for services	$ 2	25,830				25,832
Stock Issued During Period, Shares, Issued for Services	16,666
Stock based compensation		507,294				507,294
Stock issued on exercise of options	$ 1	(1)
[custom:StockIssuedDuringPeriodSharesStockIssuedInStockOptionsExercised]	9,896
Net loss				(3,345,014)		(3,345,014)
Ending balance, value at Dec. 31, 2021	$ 10,724	135,120,587	$ (13,450,000)	(37,219,108)		84,462,203
Shares, Outstanding, Ending Balance at Dec. 31, 2021	107,243,344		(12,300,000)
Beginning balance, value at Sep. 30, 2021	$ 10,707	133,414,830	$ (13,450,000)	(33,874,094)		86,101,443
Shares, Outstanding, Beginning Balance at Sep. 30, 2021	107,074,417		(12,300,000)
Net loss						(12,695,252)
Stock issued for acquisition						65,000
Stock issued for licenses						336,000
Non-controlling interest						15,633
Ending balance, value at Jun. 30, 2022	$ 10,856	138,499,394	$ (13,450,000)	(46,567,663)	13,950	78,506,537
Shares, Outstanding, Ending Balance at Jun. 30, 2022	108,562,706		(12,300,000)
Beginning balance, value at Dec. 31, 2021	$ 10,724	135,120,587	$ (13,450,000)	(37,219,108)		84,462,203
Shares, Outstanding, Beginning Balance at Dec. 31, 2021	107,243,344		(12,300,000)
Beneficial conversion features		25,000				25,000
Issuance of shares for services	$ 34	328,466				328,500
Stock Issued During Period, Shares, Issued for Services	335,159
Stock based compensation		1,091,560				1,091,560
Stock issued on exercise of options	$ 2	(2)
[custom:StockIssuedDuringPeriodSharesStockIssuedInStockOptionsExercised]	18,033
Net loss				(3,878,078)	5,426	(3,872,652)
Stock issued for cash, net	$ 28	288,813				288,841
Sale of Stock, Number of Shares Issued in Transaction	278,000
Stock issued for acquisition	$ 7	64,993				65,000
Stock Issued During Period, Shares, Acquisitions	69,892
Stock issued for licenses	$ 30	335,970				336,000
Stock Issued During Period, Shares, Other	300,000
Stock issued for debt issuance	$ 2	24,998				25,000
[custom:StockIssuedDuringPeriodSharesDebtIssuance]	25,000
Non-controlling interest					15,633	15,633
Ending balance, value at Mar. 31, 2022	$ 10,827	137,280,385	$ (13,450,000)	(41,097,186)	21,059	82,765,085
Shares, Outstanding, Ending Balance at Mar. 31, 2022	108,269,428		(12,300,000)
Issuance of shares for services	$ 3	30,017				30,020
Stock Issued During Period, Shares, Issued for Services	29,965
Stock based compensation		934,681				934,681
Net loss				(5,470,477)	(7,109)	(5,477,586)
Stock issued for cash, net	$ 26	254,311				254,337
Sale of Stock, Number of Shares Issued in Transaction	263,313
Ending balance, value at Jun. 30, 2022	$ 10,856	138,499,394	$ (13,450,000)	(46,567,663)	13,950	78,506,537
Shares, Outstanding, Ending Balance at Jun. 30, 2022	108,562,706		(12,300,000)
Beginning balance, value at Sep. 30, 2022	$ 10,995	140,417,114	$ (13,450,000)	(65,016,698)	(20,816)	61,940,595
Shares, Outstanding, Beginning Balance at Sep. 30, 2022	109,950,509		(12,300,000)
Beneficial conversion features		5,000				5,000
Issuance of shares for services	$ 14	49,986				50,000
Stock Issued During Period, Shares, Issued for Services	142,723
Stock based compensation		1,053,190				1,053,190
Net loss				(3,257,684)	10,111	(3,247,573)
Stock issued for debt issuance	$ 105	246,715				246,820
[custom:StockIssuedDuringPeriodSharesDebtIssuance]	1,045,000
Stock issued for debt conversion	$ 116	309,463				309,579
[custom:StockIssuedForDebtConversionShares]	1,164,032
Ending balance, value at Dec. 31, 2022	$ 11,230	142,081,468	$ (13,450,000)	(68,274,382)	(10,705)	60,357,611
Shares, Outstanding, Ending Balance at Dec. 31, 2022	112,302,264		(12,300,000)
Beginning balance, value at Sep. 30, 2022	$ 10,995	140,417,114	$ (13,450,000)	(65,016,698)	(20,816)	61,940,595
Shares, Outstanding, Beginning Balance at Sep. 30, 2022	109,950,509		(12,300,000)
Net loss						(12,569,582)
Stock issued for acquisition
Stock issued for licenses						93,611
Non-controlling interest
Ending balance, value at Jun. 30, 2023	$ 11,421	143,689,979	$ (13,450,000)	(77,602,297)	(4,799)	52,644,304
Shares, Outstanding, Ending Balance at Jun. 30, 2023	114,662,271		(12,300,000)
Beginning balance, value at Dec. 31, 2022	$ 11,230	142,081,468	$ (13,450,000)	(68,274,382)	(10,705)	60,357,611
Shares, Outstanding, Beginning Balance at Dec. 31, 2022	112,302,264		(12,300,000)
Issuance of shares for services	$ 135	229,865				230,000
Stock Issued During Period, Shares, Issued for Services	1,348,455
Stock based compensation		459,460				459,460
Net loss				(3,416,721)	9,785	(3,406,936)
Stock issued for debt issuance	$ 34	42,876				42,910
[custom:StockIssuedDuringPeriodSharesDebtIssuance]	337,500
Ending balance, value at Mar. 31, 2023	$ 11,399	142,813,669	$ (13,450,000)	(71,691,103)	(920)	57,683,045
Shares, Outstanding, Ending Balance at Mar. 31, 2023	113,988,219		(12,300,000)
Issuance of shares for services	$ 22	15,978				16,000
Stock Issued During Period, Shares, Issued for Services	674,052
Stock based compensation		860,332				860,332
Net loss				(5,911,194)	(3,879)	(5,915,073)
Ending balance, value at Jun. 30, 2023	$ 11,421	$ 143,689,979	$ (13,450,000)	$ (77,602,297)	$ (4,799)	$ 52,644,304
Shares, Outstanding, Ending Balance at Jun. 30, 2023	114,662,271		(12,300,000)

v3.23.2

UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS - USD ($)	9 Months Ended
	Jun. 30, 2023	Jun. 30, 2022
Operating Activities:
Net loss	$ (12,569,582)	$ (12,695,252)
Adjustments to reconcile net loss to net cash used in operating activities:
Depreciation	246,867	217,363
Amortization of intangible assets	888,652	1,103,301
Amortization of right of use assets	182,946	89,844
Amortization of debt discounts	1,503,304	2,311,783
Loss on impairment	168,570
Common stock issued for services	296,000	498,983
Stock based compensation expense	2,372,982	2,533,535
Recovery of bad debt		(5,000)
Employee retention credits received	(952,805)
Loss on disposal of fixed assets	137,109	10,841
Changes in operating assets and liabilities:
Accounts receivable	(381,746)	856,776
Inventory	565,619	2,276,205
Prepaid expenses and other assets	137,032	(339,994)
Deposits	42,490	(86,604)
Accounts payable	801,731	2,107,137
Accrued payroll and payroll taxes	547,172	(832,080)
Income tax payable	5,924	7,948
Accrued interest	3,975,146	542,841
Accrued expenses	1,290,276	(316,760)
Deferred revenue	32,505	(214,994)
Operating lease liability	(172,111)	(82,021)
Net Cash Used in Operating Activities	(881,919)	(2,016,148)
Investing Activities:
Cash paid for acquisition		(140,726)
Purchases of property, equipment and construction in progress	(68,176)	(2,918,584)
Cash received for note receivable		5,000
Cash received from construction escrow accounts		816,227
Cash acquired in acquisition		6,143
Cash paid to acquisition escrow accounts		(406,932)
Purchase of license		(1,130,872)
Net Cash Used in Investing Activities	(68,176)	(3,769,744)
Financing Activities:
Proceeds from the sale of common stock		555,911
Costs for sale of common stock		(12,733)
Payment of debt discount	(55,000)	(50,750)
Proceeds from the issuance of debt	1,834,183	7,282,763
Payment of debt	(731,296)	(3,002,097)
Net Cash Provided by Financing Activities	1,047,887	4,773,094
Net Increase (Decrease) in Cash	97,792	(1,012,798)
Cash and cash equivalents - Beginning of Period	85,637	1,454,460
Cash and cash equivalents - End of Period	183,429	441,662
Supplemental disclosure of cash flow information:
Interest paid in cash	995,812	3,855,724
Income taxes paid in cash
Supplemental disclosure of non-cash investing and financing activities:
Stock issued for acquisitions		65,000
Stock issued for acquisition of a license	93,611	336,000
Stock and warrants issued for debt and acquisition	289,730	797,453
Non-controlling interest		15,633
Stock issuance costs paid in stock		89,645
Debt issued for acquisition of a license		200,000
Debt proceeds used to pay debt discounts	327,817	80,000
Transfer of accrued interest to debt	1,029,837	1,762
Land purchased with escrow funds and deposit	6,719,625	3,000,000
Stock issued to pay accounts payable and prepay expenses	296,000	292,500
Operating lease right of use asset and liability	283,861	934,098
Cancellation of operating lease right of use asset and liability	673,622
Issuance of debt to repay bank overdraft	185,949
Beneficial conversion feature on convertible debt	5,000	495,047
Construction in progress paid with escrow funds	2,933,156	6,426,063
Stock issued for conversion of debt	309,579
Accrued debt discount fees	30,000	75,000
Debt discount amortization capitalized to construction in progress	1,041,448	2,620,476
Accounts payable and accrued liabilities capitalized in construction in progress	2,856,917	612,158
Debt proceeds used to fund other assets	2,500,000
Accounts payable converted debt	$ 294,837

v3.23.2

Note 1 - Description of Business and Summary of Significant Accounting Policies	9 Months Ended
	Jun. 30, 2023
Accounting Policies [Abstract]
Note 1 - Description of Business and Summary of Significant Accounting Policies	Note 1 - Description of Business and Summary of Significant Accounting Policies   Description of Business   Item 9 Labs Corp. ("Item 9 Labs" or, including its subsidiaries, the "Company"), formerly Airware Labs Corp., is a Delaware corporation. The Company was incorporated under the laws of the State of Delaware on June 15, 2010 as Crown Dynamics Corp.   Item 9 Labs is a holding company, investing in cannabis and cannabis-related businesses. Its subsidiaries currently compete in two different market segments: (1) producing of cannabis and cannabis-derived products and technologies through its Item 9 Labs brand (“Cultivation”), which is currently distributed throughout the State of Arizona in licensed medical and adult-use dispensaries; and (2) sell medical and adult-use cannabis dispensary franchises under its franchise brand “Unity Rd.” (“Franchising”).   In March 2021, the Company closed on the acquisition of OCG, Inc, dba Unity Rd., a dispensary franchisor, with the effect of OCG, Inc. becoming a wholly owned subsidiary of the Company. Unity Rd. has agreements with more than twenty (20) entrepreneurial groups to open more than thirty (30) Unity Rd. retail dispensary locations in more than ten (10) states. The majority of the locations are in the licensing process. We currently have two franchisees operating in Hartford, South Dakota and Boulder, Colorado. Unity Rd will be the vehicle to bring Item 9 Labs products across the United States and internationally, while keeping dispensaries locally owned and operated, empowering entrepreneurs to operate their business and contribute to their local communities. As the Unity Rd dispensaries achieve sufficient market penetration, Item 9 Labs aims to offer its products in those locations to expand the distribution footprint of its premium product offerings.   On July 11, 2023, a motion was filed, requesting the Superior Court of Arizona, in the County of Maricopa, to appoint a receiver over Item 9 Labs. The Company stipulated and agreed to the receiver appointment. On July 14, 2023, the Superior Court of Arizona appointed a receiver and the receiver was granted, effective immediately, possession, custody, and control of all the real, personal, tangible and intangible property owned by Item 9 Labs or in which Item 9 Labs has an interest (the “Property”). The receiver is authorized and is entitled to exercise all of Item 9 Labs’ rights in any and all Property in which the Company has an interest. The receiver is appointed to manage, maintain and preserve the Property for the duration of this receivership in a reasonable, prudent, diligent and efficient manner to maximize its value for the benefit of Item 9 Labs’ equity interest holders and creditors.   Principles of Consolidation   The accompanying condensed consolidated financial statements of the Company as of June 30, 2023 have been prepared by us without audit pursuant to the rules and regulations of the Securities and Exchange Commission ("SEC") and do not include all of the information and notes necessary for a presentation of financial position and results of operations in accordance with US GAAP and should be read in conjunction with our September 30, 2022 audited financial statements filed with the SEC on our Form 10-K on January 13, 2023. It is management's opinion that all material adjustments (consisting of normal recurring adjustments) have been made, which are necessary for a fair financial statement presentation. We derived the September 30, 2022 condensed consolidated balance sheet data from audited financial statements, however, we did not include all disclosures required by US GAAP. The results for the interim periods ended June 30, 2023 are not necessarily indicative of the results to be expected for the year ending September 30, 2023.   The condensed consolidated financial statements of the Company include the accounts of the Company, and its wholly-owned subsidiaries and a consolidated variable interest entity (“VIE”). Intercompany balances and transactions have been eliminated.   Item 9 Labs consolidates a VIE in which the Company is deemed to be the primary beneficiary.  An entity is generally a VIE if it meets any of the following criteria: (i) the entity has insufficient equity to finance its activities without additional subordinated financial support from other parties, (ii) the equity investors cannot make significant decisions about the entity’s operations or (iii) the voting rights of some investors are not proportional to their obligations to absorb the expected losses of the entity or receive the expected returns of the entity and substantially all of the entity’s activities involve or are conducted on behalf of the investor with disproportionately few voting rights. The Company makes significant judgments in determining whether an entity is a VIE and, for each reporting period, the Company assesses whether it is the primary beneficiary of the VIE.   Effective February 1, 2022, the Company was deemed the primary beneficiary of Elevated Connections, Inc. The equity in Elevated Connections, Inc. held by its stockholder has been presented on the balance sheet and the statement of operations as a non-controlling interest. See Note 5.     Accounting Estimates   The preparation of financial statements in conformity with US GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenue and expenses during the reporting period. Actual results could materially differ from those estimates. Significant estimates of the Company include but are not limited to accounting for depreciation and amortization, current and deferred income taxes, inventory, accruals and contingencies, carrying value of fixed assets, construction in progress, goodwill and intangible assets, the fair value of common stock and the estimated fair value of stock options and warrants. Due to the uncertainties in the formation of accounting estimates, and the significance of these items, it is reasonably possible that these estimates could be materially changed in the near term.    Inventory   Inventory is stated at the lower of cost or net realizable value with cost being determined on the first in first out method. Inventory primarily consists of the costs directly related to the production and cultivation of cannabis crops, cannabis oils, and cannabis concentrate products. Inventory is relieved to cost of revenues as products are delivered to dispensaries. Inventory consists primarily of labor, utilities, costs of raw materials, packaging, nutrients and overhead.   The Company routinely evaluates the carrying value of inventory for slow moving and potentially obsolete inventory and, when appropriate, will record an adjustment to reduce inventory to its estimated net realizable value.   Impairment of Long-Lived Assets   We analyze long-lived assets, including property and equipment and definite-lived intangible assets, for impairment whenever events or changes in circumstances indicate that the carrying amounts may not be recoverable. We review the amortization method and estimated period of useful life at least at annually at the balance sheet date. We record the effects of any revision to operations when the change arises. We recognize impairment when the estimated undiscounted cash flow generated by those assets is less than the carrying amount of such assets. The amount of impairment is the excess of the carrying amount over the fair value of such assets, which is generally calculated using discounted cash flows.   During and subsequent to the three months ended June 30, 2023, the Company has noted indicators of the possible impairment of its property and equipment and definite-lived intangible assets. The Company will analyze these indicators during the fourth quarter of the year ended September 30, 2023 and determine if any impairment has occurred. Given the carrying value of the Company’s property and equipment and definite-lived intangible assets at June 30, 2023, the occurrence of an impairment may be material to the Company’s financial position and results of operations.   Goodwill and Intangible Assets Not Subject to Amortization   Goodwill represents the excess of the purchase price paid for the acquisition of a business over the fair value of the net tangible and intangible assets acquired. Indefinite life intangible assets represent licenses purchased for cultivation, processing, distribution and sale of cannabis and cannabis related products. Goodwill and indefinite life intangibles are not subject to amortization, however, annually, or whenever there is an indication that goodwill or the indefinite life intangible assets may be impaired, we evaluate qualitative factors to determine whether it is more likely than not that the fair value of the goodwill or indefinite life intangible assets is less than its carrying amount. Our test of goodwill and indefinite life intangible assets includes assessing qualitative factors and the use of judgment in evaluating economic conditions, industry and market conditions, cost factors, and entity-specific events, as well as overall financial performance. Upon the determination of a likely impairment, management assesses the recorded goodwill or indefinite life intangibles balance with the fair value of the reporting unit or assets acquired.   During and subsequent to the three months ended June 30, 2023, the Company has noted indicators of impairment of its goodwill and intangible assets not subject to amortization, including its licenses. The Company will analyze these indicators during the fourth quarter of the year ended September 30, 2023 and determine the extent to which an impairment has occurred. Given the carrying value of the Company’s goodwill and intangible assets not subject to amortization at June 30, 2023, the occurrence of an impairment will likely be material to the Company’s financial position and results of operations and may result in an impairment charge in excess of $50 million.   Revenue Recognition   Cultivation revenue   The core principle of ASC 606 requires that an entity recognize revenue to depict the transfer of promised goods or services to customers in an amount that reflects the consideration to which the company expects to be entitled in exchange for those goods or services. ASC 606 defines a five-step process to achieve this core principle, including identifying the contract with the customer, identifying the performance obligations in the contract, determining the transaction price, including estimating the amount of variable consideration to include in the transaction price, allocating the transaction price to each separate performance obligation and recognizing revenue when (or as) the performance obligation is satisfied.   All of the Company's cultivation revenue is associated with a customer contract that represents an obligation to provide cannabis products that are delivered at a single point in time.  For the three and nine months ended June 30, 2023 and 2022, 96% of the Company's net revenue was generated from performance obligations completed in the state of Arizona.   The Company recognizes revenue once the products are delivered. Revenue is considered earned upon successful delivery of the product to the dispensary as the Company has no further performance obligations at this point in time and collection is reasonably assured. The Company records revenue at the amount it expects to collect, 100% of the wholesale sales. Beginning April 1, 2020, the Company entered into a three-year agreement with a dispensary, which calls for monthly payments of $40,000 to be paid by the Company. The fees paid for operating under the contract are expensed to cost of revenues. See Note 8.   The Company's revenues accounted for under ASC 606 do not require significant estimates or judgments based on the nature of the Company's revenue stream. The sales price is generally fixed at the point of sale and all consideration from the contract is included in the transaction price. The Company's contracts do not include multiple performance obligations, variable consideration, a significant contract, rights of return or warranties.   Franchising revenue   The Company enters into franchise agreements and consulting agreements. The franchise agreement allows the franchisee to, among other things, establish a franchised outlet under the Company’s Unity Rd. brand. Under the consulting agreements, the Company assists customers with applying for and being awarded a retail cannabis license through the state license application process. The initial franchise fee and the consulting fee are due upon execution of the related agreement. These payments are deferred on the condensed consolidated balance sheet. The initial franchise fee is recognized into revenue ratably over the term of the agreement and the consulting fee is recognized at the time the performance obligation has been satisfied. Revenue recognized during the three months ended June 30, 2023 and 2022 that was included in deferred revenue at September 30, 2022 and 2021 was $6,250 and $4,998, respectively. Revenue recognized during the nine months ended June 30, 2023 and 2022 that was included in deferred revenue at September 30, 2022 and 2021 was $67,496 and $214,994, respectively.   Disaggregation of Revenue   The following table presents our revenue disaggregated by source.                                       Three months ended June 30,   Nine months ended June 30,     2023   2022   2023   2022 Cultivation segment                                 Flower   $ 648,730     $ 611,970     $ 1,865,879     $ 2,633,138   Vape products     3,661,855       3,648,315       11,667,650       12,553,206   Concentrates and other cannabis products     437,161       523,816       1,372,816       1,993,758   Accessories     75,620       77,636       218,525       180,742         4,823,366       4,861,737       15,124,870       17,360,844   Franchising segment                                 Franchising revenue     60,837       22,031       221,822       280,529                                     Corporate                                 Dispensary sales revenue     138,172       40,245       342,569       73,567   Other     —         7,309       —         40,579         138,172       47,554       342,569       114,146       $ 5,022,375     $ 4,931,322     $ 15,689,261     $ 17,755,519       Net Loss Per Share    Basic net loss per share does not include dilution and is computed by dividing net loss available to common stockholders by the weighted average number of common shares outstanding for the period. Diluted net loss per share reflects the potential dilution of securities that could share in the losses of an entity. Dilutive securities are not included in the weighted average number of shares when inclusion would be anti-dilutive. The following table summarizes the securities outstanding at June 30, 2023 and 2022 that were excluded from the diluted net loss per share calculation for the three and nine months ended June 30, 2023 and 2022 because the effect of including these potential shares was antidilutive due to the Company’s net loss.       2023   2022 Potentially dilutive common share equivalents                 Options     9,057,715       8,594,805   Warrants     49,370,537       49,870,537   Convertible notes     36,168,666       9,968,931   Potentially dilutive shares outstanding     94,596,918       68,434,273        Warrants, Conversion Options, Debt Discounts and Amendments   The Company analyzes warrants issued with debt to determine if the warrants are required to be bifurcated and accounted for at fair value at each reporting period. When bifurcation is not required, the Company records a debt discount, based on the relative fair values of the warrants and the debt, with a corresponding charge to equity unless the terms of the warrant require it to be classified as a liability. The warrants and corresponding note discounts are valued using the Black-Scholes option-pricing model. This model uses estimates of volatility, risk free interest rate and the expected term of the warrants, along with the current market price of the Company's stock, to estimate the value of the outstanding warrants. The Company estimates the expected term using an average of the contractual term and vesting period of the award. The expected volatility is measured using the average historical daily changes in the market price of the Company's common stock over the expected term of the award or, if earlier, since March 20, 2018, the day of the merger between BSSD Group LLC ("BSSD") and Airware Labs Corp, and the risk-free interest rate is equivalent to the implied yield on zero-coupon U.S. Treasury bonds with a remaining maturity equal to the expected term of the awards.    The Company also analyzes conversion options embedded with debt to determine if the conversion options are required to be bifurcated and accounted for at fair value at each reporting period or to determine if there is a beneficial conversion feature. At June 30, 2023 and September 30, 2022, none of the conversion options embedded in the Company’s debt were required to be bifurcated.   The Company analyzes the terms of its debt amendments to determine if the changes made to the terms have affected the debt’s cash flows. If the debt’s cash flows have been affected, the Company then determines if the amendment should be accounted for as a troubled debt restructuring, an extinguishment or a modification and the appropriate accounting model is applied. Segment Reporting   The Company defines operating segments as components about which separate financial information is available that is evaluated regularly by the chief operating decision maker in deciding how to allocate resources and in assessing performance. The Company allocates its resources and assesses the performance of its sales activities based on the services performed by its subsidiaries. For the three and nine months ended June 30, 2023 and 2022, the Company has identified two segments: the cultivation, production and sale of cannabis and cannabis derived products and technologies (“Cultivation”) and the sales of Unity Rd. franchises to dispensaries (“Franchising”).   Held for sale The Company classifies long-lived assets or disposal groups and related liabilities as held-for-sale when management having the appropriate authority, generally our Board of Directors or certain of our Executive Officers, commits to a plan of sale, the disposal group is ready for immediate sale, an active program to locate a buyer has been initiated and the sale is probable and expected to be completed within one year. Once classified as held-for-sale disposal groups are valued at the lower of their carrying amount or fair value less estimated selling costs. Depreciation on these properties, if placed into service, is discontinued at the time they are classified as held for sale.   Employer Retention Credit   During the nine months ended June 30, 2023, the Company received $952,805 of tax credits in accordance with the Employer Retention Credit (“ERC”) program, authorized by the Coronavirus Aid, Relief, and Economic Security (CARES) Act, as amended. The Company’s policy is to account for the ERC as a grant using guidance analogous to government grants found in IAS 20, Accounting for Government Grants and Disclosure of Government Assistance. In accordance with this guidance, the ERC is recognized as a reduction to Payroll and employee related expenses on the statement of operations when there is reasonable assurance that the Company will receive the ERC.   Leases   The Company determines if an arrangement is a lease at inception. Operating leases are included in operating lease right-of-use (“ROU”) assets and current and long-term operating lease liabilities on our condensed consolidated balance sheets. We currently do not have any material finance lease arrangements.   Operating lease ROU assets and lease liabilities are recognized based on the present value of the future minimum lease payments over the lease term at commencement date. Generally, our leases do not provide an implicit rate. As such, we use our incremental borrowing rate in effect at the commencement date of the lease in determining the present value of future payments.   When we have the option to extend the lease term, terminate the lease before the contractual expiration date, or purchase the leased asset, and if it is reasonably certain that we will exercise the option, we consider these options in determining the classification and measurement of the lease.   Recently Issued Accounting Pronouncements   Pending Adoption   In June 2016, the FASB issued ASU No. 2016-13, Financial Instruments – Credit Losses (Topic 326), which provides guidance on measuring credit losses on financial instruments. The amended guidance replaces current incurred loss impairment methodology of recognizing credit losses when a loss is probable with a methodology that reflects expected credit losses and requires a broader range of reasonable and supportable information to assess credit loss estimates. ASU 2016-13 is effective for the Company on October 1, 2023, with early adoption permitted on October 1, 2019. We are assessing the provisions of this amended guidance; however, the adoption of the standard is not expected to have a material effect on our condensed consolidated financial statements.   In August 2020, the FASB issued ASU No. 2020-06, Debt with Conversion and Other Options (Subtopic 470-20) and Derivatives and Hedging – Contracts in Entity’s Own Equity (Subtopic 815-40). This standard eliminates the beneficial conversion and cash conversion accounting models for convertible instruments. It also amends the accounting for certain contracts in an entity’s own equity that are currently accounted for as derivatives because of specific settlement provisions. In addition, the new guidance modifies how particular convertible instruments and certain contracts that may be settled in cash or shares impact the diluted EPS computation. For public business entities, excluding entities eligible to be smaller reporting companies, it is effective for fiscal years beginning after December 15, 2021, including interim periods within those fiscal years using the fully retrospective or modified retrospective method. For all other entities, the amendments are effective for fiscal years beginning after December 15, 2023. Early adoption is permitted but no earlier than fiscal years beginning after December 15, 2020, including interim periods within those fiscal years. We are currently evaluating the impact of adoption of this standard on the Company’s condensed consolidated financial statements and disclosures.   In October 2021, the FASB issued ASU No. 2021-08, Business Combinations (Topic 805): Accounting for Contract Assets and Contract Liabilities from Contracts with Customers. This standard requires contract assets and contract liabilities acquired in a business combination to be recognized in accordance with Topic 606 as if the acquirer had originated the contracts. For public business entities, ASU 2021-08 is effective for fiscal years beginning after December 15, 2022, including interim periods within those years and early adoption is permitted. We are currently evaluating the impact of adoption of this standard on the Company’s condensed consolidated financial statements and disclosures.   There have been no other recent accounting pronouncements or changes in accounting pronouncements that have been issued but not yet adopted that are of significance, or potential significance, to us.

v3.23.2

Note 2 – Going Concern	9 Months Ended
	Jun. 30, 2023
Organization, Consolidation and Presentation of Financial Statements [Abstract]
Note 2 – Going Concern	Note 2 – Going Concern   The accompanying condensed consolidated financial statements have been prepared in conformity with US GAAP, which contemplates continuation of the Company as a going concern. The Company has not yet established an ongoing source of revenue sufficient to cover its operating costs and has incurred net losses since its inception. These losses, with the associated substantial accumulated deficit, are a direct result of the Company’s planned ramp up period as it is pursuing market acceptance and geographic expansion. In view of these matters, realization of a major portion of the assets in the accompanying condensed consolidated balance sheets is dependent upon continued operations of the Company which in turn is dependent upon the Company’s ability to meet its financing requirements, and the success of its future operations. The Company operates in a new, developing industry with a variety of competitors. The Company is in default on substantially all financial obligations, its property in Arizona is currently in the foreclosure process and a receiver was appointed to the Company by the Superior Court of Arizona. These factors raise substantial doubt about the Company’s ability to continue as a going concern.   In order to continue as a going concern, the Company will need to generate additional revenue and obtain additional capital to fund its operating losses and service its debt. Management’s plans in regard to these matters are described as follows:   Sales and Marketing. Historically, the Company has generated the majority of its revenues by providing the products it produces to dispensaries throughout the state of Arizona. The Company’s revenues have increased significantly since its inception in May 2017. Management will continue its plans to increase revenues in the Arizona market by providing superior products. Additionally, as capital resources become available, the Company plans to expand into additional markets outside of Arizona.   Financing. To date, the Company has financed its operations primarily with loans from third parties and shareholders, private placement financings and sales revenue. Management believes that with continued production efficiencies, production growth, and continued marketing efforts, sales revenue will grow, thus enabling the Company to reverse its negative cash flow from operations and raise additional capital as needed. However, there is no assurance that the Company’s overall efforts will be successful.    If the Company is unable to generate additional sales growth in the near term and raise additional capital, there is a risk that the Company could default on additional obligations and could be required to discontinue or significantly reduce the scope of its operations if no other means of financing operations are available. The condensed consolidated financial statements do not include any adjustments relating to the recoverability and classification of recorded asset amounts or the amount and classification of liabilities or any other adjustment that might be necessary should the Company be unable to continue as a going concern.

v3.23.2

Note 3 – Inventory	9 Months Ended
	Jun. 30, 2023
Inventory Disclosure [Abstract]
Note 3 – Inventory	Note 3 – Inventory    Inventory consisted of the following at June 30, 2023 and September 30, 2022.       June 30,   September 30,     2023   2022 Raw materials and work in process   $ 923,976     $ 1,209,892   Finished goods     636,240       835,420   Packaging and other     338,387       418,910       $ 1,898,603     $ 2,464,222

v3.23.2

Note 4 – Pending Acquisitions	9 Months Ended
	Jun. 30, 2023
Business Combination and Asset Acquisition [Abstract]
Note 4 – Pending Acquisitions	Note 4 – Pending Acquisitions   The Herbal Cure pending acquisition   On March 11, 2022, the Company entered into an Asset Purchase Agreement with The Herbal Cure LLC (“Seller”), pursuant to which, the Company is purchasing certain assets from the Seller. The total purchase price for the assets to be acquired is $5,750,000, payable as follows:     (i) Upon mutual execution and delivery of the Asset Purchase Agreement, the Company shall convey to the Seller a down payment in the amount of $250,000;       (ii) At the Closing, the Company shall pay to Seller $3,700,000 in immediately available funds;       (iii) $700,000 shall be financed by the Seller and paid pursuant to the terms and conditions of the Secured Promissory Note (the "Herbal Cure Note"), which interest shall accrue at a rate of 5% per annum, for a term of 18 months commencing on the Closing Date, and payable in even monthly installments until paid in full; and       (iv) the Company shall pay the remainder of the purchase price in shares of its common stock on the Closing Date, in such amount of Shares as is the quotient of $1,100,000 divided by the product of the 10 day volume weighted average price of the shares as of the Closing Date, and 85%.   The $250,000 down payment has been paid. At June 30, 2023, this acquisition has not yet been finalized. As such, the effects of this acquisition, which is expected to be accounted for under ASC 805, Business Combinations, have not been included in the Company’s condensed consolidated balance sheet or statement of operations as of and for the three and nine months ended June 30, 2023. Given the current capital constraints of the Company and the market as a whole, it is unlikely that this acquisition will be closed. As such, the $250,000 down payment was expensed and is included in Other operating expenses on the unaudited condensed consolidated statements of operations for the three and nine months ended June 30, 2023.   Sessions terminated acquisition   On May 18, 2022, the Company and its wholly owned subsidiary, OCG Management Ontario, Inc., a corporation formed under the laws of the Province of Ontario (“Purchaser”) solely for the purpose of completing this transaction, entered into a Share Purchase Agreement pursuant to which the Purchaser is purchasing all, but not less than all, of the issued and outstanding shares in the capital of Wild Card Cannabis Incorporated, a corporation formed under the laws of the Province of Ontario free and clear of all Liens from the Shareholders.   The total purchase price for the Shares is $12,800,000 (the "Purchase Price"), as adjusted, plus the Earnout Payment, if any (collectively, the “Purchase Price”) payable as follows:     (i) The Company has delivered the Exclusivity Deposit in the amount of $156,902 to the Escrow Agent on March 4, 2022.       (ii) At the Closing, Purchaser shall pay to Shareholders the Estimated Purchase Price of $12,800,000, as adjusted, in immediately available funds;       (iii) $4,100,000, as adjusted, payable by the delivery of the Company’s common stock, the number of which will be calculated on the basis of a deemed price per common share equal to the 10-Day VWAP of the trading price of the Company’s common stock on the stock exchange upon which the Company’s common stock is listed, with the last day of the First Earnout Period (the date that is 12 months following the Closing Date) as the measurement date less a 15% discount, if actual Net Revenue is respect of the First Earnout Period is greater than or equal to the Target Net Revenue for the First Earnout Period; and       (iv) $4,100,000, as adjusted, payable by the delivery of the Company’s common stock, the number of which will be calculated on the basis of a deemed price per common share equal to the 10-Day VWAP of the trading price of the Company’s common stock on the stock exchange upon which the Company’s common stock is listed, with the last day of the Second Earnout Period (the date that is 24 months following the Closing Date) as the measurement date less a 15% discount, if actual Net Revenue is respect of the Second Earnout Period is greater than or equal to the Target Net Revenue for the Second Earnout Period.     The $156,902 Exclusivity Deposit has been paid. In addition, at June 30, 2023, the Company previously placed $3.0 million in a deposit account related to the potential financing for this acquisition. The $3.0 million deposit is included in Other assets on the condensed consolidated balance sheet at June 30, 2023. On May 25, 2023, this acquisition was terminated by the sellers as a consequence of the Company’s failure to provide evidence that it had sufficient cash on hand or other sources of immediately available funds to make payment of all amount to be paid under the agreement on the closing date, including the purchase price. As a result of the cancellation, the Company has accrued the termination fee in the amount of $543,098 and expensed the $156,902 Exclusivity Deposit. The termination fee and the Exclusivity Deposit expenses are included in Other operating expenses on the unaudited condensed consolidated statement of operations for the three and nine months ended June 30, 2023.

v3.23.2

Note 5 – Variable Interest Entity	9 Months Ended
	Jun. 30, 2023
Organization, Consolidation and Presentation of Financial Statements [Abstract]
Note 5 – Variable Interest Entity	Note 5 – Variable Interest Entity   In January 2022, the Company signed a Co-Management Agreement with a dispensary in Oklahoma for a term of three years. Under the terms of the Co-Management Agreement, the Company purchased substantially all of the assets of a dispensary, excluding cannabis and cannabis related products and licenses, and assumed the dispensary’s lease. Further, under the Co-Management Agreement, the Company is to operate, staff, and otherwise manage the day-to-day operations of the dispensary. The Company shall also pay all claims, costs and liabilities associated with operating the dispensary. This dispensary was permanently closed in April 2023.   The terms of the Co-Management Agreement provide the Company with, in its judgment, the ability to manage and make decisions that most significantly affect the operations of Elevated Connections and to absorb losses that could potentially be significant to Elevated Connections. As such, the Company has consolidated Elevated Connections effective February 1, 2022. The purpose of Elevated Connections, as a licensed dispensary, is to hold the cannabis and cannabis related products and licenses of the dispensary.   The assets of the VIE cannot be used to settle obligations of the Company or its wholly owned subsidiaries. However, liabilities recognized as a result of consolidating the VIE do represent additional claims on the Company’s general assets.   The following table presents the carrying values of the assets and liabilities of the entity that is a VIE and consolidated by the Company at June 30, 2023 and September 30, 2022.       June 30,   September 30, Assets   2023   2022 Current assets                 Inventory   $ —       $ 26,909   Total assets   $ —       $ 26,909                     Liabilities                 Current liabilities                 Income tax payable   $ 19,145     $ 13,221   Total liabilities   $ 19,145     $ 13,221     The following table presents the operations (after intercompany eliminations) of the entity that is a VIE and consolidated by the Company for the three and nine months ended June 30, 2023.               Three months ended June 30,   Nine months ended June 30,     2023   2022   2023   2022 Revenues, net   $ 10,585     $ 40,245     $ 70,940     $ 73,582   Cost of revenue     15,899       21,111       48,999       44,128   Gross profit (loss)     (5,314 )     19,134       21,941       29,454   Income tax expense (benefit)     (1,435 )     4,624       5,924       7,948   Net income (loss)   $ (3,879 )   $ 14,510     $ 16,017     $ 21,506

v3.23.2

Note 6 - Property and Equipment, Net	9 Months Ended
	Jun. 30, 2023
Property, Plant and Equipment [Abstract]
Note 6 - Property and Equipment, Net	Note 6 - Property and Equipment, Net   The following represents a summary of our property and equipment as of June 30, 2023 and September 30, 2022:       June 30,   September 30,     2023   2022 Cultivation and manufacturing equipment   $ 619,670     $ 612,137   Computer equipment and software     270,795       270,795   Leasehold improvements     14,121       63,788   Buildings and improvements     2,811,340       2,811,340         3,715,926       3,758,060   Accumulated Depreciation     (1,004,307 )     (777,473 )       2,711,619       2,980,587   Land     3,455,563       3,455,563   Construction on progress     18,435,107       14,583,574   Property and Equipment, Net   $ 24,602,289     $ 21,019,724     During the nine months ended June 30, 2022, the Company completed the purchase of 44 acres of land from a related party for $3.0 million plus expenses. The land-owner is one of the original members of BSSD and a current employee of the Company.   Construction in progress relates to multiple capital projects ongoing during the nine months ended June 30, 2023, including the construction of the Nevada facility and the expansion of the Arizona facility. Construction in progress also includes interest and fees on debt that is directly related to the financing of the Company’s capital projects. Given the status and the continued delays of the projects, the Company has ceased capitalizing interest and fees on the debt that is directly related to the financing of the Company’s projects beginning on April 1, 2023.   Depreciation expense for the three months ended June 30, 2023 and 2022 was $80,552 and $74,710, respectively. Depreciation expense for the nine months ended June 30, 2023 and 2022 was $246,867 and $146,078, respectively.   During and subsequent to the three months ended June 30, 2023, the Company has noted indicators of the possible impairment of its property and equipment. The Company will analyze these indicators during the fourth quarter of the year ended September 30, 2023 and determine if any impairment has occurred. Given the carrying value of the Company’s property and equipment at June 30, 2023, the occurrence of an impairment may be material to the Company’s financial position and results of operations.

v3.23.2

Note 7 – Debt	9 Months Ended
	Jun. 30, 2023
Debt Disclosure [Abstract]
Note 7 – Debt	Note 7 – Debt           Maturity     Annual Interest       Balance at     Balance at     Conversion     Effective Date   Date     Rate       June 30, 2023     September 30, 2022     Price   C-2     3/23/2020     9/23/2020       15 %   $ 1,100,000     $ 1,100,000       See C-2     C-3     8/15/2011     8/15/2012       8 %     —         20,000       $0.50     C-7     9/29/2021     1/1/2023       10 %     325,000       275,000       0.35     C-8     9/29/2021     1/1/2023       10 %     650,000       550,000       0.35     C-9     10/1/2021     1/1/2023       10 %     975,000       825,000       0.35     C-10     10/29/2021     5/31/2023       18 %      750,000       750,000       1.50     C-11     2/21/2022     8/31/2022       24 %      230,000       230,000       1.10     C-12     10/24/2022     10/24/2024       15 %     250,000       —         0.31     C-13     12/13/2022     12/13/2024       15 %     50,000       —         0.25     C-14     12/13/2022     12/13/2024       15 %     50,000       —         0.25                               $ 4,380,000     $ 3,750,000             (C-2) Convertible Viridis Note   On March 23, 2020 the Company borrowed proceeds from a related party, Viridis I9 Capital LLC (“Viridis”), in the amount of $1.1 million. The note is convertible at the lesser of a) $1.00 per share or, b) 20% discount to the ten day average closing price of the Company’s common stock, immediately prior to the conversion date. All principal and interest were due on the maturity date. The Company is not in compliance with the terms of the Viridis note. The convertible Viridis note included a provision for the issuance of 5,000,000 warrants exercisable into the Company’s common stock. The exercise price on the warrants is $0.75 and the warrants have a term of 5 years.   (C-3) Other Convertible Note   The outstanding principal and accrued interest of C-3 was converted into 5,714 shares of the Company’s common stock during the nine months ended June 30, 2023.   (C-7, C-8) Convertible Lucas Ventures and LGH Investments Notes    These two convertible notes were amended effective January 1, 2023 to, among other terms, extend the maturity date to June 30, 2023 and to pledge the Company’s Colorado Retail Marijuana License as security for the note. As part of the amendment for C-7, the Company increased the principal amount due on the note to $325,000. As part of the amendment for C-8, the Company issued 168,750 shares of common stock, valued at $21,455 and increased the outstanding principal balance to $650,000. The value of the stock issuance and the increase in principal amounts were recorded as a convertible debt discount and are being amortized to interest expense over the term of the notes. The Company is not in compliance with the terms of these notes. (C-9) Convertible Tysadco Note   This note was amended effective January 1, 2023 to, among other terms, extend the maturity date to June 30, 2023 and to pledge the Company’s Colorado Retail Marijuana License as security for the note. As part of the amendment, the Company issued 168,750 shares of common stock, valued at $21,455 and increased the outstanding principal amount to $975,000. The value of the stock issuance and the increase in principal amount were recorded as a convertible debt discount and are being amortized to interest expense over the term of the note. The Company is not in compliance with the terms of this note.     (C-10) Convertible *Individual* Note   This note was amended effective March 31, 2023 to, among other terms, extend the maturity date to May 31, 2024 and to increase the interest rate to 17.5%. As part of this amendment, combined with the amendments for notes (x) and (dd) below, the Company agreed to pay an extension fee of $75,000 on June 1, 2023. The resulting discount is being amortized to interest expense over the term of the notes. The unpaid balance of this extension fee was accrued at June 30, 2023 in the amount of $30,000. The Company is not in compliance with the terms of this note.   (C-11) Convertible *Individual* Note   Note C-11 is in default.   (C-12) *Individual* Note   On October 24, 2022, the Company entered into a Secured Convertible Promissory Note in the amount of $250,000, which is payable at maturity on October 24, 2024. Interest on the note is 15% per annum and is payable quarterly. This note is secured by a first priority security interest in all assets of OCG Management Ontario Inc., a wholly owned subsidiary of the Company. The outstanding principal and any accrued interest are convertible into shares of the Company’s common stock at $0.31 per share. The Company issued 75,000 shares of its common stock, valued at $15,000, as part of the note agreement. The debt and shares of common stock were recorded at their relative fair values. The resulting discount of $15,000 is amortized to interest expense over the term of the debt. The Company is not in compliance with the terms of this note.   (C-13) *Individual* Note   On December 13, 2022, the Company entered into a Secured Convertible Promissory Note in the amount of $50,000, with a member of its board of directors. The note is payable at maturity on December 13, 2024. Interest on the note is 15% per annum and is payable quarterly. This note is secured by a first priority security interest in all assets of OCG Management Ontario Inc., a wholly owned subsidiary of the Company. The outstanding principal and any accrued interest is convertible into shares of the Company’s common stock at $0.25 per share. The Company issued 10,000 shares of its common stock, valued at $2,500, as part of this note agreement. The debt included a beneficial conversion feature after consideration of the relative fair value of the shares of common stock. The debt and shares of common stock were recorded at their relative fair values, along with the beneficial conversion feature. The resulting discount of $5,000 is amortized to interest expense over the term of the debt. The Company is not in compliance with the terms of this note.   (C-14) *Individual* Note   On December 13, 2022, the Company entered into a Secured Convertible Promissory Note in the amount of $50,000, which is payable at maturity on December 13, 2024. Interest on the note is 15% per annum and is payable quarterly. This note is secured by a first priority security interest in all assets of OCG Management Ontario Inc., a wholly owned subsidiary of the Company. The outstanding principal and any accrued interest is convertible into shares of the Company’s common stock at $0.25 per share. The Company issued 10,000 shares of its common stock, valued at $2,500, as part of this note agreement. The debt included a beneficial conversion feature after consideration of the relative fair value of the shares of common stock. The debt and shares of common stock were recorded at their relative fair values, along with the beneficial conversion feature. The resulting discount of $5,000 is amortized to interest expense over the term of the debt. The Company is not in compliance with the terms of this note.   The future minimum payments of the Company’s convertible debt obligations as of June 30, 2023 are as follows. The unamortized discount will be amortized through December 2024.   June 30,   Amount 2024   $ 4,380,000       $ 4,380,000     Notes Payable         Maturity   Annual Interest   Balance at   Balance at         Effective Date   Date   Rate   June 30, 2023   September 30, 2022   Secured by   f     5/1/2020   11/1/2023     10 %   $ 1,386,370     $ 1,386,370     2nd DOT AZ property   h     5/1/2020   5/1/2023     15 %     283,666       283,666     N/A   l     7/22/2022   7/31/2023     36 %     2,203,167       1,823,405     Future revenues; shares of Company stock   o     3/19/2021   4/1/2024     10 %     238,023       637,114     N/A   p     2/1/2021   7/15/2023     15 %     155,446       220,590     N/A   q     8/6/2021   3/1/2023     16 %     13,500,000       13,500,000     1st AZ property and other personal property   r     8/6/2021   3/1/2023     16 %     5,500,000       5,500,000     1st NV property and other personal property   s     9/30/2021   12/31/2021     18 %     —         500,000     Restricted common stock   u     11/2/2022   7/18/2024     25 %     414,046       548,082     Future revenues   w     3/4/2022   5/21/2024     15 %     6,203,930       5,253,256       x     3/10/2022   5/31/2024     18 %     250,000       250,000     N/A   y     3/2/2022   8/1/2023     5 %     145,388       165,388     N/A   z     7/20/2022   4/30/2023     36 %     638,460       426,558     Future revenues   aa     10/28/2022   1/31/2023     70 %     2,000,000       —       Deposit account holding the funds   bb     11/2/2022   3/28/2023     41 %     593,412       —       Future revenues   cc     10/26/2022   11/16/2022     71 %     326,680       —       Deposit account holding the funds   dd     11/3/2022   5/3/2023     18 %     500,000       —       N/A   ee     11/1/2022   12/20/2022     1 %     25,922       —       N/A   ff     2/17/2023   11/1/2025     18 %     222,148       —       N/A   gg     4/6/2023   5/31/2024     30 %     250,000       —       N/A   hh     6/22/2023   12/22/2023     10 %     185,949       —                                   35,022,607       30,494,429               Less: liabilities related to assets held for sale     (5,500,000 )      (5,500,000 )                Less: unamortized discounts   —       (1,853,686 )                             $ 29,522,607     $ 23,140,743         (f) Viridis AZ   On September 13, 2018, the Company entered into a Loan and Revenue Participation Agreement with Viridis Group I9 Capital LLC ("Viridis"), a related party, in which Viridis agreed to loan the Company up to $1.2 million for the expansion of the Company's Arizona property. In exchange for the loan, Viridis was to be repaid in the form of waterfall revenue participation schedules. Viridis was to receive 5% of the Company's gross revenues from the Arizona operations until the loan was repaid, 2% until repaid 200% of the amount loaned, and 1% of gross revenues in perpetuity or until a change in control. The loan was originally collateralized with a Deed of Trust on the Company's 5-acre parcel in Coolidge, AZ and its two 10,000 square foot buildings. In August 2019, Viridis agreed to subordinate its first priority Deed of Trust and move into a 2nd position. At that time, the loan was amended to include 6% annualized interest.   On May 1, 2020, under a troubled debt restructuring, the Company renegotiated the $1,200,000 note payable. As part of the restructuring, the Company issued 1,555,556 warrants exercisable into the Company's common stock. The warrants have an exercise price of $1.00 and a term of 5 years. Accrued interest in the amount of $186,370 was added to the principal balance of the note, making the total principal $1,386,370. Interest only payments of $11,553 shall be paid monthly until November 1, 2020 at which time monthly principal and interest payments of $28,144 are required for 36 months, with a balloon payment of all outstanding principal and interest due upon the note's maturity. The note also entitles Viridis to a gross revenue participation of the Arizona Operations equal to 1% of the gross sales (up to $20,000 monthly) upon the maturity of the note and for the subsequent 5 year period. The debt and warrants were recorded at their relative fair values. The resulting discount is amortized to interest expense over the term of the debt. The Company is not in compliance with the terms of the Viridis AZ note.   (h) Viridis (unsecured)   The Company's subsidiary, BSSD Group, LLC borrowed $269,000 from Viridis, a related party, in December 2019. This note bears annualized interest at 15%. On May 1, 2020, under a troubled debt restructuring, the Company renegotiated the $269,000 note payable. Accrued interest in the amount of $14,666 was added to the principal balance of the note, making the total principal $283,666. As part of the restructuring, the Company issued 400,000 warrants exercisable into the Company's common stock. The warrants have an exercise price of $.05 and a term of 5 years. Payments of principal and interest in the amount of $9,833 are due monthly, with a balloon payment of all outstanding principal and interest is due upon the note's maturity. The debt and warrants were recorded at their relative fair values. The resulting discount is amortized to interest expense over the term of the debt. The Company is not in compliance with the terms of this note.   (l) Upwise Capital   The Company is not in compliance with the terms of this note.   (o) OCG Officers Debt   As part of the OCG transaction in March 2021, the Company assumed the debt that OCG, Inc. owed to its officers. Principal and interest payments are due monthly with a balloon payment of all outstanding principal and interest due at maturity. The Company is not in compliance with the terms of these notes. One of these officers is a director and officer of the Company. See Note 10. (p) Stockbridge Amended Debt   In February 2021, the Company and Stockbridge Enterprises, a related party, under a troubled debt restructuring, agreed to restructure and settle its outstanding notes. The total outstanding balance of $1,660,590, including accrued interest, were to be repaid under a new promissory note, calling for a down payment of $300,000 (paid at time of signing), $120,000 monthly payments for 11 months with the remaining balance of $40,590 payable on February 1, 2022. This agreement was amended to extend the maturity date to March 31, 2022 and starting with the October 1, 2021 payment, the loan payments are interest only at an interest rate of 15% per annum until January 25, 2022. Principal payments in the amount of $50,000 were due on January 25, 2022, February 15, 2022 and March 15, 2022, with a final payment of the remaining principal and accrued interest due on March 31, 2022. Upon closing of an equity raise of at least $750,000, the Company will repay the outstanding balance plus any accrued interest immediately. As part of the amendment, the Company issued 164,744 warrants to purchase the Company’s common stock. The warrants have a two-year period and an exercise price of $1.00. The resulting discount of $58,352 was fully amortized to interest expense during the year ended September 30, 2022.   Effective March 31, 2022, the debt was amended to extend the maturity date to June 30, 2022, interest payments were due on April 1, May 1 and June 1, 2022. Principal payments in the amount of $50,000 were due on April 15, May 15 and June 15, 2022 and a final balloon payment of outstanding principal and interest in the amount of $223,972 was due on June 30, 2022. On January 20, 2023, the Company and Stockbridge Enterprises, a related party, entered into the third amendment of the outstanding promissory note. The amendment calls for monthly principal and interest payments of $25,000 with a final balloon payment of all outstanding principal and interest of $102,156 due at maturity on July 15, 2023. This note is in default.   (q, r) Pelorus Notes   The Company entered into two notes payable with Pelorus Fund REIT, LLC in August 2021. The total $19,000,000 borrowing has a term of 18 months. Interest only payments in the amount of $253,333 are due monthly and all outstanding principal and interest are due on the maturity date. Upon payment in full of these notes, an exit fee of 1% of the then outstanding balance is payable to the lender. The Company has accrued this success fee and it was amortized to interest expense over the term of the notes. The notes included warrants to purchase a total of 2,850,000 shares of the Company’s common stock for $1.75 per share, with a 3.5 year term. The debt and warrants were recorded at their relative fair values. The resulting discount was amortized to interest expense over the term of the debt. The Pelorus notes are currently in default.   On March 30, 2023, the Company and the Company’s Board of Directors became aware that Pelorus Fund REIT, LLC (“Pelorus”) filed a Notice of Trustee’s Sale on March 16, 2023 with respect to the Construction Loan and Security Agreement dated as of August 25, 2021 by and between 938287AZ and Pelorus and the trust deed recorded October 29, 2021.   The Company has taken steps to protect its interests in the property, including retaining legal counsel to represent the Company in the Foreclosure, which is set to occur August 29, 2023. The Company is currently evaluating the potential impact of the Foreclosure on its financial statements, liquidity, and operations. See Item 3. Defaults Upon Senior Securities in Part II, Other Information, of this Form 10-Q.   (s) Viridis $500,000   On September 30, 2021, the Company borrowed $500,000 from Viridis Group I9 Capital LLC, a related party. The proceeds of the debt were used to make a payment on the then outstanding unpaid payroll tax liability. The debt and warrants were recorded at their relative fair values. The resulting discount in the amount of $284,534 was amortized to interest expense over the term of the debt. During the nine months ended June 30, 2023, this debt and related accrued interest were combined with other Viridis outstanding debt and related accrued interest into one Unsecured Promissory Note. See (w) below.   (u) Lendspark   On November 2, 2022, the Company entered into a third short-term financing arrangement with Lendspark. The proceeds of $0.58 million were used to repay the previous Lendspark short-term financing. Payments of $7,967 are due weekly until $0.725 million has been repaid. This results in an effective interest rate of 25%. Fees in the amount of $12,000 have been recorded as a discount and are being amortized to interest expense over the term of the arrangement. The Company is not in compliance with the terms of this note.   (w) Viridis note   Effective December 1, 2022, the Company entered into an Unsecured Promissory Note with Viridis Group Holdings, LLC, a related party. The purpose of the Unsecured Promissory Note was to agree upon the terms for the short term loans that this related party had previously provided to the Company. Including interest accrued from the date of the short-term loans to the effective date of the agreement, the principal amount of the Unsecured Promissory Note is $6,203,930. Interest only payments in the amount $82,396 will begin on May 21, 2023 with a final balloon payment of all outstanding principal and interest to be paid at maturity on May 21, 2024. The Company is not in compliance with the terms of this note.   (x) *Individual* Note   On March 10, 2022, the Company entered into a short-term promissory note for $250,000. The short-term promissory note was due and payable in monthly payments of interest only, with all principal and any accrued and unpaid interest due at maturity. Effective September 30, 2022, this note was amended to extend the maturity date to March 31, 2023. As part of the amendment, the Company issued 100,000 shares of its common stock, valued at $40,000. This note was amended effective March 31, 2023 to, among other terms, extend the maturity date to May 31, 2024 and to decrease the interest rate to 17.5%. As part of this amendment, combined with the amendments for notes (C-10) above and (dd) below, the Company agreed to pay an extension fee of $75,000 on June 1, 2023. The resulting discount is being amortized to interest expense over the term of the notes. The unpaid balance of this extension fee was accrued at June 30, 2023 in the amount of $30,000. The Company is not in compliance with the terms of this note.   (y) Nebrina Adams County Note   Effective with the close of the Adams County acquisition, the Company entered into a note for $200,000 with the seller as part of the purchase price. The note is payable in six installments on the last day of each three-month period following the Closing Date. This note is in default.    (z) Capybara Capital   The Company is not in compliance with the terms of this note.   (aa) *Individual* Note   On October 28, 2022, the Company entered into a Secured Short Term Promissory Note in the amount of $2.0 million. Principal and interest in the amount of $2.35 million was due at maturity on January 31, 2023. The Company issued 650,000 shares of its common stock, valued at $166,819, to the lender as part of the note agreement. The debt and shares of common stock were recorded at their relative fair values. The resulting discount of $166,819 was amortized to interest expense over the term of the debt. During the nine months ended June 30, 2023, the maturity date of this note was extended to the earlier of: (1) June 1, 2023; or (2) the outcome of the Sessions transaction, whether it closes or, alternatively, is terminated. The Company is not in compliance with the terms of this note.   (bb) Lendspark 2 Note   On November 2, 2022, the Company entered into a short-term financing arrangement with Lendspark. The Company received proceeds of $750,000. Payments of $1,720 were paid daily for the first three months, and were extended through May 19, 2023, and then payments of $19,658 are to be paid daily until a total of $862,500 has been repaid. The Company is not in compliance with the terms of this note.   (cc) Viridis Note   On October 26, 2022, the Company entered into a Secured Short Term Promissory Note with Viridis Group I9 Capital LLC, a related party, in the amount of $500,000. The note was due on November 16, 2022 and carried an interest rate of $1.94 per day per $1,000 outstanding. In addition, the note required a principal payment of $150,000 on November 4, 2022. The Secured Short Term Promissory Note is in default.   (dd) *Individual* Note   On November 3, 2022, the Company entered into a short-term promissory note in the amount of $500,000. Interest only payments are due monthly and all principal and any unpaid interest are due at maturity. The Company issued 300,000 shares of its common stock, valued at $60,000, to the lender as part of the note agreement. The debt and shares of common stock were recorded at their relative fair values. The resulting discount of $60,000 is amortized to interest expense over the term of the debt. This note was amended effective March 31, 2023 to, among other terms, extend the maturity date to May 31, 2024 and to decrease the interest rate to 17.5%. As part of this amendment, combined with the amendments for notes (C-10) and (x) above, the Company agreed to pay an extension fee of $75,000 on June 1, 2023. The resulting discount is being amortized to interest expense over the term of the notes. The unpaid balance of this extension fee was accrued at June 30, 2023 in the amount of $30,000. The Company is not in compliance with the terms of this note.   (ee) VGI Citadel Note   As part of the lease termination of the Company’s corporate office (see Note 9), the Company entered into a note payable with VGI Citadel LLC, a related party, for $25,922, the amount of rent owed at the time of termination. The note carries an interest rate of 1% per annum, compounding weekly, and matured on December 20, 2022. This note is in default.   (ff) Accounts payable converted to a Note   On February 17, 2023, the Company converted outstanding accounts payable owed to a single vendor to a note payable in the amount of $256,415. Principal and interest payments in the amount of $10,000 are due monthly. The Company is not in compliance with the terms of this note.   (gg) *Individual* Note    In April 2023, the Company received $250,000 as part of an anticipated promissory note, which as of the date of this Form 10-Q has not been finalized. It is currently anticipated that this note will require weekly interest payment with all principal and accrued but unpaid interest due at maturity. The Company is not in compliance with the terms of this note.   (hh) Illinois National Bank Note   On June 22, 2023, the Company entered into a Business Loan Agreement and Promissory Note with Illinois National Bank (“INB”). The proceeds from the note were used to pay the bank overdrafts that the Company had with INB. Subsequent to June 30, 2023, the Company was in default on this note.   The future minimum payments of the Company’s notes payable obligations as of June 30, 2023 are as follows. The unamortized discount will be amortized through July 2024.   June 30,   Amount 2024   $ 35,182,377   Less: liabilities related to assets held for sale     (5,500,000 ) Less: imputed interest     (159,770 )     $ 29,522,607     A summary of interest expense for the three and nine months ended June 30, 2023 and 2022 is as follows.               Three months ended June 30,   Nine months ended June 30,     2023   2022   2023   2022 Amortization of debt discounts   $ 373,326     $ 1,440,535     $ 2,462,587     $ 4,932,259   Stated interest paid or accrued     2,579,114       1,508,210       6,638,359       4,073,665   Finance charges and other interest     (1,978 )     22,021       20,183       25,016         2,950,462       2,970,766       9,121,129       9,030,940   Less: interest capitalized to construction in progress     —         (1,345,611 )     (2,401,504 )     (5,098,022 )     $ 2,950,462     $ 1,625,155     $ 6,719,625     $ 3,932,918

v3.23.2

Note 8 - Concentrations	9 Months Ended
	Jun. 30, 2023
Risks and Uncertainties [Abstract]
Note 8 - Concentrations	Note 8 - Concentrations   For the nine months ended June 30, 2023 and 2022, 96% and 98%, respectively, of the Company's revenue was generated from a single customer. Given the agreement with the license holder, although the Company’s products are distributed to numerous dispensaries throughout Arizona, all sales are made through the license holder. The Company's wholly owned subsidiary provides cannabis products to this customer under a three-year Cultivation Management Services Agreement that commenced on April 1, 2020. This agreement has been extended through August 11, 2023. Provisions of the agreement require 30-day written notice to terminate except for the following circumstances, in which case the agreement is cancellable with no notice: (i) uncured default; (ii) gross negligence, intentional, or willful misconduct by either party; (iii) federal or state enforcement action against either party; (iv) any change or revocation of state or local law that has the effect of prohibiting the legal operation of the Cultivation Facility; (v) the dispensary license renewal is not approved; (vi) the dispensary fails to maintain its dispensary license in good standing with the regulators resulting in the revocation of the dispensary license. Three of our license holder’s customers that the Company’s products are distributed to account for approximately 49%, 11% and 9%, respectively, of our cultivation revenue for the nine months ended June 30, 2023. Should our products no longer be distributed to these customers of our license holder, it would have a material adverse effect on our operations.   Effective June 29, 2023, the Company entered into a Contractor and License Agreement. The term of this agreement is for a term of three years and continue through June 30, 2026. This agreement may be extended for one additional three year period, provided that no event of default has occurred. Provisions of the agreement require a six month written notice to terminate except in certain circumstances, in which case the agreement can be immediately terminated.

v3.23.2

Note 9 - Commitments and Contingencies	9 Months Ended
	Jun. 30, 2023
Commitments and Contingencies Disclosure [Abstract]
Note 9 - Commitments and Contingencies	Note 9 - Commitments and Contingencies   The production and possession of cannabis is prohibited on a national level by the Controlled Substances Act, though the state of Arizona allows these activities to be performed at licensed facilities such as BSSD. If the federal government decides to change its policy on the enforcement of the Controlled Substances Act, it would have a material adverse effect on our business.   The Company entered into a 60 month lease with VGI Citadel LLC, a related party, to rent office space for its corporate headquarters which began in June 2019. The monthly lease payments were $6,478 for the first twelve months and include all utilities and an estimated amount for common area maintenance and real estate taxes. The monthly lease payments increase to $6,653, $6,828, $7,003, and $7,178 for years two through five, respectively. Rent expense for the three months ended June 30, 2023 and 2022 on this lease was nil and $20,782, respectively. Rent expense for the nine months ended June 30, 2023 and 2022 on this lease was $6,348 and $64,939, respectively. Interest was imputed using a discount rate of 20%. The lease does not include renewal options.   The Company and VGI Citadel LLC entered into an Agreement to Terminate Lease for its corporate offices which called for the termination of the lease with VGI Citadel LLC, a related party, effective December 20, 2022.   In February 2022, the Company assumed a lease to rent approximately 3,100 square feet of retail space in Oklahoma City, Oklahoma as part of the Oklahoma City acquisition. The lease calls for base rent payments of $21 per square foot ($5,483), plus a prorated share of taxes, insurance and common area maintenance expenses, per month and increasing each year by 3% through the end of the lease term on February 28, 2029. The lease may be extended for two additional 5 year periods. Rent expense for the three months ended June 30, 2023 and 2022 on this lease was $19,975 and $22,129, respectively. Rent expense for the nine months ended June 30, 2023 and 2022 on this lease was $64,616 and $36,406, respectively. Interest was imputed using a discount rate of 18%. During the nine months ended June 30, 2023, the Company has closed this dispensary and the Company has removed the remaining balance of the right of use asset and liability from the condensed consolidated balance sheet.   In March 2022, the Company assumed a lease to rent approximately 2,650 square feet of retail space in Adams County, Colorado as part of the Adams County acquisition. The lease calls for base rent payments of $15,450, plus a prorated share of operating costs of the building, per month and escalate each year to $15,913 in the final year which ends on February 1, 2024. The lease may be extended for one additional 3 year period. Rent expense for the three months ended June 30, 2023 and 2022 on this lease was $49,604 and $52,822, respectively. Rent expense for the nine months ended June 30, 2023 and 2022 on this lease was $150,917 and $68,870, respectively. Interest was imputed using a discount rate of 18%. At and subsequent to June 30, 2023, the Company is past due on its monthly lease payments.   In September 2021, the Company signed a seven-year lease to rent approximately 3,000 square feet of retail space in Biddeford, Maine. The lease calls for base rent payments of $6,604, plus taxes and operating expenses, per month for the first year and escalate each year to $7,886 per month in year seven. The lease may be extended for two terms of 5 years each. The commencement of this lease was contingent upon the issuance and receipt of a license and city approval. The agreement will terminate if the contingency is not met. At June 30, 2023, the contingency was not met and the lease was terminated. As such, the Company has removed the remaining balance of the right of use asset and liability from the condensed consolidated balance sheet. Rent expense for the three and nine months ended June 30, 2023 on this lease was $22,677. Interest was imputed using a discount rate of 18%.   In October 2021, the Company entered into a commercial lease agreement to rent 12,000 square feet located in Denver, Colorado. The lease has a term of five years with escalating monthly base rent beginning at $6,354 and escalating each year to $7,295 in year five. Commencement of the lease was contingent upon the Company receiving an approved retail license within 120 days from October 22, 2021. The agreement was to terminate if the contingency was not met. The contingency was met during the three months ended December 31, 2022 and the Company had recorded the right of use asset and liability to the condensed consolidated balance sheet at March 31, 2023. During the three months ended June 30, 2023, the agreement was terminated and the Company removed the ROU asset and liability from the condensed consolidated balance sheet at June 30, 2023. Rent expense for the three and nine months ended June 30, 2023 on this lease was $18,266 and $59,939, respectively. Interest was imputed using a discount rate of 18%. At and subsequent to June 30, 2023, the Company is past due on its monthly lease payments.   The Company believes it is probable that a break-up fee will be payable related to this Denver, Colorado location. However, the amount of the break-up fee cannot currently be reasonably estimated. The Company believes that the break-up fee will be in the range of $50,000 - $250,000.   In March 2023, the Company entered into a commercial lease agreement to rent 6,159 square feet located in Phoenix, Arizona. The lease has a term of 27 months with escalating monthly base rent beginning at $13,601 plus parking fees and escalating each to $14,114 plus parking fees in the second year. The Company has recorded the right of use asset and liability to the condensed consolidated balance sheet at June 30, 2023. Rent expense for the three and nine months ended June 30, 2023 on this lease was $32,471 and $45,562, respectively. Interest was imputed using a discount rate of 18%. At and subsequent to June 30, 2023, the Company is past due on its monthly lease payments.   The future lease payments are as follows.   Year ended     June 30,   Amount   2024     $ 294,784     2025       158,228             453,012     Less: imputed interest       (60,559 )           392,453     Less: current portion:       (247,586 )         $ 144,867     As of June 30, 2023 and September 30, 2022, the Company has accrued unpaid payroll taxes and estimated penalties and interest of approximately $1,380,000 and $1,450,000, respectively, and is included in accrued payroll and payroll taxes in the accompanying condensed consolidated balance sheets. During the nine months ended June 30, 2023, the Company received approximately $953,000 of Employee Retention Credits ("ERCs") that were used to reduce the unpaid payroll tax liability. In addition, as a result of the ERCs, the Company reduced its accrued payroll tax liability in the amount of approximately $316,000 related to the reduction of estimated penalties and interest. The ERCs were recorded to payroll and employee related expenses and the reduction of the estimated penalties and interest was recorded to other operating expenses on the condensed consolidated statement of operations. At June 30, 2023, an asset for the overpayment of certain payroll taxes was recorded to other assets on the condensed consolidated balance sheet in the amount of approximately $119,000.   There are no material pending legal proceedings, other than the Foreclosure discussed in Note 7 (q, r) above and various legal actions from creditors and vendors, in which the Company or any of its subsidiaries is a party or in which any director, officer or affiliate of the Company, any owner of record or beneficially of more than 5% of any class of its voting securities, or security holder is a party adverse to us or has a material interest adverse to the Company.

v3.23.2

Note 10 - Related Party Transactions	9 Months Ended
	Jun. 30, 2023
Related Party Transactions [Abstract]
Note 10 - Related Party Transactions	Note 10 - Related Party Transactions   As discussed in Note 6, the Company completed the purchase of 44 acres of land from a related party for $3.0 million plus expenses. The land-owner is one of the original members of BSSD and a former employee of the Company.   As discussed in Note 7, the Company has entered into various loan agreements with Viridis or its related entities. A member of Viridis served on the Company’s board of directors.   As discussed in Note 7, the Company has a loan agreement with Stockbridge Enterprises. Stockbridge Enterprises holds more than 5% of the Company’s common stock.   As discussed in Note 7, the Company has a convertible loan agreement with a former member of the Company’s board of directors.   As discussed in Note 7, as part of the OCG transaction in March 2021, the Company assumed the debt that OCG, Inc. owed to its officers. One of these officers is a former director and former officer of the Company. This officer’s note had a maturity date of April 1, 2024 and an interest rate of 10% per annum. Principal and interest payments were due monthly with a balloon payment of all outstanding principal and interest due at maturity. On November 2, 2022, the outstanding amount owed on this note of $289,579 was converted at $0.25 per share into 1,158,318 shares of the Company’s common stock.   As discussed in Note 9, the Company previously had a lease agreement with VGI Capital LLC. As part of the lease termination, the Company entered into a note payable with VGI Citadel LLC. See Note 7. One member of VGI Capital LLC served on the Company’s board of directors.   During the nine months ended June 30, 2023 and 2022, the Company purchased cultivation supplies from a related party in the amount of $0 and $31,708, respectively. No purchases were made from this related party during the three months ended June 30, 2023 and 2022. This related party is owned by the parent of a stockholder that holds more than 5% of the Company’s common stock.   Included in our accounts payable at June 30, 2023 and September 30, 2022 is approximately $148,000, and $243,000, respectively in amounts due to related parties. In addition, at June 30, 2023, $430,833 was accrued on the condensed consolidated balance sheet related to the severance agreements for our two former Chief Executive Officers and our former Chief Financial Officer.   In February 2023, the Company entered into an Executive Employment Agreement (“Agreement”) with its Chief Operating Officer. The Agreement is for a period of two years and contains provisions customary with similar agreements including a six month severance and non-competition period upon a termination without cause. Compensation under the Agreement provides for an annual salary of $225,000, a signing bonus of $50,000 paid in the Company’s common stock and a transaction bonus in the event that the Company closes a transaction in which there is a Change of Control. During February 2023, 319,900 shares of the Company’s common stock were issued for payment of the signing bonus.   In May 2023, the Company entered into a Severance Agreement and Release of Claims with an employee who is also a greater than 5% stockholder of the Company. The severance agreement calls for payments totaling $17,538 and the continuation of health benefits until March 2024.    On May 16, 2023, the Company entered into a Separation Agreement and General Release (the “Agreement”) with the Company’s Chief Executive Officer, Michael Weinberger. The Agreement provides for thirty (30) equal biweekly installments of $7,500 and payment of Mr. Weinberger’s previously unreimbursed expenses. Further, Mr. Weinberger is to remain on the Company employee benefit plan, including health insurance for the duration of the period until Mr. Weinberger has been paid in full under the Agreement. Finally, Mr. Weinberger is to receive his 2023 fiscal year option to purchase up to 200,000 shares of the Company’s common stock with a strike price based on the current 10-day VWAP. These options vest over a two (2) year period and have a term of five (5) years. The Chairman of the Company’s Board of Directors, Douglas Bowden, will serve as the Company’s Interim Chief Executive Officer.   On June 30, 2023, the Company entered into a Separation Agreement and General Release (the “Agreement”) with the Company’s Chief Financial Officer, Robert Mikkelsen. The Agreement provides for twenty-four (24) equal biweekly installments of $5,000 and payment of Mr. Mikkelsen’s previously unreimbursed expenses. Further, Mr. Mikkelsen is to remain on the Company employee benefit plan, including health insurance for the duration of the period until Mr. Mikkelsen has been paid in full under the Agreement. Mr. Mikkelsen is to receive his 2023 fiscal year option to purchase up to 200,000 shares of the Company’s common stock with a strike price based on the current 10-day VWAP. These options vest over a two (2) year period and have a term of five (5) years. Mr. Mikkelsen’s options to purchase the Company’s common stock will become fully vested. In exchange for the cancellation of one-half of Mr. Mikkelsen’s outstanding stock options, the Company granted 456,088 shares of common stock. Finally, this agreement includes a transaction bonus upon the Company’s completion of a transaction resulting in a net positive change of control.

v3.23.2

Note 11 – Assets Held for Sale	9 Months Ended
	Jun. 30, 2023
Note 11 Assets Held For Sale
Note 11 – Assets Held for Sale	Note 11 – Assets Held for Sale   During the year ended September 30, 2022, as a result of a shift in the Company’s business plan, the Company approved a plan to sell its newly constructed Nevada facility and the related cannabis licenses. The Company controls these cannabis licenses through the Asset and Equity Purchase and Contribution Agreement dated February 14, 2020. This sale is expected to occur in the next 12 months. The assets held for sale are recorded at fair value less cost to sell. Fair value was determined based on the value included in a prior letter of intent. The following assets and liability are included under “Corporate” in Note 13.       June 30,     2023 Assets held for sale         Construction in progress - land and building   $ 9,646,612   Licenses     6,703,981         16,350,593   Valuation allowance     (9,535,593 )     $ 6,815,000             Liabilities related to assets held for sale         Debt   $ 5,500,000

v3.23.2

Note 12 - Stockholders' Equity	9 Months Ended
	Jun. 30, 2023
Equity [Abstract]
Note 12 - Stockholders' Equity	Note 12 - Stockholders' Equity   Warrants   The following table summarizes the Company’s warrant activity for the nine months ended June 30, 2023:       Common Shares Issuable Upon Exercise of Warrants   Weighted Average Exercise Price   Weighted Average Contractual Term in Years   Aggregate Intrinsic Value Balance of warrants at September 30, 2022     49,870,537     $ 2.05       3.7     $ 315,000                                     Warrants granted     2,300,000       0.50       2.0           Forfeited/Cancelled     (2,800,000 )     2.57       3.4                                             Balance of warrants at June 30, 2023     49,370,537     $ 1.95       3.6     $ —          (1) The aggregate intrinsic value is calculated as the difference between the exercise price of the underlying awards and the closing price of the Company’s common stock as of June 30, 2023, for those awards that have an exercise price currently below the closing price as of June 30, 2023. Awards with an exercise price above the closing prices as of June 30, 2023 are considered to have no intrinsic value.     The following range of assumptions were used to estimate the fair value of warrants issued during the nine months ended June 30, 2023, using the Black-Scholes option-pricing model.       Nine months ended     June 30, 2023 Expected stock price volatility     127% Risk-free interest rate     4% Expected term (years)     2.0   Expected dividend yield     0% Black-scholes value   $0.23     Stock Options   On June 21, 2019, the Company’s shareholders voted to approve the 2019 Equity Incentive Plan (the “2019 Plan”). Pursuant to the 2019 Plan, the maximum aggregate number of Shares available under the Plan through awards is the lesser of: (i) 6,000,000 shares, increased each anniversary date of the adoption of the plan by 2 percent of the then-outstanding shares, or (b) 10,000,000 shares. The maximum contractual term of the award is 10 years. The vesting period for options outstanding at June 30, 2023 ranges from vesting immediately to three years.   The following table summarizes the Company’s stock option activity for the nine months ended June 30, 2023:       Common Shares Issuable Upon Exercise of Options   Weighted Average Exercise Price   Weighted Average Remaining Contractual Term in Years   Aggregate Intrinsic Value (1) Balance of Options at September 30, 2022     8,594,805     $ 1.08       8.3     $ 33,162                                     Options granted     1,152,612       0.19       7.0       2,000   Forfeited/Cancelled     (689,702 )     1.55       —         —                                       Balance of Options at June 30, 2023     9,057,715     $ 0.93       7.5     $ 5,401                                     Exercisable at June 30, 2023     4,598,511     $ 0.97       6.9     $ 4,751   Unvested at June 30, 2023     4,459,204     $ 0.87                           Number of Options       Weighted Average Grant Date Fair Value   Unvested at June 30, 2023     4,459,204     $ 0.83   Granted during the nine months ended June 30, 2023     1,152,612     $ 0.20   Forfeited during the nine months ended June 30, 2023     689,702     $ 0.76       (1) The aggregate intrinsic value is calculated as the difference between the exercise price of the underlying awards and the closing price of the Company’s common stock as of June 30, 2023, for those awards that have an exercise price currently below the closing price as of June 30, 2023. Awards with an exercise price above the closing prices as of June 30, 2023 are considered to have no intrinsic value.     The following range of assumptions were used to estimate the fair value of stock options granted during the nine months ended June 30, 2023, using the Black-Scholes option-pricing model.       Nine months ended     June 30, 2023 Expected stock price volatility   151% - 167% Risk-free interest rate   3.6% - 4.3% Expected term (years)   2.5 - 5.0 Expected dividend yield   0% Black-scholes value   $0.03 - $0.37   During the three months ended June 30, 2023 and 2022, the Company recognized compensation expense of $860,332 and $934,681, respectively. During the nine months ended June 30, 2023 and 2022, the Company recognized compensation expense of $2,372,982 and $2,533,535, respectively. At June 30, 2023, there was $996,988 of total unrecognized compensation cost. This unrecognized cost is expected to be recognized over the weighted average vesting period of approximately 1 year.

v3.23.2

Note 13 – Segment Information	9 Months Ended
	Jun. 30, 2023
Segment Reporting [Abstract]
Note 13 – Segment Information	Note 13 – Segment Information   The Company has identified two segments: the cultivation, production and sale of cannabis products (Cultivation) and the sales of Unity Rd. franchises to dispensaries (Franchising). The following tables presents segment information at and for the three and nine months ended June 30, 2023 and 2022.       Cultivation   Franchising   Corporate   Total Nine months ended June 30, 2023             Revenues from external customers   $ 15,124,870     $ 221,822     $ 342,569     $ 15,689,261   Operating income (loss)     6,304,567       (2,078,880 )     (10,073,205 )     (5,847,518 ) Interest expense     1,060,873       6,103       5,652,649       6,719,625   Depreciation and amortization     80,307       894,805       160,407       1,135,519   Additions to property, equipment and construction in progress     —         —         3,829,432       3,829,432                                     Three months ended June 30, 2023                                 Revenues from external customers   $ 4,823,366     $ 60,837     $ 138,172     $ 5,022,375   Operating income (loss)     1,863,500       (707,362 )     (4,122,184 )     (2,966,046 ) Interest expense     344,479       —         2,605,983       2,950,462   Depreciation and amortization     26,767       300,740       50,648       378,155                                     At June 30, 2023                                 Property, equipment and construction in progress, net   $ 223,841     $ 13,813     $ 24,364,635     $ 24,602,289   Total assets (after intercompany eliminations)     3,229,417       66,709,346       42,076,733       112,015,496                                     Nine months ended June 30, 2022                                 Revenues from external customers   $ 17,360,844     $ 280,529     $ 114,146     $ 17,755,519   Operating income (loss)     3,993,350       (2,705,153 )     (10,042,901 )     (8,754,704 ) Interest expense     460,524       79,993       3,392,401       3,932,918   Depreciation and amortization     90,362       901,675       328,627       1,320,664   Additions to property, equipment and construction in progress     25,623       —         15,631,945       15,657,568                                     Three months ended June 30, 2022                                 Revenues from external customers   $ 4,861,737     $ 22,031     $ 47,554     $ 4,931,322   Operating income (loss)     983,533       (1,001,768 )     (3,829,572 )     (3,847,807 ) Interest expense     303,462       36,777       1,284,916       1,625,155   Depreciation and amortization     27,830       300,150       111,072       439,052                                     At June 30, 2022                                 Property, equipment and construction in progress, net   $ 421,757     $ 20,899     $ 25,864,556     $ 26,307,212   Total assets (after intercompany eliminations)     5,102,841       68,217,019       47,207,983       120,527,843

v3.23.2

Note 14 - Subsequent Events	9 Months Ended
	Jun. 30, 2023
Subsequent Events [Abstract]
Note 14 - Subsequent Events	Note 14 - Subsequent Events    Subsequent to June 30, 2023 the following events have occurred.   On July 11, 2023, a motion was filed, requesting the Superior Court of Arizona, in the County of Maricopa, to appoint a receiver over Item 9 Labs. The Company stipulated and agreed to the receiver appointment. On July 14, 2023, the Superior Court of Arizona appointed a receiver and the receiver was granted, effective immediately, possession, custody, and control of all the real, personal, tangible and intangible property owned by Item 9 Labs or in which Item 9 Labs has an interest (the “Property”). The receiver is authorized and is entitled to exercise all of Item 9 Labs’ rights in any and all Property in which the Company has an interest. The receiver is appointed to manage, maintain and preserve the Property for the duration of this receivership in a reasonable, prudent, diligent and efficient manner to maximize its value for the benefit of Item 9 Labs’ equity interest holders and creditors.

v3.23.2

Note 1 - Description of Business and Summary of Significant Accounting Policies (Policies)	9 Months Ended
	Jun. 30, 2023
Accounting Policies [Abstract]
Principles of Consolidation	Principles of Consolidation   The accompanying condensed consolidated financial statements of the Company as of June 30, 2023 have been prepared by us without audit pursuant to the rules and regulations of the Securities and Exchange Commission ("SEC") and do not include all of the information and notes necessary for a presentation of financial position and results of operations in accordance with US GAAP and should be read in conjunction with our September 30, 2022 audited financial statements filed with the SEC on our Form 10-K on January 13, 2023. It is management's opinion that all material adjustments (consisting of normal recurring adjustments) have been made, which are necessary for a fair financial statement presentation. We derived the September 30, 2022 condensed consolidated balance sheet data from audited financial statements, however, we did not include all disclosures required by US GAAP. The results for the interim periods ended June 30, 2023 are not necessarily indicative of the results to be expected for the year ending September 30, 2023.   The condensed consolidated financial statements of the Company include the accounts of the Company, and its wholly-owned subsidiaries and a consolidated variable interest entity (“VIE”). Intercompany balances and transactions have been eliminated.   Item 9 Labs consolidates a VIE in which the Company is deemed to be the primary beneficiary.  An entity is generally a VIE if it meets any of the following criteria: (i) the entity has insufficient equity to finance its activities without additional subordinated financial support from other parties, (ii) the equity investors cannot make significant decisions about the entity’s operations or (iii) the voting rights of some investors are not proportional to their obligations to absorb the expected losses of the entity or receive the expected returns of the entity and substantially all of the entity’s activities involve or are conducted on behalf of the investor with disproportionately few voting rights. The Company makes significant judgments in determining whether an entity is a VIE and, for each reporting period, the Company assesses whether it is the primary beneficiary of the VIE.   Effective February 1, 2022, the Company was deemed the primary beneficiary of Elevated Connections, Inc. The equity in Elevated Connections, Inc. held by its stockholder has been presented on the balance sheet and the statement of operations as a non-controlling interest. See Note 5.
Accounting Estimates	Accounting Estimates   The preparation of financial statements in conformity with US GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenue and expenses during the reporting period. Actual results could materially differ from those estimates. Significant estimates of the Company include but are not limited to accounting for depreciation and amortization, current and deferred income taxes, inventory, accruals and contingencies, carrying value of fixed assets, construction in progress, goodwill and intangible assets, the fair value of common stock and the estimated fair value of stock options and warrants. Due to the uncertainties in the formation of accounting estimates, and the significance of these items, it is reasonably possible that these estimates could be materially changed in the near term.
Inventory	Inventory   Inventory is stated at the lower of cost or net realizable value with cost being determined on the first in first out method. Inventory primarily consists of the costs directly related to the production and cultivation of cannabis crops, cannabis oils, and cannabis concentrate products. Inventory is relieved to cost of revenues as products are delivered to dispensaries. Inventory consists primarily of labor, utilities, costs of raw materials, packaging, nutrients and overhead.   The Company routinely evaluates the carrying value of inventory for slow moving and potentially obsolete inventory and, when appropriate, will record an adjustment to reduce inventory to its estimated net realizable value.
Impairment of Long-Lived Assets	Impairment of Long-Lived Assets   We analyze long-lived assets, including property and equipment and definite-lived intangible assets, for impairment whenever events or changes in circumstances indicate that the carrying amounts may not be recoverable. We review the amortization method and estimated period of useful life at least at annually at the balance sheet date. We record the effects of any revision to operations when the change arises. We recognize impairment when the estimated undiscounted cash flow generated by those assets is less than the carrying amount of such assets. The amount of impairment is the excess of the carrying amount over the fair value of such assets, which is generally calculated using discounted cash flows.   During and subsequent to the three months ended June 30, 2023, the Company has noted indicators of the possible impairment of its property and equipment and definite-lived intangible assets. The Company will analyze these indicators during the fourth quarter of the year ended September 30, 2023 and determine if any impairment has occurred. Given the carrying value of the Company’s property and equipment and definite-lived intangible assets at June 30, 2023, the occurrence of an impairment may be material to the Company’s financial position and results of operations.
Goodwill and Intangible Assets Not Subject to Amortization	Goodwill and Intangible Assets Not Subject to Amortization   Goodwill represents the excess of the purchase price paid for the acquisition of a business over the fair value of the net tangible and intangible assets acquired. Indefinite life intangible assets represent licenses purchased for cultivation, processing, distribution and sale of cannabis and cannabis related products. Goodwill and indefinite life intangibles are not subject to amortization, however, annually, or whenever there is an indication that goodwill or the indefinite life intangible assets may be impaired, we evaluate qualitative factors to determine whether it is more likely than not that the fair value of the goodwill or indefinite life intangible assets is less than its carrying amount. Our test of goodwill and indefinite life intangible assets includes assessing qualitative factors and the use of judgment in evaluating economic conditions, industry and market conditions, cost factors, and entity-specific events, as well as overall financial performance. Upon the determination of a likely impairment, management assesses the recorded goodwill or indefinite life intangibles balance with the fair value of the reporting unit or assets acquired.   During and subsequent to the three months ended June 30, 2023, the Company has noted indicators of impairment of its goodwill and intangible assets not subject to amortization, including its licenses. The Company will analyze these indicators during the fourth quarter of the year ended September 30, 2023 and determine the extent to which an impairment has occurred. Given the carrying value of the Company’s goodwill and intangible assets not subject to amortization at June 30, 2023, the occurrence of an impairment will likely be material to the Company’s financial position and results of operations and may result in an impairment charge in excess of $50 million.
Revenue Recognition	Revenue Recognition   Cultivation revenue   The core principle of ASC 606 requires that an entity recognize revenue to depict the transfer of promised goods or services to customers in an amount that reflects the consideration to which the company expects to be entitled in exchange for those goods or services. ASC 606 defines a five-step process to achieve this core principle, including identifying the contract with the customer, identifying the performance obligations in the contract, determining the transaction price, including estimating the amount of variable consideration to include in the transaction price, allocating the transaction price to each separate performance obligation and recognizing revenue when (or as) the performance obligation is satisfied.   All of the Company's cultivation revenue is associated with a customer contract that represents an obligation to provide cannabis products that are delivered at a single point in time.  For the three and nine months ended June 30, 2023 and 2022, 96% of the Company's net revenue was generated from performance obligations completed in the state of Arizona.   The Company recognizes revenue once the products are delivered. Revenue is considered earned upon successful delivery of the product to the dispensary as the Company has no further performance obligations at this point in time and collection is reasonably assured. The Company records revenue at the amount it expects to collect, 100% of the wholesale sales. Beginning April 1, 2020, the Company entered into a three-year agreement with a dispensary, which calls for monthly payments of $40,000 to be paid by the Company. The fees paid for operating under the contract are expensed to cost of revenues. See Note 8.   The Company's revenues accounted for under ASC 606 do not require significant estimates or judgments based on the nature of the Company's revenue stream. The sales price is generally fixed at the point of sale and all consideration from the contract is included in the transaction price. The Company's contracts do not include multiple performance obligations, variable consideration, a significant contract, rights of return or warranties.   Franchising revenue   The Company enters into franchise agreements and consulting agreements. The franchise agreement allows the franchisee to, among other things, establish a franchised outlet under the Company’s Unity Rd. brand. Under the consulting agreements, the Company assists customers with applying for and being awarded a retail cannabis license through the state license application process. The initial franchise fee and the consulting fee are due upon execution of the related agreement. These payments are deferred on the condensed consolidated balance sheet. The initial franchise fee is recognized into revenue ratably over the term of the agreement and the consulting fee is recognized at the time the performance obligation has been satisfied. Revenue recognized during the three months ended June 30, 2023 and 2022 that was included in deferred revenue at September 30, 2022 and 2021 was $6,250 and $4,998, respectively. Revenue recognized during the nine months ended June 30, 2023 and 2022 that was included in deferred revenue at September 30, 2022 and 2021 was $67,496 and $214,994, respectively.   Disaggregation of Revenue   The following table presents our revenue disaggregated by source.                                       Three months ended June 30,   Nine months ended June 30,     2023   2022   2023   2022 Cultivation segment                                 Flower   $ 648,730     $ 611,970     $ 1,865,879     $ 2,633,138   Vape products     3,661,855       3,648,315       11,667,650       12,553,206   Concentrates and other cannabis products     437,161       523,816       1,372,816       1,993,758   Accessories     75,620       77,636       218,525       180,742         4,823,366       4,861,737       15,124,870       17,360,844   Franchising segment                                 Franchising revenue     60,837       22,031       221,822       280,529                                     Corporate                                 Dispensary sales revenue     138,172       40,245       342,569       73,567   Other     —         7,309       —         40,579         138,172       47,554       342,569       114,146       $ 5,022,375     $ 4,931,322     $ 15,689,261     $ 17,755,519
Net Loss Per Share	Net Loss Per Share    Basic net loss per share does not include dilution and is computed by dividing net loss available to common stockholders by the weighted average number of common shares outstanding for the period. Diluted net loss per share reflects the potential dilution of securities that could share in the losses of an entity. Dilutive securities are not included in the weighted average number of shares when inclusion would be anti-dilutive. The following table summarizes the securities outstanding at June 30, 2023 and 2022 that were excluded from the diluted net loss per share calculation for the three and nine months ended June 30, 2023 and 2022 because the effect of including these potential shares was antidilutive due to the Company’s net loss.       2023   2022 Potentially dilutive common share equivalents                 Options     9,057,715       8,594,805   Warrants     49,370,537       49,870,537   Convertible notes     36,168,666       9,968,931   Potentially dilutive shares outstanding     94,596,918       68,434,273
Warrants, Conversion Options, Debt Discounts and Amendments	Warrants, Conversion Options, Debt Discounts and Amendments   The Company analyzes warrants issued with debt to determine if the warrants are required to be bifurcated and accounted for at fair value at each reporting period. When bifurcation is not required, the Company records a debt discount, based on the relative fair values of the warrants and the debt, with a corresponding charge to equity unless the terms of the warrant require it to be classified as a liability. The warrants and corresponding note discounts are valued using the Black-Scholes option-pricing model. This model uses estimates of volatility, risk free interest rate and the expected term of the warrants, along with the current market price of the Company's stock, to estimate the value of the outstanding warrants. The Company estimates the expected term using an average of the contractual term and vesting period of the award. The expected volatility is measured using the average historical daily changes in the market price of the Company's common stock over the expected term of the award or, if earlier, since March 20, 2018, the day of the merger between BSSD Group LLC ("BSSD") and Airware Labs Corp, and the risk-free interest rate is equivalent to the implied yield on zero-coupon U.S. Treasury bonds with a remaining maturity equal to the expected term of the awards.    The Company also analyzes conversion options embedded with debt to determine if the conversion options are required to be bifurcated and accounted for at fair value at each reporting period or to determine if there is a beneficial conversion feature. At June 30, 2023 and September 30, 2022, none of the conversion options embedded in the Company’s debt were required to be bifurcated.   The Company analyzes the terms of its debt amendments to determine if the changes made to the terms have affected the debt’s cash flows. If the debt’s cash flows have been affected, the Company then determines if the amendment should be accounted for as a troubled debt restructuring, an extinguishment or a modification and the appropriate accounting model is applied.
Segment Reporting	Segment Reporting   The Company defines operating segments as components about which separate financial information is available that is evaluated regularly by the chief operating decision maker in deciding how to allocate resources and in assessing performance. The Company allocates its resources and assesses the performance of its sales activities based on the services performed by its subsidiaries. For the three and nine months ended June 30, 2023 and 2022, the Company has identified two segments: the cultivation, production and sale of cannabis and cannabis derived products and technologies (“Cultivation”) and the sales of Unity Rd. franchises to dispensaries (“Franchising”).
Held for sale	Held for sale The Company classifies long-lived assets or disposal groups and related liabilities as held-for-sale when management having the appropriate authority, generally our Board of Directors or certain of our Executive Officers, commits to a plan of sale, the disposal group is ready for immediate sale, an active program to locate a buyer has been initiated and the sale is probable and expected to be completed within one year. Once classified as held-for-sale disposal groups are valued at the lower of their carrying amount or fair value less estimated selling costs. Depreciation on these properties, if placed into service, is discontinued at the time they are classified as held for sale.
Employer Retention Credit	Employer Retention Credit   During the nine months ended June 30, 2023, the Company received $952,805 of tax credits in accordance with the Employer Retention Credit (“ERC”) program, authorized by the Coronavirus Aid, Relief, and Economic Security (CARES) Act, as amended. The Company’s policy is to account for the ERC as a grant using guidance analogous to government grants found in IAS 20, Accounting for Government Grants and Disclosure of Government Assistance. In accordance with this guidance, the ERC is recognized as a reduction to Payroll and employee related expenses on the statement of operations when there is reasonable assurance that the Company will receive the ERC.
Leases	Leases   The Company determines if an arrangement is a lease at inception. Operating leases are included in operating lease right-of-use (“ROU”) assets and current and long-term operating lease liabilities on our condensed consolidated balance sheets. We currently do not have any material finance lease arrangements.   Operating lease ROU assets and lease liabilities are recognized based on the present value of the future minimum lease payments over the lease term at commencement date. Generally, our leases do not provide an implicit rate. As such, we use our incremental borrowing rate in effect at the commencement date of the lease in determining the present value of future payments.   When we have the option to extend the lease term, terminate the lease before the contractual expiration date, or purchase the leased asset, and if it is reasonably certain that we will exercise the option, we consider these options in determining the classification and measurement of the lease.
Recently Issued Accounting Pronouncements	Recently Issued Accounting Pronouncements   Pending Adoption   In June 2016, the FASB issued ASU No. 2016-13, Financial Instruments – Credit Losses (Topic 326), which provides guidance on measuring credit losses on financial instruments. The amended guidance replaces current incurred loss impairment methodology of recognizing credit losses when a loss is probable with a methodology that reflects expected credit losses and requires a broader range of reasonable and supportable information to assess credit loss estimates. ASU 2016-13 is effective for the Company on October 1, 2023, with early adoption permitted on October 1, 2019. We are assessing the provisions of this amended guidance; however, the adoption of the standard is not expected to have a material effect on our condensed consolidated financial statements.   In August 2020, the FASB issued ASU No. 2020-06, Debt with Conversion and Other Options (Subtopic 470-20) and Derivatives and Hedging – Contracts in Entity’s Own Equity (Subtopic 815-40). This standard eliminates the beneficial conversion and cash conversion accounting models for convertible instruments. It also amends the accounting for certain contracts in an entity’s own equity that are currently accounted for as derivatives because of specific settlement provisions. In addition, the new guidance modifies how particular convertible instruments and certain contracts that may be settled in cash or shares impact the diluted EPS computation. For public business entities, excluding entities eligible to be smaller reporting companies, it is effective for fiscal years beginning after December 15, 2021, including interim periods within those fiscal years using the fully retrospective or modified retrospective method. For all other entities, the amendments are effective for fiscal years beginning after December 15, 2023. Early adoption is permitted but no earlier than fiscal years beginning after December 15, 2020, including interim periods within those fiscal years. We are currently evaluating the impact of adoption of this standard on the Company’s condensed consolidated financial statements and disclosures.   In October 2021, the FASB issued ASU No. 2021-08, Business Combinations (Topic 805): Accounting for Contract Assets and Contract Liabilities from Contracts with Customers. This standard requires contract assets and contract liabilities acquired in a business combination to be recognized in accordance with Topic 606 as if the acquirer had originated the contracts. For public business entities, ASU 2021-08 is effective for fiscal years beginning after December 15, 2022, including interim periods within those years and early adoption is permitted. We are currently evaluating the impact of adoption of this standard on the Company’s condensed consolidated financial statements and disclosures.   There have been no other recent accounting pronouncements or changes in accounting pronouncements that have been issued but not yet adopted that are of significance, or potential significance, to us.

v3.23.2

Note 1 - Description of Business and Summary of Significant Accounting Policies (Tables)	9 Months Ended
	Jun. 30, 2023
Accounting Policies [Abstract]
[custom:ScheduleOfRevenueDisaggregatedBySourceTableTextBlock]	Three months ended June 30,   Nine months ended June 30,     2023   2022   2023   2022 Cultivation segment                                 Flower   $ 648,730     $ 611,970     $ 1,865,879     $ 2,633,138   Vape products     3,661,855       3,648,315       11,667,650       12,553,206   Concentrates and other cannabis products     437,161       523,816       1,372,816       1,993,758   Accessories     75,620       77,636       218,525       180,742         4,823,366       4,861,737       15,124,870       17,360,844   Franchising segment                                 Franchising revenue     60,837       22,031       221,822       280,529                                     Corporate                                 Dispensary sales revenue     138,172       40,245       342,569       73,567   Other     —         7,309       —         40,579         138,172       47,554       342,569       114,146       $ 5,022,375     $ 4,931,322     $ 15,689,261     $ 17,755,519
Schedule of Antidilutive Securities Excluded from Computation of Earnings Per Share [Table Text Block]	2023   2022 Potentially dilutive common share equivalents                 Options     9,057,715       8,594,805   Warrants     49,370,537       49,870,537   Convertible notes     36,168,666       9,968,931   Potentially dilutive shares outstanding     94,596,918       68,434,273

v3.23.2

Note 3 – Inventory (Tables)	9 Months Ended
	Jun. 30, 2023
Inventory Disclosure [Abstract]
Schedule of Inventory, Current [Table Text Block]	June 30,   September 30,     2023   2022 Raw materials and work in process   $ 923,976     $ 1,209,892   Finished goods     636,240       835,420   Packaging and other     338,387       418,910       $ 1,898,603     $ 2,464,222

v3.23.2

Note 5 – Variable Interest Entity (Tables)	9 Months Ended
	Jun. 30, 2023
Organization, Consolidation and Presentation of Financial Statements [Abstract]
Schedule of Variable Interest Entities [Table Text Block]	June 30,   September 30, Assets   2023   2022 Current assets                 Inventory   $ —       $ 26,909   Total assets   $ —       $ 26,909                     Liabilities                 Current liabilities                 Income tax payable   $ 19,145     $ 13,221   Total liabilities   $ 19,145     $ 13,221
[custom:ScheduleOfVariableInterestEntities2TextBlock]	Three months ended June 30,   Nine months ended June 30,     2023   2022   2023   2022 Revenues, net   $ 10,585     $ 40,245     $ 70,940     $ 73,582   Cost of revenue     15,899       21,111       48,999       44,128   Gross profit (loss)     (5,314 )     19,134       21,941       29,454   Income tax expense (benefit)     (1,435 )     4,624       5,924       7,948   Net income (loss)   $ (3,879 )   $ 14,510     $ 16,017     $ 21,506

v3.23.2

Note 6 - Property and Equipment, Net (Tables)	9 Months Ended
	Jun. 30, 2023
Property, Plant and Equipment [Abstract]
Property, Plant and Equipment [Table Text Block]	June 30,   September 30,     2023   2022 Cultivation and manufacturing equipment   $ 619,670     $ 612,137   Computer equipment and software     270,795       270,795   Leasehold improvements     14,121       63,788   Buildings and improvements     2,811,340       2,811,340         3,715,926       3,758,060   Accumulated Depreciation     (1,004,307 )     (777,473 )       2,711,619       2,980,587   Land     3,455,563       3,455,563   Construction on progress     18,435,107       14,583,574   Property and Equipment, Net   $ 24,602,289     $ 21,019,724

v3.23.2

Note 7 – Debt (Tables)	9 Months Ended
	Jun. 30, 2023
Debt Disclosure [Abstract]
Convertible Debt [Table Text Block]	Maturity     Annual Interest       Balance at     Balance at     Conversion     Effective Date   Date     Rate       June 30, 2023     September 30, 2022     Price   C-2     3/23/2020     9/23/2020       15 %   $ 1,100,000     $ 1,100,000       See C-2     C-3     8/15/2011     8/15/2012       8 %     —         20,000       $0.50     C-7     9/29/2021     1/1/2023       10 %     325,000       275,000       0.35     C-8     9/29/2021     1/1/2023       10 %     650,000       550,000       0.35     C-9     10/1/2021     1/1/2023       10 %     975,000       825,000       0.35     C-10     10/29/2021     5/31/2023       18 %      750,000       750,000       1.50     C-11     2/21/2022     8/31/2022       24 %      230,000       230,000       1.10     C-12     10/24/2022     10/24/2024       15 %     250,000       —         0.31     C-13     12/13/2022     12/13/2024       15 %     50,000       —         0.25     C-14     12/13/2022     12/13/2024       15 %     50,000       —         0.25                               $ 4,380,000     $ 3,750,000
[custom:ScheduleOfFutureMinimumPaymentsOfConvertibleDebtObligationsTableTextBlock]	June 30,   Amount 2024   $ 4,380,000       $ 4,380,000
Schedule of Debt [Table Text Block]	Maturity   Annual Interest   Balance at   Balance at         Effective Date   Date   Rate   June 30, 2023   September 30, 2022   Secured by   f     5/1/2020   11/1/2023     10 %   $ 1,386,370     $ 1,386,370     2nd DOT AZ property   h     5/1/2020   5/1/2023     15 %     283,666       283,666     N/A   l     7/22/2022   7/31/2023     36 %     2,203,167       1,823,405     Future revenues; shares of Company stock   o     3/19/2021   4/1/2024     10 %     238,023       637,114     N/A   p     2/1/2021   7/15/2023     15 %     155,446       220,590     N/A   q     8/6/2021   3/1/2023     16 %     13,500,000       13,500,000     1st AZ property and other personal property   r     8/6/2021   3/1/2023     16 %     5,500,000       5,500,000     1st NV property and other personal property   s     9/30/2021   12/31/2021     18 %     —         500,000     Restricted common stock   u     11/2/2022   7/18/2024     25 %     414,046       548,082     Future revenues   w     3/4/2022   5/21/2024     15 %     6,203,930       5,253,256       x     3/10/2022   5/31/2024     18 %     250,000       250,000     N/A   y     3/2/2022   8/1/2023     5 %     145,388       165,388     N/A   z     7/20/2022   4/30/2023     36 %     638,460       426,558     Future revenues   aa     10/28/2022   1/31/2023     70 %     2,000,000       —       Deposit account holding the funds   bb     11/2/2022   3/28/2023     41 %     593,412       —       Future revenues   cc     10/26/2022   11/16/2022     71 %     326,680       —       Deposit account holding the funds   dd     11/3/2022   5/3/2023     18 %     500,000       —       N/A   ee     11/1/2022   12/20/2022     1 %     25,922       —       N/A   ff     2/17/2023   11/1/2025     18 %     222,148       —       N/A   gg     4/6/2023   5/31/2024     30 %     250,000       —       N/A   hh     6/22/2023   12/22/2023     10 %     185,949       —                                   35,022,607       30,494,429               Less: liabilities related to assets held for sale     (5,500,000 )      (5,500,000 )                Less: unamortized discounts   —       (1,853,686 )                             $ 29,522,607     $ 23,140,743
[custom:ScheduleOfFutureMinimumPaymentsOfNotesPayableObligationsTableTextBlock]	June 30,   Amount 2024   $ 35,182,377   Less: liabilities related to assets held for sale     (5,500,000 ) Less: imputed interest     (159,770 )     $ 29,522,607
[custom:ScheduleOfDebtInterestExpenseSummaryTableTextBlock]	Three months ended June 30,   Nine months ended June 30,     2023   2022   2023   2022 Amortization of debt discounts   $ 373,326     $ 1,440,535     $ 2,462,587     $ 4,932,259   Stated interest paid or accrued     2,579,114       1,508,210       6,638,359       4,073,665   Finance charges and other interest     (1,978 )     22,021       20,183       25,016         2,950,462       2,970,766       9,121,129       9,030,940   Less: interest capitalized to construction in progress     —         (1,345,611 )     (2,401,504 )     (5,098,022 )     $ 2,950,462     $ 1,625,155     $ 6,719,625     $ 3,932,918

v3.23.2

Note 9 - Commitments and Contingencies (Tables)	9 Months Ended
	Jun. 30, 2023
Commitments and Contingencies Disclosure [Abstract]
Schedule of Future Minimum Rental Payments for Operating Leases [Table Text Block]	Year ended     June 30,   Amount   2024     $ 294,784     2025       158,228             453,012     Less: imputed interest       (60,559 )           392,453     Less: current portion:       (247,586 )         $ 144,867

v3.23.2

Note 11 – Assets Held for Sale (Tables)	9 Months Ended
	Jun. 30, 2023
Note 11 Assets Held For Sale
Disclosure of Long-Lived Assets Held-for-Sale [Table Text Block]	June 30,     2023 Assets held for sale         Construction in progress - land and building   $ 9,646,612   Licenses     6,703,981         16,350,593   Valuation allowance     (9,535,593 )     $ 6,815,000             Liabilities related to assets held for sale         Debt   $ 5,500,000

v3.23.2

Note 12 - Stockholders' Equity (Tables)	9 Months Ended
	Jun. 30, 2023
Equity [Abstract]
Schedule of Stockholders' Equity Note, Warrants or Rights [Table Text Block]	Common Shares Issuable Upon Exercise of Warrants   Weighted Average Exercise Price   Weighted Average Contractual Term in Years   Aggregate Intrinsic Value Balance of warrants at September 30, 2022     49,870,537     $ 2.05       3.7     $ 315,000                                     Warrants granted     2,300,000       0.50       2.0           Forfeited/Cancelled     (2,800,000 )     2.57       3.4                                             Balance of warrants at June 30, 2023     49,370,537     $ 1.95       3.6     $ —
Schedule of Share-Based Payment Award, Stock Options, Valuation Assumptions [Table Text Block]	Nine months ended     June 30, 2023 Expected stock price volatility     127% Risk-free interest rate     4% Expected term (years)     2.0   Expected dividend yield     0% Black-scholes value   $0.23
Share-Based Payment Arrangement, Option, Activity [Table Text Block]	Common Shares Issuable Upon Exercise of Options   Weighted Average Exercise Price   Weighted Average Remaining Contractual Term in Years   Aggregate Intrinsic Value (1) Balance of Options at September 30, 2022     8,594,805     $ 1.08       8.3     $ 33,162                                     Options granted     1,152,612       0.19       7.0       2,000   Forfeited/Cancelled     (689,702 )     1.55       —         —                                       Balance of Options at June 30, 2023     9,057,715     $ 0.93       7.5     $ 5,401                                     Exercisable at June 30, 2023     4,598,511     $ 0.97       6.9     $ 4,751   Unvested at June 30, 2023     4,459,204     $ 0.87                           Number of Options       Weighted Average Grant Date Fair Value   Unvested at June 30, 2023     4,459,204     $ 0.83   Granted during the nine months ended June 30, 2023     1,152,612     $ 0.20   Forfeited during the nine months ended June 30, 2023     689,702     $ 0.76       (1) The aggregate intrinsic value is calculated as the difference between the exercise price of the underlying awards and the closing price of the Company’s common stock as of June 30, 2023, for those awards that have an exercise price currently below the closing price as of June 30, 2023. Awards with an exercise price above the closing prices as of June 30, 2023 are considered to have no intrinsic value.
[custom:ScheduleOfAssumptionsUsed1TableTextBlock]	Nine months ended     June 30, 2023 Expected stock price volatility   151% - 167% Risk-free interest rate   3.6% - 4.3% Expected term (years)   2.5 - 5.0 Expected dividend yield   0% Black-scholes value   $0.03 - $0.37

v3.23.2

Note 13 – Segment Information (Tables)	9 Months Ended
	Jun. 30, 2023
Segment Reporting [Abstract]
Schedule of Segment Reporting Information, by Segment [Table Text Block]	Cultivation   Franchising   Corporate   Total Nine months ended June 30, 2023             Revenues from external customers   $ 15,124,870     $ 221,822     $ 342,569     $ 15,689,261   Operating income (loss)     6,304,567       (2,078,880 )     (10,073,205 )     (5,847,518 ) Interest expense     1,060,873       6,103       5,652,649       6,719,625   Depreciation and amortization     80,307       894,805       160,407       1,135,519   Additions to property, equipment and construction in progress     —         —         3,829,432       3,829,432                                     Three months ended June 30, 2023                                 Revenues from external customers   $ 4,823,366     $ 60,837     $ 138,172     $ 5,022,375   Operating income (loss)     1,863,500       (707,362 )     (4,122,184 )     (2,966,046 ) Interest expense     344,479       —         2,605,983       2,950,462   Depreciation and amortization     26,767       300,740       50,648       378,155                                     At June 30, 2023                                 Property, equipment and construction in progress, net   $ 223,841     $ 13,813     $ 24,364,635     $ 24,602,289   Total assets (after intercompany eliminations)     3,229,417       66,709,346       42,076,733       112,015,496                                     Nine months ended June 30, 2022                                 Revenues from external customers   $ 17,360,844     $ 280,529     $ 114,146     $ 17,755,519   Operating income (loss)     3,993,350       (2,705,153 )     (10,042,901 )     (8,754,704 ) Interest expense     460,524       79,993       3,392,401       3,932,918   Depreciation and amortization     90,362       901,675       328,627       1,320,664   Additions to property, equipment and construction in progress     25,623       —         15,631,945       15,657,568                                     Three months ended June 30, 2022                                 Revenues from external customers   $ 4,861,737     $ 22,031     $ 47,554     $ 4,931,322   Operating income (loss)     983,533       (1,001,768 )     (3,829,572 )     (3,847,807 ) Interest expense     303,462       36,777       1,284,916       1,625,155   Depreciation and amortization     27,830       300,150       111,072       439,052                                     At June 30, 2022                                 Property, equipment and construction in progress, net   $ 421,757     $ 20,899     $ 25,864,556     $ 26,307,212   Total assets (after intercompany eliminations)     5,102,841       68,217,019       47,207,983       120,527,843

v3.23.2

Revenue disaggregated by source (Details) - USD ($)	3 Months Ended		9 Months Ended
	Jun. 30, 2023	Jun. 30, 2022	Jun. 30, 2023	Jun. 30, 2022
Cultivation segment
Flower	$ 648,730	$ 611,970	$ 1,865,879	$ 2,633,138
Vape products	3,661,855	3,648,315	11,667,650	12,553,206
Concentrates and other cannabis products	437,161	523,816	1,372,816	1,993,758
Accessories	75,620	77,636	218,525	180,742
Franchising segment
Franchising revenue	60,837	22,031	221,822	280,529
Corporate
Dispensary sales revenue	138,172	40,245	342,569	73,567
Other		$ 7,309		$ 40,579

v3.23.2

Securities outstanding (Details) - shares	9 Months Ended
	Jun. 30, 2023	Jun. 30, 2022
Potentially dilutive common share equivalents
Options	9,057,715	8,594,805
Warrants	49,370,537	49,870,537
Convertible notes	36,168,666	9,968,931
Potentially dilutive shares outstanding	94,596,918	68,434,273

v3.23.2

Inventory (Details) - USD ($)	Jun. 30, 2023	Sep. 30, 2022
Inventory Disclosure [Abstract]
Raw materials and work in process	$ 923,976	$ 1,209,892
Finished goods	636,240	835,420
Packaging and other	$ 338,387	$ 418,910

v3.23.2

Carrying values of assets and liabilities of VIE consolidated by the Company (Details) - USD ($)	Jun. 30, 2023	Sep. 30, 2022
Organization, Consolidation and Presentation of Financial Statements [Abstract]
Inventory		$ 26,909
Total assets		26,909
Income tax payable	19,145	13,221
Total liabilities	$ 19,145	$ 13,221

v3.23.2

Operations (after intercompany eliminations) of VIE consolidated by the Company (Details) - USD ($)	3 Months Ended		9 Months Ended
	Jun. 30, 2023	Jun. 30, 2022	Jun. 30, 2023	Jun. 30, 2022
Organization, Consolidation and Presentation of Financial Statements [Abstract]
Revenues, net	$ 10,585	$ 40,245	$ 70,940	$ 73,582
Cost of revenue	15,899	21,111	48,999	44,128
Gross profit (loss)	(5,314)	19,134	21,941	29,454
Income tax expense (benefit)	(1,435)	4,624	5,924	7,948
Net income (loss)	$ (3,879)	$ 14,510	$ 16,017	$ 21,506

v3.23.2

Property and equipment (Details) - USD ($)	Jun. 30, 2023	Sep. 30, 2022
Property, Plant and Equipment [Abstract]
Cultivation and manufacturing equipment	$ 619,670	$ 612,137
Computer equipment and software	270,795	270,795
Leasehold improvements	14,121	63,788
Buildings and improvements	2,811,340	2,811,340
Accumulated Depreciation	(1,004,307)	(777,473)
Land	3,455,563	3,455,563
Construction on progress	18,435,107	14,583,574
Property and Equipment, Net	$ 24,602,289	$ 21,019,724

v3.23.2

Convertible Notes Payable (Details) - USD ($)	9 Months Ended
	Jun. 30, 2023	Sep. 30, 2022	Jun. 30, 2022
Short-Term Debt [Line Items]
Debt Instrument, Convertible, Conversion Price	$ 0.50
Notes Payable C 2 [Member]
Short-Term Debt [Line Items]
Debt Instrument, Issuance Date	Mar. 23, 2020
Debt Instrument, Maturity Date	Sep. 23, 2020
Debt Instrument, Interest Rate During Period	15.00%
Convertible Notes Payable	$ 1,100,000	$ 1,100,000
Notes Payable C 3 [Member]
Short-Term Debt [Line Items]
Debt Instrument, Issuance Date	Aug. 15, 2011
Debt Instrument, Maturity Date	Aug. 15, 2012
Debt Instrument, Interest Rate During Period	8.00%
Convertible Notes Payable		20,000
Notes Payable C 7 [Member]
Short-Term Debt [Line Items]
Debt Instrument, Issuance Date	Sep. 29, 2021
Debt Instrument, Maturity Date	Jan. 01, 2023
Debt Instrument, Interest Rate During Period	10.00%
Convertible Notes Payable	$ 325,000	275,000
Debt Instrument, Convertible, Conversion Price	$ 0.35
Notes Payable C 8 [Member]
Short-Term Debt [Line Items]
Debt Instrument, Issuance Date	Sep. 29, 2021
Debt Instrument, Maturity Date	Jan. 01, 2023
Debt Instrument, Interest Rate During Period	10.00%
Convertible Notes Payable	$ 650,000	550,000
Debt Instrument, Convertible, Conversion Price	$ 0.35
Notes Payable C 9 [Member]
Short-Term Debt [Line Items]
Debt Instrument, Issuance Date	Oct. 01, 2021
Debt Instrument, Maturity Date	Jan. 01, 2023
Debt Instrument, Interest Rate During Period	10.00%
Convertible Notes Payable	$ 975,000	825,000
Debt Instrument, Convertible, Conversion Price	$ 0.35
Notes Payable C 10 [Member]
Short-Term Debt [Line Items]
Debt Instrument, Issuance Date	Oct. 29, 2021
Debt Instrument, Maturity Date	May 31, 2023
Debt Instrument, Interest Rate During Period	18.00%
Convertible Notes Payable	$ 750,000	750,000
Debt Instrument, Convertible, Conversion Price	$ 1.50
Notes Payable C 11 [Member]
Short-Term Debt [Line Items]
Debt Instrument, Issuance Date	Feb. 21, 2022
Debt Instrument, Maturity Date	Aug. 31, 2022
Debt Instrument, Interest Rate During Period	24.00%
Convertible Notes Payable	$ 230,000	230,000
Debt Instrument, Convertible, Conversion Price	$ 1.10
Notes Payable C 12 [Member]
Short-Term Debt [Line Items]
Debt Instrument, Issuance Date	Oct. 24, 2022
Debt Instrument, Maturity Date	Oct. 24, 2024
Debt Instrument, Interest Rate During Period	15.00%
Convertible Notes Payable	$ 250,000
Debt Instrument, Convertible, Conversion Price	$ 0.31
Notes Payable C 13 [Member]
Short-Term Debt [Line Items]
Debt Instrument, Issuance Date	Dec. 13, 2022
Debt Instrument, Maturity Date	Dec. 13, 2024
Debt Instrument, Interest Rate During Period	15.00%
Convertible Notes Payable	$ 50,000
Debt Instrument, Convertible, Conversion Price	$ 0.25
Notes Payable C 14 [Member]
Short-Term Debt [Line Items]
Debt Instrument, Issuance Date	Dec. 13, 2022
Debt Instrument, Maturity Date	Dec. 13, 2024
Debt Instrument, Interest Rate During Period	15.00%
Convertible Notes Payable	$ 50,000
Debt Instrument, Convertible, Conversion Price	$ 0.25
Convertible Notes Payable Total [Member]
Short-Term Debt [Line Items]
Convertible Notes Payable	$ 4,380,000		$ 3,750,000

v3.23.2

Future minimum payments of Company's convertible debt obligations (Details)	Jun. 30, 2023 USD ($)
Debt Disclosure [Abstract]
2024	$ 4,380,000
	$ 4,380,000

v3.23.2

Notes Payable (Details) - USD ($)	9 Months Ended
	Jun. 30, 2024	Jun. 30, 2023	Sep. 30, 2022
Short-Term Debt [Line Items]
Notes Payable		$ 29,522,607	$ 23,140,743
Deferred Tax Liabilities, Interests in Financial Assets Continued to be Held		$ (5,500,000)	(5,500,000)
Notes Payable F [Member]
Short-Term Debt [Line Items]
Debt Instrument, Issuance Date		May 01, 2020
Debt Instrument, Maturity Date		Nov. 01, 2023
Debt Instrument, Interest Rate During Period		10.00%
Notes Payable		$ 1,386,370	1,386,370
Notes Payable H [Member]
Short-Term Debt [Line Items]
Debt Instrument, Issuance Date		May 01, 2020
Debt Instrument, Maturity Date		May 01, 2023
Debt Instrument, Interest Rate During Period		15.00%
Notes Payable		$ 283,666	283,666
Notes Payable L [Member]
Short-Term Debt [Line Items]
Debt Instrument, Issuance Date		Jul. 22, 2022
Debt Instrument, Maturity Date		Jul. 31, 2023
Debt Instrument, Interest Rate During Period		36.00%
Notes Payable		$ 2,203,167	1,823,405
Notes Payable O [Member]
Short-Term Debt [Line Items]
Debt Instrument, Issuance Date		Mar. 19, 2021
Debt Instrument, Maturity Date		Apr. 01, 2024
Debt Instrument, Interest Rate During Period		10.00%
Notes Payable		$ 238,023	637,114
Notes Payable P [Member]
Short-Term Debt [Line Items]
Debt Instrument, Issuance Date		Feb. 01, 2021
Debt Instrument, Maturity Date		Jul. 15, 2023
Debt Instrument, Interest Rate During Period		15.00%
Notes Payable		$ 155,446
Notes Payable N [Member]
Short-Term Debt [Line Items]
Notes Payable			220,590
Notes Payable Q [Member]
Short-Term Debt [Line Items]
Debt Instrument, Issuance Date		Aug. 06, 2021
Debt Instrument, Maturity Date		Mar. 01, 2023
Debt Instrument, Interest Rate During Period		16.00%
Notes Payable		$ 13,500,000	13,500,000
Notes Payable R [Member]
Short-Term Debt [Line Items]
Debt Instrument, Issuance Date		Aug. 06, 2021
Debt Instrument, Maturity Date		Mar. 01, 2023
Debt Instrument, Interest Rate During Period		16.00%
Notes Payable		$ 5,500,000	5,500,000
Notes Payable S [Member]
Short-Term Debt [Line Items]
Debt Instrument, Issuance Date		Sep. 30, 2021
Debt Instrument, Maturity Date		Dec. 31, 2021
Debt Instrument, Interest Rate During Period		18.00%
Notes Payable			500,000
Notes Payable U [Member]
Short-Term Debt [Line Items]
Debt Instrument, Issuance Date		Nov. 02, 2022
Debt Instrument, Maturity Date		Jul. 18, 2024
Debt Instrument, Interest Rate During Period		25.00%
Notes Payable		$ 414,046	548,082
Notes Payable W [Member]
Short-Term Debt [Line Items]
Debt Instrument, Issuance Date		Mar. 04, 2022
Debt Instrument, Maturity Date		May 21, 2024
Debt Instrument, Interest Rate During Period		15.00%
Notes Payable		$ 6,203,930	5,253,256
Notes Payable X [Member]
Short-Term Debt [Line Items]
Debt Instrument, Issuance Date		Mar. 10, 2022
Debt Instrument, Maturity Date		May 31, 2024
Debt Instrument, Interest Rate During Period		18.00%
Notes Payable		$ 250,000	250,000
Notes Payable Y [Member]
Short-Term Debt [Line Items]
Debt Instrument, Issuance Date		Mar. 02, 2022
Debt Instrument, Maturity Date		Aug. 01, 2023
Debt Instrument, Interest Rate During Period		5.00%
Notes Payable		$ 145,388	165,388
Notes Payable Z [Member]
Short-Term Debt [Line Items]
Debt Instrument, Issuance Date		Jul. 20, 2022
Debt Instrument, Maturity Date	Apr. 30, 2023
Debt Instrument, Interest Rate During Period		36.00%
Notes Payable		$ 638,460	426,558
Notes Payable A A [Member]
Short-Term Debt [Line Items]
Debt Instrument, Issuance Date		Oct. 28, 2022
Debt Instrument, Maturity Date		Jan. 31, 2023
Debt Instrument, Interest Rate During Period		70.00%
Notes Payable		$ 2,000,000
Notes Payable B B [Member]
Short-Term Debt [Line Items]
Debt Instrument, Issuance Date		Nov. 02, 2022
Debt Instrument, Maturity Date		Mar. 28, 2023
Debt Instrument, Interest Rate During Period		41.00%
Notes Payable		$ 593,412
Notes Payable C C [Member]
Short-Term Debt [Line Items]
Debt Instrument, Issuance Date		Oct. 26, 2022
Debt Instrument, Maturity Date		Nov. 16, 2022
Debt Instrument, Interest Rate During Period		71.00%
Notes Payable		$ 326,680
Notes Payable D D [Member]
Short-Term Debt [Line Items]
Debt Instrument, Issuance Date		Nov. 03, 2022
Debt Instrument, Maturity Date		May 03, 2023
Debt Instrument, Interest Rate During Period		18.00%
Notes Payable		$ 500,000
Notes Payable E E [Member]
Short-Term Debt [Line Items]
Debt Instrument, Issuance Date		Nov. 01, 2022
Debt Instrument, Maturity Date		Dec. 20, 2022
Debt Instrument, Interest Rate During Period		1.00%
Notes Payable		$ 25,922
Notes Payable F F [Member]
Short-Term Debt [Line Items]
Debt Instrument, Issuance Date		Feb. 17, 2023
Debt Instrument, Maturity Date		Nov. 01, 2025
Debt Instrument, Interest Rate During Period		18.00%
Notes Payable		$ 222,148
Notes Payable G G [Member]
Short-Term Debt [Line Items]
Debt Instrument, Issuance Date		Apr. 06, 2023
Debt Instrument, Maturity Date		May 31, 2024
Debt Instrument, Interest Rate During Period		30.00%
Notes Payable		$ 250,000
Notes Payable H H [Member]
Short-Term Debt [Line Items]
Debt Instrument, Issuance Date		Jun. 22, 2023
Debt Instrument, Maturity Date		Dec. 22, 2023
Debt Instrument, Interest Rate During Period		10.00%
Notes Payable		$ 185,949
Notes Payable Total [Member]
Short-Term Debt [Line Items]
Notes Payable		35,022,607	30,494,429
Debt Instrument, Unamortized Discount			$ (1,853,686)

v3.23.2

Future minimum payments of Company's notes payable obligations (Details)	Jun. 30, 2023 USD ($)
Debt Disclosure [Abstract]
2024	$ 35,182,377
Less: liabilities related to assets held for sale	(5,500,000)
Less: imputed interest	$ (159,770)

v3.23.2

Summary of interest expense (Details) - USD ($)	3 Months Ended		9 Months Ended
	Jun. 30, 2023	Jun. 30, 2022	Jun. 30, 2023	Jun. 30, 2022
Debt Disclosure [Abstract]
Amortization of debt discounts	$ 373,326	$ 1,440,535	$ 2,462,587	$ 4,932,259
Stated interest paid or accrued	2,579,114	1,508,210	6,638,359	4,073,665
Finance charges and other interest	(1,978)	22,021	20,183	25,016
Less: interest capitalized to construction in progress		$ (1,345,611)	$ (2,401,504)	$ (5,098,022)

v3.23.2

Future lease payments (Details)	Jun. 30, 2023 USD ($)
Commitments and Contingencies Disclosure [Abstract]
	$ 294,784
	158,228
	453,012
	(60,559)
	392,453
	(247,586)
	$ 144,867

v3.23.2

Assets held for sale and related liabilities (Details)	Jun. 30, 2023 USD ($)
Note 11 Assets Held For Sale
Construction in progress - land and building	$ 9,646,612
Licenses	6,703,981
Valuation allowance	(9,535,593)
Debt	$ 5,500,000

v3.23.2

Warrant Activity (Details) - Warrants 1 [Member] - USD ($)	9 Months Ended
	Jun. 30, 2022	Jun. 30, 2023	Jun. 30, 2021
Class of Warrant or Right [Line Items]
Class of Warrant or Right, Outstanding		49,370,537	49,870,537
Class of Warrant or Right, Exercise Price of Warrants or Rights		$ 1.95	$ 2.05
Warrants and Rights Outstanding			$ 315,000
Share-Based Compensation Arrangement by Share-Based Payment Award, Non-Option Equity Instruments, Granted	2,300,000
Share-Based Compensation Arrangement by Share-Based Payment Award, Equity Instruments Other than Options, Grants in Period, Weighted Average Grant Date Fair Value	$ 0.50
Share-Based Compensation Arrangement by Share-Based Payment Award, Non-Option Equity Instruments, Exercised	(2,800,000)
Share-Based Compensation Arrangement by Share-Based Payment Award, Equity Instruments Other than Options, Vested in Period, Weighted Average Grant Date Fair Value	$ 2.57

v3.23.2

Assumptions used to estimate fair value of warrants issued (Details) - Warrants [Member]	9 Months Ended
	Jun. 30, 2023 $ / shares
Class of Warrant or Right [Line Items]
Share-Based Compensation Arrangement by Share-Based Payment Award, Fair Value Assumptions, Expected Volatility Rate, Maximum	127.00%
Share-Based Compensation Arrangement by Share-Based Payment Award, Fair Value Assumptions, Risk Free Interest Rate, Maximum	4.00%
Share-Based Compensation Arrangement by Share-Based Payment Award, Fair Value Assumptions, Expected Term	2 years
Share-Based Compensation Arrangement by Share-Based Payment Award, Fair Value Assumptions, Expected Dividend Rate	0.00%
Share-Based Compensation Arrangement by Share-Based Payment Award, Fair Value Assumptions, Exercise Price	$ 0.23

v3.23.2

Stock option activity (Details) - USD ($)	9 Months Ended
	Jun. 30, 2023	Jun. 30, 2022	Jun. 30, 2021
Options 1 [Member]
Option Indexed to Issuer's Equity [Line Items]
Share-Based Compensation Arrangement by Share-Based Payment Award, Options, Outstanding, Number		9,057,715	8,594,805
Share-Based Compensation Arrangement by Share-Based Payment Award, Options, Outstanding, Weighted Average Exercise Price		$ 0.93	$ 1.08
Share-Based Compensation Arrangement by Share-Based Payment Award, Options, Outstanding, Intrinsic Value		$ 5,401	$ 33,162
Share-Based Compensation Arrangement by Share-Based Payment Award, Options, Grants in Period, Gross		1,152,612
Share-Based Compensation Arrangements by Share-Based Payment Award, Options, Grants in Period, Weighted Average Exercise Price		$ 0.19
[custom:ShareBasedCompensationArrangementByShareBasedPaymentAwardOptionsGrantsInPeriodTotalIntrinsicValue]		$ 2,000
Share-Based Compensation Arrangement by Share-Based Payment Award, Options, Nonvested Options Forfeited, Number of Shares		(689,702)
Share-Based Compensation Arrangement by Share-Based Payment Award, Options, Forfeitures and Expirations in Period, Weighted Average Exercise Price		$ 1.55
Share-Based Compensation Arrangement by Share-Based Payment Award, Options, Exercisable, Number	4,598,511
Share-Based Compensation Arrangement by Share-Based Payment Award, Options, Exercisable, Weighted Average Exercise Price	$ 0.97
Share-Based Compensation Arrangement by Share-Based Payment Award, Options, Exercisable, Intrinsic Value	$ 4,751
Share-Based Compensation Arrangement by Share-Based Payment Award, Options, Nonvested, Number of Shares	4,459,204
[custom:SharebasedCompensationArrangementBySharebasedPaymentAwardOptionsNonvestedWeightedAverageExercisePrice-0]	$ 0.87
Share-Based Compensation Arrangement by Share-Based Payment Award, Options, Nonvested Options Forfeited, Number of Shares		689,702
Options 2 [Member]
Option Indexed to Issuer's Equity [Line Items]
Share-Based Compensation Arrangement by Share-Based Payment Award, Options, Grants in Period, Gross	1,152,612
Share-Based Compensation Arrangement by Share-Based Payment Award, Options, Nonvested Options Forfeited, Number of Shares	(689,702)
Share-Based Compensation Arrangement by Share-Based Payment Award, Options, Nonvested, Number of Shares	4,459,204
Share-Based Compensation Arrangement by Share-Based Payment Award, Option, Nonvested, Weighted Average Exercise Price	$ 0.83
Share-Based Compensation Arrangement by Share-Based Payment Award, Options, Grants in Period, Weighted Average Grant Date Fair Value	$ 0.20
Share-Based Compensation Arrangement by Share-Based Payment Award, Options, Nonvested Options Forfeited, Number of Shares	689,702
Share-Based Compensation Arrangement by Share-Based Payment Award, Options, Nonvested Options Forfeited, Weighted Average Grant Date Fair Value	$ 0.76

v3.23.2

Assumptions Used to Estimate Fair Value of Stock Options (Details) - Stock Options [Member]	9 Months Ended
	Jun. 30, 2023 $ / shares
Option Indexed to Issuer's Equity [Line Items]
Share-Based Compensation Arrangement by Share-Based Payment Award, Fair Value Assumptions, Expected Volatility Rate, Minimum	151.00%
Share-Based Compensation Arrangement by Share-Based Payment Award, Fair Value Assumptions, Expected Volatility Rate, Maximum	167.00%
Share-Based Compensation Arrangement by Share-Based Payment Award, Fair Value Assumptions, Risk Free Interest Rate, Minimum	3.60%
Share-Based Compensation Arrangement by Share-Based Payment Award, Fair Value Assumptions, Risk Free Interest Rate, Maximum	4.30%
[custom:SharebasedCompensationArrangementBySharebasedPaymentAwardFairValueAssumptionsExpectedTermMinimum1]	2 years 6 months
Share-Based Compensation Arrangement by Share-Based Payment Award, Fair Value Assumptions, Expected Term	5 years
Share-Based Compensation Arrangement by Share-Based Payment Award, Fair Value Assumptions, Expected Dividend Rate	0.00%
[custom:ShareBasedCompensationArrangementByShareBasedPaymentAwardFairValueAssumptionsExercisePriceMinimum-0]	$ 0.03
Share-Based Compensation Arrangement by Share-Based Payment Award, Fair Value Assumptions, Exercise Price	$ 0.37

v3.23.2

Segment Information (Details) - USD ($)	3 Months Ended		9 Months Ended
	Jun. 30, 2023	Jun. 30, 2022	Jun. 30, 2023	Jun. 30, 2022
Segment Reporting Information [Line Items]
Revenues from external customers	$ 5,022,375	$ 4,931,322	$ 15,689,261	$ 17,755,519
Operating income (loss)	(2,966,046)	(3,847,807)	(5,847,518)	(8,754,704)
Interest expense	2,950,462	1,625,155	6,719,625	3,932,918
Depreciation and amortization	378,155	439,052	1,135,519	1,320,664
Cultivation Segment [Member]
Segment Reporting Information [Line Items]
Revenues from external customers	4,823,366	4,861,737	15,124,870	17,360,844
Operating income (loss)	1,863,500	983,533	6,304,567	3,993,350
Interest expense	344,479	303,462	1,060,873	460,524
Depreciation and amortization	26,767	27,830	80,307	90,362
Additions to property, equipment and construction in progress				25,623
Property, equipment and construction in progress, net	223,841	421,757	223,841	421,757
Total assets (after intercompany eliminations)	3,229,417	5,102,841	3,229,417	5,102,841
Franchising Segment [Member]
Segment Reporting Information [Line Items]
Revenues from external customers	60,837	22,031	221,822	280,529
Operating income (loss)	(707,362)	(1,001,768)	(2,078,880)	(2,705,153)
Interest expense		36,777	6,103	79,993
Depreciation and amortization	300,740	300,150	894,805	901,675
Additions to property, equipment and construction in progress
Property, equipment and construction in progress, net	13,813	20,899	13,813	20,899
Total assets (after intercompany eliminations)	66,709,346	68,217,019	66,709,346	68,217,019
Corporate Segment [Member]
Segment Reporting Information [Line Items]
Revenues from external customers	138,172	47,554	342,569	114,146
Operating income (loss)	(4,122,184)	(3,829,572)	(10,073,205)	(10,042,901)
Interest expense	2,605,983	1,284,916	5,652,649	3,392,401
Depreciation and amortization	50,648	111,072	160,407	328,627
Additions to property, equipment and construction in progress			3,829,432	15,631,945
Property, equipment and construction in progress, net	24,364,635	25,864,556	24,364,635	25,864,556
Total assets (after intercompany eliminations)	42,076,733	47,207,983	42,076,733	47,207,983
Corporate and Other [Member]
Segment Reporting Information [Line Items]
Revenues from external customers	5,022,375	4,931,322	15,689,261	17,755,519
Operating income (loss)	(2,966,046)	(3,847,807)	(5,847,518)	(8,754,704)
Interest expense	2,950,462	1,625,155	6,719,625	3,932,918
Depreciation and amortization	378,155	439,052	1,135,519	1,320,664
Additions to property, equipment and construction in progress			3,829,432	15,657,568
Property, equipment and construction in progress, net	24,602,289	26,307,212	24,602,289	26,307,212
Total assets (after intercompany eliminations)	$ 112,015,496	$ 120,527,843	$ 112,015,496	$ 120,527,843

---