What changed in this filing

/stocks — the workspaceLOADING

Item 1A. Risk Factors

2025-03-06 compared with 2024-03-07 · 76 added, 46 removed, 257 unchanged (32% of the section changed)

9 unchanged sentences

However, under United States federal law, the possession, use, cultivation, and transfer of cannabis and any related drug paraphernalia are illegal, and any such acts are criminalized under the Controlled Substances Act, as amended, which we refer to as the “CSA.” Cannabis remains illegal under United States federal law and is considered a Schedule I controlled substance under the CSA.

As a result, cannabis is deemed to have a high potential for abuse and is not approved or accepted for medical use.

In 2022, former President Biden directed the Drug Enforcement Administration (DEA) and the Department of Health and Human Services (“HHS”) to initiate an administrative process to review how cannabis is scheduled under federal law.

HHS later recommended that cannabis be recategorized to Schedule III, and as of February 2025 the DEA was still reviewing the HHS recommendation, with preliminary hearings anticipated to commence this spring.

Should cannabis be rescheduled, it would mean cannabis would be defined as having accepted medical use within federal law.

There are several other important implications of rescheduling.

It would increase consumer trust in cannabis, likely resulting in an increase in our sales.

Absent rescheduling, cannabis is still perceived by many to have a high potential for abuse and it is not generally approved or accepted for medical use.

The concepts of “medical cannabis,” “retail cannabis” and “adult-use cannabis” do not exist under United States federal law.

While we believe that our business activities are compliant with applicable state and local laws, strict compliance with state and local cannabis laws would not provide a defense to any federal proceeding that may be brought against us.

While we believe that our business activities are compliant with applicable state and local laws, strict compliance

with state and local cannabis laws would not provide a defense to any federal proceeding that may be brought against us.

The enforcement of applicable United States federal laws poses a significant risk to us.

7 unchanged sentences

In addition, it is difficult for us to estimate the time or resources that would be needed for the investigation, settlement, or trial of any such proceedings or charges, and such time or resources could be substantial.

Additionally, its rescheduling would eliminate IRS Tax Code 280E, a punitive tax stipulation imposed on businesses like ours that sells products categorized as Schedule I or II, Specifically, the code stipulates that “no deduction or credit shall be allowed for any amount paid or incurred during the taxable year in carrying on any trade or business if such trade or business (or the activities that comprise such trade or business) consists of trafficking in controlled substances within the meaning of Schedule I and II of the Controlled Substances Act, which is prohibited by federal law or the law of any state in which such trade or business is conducted,” This provision has been applied by the United States Internal Revenue Service, or the “IRS,” to cannabis operations, prohibiting them from deducting expenses directly associated with cannabis businesses.

The elimination of 280E is anticipated to save the company several million dollars paid annually in federal taxes.

It has not yet been determined if and how federal agencies such as the U.S.

Food and Drug Administration (“FDA”) would be involved in the regulation of our industry should cannabis be rescheduled.

Should the FDA be involved in the regulation of our industry, it is likely the agency would impose rules associated with good manufacturing practices related to the growth, cultivation, harvesting, and processing of cannabis.

Clinical trials may be needed to verify efficacy and safety of our medical cannabis products.

In the event that some or all of these regulations are imposed, the impact on the cannabis industry is uncertain and could include the imposition of new costs, requirements, and prohibitions.

If we are unable to comply with the regulations and/or registration as required by the FDA, it may have an adverse effect on our business, operating results, and financial condition.

The cannabis industry is relatively new.

1 unchanged sentence

We not only are subject to general business risks, but we must also build brand awareness in this industry and market share through significant investments in our strategy, production capacity, quality assurance, and compliance with regulations.

Research in Canada, the United States and internationally regarding the medical benefits, viability, safety, efficacy, and dosing of cannabis or isolated cannabinoids (such as cannabidiol, or “CBD,” and tetrahydrocannabinol, or “THC”) remains in early stages.

Few clinical trials on the benefits of cannabis or isolated cannabinoids have been conducted.

2 unchanged sentences

Any event or circumstance that adversely affects the cannabis industry, such as the imposition of further restrictions on sales and marketing or further restrictions on sales in certain areas and markets, could have a material adverse effect on our business, financial condition, and results of operations.

Finally, the emergence of adjacent adult-use segments remains an unknown with respect the legislation & regulations.

These adjacent segments include, but are not limited to, hemp-derived Delta 9 cannabinoids and psilocybin mushrooms.

The 2018 Farm Bill opened an unintended loophole for “legal” THC via an arbitrary measurement of THC by percentage not exceeding 0.3%.

The result is an adjacent segment to state-regulated cannabis that is not legally compelled to the same arduous regulations such as no interstate commerce, strict testing, banking access and advertising & marketing restrictions.

This emerging hemp-based segment is competing with similar products that, in many cases, are indistinguishable from state

regulated legal cannabis and have greater access to a larger consumer base at lower costs.

To a lesser extent, as psilocybin mushrooms continue to be studied at the federal and state levels it remains possible that they could be legalized in more states.

This would create another “substitute” for state regulated legal cannabis.

We operate in a highly regulated sector and may not always succeed in complying fully with applicable regulatory requirements in all jurisdictions where we carry on business.

2 unchanged sentences

Laws and regulations, applied generally, grant government agencies and self-regulatory bodies broad administrative discretion over our activities, including the power to limit or restrict business activities as well as impose additional disclosure requirements on our products and services.

Achievement of our business objectives is contingent, in part, upon compliance with regulatory requirements enacted by these governmental authorities and obtaining all necessary

regulatory approvals for the manufacture, production, storage, transportation, sale, import and export, as applicable, of our products.

Achievement of our business objectives is contingent, in part, upon compliance with regulatory requirements enacted by these governmental authorities and obtaining all necessary regulatory approvals for the manufacture, production, storage, transportation, sale, import and export, as applicable, of our products.

The commercial cannabis industry is still a new industry at the state and local level.

7 unchanged sentences

Maintaining compliance with complex and ever-changing regulations, including sometimes unclear regulations and laws, can be a difficult task, and a materially compliant business can be found in violation of one or more laws, rules or regulations while remaining materially or substantially compliant with applicable state cannabis laws.

The re-classification of cannabis or changes in United States controlled substance laws and regulations could have a material adverse effect on our business, financial condition, and results of operations.

If cannabis is re-classified as a Schedule II or lower controlled substance under the CSA, the ability to conduct research on the medical benefits of cannabis would most likely be more accessible.

However, if cannabis is re-categorized as a Schedule II or lower controlled substance, the resulting re-classification would result in the need for approval by the United States Food and Drug Administration, or “FDA,” if medical claims are made about our medical cannabis products.

Moreover, any such reclassification could result in a significant degree of regulation relating to the manufacture, importation, exportation, domestic distribution, storage, sale, and use of such products by the United States Drug Enforcement Administration, or the “DEA.” If so, we may be required to be registered to perform these activities and have the security, control, recordkeeping, reporting, and inventory mechanisms required by the DEA to prevent drug loss and diversion.

Obtaining the necessary registrations may result in the delay in the manufacturing or distribution of our products.

The DEA conducts periodic inspections of registered establishments that handle controlled substances.

Failure to maintain compliance could have a material adverse effect on our business, financial condition, and results of operations.

The DEA may seek civil penalties, refuse to renew necessary registrations, or initiate proceedings to restrict, suspend, or revoke those registrations.

In certain circumstances, violations could lead to criminal proceedings.

Potential regulation by the FDA could have a material adverse effect on our business, financial condition, and results of operations.

If the United States federal government legalizes cannabis, it is possible that the FDA would seek to regulate it under the Food, Drug and Cosmetics Act of 1938.

Moreover, the FDA may issue rules and regulations, including good manufacturing practices related to the growth, cultivation, harvesting, and processing of medical cannabis.

Clinical trials may be needed to verify efficacy and safety of our medical cannabis products.

It is also possible that the FDA would require that facilities where medical-use cannabis is grown register with the agency and comply with certain federally prescribed regulations.

In the event that some or all of these regulations are imposed, the impact on the cannabis industry is uncertain and could include the imposition of new costs, requirements, and prohibitions.

If we are unable to comply with the regulations and/or registration as required by the FDA, it may have an adverse effect on our business, operating results, and financial condition.

As a cannabis business, we are subject to certain tax provisions that have a material adverse effect on our business, financial condition, and results of operations.

Under Section 280E of the United States Internal Revenue Code of 1986, or the “IRC,” “no deduction or credit shall be allowed for any amount paid or incurred during the taxable year in carrying on any trade or business if such trade or business (or the activities that comprise such trade or business) consists of trafficking in controlled substances within the meaning of Schedule I and II of the Controlled Substances Act, which is prohibited by federal law or the law of any state in which such trade or business is conducted,” This provision has been applied by the United States Internal Revenue Service, or the “IRS,” to cannabis operations, prohibiting them from deducting expenses directly associated with cannabis businesses.

Section 280E may have a lesser impact on cannabis cultivation and manufacturing operations than on sales

Section 280E and related IRS enforcement activity has had a significant impact on the operations of cannabis companies.

Accordingly, an otherwise profitable business may, in fact, operate at a loss, after taking into account its United States income tax expenses.

As a cannabis business, we may lack access to United States bankruptcy protections.

1 unchanged sentence

In the event of a bankruptcy, it would be very difficult for lenders to recoup their investments in the cannabis industry.

If the Company were to experience a bankruptcy, there is no guarantee that United States federal bankruptcy protections would be available to us, which would have a material adverse effect on us.

If bankruptcy protection was pursued by the Company, there is no guarantee that United States federal bankruptcy protections would be available to us, which would have a material adverse effect on us.

Cannabis businesses may be subject to civil asset forfeiture.

5 unchanged sentences

Any number of factors could slow or halt the growth of the cannabis market.

Additionally, progress, while encouraging, is not assured and the process to authorize the sale of cannabis at the state and local levels normally encounters set-backs before achieving success, if at all.

While there may be ample public support for legislative proposal to legalize the sale of cannabis on a state level, key support must be created in the legislative process.

Any one of these factors could slow or halt the progress and adoption of cannabis for medical and/or recreational purposes, which would limit the market for our products and negatively impact our ability to expand into new markets.

Our consolidation plan and growth strategy are subject to regulatory hurdles.

Additionally, progress, while encouraging, is not assured and the process to authorize the sale of cannabis at the state and local levels normally encounters setbacks before achieving success, if at all.

While there may be ample public support for legislative proposals to legalize the sale of cannabis on a state level, key support must be created in the legislative process.

Any one of these factors could slow or halt the progress of legalization of cannabis for medical and/or recreational purposes, which would

limit the market for our products and negatively impact our ability to expand into new markets.

These unknowns create a management risk as we are continually compelled to plan for multiple contingencies.

Our strategic growth plan is subject to regulatory hurdles.

Our strategy to expand our footprint into additional legal cannabis states through new applications and acquisitions of existing cannabis businesses is subject, in each respective jurisdiction, to the approval of a new license application or license transfer application.

25 unchanged sentences

Therefore, there are banks that will not accept for deposit funds from the sale of cannabis and may choose not to do business with the us.

While there is pending legislation in the United States Senate that will allow banks to transact business with state-authorized medical cannabis businesses, there can be no assurance his legislation will be successful, that banks will decide to do business with medical cannabis 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.

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

Notwithstanding, we have 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.

Our inability to open accounts in our target market and otherwise use the service of banks may make it difficult for us to operate in those markets.

We may be subject to constraints on and differences in marketing our products under varying state laws.

We are subject to constraints on and differences in marketing our products under varying state laws.

Certain of the states in which we operate have enacted strict regulations regarding marketing and sales activities on cannabis products.

8 unchanged sentences

These existing and new products may be subject to significant competition with offerings by new and existing competitors in the industry.

The failure to successfully develop, manage, and market new products could seriously harm our business, prospects, revenue, results of operation and financial condition.

The failure to successfully develop, manage, and new-to-market products could seriously harm our business, prospects, revenue, results of operation and financial condition.

Our insurance coverage may be inadequate to cover all significant risk exposures.

6 unchanged sentences

Any business disruption or natural disaster could result in substantial costs and diversion of resources.

It may be difficult to evaluate us based on our past performance because we are transitioning our business into that of an owner of cannabis licenses and an operator of cannabis operations.

We have been actively engaged in the cannabis industry as an MSO for a relatively short period of time and, accordingly, have only limited financial results on which it can be evaluated.

In addition, the components of our revenue and costs are changing as we continue to move away from a fee-based-only business to a multi-state seed to sale operation.

It may be difficult to evaluate us based on our past performance because the cannabis industry is volatile and still evolving.

The legal cannabis industry is still relatively new and continues to rapidly evolve.

As a result, state regulations are subject to frequent change, which can impose unforeseen costs associated with compliance with new or revised rules.

These rules are generally associated with our operations, marketing, packaging, and other aspects of our business.

Additionally, the entrance of new cultivators into certain states in which we operate, such as Massachusetts, has resulted in significant price volatility that we cannot control.

As a result of these factors, it is more difficult to accurately forecast anticipated future revenues and expenses than businesses in a more mature consumer products sector.

It also makes it difficult to compare and analyze our current performance with past performance.

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:

3 unchanged sentences

• an inability to grow and adapt our business to evolving consumer demand.

If our goodwill or intangible assets become impaired, we may be required to record a significant charge to earnings.

As of December 31, 2024, we had $15.8 million of goodwill and $18.6 million of intangible assets.

Goodwill is tested annually for impairment and, along with our intangible assets, is also reviewed for impairment when events or changes in circumstances indicate the carrying value may not be recoverable.

Factors that may be considered a change in circumstances indicating that the carrying value of our goodwill or intangible assets may not be recoverable include significant underperformance relative to plan or long-term projections, strategic changes in business strategy, significant negative industry or economic trends, significant decline in our stock price for a sustained period and decline in our market capitalization to below net book value.

Any material impairment of goodwill or intangible assets could adversely affect our results of operations.

Our quarterly revenue and operating results are unpredictable and may fluctuate significantly from quarter to quarter, which could adversely affect our business, results of operations and the trading price of our common stock.

Our revenue and operating results may vary significantly from quarter to quarter due to a number of factors, many of which are outside of our control and any of which may cause our stock price to fluctuate.

Material factors that may affect our revenue and operating results include longer-than-anticipated time for approvals to operate in new facilities and/or states, ramp-up costs for new facilities with subsequent delays in state approvals, and other risks as discussed in this section.

Consequently, our quarterly operating results may be difficult to predict, even in the short term, and a delay in an anticipated approval to commence operations at a location past the end of a particular quarter may negatively impact our results of operations for that quarter, or in some cases, that year.

Therefore, we believe that quarter-to-quarter comparisons of our operating results are not a good indication of our future performance.

If our revenue or operating results fall below the expectations of investors or securities analysts or below any guidance we may provide to the market, the price of our common stock could decline substantially.

Such a stock price decline could also occur even if we meet our publicly stated revenue and/or earnings guidance.

Our medical marijuana business may be impacted by consumer perception of the cannabis industry, which we cannot control or predict.

5 unchanged sentences

Our products are designed to be ingested by humans and are produced for sale directly to end consumers.

As a result, we face an inherent risk of exposure to product liability claims, regulatory action and litigation if the products are alleged to have caused or cause any significant loss or injury.

As a result, we face an inherent risk of exposure to product liability claims, regulatory action and litigation if the products are alleged to cause or have caused any significant loss or injury.

In addition, the production and sale of our products involve risk of injury to end users due to tampering by unauthorized third parties or product contamination.

32 unchanged sentences

In February 2014, the Financial Crimes Enforcement Network, or “FinCEN,” bureau of the United States Treasury Department issued guidance, which is not law, with respect to financial institutions providing banking services to cannabis businesses, including burdensome due diligence expectations and reporting requirements.

examination or regulatory or criminal enforcement actions by the United States Department of Justice, or the “DOJ,” FinCEN, or other federal regulators.

While the guidance advised prosecutors not to focus their enforcement efforts on banks or other financial institutions that serve marijuana-related businesses, so long as they meet certain conditions, this guidance does not provide any safe harbors or legal defenses from examination or regulatory or criminal enforcement actions by the United States Department of Justice, or the “DOJ,”

FinCEN, or other federal regulators.

As a result of this guidance and the fact that such guidance may be amended or revoked at any time, most banks and other financial institutions have not been willing to provide banking services to cannabis-related businesses.

3 unchanged sentences

While we are actively pursuing alternatives that ensure our operations will continue to be compliant with the FinCEN guidance, including requirements related to disclosures about cash management and United States federal tax reporting, we may not be able to meet all applicable requirements.

We are highly dependent upon certain key personnel.

Failure to hire and retain key personnel, or the loss of any of our executive officers, could negatively impact our ability to meet our business objectives and impair our future growth.

The success of the Company’s business is currently dependent, in large part, on key managerial personnel, including Messrs.

4 unchanged sentences

Any inability to attract and retain qualified management and other key personnel could have a material adverse effect on the Company’s ability to grow its business and operations.

Our business is subject to potential risks related to, and arising from, acquiring companies or technologies.

Failure to hire and retain key personnel, or the loss of any of our executive officers, could negatively impact our ability to meet our business objectives and impair our future growth.

Our business depends upon highly skilled technical, managerial, sales and marketing and customer support personnel with industry expertise.

Qualified individuals within the cannabis industry are in high demand and we may incur significant costs to attract and retain qualified managerial personnel, or be unable to attract or retain personnel necessary to operate or expand our business.

The loss of the services of existing personnel or our failure to recruit additional key managerial personnel in a timely manner, or at all, could have a material adverse effect on our business and our ability to manage day-to-day operations, attract collaboration partners, attract and retain other employees, and generate revenue.

Any inability to attract and retain qualified management and other key personnel could have a material adverse effect on the Company’s ability to grow its business and operations.

Our future success also depends upon the continued services of our executive officers who have critical industry experience and relationships that we rely on to implement our business plan.

None of our officers or key employees is bound by an employment agreement for any specific term.

The loss of the services of any of our executive officers or key employees could delay the development and introduction of, and negatively impact our ability to sell, our products and achieve our business objectives.

Our business is subject to potential risks related to, and arising from, acquiring or merging with companies or technologies.

Our success will depend, in part, on our ability to grow our business in response to the demands of consumers and other constituents within the cannabis industry as well as competitive pressures.

32 unchanged sentences

In September 2023, we experienced a cybersecurity incident resulting from a fraudulent email sent to our finance department which resulted in our initiating a $0.7 million electronic payment to a fraudulent bank account.

As a result of this incident, we immediately launched an internal investigation, and engaged a cybersecurity consultant to fully assess the incident and recommend remediation measures, which have been implemented.

As a result of

this incident, we immediately launched an internal investigation, and engaged a cybersecurity consultant to fully assess the incident and recommend remediation measures, which have been implemented.

As cybersecurity threats continue to evolve, we may be required to expend significant additional resources to continue to modify or enhance our protective measures or to investigate and remediate any security vulnerabilities.

25 unchanged sentences

Additional convertible securities will likely be granted to our officers, directors, employees, or consultants as part of their compensation and such convertible securities will likely be issued in connection with financings.

The exercise of outstanding stock options and warrants and the conversion of our notes and debentures will dilute the percentage ownership of our other stockholders.

The exercise of outstanding stock options and warrants and the conversion of our notes and debentures will dilute the

percentage ownership of our other stockholders.

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.

20 unchanged sentences

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

• the other risk factors described in this section or other sections of this Annual Report on Form 10-K.

• the other risks and risk factors described in this section or other sections of this Annual Report on Form 10-K.

The realization of any of these risks and other factors beyond our control could cause the market price of our common stock to decline significantly.

7 unchanged sentences

(c) the date that we become a “large accelerated filer” as defined in Rule 12b-2 under the Exchange Act, which would occur if the market value of our common stock that are held by non-affiliates exceeds $700 million as of the last business day of our most recently completed second fiscal quarter;

or (d) the date on which we have issued more than $1 billion in non-convertible debt during the preceding fiscal year period.

or (d) the date on which we have issued more than $1 billion in non-convertible

debt during the preceding fiscal year period.

We expect to take advantage of these reporting exemptions described above until we are no longer an emerging growth company.

10 unchanged sentences

Compared sentence by sentence after normalising whitespace, quotation marks, case and digits, so re-formatting and restated figures do not read as changed language. Wording changes appear as one removal and one addition. The current filing and the prior one are authoritative.

What changed 10-K

Item 1A. Risk Factors