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Item 1A. Risk Factors

2024-04-15 compared with 2023-04-17 · 84 added, 127 removed, 257 unchanged (45% of the section changed)

We are subject to various risks that could have a negative effect on the Company and its financial condition.

These risks could cause actual operating results to differ from those expressed in certain “forward looking statements”

contained in this Annual Report on Form 10-K as well as in other communications.

These risks could cause actual operating results to differ from those expressed in certain “forward looking statements” contained in this Annual Report on Form 10-K as well as in other communications.

Risks Related to the Company

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.

Although Charlie’s generated net revenue of approximately $16.3 million during the year ended December 31, 2023 and $26.4 million for the year ended December 31, 2022, there can be no guarantee that the Company will grow revenue or achieve positive cash flow in the future.

Cash used in operating activities was approximately $0.8 million and $1.7 million during the years ended December 31, 2023 and 2022, respectively.

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As of December 31, 2023, we had working capital of approximately $0.3 million, which consisted of current assets of approximately $5.1 million and current liabilities of approximately $4.8 million.

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 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.

These conditions lead the Company to conclude there is substantial doubt about our ability to continue as a going concern.

As of December 31, 2023, the Company has substantial doubt about its ability to continue as a going concern.

Our financial statements have been prepared assuming that the Company will continue as a going concern, which contemplates the realization of assets and satisfaction of liabilities in the normal course of business.

The Company operates in a rapidly changing legal and regulatory environment;

new laws and regulations or changes to existing laws and regulations could significantly limit the Company’s ability to sell its products, and/or result in additional costs.

Additionally, the Company was required to apply for FDA approval to continue selling and marketing its products used for the vaporization of nicotine in the United States.

Currently, a substantial portion of the Company’s sales are derived from products that are subject to approval by the FDA.

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

The issuance of one or several Marketing Denial Orders (“

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

These regulatory risks, as well as other industry-specific challenges remain factors that raise substantial doubt about the Company’s ability to continue as a going concern.

The issuance of one or several Marketing Denial Orders (“ MDO ”) from the FDA would increase the potential for inventory obsolescence and uncollectable accounts receivables.

These regulatory risks, as well as other industry-specific challenges and our low working capital and cash position, remain factors that lead the Company to conclude that there is substantial doubt about the Company’s ability to continue as a going concern.

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.

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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, and Henry Sicignano, our President.

We currently depend on the continued services and performance of key members of our management team, particularly Ryan Stump, one of Charlie’s founders and our Chief Operating Officer, and Henry Sicignano III, 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 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.

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

These contractual arrangements may not be as effective as direct ownership in providing us with control over our consolidated variable interest entity.

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The shareholders of Don Polly, our consolidated variable interest entity, may have potential conflicts of interest with us, which may materially and adversely affect our business and financial condition.

The equity interests of Don Polly, our consolidated VIE, are held by entities controlled by Ryan Stump, the Company's Chief Operating Officer and member of our Board of Directors, and Brandon Stump, a significant shareholder of the Company.

The equity interests of Don Polly, our consolidated VIE, are held by an entity controlled by Ryan Stump, the Company’s Chief Operating Officer and member of our Board of Directors.

Their interests in Don Polly may differ from the interests of our company as a whole.

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Such disruptions or misappropriations and the resulting repercussions, including reputational damage and legal claims or proceedings, may adversely affect our results of operations, cash flows and financial condition, and the trading price of our Common Stock.

Their interests in Don Polly may differ from the interests of our company as a whole.

These shareholders may breach, or cause Don Polly to breach, the existing contractual arrangements we have with them and Don Polly, which would have a material adverse effect on our ability to effectively control Don Polly and receive economic benefits from it.

For example, the shareholders may be able to cause our agreements with Don Polly to be performed in a manner adverse to us by, among other things, failing to remit payments due under the contractual arrangements to us on a timely basis.

We cannot assure you that when conflicts of interest arise, any or all of these shareholders will act in the best interests of our Company or such conflicts will be resolved in our favor.

The business that we conduct outside the United States may be adversely affected by international risk and uncertainties.

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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;

● 

Unexpected changes in tariffs, trade barriers and regulatory requirements;

● 

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

● 

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.

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Regulatory and Market Risks

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.

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

Our current business is primarily the sale of products that contain nicotine, alternative alkaloids 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”

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.

Any of these actions may also have a material adverse effect on our business.

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The formulation, manufacturing, packaging, labeling, holding, storage, distribution, advertising and sale of our products are affected by extensive laws, governmental regulations and policies, administrative determinations, court decisions and similar constraints at the federal, state and local levels, both within the United States and in any country where we conduct business.

Moreover, the current trend is toward increasing regulation of the tobacco industry, which is likely to differ between the various U.S.

Moreover, the current trend is toward increasing regulation of the tobacco industry and vapor products alike, which is likely to differ between the various U.S.

states in which we currently conduct the majority of our business.

Extensive and inconsistent regulation by multiple states and at different governmental levels could prove to be particularly disruptive to our business as we may be unable to accommodate such regulations in a cost-effective manner that allows us to continue to compete in an economically viable way.

Regulations are often introduced without the tobacco industry’s input and have been a significant reason behind reduced industry sales volumes and increased illicit trade.

There can be no assurance that we, or our independent distributors, will be in compliance with all of these regulations.

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In addition, the adoption of new regulations and policies or changes in the interpretations of existing regulations and policies may result in significant new compliance costs or discontinuation of product sales, and may adversely affect the marketing of our products, resulting in decreases in revenue.

In 1986, federal legislation was enacted regulating smokeless tobacco products (including dry and moist snuff and chewing tobacco) by, among other things, requiring health warnings on smokeless tobacco packages and prohibiting the advertising of smokeless tobacco products on media subject to the jurisdiction of the Federal Communications Commission (“

FCC ”).

Since 1986, other proposals have been made at the federal, state, and local levels for additional regulation of tobacco products.

It is likely that additional proposals will be made in the coming years.

For example, the Prevent All Cigarette Trafficking Act (“

PACT Act ”) initially prohibited the use of the U.S.

For example, the Prevent All Cigarette Trafficking Act (“ PACT Act ”) initially prohibited the use of the U.S.

Postal Service to mail cigarette and smokeless tobacco products and also amended the Jenkins Act, which established cigarette sales reporting requirements for state excise tax collection, to require individuals and businesses that make interstate sales of certain cigarette or smokeless tobacco comply with state tax laws.

The PACT Act was recently amended expanding the definition of “cigarette”

to include “electronic nicotine delivery systems,”

or ( "ENDS" ), and requires that the United States Postal Service (" USPS ") promulgate regulations clarifying the applicability of the prohibition on delivery sales of cigarettes to ENDS.

The PACT Act was recently amended expanding the definition of “cigarette” to include “electronic nicotine delivery systems,” “r ( " ” NDS" ), and requires that the United States Postal Service ("” SPS ") promulgate regulations clarifying the applicability of the prohibition on delivery sales of cigarettes to ENDS.

This amendment to the PACT Act applies to certain products manufactured and sold by the Company, which has impacts at the federal and state levels.

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To the extent we are unable to respond to, or comply with, these new requirements, there could be a material adverse effect on our business, results of operations and financial condition.

On June 22, 2009, the Family Smoking Prevention and Tobacco Control Act (the “

Tobacco Control Act ”) granted the FDA regulatory authority over tobacco products.

The Act also amended the Federal Cigarette Labeling and Advertising Act, which governs how cigarettes can be advertised and marketed, as well as the Comprehensive Smokeless Tobacco Health Education Act (“

CSTHEA ”), which governs how smokeless tobacco can be advertised and marketed.

In addition to the FDA and FCC, we are subject to regulation by numerous other federal agencies, including the Federal Trade Commission (“

FTC ”), the Department of Justice (“

DOJ ”), the Alcohol and Tobacco Tax and Trade Bureau (“

TTB ”), the U.S.

Environmental Protection Agency (“

EPA ”), the U.S.

Department of Agriculture (“

USDA ”), the Consumer Product Safety Commission (“

CPSC ”), the U.S.

Customs and Border Protection (“

CBP ”) and the U.S.

Center for Disease Control and Prevention’s (“

CDC ”) Office on Smoking and Health.

On June 22, 2009, the Family Smoking Prevention and Tobacco Control Act (the “ Tobacco Control Act ”) granted the FDA regulatory authority over tobacco products.

In addition to the FDA and FCC, we are subject to regulation by numerous other federal agencies, including the Federal Trade Commission (“ FTC ”), the Department of Justice (“ DOJ ”), the Alcohol and Tobacco Tax and Trade Bureau (“ TTB ”), the U.S.

Environmental Protection Agency (“ EPA ”), the U.S.

Department of Agriculture (“ USDA ”), the Consumer Product Safety Commission (“ CPSC ”), the U.S.

Customs and Border Protection (“ CBP ”) and the U.S.

Center for Disease Control and Prevention’s (“ CDC ”) Office on Smoking and Health.

There have also been adverse legislative and political decisions and other unfavorable developments concerning cigarette smoking and the tobacco industry, which we believe have received widespread public attention.

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

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 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.

The “Deeming Regulations”

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.

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

The “Deeming Regulations” 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.

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.

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We are also evaluating the potential market perception and clinical studies that may be required in connection with each PMTA.

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 and any non-approval would require us to remove products from the marketplace, which would have an adverse impact on our business.

The regulation of SPREE BAR by the FDA or others could materially adversely affect us.

We recently launched new disposable vape products, under the “SPREE BAR™” brand, that we expect will (i) replace most of our legacy products and (ii) become the single largest, most important commercial opportunity our history.

As SPREE BAR is not made from or derived from tobacco, we believe that SPREE BAR products are not subject to regulation as “tobacco products” under 21 U.S.C.

In the event that our SPREE BAR products were to be deemed by the FDA to be “tobacco products” or if the FDA or another regulatory authority were to otherwise assume regulatory control of such products, we could be required to cease selling such products (including recalling existing products), subject to an enforcement action or otherwise be required to comply with various regulations that could be expensive.

More generally, FDA’s regulatory initiatives and enforcement authority regarding our products are unpredictable and continue to evolve and we cannot predict whether FDA’s priorities and/or potential jurisdiction over our products will require us to remove our products from the market and to cease selling them.

As a result, any regulation over SPREE BAR could material adversely affect us.

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

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Any FDA regulation may require us to reformulate, recall and or discontinue certain of the products we may sell from time to time, which may have a material adverse effect on our ability to market our products and have a material adverse effect on our business, financial condition, results of operations, cash flows and or future prospects.

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.

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.

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.

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.

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.

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.

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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Despite the recent outbreak of vaping-related lung injuries, the medical profession does not yet definitively know the cause of such injuries.

Should vapor products, such as Charlie ’

s products, be determined conclusively to pose long-term health risks, including a risk of vaping-related lung injury, our business will be negatively impacted.

Should vapor products, such as Charlie ’ s products, be determined conclusively to pose long-term health risks, including a risk of vaping-related lung injury, our business will be negatively impacted.

Because vapor products have been developed and commercialized recently, the medical profession has not yet had a sufficient period of time to fully realize the long-term health effects attributable to vapor product use.

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The CDC's principal deputy director, Dr.

Anne Schuchat, stated that "vitamin E acetate is a known additive used to dilute liquid in e-cigarettes or vaping products that contain THC”, suggesting the possible culprit for the series of lung injuries across the U.S.

Anne Schuchat, stated that vitamin E acetate is a known additive used to dilute liquid in e-cigarettes or vaping products that contain THC”, suggesting the possible culprit for the series of lung injuries across the U.S.

As a result, there is currently no way of knowing whether or not vapor products are safe for their intended use.

If the medical profession were to determine conclusively that vapor product usage poses long-term health risks, the use of such products, including Charlie’s products, could decline, which could have a material adverse effect on our business, results of operations and financial condition.

The marketing and sale of  

Delta-8-THC, other  

cannabinol  

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 "), 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. 

The marketing and sale of Delta-8-THC, other cannabinol 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-Tetrahydrocannabinl (" 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.

These risks are heightened as they relate to the nicotine, marijuana, Delta-8-THC, Synthetic THC, CBD and other cannabinoid varieties, derivatives and /or equivalents which are controversial socially, scientifically and legally. 

In addition, although we believe that Delta-8-THC is legal under the Farm Bill, certain states have moved to ban Synthetic THC or have moved to regulate Synthetic THC as marijuana. 

Notwithstanding the foregoing, the legality of hemp derived Synthetic THC is in a gray area and varies from state-to-state, with some states allowing Synthetic THC, others not addressing Synthetic THC specifically, while others have banned Synthetic THC due to its similarity to tetrahydrocannabinol.

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

These risks are heightened as they relate to the nicotine, marijuana, Delta-8-THC, Synthetic THC, CBD and other cannabinoid varieties, derivatives and /or equivalents which are controversial socially, scientifically and legally.

In addition, although we believe that Delta-8-THC is legal under the Farm Bill, certain states have moved to ban Synthetic THC or have moved to regulate Synthetic THC as marijuana.

Notwithstanding the foregoing, the legality of hemp derived Synthetic THC is in a gray area and varies from state-to-state, with some states allowing Synthetic THC, others not addressing Synthetic THC specifically, while others have banned Synthetic THC due to its similarity to tetrahydrocannabinol.

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

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’

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

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

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Due to recent expansion into the CBD industry, we may have a difficult time obtaining the various insurances that are desired to operate our business, which may expose us to additional risk and financial liability .

Insurance that is otherwise readily available, such as general liability, and directors and officer’s insurance, may become more difficult for us to find, and more expensive, due to our recent launch of certain products containing hemp-derived CBD.

There are no guarantees that we will be able to find such insurances in the future, or that the cost will be affordable to us.

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We face intense competition from numerous resellers, manufacturers and wholesalers of vapor products similar to those developed and sold by us, from both retail and online providers.

We face competition from direct and indirect competitors, which arguably includes “big tobacco”, “big pharma”, and other known and established or yet to be formed vapor product manufacturing companies, each of whom pose a competitive threat to our current business and future prospects.

We compete against “big tobacco”, who offers not only conventional tobacco cigarettes and electronic cigarettes, but also smokeless tobacco products such as “snus”

(a form of moist ground smokeless tobacco that is usually sold in sachet form that resembles small tea bags), chewing tobacco and snuff.

“Big tobacco”

has nearly limitless resources, global distribution networks in place and a customer base that is fiercely loyal to their brands.

Furthermore, we believe that “big tobacco”

is likely to devote more attention and resources to developing and offering electronic cigarettes or other vapor products as the market for electronic cigarettes grows.

Because of their well-established sales and distribution channels, marketing depth, financial resources, and proven expertise navigating complex regulatory landscapes, “big tobacco”

is better positioned than small competitors like us to capture a larger share of the vapor markets.

We compete against “big tobacco”, who offers not only conventional tobacco cigarettes and electronic cigarettes, but also smokeless tobacco products such as “snus” (a form of moist ground smokeless tobacco that is usually sold in sachet form that resembles small tea bags), chewing tobacco and snuff.

“Big tobacco” has nearly limitless resources, global distribution networks in place and a customer base that is fiercely loyal to their brands.

Furthermore, we believe that “big tobacco” is likely to devote more attention and resources to developing and offering electronic cigarettes or other vapor products as the market for electronic cigarettes grows.

Because of their well-established sales and distribution channels, marketing depth, financial resources, and proven expertise navigating complex regulatory landscapes, “big tobacco” is better positioned than small competitors like us to capture a larger share of the vapor markets.

We also face competition from companies in the vapor market that are much larger, better funded, and more established than us.

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This, in turn, could negatively affect our ability to obtain financing, endorsers and attract distributors or retailers for our products, which would have a material adverse effect on our ability to generate sales and revenue.

Our distributors’

and customers’

perception of the safety and quality of our products or even similar products distributed by others can be significantly influenced by national media attention, publicized scientific research or findings, product liability claims and other publicity concerning our products or similar products distributed by others.

Adverse publicity, whether or not accurate, that associates consumption of our products or any similar products with illness or other adverse effects, will likely diminish the public’s perception of our products.

Our distributors’ and customers’ perception of the safety and quality of our products or even similar products distributed by others can be significantly influenced by national media attention, publicized scientific research or findings, product liability claims and other publicity concerning our products or similar products distributed by others.

Claims that any products are ineffective, inappropriately labeled or have inaccurate instructions as to their use, could have a material adverse effect on the market demand for our products, including reducing our sales and revenue.

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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.

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.

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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.

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.

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These sales, or the perception that such sales may occur, may adversely impact the price of our Common Stock, even if there is no relationship between such sales and the performance of our business.

As of December 31, 2022, we had 219,163,631 shares of Common Stock outstanding, as well as outstanding options to purchase an aggregate of 6,002,937 shares of our Common Stock at a weighted average exercise price of $0.56 per share, up to 30,109,234 shares of Common Stock issuable upon conversion of outstanding shares of Series A Preferred and outstanding warrants to purchase up to an aggregate of 40,424,136 shares of our Common Stock at a weighted average exercise price of $0.44313 per share.

As of December 31, 2023, we had 228,535,886 shares of Common Stock outstanding, as well as outstanding options to purchase an aggregate of 5,271,637 shares of our Common Stock at a weighted average exercise price of $0.58 per share, up to 28,926,313 shares of Common Stock issuable upon conversion of outstanding shares of Series A Preferred and outstanding warrants to purchase up to an aggregate of 40,424,136 shares of our Common Stock at a weighted average exercise price of $0.44313 per share that expire on April 26, 2024 unless exercised.

The exercise and/or conversion of such outstanding derivative securities may result in further dilution to our stockholders.

If we issue additional shares of Common Stock in the future, it will result in the dilution of our existing stockholders.

Our Charter currently authorizes the issuance of up to 500.0 million shares of Common Stock, of which approximately 224 million shares are issued and outstanding as of April 17, 2023.

Our Charter currently authorizes the issuance of up to 500.0 million shares of Common Stock, of which approximately 228.8 million shares are issued and outstanding as of March 31, 2024.

In addition, we have reserved approximately 74.0 million shares for issuance upon conversion and/or exercise of our outstanding shares of Series A Preferred, warrants and stock options, as well as for issuance as awards under our 2019 Omnibus Incentive Plan.

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Companies that have experienced volatility in the market price of their stock have been the subject of securities class action litigation.

If we were to become the subject of securities class action litigation, it could result in substantial costs and a significant diversion of our management’s attention and resources.

Because our Common Stock may be classified as “penny stock”, trading may be limited, and the share price could decline.

If we were to become the subject of securities class action litigation, it could result in substantial costs and a significant diversion of our management’s attention and resources.

Because our Common Stock may be classified as “penny stock”, trading may be limited, and the share price could decline.

Moreover, trading of our Common Stock, if any, may be limited because broker-dealers would be required to provide their customers with disclosure documents prior to allowing them to participate in transactions involving our Common Stock.

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The rights and preferences of any such class or series of Preferred Stock would be established by our Board of Directors in its sole discretion and may have dividend, voting, liquidation and other rights and preferences that are senior to the rights of the Common Stock.

ability to obtain a favorable judicial forum for disputes with us or our directors, officers, employees or agents.

Our Amended and Restated Bylaws (“

Bylaws ”) require that, to the fullest extent permitted by law, and unless the Company consents in writing to the selection of an alternative forum, a state court located within the State of Nevada (or, if no state court located within the State of Nevada has jurisdiction, the federal district court for the District of Nevada), will, to the fullest extent permitted by law, be the sole and exclusive forum for each of the following:

Our Amended and Restated Bylaws designate courts within the state of Nevada as the sole and exclusive forum for certain types of actions and proceedings that may be initiated by our stockholders, which could limit our stockholders ’ ability to obtain a favorable judicial forum for disputes with us or our directors, officers, employees or agents.

Our Amended and Restated Bylaws (“ Bylaws ”) require that, to the fullest extent permitted by law, and unless the Company consents in writing to the selection of an alternative forum, a state court located within the State of Nevada (or, if no state court located within the State of Nevada has jurisdiction, the federal district court for the District of Nevada), will, to the fullest extent permitted by law, be the sole and exclusive forum for each of the following:

any derivative action or proceeding brought on behalf of the Company;

any action asserting a claim of breach of a fiduciary duty owed by any director or officer or other employee of the Company to the Company or the Company’s stockholders;

any action asserting a claim against the Company or any director or officer or other employee of the Company arising pursuant to any provision of the Nevada Revised Statutes or the Company’s Amended and Restated Articles of Incorporation, as amended, or the Amended and Restated Bylaws;

any action asserting a claim of breach of a fiduciary duty owed by any director or officer or other employee of the Company to the Company or the Company’s stockholders;

any action asserting a claim against the Company or any director or officer or other employee of the Company governed by the internal affairs doctrine.

Because the applicability of the exclusive forum provision is limited to the extent permitted by law, we believe that the exclusive forum provision would not apply to suits brought to enforce any duty or liability created by the Exchange Act, or any other claim for which the federal courts have exclusive jurisdiction, and that federal courts have concurrent jurisdiction over all suits brought to enforce any duty or liability created by the Securities Act of 1933, as amended (“

Securities Act ”).

We note that there is uncertainty as to whether a court would enforce the provision and that investors cannot waive compliance with the federal securities laws and the rules and regulations thereunder.

Although we believe this provision benefits us by providing increased consistency in the application of Nevada law in the types of lawsuits to which it applies, the provision may have the effect of discouraging lawsuits against our directors and officers. 

You may not be able to hold our securities in your regular brokerage account.

In the case of publicly traded companies, it is common for a broker to hold securities on your behalf, in “street name”

(meaning the broker is shown as the holder on the issuer’s records and then you show up on the broker’s records as the person the broker is holding for).

In the case of publicly traded companies, it is common for a broker to hold securities on your behalf, in “street name” (meaning the broker is shown as the holder on the issuer’s records and then you show up on the broker’s records as the person the broker is holding for).

Due to regulatory uncertainties, certain brokers may not agree to hold securities of companies whose products include hemp-derived CBD for their customers, meaning that you may not be able to take advantage of the convenience of having all your holdings reflected in one place.

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Any return on investment in our Common Stock would only come from an increase in the market price of our stock, which is uncertain and unpredictable.

UNRESOLVED STAFF COMMENTS

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