What changed in this filing

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Item 1A. Risk Factors

2021-04-01 compared with 2020-05-14 · 110 added, 42 removed, 256 unchanged (37% of the section changed)

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We have a limited operating history in an evolving industry, which makes it difficult to accurately assess our future growth prospects.

Although we believe our management team has extensive knowledge of the cannabis industry and closely monitors changes in legislation, we also operate in an evolving industry that may not develop as expected.

We operate in an evolving industry that may not develop as expected.

Furthermore, our operations continue to evolve under our business plan as we continually assess new strategic opportunities for our business within our industry.

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We may not be able to successfully address these factors, which could negatively impact our growth, harm our business and cause our operating results to be worse than expected.

Our business, results of operations and financial condition may be adversely affected by pandemic infectious diseases, particularly the recent novel coronavirus strain known as COVID-19.

Pandemic infectious diseases, such as the current COVID-19 strain, may adversely impact our business, consolidated results of operations and financial condition.

The global spread of COVID-19 has created significant volatility and uncertainty and economic disruption.

The extent to which COVID-19 impacts our business, operations and financial results will depend on numerous evolving factors that we may not be able to accurately predict, including:

the duration and scope of the pandemic;

governmental, business and individuals actions that have been and continue to be taken in response to the pandemic;

the impact of the pandemic on economic activity and actions taken in response;

the effect on our customers and customer demand our services, products and solutions;

our ability to sell and provide its services and solutions, including as a result of travel restrictions and people working from home;

the ability of our customers to pay for our services and solutions;

and any closures of our offices and the offices and facilities of our customers.

COVID-19, as well as measures taken by governmental authorities to limit the spread of this virus, may interfere with the ability of our employees, suppliers, and other business

providers to carry out their assigned tasks or supply materials or services at ordinary levels of performance relative to the requirements of our business, which may cause us to materially curtail certain of our business operations.

We require additional funding and such funding may not be available to us as a result of contracting capital markets resulting from the COVID-19 pandemic.

Any of these events could materially adversely affect our business, financial condition, results of operations and/or stock price.

We have a history of losses and may not achieve profitability in the future.

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Cannabis remains illegal under federal law, and any change in the enforcement priorities of the federal government could render our current and planned future operations unprofitable or even prohibit such operations.

We operate in the cannabis industry, which is dependent on state laws and regulations pertaining to such industry;

however, under federal law, cannabis remains illegal.

The cultivation, manufacture, distribution, and possession of marijuana is illegal under U.S.

The Supremacy Clause of the United States Constitution establishes that the US Constitution and federal laws made pursuant to it are paramount and, in case of conflict between federal and state law, the federal law must be applied.

Accordingly, federal law applies even in those states in which the use of marijuana has been legalized.

Enforcement of federal law regarding marijuana would harm our business, prospects, results of operation, and financial condition.

The United States federal government regulates drugs through the Controlled Substances Act (the “CSA”), which places controlled substances, including cannabis, on one of five schedules.

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We would likely be unable to execute our business plan if the federal government were to strictly enforce federal law regarding cannabis.

In light of such conflict between federal laws and state laws regarding cannabis, the previous administration under President Obama had effectively stated that it was not an efficient use of resources to direct law federal law enforcement agencies to prosecute those lawfully abiding by state-designated laws allowing the use and distribution of medical cannabis.

For example, the prior DOJ Deputy Attorney General of the Obama administration, James M.

In light of such conflict between federal laws and state laws regarding cannabis, the administration under President Obama had effectively stated that it was not an efficient use of resources to direct law federal law enforcement agencies to prosecute those lawfully abiding by state-designated laws allowing the use and distribution of medical cannabis.

For example, the DOJ Deputy Attorney General of the Obama administration, James M.

Cole, issued a memorandum (the “Cole Memo”) to all United States Attorneys providing updated guidance to federal prosecutors concerning cannabis enforcement under the CSA (see “Business—Government and Industry Regulation—The Cole Memo”).

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Congress previously enacted an omnibus spending bill that included a provision (the “Rohrabacher-Blumenauer Amendment”) prohibiting the DOJ from using funds to prevent states with medical cannabis laws from implementing such laws.

This provision, however, has only been extended through September 30, 2020, and must be renewed annually by Congress.

This provision is renewed annually by Congress, and is current through September 30, 2021.

In August 2016, a Ninth Circuit federal appeals court ruled in United States v.

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In particular, Mr.

Sessions stated that prosecutors should follow the well-established principles that govern all federal prosecutions, which require federal prosecutors deciding which cases to prosecute to weigh all relevant considerations, including federal law enforcement priorities set by the Attorney General, the seriousness of the crime, the deterrent effect of criminal prosecution, and the cumulative impact of particular crimes on the community. The Sessions Memo went on to state that given the DOJs well-established general principles, previous nationwide guidance specific to marijuana is unnecessary and is rescinded, effective immediately.

Sessions stated that “prosecutors should follow the well-established principles that govern all federal prosecutions,” which require “federal prosecutors deciding which cases to prosecute to weigh all relevant considerations, including federal law enforcement priorities set by the Attorney General, the seriousness of the crime, the deterrent effect of criminal prosecution, and the cumulative impact of particular crimes on the community.” The Sessions Memo went on to

state that given the DOJ’s well-established general principles, “previous nationwide guidance specific to marijuana is unnecessary and is rescinded, effective immediately.”

In response to the Sessions Memo, U.S.

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We will, consistent with the Attorney General’s latest guidance, continue to take this approach in all of our work with our law enforcement partners throughout Colorado.”

It is unclear at this time whether the Sessions Memo indicates that the Trump administration will strictly enforce the federal laws applicable to cannabis or what types of activities will be targeted for enforcement.

It is unclear at this time whether the Sessions Memo will be rescinded by the Biden administration;

nor is it clear whether the Biden administration will strongly enforce the federal laws applicable to cannabis or what types of activities will be targeted for enforcement.

However, a significant change in the federal government’s enforcement policy with respect to current federal laws applicable to cannabis could cause significant financial damage to us.

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Federal prosecutors have significant discretion and no assurance can be given that the federal prosecutor in each judicial district where we operate our business will not choose to strictly enforce the federal laws governing cannabis production or distribution.

purchase properties, would result in our inability to execute our business plan, and we would likely suffer significant losses, which would adversely affect the trading price of our securities.

Any change in the federal government's enforcement posture with respect to state-licensed cultivation of medical-use cannabis, including the enforcement postures of individual federal prosecutors in judicial districts where we purchase properties, would result in our inability to execute our business plan, and we would likely suffer significant losses, which would adversely affect the trading price of our securities.

Furthermore, following any such change in the federal government's enforcement position, we could be subject to criminal prosecution, which could lead to imprisonment and/or the imposition of penalties, fines, or forfeiture.

The potential regulation of cannabis by the US Food and Drug Administration could subject us to additional costs and regulatory requirements

Should the federal government legalize cannabis, it is possible that the US Food and Drug Administration (FDA), would seek to regulate it under the Food, Drug and Cosmetics Act of 1938.

Additionally, the FDA may issue rules and regulations including good manufacturing practices, related to the growth, cultivation, harvesting and processing of medical cannabis.

Clinical trials may be needed to verify efficacy and safety.

It is also possible that the FDA would require that facilities where medical-use cannabis is grown register with the FDA and comply with certain federally prescribed regulations.

In the event that some or all of these regulations are imposed, the impact they would have on the cannabis industry is unknown, including what costs, requirements and possible prohibitions may be enforced.

unable to comply with the regulations or registration as prescribed by the FDA it may have an adverse effect on our business, operating results and financial condition.

Any potential growth in the cannabis industry continues to be subject to new and changing state and local laws and regulations.

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We cannot predict the nature of any future laws, regulations, interpretations or applications, and it is possible that regulations may be enacted in the future that will be materially adverse to our business.

Our business, results of operations and financial condition may be adversely affected by pandemic infectious diseases, particularly the recent novel coronavirus strain known as COVID-19.

Pandemic infectious diseases, such as the current COVID-19 strain, may adversely impact our business, consolidated results of operations and financial condition.

The global spread of COVID-19 has created significant volatility and uncertainty and economic disruption.

The extent to which COVID-19 impacts our business, operations and financial results will depend on numerous evolving factors that we may not be able to accurately predict, including:

the duration and scope of the pandemic;

governmental, business and individuals’ actions that have been and continue to be taken in response to the pandemic;

the impact of the pandemic on economic activity and actions taken in response;

the effect on our customers and customer demand our services, products and solutions;

our ability to sell and provide its services and solutions, including as a result of travel restrictions and people working from home;

the ability of our customers to pay for our services and solutions;

and any closures of our offices and the offices and facilities of our customers.

COVID-19, as well as measures taken by governmental authorities to limit the spread of this virus, may interfere with the ability of our employees, suppliers, and other business providers to carry out their assigned tasks or supply materials or services at ordinary levels of performance relative to the requirements of our business, which may cause us to materially curtail certain of our business operations.

We require additional funding and such funding may not be available to us as a result of contracting capital markets resulting from the COVID-19 pandemic.

Any of these events could materially adversely affect our business, financial condition, results of operations and/or stock price.

The cannabis industry faces significant opposition, and any negative trends will adversely affect our business operations.

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However, we cannot predict the future growth rate or future market potential, and any negative outlook on the cannabis industry may adversely affect our business operations.

The recreational cannabis industry is highly dependent upon consumer perception regarding the safety, efficacy and quality of the recreational cannabis produced.

Cannabis is a controversial topic, and consumer perception of our products may be significantly influenced by scientific research or findings, regulatory investigations, litigation, media attention and other publicity regarding the consumption of recreational cannabis products.

There can be no assurance that future scientific research, findings, regulatory proceedings, litigation, media attention or other research findings or publicity will be favorable to the recreational cannabis market or any particular product, or consistent with earlier publicity.

Future research reports, findings, regulatory proceedings, litigation, media attention or other publicity that are perceived as less favorable than, or that question, earlier research reports, findings or publicity could have a material adverse effect on the demand for our products and our business, results of operations, financial condition and cash flows.

Dependence upon consumer perceptions means that adverse scientific research reports, findings, regulatory proceedings, litigation, media

attention or other publicity, whether or not accurate or with merit, could have a material adverse effect on our business and results of operations.

Further, adverse publicity reports or other media attention regarding the safety, efficacy and quality of recreational cannabis in general, or our products specifically, or associating the consumption of recreational cannabis with illness or other negative effects or events, could have such a material adverse effect.

Such adverse publicity reports or other media attention could arise even if the adverse effects associated with such products resulted from consumers’ failure to consume such products appropriately or as directed.

Large, well-funded business sectors may have strong economic reasons to oppose the development of the cannabis industry.

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Any inroads the pharmaceutical, or any other potentially displaced, industry or sector could make in halting or impeding the cannabis industry could have a detrimental impact on our business.

We operate an agricultural business and are subject to weather and climate conditions.

Our business involves the growing of recreational cannabis, an agricultural product.

Such business will be subject to the risks inherent in the agricultural business, such as insects, plant diseases and similar agricultural risks.

Further, to the extent that our products are grown outside, we are subject to weather and climate conditions.

Extended cold streaks, rain or snow, or generally cold weather or climate, could materially adversely affect our cannabis plants.

Accordingly, there can be no assurance that natural elements will not have a material adverse effect on any future production of our products.

We operate in a highly competitive industry.

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Any failure by us to anticipate or respond adequately to such changes could have a material adverse effect on our financial condition and results of operations.

If we are unable to obtain capital, we may not be able to pay our debt obligations as they become due, and there is substantial doubt about our ability to continue as a going concern.

We may not generate sufficient cash flows from operations to retire our debt obligations and may not be able to raise sufficient capital from (a) the exercise of warrants and options for our common stock, (b) sale of our common stock, or (c) issuing additional long-term debt.

Our failure to obtain additional capital and retire our debt obligations would negatively impact our ability to continue as a going concern.

To that end our auditors report for the year ended December 31, 2019 includes disclosure of substantial doubt about our ability to continue as a going concern.

Our financial statements have been prepared assuming that we will continue as a going concern, which means we will be able to realize our assets and discharge our liabilities in the normal course of business for the foreseeable future.

Our ability to continue as a going concern is dependent upon our becoming profitable in the future and/or obtaining the necessary financing to meet our obligations and repay our liabilities arising from normal business operations when they come due.

However, there can be no assurance that we will be successful in achieving these objectives.

Unfavorable tax treatment of cannabis businesses

Under Section 280E of the United States Internal Revenue Code of 1986 as amended (“ Section 280E ”), “no deduction or credit shall be allowed for any amount paid or incurred during the taxable year in carrying on any trade or business if such trade or business (or the activities which comprise such trade or business) consists of trafficking in controlled substances (within the meaning of schedule I and II of the Controlled Substances Act) which is prohibited by Federal law or the law of any state in which such trade or business is conducted.” This provision has been applied by the U.S.

Internal Revenue Service to cannabis operations, prohibiting them from deducting expenses directly associated with the sale of cannabis.

Although the IRS issued a clarification allowing the deduction of certain expenses that can be categorized as cost of sales, the scope of such items is interpreted very narrowly and include the cost of seeds, plants, and labor related to cultivation, while the bulk of operating costs and general administrative costs are not permitted to be deducted.

Section 280E therefore has a significant impact on the retail side of cannabis, but a lesser impact on cultivation, processing, production and packaging operations.

A result of Section 280E is that an otherwise profitable business may, in fact, operate at a loss, after taking into account its U.S.

income tax expenses.

We may be limited in our ability to utilize, or may not be able to utilize, net operating loss carryforwards to reduce our future tax liability.

We have federal and state net operating loss carryforwards that may be limited or expire unused.

The Company is currently evaluating whether there have been one or more ownership changes pursuant to IRC 382 and 383.

If we determine there were one or more ownership changes under these rules, the use of our U.S.

federal and state net operating loss carryforwards may be limited and/or otherwise expired unused.

Any such limitation or expiration could materially affect our ability to offset future tax liabilities with net operating losses.

We may be unable to obtain capital to execute our business plan.

Our business plan involves lending to and investing in companies in the cannabis industry, as well as the general expansion of our business within and outside of Colorado.

In order to execute on our business plan, we will need additional capital.

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We face risks associated with strategic acquisitions and our business strategy.

As an important part of our business roll-up strategy, we strategically acquire businesses and real property, some of which may be material.

As an important part of our roll-up business strategy, we strategically acquire businesses and real property, some of which may be material.

These acquisitions involve a number of financial, accounting, managerial, operational, legal, compliance and other risks and challenges, including the following, any of which could adversely affect our results of operations:

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In addition, burdensome regulation at the state level could slow or stop further development of the medical-use cannabis industry, such as limiting the medical conditions for which medical cannabis can be recommended by physicians for treatment, restricting the form in which medical cannabis can be consumed, imposing significant registration requirements on physicians and patients or imposing significant taxes on the growth, processing and/or retail sales of cannabis, which could have the impact of dampening growth of the cannabis industry and making it difficult for cannabis businesses, including our tenants, to operate profitably in those states.

Any one of these factors could slow or halt additional legislative authorization of cannabis, which could harm our results of operations, business and prospects.

these factors could slow or halt additional legislative authorization of cannabis, which could harm our results of operations, business and prospects.

Applicable state laws may prevent us from maximizing our potential income.

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In July 2017, the U.S.

Department of Justice issued a new policy directive regarding asset forfeiture, referred to as the equitable sharing program. Under this new policy directive, federal authorities may adopt state and local

forfeiture cases and prosecute them at the federal level, allowing for state and local agencies to keep up to 80% of any forfeiture revenue.

Department of Justice issued a new policy directive regarding asset forfeiture, referred to as the "equitable sharing program."

Under this new policy directive, federal authorities may adopt state and local forfeiture cases and prosecute them at the federal level, allowing for state and local agencies to keep up to 80% of any forfeiture revenue.

This policy directive represents a reversal of the U.S.

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If the federal government decides to initiate forfeiture proceedings against cannabis businesses, our investment in those businesses may be lost.

Our operating locations could be targets for theft and our physical security measures may not prevent all security breaches

Our operating locations could be targets for theft.

While we have implemented security measures at our operating locations and we continue to monitor and improve security measures, our cultivation and processing facilities could be subject to break-ins, robberies and other breaches in security.

If there is a breach in security and we fall victim to a robbery or theft, the loss of cannabis plants, cannabis oils, cannabis flowers and cultivation and processing equipment could have a material adverse impact on our business, financial condition and results of operations.

To the extent that our business involves the movement and transfer of cash which is collected from locations and deposited into financial institutions, there is a risk of theft or robbery during the transport of cash.

We may engage a security firm to provide security in the transport and movement of large amounts of cash.

While we have taken steps to prevent theft or robbery of cash during transport, there can be no assurance that there will not be a security breach during the transport and the movement of cash involving the theft of product or cash.

Our future success depends on our ability to grow and expand our customer base and operational territory.

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If we are forced to go without such insurance, it may prevent us from entering into certain business sectors, may inhibit our growth, and may expose us to additional risk and financial liabilities.

Moreover, insurance against risks such as environmental pollution or other hazards encountered in our operations is not generally available on acceptable terms.

We might also become subject to liability for pollution or other hazards which may not be insured against or which we may elect not to insure against because of premium costs or other reasons.

Losses from these events may cause us to incur significant costs that could have a material adverse effect upon its financial performance and results of operations.

We may be subject to product liability claims

We face an inherent risk of exposure to product liability claims, regulatory action and litigation if its products are alleged to have caused significant loss or injury.

In addition, the sale of our products would involve the risk of injury to consumers due to tampering by unauthorized third parties or product contamination.

Previously unknown adverse reactions resulting from human consumption of marijuana alone or in combination with other medications or substances could occur.

We may be subject to various product liability claims, including, among others, that our products caused injury or illness or death, include inadequate instructions for use or include inadequate warnings concerning possible side effects or interactions with other substances.

A product liability claim or regulatory action against us could result in increased costs, could adversely affect our reputation with its clients and consumers generally, and could have a material adverse effect on our business, results of operations and financial condition.

There can be no assurances that we will be able to obtain or maintain product liability insurance on acceptable terms or with adequate coverage against potential liabilities.

Such insurance is expensive and may not be available in the future on acceptable terms, or at all.

The inability to obtain sufficient insurance coverage on reasonable terms or to otherwise protect against potential product liability claims could prevent or inhibit the commercialization of our current or potential products.

A cybersecurity incident and other technology disruptions could result in a violation of law or negatively impact our reputation and relationships, our business operations and our financial condition.

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Such uses give rise to cybersecurity risks, including the risk of security breaches, espionage, system disruption, theft and inadvertent release of information.

Our business involves the storage and transmission of numerous classes of sensitive and/or confidential information and intellectual property, including employees, customers, tenants and suppliers personally identifiable information and financial and strategic information about us.

Our business involves the storage and transmission of numerous classes of sensitive and/or confidential information and intellectual property, including

employees’, customers’, tenants’ and suppliers’ personally identifiable information and financial and strategic information about us.

If we fail to adequately assess and identify cybersecurity risks associated with our business operations, we may become increasingly vulnerable to such risks.

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Further, stock exchanges in the United States, including Nasdaq and the New York Stock Exchange, have historically refused to list certain cannabis related businesses, including cannabis retailers, that operate primarily in the United States.

Our existing operations, and any future operations or investments, may become the

subject of heightened scrutiny by clearing houses and stock exchanges, in addition to regulators and other authorities in the United States.

Our existing operations, and any future operations or investments, may become the subject of heightened scrutiny by clearing houses and stock exchanges, in addition to regulators and other authorities in the United States.

Any existing or future restrictions imposed by Pershing LLC, or any other applicable clearing house, stock exchange or other authority, on trading in our common stock could have a material adverse effect on the liquidity of our common stock.

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For transactions covered by the rule, brokers/dealers must make a special written determination that the penny stock is a suitable investment for purchasers of the securities and receive the purchaser’s written agreement to the transaction prior to sale.

The penny stock rules also require a broker/dealer, prior to effecting a transaction in a penny stock not otherwise exempt from the rules, to deliver a standardized risk disclosure document prepared by the SEC that provides information about penny stocks and the nature and level of risks in the penny stock market.

penny stocks and the nature and level of risks in the penny stock market.

A broker/dealer also must provide the customer with current bid and offer quotations for the relevant penny stock and information on the compensation of the broker/dealer and its salesperson in the transaction.

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Section 404 requires us to include an internal control report with our Annual Report on Form 10-K.

report must include managements assessment of the effectiveness of our internal control over financial reporting as of the end of the fiscal year.

The report must include management’s assessment of the effectiveness of our internal control over financial reporting as of the end of the fiscal year.

This report must also include disclosure of any material weaknesses in internal control over financial reporting that we have identified.

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In addition, our independent registered public accounting firm may not agree with our management’s assessment or conclude that our internal control over financial reporting is operating effectively.

We have incurred and will continue to incur increased costs as a result of operating as a public company, and our management will be required to devote substantial time to new compliance initiatives and corporate governance practices.

As a public company we have incurred, and particularly after we are no longer a smaller reporting company, we will continue to incur significant legal, accounting and other expenses that we did not incur as a private company.

The Sarbanes-Oxley Act of 2002, the Dodd-Frank Wall Street Reform and Consumer Protection Act, the listing requirements of the OTCQB Market and other applicable securities rules and regulations impose various requirements on public

companies, including establishment and maintenance of effective disclosure and financial controls and corporate governance practices.

Our management and other personnel will need to devote a substantial amount of time to these compliance initiatives.

Moreover, these rules and regulations will increase our legal and financial compliance costs, particularly as we hire additional financial and accounting employees to meet public company internal control and financial reporting requirements, and will make some activities more time-consuming and costly.

We are evaluating these rules and regulations, and cannot predict or estimate the amount of additional costs we may incur or the timing of such costs.

These rules and regulations are often subject to varying interpretations, in many cases due to their lack of specificity, and, as a result, their application in practice may evolve over time as new guidance is provided by regulatory and governing bodies.

This could result in continuing uncertainty regarding compliance matters and higher costs necessitated by ongoing revisions to disclosure and governance practices.

Pursuant to Section 404, we will be required to furnish a report by our management on our internal control over financial reporting.

However, while we remain a smaller reporting company with less than $100 million in revenue, we will not be required to include an attestation report on internal control over financial reporting issued by our independent registered public accounting firm.

To achieve compliance with Section 404 within the prescribed period, we will be engaged in a process to document and evaluate our internal control over financial reporting, which is both costly and challenging.

In this regard, we will need to continue to dedicate internal resources, including through hiring additional financial and accounting personnel, potentially engage outside consultants and adopt a detailed work plan to assess and document the adequacy of internal control over financial reporting, continue steps to improve control processes as appropriate, validate through testing that controls are functioning as documented and implement a continuous reporting and improvement process for internal control over financial reporting.

Despite our efforts, there is a risk that we will not be able to conclude, within the prescribed timeframe or at all, that our internal control over financial reporting is effective as required by Section 404.

If we identify one or more material weaknesses in our internal control over financial reporting, it could result in an adverse reaction in the financial markets due to a loss of confidence in the reliability of our financial statements.

UNRESOLVED STAFF COMMENTS.

The Company’s corporate headquarters are located in Denver, Colorado and our Cultivation facility is located in Boulder Colorado.

Both locations are leased by the Company.

For additional information regarding the lease terms and provisions, see Note 10.

“Leases” in our consolidated financial statements included in Item 8.

“Financial Statements and Supplementary Data.”

LEGAL PROCEEDINGS

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Compared sentence by sentence after normalising whitespace, quotation marks, case and digits, so re-formatting and restated figures do not read as changed language. Wording changes appear as one removal and one addition. The current filing and the prior one are authoritative.

What changed 10-K

Item 1A. Risk Factors