Item 1A. Risk Factors
Item 1A Risk Factors.
In addition to all other information set out in this Report, including our consolidated financial statements and the related notes included elsewhere in this Report, our business is subject to a number of risks that are uniquely applicable to the cannabis business generally and specifically in the cannabis business in Canada. Other risks and uncertainties that we do not presently consider material, or of which we are not presently aware, may become important factors that affect our future financial condition and results of operations.
Risks Related to Our Cannabis Business and the Cannabis Industry in the United States
As of the date of this report, the Company and its subsidiaries do not have any operations, employees or corporate offices based in United States.
Our business is dependent on state laws pertaining to the marijuana industry, which are uncertain and subject to change
Our business depends on the continued legalization and regulation of marijuana at the state level through legislation, rulemaking and voter-approved ballot measures. The marijuana industry is subject to evolving laws, regulations and enforcement priorities, and there can be no assurance that current state-law protections and regulatory regimes will remain in place. Any repeal, amendment, delay in implementation, adverse regulatory development or change in enforcement priorities could restrict or eliminate our ability to conduct business in one or more jurisdictions, reduce demand for our products, increase compliance costs and materially adversely affect our business, financial condition and results of operations.
Cannabis remains illegal under U.S. federal law.
The possession and use of marijuana are illegal under U.S. federal and certain states’ laws, which may negatively impact our business. The use of marijuana is regulated by both the U.S. federal government and state governments and state and U.S. federal laws regarding marijuana are often in conflict. Federal law criminalizing the use of marijuana pre-empts state laws that legalize the possession and use of marijuana for medical and recreational purposes. Any such changes in the federal government’s enforcement of current federal laws could adversely affect our ability to possess or cultivate marijuana. Marijuana is a Schedule 1 controlled substance under the Controlled Substance Act (“CSA”) meaning that it has a high potential for abuse, has not currently “accepted medical use” in the United States, lacks accepted safety for use under medical supervision, and may not be prescribed, marketed or sold in the United States. No drug product containing natural cannabis or naturally-derived cannabis extracts have been approved by the U.S. Food and Drug Administration for use in the U.S. or obtained registration from the United States Drug Enforcement Administration (“DEA”) for commercial production and the DEA may never issue the registrations required of the commercialization of such products. We will continue to assess potential strategic acquisitions of existing or new businesses in the cannabis industry, should we determine that such activities are in our best interests and the best interests of our stockholders. Any such pursuit would involve additional risks with respect to the regulation of cannabis, particularly, if the federal government determines to actively enforce all federal laws applicable to cannabis.
Laws and regulations affecting the cannabis industry are constantly changing, which could detrimentally affect our business.
Local, state and federal marijuana laws and regulations are broad in scope and subject to evolving interpretations, which require us to incur potentially substantial costs associated with compliance and could alter our business plans. In addition, violations of these laws or allegations of such violations could disrupt our business and materially affect our operations. In addition, it is possible that regulations may be enacted in the future that will be directly applicable to our business. We cannot predict the nature of any such future laws, regulations, interpretations or applications, nor can we determine what effect governmental regulations or administrative policies and procedures, when and if promulgated, could have on our business.
Any potential growth in the cannabis industry continues to be subject to new and changing state and local laws and regulations.
Continued development of the cannabis industry is dependent upon continued legalization of cannabis at the state level and a number of factors could curtail or halt progress in this area, even where there is public support for legislative action. Any delay or halt in the passing or implementation of legislation legalizing cannabis use, its sale and distribution, or the re-criminalization or restrictions on cannabis use at the state level could negatively impact our business. We cannot predict the nature of any future laws and regulations or their interpretations or applications. It is possible that regulations may be enacted in the future that will be materially adverse to our business.
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Our potential customers, clients and companies with which we may elect to invest directly may have difficulty accessing the services of U.S. banks which may make it difficult for them to operate.
On February 14, 2014, the U.S. Financial Crimes Enforcement Network (“FinCen”) issued rules allowing banks to legally provide financial services to state-licensed cannabis businesses consistent with the Bank Secrecy Act obligations. A memorandum issued by the U.S. Justice Department to federal prosecutors reiterated the guidance previously given, this time to the financial industry that banks can do business with legal marijuana businesses and “may not” be prosecuted. However, the FinCen guidelines fall short of the explicit legal authorization that the banking industry had requested the government provide. To date, it is not clear if any banks have relied on the FinCen guidelines to take on legal cannabis companies as clients. Because the use, sale and distribution of cannabis remains illegal under U.S. federal law, many banks will not accept deposits from or provide other bank services to a business involved with cannabis. The inability to open bank accounts may make it difficult for our existing and potential customers to operate.
Operational risks of the cannabis industry.
Companies involved in the cannabis industry face intense competition, may have limited access to services of banks, may have substantial burdens on company resources due to litigation, complaints or enforcement actions and are heavily dependent on receiving necessary permits and authorization to engage in the cultivation, possession or distribution of cannabis. Many of our current and potential competitors have longer operational histories, significantly greater financial, marketing and other resources and larger client bases than us and there can be no assurances that we will be able to successfully compete against these or other companies.
Rescheduling Uncertainty
On May 21, 2024, DOJ published a proposed rule to reschedule marijuana from Schedule I to Schedule III. On December 18, 2025, President Trump signed an Executive Order directing the U.S. Department of Justice (“DOJ”) to expedite the rescheduling of cannabis from Schedule I to Schedule III under the CSA. The rescheduling process, which requires formal rulemaking under the Administrative Procedure Act (“APA”), is expected to include a public comment period and may be subject to legal challenge. There can be no assurance as to the timing or outcome of the rulemaking.
If finalized, rescheduling to Schedule III would not constitute federal legalization of cannabis, nor would it resolve the fundamental conflict between federal and state cannabis laws. The continued classification of cannabis as a controlled substance—even under Schedule III—means that cannabis operations in the United States remain subject to federal enforcement risk.
Rescheduling could lower barriers to entry for well-capitalized institutional competitors in both the United States and in Canada, including pharmaceutical and consumer-goods companies that have historically been unable or unwilling to participate in the cannabis industry due to its Schedule I status. Increased competition from such entrants could adversely affect our market share, pricing, and profitability in Canada, or in any future operations in the United States.
Hemp More Narrowly Defined
Impactful to licensees in the United States, on November 12, 2025, President Trump signed H.R. 5371, the Continuing Appropriations, Agriculture, Legislative Branch, Military Construction and Veterans Affairs, and Extensions Act, 2026, into law. Section 781, effective 365 days after enactment, amends Section 297A of the Agricultural Marketing Act of 1946 and narrows the federal definition of “hemp.” As amended, “hemp” is defined using a total tetrahydrocannabinols standard, including tetrahydrocannabinolic acid (“THCA”), rather than the prior delta-9 THC-only standard. In addition, the amended law excludes certain intermediate and final hemp-derived cannabinoid products from the definition of hemp, including final hemp-derived cannabinoid products containing more than 0.4 milligrams combined total per container of total tetrahydrocannabinols (including THCA) and other cannabinoids that have similar effects, or are marketed to have similar effects, as tetrahydrocannabinol, as determined by the Secretary of Health and Human Services.
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Risks Related to Our Cannabis Business and the Cannabis Industry in Canada
The Canadian cannabis market is subject to an evolving and complex regulatory framework that may adversely affect our business, results of operations, and financial condition.
The Cannabis Act (S.C. 2018, c. 16) has governed the legal production, distribution, and sale of cannabis for recreational adult use in Canada since October 17, 2018, and was amended effective October 17, 2019 to permit the sale of cannabis edibles, extracts, and topicals. Since legalization, the Canadian cannabis industry has experienced significant market maturation, including persistent oversupply conditions, sustained wholesale and retail price compression, consolidation among licensed producers, and ongoing competition from the illicit market, which continues to capture a material share of total cannabis sales in Canada.
The Cannabis Act imposes significant restrictions on the marketing, branding, packaging, product formats, potency, and distribution channels for cannabis products. Health Canada administers the federal regulatory framework and retains broad authority to modify the conditions of cultivation, processing, and sale licenses, impose additional compliance requirements, or amend the regulations under the Cannabis Act. Licensees are subject to ongoing inspection, audit, and compliance monitoring by Health Canada, which has enhanced its inspection capacity and enforcement focus as the industry has matured. Individual provinces and territories maintain separate regulatory frameworks governing retail distribution, pricing, and market access, resulting in a fragmented national market with varying competitive dynamics across jurisdictions. The Government of Canada has completed the legislative review required under the Cannabis Act, and any resulting amendments to the Cannabis Act, its regulations, or other applicable laws and policies could adversely affect our business.
The Canadian federal excise duty framework, which imposes the greater of a flat-rate duty or an ad valorem duty on cannabis products, has been a persistent source of margin pressure for licensed producers. Industry participants have advocated for reform of the excise duty structure, and the federal government has announced plans to explore a transition to a single national excise stamp to reduce administrative burden. However, no excise duty relief has been enacted for cannabis products.
Additionally, we are subject to the risk that our Canadian licenses may not be renewed on acceptable terms, that Health Canada may impose additional conditions on our licenses, or that regulatory enforcement actions may result in fines, penalties, suspension, or revocation of our licenses. Compliance with the evolving Canadian regulatory framework requires significant ongoing investment in regulatory affairs, quality assurance, and operational processes, and any failure to maintain compliance could have a material adverse effect on our business, financial condition, and results of operations.
The recreational adult-use cannabis market in Canada may experience periods of oversupply, which could adversely affect pricing, sales and profitability
The Canadian adult-use cannabis market is highly competitive and may, at times, experience excess production relative to consumer demand. If licensed producers cultivate or manufacture more cannabis than the market can absorb, and we are unable to redirect that supply to export or other permissible channels, the available supply of cannabis may exceed demand. Any such imbalance could result in lower market prices, increased price competition, inventory write-downs, higher storage or disposal costs, and reduced margins. In addition, our ability to export excess inventory is limited by applicable laws and regulations in Canada and in foreign jurisdictions, and there can be no assurance that export opportunities will be available on commercially reasonable terms, or at all. If oversupply occurs and persists, our revenues, results of operations and ability to achieve or maintain profitability could be materially adversely affected.
We are required to comply with federal, state or provincial and local laws in each jurisdiction where we conduct our business
Various federal, state or provincial and local laws and regulations govern our business in the jurisdictions in which we operate and propose to operate. These laws and regulations include those relating to health and safety and the production, management, transportation and storage of cannabis. Compliance with these laws and regulations requires concurrent compliance with complex federal, state, provincial and local laws and regulations. Compliance with these laws and regulations requires significant financial and managerial resources. A determination that we are not in compliance with these laws and regulations could harm our business. It is impossible to predict the cost or effect of such laws and regulations on our current and future business.
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We may seek to enter into strategic alliances or acquisitions with third parties that we believe will have a beneficial impact on our business and there are risks that such alliances or acquisitions will not enhance our business in the desired manner.
We may expand, or in the future enter into, alliances or acquisitions with third parties that we believe will complement or enhance our existing business. Our ability to take advantage of existing or new alliances or acquisitions is dependent upon a number of factors such as the availability of suitable candidates and working capital. Future strategic alliances or acquisitions could result in the incurrence of debt, costs and contingent liabilities. In addition, there can be no assurances that future alliances or acquisitions will achieve the expected benefits to our business or that we will be able to consummate future strategic alliances or acquisitions on satisfactory terms, or at all.
We may not be able to identify and execute future acquisitions or to successfully manage the impact of such transactions on our business.
Acquisitions and/or other strategic business combinations involve many risks including (i) disruption of our existing business; (ii) the distraction of management away from the ongoing oversight of our existing business operations; (iii) incurring additional indebtedness; and (iv) increasing the scope and complexity of our operations. A strategic transaction may result in unforeseen obstacles or costs in implementing the transaction or integrating any acquired business into our existing operations.
Our cannabis cultivation business is subject to risks associated with an agricultural business.
One of the major aspects of our business operations is cultivating cannabis which is an agricultural process. As such, that part of our business is subject to the risks associated with the agricultural business, including crop failure presented by weather, plant diseases, and similar agricultural risks. Although we will grow our cannabis products indoors under climate-controlled conditions, there can be no assurances that natural elements, such as insects and plant diseases, will not disrupt our production activities or have an adverse effect on our business.
We may not be able to attract or retain key personnel with sufficient experience in the cannabis industry and we may not be able to attract, develop and retain additional employees required for our development and future success.
Our success is dependent to a great extent on the performance of our management team and certain key employees and our ability to attract, develop, motivate and retain highly qualified and skilled employees who are in high demand. The loss of the services of any key personnel, or an inability to attract other suitably qualified persons when needed, could prevent us from executing our business plan and we may not be able to find adequate replacements on a timely basis, if at all. Currently, we do not maintain any key-person insurance on the lives of any of our key personnel. Furthermore, each director and officer of a company that holds a license is subject to the requirement to obtain and maintain a security clearance from Canada Health under the Cannabis Act. A security clearance is valid for not more than five years and must be renewed before the expiration of the current security clearance. There is no assurance that any of our existing personnel who presently or may in the future require a security clearance will be able to obtain or renew such clearance or that new personnel who require a security clearance be able to obtain one. A failure by an individual in a key operational position to maintain or renew a security clearance could result in a reduction or complete suspension of our operations.
Industry Consolidation and Counterparty Risk
In recent years, a number of companies across the Canadian cannabis supply chain have sought creditor protection or other insolvency relief under the Companies’ Creditors Arrangement Act (R.S.C. 1985, c. C-36) (“CCAA”) or the Bankruptcy and Insolvency Act (R.S.C. 1985, c. B-3) (“BIA”). This trend reflects persistent structural challenges in the industry, including oversupply, wholesale price compression, elevated excise duty burdens, limited access to capital, and a timeline to profitability that has exceeded the expectations of many market participants.
We are exposed to counterparty credit risk through our third-party relationships in the industry, some or all of which may be experiencing financial distress or may file for creditor protection. In the event that a material customer, distribution partner, or supplier becomes insolvent, we may experience losses on accounts receivable, disruption to our supply chain or distribution channels, or inability to recover prepayments or deposits. In addition, continued industry consolidation and court-supervised sale processes may enable existing or new competitors to acquire assets, licenses, or production capacity on attractive terms, which could increase competitive pressure in our markets.
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There can be no assurance that market conditions will not deteriorate further or that the failure of one or more significant counterparties will not have a material adverse effect on our business, results of operations, and financial condition.
Employees
As of December 31, 2025, we had 40 employees which include Anthony Zarcone, Chief Executive Officer.
We have contracted several independent contractors and consultants to provide a range of information technology and marketing services who do not receive cash compensation but receive shares of our common stock as compensation. This mitigates any need for full or part-time employees for these services.
Intellectual Property Protection
Company subsidiary CannaKorp Inc. holds the following patents:
International Patent Application No. PCT/US20115/013778
Title: METHODS AND APPARATUS FOR PRODUCING HERBAL VAPO
Filing Date: January 30, 2015
Ref. No.: B1411.70000WO00
U.S. Provisional Application No.: 61/934.255
Title: CONTAINER POD AND DELIVERY SYSTEM
Filing Date: January 31, 2014
Ref. No.: B1411.70000US00
In addition, CannaKorp has proprietary rights to certain trade names, trademarks and service marks which include WISP POD™; cPOD™; CANNACUP™; and WISP™. CannaKorp also has certain proprietary formulas and processes involving herbal formulas and flavors, proprietary herbal production processes and an herbal base developed to suspend active ingredients for optimal vaporization.
At present, CannaKorp has failed to meet its annuities payments as well as maintenance fees on the 2 referenced patents. Although there has been a lapse and these patents remain unmaintained, there remains the possibility of CannaKorp reinstating these patents if done so in a reasonable amount of time. At this time, management is determining the value maintaining these patents will provide the Company. Once management has completed their assessment, the Company will proceed accordingly and advance in that determined direction moving forward. Additionally, CannaKorp is actively seeking a joint venture partner and/ or a licensor to assist in both marketing and launching the Wisp Vaporizer and Wisp Pods in both the US and Canadian legal cannabis or hemp markets.
Corporate Facilities
Our principal executive office is located at 20 Hempstead Drive, Hamilton, Ontario, Canada.
Item 1C. Cybersecurity
Risk Management and Strategy
The Company invests in information technology systems for its operations. Such investments, including the implementation of technology updates, improves the Company’s customers’ experience, and supports both compliance and internal controls. The Company is actively engaged in attempting to identify and manage cybersecurity risks. Protecting company data, non-public customer and employee data, and the systems that collect, process, and maintain this information is a Company priority.
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Cybersecurity Risk
In recent years there has been an increased risk of information and security risks due to increased sophistication and activities of perpetrators of cyber attacks. The computers are used for our everyday business operations including mobile devices and other online means of activities to connect with our customers, employees, suppliers and other parties. This extensive use give rise to cybersecurity risks such as system disruption, theft and the release of confidential information. There are numerous sensitive information stored in the system and intellectual property, including employees, customers and other financial information.
In the future we may be required to expend additional resources to continue to enhance information security measures to investigate and remediate any information security vulnerabilities. We can provide no assurances that the measures we have implemented to prevent security breaches and cyber incidents will be effective in the event of a cyber-attack.
Item 2. Properties
We do not own any properties at this time and do not have presently any agreements to acquire any properties.
Our principal executive office is located at 20 Hempstead Drive, Hamilton, Ontario, Canada.
Our subsidiary, Canary, leases a 44,000 square foot facility located in Norfolk County, Ontario to produce medical and recreational cannabis.
Text extracted from the filing as submitted to EDGAR. Formatting, tables and exhibits are simplified for reading; the original document is authoritative for anything you rely on.