What changed in this filing

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Item 1A. Risk Factors

2023-04-17 compared with 2022-04-12 · 80 added, 85 removed, 304 unchanged (35% of the section changed)

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Risks Related to the Company

Our operations are now primarily dependent on the business of Charlie ’

s, and our ability to achieve positive cash flow under our new business plan is uncertain.

As a result of the Share Exchange, our continued operations are now primarily dependent on the business of Charlie’s.

Our ability to achieve and maintain positive cash flow is uncertain.

Although Charlie’s generated net revenue of approximately $26.4 million during the year ended December 31, 2022 and $21.5 million for the year ended December 31, 2021, there can be no guarantee that the Company will continue to grow revenue or achieve positive cash flow in the future.

Our cash resources are currently insufficient to submit each of our anticipated PMTA applications with the FDA, and otherwise satisfy our projected short-term liquidity and capital requirements.

Cash used in operating activities was approximately $1.7 million and $1.3 million during the years ended December 31, 2022 and 2021, respectively.

Generating positive cash flows in the future will depend on our ability to successfully create, sell and market nicotine, nicotine alternative and hemp-derived products.

There is no guarantee that we will be able to achieve or sustain positive cash flows and profitability in the future.

Our inability to successfully achieve positive cash flows and profitability will decrease our long-term viability and prospects.

We have limited cash resources and may require additional financing.

As of December 31, 2022, we had working capital of approximately $1.1 million, which consisted of current assets of approximately $5.9 million and current liabilities of approximately $4.8 million.

In addition, the cost associated with the preparation and submission of Premarket Tobacco Applications (" PMTAs ") with the FDA is approximately $4.4 million to date.

In March 2021, we issued shares of the Company’s Common Stock worth $3.0 million, which provided additional financing in order to reduce debt, further invest in the PMTA application process, and otherwise carry out our business plan.

There can be no assurance that the Company will not require additional financing in the future, or that the financing will be available on acceptable terms, or at all, and there can be no assurance that any such arrangement, if required or otherwise sought, would be available on terms deemed to be commercially acceptable and in our best interests.

If needed, our ability to obtain additional financing will be subject to many factors, including limitations on incurring debt in with respect to our Series A convertible preferred stock (“

Series A Preferred ”), market conditions, our operating performance and investor sentiment.

If we are unable to raise additional capital when required or on acceptable terms, we may have to significantly restrict our operations or obtain funds by entering into agreements on unattractive terms, which would likely have a material adverse effect on our business, stock price and our relationships with third parties with whom we have business relationships, at least until additional funding is obtained.

If we do not have sufficient funds to continue operations, we could be required to seek bankruptcy protection or other alternatives that would likely result in our stockholders losing some or all of their investment in us.

Our auditors have issued a going concern opinion on our financial statements as of December 31, 2022.

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There was significant cost associated with the application process and there can be no assurance the FDA will approve previous and/or future application.

In addition, the outbreak of a novel strain of COVID-19 (“

Coronavirus ”) which was identified in Wuhan, China around December 2019, has had a negative impact on the global economy and markets which could impact the Company’s supply chain and/or sales.

For the year ended December 31, 2021, the Company generated income from operations of approximately $0.6 million, and a consolidated net income of approximately $4.8 million.

The Company had stockholders’

equity of $3.1 million at December 31, 2021.

During the year ended December 31, 2021, the Company’s working capital requirements changed significantly as inventory increased to $5.0 million, from $1.6 million as of December 31, 2020, and cash on hand decreased to approximately $0.9 million, from $1.4 million as of December 31, 2020.

Though the Company’s balance sheet and overall performance generally improved during 2021, the issuance of one or several Marketing Denial Orders (“

The issuance of one or several Marketing Denial Orders (“

MDO ”) from the FDA would increase the potential for inventory obsolescence and uncollectable accounts receivables.

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The financial statements do not include any adjustments to the carrying amount and classification of recorded assets and liabilities should the Company be unable to continue operations.

Our business is difficult to evaluate because we have recently significantly modified our product offerings and customer base.

As a result of the Share Exchange, we have recently modified our operations, engaging in the sale of new products in a new market through new distributors and new lines of business.

There is a risk that we will be unable to successfully integrate the newly acquired businesses with our current structure.

Our estimates of capital, personnel and equipment required for our newly acquired businesses are based on the historical experience of management and businesses they are familiar with.

Our management has limited direct experience in operating a business of our current size, as well as one that is publicly traded.

If we are unable to generate sufficient funds to continue operations, we could be required to seek bankruptcy protection or other alternatives that would likely result in our stockholders losing some or all their investment in us.

Our products could fail to attract or retain users or generate revenue and profits.

As a result of the Share Exchange, our customer base has changed significantly.

Our ability to develop, increase, and engage our new customer base and to increase our revenue depends heavily on our ability to continue to evolve our existing products and to create successful new products, both independently and in conjunction with developers or other third parties.

Our ability to develop, increase, and engage our customer base and to increase our revenue depends heavily on our ability to continue to evolve our existing products and to create successful new products, both independently and in conjunction with developers or other third parties.

We may introduce significant changes to our existing products or acquire or introduce new and unproven products, including using technologies with which we have little or no prior development or operating experience.

If new or enhanced products fail to engage our customers, or if we are unsuccessful in our monetization efforts, we may fail to attract or retain customers or to generate sufficient revenue, operating margin, or other value to justify our investments, and our business may be adversely affected.

Our significant stockholders may have certain personal interests that may affect the Company.

Together, Brandon Stump, a significant shareholder and founder of the Company, and Ryan Stump, Chief Operating Officer and a founder of the Company, collectively own approximately 38% of our issued and outstanding voting securities.

As a result, Ryan Stump and Brandon Stump have the ability to exert influence over both the actions of our Board of Directors, the outcome of issues requiring approval by our stockholders, as well as the execution of management’s plans.

This concentration of ownership may have effects such as delaying or preventing a change in control of the Company that may be favored by other stockholders or preventing transactions in which stockholders might otherwise recover a premium for their shares over current market prices.

The loss of one or more of our key personnel or our failure to attract and retain other highly qualified personnel in the future, could harm our business.

We currently depend on the continued services and performance of key members of our management team, in particular, Ryan Stump, one of Charlie’s founders and our Chief Operating Officer, Matt Montesano, our Chief Financial Officer, and Henry Sicignano, our President.

If we cannot call upon them or other key management personnel for any reason, our operations and development could be harmed.

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We may not be able to locate or attract qualified individuals for such positions, which will affect our ability to grow and expand our business.

We rely on contractual arrangements with Don Polly, our consolidated variable interest entity for our CBD-related business operations, which may not be as effective as direct ownership in providing operational control.

We rely on contractual arrangements with Don Polly, our consolidated variable interest entity for our hemp-related business operations, which may not be as effective as direct ownership in providing operational control.

We have relied and expect to continue to rely on contractual arrangements with Don Polly and its shareholders, consisting of entities controlled by Brandon Stump and Ryan Stump, for the operation of our hemp-derived operations.

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Any business that we conduct outside of the United States is subject to additional risks that may have a material adverse effect on our ability to continue conducting business in certain international markets, including, without limitation:

● 

Potentially reduced protection for intellectual property rights;

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Unexpected changes in tariffs, trade barriers and regulatory requirements;

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Economic weakness, including inflation or political instability, in particular foreign economies and markets;

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Business interruptions resulting from geo-political actions, including war and terrorism or natural disasters, including earthquakes, hurricanes, typhoons, floods and fires;

● 

Failure to comply with Office of Foreign Asset Control rules and regulations and the Foreign Corrupt Practices Act (“FCPA”).

These factors or any combination of these factors may adversely affect our revenue or our overall financial performance.

The outbreak of COVID-19, or coronavirus, has adversely affected our business.

In the event of a pandemic, epidemic or outbreak of an infectious disease, our business may be adversely affected.

In December 2019, a novel strain of COVID-19 was identified in Wuhan, China which continues to spread globally to, among other countries, the United States.

A future outbreak of COVID-19 or another pandemic could adversely affected our business.

In the event of a pandemic, epidemic or outbreak of an infectious disease, such as the recent COVID-19 pandemic, our business may be adversely affected.

Such events may result in a period of business and travel disruption, and in reduced sales and operations, any of which could materially affect our business, financial condition and results of operations.

For example, the spread of COVID-19 in the United States has resulted in travel restrictions impacting our sales professionals and is causing disruptions to our manufacturing supply chain.

These conditions have negatively affected our sales and revenue, although the magnitude of such a negative impact cannot be determined at this time.

However, if repercussions of the outbreak are prolonged, it will have a further adverse impact on our business.

The outbreak and persistence of COVID-19 in international markets that we have targeted for our international expansion have also delayed the preparation for and launch of such expansion efforts.

The spread of COVID-19 has resulted in the inability of certain of our products being delivered and distributed to the overseas markets on a timely basis.

If there were a shortage or halt in distribution of our products, the cost of these materials or components may increase which could harm our ability to provide our products on a timely and cost-effective basis.

The extent to which COVID-19 impacts our business will depend on future developments, which are highly uncertain and cannot be predicted.

The Company will continue to closely monitor new information as it emerges and adjust our operations and sales accordingly.

For example, the spread of COVID-19 in the United States resulted in travel restrictions that impacted our sales professionals and caused disruptions to our manufacturing supply chain.

These conditions previously negatively affected our sales and revenue.

However, if another outbreak of COVID-19 or another pandemic occurs, it could have an adverse impact on our business.

The extent to which COVID-19 or another pandemic impacts our business will depend on future developments, which are highly uncertain and cannot be predicted.

Regulatory and Market Risks

Our business is primarily involved in the sales of products that contain nicotine and/or CBD, which faces significant regulation and actions that may have a material adverse effect on our business .

As a result of the Share Exchange, our current business is primarily involved in the sale of products that contain nicotine and/or CBD.

Our business is primarily involved in the sales of products that contain nicotine and/or hemp-derived ingredients, which faces significant regulation and actions that may have a material adverse effect on our business .

Our current business is primarily involved in the sale of products that contain nicotine and/or hemp-derived ingredients.

The general market in which our products are sold faces significant governmental and private sector actions, including efforts aimed at reducing the incidence of use in minors and efforts seeking to hold the makers and sellers of these products responsible for the adverse health effects associated with them.

More broadly, new regulatory actions by the FDA and other federal, state or local governments or agencies, may impact the consumer acceptability of or access to our products, including regulations promulgated by the FDA which will require us to file PMTA(s) for any of our products that are identified as “Deemed Tobacco Products”

See "-The regulation of tobacco products by the FDA in the United States and the issuance of Deeming Regulations may materially adversely affect the Company." Additionally, on January 2, 2020 the FDA issued an enforcement policy effectively banning the sale of flavored cartridge-based e-cigarettes marketed primarily by large manufacturers in the United States without prior authorization from the FDA.

According to the FDA, it is expected that the new policy will have minimal impact on small manufacturers, such as vape shops, that sell non-cartridge based products.

We believe that any ban on flavored e-cigarettes, or similar enforcement action by the FDA, would have a significant adverse impact on Charlie’s products, which would, in turn, have a material adverse impact on our overall business material.

Additionally, on January 2, 2020 the FDA issued an enforcement policy effectively banning the sale of flavored cartridge-based e-cigarettes marketed primarily by large manufacturers in the United States without prior authorization from the FDA.

Any ban on flavored e-cigarettes, or similar enforcement action by the FDA, or any order by the FDA requiring us to cease selling any of our products, would have a significant adverse impact on Charlie’s products, which would, in turn, have a material adverse impact on our overall business material.

Additional regulatory challenges may come in future months and years, including the FDA’s publication of new product standards or additional rule making that may impact vape shops or other small manufacturers, limit adult consumer choices, delay or prevent the launch of new or modified risk tobacco products or products with claims of reduced risk, require the recall or other removal of certain products from the marketplace, restrict communications including marketing, advertising, and educational campaigns regarding the product category to adult consumers, restrict the ability to differentiate products, create a competitive advantage or disadvantage for certain companies, impose additional manufacturing, labeling or packaging requirements, interrupt manufacturing or otherwise significantly increase the cost of doing business, or restrict or prevent the use of specified products in certain locations or the sale of products by certain retail establishments.

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There can be no assurance as to the ultimate content, timing or effect of any regulation of tobacco products by governmental bodies, nor can there be any assurance that potential corresponding declines in demand resulting from negative media attention would not have a material adverse effect on our business, results of operations and financial condition.

Recently enacted legislative changes to the Federal Food, Drug and Cosmetic Act could materially affect sales of our Pacha Syn branded products, and if we do not file a PMTA for these products, we will not be able to market them which could materially affect our revenue and financial results.

On March 15, 2022, a new rider to the Federal Food, Drug and Cosmetic Act was passed granting the FDA authority over synthetic nicotine. 

Recently enacted legislative changes to the Federal Food, Drug and Cosmetic Act could materially affect sales of our Pacha branded products, and if we do not receive acceptance filings from the FDA for these products, we will not be able to market them which could materially affect our revenue and financial results.

During, 2022, a new rider to the Federal Food, Drug and Cosmetic Act was passed granting the FDA authority over synthetic nicotine. 

These regulations make synthetic nicotine products subject to the same FDA rules as tobacco-derived nicotine products. 

As such, the Company must file a PMTA for its existing synthetic nicotine products marketed under the Pacha Syn brand by May 14, 2022, or be subject to FDA enforcement. 

Currently, the Company plans to file a PMTA for its synthetic Pacha Syn products prior to the May 14, 2022 deadline. 

If the PMTA is ultimately unsuccessful, or if the FDA issues a warning letter, or takes other action against the Company resulting in us not being able to distribute our Pacha Syn branded products in the United States, our revenues and, thereby our financial results and condition, could be materially adversely affected.

As such, the Company filed a PMTA for its existing synthetic nicotine products marketed under the Pacha brand by May 14, 2022. 

If the PMTA is ultimately unsuccessful, or if the FDA issues a warning letter, or takes other action against the Company resulting in us not being able to distribute our Pacha branded products in the United States, our revenues and, thereby our financial results and condition, could be materially adversely affected.

The regulation of tobacco products by the FDA in the United States and the issuance of Deeming Regulations may materially adversely affect the Company.

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issued by the FDA in May 2016 require any e-liquid, e-cigarettes, and other vaping products considered to be Deemed Tobacco Products that were not commercially marketed as of the grandfathering date of February 15, 2007, to obtain premarket approval by the FDA before any new e-liquid or other vaping products can be marketed in the United States.

However, any Deemed Tobacco Products such as certain products from our Charlie's Chalk Dust product lines that were on the market in the United States prior to August 8, 2016 have a grace period to continue to market such products, ending on September 9, 2020 whereby a premarket application, likely though the PMTA pathway, must have been filed with the FDA.

However, any Deemed Tobacco Products such as certain products from our Charlie’s Chalk Dust product lines that were on the market in the United States prior to August 8, 2016 have a grace period to continue to market such products, ending on September 9, 2020 whereby a premarket application, likely though the PMTA pathway, must have been filed with the FDA.

Upon submission of a PMTA, products are able to be marketed pending the FDA’s review of the submission.

Without obtaining marketing authorization by the FDA prior to the September 9, 2020 deadline or having submitted a PMTA by such date, non-authorized products were be required to be removed from the market in the United States until such authorization could be obtained, although such products may continue to be sold if a PMTA was pending as of the September 9, 2020 deadline.

As at the date of this Report, we have submitted PMTAs for certain of our nicotine vapor products, including, but not limited to menthol and/or tobacco products with the assistance of Avail, pursuant to the terms of the Avail Agreement.

The costs to date associated with these PMTAs are approximately $5.1 million in total.

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If we do not submit a PMTA for any Charlie’s products considered to be Deemed Tobacco Products prior to the lapse of the grace period or if any PMTA submitted by the Company is denied, we will be required to cease the marketing and distribution of such Charlie’s products, which, in turn, would have a material adverse effect on the Company’s business, results of operations and financial condition.

Furthermore, there can be no assurance that if the Company were to complete a PMTA for any of the affected Charlie's products, that any application would be approved by the FDA.

Furthermore, there can be no assurance that if the Company were to complete a PMTA for any of the affected Charlie’s products, that any application would be approved by the FDA and any non-approval would require us to remove products from the marketplace, which would have an adverse impact on our business.

Certain of our products contain nicotine, which is considered to be a highly addictive substance.

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Recent bans on the sales of flavored e-cigarettes directly impacts the markets in which we may sell Charlie ’

s products, and significant increases in state and local regulation of Charlie's products have been proposed or enacted and are likely to continue to be proposed or enacted in numerous jurisdictions.

s products, and significant increases in state and local regulation of Charlie ’

s products have been proposed or enacted and are likely to continue to be proposed or enacted in numerous jurisdictions.

On January 2, 2020 the FDA issued an enforcement policy effectively banning the sale of flavored cartridge-based e-cigarettes marketed primarily by large manufacturers in the United States without prior authorization from the FDA.

There has been increasing activity on the state and local levels with respect to scrutiny of Charlie's products, and many states, provinces, and some cities have passed laws restricting or banning the sale of e-cigarettes and certain other nicotine vaporizer products, including flavored e-liquids.

There has been increasing activity on the state and local levels with respect to scrutiny of Charlie’s products, and many states, provinces, and some cities have passed laws restricting or banning the sale of e-cigarettes and certain other nicotine vaporizer products, including flavored e-liquids.

State and local governmental bodies across the U.S.

have indicated Charlie's products may become subject to new laws and regulations at the state and local levels.

have indicated Charlie’s products may become subject to new laws and regulations at the state and local levels.

Further, some states and cities, have enacted regulations that require obtaining a tobacco retail license in order to sell electronic cigarettes and vaporizer products.

If one or more states from which we generate or anticipate generating significant sales of Charlie's products bring actions to prevent us from selling Charlie's products unless we obtain certain licenses, approvals or permits, and if we are not able to obtain the necessary licenses, approvals or permits for financial reasons or otherwise and/or any such license, approval or permit is determined to be overly burdensome to us, then we may be required to cease sales and distribution of our products to those states, which could have a material adverse effect on our business, results of operations and financial condition.

Certain states and cities have already restricted the use of electronic cigarettes and vaporizer products in smoke-free venues, imposed excise taxes, or limited sales of flavored Charlie's products.

If one or more states from which we generate or anticipate generating significant sales of Charlie’s products bring actions to prevent us from selling Charlie’s products unless we obtain certain licenses, approvals or permits, and if we are not able to obtain the necessary licenses, approvals or permits for financial reasons or otherwise and/or any such license, approval or permit is determined to be overly burdensome to us, then we may be required to cease sales and distribution of our products to those states, which could have a material adverse effect on our business, results of operations and financial condition.

Certain states and cities have already restricted the use of electronic cigarettes and vaporizer products in smoke-free venues, imposed excise taxes, or limited sales of flavored Charlie’s products.

Additional city, state or federal regulators, municipalities, local governments and private industry may enact additional rules and regulations restricting electronic cigarettes and vaporizer products.

Because of these restrictions, our customers may reduce or otherwise cease using Charlie's products, which could have a material adverse effect on our business, results of operations and financial condition.

Because of these restrictions, our customers may reduce or otherwise cease using Charlie’s products, which could have a material adverse effect on our business, results of operations and financial condition.

Changes to the application of existing laws and regulations, and/or the implementation of any new laws or regulations that may be adopted in the future, at a federal, state, or local level, directly or indirectly implicating or banning flavored e-cigarette liquid and products used for the vaporization of nicotine would materially limit our ability to sell such products, result in additional compliance expenses, and require us to change our labeling and methods of distribution, any of which would have a material adverse effect on our business, results of operations and financial condition.

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The marketing and sale of  

Delta-8-THC and other synthetic  

Delta-8-THC, other  

cannabinol  

products  

and/or CBD products  

by the Company could subject it to limitations or restrictions imposed by the FDA, the states or other regulatory authorities.

The Company’s production of Delta-8-Tetrahydrocannabinol (" Delta-8-THC ") and other synthetic tetrahydrocannabinol (" Synthetic THC ") products derived from hemp could subject it to limitations or restrictions, which could result in an outright ban on such marketing or sale. 

The Company’s production of Delta-8-Tetrahydrocannabinol (" Delta-8-THC "), other cannabinol and/or CBD products derived from hemp could subject it to limitations or restrictions, which could result in an outright ban on such marketing or sale. 

Regulatory uncertainties regarding potential adverse changes in Federal and state laws may have a materially adverse effect on our business and the trading price of our common stock.

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The Federal legality of Synthetic THC is still unknown, and the Federal government has yet to take a definitive position.

Should the Company become subject to enforcement action by Federal, state or other regulatory agencies, it could be forced to spend significant sums defending against such enforcement action and ultimately could be forced to stop marketing and selling some or all of its Delta-8-THC products and/or be subject to other sanctions, which would have a material adverse effect on the Company’s business and shareholders’

Additionally, the FDA has indicated its view that certain types of products containing CBD may not be permissible under the FDCA.

The FDA’s position is related to its approval of Epidiolex, a marijuana-derived prescription medicine to be available in the United States.

The active ingredient in Epidiolex is CBD.

On December 20, 2018, after the passage of the 2018 Farm Act, FDA Commissioner Scott Gottlieb issued a statement in which he reiterated the FDA’s position that, among other things, the FDA requires a cannabis product (hemp-derived or otherwise) that is marketed with a claim of therapeutic benefit, or with any other disease claim, to be approved by the FDA for its intended use before it may be introduced into interstate commerce and that the FDCA prohibits introducing into interstate commerce food products containing added CBD, and marketing products containing CBD as a dietary supplement, regardless of whether the substances are hemp-derived.

products and/or be subject to other sanctions, which would have a material adverse effect on the Company’s business and shareholders’

The market for vapor products is a niche market, subject to a great deal of uncertainty, and is still evolving.

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Therefore, we are subject to all of the business risks associated with a new enterprise in a niche market, including risks of unforeseen capital requirements, failure of widespread market acceptance of vapor products, in general or, specifically our products, failure to establish business relationships and competitive disadvantages as against larger and more established competitors.

Possible yet unanticipated changes in federal and state law could cause any of our current products, as well as products that we intend to launch, containing hemp-derived CBD oil to be illegal, or could otherwise prohibit, limit or restrict any of our products containing CBD.

We recently launched and commenced distribution of certain premium vapor products containing hemp-derived CBD, and we currently intend to develop and launch additional products containing hemp-derived CBD in the future.

Until 2014, when 7 U.S.

Code §5940 became federal law as part of the Agricultural Act of 2014 (the “

2014 Farm Ac t”), products containing oils derived from hemp, notwithstanding a minimal or non-existing THC content, were classified as Schedule I illegal drugs.

The 2014 Farm Act expired on September 30, 2018, and was thereafter replaced by the Agricultural Improvement Act of 2018 on December 20, 2018 (the “

2018 Farm Act ”), which amended various sections of the U.S.

Code, thereby removing hemp, defined as cannabis with less than 0.3% THC, from Schedule 1 status under the Controlled Substances Act, and legalizing the cultivation and sale of industrial-hemp at the federal level, subject to compliance with certain federal requirements and state law, amongst other things.

THC is the psychoactive component of plants in the cannabis family generally identified as marihuana or marijuana.

There is no assurance that the 2018 Farm Act will not be repealed or amended such that our products containing hemp-derived CBD would once again be deemed illegal under federal law.

The 2018 Farm Act delegates the authority to the states to regulate and limit the production of hemp and hemp derived products within their territories.

Although many states have adopted laws and regulations that allow for the production and sale of hemp and hemp derived products under certain circumstances, no assurance can be given that such state laws may not be repealed or amended such that our intended products containing hemp-derived CBD would once again be deemed illegal under the laws of one or more states now permitting such products, which in turn would render such intended products illegal in those states under federal law even if the federal law is unchanged.

In the event of either repeal of federal or of state laws and regulations, or of amendments thereto that are adverse to our intended products, we may be restricted or limited with respect to those products that we may sell or distribute, which could adversely impact our intended business plan with respect to such intended products.

Additionally, the FDA has indicated its view that certain types of products containing CBD may not be permissible under the FDCA.

The FDA’s position is related to its approval of Epidiolex, a marijuana-derived prescription medicine to be available in the United States.

The active ingredient in Epidiolex is CBD.

Although we believe our existing and planned CBD product offerings comply with applicable federal and state laws and regulations, legal proceedings alleging violations of such laws could have a material adverse effect on our business, financial condition, and results of operations.

Sources of hemp-derived CBD depend upon legality of cultivation, processing, marketing and sales of products derived from those plants under state law.

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If we were to be unsuccessful in arranging new sources of supply of our raw ingredients, or if our raw ingredients were to become legally unavailable, our intended business plan with respect to such products could be adversely impacted.

We have limited supply sources for industrial hemp, and price increases or supply shortages of key raw materials could materially and adversely affect our business, financial condition and results of operations.

Our hemp-based cannabinoid products are composed of certain key raw materials.

If the prices of such raw materials increase significantly, it could result in a significant increase in our product development costs.

If raw material prices increase in the future, we may not be able to pass on such price increases to our customers.

A significant increase in the price of industrial hemp or other raw materials that cannot be passed on to customers could have a material adverse effect on our business, financial condition and results of operations.

Our success will depend upon the availability of industrial hemp and other raw materials that permit us to meet our labeling claims and quality control standards.

The supply of our industrial hemp is subject to the same risks normally associated with agricultural production, such as climactic conditions, insect infestations and availability of manual labor or equipment for harvesting.

Any significant delay in or disruption of the supply of raw materials could substantially increase the cost of such materials, could require product reformulations, the qualification of new suppliers and repackaging and could result in a substantial reduction or termination by us of our sales of certain products, any of which could have a material adverse effect upon us.

Accordingly, there can be no assurance that the disruption of our supply sources will not have a material adverse effect on us.

Because our distributors may only sell and ship our products containing hemp-derived CBD in states that have adopted laws and regulations qualifying under the 2018 Farm Act, a reduction in the number of states having such qualifying laws and regulations could limit, restrict or otherwise preclude the sale of intended products containing hemp-derived CBD.

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Any of these failures or occurrences could negatively affect our business and financial performance.

There is limited availability of clinical studies related to hemp-based products.

Although hemp plants have a long history of human consumption, there is little long-term experience with human consumption of certain of these innovative product ingredients or combinations thereof in concentrated form.

Although we perform research and/or tests the formulation and production of our products, there is limited clinical data regarding the safety and benefits of ingesting industrial hemp-based products.

Any instance of illness or negative side effects of ingesting industrial hemp-based products would have a material adverse effect on our business and operations.

The sale of our products involves product liability and related risks that could expose us to significant insurance and loss expense.

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Our success will be dependent upon our ability to convey to consumers that our products are superior to those of our competitors.

The presence of trace amounts of THC in our products may cause adverse consequences to users of such products that will expose us to the risk of litigation, liability and other consequences.

Some of our products that contain hemp-derived CBD, or other hemp-derived cannabinoids, may contain trace amounts of THC.

THC is a controlled substance in many jurisdictions, including under the federal laws of the U.S.

Whether or not ingestion of THC (at low levels or otherwise) is permitted in a particular jurisdiction, there may be adverse consequences to consumers of our products who test positive for any amounts of THC because of the presence of trace amounts of THC in our hemp products.

In addition, certain metabolic processes in the body may negatively affect the results of drug tests.

Positive tests for THC may expose us to litigation from our consumers, adversely affect our reputation, our ability to obtain or retain customers and individuals’

participation in certain athletic or other activities.

A claim or regulatory action against us based on such positive test results could materially and adversely affect our business, financial condition, operating results, liquidity, cash flow and operational performance.

We must develop and introduce new products to succeed.

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customer acceptance of new products.

Competition  

from the illicit cannabis market could impact our ability to succeed.

We face competition from illegal market operators that are unlicensed and unregulated including illegal dispensaries and illicit market suppliers selling cannabis and cannabis-based products.

As these illegal market participants do not comply with the regulations governing the cannabis industry, their operations may have significantly lower costs.

The perpetuation of the illegal market for cannabis may have a material adverse effect on our business, results of operations, as well as the perception of cannabis use.

If we are not able to adequately protect our intellectual property, then we may not be able to compete effectively, and we may not be profitable.

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Our inability to protect our intellectual property could have a material adverse impact on our ability to compete and could make it difficult for us to achieve a profit.

Compliance with changing corporate governance regulations and public disclosures may result in additional risks and exposures.

Changing laws, regulations and standards relating to corporate governance and public disclosure, including the Sarbanes-Oxley Act of 2002 and new regulations from the SEC, have created uncertainty for public companies such as ours.

These laws, regulations, and standards are subject to varying interpretations in many cases, 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.

As a result, our efforts to comply with evolving laws, regulations, and standards have resulted in, and are likely to continue to result in, increased expense and significant management time and attention.

Risks Related to Our Common Stock

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The market price of the securities of a company such as ours with little name recognition in the financial community can be subject to wide price swings.

The market price of our Common Stock may be subject to wide changes in response to quarterly variations in operating results, announcements of new products by us or our competitors, reports by securities analysts, volume trading, or other events or factors.

The market price of our Common Stock may be subject to wide changes in response to quarterly variations in operating results, our working capital and cash position, our ability to continue as a going concern, FDA regulatory actions, announcements of new products by us or our competitors, reports by securities analysts, volume trading, or other events or factors.

In addition, the financial markets have experienced significant price and volume fluctuations for a number of reasons, including the failure of certain companies to meet market expectations.

31 unchanged sentences

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