What changed in this filing

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Item 1A. Risk Factors

2024-02-29 compared with 2023-03-09 · 183 added, 299 removed, 651 unchanged (43% of the section changed)

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• our proprietary brand offerings expose us to various risks;

• our ability to keep pace with technological advances;

• competitive industry pressures;

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• the risk of damage to, loss of, or theft of our inventory;

• manufacturing risks as a result of recent acquisitions;

• expenses and risks associated with our restructuring activities;

• the risk that adverse weather may impact our peat harvest;

• the risk of product defects;

• general economic and/or industry and financial conditions, specifically in the United States and Canada;

• our ability to keep pace with technological advances;

• increased prices and inflation could negatively impact our margin performance and our financial results;

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• the costs and risks of operating internationally;

• manufacturing risks as a result of recent acquisitions;

• our ability to comply with environmental regulations;

• interruptions in our supply chain;

• increasing scrutiny regarding environmental, social and governance practices;

• general economic and/or industry and financial conditions, specifically in the United States and Canada;

• increasing scrutiny, costs and compliance with environmental, social and governance practices;

• the impact of climate change on our facilities and operations;

• risks related to corporate and social responsibility and reputation;

• the costs of being a public company;

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• significant risks associated with our outstanding and future indebtedness of certain of our subsidiaries;

• our ability to make our debt service payments pursuant to the JPMorgan Credit Facilities;

• restrictions imposed by our JPMorgan Credit Facilities, including on our ability to sell products directly to the cannabis industry;

• the impact of the transition from the London Interbank Offered Rate ("LIBOR") to the Secured Overnight Funding Rate ("SOFR") as a reference rate.

• our ability to make our debt service payments pursuant to the Credit Facilities;

• restrictions imposed by our Credit Facilities, including on our ability to sell products directly to the cannabis industry.

Risks Relating to Third Parties

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• if our suppliers are unable to source raw materials or the prices of raw materials increase, this may adversely affect our results of operations;

• if our suppliers decide to sell directly into the retail market that we conduct our current or future business in, we may face increased competition.

• as our suppliers sell directly into the retail market that we conduct our current or future business in, we may face increased competition.

Risks Relating to the Cannabis Industry

• federal and state regulations pertaining to the use and cultivation of cannabis may adversely affect our business;

• new California regulations have caused licensing shortages and future regulations may create other limitations that decrease demand for our products;

• our products are subject to varying, inconsistent and rapidly changing laws;

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Risks Relating to Our Intellectual Property

• recent changes in laws make it difficult to predict how patents will be issued or enforced in our industry;

• we may not be able to adequately obtain, maintain, protect our enforce our intellectual property and other proprietary rights;

• we may not be able to adequately obtain, maintain, protect or enforce our intellectual property and other proprietary rights;

• we may need to rely on licenses to proprietary technologies, which could be difficult or expensive to obtain;

• we may be subject to infringement claims or claims that our employees have wrongfully used or disclosed alleged trade secrets of their former employers;

• we may become subject to costly intellectual property disputes that require us to divert resources from our usual operations.

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• we may incur indebtedness or issue capital stock that ranks senior or equally to our common stock with certain liquidation preference and other rights, which may dilute our stockholders’ ownership interest;

• certain provisions in the JPMorgan Credit Facility, our corporate charter documents and in our current loan agreement and credit facility and under Delaware law could make an acquisition of our company more difficult and may prevent attempts by our stockholders to replace or remove current management or to obtain a favorable judicial forum for disputes with directors, officers or employees;

• certain provisions in the Credit Facilities, our corporate charter documents and under Delaware law could make an acquisition of our company more difficult and may prevent attempts by our stockholders to replace or remove current management or to obtain a favorable judicial forum for disputes with directors, officers or employees;

• risks related to us being a holding company;

• our ability to meet the continued listing standards of The Nasdaq Capital Market;

• our largest stockholders will exercise significant influence over our company for the foreseeable future, including the outcome of matters requiring stockholder approval;

• our common stock has only recently become publicly-traded and the market price of our common stock may be volatile.

• our ability to meet the continued listing standards of The Nasdaq Global Select Market;

• the market price of our common stock may be volatile.

Our operations and financial results are subject to various risks and uncertainties including those described below.

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Our proprietary brand offerings expose us to various risks.

We expect to continue to grow our portfolio of proprietary brand offerings.

We have invested in development and procurement resources and marketing efforts relating to these proprietary brand offerings.

Although we believe that our proprietary brand products offer value to our customers at each price point and provide us with higher gross margins than comparable third-party branded products we sell, the expansion of our proprietary brand offerings also subjects us to certain specific risks in addition to those discussed elsewhere in this section, such as:

We have invested in acquisition and development of our proprietary brand offerings.

Although we believe that our proprietary brand products offer value to our customers and generally provide us with higher gross margins than comparable third-party branded products we sell, the expansion of our proprietary brand offerings also subjects us to certain specific risks in addition to those discussed elsewhere in this section, such as:

• potential mandatory or voluntary product recalls;

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Moreover, some of these competitors may offer a broader array of products and sell their products at prices lower than ours, and may have greater name recognition.

In addition, if demand for our specialty indoor gardening supplies and products continues to grow, we may face competition from new entrants into our field.

Due to this competition, there is no assurance that we will not encounter difficulties in generating or increasing revenues and capturing market share.

In addition, we may face competition from new entrants into our field.

Due to this competition, we may encounter difficulties in generating revenues and capturing market share.

In addition, increased competition may lead to reduced prices and/or margins for products we sell.

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If we fail to successfully develop, manufacture and market new products or product innovations, or if we fail to reach existing and potential consumers, our ability to maintain or grow our market share may be adversely affected, which in turn could materially adversely affect our business, financial condition and results of operations.

In addition, the development and introduction of new products and product innovations require substantial research, development and marketing expenditures, which we may be unable to recoup if such new products or innovations do not achieve market acceptance.

Many of the products we distribute and market, such as our fertilizers and nutrients, contain ingredients that are subject to regulatory approval or registration with certain U.S.

state and Canadian regulators.

The need to obtain such approval or registration could delay the launch of new products or product innovations that contain such ingredients or otherwise prevent us

from developing and manufacturing certain products and product innovations.

In addition, the development and introduction of new products and product innovations require substantial research, development and marketing expenditures.

We may be unable to invest in new products and innovations, and may be unable to recoup any such investments if our new products or innovations do not achieve market acceptance.

Many of the products we distribute and market, such as our fertilizers and nutrients, contain ingredients that are subject to regulatory approval or registration with certain U.S., Canadian and/or international regulators.

The need to obtain such approval or registration could delay the launch of new products or product innovations that contain such ingredients or

otherwise prevent us from developing and manufacturing certain products and product innovations.

Failure to properly register and maintain these registrations for these products could result in significant penalties, additional costs, product stop-sales or recalls.

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Our consolidated balance sheet as of December 31, 2023 includes $275.9 million of intangible assets, net, $75.4 million of inventories, $47.4 million of property, plant, and equipment, net, and $54.5 million of operating lease right-of-use assets.

As of June 30, 2022, we recorded a $189.6 million goodwill impairment charge due to a decline in the estimated fair value of our reporting units, which reduced the carrying value of our goodwill to zero.

During the year ended December 31, 2022, we recorded allowances for inventory obsolescence of $18.5 million, primarily due to certain durable lighting products.

In the three month period ending June 30, 2022, we recorded a $189.6 million goodwill impairment charge due to a decline in the estimated fair value of our reporting units, which reduced the carrying value of our goodwill to zero.

During the years ended December 31, 2022 and 2023, we recorded significant allowances for obsolete inventory and restructuring charges associated with inventory write-downs.

Long-lived assets, such as intangible assets, property, plant and equipment and operating lease right-of-use assets are reviewed for impairment whenever events, changes or circumstances indicate that the carrying amount of an asset or asset group may not be recoverable.

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The estimate for excess and obsolete inventory is based upon assumptions about current and anticipated demand, customer preferences, business strategies, and market conditions.

We have experienced recent sales declines, which we believe are primarily a result of agricultural oversupply impacting our market.

We have experienced sales declines, which we believe are primarily a result of agricultural oversupply impacting our market.

The extent to which these market conditions will continue to impact our business, results of operations, and cash flows are uncertain and difficult to predict at this time, and may result in lower margins, inventory write-downs, accounts receivable allowances, and impairments of our long-lived assets which could have a material adverse effect on our business, financial condition and results of operations.

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Our inventory is vulnerable to damage or loss caused by accidents or natural disasters, and we face the risk of theft of our products from inventory or during shipment.

Our inventory is stored at warehouses in the United States and Canada.

Our inventory is stored at warehouses in the United States, Canada and Spain.

Our inventory is vulnerable to accidents, fire, flood, earthquakes, and similar events that may impact our facilities.

Any damage to or loss of all or a significant portion of our inventory could cause significant delays in shipment of goods to our customers, resulting in negative publicity about and diminished customer confidence in our business.

In addition, we may experience theft of our products while they are being held in inventory or during the course of their shipment to our customers by third-party carriers.

In addition, we may experience theft of our products while they are being held in inventory, or during the course of their shipment to other warehouses within our network, or during shipment to our customers.

We maintain insurance to cover losses resulting from theft.

Nevertheless, if our security measures fail, losses exceed our insurance coverage, or we are not able to maintain insurance at a reasonable cost, we could incur significant losses from damage, loss or theft, any of which could substantially harm our business and results of operations.

Nevertheless, if our security measures fail, losses exceed our insurance coverage or are not otherwise covered by insurance, or we are not able to maintain insurance at a reasonable cost, we could incur significant losses from damage, loss or theft, any of which could substantially harm our business and results of operations.

As a result of acquisitions, we are exposed to manufacturing risks that could adversely affect our business and results of operations.

In connection with our 2021 acquisitions, we have acquired several manufacturing facilities.

Expansion into manufacturing exposes us to all of the risks entailed in manufacturing activities generally and there is no assurance that our manufacturing activities will not cause us to incur material unexpected costs or liabilities.

Our manufacturing processes may experience problems including equipment malfunctions, facility contamination, labor problems, raw material shortages or contamination, natural disasters, power outages, terrorist activities, safety and certification issues, or disruptions in the operations of our suppliers which could result in product defects, product recalls, product liability claims and insufficient inventory or supply of product for our customers.

For example, the nutrient and fertilizer manufacturing operations may expose us to handling potentially hazardous or explosive chemicals.

We cannot eliminate the risk of accidental contamination or injury from such chemicals, and any accident caused by such chemicals could result in cleanup costs, diversion of management attention and potential liability, all of which could affect our reputation, business and results of operations.

Any defects in the products we manufacture may result in delayed shipments to customers or reduced or canceled customer orders.

If these defects or deficiencies are significant, our business reputation may be damaged.

The failure of the products that we manufacture or of our manufacturing processes or facilities may subject us to regulatory enforcement, fines or penalties and, in some cases, require us to shut down, temporarily halt operations or incur considerable expense to correct a manufacturing process or facility.

In addition, these defects may result in liability claims against us, expose us to liability to pay for the recall or remanufacture of a product or adversely affect product sales or our reputation.

The storage, handling, production and disposal of materials in our manufacturing facilities may expose us to liability under environmental laws and regulations.

Potentially significant expenditures could also be required to comply with evolving interpretations of existing environmental, health and safety laws and regulations or any new such laws and regulations (including concerns about global climate change and its impact) that may be adopted in the future.

Costs associated with failure to comply with such laws and regulations could have an adverse effect on our business.

Our restructuring activities may increase our expenses and cash expenditures, and may not have the intended effects.

In connection with our restructuring plans, we have implemented and may continue to implement a number of restructuring initiatives designed to streamline our operations, reduce costs, and improve efficiencies during the industry recession.

Management’s Discussion and Analysis of Financial Condition And Results of Operations – Market Conditions" below for more information regarding our restructuring plans.

Restructuring actions typically result in charges and cash expenditures that may adversely affect financial results for one or more periods, and efforts to minimize or eliminate such expenditures may not be successful.

Moreover, restructuring actions can create unanticipated consequences, such as instability or distraction among our workforce or among management.

We cannot assure you that any restructuring plans or any other cost-saving initiatives we may undertake will be successful.

A variety of factors, many of which are beyond our control, could cause us not to realize expected cost savings, including, but not limited to, unexpected costs incurred in connection with consolidating and/or closing certain operations or asset write-downs, delays or difficulty terminating leases, unexpected integration challenges, unintended attrition and temporary instability.

Any of these factors could hamper our ability to grow and meet customer demand in future periods.

If we are unable to structure our operations in light of evolving market conditions, this could have a material adverse effect on our business, financial condition, results of operations, and cash flows.

Our peat bogs are susceptible to sudden changes in weather and the impacts of climate change.

We maintain a peat moss harvesting operation in northern Alberta, Canada.

We maintain a peat moss harvesting operation in Alberta, Canada.

Peat bogs rely on predictable weather;

sun and wind are required to dry the top surface, and too much rain can cause compaction and impede the ability of vacuum harvesters to collect the peat.

Peat must be harvested during a narrow window of one to two months during the summer, and if

summer is late or especially wet, this can have an adverse impact on the year’s harvest.

Peat must be harvested during a narrow window of three to five months during the summer/ fall, and if summer is late or especially wet, this can have an adverse impact on the year’s harvest.

Conversely, if temperatures are too high, this can cause an increase in peat decomposition rates, and extended droughts can aggravate such decomposition.

Any of these risks may be further exacerbated by climate change.

Any of these risks may be further exacerbated by climate change and the heightened risk of forest fires.

If our peat bogs are damaged or our peat harvest is less than anticipated for one or more seasons, this could have an adverse impact on our business and results of operations.

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This could damage our relationships with our customers.

A product recall would be particularly harmful to us because we will likely have limited financial and administrative resources to effectively manage a product recall and it would detract management’s attention from implementing our core business strategies.

A product recall would be particularly harmful to us because it could potentially consume significant financial and administrative resources to effectively manage a product recall and it would detract management’s attention from implementing our core business strategies.

As a result, a significant product defect or product recall could cause a decline in our sales and profitability and could reduce or deplete our financial resources.

Negative economic and/or industry conditions, specifically in the United States and Canada, could adversely affect our business.

Uncertain global economic and/or industry conditions could adversely affect our business.

Negative global economic trends, particularly in the United States and Canada, such as decreased consumer and business spending, high unemployment levels, reduced rates of home ownership and housing starts, high foreclosure rates and declining consumer and business confidence, pose challenges to our business and could result in declining revenues, profitability and cash flow.

Although we continue to devote significant resources to support our brands, unfavorable economic and/or industry conditions may negatively affect consumer demand for our products.

Our most price-sensitive customers may trade down to lower priced products during challenging economic times or if current economic conditions worsen, while other customers may reduce discretionary spending during periods of economic uncertainty, each of which could reduce sales volumes of our products in favor of our competitors’ products or result in a shift in our product mix from higher margin to lower margin products.

Increased prices and inflation could negatively impact our margin performance and our financial results.

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Acquisitions, other strategic alliances and investments could result in operating difficulties, dilution, and other harmful consequences that may adversely impact our business and results of operations.

Acquisitions are an important element of our overall corporate strategy, and these transactions entail material investments by us and are material to our financial condition and results of operations.

We expect to evaluate and enter into discussions regarding a wide array of potential strategic transactions.

Acquisitions have been an important element of our overall corporate strategy, and these transactions entailed material investments by us that are material to our financial condition and results of operations.

We may evaluate and enter into discussions regarding potential strategic transactions.

The process of integrating an acquired company, business, or product has created, and will continue to create, unforeseen operating difficulties and expenditures.

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Our failure to address these risks or other problems encountered in connection with our past or future acquisitions and investments or strategic alliances could cause us to fail to realize the anticipated benefits of such acquisitions, investments or alliances, incur unanticipated liabilities, and harm our business generally.

Our acquisitions could also result in dilutive issuances of our equity securities, the incurrence of debt, contingent liabilities or amortization expenses, or impairment of goodwill and purchased long-lived assets, and restructuring charges, any of which could harm our financial condition or results of operations and cash flows.

Although acquisitions are an important element of our overall corporate strategy, there can be no assurance that we will be able to identify appropriate acquisition targets, successfully acquire identified targets or successfully integrate the business of acquired companies to realize the full, anticipated benefits of such acquisitions.

We occupy many of our facilities under long-term non-cancellable leases, and we may be unable to renew or exit our leases.

Our acquisitions could also result in dilutive issuances of our equity securities, the incurrence of debt, contingent liabilities or amortization expenses, or impairment of goodwill, intangible assets and purchased long-lived assets, and restructuring charges, any of which could harm our financial condition or results of operations and cash flows.

There can be no assurance that we will be able to identify appropriate acquisition targets or potential strategic transactions, successfully execute such potential transactions, or successfully integrate the business of acquired companies to realize the full, anticipated benefits of such acquisitions.

We occupy many of our facilities under long-term non-cancellable leases, and we may be unable to renew, sublease or terminate and exit our leases.

Many of our manufacturing facilities and distribution centers are located on leased premises subject to non-cancellable leases.

Typically, our leases have initial terms ranging from two to twelve years, with options to renew for specified periods of time.

Typically, our leases have initial terms ranging from three to twelve years, with options to renew for specified periods of time.

We believe that our future leases will likely also be long-term and non-cancellable and have similar renewal options.

If we close or stop fully utilizing a facility, we will most likely remain obligated to perform under the applicable lease, which would include, among other things, making the base rent payments and paying insurance, taxes and other expenses on the leased property for the remainder of the lease term.

Our inability to terminate a lease when we stop fully utilizing a facility or exit a market can have a significant adverse impact on our financial condition, operating results and cash flows.

In addition, we have executed sublease and/or third party logistics agreements at certain of our facilities.

We may choose to sublease additional space, close certain operations and/or terminate lease agreements.

We may remain liable for sublease obligations if the sublessee does not perform.

Our inability to sublease excess space, terminate a lease when we stop fully utilizing a facility or exit a market can have a significant adverse impact on our financial condition, operating results and cash flows.

In addition, at the end of the lease term and any renewal period for a facility, we may be unable to renew the lease without substantial additional cost, if at all.

If we are unable to renew our facility leases, we may close or relocate a facility, which could subject us to construction and other costs and risks, which in turn could have a material adverse effect on our business and operating results.

Further, we may not be able to secure a replacement facility in a location that is as commercially viable, including access to rail service.

Further, we may not be able to secure a replacement facility in a location that is as commercially viable.

Having to close a facility, even briefly to relocate, could reduce the sales that such facility would have contributed to our revenues.

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Our international operations make us susceptible to the costs and risks associated with operating internationally.

We operate some of our distribution centers in Canada and Spain and we source and sell products globally.

We also use a purchasing team in China.

Accordingly, we are subject to risks associated with operating in foreign countries, including:

We operate distribution centers in Canada and Spain and we source and sell products globally.

We also us e a supply chain management team i n China.

We are subject to risks associated with operating in foreign countries, including:

• fluctuations in currency exchange rates;

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The costs associated with operating our continuing international business could adversely affect our results of operations, financial condition and cash flows in the future.

As a result of acquisitions, we are exposed to manufacturing risks that could adversely affect our business and results of operations.

In connection with our acquisitions, we have acquired several manufacturing facilities.

For example, our acquisition of the House & Garden Entities and their plant nutrient and fertilizer business may expose us to handling potentially hazardous or explosive chemicals.

Any defects in the products we manufacture may result in delayed shipments to customers or reduced or canceled customer orders.

If these defects or deficiencies are significant, our business reputation may be damaged.

In addition, these defects may result in liability claims against us, expose us to liability to pay for the recall or remanufacture of a product or adversely affect product sales or our reputation.

The storage, handling, production and disposal of materials in our manufacturing facilities may expose us to liability under environmental laws and regulations.

Costs associated with failure to comply with such laws and regulations could have an adverse effect on our business.

Government laws and regulations, including environmental laws and regulations, could result in material costs or otherwise adversely affect our financial condition and results of operations.

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Some of our products have compositions that are controlled by various state, federal and international laws and regulations that are subject to change.

We are required to comply with these laws and regulations and we seek to anticipate regulatory developments that could impact our ability to continue to produce and market our products.

We invest in research and development to maintain product formulations that comply with such laws and regulations.

There can be no assurance that we will not be required to alter the composition of one or more of our products in a way that will have an adverse effect upon the product’s efficacy or marketability.

A delay or other inability of the Company to complete product research and development and successfully reformulate our products in response to any such regulatory requirements could have a material adverse effect on our business, financial condition and results of operations.

We are required to comply with these laws and regulations and we seek to (i) anticipate regulatory developments that could impact our ability to continue to produce and market our products and (ii) maintain product formulations that comply with such laws and regulations.

There can be no assurance that we will not be required to alter the composition and/or labelling of one or more of our products in a way that will have an adverse effect upon the product’s efficacy or marketability.

A delay or other inability of the Company to complete product research and development and successfully reformulate and/or relabel our products in response to any such regulatory requirements could have a material adverse effect on our business, financial condition and results of operations.

We are subject to numerous environmental laws and regulations that impose various environmental controls on our business operations, including, among other things, the discharge of pollutants into the air and water, the handling, use, treatment, storage and clean-up of solid and hazardous wastes and the investigation and remediation of soil and groundwater affected by hazardous substances.

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We believe that our expenditures related to environmental matters have not had, and are not currently expected to have, a material adverse effect on our financial condition, results of operations or cash flows.

However, the environmental laws under which we operate are complicated, often become increasingly more stringent and may be applied retroactively.

However, the environmental laws under which we operate are complicated, often become increasingly more stringent.

Accordingly, there can be no assurance that we will not be required to incur additional expenditures to remain in or to achieve compliance with environmental laws in the future or that any such additional expenditures will not have a material adverse effect on our business, financial condition or results of operations.

Additional laws and regulations require that we carefully manage our supply chain for the production, distribution and sale of goods.

Our failure to comply with any of these regulations or our inability to adequately predict the manner in which these local regulations are interpreted and applied to our business by the applicable enforcement agencies could have a materially adverse effect on our business, financial condition and results of operations.

Our failure to comply with any of these regulations or our inability to adequately predict the manner in which these local regulations are interpreted and applied to our business by the applicable enforcement agencies could have a material adverse effect on our business, financial condition and results of operations.

Failure to optimize our supply chain or disruption of our supply chain could have an adverse effect on our business, financial condition and results of operations.

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Our inability to maintain sufficient internal production capacity or our inability to enter into co-packing arrangements on terms that are beneficial to us could have an adverse effect on our business.

Failure to adequately handle increasing production costs and complexity, turnover of personnel, or production capability and efficiency issues could materially impact our ability to cost effectively produce our products and meet customer demand.

Additionally, damage or disruption to our production or distribution capabilities resulting from weather, any potential effects of climate change, natural disaster, disease, crop spoilage, fire or explosion, terrorism, pandemics, strikes, repairs or enhancements at our facilities, or other reasons, could impair our ability to produce or sell our products.

Failure to adequately handle increasing production costs and

complexity, turnover of personnel, or production capability and efficiency issues could materially impact our ability to cost effectively produce our products and meet customer demand.

Additionally, damage or disruption to our production or distribution capabilities resulting from weather, any potential effects of climate change, natural disaster, disease, crop spoilage, fire or explosion, flooding, terrorism, pandemics, strikes, repairs or enhancements at our facilities, or other reasons, could impair our ability to produce or sell our products.

Failure to take adequate steps to mitigate the likelihood or potential impact of such events, or to effectively manage such events if they occur, could adversely affect our business, financial condition and results of operations, and may require additional resources to restore our supply chain.

Negative economic and/or industry conditions, specifically in the United States and Canada, could adversely affect our business.

Uncertain global economic and/or industry conditions could adversely affect our business.

Although we continue to devote significant resources to support our brands, unfavorable economic and/or industry conditions may negatively affect demand for our products.

Increasing scrutiny and evolving expectations from customers, regulators, investors, and other stakeholders with respect to our environmental, social and governance practices may impose additional costs on us or expose us to new or additional risks.

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Climate change may impact the availability of our facilities, we may incur substantial costs to comply with climate change legislation and related regulatory initiatives, and weather conditions could adversely impact financial results.

Changing weather patterns and the increase in frequency of weather events such as forest fires, hurricanes and tornadoes could cause disruptions or the complete loss of our facilities.

Changing weather patterns and the increase in frequency of weather events such as forest fires, flooding, hurricanes and tornadoes could cause disruptions or the complete loss of our facilities.

In addition, climate change concerns, and changes in the regulation of such concerns, including greenhouse gas emissions, could also subject us to additional costs and restrictions, including increased energy and raw materials costs which could negatively impact our financial condition and results of operations.

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Additionally, our outdoor harvesting and other manufacturing operations may be impacted by adverse weather conditions or changing weather patterns which may adversely impact our ability to produce and sell our products.

We are subject to risks related to corporate and social responsibility and reputation.

Many factors influence our reputation including the perception of us held by our customers, suppliers, partners, stockholder, other key stakeholders, and the communities in which we operate.

We face increasing scrutiny related to environmental, social and governance activities.

We risk damage to our reputation if we fail to act responsibly in a number of areas, such as diversity and inclusion, environmental stewardship, sustainability, supply chain management, climate change, workplace conduct, and human rights.

Any harm to our reputation could impact employee engagement and retention, our corporate culture, and the willingness of customers, suppliers, and partners to do business with us, which could have a material adverse effect on our business, results of operations and cash flows.

Further, despite our policies to the contrary, we may not be able to control the conduct of every individual actor, and our employees and personnel may violate environmental, social or governance standards or engage in other unethical conduct.

These acts, or any accusation of such conduct, even if proven to be false, could adversely impact the reputation of our business.

We have incurred and will continue to incur increased costs as a result of being a public company.

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For example, we have incurred and will continue to incur increased legal and accounting costs as a result of being subject to the information and reporting requirements of the Exchange Act, and other federal securities laws.

The costs of preparing and filing periodic and other reports, proxy statements and other information with the SEC and furnishing audited reports to stockholders, will cause significant increases in our expenses than if we had remained privately-held.

The costs of preparing and filing periodic and other reports, proxy statements and other information with the SEC and furnishing audited

reports to stockholders, will cause significant increases in our expenses than if we had remained privately-held.

The cost of being a public company diverts resources that might otherwise have been used to develop our business, which could have a material adverse effect on our company.

As a privately held company, we were not required to comply with certain corporate governance and financial reporting practices and policies required of a public reporting company.

As a public company, we are required to file with the SEC annual and quarterly information and other reports pursuant to the Exchange Act.

We are also required to ensure that we have the ability to prepare financial statements that are fully compliant with all SEC reporting requirements on a timely basis.

In addition, the Sarbanes-Oxley Act, the Dodd-Frank Wall Street Reform and Consumer Protection Act, the listing requirements of the Nasdaq Global Select Market and other applicable securities rules and regulations impose various requirements on public

Our management and other personnel devote a substantial amount of time to compliance with these requirements.

Moreover, these rules and regulations increase our legal and financial compliance costs and make some activities more time-consuming and costly.

We cannot predict or estimate the amount of additional costs we incur as a public company or the specific timing of such costs.

As a public company, we, among other things:

• prepare and distribute periodic public reports and other stockholder communications in compliance with applicable laws;

• comply with our obligations under the federal securities laws and applicable listing rules;

• create or expand the roles and duties of our board of directors and committees of the board of directors;

• institute more comprehensive financial reporting and disclosure compliance functions;

• enhance our investor relations function;

• establish new internal policies, including those relating to disclosure controls and procedures;

• involve and retain to a greater degree outside counsel and accountants in the activities listed above.

These matters require a significant commitment of additional resources and many of our competitors already comply with these obligations.

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There could also be a negative reaction in the financial markets due to a loss of investor confidence in us and the reliability of our financial statements, which could have a material adverse effect on our business, financial condition and results of operations.

The changes necessitated by becoming a public company require a significant commitment of resources and management supervision that has increased and may continue to increase our costs and might place a strain on our systems and resources.

As a result, our management’s attention might be diverted from other business concerns.

If we fail to maintain an effective internal control environment or to comply with the numerous legal and regulatory requirements imposed on public companies, we could make material errors in, and be required to restate, our financial statements.

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If investors consider our common stock less attractive as a result of our election to use the scaled-back disclosure permitted for smaller reporting companies, there may be a less active trading market for our common stock and our share price may be more volatile.

We previously identified material weaknesses in our internal control over financial reporting and we may identify additional material weaknesses in the future , and if we are unable to achieve and maintain effective internal control over financial reporting, the accuracy and timing of our financial reporting may be adversely affected.

As a result of being a public company, we are required to comply with Section 404 of the Sarbanes-Oxley Act and to develop and maintain proper and effective internal controls over financial reporting.

Any failure to maintain the adequacy of these internal controls may adversely affect investor confidence in our company and, as a result, the value of our common stock.

Compliance with these requirements may strain our resources, increase our costs, and we may, in the future, be unable to comply with these requirements in a timely or cost-effective manner.

Prior to our initial public offering (“IPO”) in December 2020, we were a private company with limited accounting and finance personnel and other resources with which to address our internal controls and procedures.

In connection with the audit of our financial statements for fiscal 2019, we and our independent registered public accounting firm identified control deficiencies in the design and operation of our internal control over financial reporting that constituted material weaknesses previously disclosed in our registration statement on Form S-1 which was declared effective on December 9, 2020.

A “material weakness” is a deficiency, or a combination of deficiencies, in internal control over financial reporting such that there is a reasonable possibility that a material misstatement of our annual or interim financial statements will not be prevented or detected on a timely basis.

Our management determined that the previously disclosed material weaknesses were not remediated as of December 31, 2020:

that (i) we did not maintain a sufficient complement of personnel with an appropriate degree of technical knowledge commensurate with our accounting and reporting requirements and (ii) our controls related to the preparation, review, and analysis of accounting information and financial statements were not adequately designed or appropriately implemented to identify material misstatements in our financial reporting on a timely basis for our U.S.

entities and Eddi’s Wholesale Garden Supplies, Ltd.

These material weaknesses could result in a misstatement of account balances or disclosures that would result in a material misstatement to the annual or interim financial statements that would not be prevented or detected.

During 2021, we remediated the identified material weaknesses.

In particular, we (i) hired additional qualified accounting and financial reporting personnel with technical and/or public company experience, (ii) implemented new control procedures over certain areas previously deemed ineffective related to the preparation, review, and analysis of accounting information and financial statements and (iii) engaged an external advisor to assist management in completing a Sarbanes-Oxley Act compliant risk assessment, creating detailed control documentation for in-scope business and information technology processes, identifying further control gaps and providing assistance on remediation procedures, and designing and implementing a Sarbanes-Oxley Act sub-certification process.

Although we have remediated previously identified material weaknesses, we cannot assure you that the steps we have taken will prevent future material weaknesses from occurring.

For the 2022 fiscal year, management and our independent outside auditor have attested that our internal control environment was operating effectively and in compliance with Section 404 of the Sarbanes-Oxley Act.

However, in the future during the evaluation and testing process of our internal controls, if we identify one or more material weaknesses in our internal control over financial reporting, we will be unable to certify that our internal control over financial reporting is effective.

We cannot assure you that there will not be material weaknesses or significant deficiencies in our internal control over financial reporting in the future.

Any failure to maintain internal control over financial reporting could severely inhibit our ability to accurately report our financial condition or results of operations.

If we are unable to conclude that our internal control over financial reporting is effective, or if our independent registered public accounting firm determines we have a material weakness or significant deficiency in our internal control over financial reporting, we could lose investor confidence in the accuracy and completeness of our financial reports, the market price of our common stock could decline, and we could be subject to sanctions or investigations by the SEC or other regulatory authorities.

Failure to remedy any material weakness in our internal control over financial reporting, or to implement or maintain other effective control systems required of public companies, could also restrict our future access to the capital markets.

The effects of the COVID-19 pandemic are unpredictable and may materially affect our customers and how we operate our business, and the duration and extent to which the pandemic continues (including any re-emergence of COVID-19) to threaten our future results of operations and overall financial performance remains uncertain.

The World Health Organization recognized COVID-19 as a global pandemic on March 11, 2020, and COVID-19 has had significant and ongoing negative impacts on global societies, workplaces, economies and health systems.

Authorities throughout the world have implemented measures to contain or mitigate the spread of the virus, including at various times physical distancing, travel bans and restrictions, closure of non-essential businesses, quarantines, work-from-home directives,

mask requirements, shelter-in-place orders and vaccination programs, but despite these efforts, COVID-19 has persisted, has mutated into new variants, and is expected to become endemic.

Examples of how COVID-19 may impact our business, results of operations and stock price include, but are not limited to:

• COVID-19 may cause consumers to decrease spending, or pause such spending altogether, making it more difficult for us to acquire new customers, as well as retain and upsell existing customers;

• COVID-19 may interfere with our ability, or the ability of our employees, workers, contractors, suppliers and other business partners to perform our and their respective responsibilities and obligations relative to the conduct of our business.

COVID-19 may also cause disruptions from the temporary closure or suspension of activities related to the relocation of our facilities, third-party suppliers and manufacturers, restrictions on the shipment of our products, restrictions on our employees’ and other service providers’ ability to travel, the decreased willingness or ability of our customers to travel or to utilize our services and shutdowns that may be requested or mandated by governmental authorities;

• COVID-19 and related government responses to address the COVID-19 pandemic may cause sudden and extreme changes in our stock price.

Since COVID-19 was first reported, the volatility of U.S.

equity markets increased to historic levels.

This may cause extreme fluctuations in the market price of our stock.

We cannot predict if and when these fluctuations will decrease or increase.

In addition to general market conditions, the market price of our stock may become volatile or decline due to actual or anticipated impact of COVID-19 on our financial condition and results of operations or if our results of operations do not meet the expectations of the investor community or one or more of the analysts who cover our company change their recommendations regarding our company.

Our limited operating history combined with the uncertainty created by the COVID-19 pandemic significantly increases the difficulty of forecasting operating results and of strategic planning.

The COVID-19 pandemic has resulted in global supply chain constraints and transportation disruptions that have led to increased costs of goods and higher freight/import costs.

If we are unable to effectively predict and manage the impact of the COVID-19 pandemic on our business, our results of operations and financial condition may be negatively impacted.

If we fail to maintain effective internal controls over financial reporting, investors may lose confidence in the accuracy and completeness of our financial reporting and the price of our common stock may be adversely affected.

We are required to establish and maintain appropriate internal controls over financial reporting.

In the past, our management identified weaknesses in our internal controls.

Although our management believes such weaknesses have been remediated, our internal control over financial reporting may still or could in the future have weaknesses and conditions that could require correction or remediation, the disclosure of which may have an adverse impact the confidence of investors and the price of our common stock.

Failure to establish those controls, or any failure of those controls once established, could adversely affect our public disclosures regarding our business, prospects, financial condition or results of operations.

In addition, management’s assessment of internal controls over financial reporting may identify weaknesses and conditions that need to be addressed in our internal controls over financial reporting or other matters that may raise concerns for investors.

Any actual or perceived weaknesses and conditions that need to be addressed in our internal control over financial reporting or disclosure of management’s assessment of our internal controls over financial reporting may have an adverse impact on the price of our common stock.

The impact of the COVID-19 pandemic, the shift to a COVID-19 endemic approach and related risks could materially affect our results of operations, financial position and/or liquidity.

The COVID-19 pandemic resulted in a global slowdown of economic activity and disruption of normal business travel and working habits.

While we are shifting to a COVID-19 endemic approach, there is still uncertainty about the impact of COVID-19 variants in the long-term.

The COVID-19 pandemic may have impacted our results of operations, and a reversion to the COVID-19 restrictions could have a significant effect on our future business, results of operations and financial performance.

The pandemic initially resulted in a sharp contraction in the global economy, tightening liquidity and increasing volatility and uncertainty in the capital markets.

Coincident global mitigation responses stabilized markets and stimulated economic recovery.

Continued macroeconomic volatility may persist affecting our businesses and related market opportunities.

The impact of an ongoing pandemic on the financial markets may also adversely affect our ability to fund through public or private equity offerings, debt financings, and through other means at acceptable terms.

Damage to our reputation could have an adverse effect on our business.

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Our marketing activities may not be successful .

We invest substantial resources in advertising, consumer promotions and other marketing activities to maintain, extend and expand our brand image.

There can be no assurance that our marketing strategies will be effective or that the amount we invest in advertising activities will result in a corresponding increase in sales of our products.

If our marketing initiatives are not successful, we will have incurred significant expenses without the benefit of higher revenues.

Our advertising, consumer promotions and other marketing activities are intended to maintain, extend and expand our brand image.

There can be no assurance that our marketing strategies will be effective or that the amount we spend in advertising activities will result in a corresponding increase in sales of our products.

If our marketing initiatives are not successful, we will have incurred expenses without the benefit of higher revenues.

Our operations may be impaired if our information technology systems, or those of our third-party vendors, fail to perform adequately or if we or our third-party vendors are the subject of a data breach or cyber-attack.

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While we have taken steps to ensure the security of our information technology systems, our security measures or those of our third-party vendors may not be effective and our or our third-party vendors’ systems may nevertheless be vulnerable to computer viruses, security breaches and other disruptions from unauthorized users.

If our or our third-party vendors’ information technology systems are damaged or cease to be available or function properly for an extended period of time,

whether as a result of a significant cyber incident or otherwise, our ability to communicate internally as well as with our retail customers could be significantly impaired, which may adversely impact our business.

Our acquisition strategy may also result in exposure to certain technology risks during integration of systems of acquired companies to our existing platform.

For example on January 31, 2022, certain of our computer systems related to the “Aurora” acquisition that had not yet been integrated into our main systems were the victim of a cybersecurity attack.

We immediately took steps to isolate those systems and implemented measures to prevent the spread of the attack, including taking systems offline in an abundance of caution.

Together with an outside cybersecurity forensics firm, we investigated the attack to determine its nature, scope, duration, and impacts, as well as our vulnerability to another such attack and whether there was any exfiltration or misappropriation of data.

There was no evidence that the attack extended beyond the Aurora acquisition’s systems, and it was determined that no critical data was accessed.

We have subsequently taken steps to integrate the acquisition’s systems with our main systems, and expect to complete this integration in the first half of 2023.

If our or our third-party vendors’ information technology systems are damaged or cease to be available or function properly for an extended period of time, whether as a result of a significant cyber incident or otherwise, our ability to communicate internally as well as with our customers could be significantly impaired, which may adversely impact our business.

We may also have increased exposure to certain technology risks during integration of systems of acquired companies to our existing platform.

Additionally, the techniques used to obtain unauthorized, improper or illegal access to information technology systems are constantly evolving, may be difficult to detect quickly and often are not recognized until after they have been launched against a target.

We may be unable to anticipate these techniques, react in a timely manner or implement adequate preventative or remedial measures.

Any operational failure or breach of security from these increasingly sophisticated cyber threats could lead to the loss or disclosure of both our and our retail customers’ financial, product, and other confidential information, as well as personally identifiable information about our employees or customers, result in negative publicity and expensive and time-consuming regulatory or other legal proceedings, damage our relationships with our customers and have a material adverse effect on our business and reputation.

Any operational failure or breach of security from these increasingly sophisticated cyber threats could lead to the loss or disclosure of both our and our customers’ financial, product, and other confidential information, as well as personally identifiable information about our employees or customers, result in negative publicity and expensive and time-consuming regulatory or other legal proceedings, damage our relationships with our customers and have a material adverse effect on our business and reputation.

In addition, we may incur significant costs and operational consequences in connection with investigating, mitigating, remediating, eliminating and putting in place additional tools and devices designed to prevent future actual or perceived security incidents, as well as in connection with complying with any notification or other obligations resulting from any security incidents.

Because we do not control our third-party vendors, or the processing of data by our third-party vendors, our ability to monitor our third-party vendors’ data security is limited and we cannot ensure the integrity or security of the measures they take to protect and prevent the loss of our or our consumers’ data.

As a result, we are subject to the risk that cyber-attacks on, or other security incidents affecting, our third-party vendors may adversely affect our business even if an attack or breach does not directly impact our systems.

As a result, we are subject to

the risk that cyber-attacks on, or other security incidents affecting, our third-party vendors may adversely affect our business even if an attack or breach does not directly impact our systems.

While we maintain cyber risk insurance, this insurance may not be sufficient to cover all losses from any breaches of our systems and does not extend to reputational damage or costs incurred to improve or strengthen systems against future threats or activity.

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Our effective tax rate in the future could be adversely affected by changes to our operating structure, changes in the mix of earnings in countries with differing statutory tax rates, changes in the valuation of deferred tax assets (such as net operating losses and tax credits) and liabilities, changes in tax laws and the discovery of new information in the course of our tax return preparation process.

In particular, the carrying value of deferred tax assets, which are predominantly related to our operations in the United States, is dependent on our ability to generate future taxable income of the appropriate character in the relevant jurisdiction.

In particular, the carrying value of deferred tax assets is dependent on our ability to generate future taxable income of the appropriate character in the relevant jurisdiction.

From time to time, tax proposals are introduced or considered by the U.S.

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If we need additional capital to fund our operations, we may not be able to obtain sufficient capital and may be forced to limit the scope of our operations.

In connection with our growth strategies, we may experience increased capital needs and accordingly, we may not have sufficient capital to fund our future operations without additional capital investments.

There can be no assurance that additional capital will be available to us.

If we cannot obtain sufficient capital to fund our operations, we may be forced to limit the scope of our expansion.

We may experience increased capital needs and accordingly, we may not have sufficient capital to fund our future operations without additional capital investments.

There can be no assurance that additional capital will be available to us to fund our operations and the execution of our strategies.

If product liability lawsuits are brought against us, we may incur substantial liabilities.

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or (vii) a decline in our stock price.

Our inability to retain sufficient product liability insurance at an acceptable cost to protect against potential product liability claims could prevent or

inhibit the commercialization of products we develop.

Our inability to retain sufficient product liability insurance at an acceptable cost to protect against potential product liability claims could prevent or inhibit the commercialization of products we develop.

We may have to pay amounts awarded by a court or negotiated in a settlement that exceed our insurance coverage limitations or that are not covered by our insurance, and we may not have, or be able to obtain, sufficient capital to pay such amounts.

Risks Relating to Our Indebtedness

The JPMorgan credit facilities contain, and future debt facilities may contain, restrictions that limit our flexibility in operating our business;

The Credit Facilities contain, and future debt facilities may contain, restrictions that limit our flexibility in operating our business;

we fund interest and amortization payments from cash flows generated in our operations, and to the extent that cash flows deteriorate, it could be difficult or impossible to timely make our debt service payments or obtain additional debt financing.

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• limiting our ability to use a substantial portion of our cash flow from operations in other areas of our business, including for working capital, expanding our infrastructure, capital expenditures and other general business activities and investment opportunities in our company, because we must dedicate a substantial portion of these funds to pay interest and/or service our debt and because the documents contain restrictions on certain of those actions;

• impacting our cash flows, results of operations and financial condition as interest rates rise, as our JPMorgan credit facilities incur interest at a floating rate;

• impacting our cash flows, results of operations and financial condition as interest rates rise, as our Credit Facilities incur interest at a floating rate;

• requiring us to seek to incur further indebtedness in order to make the capital expenditures and other expenses or investments necessary to operate the business to the extent our future cash flows are insufficient;

• requiring us to refinance the JPMorgan Revolving Loan Facility (as defined below) if the lenders do not agree to extend the maturity date beyond March 29, 2024;

• requiring us to refinance the Revolving Credit Facility if the lenders do not agree to extend the maturity date beyond June 30, 2026;

• limiting our ability to obtain additional financing in the future for working capital, capital expenditures, debt service requirements, acquisitions and the execution of our strategy, and other expenses or investments planned by us;

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• increasing our vulnerability to a downturn in our business and to adverse economic and industry conditions generally.

The existing JPMorgan credit facilities contain, and any documents governing our or our subsidiaries’ future indebtedness may contain, numerous financial and operating covenants that limit the discretion of management with respect to certain business matters.

The existing Credit Facilities (as discussed in more detail in "Item 7.

Management’s Discussion And Analysis of Financial Condition and Results of Operations – the Revolving Credit Facility and Term Loan") contain, and any documents governing our or our subsidiaries’ future indebtedness may contain, numerous financial and operating covenants that limit the discretion of management with respect to certain business matters.

Such restrictive covenants include restrictions on, among others, our or our subsidiaries’ ability to:

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and (10) alter the business that we conduct.

The existing JPMorgan credit facilities also require, and any documents governing our or our subsidiaries’ future indebtedness may require, us to meet certain financial ratios and tests in order to enter into certain transactions, incur additional indebtedness, pay dividends and other actions.

In addition, if we become subject to the financial ratios and tests that are specified in the JPMorgan Revolving Loan Facility, noncompliance with such ratios and tests would be an event of default.

We and our Subsidiary Obligors’ ability to comply with these and other provisions of the existing JPMorgan credit facilities is dependent on our future performance, which will be subject to many factors, some of which are beyond our control.

The existing Credit Facilities also require, and any documents governing our or our subsidiaries’ future indebtedness may require, us to meet certain financial ratios and tests in order to enter into certain transactions, incur additional indebtedness, pay dividends and other actions.

In addition, if we become subject to the financial ratios and tests that are specified in the Revolving Credit Facility, noncompliance with such ratios and tests would be an event of default.

We and our Subsidiary Obligors’ ability to comply with these and other provisions of the existing Credit Facilities is dependent on our future performance, which will be subject to many factors, some of which are beyond our control.

The breach of any of these covenants or noncompliance with any applicable financial ratios and tests could result in an event of default under the existing debt agreements, which, if not cured or waived, could result in acceleration of the related debt and the acceleration of debt under other instruments evidencing indebtedness that may also contain cross-acceleration or cross-default provisions.

Variable rate indebtedness subjects us and the Subsidiary Obligors to the risk of higher interest rates, which could cause our future debt service obligations to increase significantly.

The JPMorgan credit facilities have restrictions on our ability to sell our products directly to the cannabis industry.

On March 29, 2021, we and our subsidiaries (the “Subsidiary Obligors”) entered into a senior secured revolving loan facility with JPMorgan Chase Bank, N.A.

(“JPMorgan”), as administrative agent for the lenders, which was subsequently amended and currently provides for a maximum commitment amount of $75 million and terminates on March 20, 2024 (as amended, the “JPMorgan Revolving Loan Facility”).

On October 25, 2021, we and the Subsidiary Obligors entered into a $125 million senior secured term loan facility with JPMorgan, as administrative agent for the lenders (the “Term Loan”).

The JPMorgan Revolving Loan Facility and the Term Loan each contain customary covenants, restrictions and defaults.

The JPMorgan Revolving Loan Facility prohibits us and the Subsidiary Obligors from selling our products, inventory or services directly to cannabis growers or to retailers that sell only to the cannabis industry.

The Term Loan prohibits us and the Subsidiary Obligors from selling our products, inventory or services directly to cannabis growers operating in any country that prohibits the sale and use of cannabis products other than in accordance with the applicable laws of such country.

We are in compliance with the terms set forth in the JPMorgan Revolving Loan Facility and the Term Loan and maintain policies and procedures that are designed to promote and achieve continued compliance with such requirements.

The Credit Facilities have restrictions on our ability to sell our products directly to the cannabis industry.

Our Credit Facilities each contain customary covenants, restrictions and defaults.

The Credit Facilities prohibit us and the Subsidiary Obligors from selling our products, inventory or services directly to cannabis growers operating in any country that prohibits the sale and use of cannabis products other than in accordance with the applicable laws of such country.

We are in compliance with the terms set forth in the Revolving Credit Facility and the Term Loan and maintain policies and procedures that are designed to promote and achieve continued compliance with such requirements.

These compliance requirements may require that we be more selective than our competitors when selecting to whom we sell our products, and in certain situations, may afford our competitors a competitive advantage if we are not able to sell our products to a certain customer, and may negatively impact our marketing efforts, sales and reputation in the market.

Moreover, the breach of any of these compliance requirements may result in the occurrence of an event of default under each of the JPMorgan Revolving Loan Facility and the Term Loan, which would entitle JPMorgan to terminate the commitments thereunder and declare all loans then outstanding to be due and payable.

Moreover, the breach of any of these compliance requirements may result in the occurrence of an event of default under each of the Revolving Credit Facility and the Term Loan, which would entitle JPMorgan to terminate the commitments thereunder and declare all loans then outstanding to be due and payable.

The foregoing events would have a material adverse effect on our business, results of operations and financial condition.

Substantially all of our and our Subsidiary Obligors’ assets are pledged to secure obligations under the JPMorgan credit facilities.

Substantially all of our and our Subsidiary Obligors’ assets are pledged to secure obligations under the Credit Facilities.

We and our Subsidiary Obligors have granted a continuing security interest in substantially all of our assets to JPMorgan, as administrative agent on behalf of the lenders party to such agreements.

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Our ability to conduct our business may be materially harmed as a result of the exercise of any remedies, in the event that such remedies are exercisable, by JPMorgan.

We may be adversely impacted by the transition from LIBOR to SOFR as a reference rate.

The United Kingdom’s Financial Conduct Authority and the administrator of LIBOR have announced that the publication of U.S.

dollar LIBOR settings will cease to be published or cease to be representative after June 30, 2023.

The publication of all other LIBOR settings ceased to be published as of December 31, 2021.

In the United States, the Alternative Reference Rates Committee, a committee convened by the Federal Reserve Board and the Federal Reserve Bank of New York, recommended SOFR plus a recommended spread adjustment as LIBOR’s replacement.

SOFR is an index calculated by reference to short-term repurchase agreements backed by U.S.

Treasury securities that was selected as a preferred replacement for U.S.

dollar LIBOR by the U.S.

Federal Reserve.

SOFR is observed and backward looking, which stands in contrast to LIBOR under the current methodology, which is an estimated forward-looking rate and relies, to some degree, on the expert judgment of submitting panel members.

LIBOR and SOFR have significant differences, such as LIBOR being an unsecured lending rate while SOFR is a secured lending rate, and SOFR is an overnight rate while LIBOR reflects term rates at different maturities.

The Term Loan continues to utilize LIBOR.

The Term Loan agreement attempts to provide mechanisms whereby the tenor (one month, three months or six months) of the LIBOR based rates would remain the same even though SOFR is an overnight rate.

In addition, LIBOR incorporates built in credit risk component because it is based on the aggregate cost of borrowing by a bank and SOFR does not have this component since it is based on overnight transactions in the Treasury repurchase market.

Accordingly, there are inherent difficulties in matching these two rates and it is possible that the use of SOFR may result in a higher rate.

Given that the conversion to SOFR under the Term Loan has not yet occurred, we are unable to determine whether our interest obligations under the SOFR based rates will be higher than corresponding interest rates benchmarked to LIBOR.

The transition to SOFR may present challenges, including, but not limited to, the illiquidity of SOFR derivatives markets, which could make it difficult for financial institutions to offer SOFR-based debt products, the determination of the

spread adjustment required to convert LIBOR to SOFR (and the related determination of a term structure with different maturities), and that such transition may require substantial negotiations with counterparties.

There is no guarantee that the transition from LIBOR to SOFR will not result in financial market disruptions, significant increases in benchmark rates, or borrowing costs to borrowers, any of which could affect our interest expense and earnings and may have an adverse effect on our business, results of operations, financial condition, and stock price.

Whether or not SOFR attains market acceptance as a LIBOR replacement tool remains in question.

As such, the future of SOFR at this time remains uncertain.

Risks Relating to Third Parties

Our reliance on a limited base of suppliers for certain products, such as light ballasts, may result in disruptions to our business and adversely affect our financial results.

Although we continue to implement risk-mitigation strategies for single-source suppliers, we rely on a limited number of suppliers for certain of our light ballasts, used in manufacturing our lighting systems.

A portion of our key suppliers previously experienced significant volume demands, which impacted supplier performance.

Our reliance on a limited base of suppliers for certain products, such as light fixtures, may result in disruptions to our business and adversely affect our financial results.

Although we continue to implement risk-mitigation strategies for single-source suppliers, we rely on a limited number of suppliers for certain of the light ballasts used in manufacturing our lighting systems.

A portion of our key suppliers

previously experienced significant volume demands, which impacted supplier performance.

If we are unable to maintain supplier arrangements and relationships, if we are unable to contract with suppliers at the quantity and quality levels needed for our business, or if any of our key suppliers becomes insolvent or experience other financial distress, we could experience disruptions in production, which could have a material adverse effect on our financial condition, results of operations and cash flows.

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The loss or disruption of such supply arrangements for any reason, including for issues such as COVID-19 or other health epidemics or pandemics, labor disputes, loss or impairment of key manufacturing sites, inability to procure sufficient raw materials, quality control issues, ethical sourcing issues, a supplier’s financial distress, natural disasters, looting, vandalism or acts of war or terrorism, trade sanctions or other external factors over which we have no control, could interrupt product supply and, if not effectively managed and remedied, have a material adverse impact on our business operations, financial condition and results of operations.

Also, geopolitical tensions and the conflict between Russia and Ukraine continue to escalate, and numerous jurisdictions have imposed harsh sanctions on certain industry sectors and parties in Russia, as well as enhanced export controls on certain products and industries.

These and any additional sanctions and export controls, as well as any counter responses by the governments of Russia or other jurisdictions, could adversely affect, directly or indirectly, the global supply chain, with negative implications on the availability and prices of raw materials, energy prices, and our customers, as well as the global financial markets and financial services industry.

A significant interruption in the operation of our or our suppliers’ facilities could impact our capacity to produce products and service our customers, which could adversely affect revenues and earnings.

Operations at our and our suppliers’ facilities are subject to disruption for a variety of reasons, including fire, flooding or other natural disasters, disease outbreaks or pandemics, acts of war, terrorism, government shut-downs and work stoppages.

Some of our key suppliers experienced significant demand and increased volume in prior years.

A significant interruption in the operation of our or our suppliers’ facilities, especially for those products manufactured at a limited number of facilities, such as fertilizer and liquid products, could significantly impact our capacity to sell products and service our customers in a timely manner, which could have a material adverse effect on our customer relationships, revenues, earnings and financial position.

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We have in the past experienced, and may in the future experience, difficulties in manufacturing our products on a timely basis and in sufficient quantities.

These difficulties in the past have primarily related to difficulties associated with ramping up production of newly introduced products and may result in increased delivery lead-times and increased costs of manufacturing these products.

Our failure to achieve and maintain the required high manufacturing standards could result in further delays or failures in product testing or delivery, cost overruns, product recalls or withdrawals, increased warranty costs or other problems that could harm our business and prospects.

These difficulties may result in increased delivery lead-times and increased costs of manufacturing these products.

Our failure to achieve and maintain the required manufacturing standards could result in further delays or failures in product testing or delivery, cost overruns, product recalls or withdrawals, increased warranty costs or other problems that could harm our business and prospects.

In determining the required quantities of our products and the manufacturing schedule, we must make significant judgments and estimates based on historical experience, inventory levels, current market trends and other related factors.

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If our suppliers that currently, or will in the future, sell directly to the retail market in which we conduct our current or future business, enhance these efforts and cease or decrease their sales through us, our ability to sell certain products could be harmed.

Our distribution and sales and marketing capabilities provide significant value to our suppliers.

Distributed brand suppliers sell through us in order to access thousands of retail and commercial customers across the United States and Canada with short order lead times, no minimum order quantity on individual items, free or minimal freight expense and trade credit terms.

Distributed brand suppliers may sell through us in order to access our customers across the United States and Canada.

Based on our knowledge and communication with our suppliers, we believe some of our suppliers sell directly to the retail market.

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Risks Relating to the Cannabis Industry

In the United States, we sell our products through third-party retailers and resellers which do not exclusively sell to the cannabis industry.

It is evident to us that the movement towards the legalization of cannabis in the United States and its legalization in Canada has ultimately had a significant, positive impact on our industry.

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Under the Controlled Substances Act, the U.S.

federal government lists cannabis as a Schedule I controlled substance (i.e., deemed to have no medical value), and accordingly the manufacturing (cultivation), sale, or possession of cannabis is federally illegal.

federal government currently lists cannabis as a Schedule I controlled substance (i.e., deemed to have no medical value), and accordingly the manufacturing (cultivation), sale, or possession of cannabis is federally illegal.

It is also federally illegal in the United States to advertise the sale of cannabis or to sell paraphernalia designed or intended primarily for use with cannabis, unless the paraphernalia is authorized by federal, state, or local law.

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• Businesses trafficking in cannabis may not take tax deductions for costs beyond costs of goods sold under Code Section 280E.

There is no way to predict how the federal government may treat cannabis businesses from a

taxation standpoint in the future and no assurance can be given to what extent Code Section 280E, or other tax-related laws and regulations, may be applied to cannabis businesses in the future.

There is no way to predict how the federal government may treat cannabis businesses from a taxation standpoint in the future and no assurance can be given to what extent Code Section 280E, or other tax-related laws and regulations, may be applied to cannabis businesses in the future.

• Because the manufacturing (cultivation), sale, possession and use of cannabis is illegal under federal law, cannabis businesses may have restricted intellectual property and proprietary rights, particularly with respect to obtaining and enforcing patents and trademarks.

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The DOJ under the Biden administration has not readopted the Cole Memorandum, but President Biden has indicated support for decriminalization of cannabis.

On October 6, 2022, President Biden issued an executive order pardoning all persons convicted of simple possession of cannabis under the CSA and directed the Secretary of Health and Human Services and the Attorney General to initiate an administrative process to review the scheduling of cannabis under the CSA.

On October 6, 2022, President Biden issued an executive order pardoning all persons convicted of simple possession of cannabis under the CSA.

In the same executive order, President Biden also directed the Secretary of Health and Human Services and the Attorney General to initiate an administrative process to review the scheduling of cannabis under the CSA, and on August 29, 2023, the Department of Health and Human Services officially recommended that the DEA reschedule cannabis from Schedule I to Schedule III, although the DEA is not obligated to follow this recommendation.

Further, on December 2, 2022, President Biden signed into law the Medical Marijuana and Cannabidiol Research Expansion Act, which streamlines and expands the process for researching the medical use of cannabis.

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The legal uncertainty and possible future changes in law could negatively affect our growth, revenues, results of operations and success generally.

Unless and until Congress amends the CSA with respect to medical and/or adult use cannabis, there is a risk that federal prosecutors may enforce the existing CSA.

Unless and until cannabis is de-scheduled entirely or Congress amends the CSA with respect to medical and/or adult use cannabis, there is a risk that federal prosecutors may enforce the existing CSA.

Federal authorities may decide to change their current posture and begin to enforce current federal cannabis law and, if they decide to ignore the principles in the Cole Memorandum and begin to aggressively enforce such laws, it is possible that they could allege that we violated federal laws by selling products used in the cannabis industry.

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This could have a material adverse effect on our business, including our reputation and ability to conduct business, the listing of our securities on any stock exchanges, the settlement of trades of our securities, our ability to obtain banking services, our financial position, operating results, profitability or liquidity or the market price of our publicly-traded shares.

In addition, it is difficult for us to estimate the time or resources that would be needed for the investigation of any such matters or their final resolution

because, in part, the time and resources that may be needed are dependent on the nature and extent of any information requested by the applicable authorities involved, and such time or resources could be substantial.

In addition, it is difficult for us to estimate the time or resources that would be needed for the investigation of any such matters or their final resolution because, in part, the time and resources that may be needed are dependent on the nature and extent of any information requested by the applicable authorities involved, and such time or resources could be substantial.

Cannabis Industry Participants are subject to federal and state controlled substance laws and regulations.

As a result, we are indirectly subject to a number of risks related to controlled substances.

We sell our products through third-party retailers and resellers which do not exclusively sell to the cannabis industry.

Some of our products are sold to Cannabis Industry Participants and used in connection with cannabis businesses that are subject to federal and state controlled substance laws and regulations.

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Such risks include, but are not limited to, the following:

• Cannabis is a Schedule I drug under the CSA and regulated by the DEA as an illegal substance.

• Cannabis is currently a Schedule I drug under the CSA and regulated by the DEA as an illegal substance.

The FDA, in conjunction with the DEA, licenses cannabis research and drugs containing active ingredients derived from cannabis.

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• The failure of our Cannabis Industry Participants to comply with applicable controlled substance laws and regulations, or the cost of compliance with these laws and regulations, may adversely affect the demand for our products and, as a result, the financial results of our business operations and our financial condition.

Furthermore, the JPMorgan Credit Facility restricts our ability and the ability of the Subsidiary Obligors to sell our products directly to U.S.

cannabis growers or to retailers that sell only to the U.S.

cannabis industry.

Furthermore, the Credit Facilities restrict our ability and the ability of the Subsidiary Obligors to sell our products directly to U.S.

cannabis growers.

Our growth is highly dependent on the U.S.

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Supply and demand and prevailing prices for cannabis may also adversely impact our business.

The base of cannabis growers in the United States has grown over the past 20 years since the legalization of cannabis for medical uses in states such as California, Colorado, Michigan, Nevada, Oregon and Washington, with a large number of those growers depending on products similar to those we distribute.

cannabis market is still in its infancy and early adopter states such as California, Colorado and Washington represent a large portion of historical industry revenues.

The base of cannabis growers in the United States has grown over the past 20 years since the legalization of cannabis in various U.S.

states such as California, Colorado, Michigan, Nevada, Oregon and Washington, with growers depending on products similar to those we distribute.

cannabis cultivation market does not grow as expected, our business, financial condition and results of operations could be adversely impacted.

Cannabis remains illegal under U.S.

federal law, with cannabis listed as a Schedule I substance under the CSA.

federal law, with cannabis currently listed as a Schedule I substance under the CSA.

Notwithstanding laws in various states permitting certain cannabis activities, all cannabis activities, including possession, distribution, processing and manufacturing of cannabis and investment in, and financial services or transactions involving proceeds of, or promoting such activities remain illegal under various U.S.

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Cannabis activities conducted in or related to conduct in multiple states may potentially face a higher level of scrutiny from federal authorities.

Penalties for violating federal drug, conspiracy, aiding, abetting, bank fraud and/or money laundering laws

may include prison, fines, and seizure/forfeiture of property used in connection with cannabis activities, including proceeds derived from such activities.

We sell our products through third-party retailers and resellers which do not exclusively sell to the cannabis industry, however, it is evident to us that the movement towards the legalization of cannabis in the United States and its legalization in Canada has ultimately had a significant, positive impact on our industry.

Penalties for violating federal drug, conspiracy, aiding, abetting, bank fraud and/or money laundering laws may include prison, fines, and seizure/forfeiture of property used in connection with cannabis activities, including proceeds derived from such activities.

We sell our products through third-party retailers and resellers, however, it is evident to us that the movement towards the legalization of cannabis in the United States and its legalization in Canada has ultimately had a significant, positive impact on our industry.

We are not currently subject directly to any state laws or regulations controlling participants in the legal cannabis industry.

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Evolving federal and state laws and regulations pertaining to the use or cultivation of cannabis, as well as active enforcement by federal or state authorities of the laws and regulations governing the use and cultivation of cannabis may indirectly and adversely affect our business, our revenues and our profits.

Furthermore, the JPMorgan Credit Facility restricts our ability and the ability of the Subsidiary Obligors to sell our products directly to cannabis growers or to retailers that sell only to the cannabis industry.

Furthermore, the Credit Facilities restrict our ability and the ability of the Subsidiary Obligors to sell our products directly to cannabis growers.

See "Risks Relating to Our Indebtedness."

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Both the medical and adult use of cannabis are controversial topics, and there is no guarantee that future scientific research, publicity, regulations, medical opinion, and public opinion relating to cannabis will be favorable.

The cannabis industry is an early-stage business that is constantly evolving with no guarantee of viability.

The cannabis industry is constantly evolving with no guarantee of viability.

The market for medical and adult use of cannabis is uncertain, and any adverse or negative publicity, scientific research, limiting regulations, medical opinion and public opinion (whether or not accurate or with merit) relating to the consumption of cannabis, whether in the United States or internationally, may have a material adverse effect on our operational results, consumer base, and financial results.

Among other things, such a shift in public opinion could cause state jurisdictions to abandon initiatives or proposals to legalize medical or adult use cannabis or

adopt new laws or regulations restricting or prohibiting the medical or adult use of cannabis where it is now legal, thereby limiting the Cannabis Industry Participants.

Among other things, such a shift in public opinion could cause state jurisdictions to abandon initiatives or proposals to legalize medical or adult use cannabis or adopt new laws or regulations restricting or prohibiting the medical or adult use of cannabis where it is now legal, thereby limiting the Cannabis Industry Participants.

Demand for our products may be negatively impacted depending on how laws, regulations, administrative practices, enforcement approaches, judicial interpretations, and consumer perceptions develop.

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The increased use of social media and other web-based tools used to generate, publish and discuss user-generated content and to connect with other users has made it increasingly easier for individuals and groups to communicate and share opinions and views with regard to cannabis companies and their activities, whether true or not and the cannabis industry in general, whether true or not.

We do not ultimately have direct control over how the cannabis industry is perceived by others.

We do not have control over how the cannabis industry is perceived by others.

Reputation loss may result in decreased investor confidence, increased challenges in developing and maintaining community relations and an impediment to our overall ability to advance our business strategy and realize our growth prospects, thereby having a material adverse impact on our business.

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Businesses involved in the cannabis industry, and investments in such businesses, are subject to a variety of laws and regulations related to money laundering, financial recordkeeping and proceeds of crimes.

We sell our products through third-party retailers and resellers which do not exclusively sell to the cannabis industry.

Investments in the U.S.

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One of our leading product lines is growing media and nutrients products.

This product line includes certain products, such as organic soils and nutrients that contain ingredients that require the companies that provide us with these products to register the product with certain regulators.

This product line includes certain products, such as organic soils and nutrients that contain ingredients that require product registrations with certain regulators.

The use and disposal of these products in some jurisdictions are subject to regulation by various agencies.

A decision by a regulatory agency to significantly restrict the use of such products that have traditionally been used in the cultivation of our leading products could have an adverse impact on those companies providing us with such regulated products, and as a result, limit our ability to sell these products.

A decision by a regulatory agency to significantly restrict the use of such products that have traditionally been used in the cultivation of our products could have an adverse impact on us or those companies providing us with such regulated products, and as a result, limit our ability to sell these products.

Our products and operations may be subject to increased regulatory and environmental scrutiny in jurisdictions in which we do business.

For example, we are subject to regulations relating to our harvesting of peat moss in Canada, which has come under increasing regulatory and environmental scrutiny at the federal, provincial and territorial levels.

The remediation of the Company's peat bog sites is under provincial oversight.

Failure by the Company to comply with such oversight could result in fines, current or future loss of peat bog leases, or other penalties.

We are currently subject to, and may in the future become subject to additional, U.S., state and foreign laws and regulations imposing obligations on how we collect, store and process personal information.

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Certain state laws may be more stringent or broader in scope, or offer greater individual rights, with respect to personal information than federal, international or other state laws, and such laws may differ from each other, all of which may complicate compliance efforts.

For example, the California Consumer Privacy Act (“CCPA”), which increases privacy rights for California residents and imposes obligations on companies that process their personal information, came into effect on January 1, 2020.

For example, the California Consumer Privacy Act ("CCPA"), which increases privacy rights for California residents and imposes obligations on companies that process their

personal information, came into effect on January 1, 2020.

Among other things, the CCPA requires covered companies to provide new disclosures to California consumers and provide such consumers new data protection and privacy rights, including the ability to opt-out of certain sales of personal information.

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In addition, on November 3, 2020, California voters approved a new privacy law, the California Privacy Rights Act ("CPRA").

The CPRA comes into effect on January 1, 2023, and will significantly modify the CCPA, including by expanding consumers’ rights with respect to certain personal information and creating a new state agency to oversee implementation and enforcement efforts.

Virginia and Colorado also enacted comprehensive data privacy laws similar to the CCPA, both of which will be effective in 2023.

The CPRA came into effect on January 1, 2023, and significantly modifies the CCPA, including by expanding consumers’ rights with respect to certain personal information and creating a new state agency to oversee implementation and enforcement efforts.

Virginia and Colorado also enacted comprehensive data privacy laws similar to the CCPA, both of which became effective in 2023.

In addition, laws in all 50 U.S.

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In addition, such requirements may require us to modify our data processing practices and policies, distract management or divert resources from other initiatives and projects, all of which could have a material adverse effect on our business, financial condition, results of operations and prospects.

Any failure or perceived failure by us to comply with any applicable federal, state or similar foreign laws and regulations relating to data privacy and security could result in

damage to our reputation, as well as proceedings or litigation by government agencies or other third parties, including class action privacy litigation in certain jurisdictions, which would subject us to significant fines, sanctions, awards, penalties or judgements, all of which could have a material adverse effect on our business, financial condition, results of operations and prospects.

Any failure or perceived failure by us to comply with any applicable federal, state or similar foreign laws and regulations relating to data privacy and security could result in damage to our reputation, as well as proceedings or litigation by government agencies or other third parties, including class action privacy litigation in certain jurisdictions, which would subject us to significant fines, sanctions, awards, penalties or judgements, all of which could have a material adverse effect on our business, financial condition, results of operations and prospects.

Compliance with, or violation of, environmental, health and safety laws and regulations, including laws pertaining to the use of pesticides, could result in significant costs that adversely impact our reputation, businesses, financial position, results of operations and cash flows.

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Even if we are able to comply with all applicable laws and regulations and obtain all necessary registrations and licenses, the pesticides or other products we distribute, could be alleged to cause injury to the environment, to people or to animals, or such products could be banned in certain circumstances.

The costs of compliance, noncompliance, investigation, remediation, combating reputational harm or defending civil or criminal proceedings, products liability, personal injury or other lawsuits could have a material adverse impact on our reputation, businesses, financial position, results of operations and cash flows.

The costs of compliance, noncompliance, investigation, remediation, combating

reputational harm or defending civil or criminal proceedings, products liability, personal injury or other lawsuits could have a material adverse impact on our reputation, businesses, financial position, results of operations and cash flows.

Risks Relating to Our Intellectual Property

Recent laws make it difficult to predict how patents will be issued or enforced in our industry.

Changes in either the patent laws or interpretation of the patent laws in the United States and other countries may have a significant impact on our ability to protect our technology and enforce our intellectual property and proprietary rights.

There have been numerous changes to the patent laws and to the rules of the United States Patent and Trademark Office (the “USPTO”), which may have a significant impact on our ability to protect our technology and enforce our intellectual property and proprietary rights.

For example, the Leahy-Smith America Invents Act, which was signed into law in 2011, includes a transition from a “first-to-invent” system to a “first-to-file” system, and changes the way issued patents can be challenged.

Certain changes, such as the institution of inter partes review and post-grant and derivation proceedings, came into effect in 2012.

Substantive changes to patent laws associated with the Leahy-Smith America Invents Act may affect our ability to obtain patents, and, if obtained, to enforce or defend them in litigation or inter partes review, or post-grant or derivation proceedings, all of which could harm our business.

We may not be able to adequately obtain, maintain, protect or enforce our intellectual property and other proprietary rights that are material to our business.

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The steps we take to obtain, maintain, protect and enforce our intellectual property and proprietary rights may be inadequate and despite our efforts to protect these rights, unauthorized third parties, including our competitors, may duplicate, reverse engineer, access, obtain, use or copy the proprietary aspects of our technology, processes, products or services without our permission.

In addition, we cannot guarantee that we have entered into confidentiality agreements with each party that has

or may have had access to our proprietary information, know-how and trade secrets.

In addition, we cannot guarantee that we have entered into confidentiality agreements with each party that has or may have had access to our proprietary information, know-how and trade secrets.

Moreover, our contractual arrangements may be breached or otherwise not effectively prevent disclosure of, or control access to, our intellectual property and confidential and proprietary information or provide an adequate remedy in the event of an unauthorized disclosure.

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Additionally, patents have a limited lifespan.

In the United States, even if all maintenance fees are timely paid, the natural expiration of a patent is generally 20 years from its earliest U.S.

non-provisional filing date and the natural expiration of a design patent is generally 14 years after its issue date, unless the filing date occurred on or after May 13, 2015, in which case the natural expiration of a design patent is generally 15 years after its issue date.

Even if patents covering our products or services are obtained, once the patent life has expired, we may be open to competition from competitive products or services.

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Third parties may initiate legal proceedings alleging that we are infringing their intellectual property rights, the outcome of which would be uncertain and could have a material adverse effect on the success of our business.

Our success depends upon our ability to develop, manufacture, market and sell our products, and to use our proprietary technologies without infringing, misappropriating or otherwise violating the intellectual property or proprietary rights of third

We may become party to, or threatened with, future adversarial proceedings or litigation regarding intellectual property or proprietary rights with respect to our products and technology, including interference or derivation proceedings and various other post-grant proceedings before the USPTO and/or non-U.S.

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Further, if we attempt to modify a product and/or technology or to develop alternative methods or products in response to infringement or other intellectual property claims or to avoid potential claims, we could incur substantial costs, encounter delays in product introductions or interruptions in sales.

We may be subject to claims that our employees have wrongfully used or disclosed alleged trade secrets of their former employers.

Although we try to ensure that our employees do not use the intellectual property and proprietary rights, including proprietary information or know-how, of others in their work for us, we may be subject to claims that we or these employees have used or disclosed intellectual property or proprietary rights, including trade secrets or other proprietary information, of any such employee’s former employer.

We are not aware of any threatened or pending claims related to these matters or concerning agreements with our employees, but in the future litigation may be necessary to defend against such claims.

If we fail in defending any such claims, in addition to paying monetary damages, we may lose valuable intellectual property or proprietary rights or personnel.

Even if we are successful in defending against such claims, litigation could result in substantial costs and be a distraction to management.

Intellectual property disputes could cause us to spend substantial resources and distract our personnel from their normal responsibilities.

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In addition, there could be potential trademark, trade name or service mark infringement claims brought against us or our licensors by owners of other trademarks, trade names and service marks.

Over the long term, if we are unable to establish name recognition based on our owned and in-licensed trademarks and trade names, then we may not be able to compete effectively and our business may be adversely affected.

Over the long term, if we are unable

to establish name recognition based on our owned and in-licensed trademarks and trade names, then we may not be able to compete effectively and our business may be adversely affected.

We may also license our trademarks, trade names and service marks out to third parties, such as our distributors.

Though these license agreements may provide guidelines for how our trademarks, trade names and service marks may be used, a breach of these agreements or misuse of our trademarks, trade names and service marks by our licensees may jeopardize our rights in or diminish the goodwill associated with our trademarks and

Our efforts to enforce or protect our intellectual property and proprietary rights related to trademarks, trade names and service marks may be ineffective and could result in substantial costs and diversion of resources and could adversely affect our business, financial condition, results of operations and prospects.

Intellectual property and proprietary rights do not necessarily address all potential threats to our competitive advantage.

The degree of future protection afforded by our intellectual property and proprietary rights is uncertain because intellectual property and proprietary rights have limitations, and may not adequately protect our business, or permit us to maintain our competitive advantage.

The following examples are illustrative.

• Others may be able to construct products that are similar to our products but that are not covered by the claims of the patents that we own or have exclusively licensed;

• We or our licensors or strategic collaborators, if any, might not have been the first to make the inventions covered by the issued patent or pending patent application that we own or have exclusively licensed;

• We or our licensors or strategic collaborators, if any, might not have been the first to file patent applications covering certain of our inventions;

• Others may independently develop similar or alternative technologies or duplicate any of our technologies without infringing, misappropriating or otherwise violating our intellectual property and proprietary rights;

• It is possible that our current and future pending patent applications will not lead to issued patents;

• It is possible that our current and future pending trademark or service mark applications will not lead to registrations;

• We may fail to identify patentable aspects of our research and development output before it is too late to obtain patent protection;

• Issued patents and other intellectual property and proprietary rights that we own or have exclusively licensed may not provide us with any competitive advantages, may not be sufficiently broad in scope or may be held invalid or unenforceable, as a result of legal challenges by third parties, including our competitors;

• Our competitors might conduct research and development activities in countries where we do not have patent rights and then use the information learned from such activities to develop competitive products for sale in our major commercial markets;

• We may not develop additional proprietary technologies that are patentable;

• The patents of others may have an adverse effect on our business.

Should any of these events occur, they could significantly harm our business, results of operations and prospects.

Risks Relating to Our Capital Stock

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In addition, if we issue preferred stock with voting rights that dilute the voting power of our common stock, the market price of our common stock could decrease.

Additional issuances and sales of preferred stock, or the perception that such issuances and sales could occur, may cause prevailing market prices for our common stock to decline and may adversely affect our ability to raise additional capital in the financial markets at times and

prices favorable to us.

In addition, any additional capital raised through the sale of equity or equity-backed securities may dilute our stockholders’ ownership percentages and could also result in a decrease in the market value of our common stock.

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Various provisions of our lending agreements with JPMorgan, in addition to our Certificate of Incorporation, Bylaws and other corporate documents, could delay or prevent a change of control.

The JPMorgan Credit Facility prohibits us from undergoing a change of control.

The Credit Facilities prohibits us from undergoing a change of control.

Any takeover attempt could be delayed, or prevented, if an amendment or waiver is not provided by the respective lenders.

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Because we conduct our operations through our subsidiaries, we depend on those entities for dividends and other payments to generate the funds necessary to meet our financial obligations.

Legal and contractual restrictions in the JPMorgan Credit Facility and other agreements which may govern future indebtedness of our subsidiaries, as well as the financial condition and operating requirements of our subsidiaries, may limit our ability to obtain cash from our subsidiaries.

Legal and contractual restrictions in the Credit Facilities and other agreements which may govern future indebtedness of our subsidiaries, as well as the financial condition and operating requirements of our subsidiaries, may limit our ability to obtain cash from our subsidiaries.

The earnings from, or other available assets of, our subsidiaries might not be sufficient to pay dividends or make distributions or loans to enable us to pay any dividends on our common stock or other obligations.

Any of the foregoing could materially and adversely affect our business, financial condition, results of operations and cash flows.

In addition, our ability to pay dividends is restricted by the terms of the JPMorgan Credit Facility and, in addition, future debt financing, if any, may contain terms prohibiting or limiting the amount of dividends that may be declared or paid on our securities.

In addition, our ability to pay dividends is restricted by the terms of the Credit Facilities and, in addition, future debt financing, if any, may contain terms prohibiting or limiting the amount of dividends that may be declared or paid on our securities.

We currently intend to retain any future earnings for use in the operation and expansion of our business.

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The declaration and payment of all future dividends to holders of our common stock, if any, will be at the sole discretion of our board of directors, which retains the right to change our dividend policy at any time.

Consequently, capital appreciation, if any, of our common stock may be the sole source of gain on investment for the foreseeable future.

If we fail to meet the continued listing standards of Nasdaq, our common stock may be delisted, which may adversely affect the market price and liquidity of our common stock.

Our common stock is currently traded on the Nasdaq Global Select Market (“Nasdaq”).

Our common stock is currently traded on the Nasdaq.

Nasdaq requires us to meet certain financial, public float, bid price and liquidity standards on an ongoing basis in order to continue the listing of our common stock, including that we maintain a minimum closing bid price of $1.00 per share.

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Furthermore, if our common stock were delisted it could adversely affect our ability to obtain financing for the continuation of our operations and/or result in the loss of confidence by investors, customers, suppliers and employees.

Our largest stockholders will exercise significant influence over our company for the foreseeable future, including the outcome of matters requiring stockholder approval.

If our former directors and their affiliates were to choose to act together, they could have a significant influence over all matters requiring stockholder approval, including the election of directors and approval of significant corporate transactions, such as a merger or other sale of our company or all or a significant percentage of our assets.

This concentration of ownership could limit your ability to influence corporate matters and may have the effect of delaying or preventing a third party from acquiring control over us.

We cannot assure you that the interests of our former directors and affiliated persons will coincide with the interests of the investors.

So long as our former directors and affiliated persons collectively controls a significant portion of our common stock, these individuals and/or entities controlled by them, will continue to collectively be able to strongly influence or effectively control our decisions.

Therefore, you should not invest in reliance on your ability to have any control over our company.

See “Principal Stockholders,” “Certain Relationships and Related Party Transactions” and “Description of Capital Stock” which is attached to this Annual Report on Form 10-K as Exhibit 4.2.

The market price of our common stock could be negatively affected by future sales of our common stock.

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The perception in the public market that these stockholders might sell our common stock could also depress the market price of our common stock and could impair our future ability to obtain capital, especially through an offering of equity securities.

Our common stock has only recently become publicly-traded, and the market price of our common stock has been volatile.

The price of our common stock has been, and may continue to be, volatile and may fluctuate substantially, which could result in substantial losses for purchasers of our common stock.

The market price of our common stock has fluctuated substantially due to a number of factors.

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• any significant change in our management;

• the continued threat of terrorism and the impact of military and other action, including military actions involving Russia and Ukraine;

• the continued threat of terrorism and the impact of military and other action, including military actions involving Russia and Ukraine and the ongoing conflict in Israel and Gaza;

• general economic conditions and slow or negative growth of our markets.

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General Risk Factors

If we are unable to hire and retain key personnel, we may not be able to implement our business plan and our business may fail;

If we are unable to retain key personnel, we may not be able to implement our business plan and our business may fail;

our headcount reductions may cause undesirable consequences.

Our future success depends to a large extent on our ability to attract, hire, train and retain qualified managerial, operational and other personnel.

We face significant competition for qualified and experienced employees in our industry and from other industries and, as a result, we may be unable to attract and retain the personnel needed to successfully conduct and grow our operations.

Additionally, key personnel, including members of management, may leave and compete against us.

If we are unable to hire and retain key personnel, our business will be materially adversely affected.

In light of recent inflation, we may be required to increase the compensation we offer to current and prospective employees in order to compete for talent, and any wage increases may make it more difficult for us maintain general operating expenses at desired levels.

Additionally, we reduced headcount and implemented temporary employee furloughs in 2022, and may implement further reductions in the future to create operational efficiencies.

If we are unable to retain key personnel, our business may be materially adversely affected.

We reduced headcount in 2023 and 2022, and may implement further reductions in the future to create operational efficiencies.

This workforce reduction may yield unintended consequences, such as attrition beyond our intended reductions and reduced employee morale, which may cause our employees who were not affected by the headcount reductions to seek alternate employment.

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In addition, this may adversely impact our ability to respond rapidly to any new product, growth or revenue opportunities and to execute on our business plans.

Litigation may adversely affect our business, financial condition and results of operations.

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As a result, litigation may adversely affect our business, financial condition and results of operations.

Exercise of options may have a dilutive effect on your percentage ownership and may result in a dilution of your voting power and an increase in the number of shares of common stock eligible for future resale in the public market, which may negatively impact the trading price of our shares of common stock.

The exercise of some or all of our outstanding options could result in significant dilution in the percentage ownership interest of existing investors and in the percentage ownership interest of our existing common stockholders and in a significant dilution of voting rights and earnings per share.

As of December 31, 2022, we have outstanding options, held primarily by our current and former employees, for the issuance of up to 670,026 shares of common stock at a weighted exercise price of $9.50 per share.

The exercise of such existing outstanding stock options will further dilute our stockholders’ voting interests.

To the extent options are exercised, additional shares of common stock will be issued, and such issuance will dilute stockholders.

In addition to the dilutive effects described above, the exercise of those securities would lead to an increase in the number of shares of common stock eligible for resale in the public market.

Sales of substantial numbers of such shares of common stock in the public market could adversely affect the market price of our shares of common stock.

The Company's equity incentive plans may have a dilutive effect on your percentage ownership and may result in a dilution of your voting power and an increase in the number of shares of common stock eligible for future resale in the public market, which may negatively impact the trading price of our shares of common stock.

The Company's equity incentive plans, including the vesting of restricted stock units and performance stock units, and the exercise of some or all of our outstanding options could result in significant dilution in the percentage ownership interest of existing investors and in the percentage ownership interest of our existing common stockholders and in a significant dilution of voting rights and earnings per share.

In addition to the dilutive effects described above, the vesting or exercise of those securities would lead to an increase in the number of shares of common stock eligible for resale in the public market.

Sales of substantial numbers of such shares of common stock in the public market could adversely affect the market price of our shares

of common stock.

Substantial dilution and/or a substantial increase in the number of shares of common stock available for future resale may negatively impact the trading price of our shares of common stock.

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companies from engaging in bribery or other prohibited payments to foreign officials for the purpose of obtaining or retaining business.

Some foreign companies, including some that may compete with us, may not be subject to these prohibitions.

Corruption, extortion, bribery, pay-offs, theft and other fraudulent practices may occur from time-to-time in countries in which we conduct our business.

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Section 203 of the Delaware General Corporation Law may make the acquisition of our company and the removal of incumbent officers and directors more difficult by prohibiting stockholders holding 15% or more of our outstanding voting stock from acquiring us, without the consent of our board of directors, for at least three years from the date they first hold 15% or more of the voting stock.

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