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Item 1A. Risk Factors

2024-03-28 compared with 2023-03-09 · 138 added, 222 removed, 248 unchanged (59% of the section changed)

Risk Factors-

You should carefully consider the risk factors set forth below and in other reports that we file from time to time with the Securities and Exchange Commission and the other information in this Annual Report on Form 10-K.

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Risks Related to Our Business and Operations

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

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.

Our inability to successfully achieve positive cash flows and profitability will decrease our long-term viability and prospects.

We have a history of losses, and we expect to incur significant expenses and continuing losses for the foreseeable future and there is substantial doubt regarding our ability to continue as a going concern.

We have incurred significant losses and negative cash flows from operations since inception and expect to incur additional losses until such time that we can generate significant revenue and profit in our tobacco business, which casts substantial doubt regarding our ability to continue as a going concern.

As of March 25, 2024, we had cash and cash equivalents of approximately $2.2 million.

Doubts about our ability to continue as a going concern have and could continue to negatively impact our relationships with our commercial partners and our ability, as part of our cost-cutting measures, to obtain, maintain, restructure and/or terminate agreements with them, or negatively impact our negotiating leverage with such parties, which could have a material adverse effect on our business, financial condition and results of operations or result in litigation.

Furthermore, any loss of key personnel, employee attrition or material erosion of employee morale arising out of doubts about our ability to operate as a going concern could have a material adverse effect on our ability to effectively conduct our business, and could impair our ability to execute our business plan, thereby having a material adverse effect on our business, financial condition and results of operations.

We need additional funding to execute our business plan and to continue operations even with the proceeds from recent warrant inducement and exchange concluded in February 2024.

We continue to seek and evaluate opportunities to raise additional funds through the issuance of our securities, asset sales, and through arrangements with strategic partners.

If capital is not available to us when, and in the amounts needed, we could be required to liquidate our inventory and assets, cease or curtail operations, or seek protection under applicable bankruptcy laws or similar state proceedings.

There can be no assurance that we will be able to raise the capital we need to continue our operations.

Without additional capital, we will be unable to continue our operations in the future.

We may be unable to comply with the covenants in our senior secured debentures.

Our senior secured debentures contain customary representations, warranties and covenants including among other things and subject to certain exceptions, covenants that restrict us from incurring additional indebtedness, creating or permitting liens on assets, making or holding any investments, repaying outstanding indebtedness, paying dividends or distributions and entering into transactions with affiliates.

We are also required to maintain certain quarterly revenue targets.

As a result of these covenants, our ability to respond to changes in business and economic conditions and engage in beneficial transactions, including to obtain additional financing as needed, may be restricted.

Furthermore, our failure to comply with the covenants could result in a default under such agreements, which could permit the debt holders to accelerate our obligation to repay the debt.

Although we recently received a waiver with respect to our compliance with such covenants, there is no assurance that we will be able to secure a similar waiver for the failure to comply with any future covenants.

If any of our debt is accelerated, we likely would not have sufficient funds available to repay it.

Substantially all of our assets, including intellectual property, are collateralized under the debentures.

If such debt is accelerated, we could be required to liquidate our inventory, cease or curtail operations, or seek protection under applicable bankruptcy laws or similar state proceedings.

Additionally, the senior secured debentures may be converted into shares of the Company’s common stock on the earlier of (i) June 30, 2024 and (ii) the public announcement of a Fundamental Transaction (as defined in the senior secured debentures).

If the senior secured debentures are converted into common stock in whole or in part, the existing stockholders could incur significant dilution in their relative percentage ownership.

The prospect of this possible dilution may also impact the price of our common stock.

We could continue to incur restructuring and impairment charges as we continue to pursue a cost cutting initiative and pursue strategic alternatives.

We continue to evaluate opportunities to optimize the cost structure of our operations in order to implement a cost savings initiative.

The actions driven from these opportunities could result in significant charges which could adversely affect our financial condition and results of operations.

Future actions could result in restructuring and related charges, including but not limited to impairments and employee termination costs and costs associated with terminating contracts that could be significant.

We have incurred significant impairment charges for long-lived assets, including goodwill and intangible assets, which are subject to periodic impairment analysis and review, and remain subject to the potential for additional charges.

Identifying and assessing whether impairment indicators exist, or if events or changes in circumstances have occurred, including market conditions, operating results, competition and general economic conditions, requires significant judgment.

Any of the above future actions could result in charges that could have an adverse effect on our financial condition and results of operations.

The cost-cutting initiatives have led, and may continue to lead, to legal claims by service providers and other third-parties.

Any resulting litigation could be costly and time consuming and an unfavorable outcome could have a significant adverse effect on our business.

Our competitors generally have, and any future competitors may have, greater financial resources and name recognition than we do, and they may therefore develop products or other technologies similar or superior to ours, or otherwise compete more successfully than we do.

In the tobacco industry, we are competing with large tobacco companies and large pharmaceutical companies that have greater resources that us.

We are competing with large tobacco companies and large pharmaceutical companies that have greater resources that us.

The tobacco industry consists of major domestic and international companies, most of which have existing relationships in the markets in which we plan to sell, as well as financial, technical, research and development, marketing, sales, manufacturing, scaling capacity, distribution, lobbying and other resources and name recognition substantially greater than ours.

In addition, we expect new competitors will enter the markets for similar tobacco products in the future and the nature and extent of this market entrance cannot be quantified at this time.

In the cannabis industry, many large companies are entering into the cannabis space, along with smaller regional companies and competition from the black market.

Potential customers may choose to do business with more established competitors because of their perception that our competitors are more stable, can scale operations more quickly, have greater manufacturing capacity, have robust marketing and sale programs and lend greater credibility to governmental regulators and others.

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

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

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.

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.

If our competitors develop very low nicotine tobacco without infringing on our intellectual property or other products that are less expensive, safer or otherwise more appealing than our VLNC cigarettes or any of our other potential products, or that reach the market before ours, we may not achieve commercial success.

Currently, there are numerous companies developing Modified Risk Tobacco products, working to develop low nicotine tobacco and other tobacco alternative products in an effort to provide products that are potentially safer for human consumption or to otherwise assist consumers to cease or begin to switch from smoking.

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 and many companies are selling hemp and cannabis-derived products.

If our competitors develop very low nicotine tobacco without infringing on our intellectual property or other products that are less expensive, safer or otherwise more appealing than our RNC cigarettes or any of our other potential products, or that reach the market before ours, we may not achieve commercial success.

Currently, there are numerous companies developing products for which they may submit MRTPAs, working to develop low nicotine tobacco and other tobacco alternative products to provide products that are potentially safer for human consumption or to otherwise assist consumers to cease or begin to switch from smoking.

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 RNC tobacco and cigarettes obsolete, which would have a material adverse impact on our business and operations and our ability to achieve profitability.

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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● 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;

● develop tobacco with superior traits to ours;

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

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

Even if we develop marketable products, we may not be able to obtain the necessary approvals or marketing authorizations for these potential products or our anticipated time of bringing these potential products to the market may be substantially delayed.

Even if we develop marketable products, we may not be able to obtain the necessary marketing authorizations for these potential products or our anticipated time of bringing these potential products to the market may be substantially delayed.

The development of new products is costly, time-consuming, and has no guarantee of success.

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 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 have in the past invested in other companies and may do so in the future, 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 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.

Many of our acquisitions in the past have not yielded the results or synergies that we anticipated.

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

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Moreover, the anticipated benefits of any acquisition, investment, or business relationship may not be realized or we may be exposed to unknown liabilities, including litigation against the companies that we may acquire.

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

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.

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.

The failure of our information systems to function as intended or their penetration by outside parties with the intent to corrupt them could result in business disruption, litigation and regulatory action, and loss of revenue, assets, or personal or confidential data (cybersecurity).

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We have backup systems and business continuity plans in place, and we take care to protect our systems and data from unauthorized access.

However, a failure of our systems to function as intended, or penetration of our systems by outside parties intent on extracting or corrupting information or otherwise disrupting business processes, could place us at a competitive disadvantage, result in a loss of revenue, assets or personal or other sensitive data, litigation and regulatory action, cause damage to our reputation and that of our brands and result in significant remediation and other costs.

However, a failure of our systems to function as intended, or penetration of our systems by outside parties intent on extracting or corrupting information or otherwise disrupting business processes, could interrupt our business and place us at a competitive disadvantage, result in a loss of revenue, assets or personal or other sensitive data, litigation and regulatory action, cause damage to our reputation and that of our brands and result in significant remediation and other costs.

Any cybersecurity incident could cause substantial harm to our business and result in regulatory action, fines, and/or substantial costs.

We have limited experience in managing growth.

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, 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.

As such, we may be unable to manage our growth effectively and such failure would have a material adverse impact on our operations.

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), 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.

A natural disaster (such as an earthquake, hurricane, fire, or flood), pandemics, 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.

Other global incidents could have a similar effect of disrupting our business to the extent they reach and impact the areas in which we operate, the availability of inventory we need, the customers we serve, the partners on whom we rely for products or services or the employees who operate our businesses.

For example, the outbreak of COVID-19 or another pandemic could disrupt our supply chain for tobacco, as well as negatively impact employee productivity, including affecting the availability of employees reporting for work.

For example, another pandemic or comparable heath concern could disrupt our supply chain for tobacco, as well as negatively impact employee productivity, including affecting the availability of employees reporting for work.

Any business interruption caused by such unforeseen events could have a material adverse impact on our business and operations.

Our prior operations in the hemp/cannabis space could have a material adverse effect on our business, financial condition, and results of operations.

We previously operated in the cannabis space.

The hemp plant and the marijuana plant are both part of the same cannabis genus of plant, except that hemp, by definition, has not more than 0.3% THC content and is legal under the federal 2018 Farm Bill and certain state laws, but the same plant with a higher THC content is defined as marijuana, which is legal under certain state laws, is not legal under federal law.

The similarities between these plants can cause confusion, and our previous activities with legal hemp may be incorrectly perceived as us having been involved in federally illegal marijuana.

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.

Any negativity resulting from our prior cannabis operations could result in a loss of current or future business.

It could also adversely affect the public’s perception of us and lead to reluctance by new parties to do business with us or to own our common stock.

We cannot assure you that additional business partners, including but not limited to financial institutions, banking institutions and customers, will not attempt to end or curtail their relationships with us.

Any such negative press or cessation of business could have a material adverse effect on our business, financial condition, and results of operations.

Risks Related to the Tobacco Industry

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.

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;

We may be unsuccessful in our efforts to commercialize our RNC tobacco using the reduced exposure claims authorized by the FDA.

While the FDA issued an exposure modification order in connection with our MRTPA and we have been commercializing our VLN ® cigarettes in select markets across the United States, there are no guarantees regarding the commercial viability of our RNC tobacco cigarettes.

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

We have obtained an exposure modification order for our VLN ® cigarettes, which enables us to make certain claims regarding the reduction of nicotine within these products.

Specifically, we are permitted to market the products with the claims “95% less nicotine,” “helps reduce your nicotine consumption,” and “greatly reduces your nicotine consumption,” and we are required to use the claim “helps you smoke less” in connection with the other authorized claims;

we may not market our VLN cigarettes for claims that have not been authorized pursuant to an FDA order.

Although we believe these claims have the potential to increase our product sales, these products may never achieve consumer acceptance at levels that make the product commercially viable for profitable sales.

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

In addition, even if we believe that certain legislative or regulatory changes may increase product demand, such as the proposals that FDA has historically made with respect to requiring minimally or non-addictive levels of nicotine in all cigarettes sold in the U.S., there can be no assurance that such regulations, if implemented, would increase or create demand for our RNC cigarettes.

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

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

● successfully create consumer awareness of such products;

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

● market the product with the phrase “ Helps You Smoke Less ” and any other required warnings or statements;

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

● grow or otherwise maintain an adequate supply of VLNC tobacco;

● grow or otherwise maintain an adequate supply of RNC tobacco;

● maintain and extend intellectual property protection for such products;

● comply with applicable legal and regulatory requirements, including FDA and MSA regulations on advertising;

● comply with applicable legal and regulatory requirements, including FDA and MSA regulations or requirements with respect to product advertising and our obligations in connection with our PMTAs and MRTPs;

● competitively price our products;

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● 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.

If we are unsuccessful in commercializing our RNC 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 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.

Alternatively, if we experience sales in excess of our estimates, our working capital and inventory needs may be higher than those currently anticipated.

Since our VLNC tobacco is not widely available and must be grown specifically for our potential products, any shortage in such tobacco could prevent us from increasing sales to meet demand and any surplus could result in inventory obsolescence and become a total loss.

While members of management and our board of directors are experienced in the selling of conventional cigarette and other consumer products, we have limited experience in introducing a new low nicotine category for selling our VLN cigarettes pursuant to an exposure modification order.

As we work to commercialize one or more of our 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, demands on working capital, expenses could increase, and our business and operating results could suffer.

Alternatively, if we experience sales that exceed our estimates, our working capital and inventory needs may be higher than those currently anticipated.

Since our RNC tobacco is not widely available and must be grown specifically for our potential products, any shortage in such tobacco could prevent us from increasing sales to meet demand and any surplus could result in inventory obsolescence and become a total loss.

Our inability to incorrectly estimate demand for future products could negatively harm our operating results and financial condition.

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.

The manufacturing and sale 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.

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.

The Tobacco Control Act requires manufacturers of tobacco products to, among other things, provide the FDA with a list of ingredients added to tobacco products in the manufacturing process and register any establishment engaged in the manufacture, preparation, or processing of a tobacco product.

The manufacture of products is subject to strict quality control, testing and record-keeping requirements, and continuing obligations regarding the submission of safety reports and other post-market information.

We cannot guarantee that our current manufacturing facility will pass FDA inspections and/or similar inspections in foreign countries to produce our tobacco products, or that future changes to cGMP manufacturing standards will not also negatively affect the cost or sustainability of our manufacturing facility.

We and our customers for whom we manufacture tobacco products also face significant governmental regulation, including efforts aimed at reducing the incidence of tobacco use.

Actions by the FDA and other federal, state or local governments or agencies may impact the adult tobacco consumer acceptability of or access to tobacco products (for example, through product standards proposed by the FDA for nicotine and flavors including menthol), delay or prevent the launch of new or modified tobacco products or products with claims of reduced risk, require the recall or other removal of tobacco products from the marketplace, impose additional manufacturing, labeling or packing requirements, interrupt manufacturing or otherwise significantly increase the cost of doing business.

The Tobacco Control Act also authorizes the FDA to promulgate regulations requiring that the methods used in, and the facilities and controls used for, the manufacture, preproduction design validation, packing, and storage of a tobacco product conform to current good manufacturing practice (“CGMP”).

On March 8, 2023, the FDA issued a proposed rule to promulgate such CGMP regulations.

The proposed rule, if finalized, would establish requirements for manufacturers of finished and bulk tobacco products on the methods used in, and the facilities and controls used for, the manufacture, pre-production design validation, packing, and storage of tobacco product.

We cannot guarantee that our current manufacturing facility or any other manufacturing will successfully complete FDA inspections and/or similar inspections in foreign, or that future CGMP regulations will not also negatively affect the cost or sustainability of our manufacturing facility.

Our failure to comply with applicable manufacturing regulations could result in sanctions being imposed on us, including fines, injunctions, civil penalties, delays, suspension or withdrawal of marketing orders, seizures or recalls, operating restrictions and criminal prosecutions, any of which could significantly and adversely affect our financial position.

In addition, we and our customers for whom we manufacture tobacco products also face significant governmental regulation, including efforts aimed at reducing the incidence of tobacco use.

We also cannot predict the likelihood, nature or extent of government regulation that may arise from future legislation or administrative action, either in the United States or abroad.

Actions by the FDA and other foreign, federal, state or local governments or agencies may impact the adult tobacco consumer acceptability of or access to tobacco products (for example, through product standards proposed by the FDA for nicotine and flavors including menthol), delay or prevent the launch of new or modified tobacco products or products with reduced exposure claims,

require the recall or other removal of tobacco products from the marketplace, impose additional manufacturing, labeling or packing requirements, interrupt manufacturing or otherwise significantly increase the cost of doing business.

Any one or more of these actions may have a material adverse impact on us or the business of our customers for whom we make tobacco products, which could have a negative impact on our results of operations.

We expect significant regulatory developments to take place over the next few years in many markets, driven principally by the World Health Organization’s Framework Convention on Tobacco Control (“FCTC”).

For example, the Tobacco Control Act requires the FDA to issue new cigarette health warnings that would include a color graphic component depicting the negative health consequences of smoking.

In March 2020, the FDA published a final rule fulfilling this statutory requirement.

The final rule, entitled “Required Warnings for Cigarette Packages and Advertisements,” specifies the 11 new textual warning label statements and accompanying color graphics that manufacturers would have to include with cigarette packaging and advertisements.

On December 7, 2022, the U.S.

District Court for the Eastern District of Texas vacated the final rule, and the case is currently pending before the U.S.

Court of Appeals for the Fifth Circuit.

It is possible that significant regulatory developments will take place over the next few years across global markets, driven principally by the World Health Organization’s Framework Convention on Tobacco Control (“FCTC”).

The FCTC is the first international public health treaty on tobacco, and its objective is to establish a global agenda for tobacco regulation with the purpose of reducing initiation of tobacco use and encouraging cessation.

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The variability in pleadings, together with the actual experience of management in litigating claims, demonstrates that the monetary relief that may be specified in a lawsuit bears little relevance to the ultimate outcome.

Damages claimed in some tobacco-related litigation are significant and, in certain cases, range into the billions of dollars.

Damages claimed in some tobacco-related litigations are significant and, in certain cases, range into the billions of dollars.

We anticipate that new cases will continue to be filed.

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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 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.

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

Our 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.

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Product liability claims, product recalls, or other claims could cause us to incur losses or damage our reputation.

The risk of product liability claims or product recalls, and associated adverse publicity, is inherent in the development, manufacturing, marketing, and sale of tobacco products.

The risk of product liability claims, product recalls, and associated adverse publicity, is inherent in the development, manufacturing, marketing, and sale of tobacco products.

Any product recall or lawsuit seeking significant monetary damages may have a material adverse effect on our business and financial condition.

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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 RNC tobacco in the event that one of our growers experiences a material adverse event with respect to a particular RNC 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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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.

The regulatory review process varies from country to country, and approval by foreign governmental authorities is unpredictable, uncertain, and generally expensive.

Our ability to market our potential products could be substantially limited due to delays in receipt of, or failure to receive, the necessary approvals or clearances.

In addition to the authorization to market and sell our RNC tobacco cigarettes using modified risk claims in the U.S., we continue to seek governmental authorizations required to market our RNC tobacco cigarettes and our other products in other countries.

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

The regulatory review process varies from country to country, and authorization by foreign governmental authorities is unpredictable, uncertain, and generally expensive.

Our ability to market our potential products could be substantially limited due to delays in receipt of, or failure to receive, the necessary authorizations or exemptions.

We anticipate commencing the applications required in some or all of these countries in the future.

Failure to obtain necessary regulatory approvals could impair our ability to generate revenue from international sources.

Failure to obtain necessary regulatory authorizations or exemptions could impair our ability to generate revenue from international sources.

We may become subject to governmental investigations on a range of matters.

Tobacco companies are often subject to investigations, including allegations of contraband shipments of cigarettes, allegations of unlawful pricing activities within certain markets, allegations of underpayment of custom duties and/or excise taxes, and allegations of false and misleading usage of descriptors such as “lights” and “ultra-lights.” We cannot predict the outcome of any investigations to which we may become subject, but we may be materially affected by an unfavorable outcome of potential future investigations.

Our business model inherently loses customers.

Our VLN ® cigarette is designed to help people smoke less and eventually quit smoking completely.

If our product is successful, we will lose customers as a result.

A significant loss in VLN ® customers, or our inability to add new VLN ® customers faster than we lose customers, could prevent our VLN ® business from growing and have a material negative impact on the results of our operations.

We may be unsuccessful in anticipating changes in adult consumer preferences, responding to changes in consumer purchase behavior or managing through difficult competitive and economic conditions, which could have an adverse effect on business.

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● protect or enhance margins through cost savings and price increases.

The willingness of adult consumers to purchase premium consumer tobacco products, such as our VLNC cigarettes, depends in part on economic conditions.

The willingness of adult consumers to purchase premium consumer tobacco products, such as our RNC cigarettes, depends in part on economic conditions.

In periods of economic uncertainty, adult consumers may purchase more discount brands and/or, in the case of tobacco products, consider lower-priced tobacco products, which could have a material adverse effect on the business and profitability.

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Adverse developments on any of these matters could negatively impact the commercial viability of such products.

If we do not succeed in their efforts to develop and commercialize innovative tobacco products or to obtain regulatory approval for the marketing or sale of products, including with claims of reduced risk, but one or more of our competitors does succeed, we may be at a competitive disadvantage, which could have an adverse effect on our ability to commercialize our products.

If we do not succeed in our efforts to develop and commercialize innovative tobacco products or to obtain or maintain regulatory authorizations for the marketing or sale of products, including for the use of claims of reduced exposure, but one or more of our competitors does succeed, we may be at a competitive disadvantage, which could have an adverse effect on our ability to commercialize our products.

An extended disruption at a facility or in service by a supplier, distributor or distribution chain service provider could have a material adverse effect on our business.

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The FDA could, among other things, force us to remove from the U.S.

market our VLNC tobacco cigarettes even after the FDA authorization on December 17, 2019 of our PMTA or the authorization of our MRTP application on December 23, 2021, for us to market in the U.S.

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

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.

market our RNC tobacco cigarettes even after the FDA authorization on December 17, 2019 of our PMTA for us to market our RNC tobacco cigarettes, or the authorization of our MRTP application on December 23, 2021, to enable us to use certain modified exposure claims with respect to our VLN® cigarettes.

In addition, the exposure modification order that enables us to market our VLN® cigarettes as MRTPs 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, we will need to reapply to FDA under a new MRTP application to extend the FDA’s exposure modification order 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.

The FDA may or may not grant continued authorization of these product claims, including based on FDA's assessment of whether the product application(s) satisfy the statutory requirements for such an order, and whether we have adequately complied with the conditions imposed on us in connection with the FDA’s exposure modification order, such as requirements relating to recordkeeping, reporting and post-market studies.

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

market, including the termination or non-renewal of the exposure modification orders for our VLN ® cigarettes 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.

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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.

In addition, although we believe 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.

The similarities between these plants can cause confusion, and our activities with legal hemp may be incorrectly perceived as us being involved in federally illegal marijuana.

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.

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.

It could also adversely affect the public’s perception of us and lead to reluctance by new parties to do business with us or to own our common stock.

Any such negative press or cessation of business could have a material adverse effect on our business, financial condition, and results of operations.

Any business-related cannabinoid production is dependent on laws pertaining to the hemp/cannabis industry .

On December 20, 2018, the Agricultural Improvement Act of 2018, which is also known as the “2018 Farm Bill,” was enacted and legalized hemp and hemp products under U.S.

federal law, but with compliance still being required with all applicable state hemp laws and all regulations developed by the United States Department of Agriculture (“USDA”).

In addition, the FDA is regulating products derived from hemp, including cannabidiol (“CBD”), for compliance under the Federal Food, Drug and Cosmetic Act and has issued several warning letters to firms marketing CBD products to treat disease or for other therapeutic uses.

Under the Federal Food, Drug and Cosmetic Act, any product intended to affect the structure or function of the body of humans or animals is considered a drug that must receive premarket approval by the FDA through its new drug application process.

Thus, participants in the hemp industry will need to comply with all applicable federal and state laws, rules and regulations in the cultivation, transportation, and sale of hemp and hemp derived products, including the Federal Food, Drug and Cosmetic Act.

Numerous states and countries have enacted laws and/or regulations that recognize, in one form or another, legitimate medical uses for cannabis/marijuana and consumer use of cannabis/marijuana in connection with medical treatment and a smaller subset have legalized cannabis/marijuana for adult recreational use.

Many other states are considering similar legislation.

Conversely, under the federal Controlled Substance Act (the “CSA”), the policies and regulations of the federal government and its agencies are that marijuana has no medical benefit and a range of activities are prohibited, including cultivation, possession, personal use, and interstate distribution of marijuana.

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.

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.

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.

In addition, violations of these laws, or allegations of such violations, could disrupt our business and result in a material adverse effect on our operations.

In addition, it is possible that regulations may be enacted in the future that will be directly applicable to our proposed business regarding cannabinoid production.

It is also possible that the federal government will begin strictly enforcing existing laws, which may limit the legal uses of the hemp plant and its derivatives and extracts, such as cannabinoids.

However, our work in hemp would continue since hemp research, development, and commercialization activities are permitted under applicable federal and state laws, rules, and regulations.

We cannot predict the nature of any future laws, regulations, interpretations, or applications, nor can we determine what effect additional governmental regulations or administrative policies and procedures, when and if promulgated, could have on our activities in the legal hemp industry.

A key aspect of the revised strategy for cannabis is to reach an agreement with third parties to research characteristics of the cannabis plant and commercialize patented products through the value chain.

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

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.

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.

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.

Any participation in the market for hemp-derived CBD products in the United States and elsewhere may require us to employ novel approaches to existing regulatory pathways.

Although the passage of the 2018 Farm Bill legalized the cultivation of hemp in the United States to produce products containing CBD and other non-THC cannabinoids, it remains unclear how the FDA will regulate these products, and whether and when the FDA will propose or implement new or additional regulations.

While, to date, there are no laws or regulations enforced by the FDA which specifically address the manufacturing, packaging, labeling, distribution, or sale of hemp or hemp-derived CBD products and the FDA has issued no formal regulations addressing such matters, the FDA has issued various guidance documents and other statements reflecting its non-binding opinion on the regulation of such products.

The FDA has stated in guidance and other public statements that it is prohibited to sell a food, beverage or dietary supplement to which THC or CBD has been added.

While the FDA does not have a formal policy of enforcement discretion with respect to any products with added CBD, the agency has stated that its primary focus for enforcement centers on products that put the health and safety of consumers at risk, such as those claiming to prevent, diagnose, mitigate, treat, or cure diseases in the absence of requisite approvals.

The FDA could also issue new regulations that prohibit or limit the sale of hemp-derived CBD products.

Such regulatory actions and associated compliance costs may hinder our ability to successfully compete in the market for any products.

In addition, any products may be subject to regulation at the state or local levels.

State and local authorities have issued their own restrictions on the cultivation or sale of hemp or hemp-derived CBD.

This includes laws that ban the cultivation or possession of hemp or any other plant of the cannabis genus and derivatives thereof, such as CBD.

State regulators may take enforcement action against food and dietary supplement products that contain CBD, or enact new laws or regulations that prohibit or limit the sale of such products.

The regulation of hemp and CBD in the United States has been constantly evolving, with changes in federal and state laws and regulation occurring on a frequent basis.

Violations of applicable FDA and other laws could result in warning letters, significant fines, penalties, administrative sanctions, injunctions, convictions or settlements arising from civil proceedings.

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 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 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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This could result in experiments to try to reduce nicotine levels in tobacco plants to levels that may satisfy the planned new nicotine reduction regulations coming from the FDA.

There can be no assurance about whether any third-parties will or will not be successful in such efforts, how long or short in time such efforts will entail and/or if such efforts will or will not infringe other genes and other intellectual property on which we have continuing patent protection that would need to be used, in combination with QPT, to result in VLNC tobacco.

If independent researchers or our competitors are able to successfully reduce nicotine levels in tobacco plants without violating our patent protections, our ability to license our technology would be negatively impacted and we would likely face increased competition.

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Moreover, if our competitors independently develop equivalent knowledge, we would lack any contractual claim to this information, and our business could be harmed.

The ability to commercialize our potential products will depend on our ability to sell such products without infringing the patent or proprietary rights of third parties.

The ability to commercialize our existing and potential products will depend on our ability to sell such products without infringing the patent or proprietary rights of third parties.

If we are sued for infringing intellectual property rights of third parties, such litigation could be costly and time consuming and an unfavorable outcome could have a significant adverse effect on our business.

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If a third-party claims that we infringe on its patents or other proprietary rights, we could face a number of issues that could seriously harm our competitive position, including:

● infringement claims that, with or without merit, can be costly and time consuming to litigate, can delay the regulatory approval process, and can divert management’s attention from our core business strategy;

● infringement claims that, with or without merit, can be costly and time consuming to litigate, can delay regulatory authorization processes, and can divert management’s attention from our core business strategy;

● substantial damages for past infringement which we may have to pay if a court determines that our products or technologies infringe upon a competitor’s patent or other proprietary rights;

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The NCSU licenses relate predominately to issued patents, and our exclusive rights in the NCSU licenses are expected to expire in 2042.

Our worldwide sublicense from Anandia, a plant biotechnology company based in Vancouver, Canada, grants us exclusive rights in the United States and co-exclusive rights with Anandia everywhere else in the world (except not in Canada where Anandia retains exclusive rights) to certain patents and patent applications relating to certain genes in the hemp/cannabis plant that are required for the production of cannabinoids, the “active ingredients” in the cannabis plant.

The Anandia sublicense continues through the life of the last-to-expire patent, which is expected to be in 2035.

If any of our license agreements or other intellectual property agreements are not effective at preventing others from competing with us and/or using our intellectual property, our business could be adversely affected.

Risks Related to Ownership of Our Common Stock

Nasdaq may delist our common stock from trading on its exchange which could limit investors’ ability to make transactions in our common stock and subject us to additional trading restrictions.

Our common stock is currently listed on the Nasdaq Capital Market (“NASDAQ”).

If Nasdaq delists our common stock from trading on its exchange, we could face significant material adverse consequences, including:

● a limited availability of market quotations for our common stock;

● reduced liquidity with respect to our securities;

● a determination that shares of our common stock are “penny stock” which will require brokers trading in our shares to adhere to more stringent rules, possibly resulting in a reduced level of trading activity in the secondary trading market for our shares;

● a limited amount of news and analyst coverage;

● a decreased ability to issue additional common stock or obtain additional financing in the future.

On November 7, 2023, the Company received a deficiency letter from the Nasdaq Listing Qualifications Department notifying the Company that, for the last 30 consecutive business days, the closing bid price for the Company’s common stock has been below the minimum $1.00 per share required for continued listing on The Nasdaq Capital Market pursuant to Nasdaq Listing Rule 5550(a)(2) (“Rule 5550(a)(2)”).

In accordance with Nasdaq Listing Rule 5810(c)(3)(A), the Company has been given 180 calendar days, or until May 5, 2024, to regain compliance with Rule 5550(a)(2).

If the Company does not regain compliance with Rule 5550(a)(2) by May 5, 2024, the Company may be afforded a second 180 calendar day period to regain compliance.

To qualify, the Company would be required to meet the continued listing requirement for market value of publicly held shares and all other initial listing standards for the Nasdaq Capital Market, except for the minimum bid price requirement.

In addition, the Company would be required to provide written notice to Nasdaq of its intent to cure the deficiency during the second compliance period.

The Company intends to monitor the closing bid price of its common stock and may, if appropriate, consider implementing available options to regain compliance with the Minimum Bid Price Requirement under the Nasdaq Listing Rules such as a reverse stock split.

On January 24, 2024, the stockholders approved a proposal to amend the Company’s Articles of Incorporation to effect a reverse stock split of the Company’s outstanding common stock at a ratio between 1-for-2 and 1-for-16, to be determined at the discretion of the Board of Directors, for the purpose of complying with the Nasdaq Listing Rules, subject to the Board or Directors’ discretion to abandon such amendment.

The Company has not implemented the reverse stock split as of March 25, 2024.

An active trading market for our common stock may not be sustained and you may not be able to resell your shares at or above the price at which you purchased them.

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In the absence of an active trading market for our common stock, shares of common stock may not be able to be resold at or above the purchase price of such shares.

Although there can be no assurances, we expect that our common stock will continue to be listed on the NASDAQ Capital Market (“NASDAQ”).

Although there can be no assurances, we expect that our common stock will continue to be listed on the NASDAQ.

However, even if our common stock continues to be listed on the NASDAQ, there is no assurance that an active market for our common stock will continue in the foreseeable future.

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We are currently involved in certain litigation matters, including securities class action and derivative litigation.

See "Item 3 – Legal Proceedings"

included in this Annual Report on Form 10-K.

See "Item 3 – Legal Proceedings" included in this Annual Report on Form 10-K.

We cannot at this time predict the outcome of these matters or any future litigations matters (whether related or unrelated) or reasonably determine the probability of a material adverse result or reasonably estimate range of potential exposure, if any, that these matters or any future matters might have on us, our business, our financial condition or our results of operations, although such effects, including the cost to defend, any judgements or indemnification obligations, among others, could be materially adverse to us.

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

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

Further, 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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Any provision of our amended and restated articles of incorporation, our bylaws or Nevada law that has the effect of delaying or deterring a change in control of our Company could limit the opportunity for our stockholders to receive a premium for their shares of our common stock and could also affect the price that some investors are willing to pay for our common stock.

Item 1B 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