Item
1.01 Entry into a Material Definitive Agreement.
On
July 11, 2019, Canbiola, Inc. (the “Company” or “CANB”) entered into a Joint Venture Agreement (the “Agreement”)
with NY – SHI, LLC, a New York limited liability company (“NY – SHI”), EWSD I LLC dba SHI Farms, a Delaware
limited liability company (“SHI Farms”), NY Hemp Depot LLC, a Nevada limited liability company and wholly-owned subsidiary
of CANB (“Canbiola Sub”). Pursuant to the Agreement, NY – SHI and Canbiola Sub entered into a joint venture
for the purpose of jointly implementing a business model referred to as the “Depot Model” (the “Joint Venture”)
to aggregate and purchase fully-grown, harvested industrial hemp from third-party farmers (“Farmers”) in the State
of New York. The Joint Venture may also sell feminized seeds, clones, and additional materials required to grow and cultivate
industrial hemp to the Farmers and provide the Farmers with initial training reasonably required for them to be able to grow industrial
hemp and maximize CBD potency.
Pursuant
to the Agreement, NY – SHI agreed to provide (i) technical expertise regarding the growth and cultivation of industrial
hemp, (ii) certain products that may include feminized hemp seeds and/or clone plants to sell to the Farmers, (iii) growing technology
and expertise to grow, cultivate, and harvest industrial hemp, including the initial training of Farmers to grow industrial hemp
and maximize CBD potency, (iv) use of its cultivating license, which shall be amended to add a New York hemp depot facility (the
“NY Hemp Depot Facility”) once such facility is obtained by Canbiola Sub, and (v) services for the recruitment of
Farmers to grow and cultivate industrial hemp for sale to the Joint Venture.
Canbiola
Sub agreed to provide (i) a building for the operation of the NY Hemp Depot Facility, (ii) location services in connection with
its securing the building for the NY Hemp Depot Facility, (iii) management and other services for the day-to-day operation of
the Joint Venture, and (iv) services for the recruitment of Farmers to grow and cultivate industrial hemp for sale to the Joint
Venture. Canbiola Sub shall have full and complete discretion to manage and control the business and affairs of the Joint Venture,
to make all decisions affecting the business and affairs of the Joint Venture, and to take all such actions as it deems necessary
or appropriate to accomplish the purposes of the Joint Venture. Notwithstanding the foregoing, unanimous consent between NY –
SHI and Canbiola Sub is required for certain transactions, including but not limited to amending the Agreement, obligating the
Joint Venture to pay an excess of $20,000 for any transaction or series of transactions, and terminating the Joint Venture.
As
consideration for the foregoing, Canbiola Sub delivered to NY – SHI a cash payment of $500,000.00 upon execution of the
Agreement. Additionally, within 30 days of the transactions contemplated by the Agreement closing, CANB will issue and deliver
$500,000.00 in value of its Common Stock to NY – SHI;
provided, however
, that the NY – SHI’s cultivating
license shall have been amended to add the NY Hemp Depot Facility as a condition to such issuance. SHI Farms has also agreed to
sell certain isolate to Canbiola or its designated affiliate at a discounted rate equal to the cost of processing the isolate
from biomass and granted Canbiola Sub an interest in the 1.5% payments due to SHI Farms in connection with its separate agreements
with Mile High Labs.
The
“gross profits” from the Joint Venture, which are defined as gross revenues less certain direct operational costs,
will be distributed quarterly in arrears with the first distribution scheduled to be made on March 31, 2020, of which 70% is to
be distributed to Canbiola Sub and 30% is to be distributed to NY – SHI.
The
Agreement otherwise contains standard terms and conditions. The foregoing discussion is for summary purposes only and is qualified
in its entirety by the actual terms of the Agreement, which is included herewith as an Exhibit.
Forward-
Looking Statements
Statements
contained in this Current Report that are not statements of historical fact are intended to be and are hereby identified as “forward-looking
statements” for purposes of the safe harbor provided by the Private Securities Litigation Reform Act of 1995. Generally,
forward-looking statements include expressed expectations of future events and the assumptions on which the expressed expectations
are based. All forward-looking statements are inherently uncertain as they are based on various expectations and assumptions concerning
future events and they are subject to numerous known and unknown risks and uncertainties which could cause actual events or results
to differ materially from those projected. The Company undertakes no obligation to update or revise this Current Report to reflect
future developments except as otherwise required by the Securities Exchange Act of 1934.