What changed in this filing

/stocks — the workspaceLOADING

Item 1. Business

2022-03-14 compared with 2021-03-24 · 284 added, 66 removed, 195 unchanged (64% of the section changed)

1 unchanged sentence

We also sell products in select international markets.

Our products are sold in grocery stores, convenience and gas stores, on fountain in restaurants, “up and down the street” in independent accounts such as delicatessens, sandwich shops and burger restaurants, as well as through our national accounts with several large retailers.

We refer to our network of independent distributors as our direct store delivery (“DSD”) channel, and we refer to our national and regional accounts who receive shipments directly from us as our direct to retail (“DTR”) channel.

Our products are sold in grocery stores, convenience and gas stores, on fountain in restaurants, “up and down the street”

in independent accounts such as delicatessens, sandwich shops and burger restaurants, as well as through our national accounts with several large retailers.

We do not directly manufacture our products, but instead outsource the manufacturing process to third-party contract manufacturers.

We also sell various products online, including soda with customized labels, wearables, candy and other items, and we license our trademarks for use on products sold by other manufacturers.

We also sell various products online, including soda with customized labels, wearables, candy and other items, and we license our trademarks for use on products sold by other manufacturers. In addition, following the closing of the Plan of Arrangement, we intend to use the proceeds from our recent financings for the purpose of expanding our business to the production of cannabis-containing beverages and related products.

Our company is a Washington corporation formed in 2000 as a successor to Urban Juice and Soda Company Ltd., a Canadian company formed in 1986.

Our principal place of business is located at 66 South Hanford Street, Suite 150, Seattle, Washington 98134.

Our telephone number is (206) 624-3357.

Our telephone number is (206) 624-3357.

Jones Soda Products

2 unchanged sentences

Jones Soda is our premium carbonated soft drink.

We sell Jones Soda in premium glass bottles and cans, with every label featuring a photo sent to us by our consumers.

We sell Jones Soda in premium glass bottles and cans, with labels featuring photos sent to us by our consumers.

We also sell Jones Soda on fountain, utilizing consumer photos on the fountain equipment and cups.

2 unchanged sentences

Additionally, we release various label campaigns that celebrate our consumers and the positive impact such consumers have on the world;

for example in 2020, we released our “Messages of Hope” labels that convey the spirit of resilience that has emerged during the COVID-19 pandemic, featuring photographs such as a rainbow mural thanking essential workers and chalk art proclaiming that “We’re All In This Together.” Equally differentiating are the distinctive names of our products such as FuFu Berry, and the fact that our products are made from high quality ingredients, including pure cane sugar and natural colors and flavors when possible.

for example in 2020, we released our “Messages of Hope”

labels that convey the spirit of resilience that has emerged during the COVID-19 pandemic, featuring photographs such as a rainbow mural thanking essential workers and chalk art proclaiming that “We’re All In This Together.”

Equally differentiating are the distinctive names of our products such as FuFu Berry, and the fact that our products are made from high quality ingredients, including cane sugar and natural colors and flavors when possible.

We also sell Jones Soda in more traditional flavors such as Cream Soda, Root Beer and Orange & Cream.

4 unchanged sentences

We continue to see growing interest from larger quick service restaurants, corporate accounts, retailers, celebrity chefs and a variety of other outlets looking for differentiated offerings in their fountain soda.

In 2019, we secured a 17 location pizzeria chain in Western Washington, which we believe reflects our ability to appeal to larger sized quick service restaurant chains.

In fact, in January and February of 2022 we released our Jones Soda Root Beer fountain products throughout all Costco Business Centers in the USA.

We feel that Jones on fountain enhances the consumer experience, while appealing to a broad demographic.

Our national brand awareness and customer-centric approach make us unique compared to other craft soda competitors within this category.

We officially launched Lemoncocco® in 2016.

We officially launched Lemoncocco®

Lemoncocco represents an entirely new beverage category that was inspired by the distinctive refreshment stands found along the streets of Rome, Italy.

8 unchanged sentences

Our Jones Soda beverages are classified in the sparkling beverage category, which encompasses the carbonated soft drinks (CSD) segment.

According to June 2020 special issue of Beverage Digest, during 2019, the CSD continued to grow with an increase of 3.5% as a result of raising prices, which was more than 3.3% gain achieved in 2018.

Within the CSD segment are craft and premium sodas, which provide consumers with unique premium alternatives to the large corporate brands and is where our Jones Soda line competes.

According to Industry Arc, the craft soda market is projected to grow at a compounded annual growth rate of 4.99% during the forecast period of 2020 - 2025 and reach $711.3 million by the year 2025.

According to June 2020 special issue of Beverage Digest, during 2019, the CSD continued to grow with an increase of 3.5% as a result of raising prices, which was more than 3.3% gain achieved in 2018. Within the CSD segment are craft and premium sodas, which provide consumers with unique premium alternatives to the large corporate brands and is where our Jones Soda line competes.

According to Industry Arc, the craft soda market is projected to grow at a compounded annual growth rate of 4.99% during the forecast period of 2020 - 2025 and reach $711.3 million by the year 2025.

In the United States, craft and premium sodas are typically distributed through the grocery, drug, mass, club, convenience, independent account and online sales channels.

2 unchanged sentences

Expand our fountain program in the United States and Canada;

Release and grow the new product line of Tetrahydrocannabinol (THC) and cannabidiol (CBD)-infused beverages, edibles, and other related products;

Increase distribution of Lemoncocco in the United States and Canada.

In addition, we intend to pursue the development of new extensions to Jones products, including the potential commercialization of cannabidiol (CBD)-infused beverages.

Product Distribution and Sales Strategy

5 unchanged sentences

Part of our strategy in building our distribution system is to blend our DSD and DTR distribution channels, delivering different offerings through alternate channels.

In determining the most advantageous distribution channel, we also consider what works best for the customer, allowing for better retail activation and in-store presence, including seeking placement on shelves that are normally restricted to national mainstream brands and placement in the cold-aisle, thus providing us access to the important “take home market.” We have also introduced the JONES Cane Sugar Fountain program through a network of fountain distributors in select regions across the United States and Canada to provide our premium products and uniquely customized fountain equipment.

We have also introduced the JONES Cane Sugar Fountain program through a network of fountain distributors in select regions across the United States and Canada to provide our premium products and uniquely customized fountain equipment.

For the year ended December 31, 2021, A.

Lassonde Inc.

(“Lassonde”), one of our independent distributors and our top account by revenue represented approximately 24% of revenue.

(“Lassonde”), one of our independent distributors and our top account by revenue represented approximately 21% of revenue.

We intend to continue to expand our distributor network and DTR accounts, which may result in a decreased dependence on any one or more of our independent distributors or national retail accounts.

6 unchanged sentences

We have also secured distribution in select international markets and are evaluating other international opportunities for our products.

We choose our distributors based on our perception of their ability to build our brand franchise in convenience stores, grocery stores, on fountain in restaurants and “up and down the street” in independent accounts such as delicatessens and sandwich shops.

Typically, we grant our independent distributors exclusive distribution rights in defined territories, which may include invasion fees in the event we provide product directly to one of our national retailers located in the distributor’s region.

We are also obligated to pay termination fees for cancellations of most of these written distributor agreements, unless the termination is for “cause.

For example, we are party to a distribution agreement with Lassonde that, unless earlier terminated by either party for “cause,” currently renews on an annual basis, unless either party gives notice to the other party of its intention not to renew the agreement not less than 90 days prior to the commencement of the next renewal term.

The distribution agreement grants Lassonde the exclusive right to sell our products throughout Canada, subject to certain exceptions for our national accounts, and imposes certain requirements on Lassonde, including obligations related to maintaining inventory levels and providing certain reports and prohibits “dumping” activities.

We choose our distributors based on our perception of their ability to build our brand franchise in convenience stores, grocery stores, on fountain in restaurants and “up and down the street”

in independent accounts such as delicatessens and sandwich shops.

We are also obligated to pay termination fees for cancellations of most of these written distributor agreements, unless the termination is for “cause.

For example, we are party to a distribution agreement with Lassonde that, unless earlier terminated by either party for “cause,”

currently renews on an annual basis, unless either party gives notice to the other party of its intention not to renew the agreement not less than 90 days prior to the commencement of the next renewal term.

We intend to continue our efforts to reinforce and expand our distribution network by partnering with new distributors and replacing underperforming distributors.

2 unchanged sentences

Our accounts listing changes from time to time, as new retail accounts are added and others are canceled.

To find a retailer that carries our products, our product locator is available on our website under “Explore-Locations.”

DTR (direct to retail)

Our direct to retail channel of distribution is an important part of our strategy to target large national or regional restaurant chains and retail accounts, including convenience store chains, mass merchandisers and premier food-service businesses.

Through these programs, we negotiate directly with the retailer to carry our products, and the account is serviced through the retailer’s appointed distribution system (rather than through our DSD network).

These arrangements are terminable at any time by these retailers or us, and contain no minimum purchase commitments or termination fees.

5 unchanged sentences

We sell direct to certain retailers in addition to working with a network of fountain distributors in select focus regions within the United States and Canada to provide our premium products, including our fountain and slush products, and uniquely customized fountain equipment.

Our products are sold throughout the United States and Canada, primarily in grocery stores, convenience and gas stores, on fountain in restaurants and “up and down the street” in independent accounts such as delicatessens, sandwich shops and burger restaurants as well as through our national accounts with several large retailers.

Our products are sold throughout the United States and Canada, primarily in grocery stores, convenience and gas stores, on fountain in restaurants and “up and down the street”

in independent accounts such as delicatessens, sandwich shops and burger restaurants as well as through our national accounts with several large retailers.

In 2021, sales in the United States represented approximately 77% of total sales, while sales in Canada represented approximately 22% (primarily through our distributor relationship with Lassonde), and we had approximately 1% in other international sales.

6 unchanged sentences

In that space, consumers have the ability to customize their own label and product with a photo and short caption using a proprietary patented process.

New in 2021, we “brought our labels to life”

with a series of augmented reality labels showcasing 15 extreme athletes and artists in action that appeared on 1.5 million bottles.

Building on Jones Soda’s long-time association with action sports and creators of all kinds, the initial labels spotlight influencers ranging from a gravity-defying professional scooter rider with 150,000 Instagram followers to a tattoo artist, jewelry designer and street muralist.

These labels are activated with a new Jones Soda app and shoppers simply download the Jones Soda app and use their phone camera to scan the image on any bottle carrying a “Reel Label”

The scan triggers a short video bringing the viewer inside the unique world of its creator, whether he or she is painting a mural in time-lapse or doing a hardflip at the skatepark.

In addition to creative labeling on our products, we provide our distributors with point-of-sale promotional materials and branded apparel items.

3 unchanged sentences

We have a successful history of positioning ourselves in alternative accounts with the intent to be where national mainstream brands are not sold.

We also have a program of sponsoring alternative sport athletes to promote our products in youth alternative sports, including skateboarding, BMX biking, snowboarding and skiing.

This includes the utilization of a fully branded Jones recreational vehicle with “The People’s Craft Soda” stated on the side that has proven to attract attention and promote our brand.

We also have a program of sponsoring alternative sport athletes to promote our products in youth alternative sports, including Ultimate Fighting Championship, auto-racing, skateboarding, BMX biking, snowboarding and skiing.

This includes the utilization of a fully branded Jones recreational vehicle with “The People’s Craft Soda”

stated on the side that has proven to attract attention and promote our brand.

We used this recreational vehicle in 2020 when legendary skateboarder Tony Hawk partnered with us by taking a 10-day tour with his family that included stops at a bison ranch, various national parks, and multiple skateparks.

Along the way, Tony Hawk created photo and video content showcasing his family’s adventures that will be featured on both Hawk’s and Jones’ social media channels.

Along the way, Tony Hawk created photo and video content showcasing his family’s adventures that will be featured on both Hawk’s and Jones’

social media channels.

In addition, we have a program of sponsoring up-and-coming musicians and artists.

We believe this effort to position our products in alternative accounts and venues helps draw a younger generation of customers that value their independence away from the larger soft drink brands.

Our core marketing pillar is the open access our consumers have to define the brand through our website Jonessoda.com.

Our core marketing pillar is the open access our consumers have to define the brand through our social media channels and our website at Jonessoda.com.

We actively participate in social media campaigns as a way of direct engagement with our consumers in order to listen to their voices and better understand their issues and changes in consumer trends.

2 unchanged sentences

Consumer-Submitted Photos

We are well-known for the photos on our labels.

We are well-known for the consumer submitted photos on our labels and cans.

We invite our consumers to send us photos of their lives, and we select from those photos for use on our labels.

Photos can be submitted through our website at our “Jones Soda Photo Gallery.” Every Jones Soda glass bottle and can has a picture provided to us by a consumer.

Photos can be submitted through our website at our “Jones Soda Photo Gallery.” 

Customized Photo Labels

1 unchanged sentence

The strategy of this program is to provide a customized and personalized product offering to our consumers as well as an innovative marketing opportunity for our Jones Soda brand.

Consumers can upload their photos through our website and create their own “myJones” labels.

Consumers can upload their photos through our website and create their own “myJones”

The personalized labels are downloaded at our headquarters, applied to 12-packs of Jones Soda and delivered to the consumer.

3 unchanged sentences

In response to consumer demand, we also sell our products and our wearables on our website.

In selected cities, we participate at a “grassroots” level at certain community and sporting events in an attempt to create and increase brand awareness and loyalty.

As noted above, we use recreational vehicles, vans and independent distributor vehicles painted with the Jones colors and logos to create consumer awareness and enthusiasm at these events and to assist distributors as they open new retail accounts and markets.

In selected cities, we participate at a “grassroots”

level at certain community and sporting events in an attempt to create and increase brand awareness and loyalty.

As noted above, we use recreational vehicles, vans and independent distributor vehicles painted with the Jones colors and logos to create consumer awareness and enthusiasm at these events and to assist distributors as they open new retail accounts and markets.

From time to time, we partner with companies that will manufacture Jones-related products that we feel extend and enhance our Jones brand.

4 unchanged sentences

At these events, we are able to display our logo and participate in sampling activities where we encourage the tasting of our products to encourage purchases of our brand at retail establishments where our products are sold.

We anticipate investing in more of these events as we focus on marketing efforts in support of our core brand, Jones Soda, subject to any ongoing restrictions that may be imposed by the COVID-19 pandemic.

Partnership with Young Audiences

Beginning in 2014, we partnered with Young Audiences, one of the nation’s largest arts-in-education networks, to launch the Jones Soda Photography Curriculum, which was created to teach children about the art of photography.

Young Audiences’ mission is to ensure arts remain an integral part of youth education, with the help of organizations such as Jones Soda.

We feel that it is a worthy cause directly aimed at supporting the children that make up our fan base.

Customer-submitted photos are one of our key assets, and to utilize them in a way that we can give back to the community, is directly aligned with the brand’s core values.

Brand and Product Development

We understand the importance of creating new beverage products and enhancing our existing products to meet the ever-changing consumer taste profile.

We continue to expand our Jones Cane Sugar Fountain program that allows for our Jones Soda product line to be offered “on tap.” We partner with restaurants and grocery stores that prefer to offer new innovative and pure cane sugar fountain opportunities for their guests and we utilize a select group of fountain distributors to service these retail customers.

We continue to expand our Jones Cane Sugar Fountain program that allows for our Jones Soda product line to be offered “on tap.”

We partner with restaurants and grocery stores that prefer to offer new innovative and pure cane sugar fountain opportunities for their guests and we utilize a select group of fountain distributors to service these retail customers.

Our strategy is to focus on innovative products that will be accepted by consumers, retailers and distributors.

4 unchanged sentences

Market Evaluation.

We evaluate the strengths and weaknesses of certain categories and segments of the beverage industry with a view to pinpointing potential opportunities.

Financial Evaluation.

2 unchanged sentences

Distributor Evaluation.

We analyze existing and potential distribution channels, whether DSD, DTR or a blend of these channels.

This analysis addresses, among other things, which companies will distribute particular beverage brands and products, where such companies may distribute such brands and products, and what will motivate these distributors to distribute such brands and products.

Production Evaluation.

We review all aspects of production of our beverages, including contract packing capacity, strategic production locations, and quality control, and prepare a cost analysis of the various considerations that will be critical to producing our brands and products.

Image and Design.

Based on our evaluation of the market, distributors and production issues, we create and develop the concept for a beverage brand, product or product extension.

Our technical services department then works with various flavor concentrate houses to test, choose and develop product flavors for the brand.

We believe that the ongoing process of creating new brands, products and product extensions will be an important factor in our long-term success.

We believe that in addition to creating new brands, we need to continuously improve our core product line, Jones Soda as consumer tastes continue to change.

We intend that each new flavor of Jones Soda that we introduce will be made with less sugar and no artificial colors or flavors.

In 2019 we introduced in the Canadian market a new watermelon flavor of Jones which had these characteristics.

Recently, we announced our new Nootropic Supplement in partnership with Mike Tyson and Wesana Health which includes two new flavors called Tyson’s Punch and Tiger’s Blood, both of which feature fruity, crisp, and flavor-forward taste profiles that are great complements to the functional nootropic experience.

Additionally, we have partnered with ICEE to create the popular Cherry flavor as the newest entry in our Special Release program featuring limited-edition flavors that combines the familiar Jones Soda label design with the ICEE logo and a whimsical drawing of ICEE’s bear mascot to facilitate brand recognition on the shelf. 

We also intend on launching a line of cannabis-infused sodas, syrups and gummies under a new brand, “Mary Jones”.

In addition to creating new brands, we believe we need to continuously improve our core product line, Jones Soda, as consumer tastes continue to change.

We intend that each new flavor of Jones Soda that we introduce will be made with less sugar and no artificial colors or flavors whenever possible.

In addition, we continue to re-formulate and re-introduce lower calorie content versions of each of our existing flavors of Jones Soda as and when we believe we have created an acceptable replacement that will appeal to existing customers and attract new customers.

In addition to the above extensions to the Jones Soda brand, we have created and launched a new brand with its own separate identity from the Jones Soda brand, Lemoncocco®.

Moreover, in addition to the above extensions to the Jones Soda brand, we have created and launched a brand with its own separate identity from the Jones Soda brand, Lemoncocco®.

We believe that Lemoncocco represents a new category in the non-carbonated beverage industry and that developing a separate all-natural beverage brand is an important opportunity for our company.

Premium Beverage Industry

The beverage industry is highly competitive.

5 unchanged sentences

product quality and taste;

trade and consumer promotions;

trade and consumer promotions; and

development of new brands, products and product extensions.

1 unchanged sentence

Our products compete with all non-alcoholic beverages, most of which are marketed by companies with substantially greater financial resources than ours.

We also compete with regional beverage producers and “private label” soft drink suppliers.

We also compete with regional beverage producers and “private label”

soft drink suppliers.

Our direct competitors in the sparkling beverage industry include traditional large soft drink manufacturers and distributors and regional premium soft drink companies.

In order to compete effectively in the beverage industry, from time to time we develop and introduce new products and product extensions, and when warranted, new brands.

Lemoncocco, our premium non-carbonated beverage, is an example of a new product we introduced recently.

Although we believe that we will be able to continue to create competitive and relevant brands and products to satisfy consumers’ changing preferences, there can be no assurance that we will be able to do so or that other companies will not be more successful in this regard over the long term.

In order to compete effectively in the beverage industry, from time to time we develop and introduce new products and product extensions, and when warranted.

Although we believe that we will be able to continue to create competitive and relevant brands and products to satisfy consumers’

changing preferences, there can be no assurance that we will be able to do so or that other companies will not be more successful in this regard over the long term.

Pricing of the products is also important.

We believe that our products are priced in the same price range or higher than competitive brands and products, and compete on quality as they are premium product offerings.

Cannabis Industry

We anticipate facing intense competition in the Cannabis industry from other companies, some of which can be expected to have longer operating histories and more financial resources and longer history of the production and marketing of cannabis than then we do.

Competitors are primarily branded and private label cannabis companies who are operating in multiple states.

We believe we will be in direct competition with Keef Brands, Cann Social Tonics, and Tonik Beverages, none of which are national consumer packaged goods brands in the United States.

We are currently confident that our cannabis products will be highly competitive.

We intend to seek a competitive advantage by applying our brand name recognition to our planned cannabis products and by offering quality cannabis products to our loyal customer base.

Because of the early stage of the cannabis industry in the United States and Canada, we also expect to face additional competition from new entrants.

If the number of users of medical and recreational cannabis increases, the demand for products will increase and we expect that competition will become more intense, as current and future competitors begin to offer an increasing number of diversified products and pricing strategies.

To remain competitive, the believe we will be required to make a high level of investment in our planned licenses, partnerships, branding, products and technologies, distribution, research and development, marketing, sales and client support.

We may not have sufficient resources to maintain its marketing, sales and client support efforts on a competitive basis which could materially and adversely affect our business, financial condition, and results of operations of our planned cannabis business.

Contract Packing Arrangements

1 unchanged sentence

We currently use primary co-packers located in Canada and the United States.

Once the product is manufactured, the finished products are stored either at the co-packer’s location or in nearby third-party warehouses.

Other than minimum case volume requirements per production batch or “run” for most co-packers, we do not have annual minimum production commitments with our co-packers.

Once the product is manufactured, the finished products are stored either at the co-packer’s location or in nearby third-party warehouses.

Other than minimum case volume requirements per production batch or “run”

for most co-packers, we do not have annual minimum production commitments with our co-packers.

Our co-packers may terminate their arrangements with us at any time, in which case we could experience disruptions in our ability to deliver products to our customers.

13 unchanged sentences

The price of glass continues to increase each year due to the shortage of available glass in the industry;

however, our supply agreement with our glass supplier provides us with some price protection.

however, our supply agreement with our glass supplier provides us with some price protection through 2022.

As the global supply chain continues to see disruptions, there is higher risk for continued labor shortages, raw material cost increases, and increased costs of transportation that will adversely impact our business.

The extent to which the global supply chain disruptions may continue to impact our results of operations, including the long-term nature of the impact, depends on numerous evolving factors, which are highly uncertain and difficult to predict. 

Quality Control

2 unchanged sentences

Contract manufacturers are selected and monitored by our quality control representatives in an effort to ensure adherence to our production procedures and quality standards.

For every batch or “run” of product, our contract manufacturer undertakes extensive testing of product quality and packaging.

For every batch or “run”

of product, our contract manufacturer undertakes extensive testing of product quality and packaging.

This includes testing levels of sweetness, carbonation, taste, product integrity, packaging and various regulatory cross checks.

5 unchanged sentences

Flavors are pre-tested by the flavor concentrate supplier before shipment to contract manufacturers.

We are committed to ongoing product improvement with a view towards ensuring the high quality of our product through a stringent co-packer selection, training and communication program.

Planned Cannabis Operations

On July 14, 2021, we received $2,000,000 from the issuance of an unsecured convertible debenture to SOL Verano Blocker 1 LLC (the “2021 Debenture”).

On February 9, 2022, we issued $3,000,000 in aggregate principal amount of 3.00% unsecured convertible debentures (the “Contingent Convertible Debentures”).

Lastly, on February 15, 2022, we issued an aggregate of 20,000,048 Jones Shares in connection with the completion of the previously announced acquisition of all the issued and outstanding common shares (the “Pinestar Shares”) of Pinestar Gold Inc.

(the “Pinestar”) by way of a plan of arrangement under the Business Corporations Act (British Columbia) (the “Plan of Arrangement”) whereby the outstanding Pinestar Shares were exchanged for newly issued Jones Shares on a one-for-one basis.

The Plan of Arrangement had previously been approved by both Pinestar’s shareholders as well as by the Supreme Court of British Columbia after such court held a hearing on the fairness of the terms and conditions of the Plan of Arrangement at which all Pinestar shareholders had the right to appear. 

In connection with the Plan of Arrangement, Pinestar completed an offering for subscription receipts (“Subscription Receipts”) for aggregate gross proceeds of $8,000,000 and, following the Plan of Arrangement, we now have access to those proceeds.

Pursuant to the terms of the 2021 Debenture and the Contingent Convertible Debentures we must use the proceeds from these financings for the purpose of expanding our business to the production of cannabis-containing beverages and related products.

Utilizing the funds received in connection with the 2021 Debenture, the Plan of Arrangement transaction and the Contingent Convertible Debenture financing, 

we intend to develop, market and distribute cannabis-infused beverages, edibles and related products utilizing the “Jones Soda”

and “Mary Jones”

brand names to complement our existing soda beverage business.

Our management has recently entered into licensing agreements with manufacturers and distributors of Jones’

planned cannabis products and is also considering pursuing possible strategic acquisitions of manufacturing and bottling companies that have the ability to manufacture premium cannabis infused products.

We currently intend to operate our planned cannabis operations under several newly created subsidiaries that will be separate from our current soda beverage business.

In November 2021, We incorporated Jones Soda Cannabis Inc., as a wholly-owned subsidiary of Jones Soda that will act as a holding company for our subsidiaries in each of the states in which we intend to operate our cannabis business.

We also hired in October 2021 a Chief Marketing Officer and are in the process building our cannabis team.

Premium Beverage Business

The production and marketing of our proprietary beverages are subject to the rules and regulations of various federal, provincial, state and local health agencies, including in particular Health Canada, Agriculture and Agri-Food Canada (AAFC) and the United States Food and Drug Administration (FDA).

6 unchanged sentences

We anticipate that similar legislation or regulations may be proposed in the future at local, state and federal levels, both in the United States and Canada.

Planned Cannabis Business

Application of Federal Law

Although certain states have legalized either medical marijuana or medical and adult use cannabis, at the federal level, cannabis currently remains a Schedule I drug under the Controlled Substances Act of 1970 (21 U.S.C.

811 et seq.).

Under United States federal law, a Schedule I drug or substance has a high potential for abuse, no accepted medical use in the United States, and a lack of accepted safety for the use of the drug under medical supervision.

As such, cannabis related practices or activities, including without limitation, the cultivation, manufacture, importation, possession, use, or distribution of cannabis, remain illegal under United States federal law.

Although federally illegal, the U.S.

federal government’s approach to enforcement of such laws has trended toward non-enforcement.

On August 29, 2013, the U.S.

Department of Justice (“DOJ”) issued a memorandum known as the “Cole Memorandum”

Attorneys’

offices (federal prosecutors).

The Cole Memorandum generally directed U.S.

Attorneys not to prioritize the enforcement of federal marijuana laws against individuals and businesses that rigorously comply with state regulatory provisions in states with strictly regulated medical or recreational cannabis programs.

While not legally binding, and merely prosecutorial guidance, the Cole Memorandum laid a framework for managing the tension between state and federal laws concerning state regulated marijuana businesses.

However, on January 4, 2018 the Cole Memorandum was revoked by Attorney General Jeff Sessions.

While this did not create a change in federal law, as the Cole Memorandum was not itself law, the revocation removed the DOJ’s guidance to U.S.

Attorneys that state regulated cannabis industries substantively in compliance with the Cole Memorandum’s guidelines should not be a prosecutorial priority.

In addition to his revocation of the Cole Memorandum, Attorney General Sessions also issued a one-page memorandum known as the “Sessions Memorandum.”

The Sessions Memorandum confirmed the rescission of the Cole Memorandum and explained the rationale of the DOJ in doing so:

the Cole Memorandum, according to the Sessions Memorandum, was “unnecessary”

due to existing general enforcement guidance adopted in the 1980s, as set forth in the U.S.

Attorney’s Manual (the “USAM”).

The USAM enforcement priorities, like those of the Cole Memorandum, are also based on the federal government’s limited resources, and include “law enforcement priorities set by the Attorney General,”

the “seriousness”

of the alleged crimes, the “deterrent effect of criminal prosecution,”

and “the cumulative impact of particular crimes on the community.”

While the Sessions Memorandum emphasizes that marijuana is a Schedule I controlled substance, and reiterates the statutory view that cannabis is a “dangerous drug and that marijuana activity is a serious crime,”

it does not otherwise indicate that the prosecution of marijuana-related offenses is now a DOJ priority.

Furthermore, the Sessions Memorandum explicitly describes itself as a guide to prosecutorial discretion.

Such discretion is firmly in the hands of U.S.

Attorneys in deciding whether to prosecute marijuana-related offenses.

Our outside U.S.

counsel continuously monitors all U.S.

Attorney comments related to regulated medical and adult-use cannabis laws to assess various risks and enforcement priorities within each jurisdiction.

Dozens of U.S.

Attorneys across the country have affirmed that their view of federal enforcement priorities has not changed, although a few have displayed greater ambivalence.

In his February 2021 confirmation hearing, current Attorney General Merrick Garland affirmed the principles of prosecutorial discretion from the rescinded Cole Memorandum. 

He noted that “It does not seem to me a useful use of limited resources that we have to be pursuing prosecutions in states that have legalized and are regulating the use of marijuana either medically or otherwise.” 

Attorney General, Merrick Garland, has not officially indicated any change in enforcement priority for state-compliant marijuana businesses, however, substantial uncertainty regarding federal enforcement remains.

Regardless, marijuana remains a Schedule I controlled substance at the federal level, and neither the Cole Memorandum nor its rescission has altered that fact.

The federal government of the United States has always reserved the right to enforce federal law in regard to the sale and disbursement of medical or recreational marijuana, even if state law sanctioned such sale and disbursement.

From a regulatory and enforcement perspective, the criminal risk today remains identical to the risk on January 3, 2018.

It remains unclear whether the risk of enforcement has been altered.

Additionally, under U.S.

federal law it may potentially be a violation of federal money laundering statutes for financial institutions to take any proceeds from marijuana sales or any other Schedule I substance.

Banks and other financial institutions could be prosecuted and possibly convicted of money laundering for providing services to cannabis businesses.

federal law, banks or other financial institutions that provide a cannabis business with a checking account, debit or credit card, small business loan, or any other service could be found guilty of money laundering or conspiracy.

Despite these laws, the U.S.

Department of the Treasury issued a memorandum in February of 2014 (the “FinCEN Memorandum”) outlining the pathways for financial institutions to bank state-sanctioned marijuana businesses.

Under these guidelines, financial institutions must submit a “suspicious activity report”

(“SAR”) as required by federal money laundering laws.

These marijuana related SARs are divided into three categories:

marijuana limited, marijuana priority, and marijuana terminated, based on the financial institution’s belief that the marijuana business follows state law, is operating out of compliance with state law, or where the banking relationship has been terminated.

On the same day the FinCEN Memorandum was published, the DOJ issued a memorandum (the “2014 Cole Memo”) directing prosecutors to apply the enforcement priorities of the Cole Memorandum in determining whether to charge individuals or institutions with crimes related to financial transactions involving the proceeds of marijuana-related conduct.

The 2014 Cole Memo has been rescinded as of January 4, 2018, along with the Cole Memorandum, removing guidance that enforcement of applicable financial crimes was not a DOJ priority.

However, Attorney General Sessions’

revocation of the Cole Memorandum and the 2014 Cole Memo has not affected the status of the FinCEN Memorandum, nor has the Department of the Treasury given any indication that it intends to rescind the FinCEN Memorandum itself.

Though it was originally intended for the 2014 Cole Memo and the FinCEN Memorandum to work in tandem, the FinCEN Memorandum can act as a standalone document which explicitly lists the eight enforcement priorities originally cited in the Cole Memorandum.

As such, the FinCEN Memorandum remains intact.

Enforcement Proceedings under Federal Law

Although the Cole Memorandum and 2014 Cole Memo have been rescinded, the United States Congress has repeatedly enacted legislation to protect the medical marijuana industry from prosecution.

The United States Congress has passed appropriations bills each of the last three years that included the Rohrabacher Amendment Title:

H.R.2578 —

Commerce, Justice, Science, and Related Agencies Appropriations Act, 2016, which by its terms does not appropriate any federal funds to the U.S.

DOJ for the prosecution of medical cannabis offenses of individuals who are in compliance with State medical cannabis laws.

Subsequent to the issuance of the Sessions Memorandum on January 4, 2018, the United States Congress passed its omnibus appropriations bill, SJ 1662, which for the fourth consecutive year contained the Rohrabacher-Blumenauer Amendment language (the “Leahy Amendment”) and continued the protections for the medical cannabis marketplace and its lawful participants from interference by the DOJ up and through the 2018 appropriations deadline of September 30, 2018.

The deadline has passed, but the Leahy Amendment has remained in effect by virtue of a series of short-term spending bills signed on September 28, 2018, December 7, 2018, January 25, 2019 and February 8, 2019.

On February 15 the amendment was renewed through the signing of the fiscal year 2019 omnibus spending bill, effective through September 30, 2019. 

On May 16, 2019, a House subcommittee released a base appropriations bill with the amendment included.

On September 26, 2019 the Senate Appropriations Committee approved a base appropriations bill with the amendment included.

On September 27, 2019 the amendment was renewed through a stopgap spending bill, and again on November 21, 2019. 

On December 20, 2019 the amendment was renewed through the signing of the fiscal year 2020 omnibus spending bill, effective through September 30, 2020. 

In July 2020, a House subcommittee introduced a base appropriations bill with the amendment included. 

The amendment was then renewed through a series of stopgap spending bills on October 1, 2020 December 11, 2020 December 18, 2020 December 20, 2020 and December 22, 2020.

On December 27, 2020, the amendment was renewed through the signing of the fiscal year 2021 omnibus spending bill, effective through September 30, 2021, at which time the United States Congress must either pass an omnibus appropriations bill for fiscal year 2022 or pass another short-term spending bill, or it will face another shutdown of the federal government, at which time the Leahy Amendment would no longer be in effect.

However, it may or may not be included in the final appropriations package, and its inclusion or non-inclusion, as applicable, is subject to political changes. 

State Regulatory Environment

The following sections describe the legal and regulatory landscape in California, which is the first state where we intend to  commence our planned cannabis operations.

While we will work to ensure that our operations comply with applicable state laws, regulations, and licensing requirements, for the reasons described above and the risks further described under the heading “Risk Factors”, there are significant risks associated with our planned cannabis business.

Readers are strongly encouraged to carefully read and consider all of the risk factors contained under the heading “Risk Factors”

California Regulatory Landscape

In 1996, California was the first state to legalize medical marijuana through Proposition 215, the Compassionate Use Act of 1996.

This legalized the use, possession and cultivation of medical marijuana by patients with a physician recommendation for treatment of cancer, anorexia, AIDS, chronic pain, spasticity, glaucoma, arthritis, migraine, or any other illness for which marijuana provides relief.

In 2003, Senate Bill 420 was signed into law establishing an optional identification card system for medical marijuana patients.

In September 2015, the California legislature passed three bills collectively known as the Medical Cannabis Regulation and Safety Act (“MCRSA”).

The MCRSA established a licensing and regulatory framework for medical marijuana businesses in California.

The system created multiple license types for dispensaries, infused products manufacturers, cultivation facilities, testing laboratories, transportation companies, and distributors.

Edible infused product manufacturers would require either volatile solvent or non-volatile solvent manufacturing licenses depending on their specific extraction methodology.

Multiple agencies would oversee different aspects of the program and businesses would require a state license and local approval to operate.

However, in November 2016, voters in California overwhelmingly passed Proposition 64, the Adult Use of Marijuana Act (“AUMA”) creating an adult-use marijuana program for adults 21 years of age or older.

AUMA had some conflicting provisions with MCRSA, so in June 2017, the California State Legislature passed Senate Bill No. 94, known as Medicinal and Adult-Use Cannabis Regulation and Safety Act (“MAUCRSA”), which amalgamates MCRSA and AUMA to provide a set of regulations to govern a medical and adult-use licensing regime for cannabis businesses in the State of California.

The four agencies that originally regulated marijuana at the state level were the Bureau of Cannabis Control (“BCC”), California Department of Food and Agriculture (“DFA”), California Department of Public Health (“DPH”), and California Department of Tax and Fee Administration.

MAUCRSA went into effect on January 1, 2018.

On July 1, 2019, California enacted A.B.

In relevant part, the bill authorizes licensing authorities to issue citations and fines to a licensee or an unlicensed person who violates MAUCRSA.

The maximum fine is $5,000 per violation for licensees and $30,000 per violation for unlicensed persons.

Each day of a violation constitutes a separate violation.

97 also repeals a prior requirement that an applicant for a provisional license first hold a temporary license.

The bill also requires applicants for provisional licenses to submit evidence of compliance with the California Environmental Quality Act, limits the validity of a provisional license to 12 months with subsequent renewals as approved by the relevant licensing authority, and allows licensing authorities to revoke provisional licenses for failing to diligently pursue final licensure.

Finally, the bill requires the DPH to establish a certification program for manufactured cannabis products comparable to the National Organic Program and the California Organic Food and Farming Act.

On October 12, 2019, California enacted A.B.

The bill mandates that all cannabis vaping cartridges and cannabis vaporizers must include a universal symbol identifying the product as a vaping product.

On July 12, 2021, California Governor Gavin Newsom signed into law Assembly Bill 141 (AB-141), which creates the Department of Cannabis Control (“DCC”).

The DCC  is in the process of consolidating the state’s cannabis program oversight from three of the existing agencies –

the BCC, the DFA, and the DPH –

under a single department in an effort to centralize and simplify regulatory and licensing oversight in California.

DCC similarly announced its intention to create a single Licensing Division that would be responsible for licensing of all cannabis businesses.

On or about September 15, 2021, the DCC filed emergency regulations to consolidate, clarify, and make consistent cannabis regulations to the California Office of Administrative Law.

After a limited comment period, these consolidated emergency regulations were approved and became effective on or about September 27, 2021.

These regulations created consistent standards for cannabis licensees across all license types, by aligning application requirements, unifying terminology, and clarifying ownership and financial interest requirements.

Further consolidated regulations and modifications of existing regulations were issued for public comment on March 4, 2022 and are anticipated to be approved by the end of 2022.

At present, to legally operate a medical or adult-use cannabis business in California, the operator must have both a local and state license.

This requires license holders to operate in cities with marijuana licensing programs.

Therefore, cities in California are allowed to determine the number of licenses they will issue to marijuana operators or can choose to outright ban marijuana.

California Licensing Requirements

A medicinal retailer license permits the sale of medicinal cannabis and cannabis products to a medicinal cannabis patient in California who possesses a physician’s recommendation.

Only certified physicians may provide medicinal marijuana recommendations.

An adult-use retailer license permits the sale of cannabis and cannabis products to any individual age 21 years of age or older who presents a valid government-issued photo identification.

An adult-use or medicinal cultivation license permits cannabis cultivation activity which means any activity involving the planting, growing, harvesting, drying, curing, grading or trimming of cannabis.

Such licenses further permit the production of a limited number of non-manufactured cannabis products and the sales of cannabis to certain licensed entities within the state of California for resale or manufacturing purposes.

An adult-use or medical manufacturing license permits the manufacturing of cannabis products.

Manufacturing includes the compounding, blending, extracting, infusion, packaging or repackaging, labeling or relabeling, or other preparation of a cannabis product.

In the state of California, only cannabis that is grown in the state can be sold in the state.

Although California is not a vertically-integrated system, the state allows licensees to make wholesale purchase of cannabis from, or a distribution of cannabis and cannabis product to, another licensed entity within the state.

Holders of marijuana licenses in California are subject to a detailed regulatory scheme encompassing:

security, staffing, sales, manufacturing standards, inspections, inventory, advertising and marketing, product packaging and labeling, records and reporting, and more.

As with all jurisdictions, the full regulations, as promulgated by each applicable state agency, should be consulted for further information about any particular operational area.

Licensed cannabis businesses may partner with non-licensed business entities pursuant to intellectual property licensing agreements subject to certain disclosure requirements and approvals by the DCC. 

California Dispensary Requirements

Cannabis retailers may only sell cannabis products that were received by the retail licensee from a licensed distributor or licensed microbusiness authorized to engage in distribution, and the licensed retailer must verify that the cannabis goods have not exceeded their best-by, sell-by, or expiration date if one is provided.

The goods must have undergone appropriate laboratory testing, and the batch number labeled on the package of cannabis goods must match the batch number on the corresponding certificate of analysis for regulatory compliance testing.

The packaging and goods must comply with all applicable laws in order for the goods to be sold at the retail location.

In addition to cannabis goods, a licensed retailer may sell only cannabis accessories and licensee’s branded merchandise.

A licensed retailer may not provide free cannabis goods except for in certain limited circumstances.

Cannabis retailers may only display cannabis goods for inspection and sale in the retail area.

Such goods may be removed from their packaging and placed in containers to allow for customer inspection, so long as the containers are not readily accessible to customers without assistance of retailer personnel.

A container must be provided to the customer by the licensed retailer or its employees, who must remain with the customer at all times that the container is being inspected by the customer.

Cannabis goods removed from their packaging in this way may not be sold or consumed.

They must be destroyed appropriately when they are no longer being used for display.

California Reporting Requirements

The state of California uses METRC as the state’s track-and-trace (“T&T”) system used to track commercial cannabis activity and movement across the distribution chain for all state-issued annual licensees.

The system allows for other third-party system integration via application programming interface.

Only licensees have access to METRC.

California Storage, Transportation, and Security Requirements

To ensure the safety and security of cannabis business premises and to maintain adequate controls against the diversion, theft, and loss of cannabis or cannabis products, California’s marijuana businesses are required to do the following:

maintain a fully operational security alarm system;

contract for security guard services;

maintain a video surveillance system that records continuously 24 hours a day;

ensure that the facility’s outdoor premises have sufficient lighting;

not dispense from its premises outside of permissible hours of operation;

store cannabis and cannabis product only in areas per the premises diagram submitted to the state of California during the licensing process;

store all cannabis and cannabis products in a secured, locked room or a vault;

report to local law enforcement within 24 hours after being notified or becoming aware of the theft, diversion, or loss of cannabis;

ensure the safe transport of cannabis and cannabis products between licensed facilities, maintain a delivery manifest in any vehicle transporting cannabis and cannabis products.

Only vehicles registered with the BCC that meet BCC distribution requirements are to be used to transport cannabis and cannabis products.

DCC Inspections

The DCC, and its authorized representatives, shall have full and immediate access to inspect and enter onto any premises licensed by the DCC.

Prior notice of an inspection, investigation, review, or audit is not required.

The DCC may also test any vehicle or equipment possessed by, in control of, or used by a licensee or their agents and employees for the purpose of conducting commercial cannabis activity.

Moreover, it may test any cannabis goods or cannabis-related materials, or products possessed by, in control of, or used by a licensee or their agents and employees for the purpose of conducting commercial cannabis activity.

The DCC may also copy any materials, books, or records of any licensee or their agents and employees.

Failure to cooperate with and participate in any DCC investigation pending against the licensee may result in a licensing violation subject to discipline.

Trademarks, Flavor Concentrate Trade Secrets and Patent Rights

In the United States, we own a number of trademark registrations (designated by the ® symbol) and pending trademark applications (designated by the ™ symbol) for use in connection with our products, including “JONES®,” “JONES SODA CO.® and “LEMONCOCCO ®”.

In general, trademark registrations expire 10 years from the filing date or registration date, with the exception in Canada, where trademark registrations expire 15 years from the registration date.

In the United States, we own a number of trademark registrations (designated by the ®

symbol) and pending trademark applications (designated by the ™

symbol) for use in connection with our products, including “JONES®,”

“JONES SODA CO.®

and “LEMONCOCCO ®”.

In general, trademark registrations expire 10 years from the filing date or registration date, with the exception in Canada, where trademark registrations expire 15 years from the registration date.

All trademark registrations may be renewed for a nominal fee.

4 unchanged sentences

We historically have generated a greater percentage of our revenues during the warm weather months of April through September.

Sales may fluctuate materially on a quarter to quarter basis or an annual basis when we launch a new product or fill the “pipeline” of a new distribution partner or a large retail partner.

Sales may fluctuate materially on a quarter to quarter basis or an annual basis when we launch a new product or fill the “pipeline”

of a new distribution partner or a large retail partner.

Sales results may also fluctuate based on the number of SKUs selected or removed by our distributors and retail partners through the normal course of serving consumers in the dynamic, trend-oriented beverage industry.

As a result, management believes that period-to-period comparisons of results of operations are not necessarily meaningful and should not be relied upon as any indication of future performance or results expected for the fiscal year.

As of the date of this Report, we have 21 employees, all of which are full-time, one of which is located in Canada.

As of the date of this Report, we have 23 employees, 22 of which are full-time, one of which is located in Canada.

Of our 23 employees, 13 are employed in sales and marketing capacities, 5 are employed in administrative capacities and 5 are employed in customer service, manufacturing and quality control capacities.

None of our employees are represented by labor unions.

Our human capital resources objectives include, as applicable, identifying, recruiting, retaining, incentivizing and integrating our existing and new employees, advisors and consultants.

Our human capital resources objectives include, as applicable, identifying, recruiting, retaining, incentivizing and integrating our existing and new employees, advisors and consultants.

The principal purposes of our equity and cash incentive plans are to attract, retain and reward personnel through the granting of stock-based and cash-based compensation awards, in order to increase shareholder value and the success of our company by motivating such individuals to perform to the best of their abilities and achieve our objectives.

Securities Exchange Act Reports and other Available Information

As a public company, we are required to file our annual reports on Form 10-K, quarterly reports on Form 10-Q, current reports on Form 8-K, proxy statements on Schedule 14A and other information (including any amendments) with the Securities and Exchange Commission (the “SEC”).

You can find our SEC filings at the SEC’s website at www.sec.gov.

Our Internet address is www.jonessoda.com.

1 unchanged sentence

We make available on or through our website at www.jonessoda.com our SEC filings free of charge as soon as reasonably practicable after we electronically file the information with, or furnish it to, the SEC.

In addition, the following corporate governance materials are also available on our website under “Investor Relations — Corporate Governance:”

In addition, the following corporate governance materials are also available on our website under “Investor Relations —

Corporate Governance:”

Audit Committee Charter

6 unchanged sentences

Mark Murray, President and Chief Executive Officer

Eric Chastain, Chief Operating Officer and Corporate Secretary

Joe Culp, Controller, Principal Accounting Officer and Principal Financial Officer

Eric Chastain, Chief Operating Officer, President of Jones Soda Beverage Division, and Corporate Secretary

Jamie Colbourne, Interim Chief Financial Officer and Principal Financial Officer

Joe Culp, Controller and Principal Accounting Officer

Jamie Colbourne, Chairman

Chad Bronstein

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 1. Business