What changed in this filing

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Item 1A. Risk Factors

2021-03-23 compared with 2020-04-01 · 144 added, 204 removed, 173 unchanged (67% of the section changed)

Company’s business is subject to numerous risks, including

but not limited to those set forth below.

The Company’s operations and performance could also be subject to risks

that do not exist as of the date of this report but emerge thereafter as well as risks that the Company does not currently

deem material.

related to the Company’s operations

auditors have expressed doubt as to our ability to continue as a going concern.

their report on our December 31, 2019 financial statements, our auditors expressed substantial

doubt as to our ability to continue as a going concern.

A going concern qualification could impair our ability to finance

our operations through the sale of debt or equity securities.

Our ability to continue as a going concern will depend, in large

part, on our ability to obtain additional financing and generate positive cash flow from operations, neither of which is certain.

If we are unable to achieve these goals, our business would be jeopardized and we may not be able to continue operations.

Financing Requirements and Access to Capital.

order to fund necessary working capital to implement our business consolidation plan and satisfy current debt obligations, we

will have to obtain debt financing, and/or sell additional equity securities in future financings.

Additional equity financings

may cause further dilution for existing stockholders.

Current markets conditions and the COVID-19 pandemics impact on the global

economy are having a significant adverse impact on both debt and equity financings.

There can be no assurance that any such additional

financing will be available or, if available, that its terms will be satisfactory to us.

In addition, our costs and expenses

may be higher than anticipated, and there can be no assurance that we will not be required to seek additional financing to meet

our operating cash requirements or other financing and debt service needs.

Failure to obtain additional financing would have

material adverse effect on our results of operation and, could result in our defaulting under current debt payment obligations.

additional funds by issuing convertible debt or equity securities may cause dilution to our existing stockholders, restrict our

operations or require us to relinquish proprietary rights.

the extent that we raise additional capital by issuing convertible debt or equity securities, the share ownership of existing

stockholders will be diluted.

Further, any future debt financing may involve covenants that restrict our operations,

including limitations on our ability to incur liens or additional debt, pay dividends, redeem our stock, make certain investments

and engage in certain merger, consolidation or asset sale transactions, among other restrictions.

In addition, future debt financings

may require us to pledge certain assets as security for such debt.

remains illegal under federal law.

Company’s business is subject to numerous risks, including but not limited to those set forth below.

The Company’s

operations and performance could also be subject to risks that do not exist as of the date of this report but emerge thereafter

as well as risks that the Company does not currently deem material.

Related to the Company’s Operations

business, operations, financial condition, and liquidity have been and may continue to be affected by the outbreak of COVID-19.

March 2020, the World Health Organization declared the outbreak of COVID-19 a global pandemic.

The spread of COVID-19 in

the United States and the measures to contain it—including business shutdowns, indoor capacity restrictions, social distancing,

and diminished travel—have negatively impacted the economy and created significant volatility and disruption in financial

Business shutdowns in certain states in response to stay-at-home orders and related measures had temporarily eliminated

access to our dispensaries by certain customers, principally non-medical use customers, impacting sales during this restricted

Further, the volatility in the financial markets and investor uncertainty has delayed our financing efforts and the implementation

of our Consolidation Plan.

As a result, our business, operations, financial condition, and liquidity have been and may

continue to be impacted.

Further, the disruption to the global economy and to our business, along with the decline in our stock

price, may also negatively impact the future carrying values of certain assets, including inventories, accounts receivables, intangibles,

and goodwill.

remains illegal under federal law.

Marijuana remains illegal under federal law.

It is a Schedule I controlled substance.

Even in those jurisdictions in which the use of medical

marijuana has been legalized at the state level, its prescription is a violation of federal law.

The United States Supreme Court

has ruled that it is the federal government that has the right to regulate and criminalize cannabis, even for medical purposes.

Therefore, federal law criminalizing the use of marijuana trumps state laws that legalize its use for even medicinal purposes.

At present the states are standing tall against the federal government, maintaining existing laws and passing new ones in this

States continue to exert this freedom notwithstanding Attorney General Sessions officially leaving prosecution discretion

against state licensed cannabis facilities to local US Attorneys district by district, which position has yet to be addressed

by Attorney General Barr.

This was a change from the Obama administration which under Attorney General Holder, had a policy decision

to allow states to implement these laws and not prosecute anyone operating in accordance with applicable state law.

States House of Representatives continues to not fund in the budget any funds for the Department of Justice to prosecute state

compliant licensed cannabis companies.

However, we continually face election cycles, and a new administration or the United States

Congress could introduce a less favorable policy.

A change in the federal attitude towards enforcement could cripple the industry.

However, the medical marijuana industry is our primary target market, and if this industry was unable to operate, we would lose

the majority of our potential clients, which would have a significantly negative impact on our business, operations and financial

continued growth is dependent on additional states legalizing marijuana.

Even in those jurisdictions in which the use of medical marijuana has been legalized

at the state level, its prescription is a violation of federal law.

The United States Supreme Court has ruled that it is the federal

government that has the right to regulate and criminalize cannabis, even for medical purposes.

Therefore, federal law criminalizing

the use of marijuana trumps state laws that legalize its use for even medicinal purposes.

At present the states are standing tall

against the federal government, maintaining existing laws and passing new ones in this area.

States continue to exert this freedom,

with more states considering legalization.

However, we continually face election cycles, and a new administration or the United

States Congress could introduce a less favorable policy.

A change in the federal attitude towards enforcement could cripple the

There is currently broad support for changes in the federal law for improved banking, investing, and the potential

legalization of cannabis.

However, there is no certainty what will get changed or when.

The medical and recreational

marijuana industries are our primary markets, and if these industries were to be unable to operate, we would

lose our potential clients and licenses, which would have a significantly negative impact on our business, operations,

and financial condition.

growth is dependent on additional states legalizing marijuana.

development of the marijuana market is dependent upon continued legislative authorization of marijuana at the state level for

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into other states.

will be difficult for you to evaluate us based on our past performance because we are a relatively new company in a new emerging

will be difficult for you to evaluate us based on our past performance because we are transitioning our business in a new emerging

industry with a limited operating history.

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limited financial results on which you can evaluate our company and operations.

We are subject to, and must be successful in addressing,

the risks typically encountered by new enterprises and companies operating in the rapidly evolving cannabis marketplace, including

In addition, the components of our revenue and

costs are changing as we move away from a fee-based-only business to seed-to-sale operations.

We are subject to, and must be successful

in addressing, the risks typically encountered by companies operating in the rapidly evolving cannabis marketplace, including

those risks relating to:

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Specifically, medical marijuana will likely adversely impact the existing market for

Marinol, the current “marijuana pill”

sold by mainstream pharmaceutical companies.

Marinol, the current “marijuana pill” sold by mainstream pharmaceutical companies.

Further, the medical marijuana

industry could face a material threat from the pharmaceutical industry should marijuana displace other drugs or simply encroach

upon the pharmaceutical industry’s market share for compounds such as marijuana and its component parts.

The pharmaceutical

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funds from sale of cannabis and may choose not to do business with our clients.

While a member of the United States Congress has

stated he will seek an amendment to banking regulations and laws in order to allow banks to transact business with state-authorized

medical marijuana businesses, there can be no assurance his legislation will be successful, that banks will decide to do business

with medical marijuana retailers, or that in the absence of legislation state and federal banking regulators will not create issues

on banks handling funds generated from an activity that is illegal under federal law.

Notwithstanding, the Company has been able

to secure state-chartered banks that are in compliance with federal law and provide certain banking services to companies in the

cannabis industry.

The inability of potential clients in our target market to open accounts and otherwise use the service of banks

may make it difficult for them to purchase our products and services.

While there is pending legislation in the United

States Senate that will allow banks to transact business with state-authorized medical marijuana businesses, there can be no assurance

his legislation will be successful, that banks will decide to do business with medical marijuana retailers, or that in the absence

of legislation state and federal banking regulators will not create issues on banks handling funds generated from an activity

that is illegal under federal law.

Notwithstanding, the Company has been able to secure state-chartered banks that are in compliance

with federal law and provide certain banking services to companies in the cannabis industry.

The inability of potential clients

in our target market to open accounts and otherwise use the service of banks may make it difficult for them to purchase our products

and services.

may not be able to economically comply with any new government regulation that may be adopted with respect to the cannabis industry.

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have a negative impact on our business and operations.

limited resources may restrict our ability to manage any growth we may experience.

relatively small size and limited resources may restrict our ability to manage any growth we may experience.

of our business may place a significant strain on our management systems and resources and may require us to implement new operating

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and market acceptance for our licensed branded new cannabis-infused products are subject to a high level of uncertainty.

The successful introduction of any new product requires a focused, efficient strategy to create awareness of and desire for the

For example, in order to achieve market acceptance for our marijuana products we will need to gain market and patient

Despite management’s efforts to gather data before introducing new products as a means to minimize the risk

of product non-acceptance, no assurance can be given that our efforts will be successful.

The successful

introduction of any new product requires a focused, efficient strategy to create awareness of and desire for the products.

example, in order to achieve market acceptance for our marijuana products we will need to gain market and patient acceptance.

Despite management’s efforts to gather data before introducing new products as a means to minimize the risk of product non-acceptance,

no assurance can be given that our efforts will be successful.

marketing strategy may be unsuccessful and is subject to change as a result of a number of factors, including changes in market

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property rights.

We also intend to enter into confidentiality or license agreements with our employees, consultants and customers,

and control access to and distribution of our products, and other proprietary information.

Despite our efforts to protect our

proprietary rights, unauthorized parties may attempt to copy or otherwise obtain and use our products.

We enter into confidentiality or license agreements with our employees, consultants and customers, and control

access to and distribution of our products, and other proprietary information.

Despite our efforts to protect our proprietary

rights, unauthorized parties may attempt to copy or otherwise obtain and use our products.

we lose our key employee or fail to hire and retain other talented employees when necessary, our operations could be harmed.

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adverse effect on our ability to grow our business and operations.

order to sustain and grow our business, we must be able to enhance our existing products and develop and introduce new products

and services to respond to changing market demand.

markets in which we operate are characterized by frequently changing customer demand and the introduction of new products and

In order to be successful, we must be able to enhance our existing services and products and develop and introduce new

products and services to respond to changing market demand.

The development and enhancement of services and products entails significant

risks, including:

failure to conform our services and products to evolving industry standards;

inability to develop, introduce and market enhancements to our existing services and products or new services and products

on a timely basis;

non-acceptance by the market of such new service and products.

currently have only limited resources to enhance our technology or to develop new products.

face competition from entities with greater resources than we have.

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change in federal laws regarding the classification of cannabis as a controlled substance, interstate cannabis commerce, banking

for entities in the cannabis industry, or other related regulations may have a significant influence on the Company’s business.

for entities in the cannabis industry, or other related regulations may have a significant impact on the Company’s business.

of clinical research, if unfavorable, could have a negative impact on the industries in which we operate and consequently on our

business model.

in Canada, the United States and internationally regarding the medical benefits, viability, safety, efficacy, dosing and

social acceptance of cannabis or isolated cannabinoids (such as CBD and THC) remains in early stages.

There have been relatively

few clinical trials on the benefits of cannabis or isolated cannabinoids (such as CBD and THC).

Although the Company believes

that the articles, reports and studies support its beliefs regarding the medical benefits, viability, safety, efficacy, dosing

and social acceptance of cannabis, future research and clinical trials may prove such statements to be incorrect, or could raise

concerns regarding, and perceptions relating to, cannabis.

Future research studies and clinical trials may reach negative conclusions

regarding the medical benefits, viability, safety, efficacy, dosing, social acceptance or other facts and perceptions related

to cannabis, which could have a material adverse effect on the demand for the Company’s products with the potential to lead

to a material adverse effect on the Company’s business, financial condition, results of operations or prospects.

laundering laws and regulations can limit our ability to access financing and hamper our growth.

Company is subject to a variety of laws and regulations domestically and in the United States that involve money laundering, financial

recordkeeping and proceeds of crime, including the U.S.

Currency and Foreign Transactions Reporting Act of 1970 (commonly known

as the Bank Secrecy Act), as amended by Title III of the Uniting and Strengthening America by Providing Appropriate Tools Required

to Intercept and Obstruct Terrorism Act of 2001 (USA PATRIOT Act), the Proceeds of Crime (Money Laundering) and Terrorist Financing

Act (Canada), the Criminal Code (Canada), as amended and the rules and regulations thereunder, and any related or similar rules,

regulations or guidelines, issued, administered or enforced by governmental authorities in the United States and Canada.

February 2014, the Financial Crimes Enforcement Network (“FCEN”) of the U.S.

Department of the Treasury issued a memorandum

providing instructions to banks seeking to provide services to marijuana related businesses (the “FCEN Memo”).

FCEN Memo states that in some circumstances, it may not be appropriate to prosecute banks that provide services to marijuana-related

businesses for violations of federal money laundering laws.

It refers to supplementary guidance that Deputy Attorney General Cole

issued to federal prosecutors relating to the prosecution of money laundering offenses predicated on Cannabis-related violations

It is unclear at this time whether the current administration will follow the guidelines of the FCEN Memo.

federal law, banks or other financial institutions that provide a Cannabis-related business with a checking account, debit or

credit card, small business loan, or any other service could be found guilty of money laundering, aiding and abetting, or conspiracy.

in Canada, the United States and internationally regarding the medical benefits, viability, safety, efficacy, dosing and social

acceptance of cannabis or isolated cannabinoids (such as CBD and THC) remains in early stages.

There have been relatively few

clinical trials on the benefits of cannabis or isolated cannabinoids (such as CBD and THC).

Although the Company believes that

the articles, reports and studies support its beliefs regarding the medical benefits, viability, safety, efficacy, dosing and

social acceptance of cannabis, future research and clinical trials may prove such statements to be incorrect, or could raise concerns

regarding, and perceptions relating to, cannabis.

Future research studies and clinical trials may reach negative conclusions regarding

the medical benefits, viability, safety, efficacy, dosing, social acceptance or other facts and perceptions related to cannabis,

which could have a material adverse effect on the demand for the Company’s products with the potential to lead to a material

adverse effect on the Company’s business, financial condition, results of operations or prospects.

face the prospect of claims of product liability if anyone is harmed by our products.

Company’s products will be produced for sale directly to end consumers, and therefore there is an inherent risk of exposure

to product liability claims, regulatory action and litigation if the products are alleged to have caused loss or injury.

the production and sale of the Company’s products involves the risk of injury to end users due to tampering by unauthorized

third parties or product contamination.

Previously unknown adverse reactions resulting from human or animal consumption of the

Company’s products alone or in combination with other medications or substances could occur.

The Company may be subject

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has product liability insurance coverage in place and works with third party providers to ensure they do as well, a product liability

claim or regulatory action against the Company could result in increased costs, could adversely affect the Company’s reputation,

and could have a material adverse effect on its business and operational results.

claim or regulatory action against the Company could exceed our insurance coverage, and could adversely affect the Company’s

reputation and have a material adverse effect on its business and operational results.

are subject to compliance with environmental regulations which can be onerous and costly.

Company’s operations are subject to environmental regulation in the various jurisdictions in which it operates.

These regulations

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and employees.

There is no assurance that future changes in environmental regulation, if any, will not adversely affect the Company’s

environmental approvals and permits are currently, and may in the future, be required in connection with the Company’s operations.

There is no assurance that future changes in environmental regulation, if any, will not adversely affect the Company’s

environmental approvals and permits are currently, and may in the future, be required in connection with the Company’s operations.

To the extent such approvals are required and not obtained, the Company may be curtailed or prohibited from implementing its proposed

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Any such unknown or undisclosed risks or liabilities could materially and adversely

affect the Company’s financial performance and results of operations.

The Company could encounter additional transaction

and integration related costs or other factors such as the failure to realize all of the benefits from such acquisitions.

of these factors could cause dilution to the Company’s earnings per share or decrease or delay the anticipated accretive

effect of the acquisition and cause a decrease in the market price of the Company’s securities.

of these factors could cause dilution to the Company’s earnings per share or decrease or delay the anticipated accretive

effect of the acquisition and cause a decrease in the market price of the Company’s securities.

The Company may not be able

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its existing operations.

If integration is not managed successfully by the Company’s management, the Company may experience

interruptions in its business activities, deterioration in its employee and customer relationships, increased costs of integration

and harm to its reputation, all of which could have a material adverse effect on the Company’s business, financial condition

and results of operations.

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Should any litigation in which the Company is, or becomes, involved be determined against the Company, such a decision

could adversely affect the Company’s ability to continue operating.

Even if the Company is involved in litigation and wins,

litigation can redirect significant Company resources.

Litigation may also create a negative perception of the Company’s

related to the Company’s common stock

issuances of our capital stock would cause dilution to our existing shareholders.

currently have approximately 230.3 million shares of common stock outstanding and we are authorized to issue up to 500

million shares.

Therefore, we will be able to issue a substantial number of additional shares without obtaining shareholder approval.

In the event we elect to issue additional shares of common stock in connection with any financing, acquisition or otherwise, current

shareholders could find their holdings substantially diluted, which means they will own a smaller percentage of our company.

addition, we are authorized to issue up to 50 million shares of preferred stock that our board of directors can issue under any

terms it wants and without any shareholder approval.

exercise or conversion of outstanding warrants and options into common stock will dilute the percentage ownership of our other

shareholders.

The sale of such common stock or other common stock in the open market could adversely affect the market price of

our common stock.

of December 31, 2019 and 2018, there were 18,051,357 and 18,916,211, respectively, of potentially dilutive securities in the form

of outstanding options and warrants.

Also as of such dates, there were (i) $10.0 million and $8.6 million, respectively, of outstanding

convertible debentures payable, and (ii) $350,000 of outstanding convertible promissory notes in both years, that were potentially

dilutive, whose conversion into common stock is based on a discount to the market value of common stock on or about the future

conversion date.

More convertible securities will likely be

granted in the future to our officers, directors, employees or consultants and as part of future financings.

The exercise of outstanding

stock options and warrants and conversion of notes and debentures will dilute the percentage ownership of our other shareholders.

Sales, or the expectation of sales, of a substantial number of shares of our common stock in the private or public markets could

adversely affect the prevailing market price of our common stock.

Litigation may also create a negative perception of the Company’s

Related to the Company’s Common Stock

issuances of the Company’s capital stock would cause dilution to its existing shareholders.

Company currently has approximately 319.1 million shares of common stock outstanding and it is authorized to issue up to 500 million

Therefore, the Company will be able to issue a substantial number of additional shares without obtaining shareholder approval.

In the event the Company elects to issue additional shares of common stock in connection with any financing, acquisition or otherwise,

current shareholders could find their holdings substantially diluted, which means they will own a smaller percentage of the Company.

In addition, the Company currently has approximately 4.9 million shares of Series B preferred stock and approximately 6.2 million

shares of Series C preferred outstanding and we it authorized to issue up to 50 million shares that the board of directors can

issue under any terms it wants and without any shareholder approval.

exercise or conversion of outstanding warrants and options into common stock will dilute the percentage ownership of the Company’s

other shareholders.

The sale of such common stock or other common stock in the open market could adversely affect the market price

of the Company’s common stock.

of December 31, 2020, there were approximately 26.7 million of potentially dilutive securities in the form of outstanding

options and warrants.

Also on such date, there was $1.3 million of outstanding convertible debentures payable and $350,000 of

outstanding convertible promissory notes that were potentially dilutive, whose conversion into common stock is based on a discount

to the market value of common stock on or about the future conversion date.

More convertible securities will likely be granted

in the future to the Company’s officers, directors, employees or consultants and as part of future financings.

of outstanding stock options and warrants and conversion of notes and debentures will dilute the percentage ownership of the Company’s

other shareholders.

Sales, or the expectation of sales, of a substantial number of shares of the Company’s common stock

in the private or public markets could adversely affect the prevailing market price of the Company’s common stock.

Volatility of Common Share Price

market price of the Company’s common stock could be subject to significant fluctuations.

Some of the factors that may cause

the market price of the common stock to fluctuate include:

public’s reaction to the Company’s press releases, announcements and filings with regulatory authorities and those

of its competitors;

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relationships, joint ventures or capital commitments;

in the Company’s quarterly results of operations or cash flows or those of other comparable companies;

and operating results failing to meet the expectations of securities analysts or investors in a particular period;

in the Company’s pricing policies or the pricing policies of its competitors;

issuances and sales of the Company’s common stock;

of the Company’s common stock by insiders of the Company;

in the Company’s pricing policies or the pricing policies of its competitors;

issuances and sales of the Company’s common stock;

of the Company’s common stock by insiders of the Company;

party disclosure of significant short positions;

for and trading volume of the Company’s common stock;

in securities analysts’

recommendations and their estimates of the Company’s financial performance;

for and trading volume of the Company’s common stock;

in securities analysts’ recommendations and their estimates of the Company’s financial performance;

fluctuation in stock price caused by changes in general conditions in the domestic and worldwide economies or financial markets;

other risk factors described in this section or other sections of this 10-K.

realization of any of these risks and other factors beyond the Company’s control could cause the market price of the common

stock to decline significantly.

addition, broad market and industry factors may harm the market price of the Company’s common stock.

Hence, the price of

the common stock could fluctuate based upon factors that have little or nothing to do with the Company, and these fluctuations

could materially reduce the price of the common stock regardless of the Company’s operating performance.

In the past, following

a significant decline in the market price of a company’s securities, there have been instances of securities class action

litigation having been instituted against that company.

If the Company were involved in any similar litigation, it could incur

substantial costs, Management’s attention and resources could be diverted and it could harm the Company’s business,

operating results and financial condition.

Company has no plans to pay dividends on our common stock.

do not expect to declare or pay dividends on the common stock in the foreseeable future.

In addition, the payment of cash dividends

may be limited or prohibited by the terms of any future loan agreements.

are subject to “penny stock”

regulations which may adversely impact the liquidity and price of our common stock.

common stock is currently deemed a “penny stock.”

Penny stocks generally are equity securities with a price of less

than $5.00 (other than securities registered on certain national securities exchanges).

The penny stock rules require a broker-dealer,

prior to a transaction in a penny stock not otherwise exempt from the rules, to deliver a standardized risk disclosure document

that provides information on penny stocks and the nature and level of risks in the penny stock market.

The broker-dealer also

must provide the customer with current bid and offer quotations for the penny stock, the compensation of the broker-dealer and

its salesperson in the transaction, and if the broker-dealer is the sole market-maker, the broker-dealer must disclose this fact

and the broker-dealer’s presumed control over the market, and monthly account statements showing the market value of each

penny stock held in the customer’s account.

In addition, broker-dealers who sell such securities to persons other than established

customers and accredited investors (generally, those persons with assets in excess of $1,000,000 (excluding the value of their

primary residence) or annual income exceeding $200,000 or $300,000 together with their spouse), the broker-dealer must make a

special written determination that the penny stock is a suitable investment for the purchaser and receive the purchaser’s

written agreement to the transaction.

requirements could reduce the level of trading activity, if any, in the secondary market for our common stock.

As a result of

the foregoing, our shareholders may find it more difficult to sell their shares.

the event the Company requires additional financing and access to capital, covenants and restrictions in existing agreements may

limit the Company’s options.

of the Company’s existing financing agreements contain covenants that restrict its ability to incur additional debt, pay

dividends or redeem shares of its stock.

If the Company seeks to raise additional capital or financing, there can be no assurance

that such capital or additional financing will be available on terms that comply with existing covenants and are satisfactory

to the Company.

Company has no plans to pay dividends on its common stock.

Company does not expect to declare or pay dividends on the common stock in the foreseeable future.

In addition, the payment of

cash dividends is limited by the terms of the Company’s financing agreements.

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