What changed in this filing

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Item 1A. Risk Factors

2023-03-09 compared with 2022-03-01 · 148 added, 76 removed, 322 unchanged (41% of the section changed)

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We have had a history of losses and we may be unable to achieve and sustain profitability and positive cash flows from operations.

As a result of our extensive research and development activities and regulatory expenses seeking FDA approvals, we have experienced net losses of approximately $32.6 million, $19.7 million and $26.6 million during the years ended December 31, 2021, 2020, and 2019, respectively, and negative cash flow from operations of approximately $22.8 million during the year ended December 31, 2021.

While our current balance of cash and cash equivalents and short-term investment securities is adequate to sustain our current planned operations, generating positive cash flows in the future will depend on our ability to successfully operate our manufacturing facility, our ability to generate market acceptance for our VLN ® cigarettes and our ability to create, sell and market other proprietary tobacco and hemp products, and/or generate royalty revenue from the licensing of our intellectual property.

We have experienced net losses of approximately $59.8 million and $32.6 million during the years ended December 31, 2022 and 2021, respectively, and negative cash flow from operations of approximately $51.7 million during the year ended December 31, 2022.

While our current balance of cash and cash equivalents, short-term investment securities, working capital, and proceeds from senior secured credit facility are adequate to sustain our current planned operations, generating positive cash flows in the future will depend on our ability to successfully generate revenue from our contract manufacturing operations and sales of our VLN ® cigarettes and hemp based cannabinoid products as well as our ability to cost-effectively develop, create, acquire, sell and/or market other proprietary tobacco and hemp products, and/or generate royalty revenue from the licensing of our intellectual property.

There is no guarantee that we will be able to achieve or sustain positive cash flows and profitability in the future.

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In addition, large companies have the ability to provide entry-level pricing for premium products in order make us less competitive.

If we are unable to compete successfully against larger companies with more financial resources and name recognition, our business and prospects would be materially adversely affected.

are unable to compete successfully against larger companies with more financial resources and name recognition, our business and prospects would be materially adversely affected.

Our competitors may develop products that are less expensive, safer or otherwise more appealing, which may diminish or eliminate the commercial success of our VLN ® cigarettes or any other potential products that we may commercialize.

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If one of such competitors develops a cigarette that is safe for human consumption, a safer alternative for nicotine that is widely accepted, superior low nicotine tobacco or otherwise develops a superior quitting method, it could render our VLNC tobacco and cigarettes obsolete, which would have a material adverse impact on our business and operations and our ability to achieve profitability.

In the cannabis industry, there are numerous companies conducting research and development on the cannabis plant in order to develop new and differentiated products.

In the cannabis industry, there are numerous companies conducting research and development on the cannabis plant in order to develop new and differentiated products and many companies are selling hemp and cannabis-derived products.

Our competitors may render our technologies obsolete by advances in existing technological approaches or the development of new or different approaches, potentially eliminating the advantages that we believe we derive from our research approach and proprietary technologies.

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● commercialize competing products before we or our partners can launch our products;

● be more effective in marketing and creating brand awareness of their products that we are;

● develop tobacco or hemp plants with superior traits to ours;

● initiate or withstand substantial price competition more successfully than we can;

● take advantage of acquisition or other opportunities more readily than we can.

Our research and development process may not develop marketable products, which would result in loss of our investment into such process.

Our research and development process may not develop marketable products cost-effectively or at all, which would result in loss of our investment into such process.

We do not know whether our research and development process will result in marketable products.

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Any such delays or the inability to effectively develop new products in a cost-effective manner, or at all, would have a material adverse effect on our business and a loss of our financial resources.

We may acquire or invest in other companies, which may divert our management’s attention, result in additional dilution to our stockholders, and consume resources that are necessary to sustain our business or result in losses..

We may acquire or invest in complementary solutions, services, technologies, or businesses in the future.

We may be unable to successfully integrate GVB’s operations into ours and, even if successfully integrated, we may be unable achieve the expected benefits of such acquisition.

The integration of an acquired company requires, among other things, coordination of administrative functions, research and development operations, accounting and finance functions, and the expansion of information and management systems.

Integration, especially a large integration such as the integration of GVB, may prove to be difficult due to the necessity of coordinating geographically separate organizations and integrating key personnel with disparate business backgrounds and accustomed to different corporate cultures.

Any difficulties or problems encountered in the integration of GVB’s business or operations could have a material adverse effect on our business.

Even if successfully integrated, there can be no assurance that our operating performance after an acquisition such as the acquisition of GVB will be successful or will fulfill management’s objectives.

We may continue to acquire or invest in other companies, which may divert our management’s attention, result in additional dilution to our stockholders, and consume resources that are necessary to sustain our business or result in losses.

We may continue to acquire or invest in complementary solutions, services, technologies, or businesses in the future, such as our acquisition of GVB.

We may also enter into relationships with other businesses to expand our intellectual property portfolio, which could involve preferred or exclusive licenses or investments in other companies.

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Consequently, these transactions, even if undertaken and announced, may not close or may not yield the benefits that we expect.

In addition, we may only be able to conduct limited due diligence on an acquired company’s operations.

Following an acquisition, we may be subject to liabilities arising from an acquired company’s past or present operations and these liabilities may be greater than the warranty and indemnity limitations that we negotiate.

Any liability that is greater than these warranty and indemnity limitations could have a negative impact on our financial condition.

Acquisitions may also disrupt our business, divert our resources, and require significant management attention that would otherwise be available for the development of our business.

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The coronavirus pandemic (COVID-19) or another pandemic may cause a variety of business disruptions and future business risks.

The COVID-19 pandemic continues to adversely impact the U.S.

economy and supply chains.

The COVID-19 pandemic has disrupted our business operations in the past and there is a risk that state and federal authorities’ responses to the COVID-19 pandemic or another pandemic may disrupt our business in the future.

The COVID-19 pandemic poses a risk to our business which includes delays by third party providers of goods or services to our business, inability to operate in-person at our offices, interruptions to our sales, research and development, and administrative activities, and disruptions to our manufacturing operations, including the ability to staff our manufacturing operations at full capacity or at all.

Similarly, state or federal authorities may also be affected in their capacity or capability to operate as normal and may impact the timeline of product authorizations which may disrupt our business plans.

Our corporate office, laboratory in Rockville and production facility remain open and are operating under strict safety protocols.

We continue to encourage remote work arrangements by our employees where job duties permit.

The COVID-19 pandemic previously disrupted our business operations and there is a risk that state and federal authorities’ responses to the COVID-19 pandemic or another pandemic may disrupt our business in the future.

The COVID-19 pandemic caused delays by third party providers of goods or services to our business, the inability to operate in-person at our offices, interruptions to our sales, research and development, and administrative activities, and disruptions to our manufacturing operations, including the ability to staff our manufacturing operations at full capacity or at all.

At times during 2020 and 2021, we were unable to have our full staff (or any staff) in our laboratory in Buffalo (and subsequently in Rockville) and some of our external research and development partners operated (or are still operating) on a modified or limited schedule, which slowed our research activities.

To date, these interruptions have had a minimal impact on our research operations.

Our executive leadership team and staff are monitoring this evolving situation and its impacts on our business.

We will continue to monitor the local, state and federal guidance regarding our business practices.

The future extent of the impact of the COVID-19 pandemic or another pandemic, including our ability to execute our business strategies as planned, will depend on future developments, including the duration and severity of the pandemic, which are highly uncertain and cannot be predicted.

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If we fail to manage our growth effectively, we may be unable to execute our business plan or to address competitive challenges adequately.

From 2013 to December 31, 2021, we grew from nine (9) employees to seventy-six (76) employees.

Any future growth in our business will place a significant strain on our managerial, administrative, operational, financial, information technology and other resources.

We intend to further expand our overall business, customer base, employees and operations, which will require substantial management effort and significant additional investment in our infrastructure.

From 2013 to December 31, 2022, we grew from nine (9) employees to one hundred ninety-eight (198) employees.

The continued future growth in our business will place a significant strain on our managerial, administrative, operational, financial, information technology and other resources.

We intend to continue to expand our overall business, customer base, employees and operations, which will require substantial management effort and significant additional investment in our infrastructure.

We will be required to continue to improve our operational, financial and management controls and our reporting procedures and we may not be able to do so effectively.

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Business interruptions, whether caused by natural disaster, terrorism, economic downturns, global pandemics or other events, could negatively impact our business.

A natural disaster (such as an earthquake, hurricane, fire, or flood), pandemics (including the COVID-19 pandemic), or an act of terrorism could cause substantial delays in our operations, damage or destroy our equipment or facilities, and cause us to incur additional expenses and lose revenue.

A natural disaster (such as an earthquake, hurricane, fire, or flood), pandemics (including the COVID-19 pandemic), widespread power outage or internet failure or hack, or an act of terrorism could cause substantial delays in our operations, damage or destroy our equipment or facilities, and cause us to incur additional expenses and lose revenue.

The insurance we maintain against natural disasters may not be adequate to cover our losses in any particular case, which would require us to expend significant resources to replace any destroyed assets, thereby materially and adversely affecting our financial condition and prospects.

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Risks Related to the Tobacco Industry

We may be unsuccessful at commercializing our VLNC tobacco as a Modified Exposure Cigarette.

While we have recently received authorization for our MRTP application by the FDA, there are no guarantees regarding the commercial viability of our VLNC tobacco cigarettes.

To date, there has never been a comparable product sold in the marketplace and we have not yet generated any significant sales.

These products may not achieve consumer acceptance and may have low or unfavorable sales.

We may be unsuccessful in our efforts to commercialize our VLNC tobacco as a Modified Exposure Cigarette.

While we have received authorization for our MRTP application by the FDA and have been rolling out our VLN ® in select markets across the United States and abroad, there are no guarantees regarding the commercial viability of our VLNC tobacco cigarettes.

To date, there has never been a comparable product sold in the marketplace and we have only rolled out the cigarettes on a limited basis.

These products may not achieve consumer acceptance at levels that make the product commercially viable for profitable sales.

In addition, the process of rolling out such product and creating consumer awareness could take longer and cost more than we expect.

Further, on July 28, 2017, the FDA publicly announced that it intends to implement new regulations that will mandate minimally or non-addictive levels of nicotine in all cigarettes sold in the U.S.

There can be no assurance that the FDA will implement such new regulations or, if implemented, when

such regulations would take effect or whether such regulations would increase or create demand for our VLNC cigarettes.

There can be no assurance that the FDA will implement such new regulations or, if implemented, when such regulations would take effect or whether such regulations would increase or create demand for our VLNC cigarettes.

The commercial success of our VLNC tobacco cigarettes will depend on a number of factors, including, but not limited to our ability to:

● achieve, maintain and grow market acceptance of, and demand for, such products;

● our ability to market the product with the phrase “ Helps You Smoke Less ”;

● successfully create consumer awareness of such products;

● market the product with the phrase “ Helps You Smoke Less ”;

● maintain, manage or scale the necessary sales, marketing, manufacturing and other capabilities and infrastructure that are required to successfully commercialize such products;

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● compete with other similar products or new technologies (if any);

● obtain cost-effective distribution outlets;

● effectively sell our products into established markets where there is substantial market dominance by large tobacco enterprises.

If we are unsuccessful in commercializing our VLNC tobacco cigarettes, or such commercialization takes longer or costs more than we currently expect, our financial results, business and future prospects would be materially adversely effected.

We have no experience marketing and selling Modified Exposure Cigarettes and our working capital and inventory estimates based on demand expectations may be incorrect, which could harm our operating results and financial condition.

While members of management and our board of directors are experienced in the selling of conventional cigarette products, we have no experience in selling Modified Exposure Cigarettes or any hemp/cannabis plant-derived products on a commercial basis.

As we work towards commercializing one or more of our potential products for sale, including our VLN cigarettes, we intend to base our working capital and inventory decisions on management’s estimates of future demand.

We have limited experience marketing and selling Modified Exposure Cigarettes and our working capital and inventory estimates based on demand expectations may be incorrect, which could harm our operating results and financial condition.

While members of management and our board of directors are experienced in the selling of conventional cigarette products, we have limited experience in selling Modified Exposure Cigarettes.

As we work towards commercializing one or more of our potential products for sale, including our VLN cigarettes, we base our working capital and inventory decisions on management’s estimates of future demand.

If demand for such potential new products does not increase as quickly as we have estimated, our inventory costs and working capital expenses could rise, and our business and operating results could suffer.

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The manufacturing of tobacco products subjects us to significant governmental regulation and the failure to comply with such regulations could have a material adverse effect on our business and subject us to substantial fines or other regulatory actions.

Currently, most of the revenues of our manufacturing business are from the production of tobacco cigarettes and filtered cigars, including flavored cigars, made for third-party brand owners of such products and we anticipate generating future revenue from the sales of our VLNC cigarettes and other Modified Risk Tobacco products.

that manufacture and/or sell tobacco products face significant governmental regulation, especially in the United States pursuant to the Tobacco Control Act, including but not limited to efforts aimed at reducing the incidence of tobacco use, restricting marketing and advertising, imposing regulations on packaging, mandating warnings and disclosure of flavors or other ingredients, prohibiting the sale of tobacco products with certain flavors or other characteristics, requiring compliance with certain environmental standards, limiting or prohibiting the sale of tobacco products by certain retail establishments and the sale of tobacco products in certain packaging sizes, and seeking to hold retailers and distributors responsible for the adverse health effects associated with both smoking and exposure to environmental tobacco smoke.

Companies that manufacture and/or sell tobacco products face significant governmental regulation, especially in the United States pursuant to the Tobacco Control Act, including but not limited to efforts aimed at reducing the incidence of tobacco use, restricting marketing and advertising, imposing regulations on packaging, mandating warnings and disclosure of flavors or other ingredients, prohibiting the sale of tobacco products with certain flavors or other characteristics, requiring compliance with certain environmental standards, limiting or prohibiting the sale of tobacco products by certain retail establishments and the sale of tobacco products in certain packaging sizes, and seeking to hold retailers and distributors responsible for the adverse health effects associated with both smoking and exposure to environmental tobacco smoke.

Manufacturers of tobacco products must comply with FDA regulations which require, among other things, compliance with the FDA’s evolving regulations on Current Good Manufacturing Practices (“cGMP(s)”), which are enforced by the FDA through its facilities inspection program.

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We anticipate that new cases will continue to be filed.

The FCTC encourages litigation against tobacco

product manufacturers.

The FCTC encourages litigation against tobacco product manufacturers.

It is possible that our results of operations, cash flows, or financial position could be materially affected by an unfavorable outcome or settlement of litigation.

Our production facility is integral to our business and adverse changes or developments affecting our facility may have an adverse impact on our business.

Our NASCO facility is integral to our business.

Adverse changes or developments affecting this facility, including, but not limited to, disease or infestation of our raw materials , a fire, an explosion, a power failure, a natural disaster, an epidemic, pandemic or other public health crisis, or a material failure of our security infrastructure, could reduce or require us to entirely suspend operations.

Our NASCO production facility is integral to our tobacco business and adverse changes or developments affecting our facility may have an adverse impact on our business.

Our NASCO production facility is integral to our tobacco business.

Adverse changes or developments affecting this facility, including, but not limited to, disease or infestation of our raw materials , a fire, an explosion, a serious injury or fatality, a power failure, a natural disaster, an epidemic, pandemic or other public health crisis, or a material failure of our security infrastructure, could reduce or require us to entirely suspend operations.

A significant failure of our site security measures and other facility requirements, including failure to comply with applicable regulatory requirements, could have an impact on our ability to continue operating under our facility licenses and our prospects of renewing our licenses, and could also result in a suspension or revocation of these licenses.

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As with other agricultural commodities, the price of tobacco leaf can be influenced by imbalances in supply and demand, and crop quality can be influenced by variations in weather patterns, diseases, and pests.

This risk is greater for us, as there would be no alternative supply of VLNC tobacco in the event that

one of our growers experienced a material adverse event with respect to a particular VLNC tobacco crop or the quantity or quality was not as we anticipated, and we would not be able to supply leaf for our VLN ® cigarettes.

This risk is greater for us, as there would be no alternative supply of VLNC tobacco in the event that one of our growers experienced a material adverse event with respect to a particular VLNC tobacco crop or the quantity or quality was not as we anticipated, and we would not be able to supply leaf for our VLN ® cigarettes.

We must also compete with other tobacco companies for contract production with independent tobacco farmers.

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Any significant change in tobacco leaf prices or taxes, quality and quantity could affect our profitability and our business.

We intend to distribute and sell our products outside of the U.S., which will subject us to other regulatory risks.

In addition to the recent receipt of approval to market and sell our VLNC tobacco cigarettes as a Modified Exposure Cigarette in the U.S., we intend to seek governmental approvals required to market our VLNC tobacco cigarettes and our other products in other countries.

We distribute and sell our products outside of the U.S., which subjects us to other regulatory risks.

In addition to the approval to market and sell our VLNC tobacco cigarettes as a Modified Exposure Cigarette in the U.S., we continue to seek governmental approvals required to market our VLNC tobacco cigarettes and our other products in other countries.

Marketing of our products is not permitted in certain countries until we have obtained required approvals or exemptions in these individual countries.

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Some innovative tobacco products may reduce the health risks associated with certain other tobacco products, while continuing to offer adult tobacco consumers products that meet their taste expectations and evolving preferences.

Examples include tobacco-containing and nicotine-containing products that reduce or eliminate exposure to cigarette

smoke and/or constituents identified by public health authorities as harmful, such as electronically heated tobacco products, oral nicotine pouches, and e-vapor products.

Examples include tobacco-containing and nicotine-containing products that reduce or eliminate exposure to cigarette smoke and/or constituents identified by public health authorities as harmful, such as electronically heated tobacco products, oral nicotine pouches, and e-vapor products.

We may not succeed in our efforts to develop and commercialize any adjacent products.

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We face risks inherent in reliance on one manufacturing facility and a small number of key suppliers, distributors and distribution chain service providers.

A pandemic (including COVID-19), natural or man-made disaster or other disruption that affects the manufacturing operations, the operations of any key supplier, distributor or distribution chain service provider or any other disruption in the supply or distribution of goods or services (including a key supplier’s inability to comply with government regulations or unwillingness to supply goods or services to a tobacco company) could adversely impact our operations.

Some state governors also have issued executive orders requiring that certain businesses temporarily suspend operations for varying periods of time while the COVID-19 pandemic persists.

Our operations could be suspended temporarily once or multiple times, or closed permanently, depending on various factors, including how long the COVID-19 pandemic persists and the extent to which state, local and federal governments, as well as foreign countries, impose restrictions on the operation of facilities or otherwise place limits on the supply and distribution chains.

An extended disruption in operations or in the supply or distribution of goods or services by one or more key suppliers, distributors or distribution chain service providers could have a material adverse effect on our business.

The FDA could force the removal of our products from the U.S.

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our VLNC tobacco cigarettes, as well as the FDA could levy fines or change their regulations on advertising.

Any adverse action by the FDA could have a material adverse impact on our business.

Risk Factors Related to the Cannabis Industry

In addition, the authorization to market our VLN® cigarettes as MRTP products was granted for a period of five years, which is the maximum duration for a marketing granted order for such products under the Family Smoking Prevention & Tobacco Control Act (PUBLIC LAW 111–31—JUNE 22, 2009).

Consequently, the Company will need to reapply to FDA to under a new MRTP application to extend its marketing granted authorization beyond December 23, 2026.

The MRTP authorization process is a complex, substantial and lengthy regulatory undertaking.

The FDA may or may not grant continued authorization, based on FDA's assessment of whether the product application(s) satisfy the statutory requirements for such an order.

Any adverse action by the FDA to remove our products from the U.S.

market or the

failure to have our authorization to market our VLN ® cigarettes renewed would have a material adverse impact on our business.

A ban on menthol or flavored tobacco products could have a material adverse impact on our business.

On April 27, 2022, the FDA proposed new rules to prohibit menthol as a characterizing flavor in cigarettes and prohibit all characterizing flavors (other than tobacco) in cigars.

There has been increasing activity on the state and local levels with respect to scrutiny of menthol and flavored tobacco products, including a recent law passed by the State of California prohibiting tobacco retailers from selling most flavored and menthol tobacco products, including VLN® Menthol King.

If these proposed rules are finalized and implemented, if new rules are proposed or if additional states or governments pass laws similar to the State of California, we could be negatively impacted through decreased sales, a requirement to remove non-compliant tobacco products from the marketplace, associated interruptions in manufacturing or business disruptions.

In addition, although we expect that our VLN® Menthol King reduced nicotine cigarettes will be exempted from FDA’s menthol ban on cigarettes, there is no guarantee that they will be exempted by the FDA or any other state or local government.

Accordingly, the implementation of these proposed or new laws or rules may have a material adverse impact on our results of operations.

Risk Factors Related to the Hemp/Cannabis Industry

Negative press from being in the hemp/cannabis space could have a material adverse effect on our business, financial condition, and results of operations.

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Also, despite growing support for the marijuana industry and legalization of marijuana in certain U.S.

states, many individuals and businesses remain opposed to the

marijuana industry.

states, many individuals and businesses remain opposed to the marijuana industry.

Any negative press resulting from the incorrect perception that we have entered into the marijuana space could result in a loss of current or future business.

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In the event the U.S.

Department of Justice begins strict enforcement of the CSA in states that have laws legalizing medical and/or adult recreational marijuana, there may be a direct and adverse impact to any future business or prospects that we may have in the marijuana business.

Department of Justice begins strict enforcement of the CSA in states that have laws legalizing medical and/or adult

recreational marijuana, there may be a direct and adverse impact to any future business or prospects that we may have in the marijuana business.

Even in those jurisdictions in which the manufacture and use of medical marijuana has been legalized at the state level, the possession, use, and cultivation of marijuana all remain violations of federal law that are punishable by imprisonment and substantial fines.

Moreover, individuals and entities may violate federal law if they intentionally aid and abet another in violating these federal controlled substance laws or conspire with another to violate them.

We currently conduct sponsored research on hemp in Maryland and the Netherlands with third parties that possess all necessary permits and licenses to engage legally in such activities.

We have conducted hemp research in Virginia, Maryland, Oregon, Colorado, New York and Canada with third-parties possessing all necessary permits and licenses to engage legally in such activities.

In order to carry out research in other countries, similar licenses are required to be issued by the relevant authority in each country.

Local, state, federal, and international hemp and marijuana laws and regulations are broad in scope and subject to evolving interpretations, which could require us to incur substantial costs associated with compliance requirements.

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Any inability to produce hemp/cannabis products due to regulatory restrictions or otherwise would have a material adverse impact on our business and operations.

The cannabis industry and market are relatively new and evolving, which could impact our ability to succeed in this industry and market.

We are operating our business in a relatively new industry and market that is expanding globally.

To be competitive, we will need to innovate new products, build brand awareness and make significant investments in our business strategy and production capacity.

These investments include introducing new products into the markets in which we operate, adopting quality assurance protocols and procedures, building our international presence and undertaking research and development.

These activities may not promote our products as effectively as intended, or at all, and we expect that our competitors will undertake similar investments to compete with us for market share.

Competitive conditions, consumer preferences, regulatory conditions, patient requirements, prescribing practices, and spending patterns in this industry and market are relatively unknown and may have unique characteristics that differ from other existing industries and markets and that cause our efforts to further our business to be unsuccessful or to have undesired consequences.

As a result, we may not be successful in our efforts to develop new cannabis products and produce and distribute these products in time to be effectively commercialized, or these activities may require significantly more resources than we currently anticipate in order to be successful.

Research regarding the health effects of cannabis is in relatively early stages and subject to further study which could impact demand for cannabis products.

Research and clinical trials on the potential benefits and the short-term and long-term effects of cannabis use on human health remains in relatively early stages and there is limited standardization.

As such, there are inherent risks associated with using cannabis and cannabis derivative products.

Moreover, future research and clinical trials may draw opposing conclusions to statements contained in articles, reports and studies we relied on or could reach different or negative conclusions regarding the benefits, viability, safety, efficacy, dosing or other facts and perceptions related to cannabis, which could adversely affect social acceptance of cannabis and the demand for any products.

We have limited supply sources for industrial hemp, and price increases or supply shortages of key raw materials could materially and adversely affect our business, financial condition and results of operations.

Our hemp-based cannabinoid products are composed of certain key raw materials.

If the prices of such raw materials increase significantly, it could result in a significant increase in our product development costs.

If raw material prices increase in the future, we may not be able to pass on such price increases to our customers.

A significant increase in the price of industrial hemp or other raw materials that cannot be passed on to customers could have a material adverse effect on our business, financial condition and results of operations.

Our success will depend upon the availability of industrial hemp and other raw materials that permit us to meet our labeling claims and quality control standards.

The supply of our industrial hemp is subject to the same risks normally associated with agricultural production, such as climactic conditions, insect infestations and availability of manual labor or equipment for harvesting.

Any significant delay in or disruption of the supply of raw materials could substantially increase the cost of such materials, could require product reformulations, the qualification of new suppliers and repackaging and could result in a substantial reduction or termination by us of our sales of certain products, any of which could have a material adverse effect upon us.

Accordingly, there can be no assurance that the disruption of our supply sources will not have a material adverse effect on us.

Loss of key contracts with our customer and/or suppliers, renegotiation of such agreements on less favorable terms or other actions these third parties may take could harm our business.

Most of our agreements with customers and suppliers of our industrial hemp and hemp-derived products are short term.

The loss of these agreements, or the renegotiation of these agreements on less favorable economic or other terms, could limit our ability to procure raw material to manufacture and sell our products.

This could negatively affect our ability to meet consumer demand for our products.

Upon expiration or termination of these agreements, our competitors may be able to secure industrial hemp from our existing customers or suppliers which will put the company at a competitive disadvantage in the market.

Our hemp production and processing facilities are integral to our hemp business and adverse changes or developments affecting our facilities may have an adverse impact on our business.

Our hemp processing facilities are integral to our business and the licenses issued by applicable regulatory authorities is specific to each of these facilities.

Adverse changes or developments affecting these facilities, including, but not limited to, disease or infestation of our crops, a fire (such as the fire in our Grass Valley, Oregon manufacturing facility), an explosion, a power failure, a serious injury or fatality, a natural disaster, an epidemic, pandemic or other public health crisis, or a material failure of our security infrastructure, could reduce or require us to entirely suspend operations at the affected facilities.

While we believe that we maintain sufficient levels of insurance to potentially offset against the losses experienced in such an event, such insurance may not be sufficient to offset all of the costs and losses associated with such event (such as costs associated with finding temporary space and opportunity costs in the form of lost revenue or higher expenses) and in some events the insurance may not cover us at all.

With respect to our fire in Grass Valley, while we expect to collect insurance to offset against some of our losses, such insurance will likely not be sufficient to offset against the opportunity costs associated with losing one of our manufacturing facilities.

Some jurisdictions may never develop markets for cannabis.

Many jurisdictions place restrictions on or prohibit commercial activities involving cannabis.

Such restrictions or prohibitions may make it impossible or impractical for us to enter or expand our operations in such jurisdictions unless there is a change in law or regulation.

There is limited availability of clinical studies related to hemp-based products.

Although hemp plants have a long history of human consumption, there is little long-term experience with human consumption of certain of these innovative product ingredients or combinations thereof in concentrated form.

Although we perform research and/or tests the formulation and production of our products, there is limited clinical data regarding the safety and benefits of ingesting industrial hemp-based products.

Any instance of illness or negative side effects of ingesting industrial hemp-based products would have a material adverse effect on our business and operations.

Costs associated with compliance with various laws and regulations could negatively impact our financial results.

The manufacture, labeling and distribution of hemp-based cannabinoid products is regulated by various federal, state and local agencies.

These governmental authorities may commence regulatory or legal proceedings, which could restrict our ability to market such products in the future.

The FDA regulates our products to ensure that the products are not adulterated or misbranded.

We may also be subject to regulation by other federal, state and local agencies with respect to our hemp-based products.

Our advertising activities are subject to regulation by the FTC under the Federal Trade Commission Act.

In recent years, the FTC and state attorneys general have initiated numerous investigations of dietary and nutritional supplement companies and products.

Any actions or investigations initiated against us by governmental authorities or private litigants could have a material adverse effect on our business, financial condition and results of operations.

The shifting regulatory environment necessitates building and maintaining of robust systems to achieve and maintain compliance in multiple jurisdictions and increases the possibility that we may violate one or more of the legal requirements applicable to our business and products.

If our operations are found to be in violation of any applicable laws or regulations, we may be subject to penalties, including, without limitation, civil and criminal penalties, damages, fines, the curtailment or restructuring of our operations, injunctions, or product withdrawals, recalls or seizures, any of which could adversely affect our ability to operate our business, our financial condition and results of operations.

United States regulations relating to hemp-derived CBD products are unclear and rapidly evolving, and changes may not develop in the timeframe or manner most favorable to our business objectives.

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Unforeseen regulatory obstacles or compliance costs may hinder our ability to successfully compete in the market for such products.

International expansion of our business exposes us to additional regulatory risks and compliance costs.

As we expand to engage in the international sale of our hemp-derived products, we will become subject to the laws and regulations of the foreign jurisdictions in which we operate, or in which we import or export products or materials, including, but not limited to, customs regulations in the importing and exporting countries.

The varying laws and rapidly changing regulations may impact our operations and ability to ensure compliance.

In addition, we may avail itself of proposed legislative changes in certain jurisdictions to expand our product portfolio, which expansion may include unknown business and regulatory compliance risks.

Failure to comply with the evolving regulatory framework in any jurisdiction could have a material adverse effect on our business, financial condition and results of operations.

The cannabis industry and market are relatively new and evolving, which could impact our ability to succeed in this industry and market.

We are operating our business in a relatively new industry and market that is expanding globally.

To be competitive, we will need to innovate new products, build brand awareness and make significant investments in our business strategy and production capacity.

These activities may not promote our products as effectively as intended, or at all, and we expect that our competitors will undertake similar investments to compete with us for market share.

Research regarding the health effects of cannabis is in relatively early stages and subject to further study which could impact demand for cannabis products.

As such, there are inherent risks associated with using cannabis and cannabis derivative products.

We may be subject to product liability claims.

As a manufacturer and distributor of products designed to be ingested by humans, we face an inherent risk of exposure to product liability claims, regulatory action and litigation if our products are alleged to have caused significant loss or injury.

In addition, the manufacture and sale of hemp-derived products involve the risk of injury to consumers due to tampering by unauthorized third parties or product contamination.

Previously unknown adverse reactions resulting from human consumption of hemp-derived products alone or in combination with other medications or substances could occur.

We may in the future be subject to product liability claims that include, among others, our products caused injury or illness, incorrect labeling, inadequate instructions for use or inadequate warnings concerning possible side effects or interactions with other substances.

A product liability claim or regulatory action against us could result in increased costs, could adversely affect our reputation with our consumers generally, and could have a material adverse effect on our business, financial condition and results of operations.

There can be no assurances that we will be able to obtain or maintain product liability insurance on acceptable terms or with adequate coverage against potential liabilities.

Such insurance is expensive and may not be available in the future on acceptable terms, or at all.

The inability to obtain sufficient insurance coverage on reasonable terms or to otherwise protect against potential product liability claims could prevent or inhibit the commercialization of products.

The presence of trace amounts of THC in our products may cause adverse consequences to users of such products that will expose us to the risk of litigation, liability and other consequences.

Some of our products that contain hemp-derived CBD, or other hemp-derived cannabinoids, may contain trace amounts of THC.

THC is a controlled substance in many jurisdictions, including under the federal laws of the U.S.

Whether or not ingestion of THC (at low levels or otherwise) is permitted in a particular jurisdiction, there may be adverse consequences to consumers of our products who test positive for any amounts of THC because of the presence of trace amounts of THC in our hemp products.

In addition, certain metabolic processes in the body may negatively affect the results of drug tests.

Positive tests for THC may expose us to litigation from our consumers, adversely affect our reputation, our ability to obtain or retain customers and individuals’ participation in certain athletic or other activities.

A claim or regulatory action against us based on such positive test results could materially and adversely affect our business, financial condition, operating results, liquidity, cash flow and operational performance.

Our cannabis operations are subject to risks inherent in an agricultural business.

Our business involves the growing of cannabis, an agricultural product, in certain jurisdictions where that activity is permitted.

As such, the business is subject to the risks inherent in the agricultural business, such as insects, plant diseases and similar agricultural risks that may create crop failures and supply interruptions for our customers and there can be no assurance that such risks will not have a similarly material adverse effect on the production of our products.

Hemp is typically harvested in or around the month of October and can be vulnerable to various pathogens including bacteria, fungi, viruses and other miscellaneous pathogens.

Such instances often lead to reduced crop quality, stunted growth and/or death of the plant.

Moreover, hemp is “phytoremediative” (meaning that it may extract toxins or other undesirable chemicals or compounds from the ground in which it is planted).

Various regulatory agencies have established maximum limits for pathogens, toxins, chemicals and other compounds that may be present in agricultural materials.

If hemp used in our products is found to have levels of pathogens, toxins, chemicals or other undesirable compounds that exceed limits permitted by applicable law, it may have to be destroyed.

Should the hemp used in our products be lost due to pathogens, toxins, chemicals or other undesirable compounds, or if we or our suppliers are otherwise unable to obtain hemp for use in our products on an ongoing basis, it may have a material and adverse effect on our business, financial condition, operating results, liquidity, cash flow and operational performance.

Competition from the illicit cannabis market could impact our ability to succeed.

We face competition from illegal market operators that are unlicensed and unregulated including illegal dispensaries and illicit market suppliers selling cannabis and cannabis-based products.

As these illegal market participants do not comply with the regulations governing the cannabis industry, their operations may have significantly lower costs.

The perpetuation of the illegal market for cannabis may have a material adverse effect on our business, results of operations, as well as the perception of cannabis use.

Risks Related to Intellectual Property

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Patent applications in the United States are maintained in secrecy until the patents are published or are issued.

Since publication of discoveries in the scientific or patent literature tends to lag behind actual discoveries by several months, we cannot be certain that we are the first

creator of inventions covered by pending patent applications or the first to file patent applications on these inventions.

Since publication of discoveries in the scientific or patent literature tends to lag behind actual discoveries by several months, we cannot be certain that we are the first creator of inventions covered by pending patent applications or the first to file patent applications on these inventions.

We also cannot be certain that our pending patent applications will result in issued patents or that any of our issued patents will afford protection against a competitor.

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There also can be no assurance that we can maintain such listing on the NASDAQ.

If we are ever no longer listed on the NASDAQ or other national stock exchange in the future, then it would be more difficult to dispose of shares or to obtain accurate quotations

as to the market value of our common stock compared to securities of companies whose shares are traded on national stock exchanges.

If we are ever no longer listed on the NASDAQ or other national stock exchange in the future, then it would be more difficult to dispose of shares or to obtain accurate quotations as to the market value of our common stock compared to securities of companies whose shares are traded on national stock exchanges.

Our stock price may be highly volatile and could decline in value.

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The following factors, in addition to other risk factors described in this section, may have a significant impact on the market price of our common stock:

● failure or discontinuation of any of our research programs;

● delays in establishing new strategic relationships;

● delays in the development of our potential products and commercialization of our potential products;

● market conditions in our sector and issuance of new or changed securities analysts’ reports or recommendations;

● general economic conditions, including adverse changes in the global financial markets;

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In addition, in the future, we may need to record litigation reserves with respect to these matters.

Further, regardless of how these matters proceed, it could divert our management’s attention and other resources away from our business.

regardless of how these matters proceed, it could divert our management’s attention and other resources away from our business.

Future sales of our common stock will result in dilution to our common stockholders.

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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