Impact of Current Coronavirus (COVID-19)
Pandemic on our Company
On March 11, 2020, the
World Health Organization (“WHO”) declared the COVID-19 outbreak to be a global pandemic. In addition to the devastating effects
on human life, the pandemic is having a negative ripple effect on the global economy, leading to disruptions and volatility in the global
financial markets. Most U.S. states and many countries have issued policies intended to stop or slow the further spread of the disease.
COVID-19 and the Canadian
and U.S.’s response to the pandemic are significantly affecting the economy. There are no comparable events that provide guidance
as to the effect the COVID-19 pandemic may have, and, as a result, the ultimate effect of the pandemic is highly uncertain and subject
to change. We do not yet know the full extent of the effects on the economy, the markets we serve, our business or our operations.
While the COVID-19 pandemic had an effect on our
ability to complete this Report and our financial statements included herein in a timely manner, the impact on our business is indeterminable.
Nonetheless a material portion of our future business is dependent on successfully consummating acquisitions discussed below. In the event
that quarantine and social distancing rules are put in place and continue through such time then we may be materially adversely affected,
as our ability to meet with the sellers and arrange for relevant financing may cause delays or otherwise negatively affect our efforts.
History
We were originally incorporated in the State of
Colorado in August 1998 under the name “Network Acquisitions, Inc.” We changed our name to Cavion Technologies, Inc. in February
1999 and subsequently to Concord Ventures, Inc. in October 2006.
On December 21, 2000, we filed for protection
under Chapter 11 of the United States Bankruptcy Code. In connection with the filing, on February 16, 2001, we sold our entire business,
and all of our assets, for the benefit of our creditors. After the sale, we still had liabilities of $8.4 million and were subsequently
dismissed by the Court from the Chapter 11 reorganization, effective March 13, 2001, at which time the last of our remaining directors
resigned. On March 13, 2001, we had no business or other source of income, no assets, no employees or directors, outstanding liabilities
of approximately $8.4 million and had terminated our duty to file reports under securities law. In February 2008, we were re-listed on
the OTC Bulletin Board.
In April 2010, we re-domiciled in Delaware under
the name CCVG, Inc. (“CCVG”). Effective December 31, 2010, CCVG completed an Agreement and Plan of Merger and Reorganization
(the “Reorganization") which provided for the merger of two of our wholly-owned subsidiaries. As a result of this reorganization,
our name was changed to “Golden Dragon Inc.”, which became the surviving publicly quoted parent holding company.
On May 9, 2014, we entered into a Share Purchase
Agreement (the “Share Purchase Agreement”) with CannaPharmaRx, Inc., a Colorado corporation (“Canna Colorado”),
and David Cutler, a former President, Chief Executive Officer, Chief Financial Officer and director of our Company. Under the Share Purchase
Agreement, Canna Colorado purchased 1,421,120 shares of our common stock from Mr. Cutler and an additional 9,000,000 restricted common
shares directly from us.
On May 15, 2014, as amended and effective
January 29, 2015, we entered into an Agreement and Plan of Merger (the “Merger”) pursuant to which Canna Colorado became a
subsidiary of our Company.
In October 2014, we changed our legal name to
“CannaPharmaRx, Inc.”
Pursuant to the Merger all of the shares of our
common stock previously owned by Canna Colorado were canceled. As a result of the aforesaid transactions,
we became an early-stage pharmaceutical company whose purpose was to advance cannabinoid research and discovery using proprietary formulation
and drug delivery technology then under development.
In April
2016, we ceased operations. Our then management resigned their respective positions with our Company with the exception of Mr. Gary Herick,
who remained one of our officers and directors until April 23, 2019.
Effective December 31, 2018, the Company and Hanover
CPMD Acquisition Corp. (“CPMD Hanover”) a newly formed, wholly-owned subsidiary, entered into a Securities Purchase Agreement
with Alternative Medical Solutions, Inc., an Ontario, Canada corporation (“AMS”), its shareholders, wherein the Company acquired
all of the issued and outstanding securities of AMS. AMS is a corporation organized under the laws of the Province of Ontario, Canada.
It is a late-stage marijuana licensed producer applicant in Canada. It is currently in the Pre-License Inspection and Licensing phase,
which is Stage 5 of 6, with a fully approved license. Upon completion of the final construction of the facility, Health Canada will inspect
the facility and relevant operating procedures to ensure it meets the standards that have been approved in the application. There can
be no assurances that the Company will receive this license.
The facility is a 48,750 square foot marijuana
grow facility built on a 6.7-acre parcel of land located in Hanover, Ontario, Canada. To date, the exterior construction of the building
has been completed. However, no interior construction has begun. Upon full completion, the facility will contain up to 20 separate growing
rooms which we believe will provide an annual production capacity of 9,500 kilos of marijuana (20,900 lbs.). Completion of the build-out
of the facility is expected to take an estimated 20 weeks. Together with the remaining equipment needed to complete the grow the Company
estimates that it will require approximately CAD$20.0 million in additional financing which it may seek to raise via equity and debt.
There can be no assurances that the Company will successfully raise the financing required to complete the construction of the facility
and begin cultivation.
As a result of the completion of the acquisition
of AMS on December 31, 2019, the Company no longer fits the definition of a “shell company,” as defined in Rule 405 of the
Securities Act and Rule 12b-2 of the Exchange Act. It filed the required disclosure on Form 8-K/A with the SEC on February 14, 2019, advising
that it was no longer a shell company pursuant to the aforesaid Rule.
Effective February 25, 2019, the Company acquired
3,936,500 shares and 2,500,000 Warrants to purchase 2,500,000 shares of Common Stock of GN Ventures, Ltd, Alberta, Canada, f/k/a Great
Northern Cannabis, Ltd. (“GN”), in exchange for an aggregate of 7,988,963 shares of its Common Stock, from a former shareholder
of GN who is now the Company’s President and CEO. While no assurances can be provided, the Company believes this is the initial
step in its efforts to acquire all or a significant portion of the issued and outstanding stock of GN. In May 2020, the Company exchanged
5,507,400 of its shares for 3,671,597 shares of GN.
GN owns a 60,000 square foot cannabis cultivation
and grow facility located on 38 acres in Stevensville, Ontario, Canada. Because the Company is a minority shareholder of GN and GN is
a privately held company, the Company cannot confirm that the information it currently has on GN’s operations is complete or fully
reliable. GN estimates annual total production capacity from the Stevensville facility of up to 12,500 kilograms of cannabis. GN believes
the Stevensville facility to be complete, and GN’s subsidiary, 9869247 Canada Limited, received a license to cultivate from the
Canadian Ministry of Health on July 5, 2019. As a result, in October 2019, GN commenced cultivation activities and began generating revenues
during the first calendar quarter of 2020. The Company expects that it will obtain additional information on the business activities of
GN as it has renewed discussions to acquire additional interests and is performing its due diligence procedures.
Effective June 11, 2019, the Company entered into
a Securities Purchase Agreement with Sunniva, Inc, a British Columbia, Canada corporation (“Sunniva”) wherein the Company
agreed to acquire all of the issued and outstanding securities of Sunniva’s wholly-owned subsidiaries Sunniva Medical Inc. (“SMI”)
and 1167025 B.C. LTD (“1167025”) for CAD $16.0 million in cash and a note in the principal amount of CAD $4.0 million. These
companies are the current owners of the Sunniva Canada Campus, which includes construction assets for a planned 759,000 square-foot greenhouse
located on an approximately 114-acre property in Okanagan Falls, British Columbia.
On June 8, 2020, the Company received a notice
of termination of this Purchase Agreement, as amended, from Sunniva. As a result, the Company incurred a charge of $1,881,126 due to the
write-off of its deposit to Sunniva, banking fees and prepaid expenses associated with the failed acquisition of Sunniva. The Company
is in discussions with Sunniva, as well as an investment banker who received deposits from the Company, about recovering all or a portion
of its deposits, banking fees, and prepaid expenses.
Description of Current Business
We are involved in the cannabis industry in Canada.
Our principal business activities to date have been to negotiate, acquire and develop various cannabis cultivation projects throughout
Canada. We are also looking at possible opportunities in the US but as of the date of this Report we do not own or operate any businesses
in the US.
Our activities to date have centered around three
projects, including (i) the Hanover Project; (ii) the Great Northern Project; and (iii) the acquisition of Sunniva Medical, Inc. and development
of a state of the art cannabis cultivation facility. Following is a description of each of these projects, how we have or intend to acquire
the same and the current status of each:
Hanover Project
Effective November 19, 2018, we entered into a
Securities Purchase Agreement with Alternative Medical Solutions, Inc., an Ontario, Canada corporation (“AMS”), its shareholders
and Hanover CPMD Acquisition Corp., wherein we acquired all of the issued and outstanding securities of AMS. As part of the material terms
of this transaction, we also agreed to acquire all of the outstanding shareholder loans held by the principal shareholder of AMS. The
purchase price was CAD$12,700,000, of which CAD$1,012,982 was paid at closing and we assumed debt of approximately CAD$650,000. The principal
shareholders of AMS elected to receive 971,765 shares of our Common Stock in lieu of CAD$985,000 in additional cash. We granted the holders
of these shares “piggyback” registration rights but we have not yet filed a registration statement to cause us to register
these shares with the SEC. The balance of approximately CAD$10,000,000 is to be paid pursuant to the terms of a relevant subordinated
non-interest bearing promissory note, secured only by the shares acquired in AMS Principal payments under the Promissory Note are due
quarterly and are computed based upon 50% of AMS' cash flow, defined as EBITDA less all capital expenditures, taxes incurred, non-recurring
items and other non-cash items for the relevant fiscal quarter, including the servicing of all senior debt payment obligations of the
company. The Promissory Note matures the earlier of two years from the date AMS receives a license to cultivate or December 31, 2021.
As of the date of this report, we are not producing any cannabis on this property. We are currently reviewing our proposed activities
on this project. Much of how we elect to proceed will depend upon our success in closing and funding other potential acquisitions. If
we are successful in closing other transactions, we see no need to develop an additional cultivation facility on this location. It is
possible that we will elect to develop a cannabis extraction facility on this property or sell it.
Relevant thereto, in January 2019 we also entered
into a two year Consulting Agreement with Stephen Barber, a founder and principal shareholder of AMS, to assist us in our ongoing discussions
and negotiations with various governmental agencies, including the City of Hanover and Province of Ontario, whereby we agreed to pay (i)
a consulting fee of US$225,000, payable on or before April 30, 2019, along with a monthly fee of CAD$1,500 and (ii) an option to purchase
up to 500,000 shares of our common stock at an exercise price of USD$1.00 per share, which option shall expire November 19, 2020. Further,
we agreed to repurchase 45,000 shares of the stock issued to him as part of the AMS acquisition for CAD$33,750 (USD$0.75 per share) on
or before April 30, 2019. As of December 31, 2020, per the terms of these agreements we owed the balance of CAD$700,000 to Mr. Barber,
which is past due as of the date of this Report. However, we are currently reviewing whether Mr. Barber has performed pursuant to the
terms of the Consulting Agreement. See “Part I, Item 3, Legal Proceedings” below.
The AMS cultivation facility is a 48,750 square
foot cannabis grow facility built on a 6.7-acre parcel of land located in Hanover, Ontario Canada. To date, exterior construction of the
building has been completed, however, no interior construction has begun. Upon full completion, the facility will contain up to 20 separate
growing rooms which we believe will provide annual production capacity of 9,500 kilos of cannabis (20,900 lbs.). Together with the
remaining equipment needed to complete the grow facility we estimate that we will require approximately CAD$20 million in additional financing
which we will seek to raise via equity and debt. While no definitive decision has been made, as of the date of this Report we are considering
converting the building to a cannabis extraction facility or sell the property.
Great Northern Acquisition
In early 2019 we retained new members of management
who are actively engaged in the Canadian cannabis industry, including former management of GN Ventures, Ltd, Alberta, Canada, f/k/a Great
Northern Cannabis, Ltd. (“GN”). Not coincidentally, effective February 25, 2019, we acquired 3,936,500 shares and 2,500,000
Warrants to purchase 2,500,000 shares of Common Stock of GN in exchange for an aggregate of 7,988,963 shares of our Common Stock, from
our current CEO, who is a former shareholder of GN. We believe this is the initial step in our efforts to acquire all of the issued and
outstanding stock of GN. In May 2020 we agreed to acquire an additional 3,671,597 shares of GN common stock in exchange for an aggregate
of 5,507,400 shares of our Common Stock. We presently own 7,608,097 shares of GN common stock which we believe, based on information provided
by the management of GN, equals approximately 10% of the total issued and outstanding shares of GN common stock. Additionally, we own
Warrants to purchase an additional 2,500,000 shares of GN common stock with each Warrant having an exercise price of CAD$1.00 per share.
We intend to continue to acquire the common stock of GN in one or multiple additional transactions.
GN owns a 60,000 square foot cannabis cultivation
and grow facility located on 38 acres in Stevensville, Ontario, Canada. Because we are minority shareholders of GN and GN is a privately
held company, we cannot confirm that the information we currently have on their operations is complete or fully reliable. We have been
verbally advised that, once completed, GN estimates annual total production capacity from the Stevensville facility of up to 12,500 kilograms
of cannabis. GN believes the Stevensville facility to be complete, and GN’s subsidiary, 9869247 Canada Limited, received a license
to cultivate from the Canadian Ministry of Health on July 5, 2019. As a result, in October 2019 we believe that GN has commenced cultivation
activities and began generating revenues during the first calendar quarter of 2020. Additionally, it is our current understanding that
GN intends to increase cannabis production by building additional cannabis cultivation facilities on the excess land presently owned adjacent
to the existing Stevensville facility, provided that additional funding can be obtained on commercially reasonable terms. GN does not
have any firm commitment to provide any of the funds necessary for expansion as of the date of this Report. We cannot state any definitive
information concerning Great Northern because it is a privately held Canadian company who is keeping their business activities confidential.
We expect that we will obtain additional information on the business activities of GN once we renew discussions to acquire additional
interests and can perform our due diligence.
Growth by Acquisition
We also plan to grow through the acquisition of
related, complementary businesses. In doing so we expect to increase revenues and profits by providing a broader range of services in
vertical markets which are consolidated under one parent, thus realizing synergies between the brands to increase sales on multiple fronts;
reducing overhead costs by streamlining operations; and eliminating duplicitous efforts and costs. There are no assurances that we will
increase profitability if we are successful in acquiring other synergistic companies.
If we are successful, the acquisition of related,
complementary businesses is expected to increase revenues and profits by providing a broader range of services in vertical markets which
are consolidated under one parent, thus reducing overhead costs by streamlining operations and eliminating duplicitous efforts and costs.
There are no assurances that we will increase profitability if we are successful in acquiring other synergistic companies.
Management continues to seek out and evaluate
related, complementary businesses for acquisition. The integrity and reputation of any potential acquisition candidate will first be thoroughly
reviewed to ensure it meets with management’s standards. Once targeted as a potential acquisition candidate, we will enter into
negotiations with the potential candidate and commence due diligence evaluation, including its financial statements, cash flow, debt,
location and other material aspects of the candidate’s business. It is our intention to utilize the issuance of our securities as
part of the consideration that we will pay for these proposed acquisitions. If we are successful in our attempts to acquire synergistic
companies utilizing our securities as part or all of the consideration to be paid, our current shareholders will incur dilution.
In implementing a structure for a particular acquisition,
we may become a party to a merger, consolidation, reorganization, joint venture, or licensing agreement with another corporation or entity.
We may also acquire stock or assets of an existing business.
As part of our investigation, our officers and
directors will meet personally with management and key personnel, may visit and inspect material facilities, obtain independent analysis
of verification of certain information provided, check references of management and key personnel, and take other reasonable investigative
measures, to the extent of our limited financial resources and management expertise. The manner in which we participate in an acquisition
will depend on the nature of the opportunity, the respective needs, and desires of the parties, the management of the acquisition candidate
and our relative negotiation strength.
We will participate in an acquisition only after
the negotiation and execution of appropriate written agreements. Although the terms of such agreements cannot be predicted, generally
such agreements will require some specific representations and warranties by all of the parties thereto, will specify certain events of
default, will detail the terms of closing and the conditions which must be satisfied by each of the parties prior to and after such closing,
will outline the manner of bearing costs, including costs associated with our attorneys and accountants, will set forth remedies on default
and will include miscellaneous other terms.
Depending upon the nature of the acquisition,
including the financial condition of the acquisition company, as a reporting company under the Securities Exchange Act of 1934 (the “34
Act”), it may be necessary for such acquisition candidate to provide independent audited financial statements. If so required, we
will not acquire any entity which cannot provide independent audited financial statements within a reasonable period of time after closing
of the proposed transaction. If such audited financial statements are not available at closing, or within time parameters necessary to
ensure our compliance with the requirements of the 34 Act, or if the audited financial statements provided do not conform to the representations
made by the candidate to be acquired in the closing documents, the closing documents will provide that the proposed transaction will be
voidable, at the discretion of our present management. If such transaction is voided, the agreement will also contain a provision providing
for the acquisition entity to reimburse us for all costs associated with the proposed transaction.
We are presently in discussion with other companies
operating in the cannabis industry regarding a potential acquisition. However, there can be no assurance we will be successful consummating
any additional acquisitions in the future, nor can there be any assurance we will have access available to equity and debt financing required
to consummate any transaction in the future.
For a complete description of our business, financial
condition, results of operations and other important information, we refer you to our filings with the SEC that are incorporated by reference
in this Annual Report, including our Annual Report on Form 10-K for the year ended December 31, 2020 and our Quarterly Reports on Form
10-Q for the periods ended March 31, 2020, June 30, 2020 and September 30, 2020. For instructions on how to find copies of these documents,
see the section entitled “Where You Can Find More Information”.
Financial Information about Industry Segments
We do not report our revenues
or expenses by segment. See financial statements.
Employees
We currently employ four (4) employees, including
our current officers and a Director of Finance.
We anticipate that we will retain additional employees
as we develop our existing projects and close additional acquisitions in the future, of which there is no assurance. We believe that there
are a sufficient number of potential qualified employees available. No employee is a member of any union. We believe our relationship
with our employees is satisfactory.
Competition
We are competing with
other companies, both publicly held and private, who are also seeking to acquire or otherwise consolidate with an existing Canadian cannabis
business. Many of our competitors have greater resources, both financial and otherwise, than the resources presently available to us.
Intellectual
Property
We currently do not hold
any patents or patent applications.
Government
Regulation
It is our intention to continue to emphasize the
cannabis industry in our search for business opportunities, specifically in Canada but are also currently considering opportunities in
the United States in states that have approved cannabis legalization. However, as of the date of this Report cannabis is still considered
a Schedule 1 controlled substance under US federal law. A Schedule I controlled substance is defined as a substance that has no currently
accepted medical use in the United States, a lack of safety for use under medical supervision and a high potential for abuse. The Department
of Justice defines Schedule 1 controlled substances as “the most dangerous drugs of all the drug schedules with potentially severe
psychological or physical dependence.”
If the Federal Government decides to enforce the
Controlled Substances Act in any state in which we own an interest in a cannabis operation, persons that are charged with distributing,
possessing with intent to distribute, or growing marijuana could be subject to fines and terms of imprisonment, the maximum being life
imprisonment and a $50 million fine. Any such change in the Federal Government’s enforcement of current federal laws could cause
significant financial damage to us if we are able to acquire or develop a cannabis related operation in the US. If so, we may be irreparably
harmed by a change in enforcement by the federal or state governments.
As of the date of this Report, 11 states and the
District of Columbia have legalized adult use cannabis. There are 23 other states where medical marijuana has been legalized. The state
laws are in conflict with the Federal Controlled Substances Act, which makes marijuana use and possession illegal on a national level.
Previously, the Obama administration took the
position that it was not an efficient use of resources to direct federal law enforcement agencies to prosecute those lawfully abiding
by state-designated laws allowing the use and distribution of medical marijuana. The Trump administration has revised this policy. Specifically,
the Department of Justice (“DOJ”) vacated the Cole Memorandum in favor of deferral of any enforcement of federal regulation
to the individual states. However, certain other protections remain in place via budgetary element embedment (Rohrabacher-Farr amendment
now referred to as the Rohrabacher-Blumenauer Amendment), which limits funding of any enforcement of anti-cannabis legislation. The Department
of Justice has stated that it will continue to enforce the Controlled Substance Act with respect to marijuana to prevent:
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the distribution of marijuana to minors;
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criminal enterprises, gangs and cartels receiving revenue from the sale of marijuana;
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the diversion of marijuana from states where it is legal under state law to other states;
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state-authorized marijuana activity from being used as a cover or pretext for the trafficking of other illegal drugs or other illegal activity;
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violence and the use of firearms in the cultivation and distribution of marijuana;
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driving while impaired and the exacerbation of other adverse public health consequences associated with marijuana use;
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the growing of marijuana on public lands; and
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marijuana possession or use on federal property.
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Since the use of marijuana is illegal under federal
law, federally chartered banks will not accept for deposit funds from businesses involved with marijuana. Consequently, businesses involved
in the marijuana industry often have trouble finding a bank willing to accept their business. The inability to open bank accounts may
make it difficult for us to operate. There does appears to be recent movement to allow state-chartered banks and credit unions to provide
banking to the industry, but as of the date of this Report there are only nominal entities that have been formed that offer these services.
Although cultivation and distribution of marijuana
for medical use is permitted in many states, provided compliance with applicable state and local laws, rules, and regulations, marijuana
is illegal under federal law. Strict enforcement of federal law regarding marijuana would likely result in the inability to implement
our business plan in the US and could expose us and our management to potential criminal liability and subject our properties to civil
forfeiture. Though the cultivation and distribution of marijuana remains illegal under federal law, H.R. 83, enacted by Congress on December
16, 2014, provides that none of the funds made available to the DOJ pursuant to the 2015 Consolidated and Further Continuing Appropriations
Act may be used to prevent states from implementing their own laws that authorize the use, distribution, possession, or cultivation of
medical marijuana. However, state laws do not supersede the prohibitions set forth in the federal drug laws.
Canadian Regulations
Summary of the Cannabis Act
On October 17, 2018, the Cannabis Act (Canada)
(the “Cannabis Act”) and the Cannabis Regulations (Canada) (the “Cannabis Regulations”) came
into force as law with the effect of legalizing adult recreational use of cannabis across Canada. The Cannabis Act and the Cannabis Regulations
incorporate the Access to Cannabis for Medical for Medical Purposes Regulations (the “ACMPR”), which came into
force in Canada on August 24, 2016 and were previously made under the CDSA (as defined herein). New Industrial Hemp Regulations,
SOR 2018-145 were also made under the Cannabis Act, which replaced the Industrial Hemp Regulations that were previously made under the
CDSA.
When the Cannabis Act came into force, cannabis
was removed from Schedule II to the Controlled Drugs and Substances Act (Canada) (the “CDSA”). Prior to the
Cannabis Act coming into force, the ACMPR permitted access to cannabis for medical purposes for Canadians who had been authorized to use
cannabis by their health care practitioner. The ACMPR replaced the Marihuana for Medical Purposes Regulations (Canada) (the “MMPR”),
which was implemented in June 2013. The MMPR replaced the Marihuana Medical Access Regulations (Canada) (the “MMAR”),
which was implemented in 2001. Like the ACMPR, the MMPR and MMAR were both promulgated under the CDSA and represent initial steps in the
Government of Canada’s regulation of medical cannabis and eventual legalization and regulation of adult-use recreational cannabis.
The Cannabis Act and the Cannabis Regulations
permit the recreational use of cannabis by adults and regulate the production, distribution, promotion and sale of cannabis products (as
defined therein) in Canada, for both recreational and medical purposes. Under the Cannabis Regulations, Canadians who are authorized by
their health care practitioner to use medical cannabis have the option of purchasing cannabis from one of the producers licensed by Health
Canada and are also able to register with Health Canada to produce a limited amount of cannabis for their own medical purposes or to designate
an individual who is registered with Health Canada to produce cannabis on their behalf for personal medical purposes.
Pursuant to the Cannabis Act, and subject to provincial
regulations, individuals over the age of 18 are able to purchase cannabis products from authorized retailers and are able to legally possess
up to 30 grams of dried cannabis, or the equivalent amount. As of the date of this Prospectus, the permitted classes of cannabis that
an authorized person may sell include: dried cannabis, cannabis oil, fresh cannabis, cannabis plants, cannabis plant seeds, edible cannabis,
cannabis extracts and cannabis topicals. The Cannabis Act also permits households to grow a maximum of four cannabis plants. This limit
applies regardless of the number of adults that reside in the household. In addition, the Cannabis Act provides provincial and territorial
governments the authority to prescribe regulations regarding use, retail and distribution, as well as the ability to alter some of the
existing baseline requirements of the Cannabis Act, such as increasing the minimum age for purchase and consumption and setting rules
around promotion of cannabis products within the province or territory.
The Cannabis Regulations, among other things,
set out requirements relating to licensing, including key personnel and security requirements; good production practices; cannabis products;
packaging and labelling; and access to cannabis for medical purposes. They are summarized below.
Licenses
The Cannabis Regulations establish six classes
of licenses under the Cannabis Act: cultivation; processing; analytical testing; sale to individual clients for medical purposes; research;
and cannabis drug production. It also provides for subclasses of cultivation (standard cultivation, micro-cultivation and nursery) and
processing (standard processing and micro-processing).
Key Personnel and Security Clearances
The Cannabis Regulations require that license
holders retain certain key personnel, depending on the class of license. Holders of a license for cultivation, processing and sale must
retain a responsible person (who serves as the main point of contact with Health Canada) and head of security. Holders of a license for
cultivation must also retain a master grower, and holders of a license for processing must retain a quality assurance person.
The Cannabis Regulations require a valid security
clearance issued by the Minister (as defined in the Cannabis Act) for certain people associated with cannabis licensees. Security clearances
must be held by directors, officers, individuals who exercise, or are in a position to exercise, direct control over a corporate licensee,
directors and officers of any corporation that exercises, or is in a position to exercise, direct control over a corporate licensee and
the key personnel noted above (responsible person, head of security, master grower and quality assurance person) and any other individuals
identified by the Minister. The Minister may refuse to grant security clearances at its discretion to individuals or associations, such
as those involved in organized crime or individuals with prior convictions for, or an association with, drug trafficking, corruption or
violent offences (individuals with histories of non-violent, lower-risk criminal activity, for example, simple possession of cannabis,
or small-scale cultivation of cannabis plants are not precluded from participating in the legal cannabis industry).
Good Production Practices and Cannabis Products
Part 5 of the Cannabis Regulations establishes
the good production practices which must be met prior to the sale, distribution or export of cannabis, and Part 6 of the Cannabis Regulations
establishes rules for cannabis products, including permitted/prohibited ingredients and amounts of THC (Tetrahydrocannabinol). These require
that cannabis and anything that will be used as an ingredient must be produced, packaged, labelled, distributed, stored, sampled and tested
in accordance with standard operating procedures that are designed to ensure that those activities are conducted in accordance with the
applicable requirements of Parts 5 (Good Production Practices) and Part 6 (Cannabis Products).
The good production practices requirements relate
to storage, distribution, the design and construction of buildings, filtration and ventilation systems, water supply, lighting, equipment,
sanitation programs and testing.
Part 6 of the Cannabis Regulations sets standards
for the safe consumption of cannabis products, in respect of being free from biological and chemical contaminants and also limits the
amounts of THC in cannabis products.
Cannabis Tracking System
Under the Cannabis Act, the Minister established
and maintains a national cannabis tacking system, which is called The Cannabis Tracking and Licensing System (the “CTLS”).
The CTLS provides an online secure platform for filing applications for licenses and security clearances under the Cannabis Regulations.
Through the cannabis supply chain, the CTLS also tracks cannabis from federal cannabis license holders to individual medical clients,
or from federal cannabis license holders to recreational market channels. The tracking function of the CTLS serves to limit the diversion
of cannabis into, and out of, the regulated medical and recreational markets.
Promotion, Packaging and Labelling
The Cannabis Act establishes strict prohibitions
on the promotion of cannabis, and the Cannabis Regulations establish rules around plain packaging and labelling. Among other things, it
is prohibited to promote cannabis in a way that could be appealing to young people, by way of a testimonial or endorsement or through
depiction of a person, character or animal, whether real or fictional; or in a manner associated with a “lifestyle”. The Cannabis
Regulations establish rules around packaging and labelling to promote informed consumer choice, allow for the safe handling and transportation
of cannabis products, ensure child-proofing on containers and reducing the appeal of cannabis to youth. The size and color of packaging,
logos, names and other brand elements is restricted. Cannabis package labels must include specific information, such as: (i) product source
information, including the class of cannabis and the name, phone number and email of the processor; (ii) a mandatory health warning, rotating
between Heath Canada’s list of standard health warnings; (iii) the Health Canada standardized cannabis symbol; and (iv) information
specifying THC and Cannabidiol content.
Cannabis for Medical Purposes
The medical cannabis regulatory framework shifted
from the ACMPR made under the CDSA to the Cannabis Act and the Cannabis Regulations. Under Part 14 of the Cannabis Regulations, there
are three options available to an individual who has received authorization from his/her healthcare practitioner to use cannabis for medical
purposes: (i) by registering with a holder of a license to sell for medical purposes; (ii) by registering with Health Canada for the production
of a limited amount of cannabis for their own medical purposes; or (iii) by designating a third party to produce cannabis for them. With
respect to (ii) and (iii), the starting materials for the production of cannabis, such as cannabis plants or seeds, must be obtained from
medical sales license holders.
Provincial and Territorial Regulatory Framework
The governments of every Canadian province and
territory have implemented regulatory regimes for the use, distribution and sale of cannabis products for recreational purposes within
their jurisdiction. The only provinces with restrictions on classes of cannabis that may be sold in the recreational markets are Québec
and Manitoba, where plants and seeds are not sold because personal cultivation for recreational purposes is prohibited in those two provinces.
In addition, as of the date of this Prospectus, some provinces are considering whether or not to allow cannabis vape products to be sold,
including Newfoundland and Labrador.
Regardless of the specific provincial retail framework,
all cannabis products for the recreational cannabis market must be supplied by federally licensed cultivators (plants and seeds only)
and processors (all other allowable classes of cannabis – currently dried cannabis, cannabis oil, cannabis edibles, cannabis extracts
and cannabis topicals). In most provinces and territories, a liquor or cannabis authority operated by the province serves as a wholesaler,
with retailers purchasing cannabis products from the liquor or cannabis authority or from provincially licensed distributors. The wholesalers,
in turn, acquire the cannabis products from federally licensed cultivators and processors.
Summary of the Cannabis Act
On October 17, 2019, the Cannabis Act came into
force as law with the effect of legalizing adult recreational use of cannabis across Canada. The Cannabis Act replaced the ACMPR and the
IHR, both of which came into force under the Controlled Drugs and Substances Act (Canada) (the “CDSA”), which previously
permitted access to cannabis for medical purposes for only those Canadians who had been authorized to use cannabis by their health care
practitioner. The ACMPR replaced the Marihuana for Medical Purposes Regulations (Canada) (the “MMPR”), which was implemented
in June 2013. The MMPR replaced the Marihuana Medical Access Regulations (Canada) (the “MMAR”) which was implemented
in 2001. The MMPR and MMAR were initial steps in the Government of Canada’s legislative path towards the eventual legalization and
regulating recreational and medical cannabis.
The Cannabis Act permits the recreational adult
use of cannabis and regulates the production, distribution and sale of cannabis and related oil extracts in Canada, for both recreational
and medical purposes. Under the Cannabis Act, Canadians who are authorized by their health care practitioner to use medical cannabis have
the option of purchasing cannabis from one of the producers licensed by Health Canada and are also able to register with Health Canada
to produce a limited amount of cannabis for their own medical purposes or to designate an individual who is registered with Health Canada
to produce cannabis on their behalf for personal medical purposes.
Pursuant to the Cannabis Act, subject to provincial
regulations, individuals over the age of 18 are be able to purchase fresh cannabis, dried cannabis, cannabis oil, and cannabis plants
or seeds and are able to legally possess up to 30 grams of dried cannabis, or the equivalent amount in fresh cannabis or cannabis oil.
The Cannabis Act also permits households to grow a maximum of four cannabis plants. This limit applies regardless of the number of adults
that reside in the household. In addition, the Cannabis Act provides provincial and municipal governments the authority to prescribe regulations
regarding retail and distribution, as well as the ability to alter some of the existing baseline requirements of the Cannabis Act, such
as increasing the minimum age for purchase and consumption.
Provincial and territorial governments in Canada
have made varying announcements on the proposed regulatory regimes for the distribution and sale of cannabis for adult-use purposes. For
example, Québec, New Brunswick, Nova Scotia, Prince Edward Island, Yukon and the Northwest Territories have chosen the government-regulated
model for distribution, whereas Saskatchewan and Newfoundland & Labrador have opted for a private sector approach. Alberta, Ontario,
Manitoba, Nunavut and British Columbia have announced plans to pursue a hybrid approach of public and private sale and distribution.
In connection with the new framework for regulating
cannabis in Canada, the Federal Government has introduced new penalties under the Criminal Code (Canada), including penalties for the
illegal sale of cannabis, possession of cannabis over the prescribed limit, production of cannabis beyond personal cultivation limits,
taking cannabis across the Canadian border, giving or selling cannabis to a youth and involving a youth to commit a cannabis-related offence.
On July 11, 2019, the Federal Government published
regulations in the Canada Gazette to support the Cannabis Act, including the Cannabis Regulations, the new Industrial Hemp Regulations,
along with proposed amendments to the Narcotic Control Regulations and certain regulations under the Food and Drugs Act (Canada). The
Industrial Hemp Regulations and the Cannabis Regulations, among other things, outline the rules for the legal cultivation, processing,
research, analytical testing, distribution, sale, importation and exportation of cannabis and hemp in Canada, including the various classes
of licenses that can be granted, and set standards for cannabis and hemp products. The Industrial Hemp Regulations and the Cannabis Regulations
include strict specifications for the plain packaging and labeling and analytical testing of all cannabis products as well as stringent
physical and personnel security requirements for all federally licensed production sites. The Industrial Hemp Regulations and the Cannabis
Regulations also maintain a distinct system for access to cannabis. With the Cannabis Act now in force, cannabis has ceased to be regulated
under the CDSA and is instead regulated under the Cannabis Act, and both the ACMPR and the IHR have been repealed effective October 17,
2019.
On June 7, 2019, Bill-C45 passed the third reading
in the Senate with a number of amendments to the language of the Cannabis Act. More specifically, the Senate proposed:
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establishing a committee of the Senate and a committee of the House of Commons to undertake a comprehensive review of the administration and operation of the Cannabis Act;
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assisting provinces and territories to facilitate the development of workplace impairment policies;
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allowing provinces to place restrictions on the ability of individuals to engage in home cultivation;
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that law enforcement be provided with the appropriate tools and resources to address concerns about continued illicit production, diversion, and sale of cannabis to youth, including preventing the sharing of marihuana among young adults by rendering it a ticketable offense;
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that the prices set for cannabis products and the applicable taxes reflect the dual objective of minimizing the health dangers of cannabis consumption and undercutting the illicit market of cannabis;
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mandatory health warnings for cannabis products, including warnings about the danger of smoking cannabis, the danger of exposure to second-hand cannabis smoke, and the risks of combining cannabis and tobacco;
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testing procedures for THC content be standardized to ensure accurate measurement to better protect consumer health and safety;
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that forthcoming regulations for edible products and other forms of cannabis ensure that product packaging is child-resistant and does not appeal to young people and that the type of available products should be strictly limited;
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adequate and ongoing funding for sustained, evidence-based cannabis education and prevention programs to provide Canadians, especially young Canadians, with knowledge about the health risks of cannabis use, including on-going research initiatives on the impact of cannabis use on the developing brain; and that the federal government commit to on-going educational initiatives to ensure youth are informed on the effects of cannabis use;
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to prohibit licensees under the Cannabis Act to distribute branded merchandise, such as T-shirts and baseball caps and imposing a moratorium on loosening the regulations on the branding, marketing, and promotion of cannabis for 10 years;
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to set aggressive targets, comparable to the successful Federal Tobacco Control Strategy, to reduce the number of youth and adult cannabis users; and
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to ensure that the Cannabis Tracking System be operational upon the coming-into-force of the Cannabis Act.
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Security Clearances
The Cannabis Regulations require that certain
people associated with cannabis licensees, including individuals occupying a “key position” directors, officers, large shareholders
and individuals identified by the Minister of Health, must hold a valid security clearance issued by the Minister of Health. Officers
and directors of a parent corporation must be security cleared.
Under the Cannabis Regulations, the Minister of
Health may refuse to grant security clearances to individuals with associations to organized crime or with past convictions for, or an
association with, drug trafficking, corruption or violent offenses. Individuals who have histories of nonviolent, lower-risk criminal
activity (for example, simple possession of cannabis, or small-scale cultivation of cannabis plants) are not precluded from participating
in the legal cannabis industry, and the grant of security clearance to such individuals is at the discretion of the Minister of Health
and such applications will be reviewed on a case-by-case basis.
Cannabis Tracking System
Under the Cannabis Act, the Minister of
Health is authorized to establish and maintain a national cannabis tracking system. The Cannabis Regulations set out a national cannabis
tracking system to track cannabis throughout the supply chain to help prevent diversion of cannabis into, and out of, the illicit market.
The Cannabis Regulations also provides the Minister of Health with the authority to make a ministerial order that would require certain
persons named in such order to report specific information about their authorized activities with cannabis, in the form and manner specified
by the Minister of Health.
Cannabis Products
The Cannabis Regulations set out the requirements
for the sale of cannabis products at the retail level permit the sale of dried cannabis, cannabis oil, fresh cannabis, cannabis plants,
and cannabis seeds, including in such forms as “pre-rolled” and in capsules. The THC content and serving size of cannabis
products is limited by the Cannabis Regulations. The sale of edibles containing cannabis and cannabis concentrates was legalized in the
fall of 2019.
Description of Canadian Licenses and Licensing Requirements
Laws and regulations affecting the medical marijuana
industry are constantly changing, which could detrimentally affect our proposed operations. Local, state and federal medical marijuana
laws and regulations are broad in scope and subject to evolving interpretations, which could require us to incur substantial costs associated
with compliance or alter our business plan. 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. It is also possible that regulations may be enacted in the future
that will be directly applicable to our business. These ever-changing regulations could even affect federal tax policies that may make
it difficult to claim tax deductions on our returns. 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 business.
Where you can find more information
The Company’s Annual Report on Form 10-K,
Quarterly Reports on Form 10-Q, Current Reports on Form 8-K, and amendments to reports filed pursuant to Sections 13(a) and 15(d) of the
Securities Exchange Act of 1934, as amended (“Exchange Act”), are filed with the U.S. Securities and Exchange Commission (the
“SEC”). Such reports and other information filed by the Company with the SEC will be available free of charge on the
Company’s website in the near future. The reports are currently available on the SEC website. The public may read and
copy any materials filed by the Company with the SEC at the SEC’s Public Reference Room at 100 F Street, NE, Room 1580, Washington,
DC 20549. The public may obtain information on the operation of the Public Reference Room by calling the SEC at 1-800-SEC-0330. The SEC
maintains an Internet site that contains reports, proxy and information statements and other information regarding issuers that file electronically
with the SEC at www.sec.gov. The contents of these websites are not incorporated into this filing. Further, the Company’s references
to the URLs for these websites are intended to be inactive textual references only.
An investment in our common
stock is highly speculative, involves a high degree of risk and should be made only by investors who can afford a complete loss. You should
carefully consider the following risk factors, together with the other information in this report, including our financial statements
and the related notes, before you decide to buy our common stock. If any of the following risks actually occurs, then our business, financial
condition or results of operations could be materially adversely affected, the trading of our common stock could decline, and you may
lose all or part of your investment therein.
Risks Related to Our Company
The Corporation is a Development Stage Company with Little Operating
History, a History of Losses and the Corporation Cannot Assure Profitability.
The Corporation’s business is comprised of a recently-acquired
subsidiary. The Corporation has been incurring operating losses and cash flow deficits since the inception of such operations, as it attempts
to create an infrastructure to capitalize on the opportunity for value creation that is emerging from the relaxing of prohibitions on
the cannabis industry nationwide in Canada. The Corporation’s lack of operating history, and the lack of historical pro forma combined
financial information for the Corporation and its acquired subsidiary, makes it difficult for investors to evaluate the Corporation’s
prospects for success. Prospective investors should consider the risks and difficulties the Corporation might encounter, especially given
the Corporation’s lack of an operating history or historical pro forma combined financial information, there is no assurance that
the Corporation will be successful and the likelihood of success must be considered in light of its relatively early stage of operations.
As the Corporation has not begun to generate revenue, it is extremely difficult to make accurate predictions and forecasts of its finances.
This is compounded by the fact the Corporation intends to operate in the cannabis industry, which is rapidly transforming. There is no
guarantee that the Corporation’s products or services will be attractive to potential consumers.
Substantial Doubt About the Corporation’s Ability to Continue
as a Going Concern.
The Corporation is in the development stage and is currently seeking
additional capital, mergers, acquisitions, joint ventures, partnerships and other business arrangements to expand its product offerings
in the medical cannabis industry and grow its revenue. The Corporation’s ability to continue as a going concern is dependent upon
its ability in the future to grow its revenue and achieve profitable operations and, in the meantime, to obtain the necessary financing
to meet its obligations and repay its liabilities when they become due. External financing, predominantly by the issuance of equity and
debt, will be sought to finance the operations of the Corporation; however, there can be no certainty that such funds will be available
at terms acceptable to the Corporation. These conditions indicate the existence of material uncertainties that may cast significant doubt
about the Corporation’s ability to continue as a going concern.
We have not generated any revenue or profit from operations since our
inception. We expect that our operating expenses will increase over the next twelve months to continue our development activities. Based
on our average monthly expenses and current burn rate of $75,000 per month, we estimate that our cash on hand will not be able to support
our operations through the balance of this calendar year. This amount could increase if we encounter difficulties that we cannot anticipate
at this time or if we acquire other businesses. Should this amount not be sufficient to support our continuing operations, we do not expect
to be able to raise any additional capital through debt financing from traditional lending sources since we are not currently generating
a profit from operations. Therefore, we only expect to raise money through equity financing via the sale of our common stock or equity-linked
securities such as convertible debt. We are currently in discussions with a number of institutional investors who could provide the capital
required for our ongoing operations. If we cannot raise the money that we need in order to continue to operate our business beyond the
period indicated above, we will be forced to delay, scale back or eliminate some or all of our proposed operations. If any of these were
to occur, there is a substantial risk that our business would fail. If we are unsuccessful in raising additional financing, we may need
to curtail, discontinue, or cease operations.
The Corporation had Negative Cash Flow for
the for the Year Ended December 31, 2020
The Corporation had negative operating cash flow
for the year ended December 31, 2020. To the extent that the Corporation has negative operating cash flow in future periods, it may need
to allocate a portion of its cash reserves to fund such negative cash flow. The Corporation may also be required to raise additional funds
through the issuance of equity or debt securities. There can be no assurance that the Corporation will be able to generate a positive
cash flow from its operations, that additional capital or other types of financing will be available when needed or that these financings
will be on terms favorable to the Corporation. The Corporation’s actual financial position and results of operations may differ
materially from the expectations of the Corporation’s management.
The Corporation’s Actual Financial Position and Results
of Operations May Differ Materially from Management’s Expectations.
The Corporation has experienced some changes in its operating plans
and certain delays in its plans. As a result, the Corporation’s revenue, net income and cash flow may differ materially from the
Corporation’s projected revenue, net income and cash flow. The process for estimating the Corporation’s revenue, net income
and cash flow requires the use of in determining the appropriate assumptions and estimates. These estimates and assumptions may be revised
as additional information becomes available and as additional analyses are performed. In addition, the assumptions used in planning may
not prove to be accurate, and other factors may affect the Corporation’s financial condition or results of operations.
The Corporation expects to incur significant ongoing costs and obligations
related to its investment in infrastructure and growth and for regulatory compliance, which could have a material adverse impact on the
Corporation’s results of operations, financial condition and cash flows. In addition, future changes in regulations, more vigorous
enforcement thereof or other unanticipated events could require extensive changes to the Corporation’s operations, increased compliance
costs or give rise to material liabilities, which could have a material adverse effect on the business, results of operations and financial
condition of the Corporation. Our efforts to grow our business may be costlier than we expect, and we may not be able to increase our
revenue enough to offset our higher operating expenses. We may incur significant losses in the future for a number of reasons, including
the other risks described in this Prospectus, and unforeseen expenses, difficulties, complications and delays, and other unknown events.
If we are unable to achieve and sustain profitability, the market price of our Common Shares may significantly decrease.
Hanover Facility
Through its acquisition of all the issued and outstanding shares of
AMS, the Corporation has acquired the Hanover Land, and is expecting to complete the build-out of the Hanover Facility. It is intended
that the Hanover Facility will allow the Corporation to obtain the Cultivation License and begin its Intended Business. However, no assurance
can be given that Health Canada will approve the Hanover Facility and issue the Corporation’s Cultivation License. If the Corporation
is unable to secure the Licenses, the expectations of management with respect to its ability to begin the Intended Business may not be
borne out, which would have a material adverse effect on the Corporation’s business, financial condition and results of operations.
Further, construction delays or cost over-runs in respect of the build-out of the Hanover Facility, howsoever caused, could also have
a material adverse effect on the Corporation’s ability to begin its Intended Business, as well as general business, financial condition
and results of operations.
The Corporation is reliant on the successful construction and operation
of the Hanover Facility in order to begin its Intended Business. The Hanover Facility, once built-out and operational, will be integral
to the Corporation’s business and adverse changes or developments affecting either the construction or operation of the Hanover
Facility may impact Corporation’s ability to begin its Intended Business, as well as its general financial condition and prospects.
In the foreseeable future, the Corporation’s activities and resources
will be focused on obtaining the Licenses as well as the build-out of, and start of operations at the Hanover Facility. The Licenses will
be specific to the Hanover Facility. Once the construction of the Hanover Facility is complete and the facility becomes operational, adverse
changes or developments affecting it, including but not limited to a force majeure event or a breach of security, could have a material
adverse effect on the Corporation’s business, financial condition and prospects. Any breach of the security measures and other facility
requirements, including any failure to comply with recommendations or requirements arising from inspections by Health Canada, could also
have an impact on the Corporation’s ability to continue operating under the Licenses or the prospect of renewing the Licenses or
would result in a revocation of the Licenses.
Construction Risk Factors
The Corporation’s growth strategy contemplates building the Hanover
Facility. There is a risk that this will not be achieved on time, on budget, or at all, as it can be adversely affected by a variety of
factors, including some that are discussed elsewhere in these “Risk Factors” and the following:
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the availability and performance of engineering and construction contractors, suppliers and consultants;
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delays in obtaining, or conditions imposed by, regulatory approvals in connection with the construction of the Hanover Facility;
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delay in the performance of any one or more of the contractors, suppliers, consultants or other persons on which the Corporation is dependent in connection with its construction activities;
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failure in connection with the completion and successful operation of the operational elements in connection with construction;
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start-up costs and ongoing operating costs being significantly higher than anticipated by the Corporation.
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facility design errors;
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environmental pollution; nonperformance by third party contractors; increases in materials or labor costs; construction performance falling below expected levels of output or efficiency;
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breakdown, aging or failure of equipment or processes;
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contractor or operator errors;
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operational inefficiencies;
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labor disputes, disruptions or declines in productivity; inability to attract sufficient numbers of qualified workers; disruption in the supply of energy and utilities; and
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major incidents and/or catastrophic events such as fires, explosions or storms.
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Any of the foregoing factors could adversely impact the operations
and financial condition of the Corporation.
There are Factors Which May Prevent the Corporation from the
Realization of Growth Targets. The Corporation is Currently in the Expansion from Early Development Stage.
The Corporation’s growth strategy contemplates building the Hanover
Facility. There is a risk that this will not be achieved on time, on budget, or at all, as it can be adversely affected by a variety of
factors, including some that are discussed elsewhere in these “Risk Factors” and the following:
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delays in obtaining, or conditions imposed by, regulatory approvals;
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facility design errors;
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environmental pollution; nonperformance by third party contractors; increases in materials or labor costs; construction performance falling below expected levels of output or efficiency;
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breakdown, aging or failure of equipment or processes;
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contractor or operator errors;
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operational inefficiencies;
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labor disputes, disruptions or declines in productivity; inability to attract sufficient numbers of qualified workers; disruption in the supply of energy and utilities; and
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major incidents and/or catastrophic events such as fires, explosions or storms.
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Reliance on a Single Facility
As described under “Hanover Facility”, the Corporation
is reliant on the successful construction and operation of the Hanover Facility in order to obtain the Cultivation License and begin its
Intended Business. For the foreseeable future, and until completion of the construction of the Hanover Facility, the Corporation will
devote significant efforts and resources to this project. Adverse changes or developments affecting the construction of, and start of
operations at the Hanover Facility, including any of the risk factors described under “Construction Risk Factors” could
have a material and adverse effect on the Corporation’s ability to begin its Intended Business, as well as its general financial
condition and prospects.
Probable Lack of Business Diversification.
The prospects for the Company’s success will be dependent upon
the future performance and market acceptance of the Hanover Facility. Unlike certain entities that have the resources to develop and explore
numerous product lines, operating in multiple industries or multiple areas of a single industry, the Corporation does not anticipate the
ability to immediately diversify or benefit from the possible spreading of risks or offsetting of losses. Again, the prospects for the
Corporation’s success may become dependent upon the development or market acceptance of a very limited number of facilities, products,
processes or services.
Limited Recourse Against the AMS Shareholders in AMS Acquisition.
Investors in the Corporation will not have a direct statutory right
or any other rights against the shareholders of AMS, the vendor of all of the shares of AMS to the Corporation. The sole remedy of the
investors against such vendor will be through the Corporation bringing an action for a breach of the representations and warranties contained
in the SPA. While the Corporation is indemnified for breaches of representations and warranties contained in the SPA, recourse for such
breaches may be limited due to qualifications related to knowledge of the principal vendors, being Stephen Barber, John Ciotto, Joseph
Groleau and Raymond Robertson, of the vendor (the “Principal Vendors”), contractual and time limits on recourse under
applicable laws, and the ability of such Principal Vendors to satisfy third-party claims. In particular, most of the representations and
warranties under the SPA survive for a period of only two years. The inability to recover fully any significant liabilities incurred with
respect to breaches of representations and warranties under the SPA may have adverse effects on the Corporation’s financial position.
In addition, the Principal Vendors have not made any representation to the Corporation, and are not making any representation to investors,
as to the disclosure in this Prospectus constituting full, true and plain disclosure of all material facts related to the AMS Acquisition,
or that this Prospectus does not contain a misrepresentation with respect to such AMS Acquisition. Accordingly, the Principal Vendors
will not have any liability to investors if the disclosure in this Prospectus relating to the AMS Acquisition does not meet such standard
or contains a misrepresentation.
The Corporation is Reliant on the Obtention of the Licenses to
Produce Medical Cannabis Products in Canada.
The Corporation’s ability to grow, store and sell medical marijuana
and cannabis oil in Canada is dependent on securing the appropriate licenses with Health Canada. Failure to comply with the requirements
of any license application or failure to obtain the appropriate licenses with Health Canada would have a material adverse impact on the
future business, financial condition and operating results of the Corporation. There can be no guarantees that Health Canada will issue
the required Licenses.
If and when the Licenses are issued, they will have to be periodically
renewed by Health Canada. Although the Corporation believes it will meet the requirements of the Cannabis Act for future renewals
of the Licenses, there can be no guarantee that Health Canada will renew the Licenses or, if renewed, that they will be renewed on the
same or similar terms or that Health Canada will not revoke the Licenses. Should the Corporation fail to comply with the requirements
of the Licenses or should Health Canada not renew the Licenses when required, or renew the Licenses on different terms or revoke the Licenses,
there would be a material adverse effect on the Corporation’s business, financial condition and results of operations.
Government licenses are currently, and in the future may be, required
in connection with the Corporation’s operations, in addition to other unknown permits and approvals which may be required. To the
extent such permits and approvals are required and not obtained, the Corporation may be prevented from operating and/or expanding its
business, which could have a material adverse effect on the Corporation’s business, financial condition and results of operations.
The Corporation is Subject to Changes in Canadian Laws, Regulations
and Guidelines Which Could Adversely Affect the Corporation’s Future Business, Financial Condition and Results of Operations.
On October 17, 2018, the Canadian federal government legalized the
production, distribution and sale of recreational cannabis for adult use under the Cannabis Act (see “Industry and Regulatory
Overview”). No legal market previously existed for adult recreational use cannabis in Canada. For this reason, projections for
both short and long-term market conditions for the retail of cannabis remain uncertain.
The Corporation’s operations will be subject to various laws,
regulations and guidelines relating to the manufacture, management, packaging/labeling, advertising, sale, transportation, storage and
disposal of medical and recreational cannabis but also including laws and regulations relating to drugs, controlled substances, health
and safety, the conduct of operations and the protection of the environment. Changes to such laws, regulations and guidelines due to matters
beyond the control of the Corporation may cause material adverse effects to the business, financial condition and results of operations
of the Corporation. The Corporation endeavors to comply with all relevant laws, regulations and guidelines. To the best of the Corporation’s
knowledge, the Corporation is in compliance or in the process of being assessed for compliance with all such laws, regulations and guidelines
as described elsewhere in this Prospectus.
To date, only fresh cannabis, dried cannabis and cannabis oil products
are permitted. Health Canada has given guidance that other transformed products (primarily edibles and beverages infused with cannabis)
will be permitted for legal sale one year subsequent to the Cannabis Act coming into effect. However, there is uncertainty regarding
how and when certain regulatory changes will be implemented. Further, the general legislation framework pertaining to the Canadian recreational
cannabis market is subject to significant provincial and territorial regulation, which varies across provinces and territories. Unfavorable
regulatory changes, delays or both may therefore materially and adversely affect the future business, financial condition and results
of operations of the Corporation.
The Corporation May not Be Able to Develop Its Brands, Products
and Services, Which Could Prevent It from Ever Becoming Profitable.
If the Corporation cannot successfully develop, manufacture and distribute
its products, or if the Corporation experiences difficulties in the development process, such as capacity constraints, quality control
problems or other disruptions, the Corporation may not be able to develop market-ready commercial products at acceptable costs, which
would adversely affect the Corporation’s ability to effectively enter the market. A failure by the Corporation to achieve a low-cost
structure through economies of scale or improvements in cultivation and manufacturing processes would have a material adverse effect on
the Corporation’s commercialization plans and the Corporation’s business, prospects, results of operations and financial condition.
There is No Assurance That the Corporation Will Turn a Profit
or Generate Immediate Revenues.
There is no assurance as to whether the Corporation will be profitable,
earn revenues, or pay dividends. The Corporation has incurred and anticipates that it will continue to incur substantial expenses relating
to the development and initial operations of its business. The payment and amount of any future dividends will depend upon, among other
things, the Corporation’s results of operations, cash flow, financial condition, and operating and capital requirements.
There is no assurance that future dividends will be paid, and, if dividends
are paid, there is no assurance with respect to the amount of any such dividends.
No Assurance of Sustainable Revenues.
There can be no assurance that our subsidiaries will generate sufficient
and sustainable revenues to enable us to operate at profitable levels or to generate positive cash flow. As a result of our limited operating
history and the nature of the markets in which we compete, we may not be able to accurately predict our revenues. Any failure by us to
accurately make such predictions could have a material adverse effect on our business, results of operations, and financial condition.
Further, our current and future expense levels are based largely on our investment plans and estimates of future revenues. We expect operating
results to fluctuate significantly in the future as a result of a variety of factors, many of which are outside of our control. Factors
that may adversely affect our operating results include, among others, demand for our products and services, the budgeting cycles of potential
customers, lack of enforcement of or changes in governmental regulations or laws, the amount and timing of capital expenditures and other
costs relating to the expansion of our operations, the introduction of new or enhanced products and services by us or our competitors,
the timing and number of new hires, changes in our pricing policy or those of our competitors, the mix of our products, increases in the
cost of raw materials, technical difficulties with the products, incurrence of costs relating to future acquisitions, general economic
conditions, and market acceptance of our products. As a strategic response to changes in the competitive environment, we may, from time
to time, make certain decisions regarding pricing, service, marketing or business combinations that could have a material adverse effect
on our business, results of operations, and financial condition. Any seasonality is likely to cause quarterly fluctuations in our operating
results, and there can be no assurance that such patterns will not have a material adverse effect on our business, results of operations,
and financial condition. We may be unable to adjust spending in a timely manner to compensate for any unexpected revenue shortfall.
Operating results may fluctuate and may
fall below expectations in any fiscal quarter.
Our operating results are difficult to predict and are expected to
fluctuate from quarter to quarter due to a variety of factors, many of which are outside of our control. As a result, comparing our operating
results on a period-to-period basis may not be meaningful, and investors should not rely on our past results or on predictions prepared
by the Company to determine future performance. If our revenue or operating results fall in any period, the value of our common stock
would likely decline.
The Corporation May not Be Able to Effectively Manage Its Growth
and Operations, Which Could Materially and Adversely Affect Its Business.
The Corporation has grown by acquisition. If the Corporation implements
it business plan as intended, it may in the future experience rapid growth and development in a relatively short period of time. The management
of this growth will require, among other things, continued development of the Corporation’s financial and management controls and
management information systems, stringent control of costs, the ability to attract and retain qualified management personnel and the training
of new personnel. The Corporation intends to utilize outsourced resources, and hire additional personnel, to manage its expected growth
and expansion. Failure to successfully manage its possible growth and development could have a material adverse effect on the Corporation’s
business and the value of the Common Shares.
While a major part of our business strategy is to pursue strategic
acquisitions, we may not be able to identify businesses for which we can obtain necessary financing to acquire on acceptable terms, face
risks due to additional indebtedness, and our acquisition strategy may incur significant costs or expose us to substantial risks inherent
in the acquired business’s operations.
Our strategy of pursuing strategic acquisitions may be negatively impacted
by several risks, including the following:
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We may not successfully identify companies that have complementary product lines or technological competencies or that can diversify our revenue or enhance our ability to implement our business strategy;
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We may not successfully acquire companies if we fail to obtain financing, if we fail to negotiate the acquisition on acceptable terms, or for other related reasons.
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We may incur additional expenses due to acquisition due diligence, including legal, accounting, consulting, and other professional fees and disbursements. Such additional expenses may be material, will likely not be reimbursed, and would increase the aggregate cost of any acquisition.
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Any acquired business will expose us to the acquired company’s liabilities and to risks inherent to its industry, and we may not be able to ascertain or assess all of the significant risks.
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We may require additional financing in connection with any future acquisition, and such financing may adversely impact, or be restricted by, our capital structure.
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Achieving the anticipated potential benefits of a strategic acquisition will depend in part on the successful integration of the operations, administrative infrastructures, and personnel of the acquired company or companies in a timely and efficient manner. Some of the challenges involved in such an integration include: (i) demonstrating to the customers of the acquired company that the consolidation will not result in adverse changes in quality, customer service standards, or business focus; (ii) preserving important relationships of the acquired company; (iii) coordinating sales and marketing efforts to effectively communicate the expanded capabilities of the combined company; and (iv) coordinating the supply chains.
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Any Future Acquisitions Could Disrupt Business.
If we are successful in consummating acquisitions, those acquisitions
could subject us to a number of risks, including that:
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the purchase price we pay could significantly deplete our cash reserves or result in dilution to our existing stockholders;
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we may find that the acquired company or assets do not improve our customer offerings or market position as planned;
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we may have difficulty integrating the operations and personnel of the acquired company;
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key personnel and customers of the acquired company may terminate their relationships with the acquired company as a result of the acquisition;
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we may experience additional financial and accounting challenges and complexities in areas such as tax planning and financial reporting;
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we may assume or be held liable for risks and liabilities as a result of our acquisitions, some of which we may not discover during our due diligence or adequately adjust for in our acquisition arrangements;
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we may incur one-time write-offs or restructuring charges in connection with the acquisition;
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we may acquire goodwill and other intangible assets that are subject to amortization or impairment tests, which could result in future charges to earnings; and
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we may not be able to realize the cost-savings or other financial benefits we anticipated.
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These factors could have a material adverse effect on our business,
financial condition, and operating results.
The Corporation May not Be Able to Identify and/or Consummate
Acquisitions with Strategic Targets.
As part of its corporate strategy, the Corporation intends to continue
a focus on the acquisition of additional companies operating in jurisdictions where cannabis is legal on a national basis. The Corporation’s
focus is initially on Canadian Licensed Producers of marijuana but may extend to other cannabis-related products. If and when cannabis
becomes legal in other foreign jurisdictions the Corporation will research acquisition or development opportunities. The Corporation intends
to target opportunities which are revenue generating or will be in the immediate future, low-cost producers and either profitable or nearing
profitability. There can be no guarantee that the Corporation will identify such opportunities, or once identified, consummate such transactions.
The Corporation is presently in discussion with other companies operating
in the cannabis industry regarding a potential acquisition or other form of partnership.
The Corporation May Be Unable to Adequately Protect Its Proprietary
and Intellectual Property Rights.
The Company currently has no proprietary or intellectual property.
The Corporation’s ability to compete may depend on the superiority, uniqueness and value of any intellectual property and technology
that it may develop in the future. To the extent the Corporation is able to do so, to protect any proprietary rights of the Corporation,
the Corporation intends to rely on a combination of patent, trademark, copyright and trade secret laws, confidentiality agreements with
its employees and third parties, and protective contractual provisions. Despite these efforts, any of the following occurrences may reduce
the value of any of the Corporation’s intellectual property:
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the market for the Corporation’s products and services may depend to a significant extent upon the goodwill associated with its trademarks and trade names, and its ability to register its intellectual property under U.S. federal and state law is impaired by the illegality of cannabis under U.S. federal law.
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patents in the cannabis industry involve complex legal and scientific questions and patent protection may not be available for some or any products.
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the Corporation’s applications for trademarks and copyrights relating to its business may not be granted and, if granted, may be challenged or invalidated.
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issued patents, trademarks and registered copyrights may not provide the Corporation with competitive advantages.
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the Corporation’s efforts to protect its intellectual property rights may not be effective in preventing misappropriation of any its products or intellectual property.
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the Corporation’s efforts may not prevent the development and design by others of products similar to or competitive with, or superior to those the Corporation develops.
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another party may obtain a blocking patent and the Corporation would need to either obtain a license or design around the patent in order to continue to offer the contested feature or service in its products.
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the expiration of patent or other intellectual property protections for any assets owned by the Corporation could result in significant competition, potentially at any time and without notice, resulting in a significant reduction in sales. The effect of the loss of these protections on the Corporation and its financial results will depend, among other things, upon the nature of the market and the position of the Corporation’s products in the market from time to time, the growth of the market, the complexities and economics of manufacturing a competitive product and regulatory approval requirements but the impact could be material and adverse. The Corporation may be forced to litigate to defend its intellectual property rights, or to defend against claims by third parties against the Corporation relating to intellectual property rights.
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We may not be able to protect intellectual property that we hope
to acquire, which could adversely affect our business.
The companies that we hope to acquire may rely on patent, trademark,
trade secret, and copyright protection to protect their technology. We believe that technological leadership can be achieved through additional
factors such as the technological and creative skills of our personnel, new product developments, frequent product enhancements, name
recognition, and reliable product maintenance. Nevertheless, our ability to compete effectively depends in part on our ability to develop
and maintain proprietary aspects of our technology, such as patents. We may not secure future patents; and patents that we may secure
may become invalid or may not provide meaningful protection for our product innovations. In addition, the laws of some foreign countries
do not protect intellectual property rights to the same extent as the United States. Furthermore, there can be no assurance that competitors
will not independently develop similar products, "reverse engineer" our products, or, if patents are issued to us, design around
such patents. We also expect to rely upon a combination of copyright, trademark, trade secret, and other intellectual property laws to
protect our proprietary rights by entering into confidentiality agreements with our employees, consultants, and vendors, and by controlling
access to and distribution of our technology, documentation and other proprietary information. There can be no assurance, however, that
the steps to be taken by us will not be challenged, invalidated, or circumvented, or that the rights granted thereunder will provide a
competitive advantage to us. Any such circumstance could have a material adverse effect on our business, financial condition and results
of operations. While we are not currently engaged in any intellectual property litigation or proceedings, there can be no assurance that
we will not become so involved in the future or that our products do not infringe any intellectual property or other proprietary right
of any third party. Such litigation could result in substantial costs, the diversion of resources and personnel, and significant liabilities
to third parties, any of which could have a material adverse effect on our business.
We may not be able to protect our trade names and domain names.
We may not be able to protect our trade names and domain names against
all infringers, which could decrease the value of our brand name and proprietary rights. We currently hold the Internet domain name CannaPharmaRx.com
Domain names generally are regulated by Internet regulatory bodies are subject to change, and in some cases, may be superseded, in some
cases by-laws, rules and regulations governing the registration of trade names and trademarks with the United States Patent and Trademark
Office as well as ascertain other common law rights. If the domain registrars are changed, if new ones are created, or if we are deemed
to be infringing upon another's trade name or trademark, we may be unable to prevent third parties from acquiring or using, as the case
may be, our domain name, trade names or trademarks, which could adversely affect our brand name and other proprietary rights.
The Corporation May Be Forced to Litigate to Enforce or Defend
Its Intellectual Property Rights, to Protect Its Trade Secrets or to Determine the Validity and Scope of Other Parties’ Proprietary
Rights.
Any such litigation could be very costly and could distract its management
from focusing on operating the Corporation’s business. The existence and/or outcome of any such litigation could harm the Corporation’s
business. Further, because the content of much of the Corporation’s intellectual property concerns cannabis and other activities
that are not legal in some state jurisdictions or under U.S. federal law, the Corporation may face additional difficulties in defending
its intellectual property rights. The Corporation may become subject to litigation, including for possible product liability claims, which
may have a material adverse effect on the Corporation’s reputation, business, results from operations, and financial condition.
The Corporation may be named as a defendant in a lawsuit or regulatory action. The Corporation may also incur uninsured losses for liabilities
which arise in the ordinary course of business, or which are unforeseen, including, but not limited to, employment liability and business
loss claims. Any such losses could have a material adverse effect on the Corporation’s business, results of operations, sales, cash
flow or financial condition. Further, the administration of medical substances to humans can result in product liability claims by consumers.
Product liability claims can be expensive, difficult to defend and may result in large judgments or settlements against the Corporation.
The Corporation may not be able to obtain or maintain adequate insurance or other protection against potential liabilities arising from
product sales. Product liability claims could also result in negative perception of the Corporation’s products or other reputational
damage which could have a material adverse effect on the Corporation’s business, results of operations, sales, cash flow or financial
condition.
The Corporation’s Operations are Subject to Environmental
Regulation in the Various Jurisdictions in Which It Operates.
These regulations mandate, among other things, the maintenance of air
and water quality standards and land reclamation. They also set forth limitations on the generation, transportation, storage and disposal
of solid and hazardous waste. Environmental legislation is evolving in a manner which will require stricter standards and enforcement,
increased fines and penalties for non-compliance, more stringent environmental assessments of proposed projects and a heightened degree
of responsibility for companies and their officers, directors and employees. There is no assurance that future changes in environmental
regulation, if any, will not adversely affect the Corporation’s operations. Government environmental approvals and permits are currently,
and may in the future be required in connection with the Corporation’s operations. To the extent such approvals are required and
not obtained, the Corporation may be curtailed or prohibited from its proposed business activities or from proceeding with the development
of its operations as currently proposed. Failure to comply with applicable environmental laws, regulations and permitting requirements
may result in enforcement actions thereunder, including orders issued by regulatory or judicial authorities causing operations to cease
or be curtailed, and may include corrective measures requiring capital expenditures, installation of additional equipment, or remedial
actions. The Corporation may be required to compensate those suffering loss or damage due to its operations and may have civil or criminal
fines or penalties imposed for violations of applicable laws or regulations.
The Corporation Faces Competition from Other Companies Where
It Will Conduct Business That May Have Higher Capitalization, More Experienced Management or May Be More Mature As a Business.
An increase in the companies competing in this industry could limit
the ability of the Corporation to expand its operations. Current and new competitors may be better capitalized, a longer operating history,
more expertise and able to develop higher quality equipment or products, at the same or a lower cost. The Corporation cannot provide assurances
that it will be able to compete successfully against current and future competitors. Competitive pressures faced by the Corporation could
have a material adverse effect on its business, operating results and financial condition. In addition, despite Canadian federal and state-level
legalization of marijuana, illicit or “black-market” operations remain abundant and present substantial competition to the
Corporation. In particular, illicit operations, despite being largely clandestine, are not required to comply with the extensive regulations
that the Corporation must comply with to conduct business, and accordingly may have significantly lower costs of operation.
If the Corporation is Unable to Attract and Retain Key Personnel,
It May not Be Able to Compete Effectively in the Cannabis Market.
The Corporation’s success has depended and continues to depend
upon its ability to attract and retain key management, including the Corporation’s President/CEO, technical experts and sales personnel.
The Corporation will attempt to enhance its management and technical expertise by continuing to recruit qualified individuals who possess
desired skills and experience in certain targeted areas. The Corporation’s inability to retain employees and attract and retain
sufficient additional employees or engineering and technical support resources could have a material adverse effect on the Corporation’s
business, results of operations, sales, cash flow or financial condition. Shortages in qualified personnel or the loss of key personnel
could adversely affect the financial condition of the Corporation, results of operations of the business and could limit the Corporation’s
ability to develop and market its cannabis-related products. The loss of any of the Corporation’s senior management or key employees
could materially adversely affect the Corporation’s ability to execute our business plan and strategy, and the Corporation may not
be able to find adequate replacements on a timely basis, or at all.
If we are unable to keep up with technological
developments, our business could be negatively affected.
The markets for our products and services are expected to be characterized
by rapid technological change and be highly competitive with respect to timely innovations. Accordingly, we believe that our ability to
succeed in the sale of our products and services will depend significantly upon the technological quality of our products and services
relative to those of our competitors, and upon our ability to continue to develop and introduce new and enhanced products and services
at competitive prices and in a timely and cost-effective manner. In order to develop such new products and services, we will depend upon
close relationships with existing customers and our ability to continue to develop and introduce new and enhanced products and services
at competitive prices and in a timely and cost-effective manner. There can be no assurance that we will be able to develop and market
our products and services successfully or respond effectively to the technological changes or new product and service offerings of our
potential competitors. We may not be able to develop the required technologies, products, and services on a cost-effective and timely
basis, and any inability to do so could have a material adverse effect on our business, financial condition, and results of operations.
There is No Assurance That the Corporation Will Obtain and Retain
the Licenses.
The Corporation’s ability to grow, store and sell cannabis in
Canada is dependent on the ability of the Corporation to obtain the licenses to do so from Health Canada. The Corporation does not currently
hold a License from Health Canada and there can be no assurance that the Corporation will receive such a License in a timely manner, or
at all. The Licenses, once issued, are subject to ongoing compliance and reporting requirements. Failure to comply with the requirements
would have a material adverse impact on the business, financial condition and operating results of the Corporation.
If and when the Licenses are issued, they will have to be periodically
renewed by Health Canada. Although the Corporation believes it will meet the requirements of the Cannabis Act for future renewals
of the Licenses, there can be no guarantee that Health Canada will renew the Licenses or, if renewed, that they will be renewed on the
same or similar terms or that Health Canada will not revoke the Licenses. Should the Corporation fail to comply with the requirements
of the Licenses or should Health Canada not renew the Licenses when required, or renew the Licenses on different terms or revoke the Licenses,
there would be a material adverse effect on the Corporation’s business, financial condition and results of operations.
Government licenses are currently, and in the future may be, required
in connection with the Corporation’s operations, in addition to other unknown permits and approvals which may be required. To the
extent such permits and approvals are required and not obtained, the Corporation may be prevented from operating and/or expanding its
business, which could have a material adverse effect on the Corporation’s business, financial condition and results of operations.
Failure to Successfully Integrate Acquired Businesses, Its Products
and Other Assets into the Corporation, or If Integrated, Failure to Further the Corporation’s Business Strategy, May Result in the
Corporation’s Inability to Realize Any Benefit from Such Acquisition.
The Corporation has grown by acquiring AMS. The consummation and integration
of any acquired business, product or other assets into the Corporation may be complex and time-consuming and, if such businesses and assets
are not successfully integrated, the Corporation may not achieve the anticipated benefits, cost-savings or growth opportunities. Furthermore,
these acquisitions and other arrangements, even if successfully integrated, may fail to further the Corporation’s business strategy
as anticipated, expose the Corporation to increased competition or other challenges with respect to the Corporation’s products or
geographic markets, and expose the Corporation to additional liabilities associated with an acquired business, technology or other asset
or arrangement. When the Corporation acquires cannabis businesses, it may obtain the rights to applications for licenses as well as licenses;
however, the procurement of such applications for licenses and licenses generally will be subject to governmental and regulatory approval.
There are no guarantees that the Corporation will successfully consummate such acquisitions, and even if the Corporation consummates such
acquisitions, the procurement of applications for licenses may never result in the grant of a license by any state or local governmental
or regulatory agency and the transfer of any rights to licenses may never be approved by the applicable state and/or local governmental
or regulatory agency.
The Size of the Corporation’s Target Market is Difficult
to Quantify and Investors Will Be Reliant on Their Own Estimates on the Accuracy of Market Data.
Because the cannabis industry is in a nascent stage with uncertain
boundaries, there is a lack of information about comparable companies available for potential investors to review in deciding about whether
to invest in the Corporation and, few, if any, established companies whose business model the Corporation can follow or upon whose success
the Corporation can build. Accordingly, investors will have to rely on their own estimates in deciding about whether to invest in the
Corporation. There can be no assurance that the Corporation’s estimates are accurate or that the market size is sufficiently large
for its business to grow as projected, which may negatively impact its financial results.
The Corporation’s Industry is Experiencing Rapid Growth
and Consolidation That May Cause the Corporation to Lose Key Relationships and Intensify Competition.
The cannabis industry is undergoing rapid growth and substantial change,
which has resulted in an increase in competitors, consolidation and formation of strategic relationships. Acquisitions or other consolidating
transactions could harm the Corporation in a number of ways, including by losing strategic partners if they are acquired by or enter into
relationships with a competitor, losing customers, revenue and market share, or forcing the Corporation to expend greater resources to
meet new or additional competitive threats, all of which could harm the Corporation’s operating results. As competitors enter the
market and become increasingly sophisticated, competition in the Corporation’s industry may intensify and place downward pressure
on retail prices for its products and services, which could negatively impact its profitability.
The Corporation Will Require Additional Financing and There is
No Assurance That Additional Financing Will Be Available When Required.
The Corporation will require additional capital in the future and plans
to achieve this additional financing through equity and/ or debt financing. However, there is no assurance that this financing will be
available when required. Specifically, there is no assurance that the Corporation will be able to raise any additional equity financing
through its shares given the viability of the Hanover facility will not be demonstrated until after construction is complete. In addition,
there is no assurance that the Corporation will be able to secure debt financing given its low asset base and its current lack of revenues.
Existing Shareholders May Be Diluted to the Extent That the Company
Raises Additional Funds Through Additional Equity Financings.
The Corporation continues to sell shares for cash to fund operations,
capital expansion, mergers and acquisitions that will dilute the current shareholders. There is no guarantee that the Corporation will
be able to achieve its business objectives. The continued development of the Corporation will require additional financing. The failure
to raise such capital could result in the delay or indefinite postponement of current business objectives or the Corporation going out
of business. There can be no assurance that additional capital or other types of financing will be available if needed or that, if available,
the terms of such financing will be favorable to the Corporation.
If additional funds are raised through issuances of equity or convertible
debt securities, existing shareholders could suffer significant dilution, and any new equity securities issued could have rights, preferences
and privileges superior to those of holders of Common Shares. The Corporation’s articles permit the issuance of 300,000,000 Common
Shares, and shareholders will have no preemptive rights in connection with such further issuance. The directors of the Corporation have
discretion to determine the price and the terms of further issuances. In addition, from time to time, the Corporation may enter into transactions
to acquire assets or the shares of other companies. These transactions may be financed wholly or partially with debt, which may temporarily
increase the Corporation’s debt levels above industry standards. Any debt financing secured in the future could involve restrictive
covenants relating to capital raising activities and other financial and operational matters, which may make it more difficult for the
Corporation to obtain additional capital and to pursue business opportunities, including potential acquisitions. The Corporation may require
additional financing to fund its operations to the point where it is generating positive cash flow. Negative cash flow may restrict the
Corporation’s ability to pursue its business objectives.
If you purchase shares of our Common Shares in an offering, you will
experience substantial and immediate dilution, because the price that you pay will be substantially greater than the net tangible book
value per share of the Common Shares that you acquire. This dilution is due in large part to the fact that our earlier investors will
have paid substantially less than a public offering price when they purchased their Common Shares.
The Corporation Operates Within the Cannabis Industry, Which
Might Result in Additional Difficulties and Complexities Associated with Obtaining Adequate Insurance Coverage.
At the date of this Report, the Corporation and its subsidiaries have
secured insurance coverage with respect to builder’s risk, general liability and property. The Corporation has not yet secured insurance
coverage with respect to workers’ compensation, directors’ and officers’ insurance, fire and other similar policies
customarily obtained for businesses to the extent commercially appropriate; and, because the Corporation is engaged in and operates within
the cannabis industry, there might be exclusions and additional difficulties and complexities associated with obtaining such insurance
coverage that could cause the Corporation to suffer uninsured losses, which could adversely affect the Corporation’s business, results
of operations, and profitability. There is no assurance that the Corporation will be able to obtain and utilize such insurance coverage,
if necessary.
The Cultivation of Cannabis Includes Risks Inherent in an Agricultural
Business Including the Risk of Crop Loss, Sudden Changes in Environmental Conditions, Equipment Failure, Product Recalls and Others.
The Corporation’s future business involves the growing of medical
marijuana, an agricultural product. Such business will be subject to the risks inherent in the agricultural business, such as insects,
plant diseases and similar agricultural risks. Although the Corporation expects that any such growing will be completed indoors under
climate controlled conditions, there can be no assurance that natural elements will not have a material adverse effect on any such future
production. The Corporation is reliant on a single location. Adverse changes affecting the Hanover Facility, development project could
materially affect the Corporation’s plans.
The Cultivation of Cannabis Involves a Reliance on Third Party
Transportation Which Could Result in Supply Delays, Reliability of Delivery and Other Related Risks.
In order for customers of the Corporation to receive their product,
the Corporation may rely on third party transportation services. This can cause logistical problems with and delays in patients obtaining
their orders and cannot be directly controlled by the Corporation. Any delay by third party transportation services may adversely affect
the Corporation’s financial performance.
Moreover, security of the product during transportation to and from
the Corporation’s facilities is critical due to the nature of the product. A breach of security during transport could have material
adverse effects on the Corporation’s business, financials and prospects. Any such breach could impact the Corporation’s future
ability to continue operating under its licenses or the prospect of renewing its licenses.
The Corporation May Be Subject to Product Recalls for Product
Defects Self-imposed or Imposed by Regulators.
Manufacturers and distributors of products are sometimes subject to
the recall or return of their products for a variety of reasons, including product defects, such as contamination, unintended harmful
side effects or interactions with other substances, packaging safety and inadequate or inaccurate labeling disclosure. If any of the Corporation’s
products are recalled due to an alleged product defect or for any other reason, the Corporation could be required to incur the unexpected
expense of the recall and any legal proceedings that might arise in connection with the recall. The Corporation may lose a significant
amount of sales and may not be able to replace those sales at an acceptable margin or at all. In addition, a product recall may require
significant management attention. Although the Corporation has detailed procedures in place for testing its products, there can be no
assurance that any quality, potency or contamination problems will be detected in time to avoid unforeseen product recalls, regulatory
action or lawsuits. Additionally, if one of the Corporation’s significant brands were subject to recall, the image of that brand
and the Corporation could be harmed. A recall for any of the foregoing reasons could lead to decreased demand for the Corporation’s
products and could have a material adverse effect on the results of operations and financial condition of the Corporation. Additionally,
product recalls may lead to increased scrutiny of the Corporation’s operations by Health Canada or other regulatory agencies, requiring
further management attention and potential legal fees and other expenses.
The Corporation is Reliant on Key Inputs, such as Water and Utilities,
and Any Interruption of These Services Could Have a Material Adverse Effect on the Corporation’s Finances and Operation Results.
The Corporation’s business is dependent on a number of key inputs
and their related costs including raw materials and supplies related to its growing operations, as well as electricity, water and other
local utilities. Any significant interruption or negative change in the availability or economics of the supply chain for key inputs could
materially impact the business, financial condition and operating results of the Corporation. Any inability to secure required supplies
and services or to do so on appropriate terms could have a materially adverse impact on the business, financial condition and operating
results of the Corporation.
The Expansion of the Medical Cannabis Industry May Require New
Clinical Research into Effective Medical Therapies, When Such Research has Been Restricted in the U.S. and is New to Canada.
Research in Canada, the U.S. and internationally regarding the medical
benefits, viability, safety, efficacy, dosing and social acceptance of cannabis or isolated cannabinoids remains in early stages. There
have been relatively few clinical trials on the benefits of cannabis or isolated cannabinoids. Although the Corporation believes that
the articles, reports and studies support its beliefs regarding the medical benefits, viability, safety, efficacy, dosing and social acceptance
of cannabis, future research and clinical trials may prove such statements to be incorrect, or could raise concerns regarding, and perceptions
relating to, cannabis. Given these risks, uncertainties and assumptions, investors should not place undue reliance on such articles and
reports. Future research studies and clinical trials may draw opposing conclusions to those stated in this Prospectus or reach negative
conclusions regarding the medical benefits, viability, safety, efficacy, dosing, social acceptance or other facts and perceptions related
to medical cannabis, which could have a material adverse effect on the demand for the Corporation’s products with the potential
to lead to a material adverse effect on the Corporation’s business, financial condition and results of operations.
Under Canadian Regulations, a Licensed Producer of Cannabis May
Have Restrictions on the Type and Form of Marketing It Can Undertake Which Could Materially Impact Sales Performance.
The development of the Corporation’s future business and operating
results may be hindered by applicable restrictions on sales and marketing activities imposed by Health Canada or U.S. regulatory authorities.
The regulatory environment in Canada limits the Corporation’s ability to compete for market share in a manner similar to other industries.
If the Corporation is unable to effectively market its products and compete for market share, or if the costs of compliance with government
legislation and regulation cannot be absorbed through increased selling prices for its products, the Corporation’s sales and operating
results could be adversely affected.
The Corporation Could Be Liable for Fraudulent or Illegal Activity
by its Employees, Contractors and Consultants Resulting in Significant Financial Losses to Claims Against the Corporation.
The Corporation is exposed to the risk that its employees, independent
contractors and consultants may engage in fraudulent or other illegal activity. Misconduct by these parties could include intentional,
reckless and/or negligent conduct or disclosure of unauthorized activities to the Corporation that violates: (i) government regulations;
(ii) manufacturing standards; (iii) federal and provincial healthcare fraud and abuse laws and regulations; or (iv) laws that require
the true, complete and accurate reporting of financial information or data. It is not always possible for the Corporation to identify
and deter misconduct by its employees and other third parties, and the precautions taken by the Corporation to detect and prevent this
activity may not be effective in controlling unknown or unmanaged risks or losses or in protecting the Corporation from governmental investigations
or other actions or lawsuits stemming from a failure to be in compliance with such laws or regulations. If any such actions are instituted
against the Corporation, and it is not successful in defending itself or asserting its rights, those actions could have a significant
impact on our business, including the imposition of civil, criminal and administrative penalties, damages, monetary fines, contractual
damages, reputational harm, diminished profits and future earnings, and curtailment of the Corporation’s operations, any of which
could have a material adverse effect on the Corporation’s business, financial condition and results of operations.
The Corporation will be reliant on Information Technology Systems
and may be Subject to Damaging Cyber-attacks.
The Corporation has entered into agreements with third parties for
hardware, software, telecommunications and other information technology (“IT”) services in connection with its operations].
The Corporation’s operations depend, in part, on how well it and its suppliers protect networks, equipment, IT systems and software
against damage from a number of threats, including, but not limited to, cable cuts, damage to physical plants, natural disasters, intentional
damage and destruction, fire, power loss, hacking, computer viruses, vandalism and theft. The Corporation’s operations also depend
on the timely maintenance, upgrade and replacement of networks, equipment, IT systems and software, as well as preemptive expenses to
mitigate the risks of failures. Any of these and other events could result in information system failures, delays and/or increase in capital
expenditures. The failure of information systems or a component of information systems could, depending on the nature of any such failure,
adversely impact the Corporation’s reputation and results of operations.
The Corporation has not experienced any material losses to date relating
to cyber-attacks or other information security breaches, but there can be no assurance that the Corporation will not incur such losses
in the future. The Corporation’s risk and exposure to these matters cannot be fully mitigated because of, among other things, the
evolving nature of these threats. As a result, cyber security and the continued development and enhancement of controls, processes and
practices designed to protect systems, computers, software, data and networks from attack, damage or unauthorized access is a priority.
As cyber threats continue to evolve, the Corporation may be required to expend additional resources to continue to modify or enhance protective
measures or to investigate and remediate any security vulnerabilities.
The Corporation may be Subject to Breaches of Security at its
Facilities, or in Respect of Electronic Documents and Data Storage and May Face Risks Related to Breaches of Applicable Privacy Laws.
Given the nature of the Corporation’s product and its lack of
legal availability outside of channels approved by the Government of Canada, as well as the concentration of inventory in its facilities,
despite meeting or exceeding Health Canada’s security requirements, there remains a risk of shrinkage as well as theft. A security
breach at one of the Corporation’s facilities could expose the Corporation to additional liability and to potentially costly litigation,
increase expenses relating to the resolution and future prevention of these breaches and may deter potential patients from choosing the
Corporation’s products.
A privacy breach may occur through procedural or process failure, information
technology malfunction, or deliberate unauthorized intrusions. Theft of data for competitive purposes, particularly patient lists and
preferences, is an ongoing risk whether perpetrated via employee collusion or negligence or through deliberate cyber-attack. Any such
theft or privacy breach would have a material adverse effect on the Corporation’s business, financial condition and results of operations.
In addition, there are a number of federal and provincial laws protecting
the confidentiality of certain patient health information, including patient records, and restricting the use and disclosure of that protected
information. In particular, the privacy rules under the Personal Information Protection and Electronics Documents Act (Canada)
(“PIPEDA”), protect medical records and other personal health information by limiting their use and disclosure of health
information to the minimum level reasonably necessary to accomplish the intended purpose. If the Corporation was found to be in violation
of the privacy or security rules under PIPEDA or other laws protecting the confidentiality of patient health information, it could be
subject to sanctions and civil or criminal penalties, which could increase its liabilities, harm its reputation and have a material adverse
effect on the business, results of operations and financial condition of the Corporation.
The Corporation’s Officers and Directors may be Engaged
in a Range of Business Activities Resulting in Conflicts of Interest.
The Corporation may be subject to various potential conflicts of interest
because some of its officers and directors may be engaged in a range of business activities. In addition, the Corporation’s executive
officers and directors may devote time to their outside business interests, so long as such activities do not materially or adversely
interfere with their duties to the Corporation. In some cases, the Corporation’s executive officers and directors may have fiduciary
obligations associated with these business interests that interfere with their ability to devote time to the Corporation’s business
and affairs and that could adversely affect the Corporation’s operations. These business interests could require significant time
and attention of the Corporation’s executive officers and directors. In addition, the Corporation may also become involved in other
transactions which conflict with the interests of its directors and the officers who may from time to time deal with persons, firms, institutions
or Companies with which the Corporation may be dealing, or which may be seeking investments similar to those desired by it. The interests
of these persons could conflict with those of the Corporation.
In addition, from time to time, these persons may be competing with
the Corporation for available investment opportunities. Conflicts of interest, if any, will be subject to the procedures and remedies
provided under applicable laws. In particular, if such a conflict of interest arises at a meeting of the Corporation’s directors,
a director who has such a conflict will abstain from voting for or against the approval of such participation or such terms. In accordance
with applicable laws, the directors of the Corporation are required to act honestly, in good faith and in the best interests of the Corporation.
In Certain Circumstances, the Corporation’s Reputation
could be Damaged.
Damage to the Corporation’s reputation can be the result of the
actual or perceived occurrence of any number of events, and could include any negative publicity, whether true or not. The increased usage
of social media and other web-based tools used to generate, publish and discuss user-generated content and to connect with other users
has made it increasingly easier for individuals and groups to communicate and share opinions and views regarding the Corporation and its
activities, whether true or not. Although the Corporation believes that it operates in a manner that is respectful to all stakeholders
and that it takes care in protecting its image and reputation, the Corporation does not ultimately have direct control over how it is
perceived by others. Reputation loss may result in decreased investor confidence, increased challenges in developing and maintaining community
relations and an impediment to the Corporation’s overall ability to advance its projects, thereby having a material adverse impact
on financial performance, financial condition, cash flows and growth prospects.
Regulatory Scrutiny of the Corporation’s Industry may Negatively
Impact its Ability to Raise Additional Capital.
The Corporation’s business activities rely on newly established
and/or developing laws and regulations in Canada. These laws and regulations are rapidly evolving and subject to change with minimal notice.
Regulatory changes may adversely affect the Corporation’s profitability or cause it to cease operations entirely. The cannabis industry
may come under the scrutiny or further scrutiny by Health Canada or the Canadian Securities Exchange. It is impossible to determine the
extent of the impact of any new laws, regulations or initiatives that may be proposed, or whether any proposals will become law. The regulatory
uncertainty surrounding the Corporation’s industry may adversely affect the business and operations of the Corporation, including
without limitation, the costs to remain compliant with applicable laws and the impairment of its ability to raise additional capital,
which could reduce, delay or eliminate any return on investment in the Corporation.
Publicity or Consumer Perception.
The Corporation believes the recreational and medical cannabis industries
are highly dependent upon consumer perception regarding the safety, efficacy and quality of the cannabis produced. Consumer perception
of the Corporation’s products can be significantly influenced by scientific research or findings, regulatory investigations, litigation,
media attention and other publicity regarding the consumption of cannabis products.
There can be no assurance that future scientific research, findings,
regulatory proceedings, litigation, media attention or other research findings or publicity will be favorable to the cannabis market generally,
any particular product or consistent with earlier publicity. Future research reports, findings, regulatory proceedings, litigation, media
attention or other publicity that are perceived as less favorable than, or that question, earlier research reports, findings or publicity
could have a material adverse effect on the demand for the Corporation’s products and the business, results of operations, financial
condition and the Corporation’s cash flows. The Corporation’s dependence upon consumer perceptions means that adverse scientific
research reports, findings, regulatory proceedings, litigation, media attention or other publicity, whether or not accurate or with merit,
could have a material adverse effect on the Corporation, the demand for the Corporation’s products, and the business, results of
operations, financial condition and cash flows of the Corporation. Further, adverse publicity reports or other media attention regarding
the safety, efficacy and quality of medical cannabis in general, or the Corporation’s products specifically, or associating the
consumption of cannabis with illness or other negative effects or events, could have such a material adverse effect. Such adverse publicity
reports or other media attention could arise even if the adverse effects associated with such products resulted from consumers’
failure to consume such products appropriately or as directed.
Currency Fluctuations
The Corporation’s revenues and expenses are expected to be primarily
denominated in Canadian dollars, and therefore may be exposed to significant currency exchange fluctuations. Recent events in the global
financial markets have been coupled with increased volatility in the currency markets. Fluctuations in the exchange rate between the U.S.
dollar and the Canadian dollar may have a material adverse effect on the Corporation’s business, financial condition and operating
results. The Corporation may, in the future, establish a program to hedge a portion of its foreign currency exposure with the objective
of minimizing the impact of adverse foreign currency exchange movements. However, even if the Corporation develops a hedging program,
there can be no assurance that it will effectively mitigate currency risks.
We may need to raise additional funds in the future that may
not be available on acceptable terms or available at all.
We may consider issuing additional debt or equity securities in the
future to fund our business plan, for potential investment acquisitions, or general corporate purposes. If we issue equity or convertible
debt securities to raise additional funds, our existing stockholders may experience dilution, and the new equity or debt securities may
have rights, preferences, and privileges senior to those of our existing stockholders. If we incur additional debt, it may increase our
leverage relative to our earnings or to our equity capitalization, requiring us to pay additional interest expenses. We may not be able
to obtain financing on favorable terms, or at all, in which case, we may not be able to develop or enhance our products, execute our business
plan, take advantage of future opportunities, or respond to competitive pressures.
We may be subject to liability claims for damages and other expenses
not covered by insurance that could reduce our earnings and cash flows.
Our business, profitability, and growth prospects could suffer if we
pay damages or defense costs in connection with a liability claim that is outside the scope of any applicable insurance coverage. We intend
to maintain, but do not yet have, general and product liability insurance. There is no assurance that we will be able to obtain insurance
in amounts, or for a price, that will permit us to purchase desired amounts of insurance. Additionally, if our costs of insurance and
claims increase, then our earnings could decline. Further, market rates for insurance premiums and deductibles have been steadily increasing,
which may prevent us from being adequately insured. A product liability or negligence action in excess of insurance coverage could harm
our profitability and liquidity.
Insurance and contractual protections may not always cover lost
revenue.
We possess insurance and warranties from suppliers, and our subcontractors
make contractual obligations to meet certain performance levels. We also attempt, where feasible, to pass risks we cannot control to our
customers. The proceeds of such insurance, warranties, performance guarantees, and risk-sharing arrangements may not be adequate to cover
lost revenue, increased expenses, or liquidated damages payments that may be required in the future.
We currently carry customary insurance for business liability. Certain
losses of a catastrophic nature, such as from floods, tornadoes, thunderstorms, and earthquakes, are uninsurable or not economically insurable.
Such “Acts of God,” work stoppages, regulatory actions, or other causes, could interrupt operations and adversely affect our
business.
We Rely on Outside Consultants and Employees.
We will rely on the experience of outside consultants and employees.
In the event that one or more of these consultants or employees terminates employment with the Company, or becomes unavailable, suitable
replacements will need to be retained, and there is no assurance that such employees or consultants could be identified under conditions
favorable to us.
Our financial and operating performance is adversely affected
by the coronavirus pandemic.
The recent outbreak of a strain of coronavirus (COVID-19) in the U.S.
has had an unfavorable impact on our business operations. Mandatory closures of businesses imposed by the federal, state and
local governments to control the spread of the virus is disrupting the operations of our management, business and finance teams. In addition,
the COVID-19 outbreak has adversely affected the U.S. economy and financial markets, which may result in a long-term economic downturn
that could negatively affect future performance. The extent to which COVID-19 will impact our business and our consolidated
financial results will depend on future developments which are highly uncertain and cannot be predicted at the time of the filing of this
Form 10-K, but is expected to result in a material adverse impact on our business, results of operations and financial condition.
We operate in a highly competitive industry and competitors may
compete more effectively.
The industries in which we operate are highly competitive, with many
companies of varying size and business models, many of which have their own proprietary technologies, competing for the same business
as we do. Many of our competitors have longer operating histories and greater resources than us, and they could use their substantial
financial resources to develop a competing business model, develop products or services that are more attractive to potential customers
than those we offer, or convince our potential customers that they require financing arrangements that are impractical for smaller companies
to offer. Our competitors may also offer similar products and services at prices below cost, devote significant sales forces to competing
with us, or attempt to recruit our key personnel by increasing compensation, any of which could improve their competitive positions. Any
of these competitive factors could make it more difficult for us to attract and retain customers, cause us to lower our prices in order
to compete or reduce our market share and revenue, any of which could have a material adverse effect on our financial condition and operating
results. We can provide no assurance that we will continue to compete effectively against our current competitors or additional companies
that may enter our markets. We also expect to encounter competition from customers who elect to develop solutions or perform services
internally rather than engaging an outside provider such as us.
Risks Related to Our Financial Condition
Dependence on financing and losses for the foreseeable future.
Our independent registered public accounting firm has issued its audit
opinion on our consolidated financial statements appearing in this Annual Report on Form 10-K, including an explanatory paragraph as to
substantial doubt with respect to our ability to continue as a going concern. The accompanying consolidated financial statements have
been prepared in conformity with accounting principles generally accepted in the United States of America, assuming we will continue as
a going concern, which contemplates the realization of assets and satisfaction of liabilities in the normal course of business. For the
fiscal year-ended December 31, 2020, our net loss was $19,890,272. As of December 31, 2020, we had an accumulated deficit of $8,801,599
and a working capital deficit of $17,081,639. These factors raise substantial doubt about our ability to continue as a going concern which
is dependent on our ability to raise the required additional capital or debt financing to meet short- and long-term operating requirements.
We may also encounter business endeavors that require significant cash commitments or unanticipated problems or expenses that could result
in a need for additional cash. If we raise additional funds through the issuance of equity or convertible debt securities, the percentage
ownership of our current shareholders could be reduced, and such securities might have rights, preferences, or privileges senior to our
common stock. Additional financing may not be available upon acceptable terms, or available at all. If adequate funds are not available
on acceptable terms, we may not be able to take advantage of prospective business endeavors or opportunities, which could significantly
and materially restrict our operations. If we are unable to obtain necessary capital, we may have to cease operations. For additional
information, see Management’s Discussion and Analysis of Financial Condition and Results of Operations – “Going Concern.”
Dependence on financing and losses for the foreseeable future
As of December 31, 2020, we had current liabilities of $17,549,190
and current assets of $467,551. We had a working capital deficiency of $17,081,639. Our ability to continue as a going concern is dependent
upon raising capital from financing transactions. To stay in business, we will need to raise additional capital through public or private
sales of our securities or debt financing. In the past, we have financed our operations by issuing secured and unsecured convertible debt
and equity securities in private placements, in some cases with equity incentives for the investor in the form of warrants to purchase
our common stock, and we have borrowed from related parties. We have sought, and will continue to seek, various sources of financing.
There are no additional commitments from anyone to provide us with financing. We can provide no assurance as to whether our capital raising
efforts will be successful or as to when, or if, we will be profitable in the future. Even if the Company achieves profitability, it may
not be able to sustain such profitability. If we are unable to obtain financing or achieve and sustain profitability, we may have to suspend
operations or sell assets, making us unable to execute our business plan. Failure to become and remain profitable may adversely affect
the market price of our common stock and our ability to raise capital and continue operations.
Our ability to generate positive cash flow is uncertain.
To develop and expand our business, we will need to make significant
up-front investments in our manufacturing capacity and incur research and development, sales and marketing, and general and administrative
expenses. In addition, our growth will require a significant investment in working capital. Our business will require significant amounts
of working capital to meet our project requirements and support our growth. We cannot provide any assurance that we will be able to raise
the capital necessary to meet these requirements. If adequate funds are not available or are not available on satisfactory terms, we may
be required to significantly curtail our operations and may not be able to fund our current production requirements, let alone fund expansion,
take advantage of unanticipated acquisition opportunities, develop or enhance our products, and respond to competitive pressures. Any
failure to obtain such additional financing could have a material adverse effect on our business, results of operations, and financial
condition.
Because we may never have net income from our operations, our
business may fail.
We have no history of profitability from operations. There can be no
assurance that we will ever operate profitably. Our success is significantly dependent on uncertain events, including successful developing
our products, establishing satisfactory manufacturing arrangements and processes, and distributing and selling our products. If we are
unable to generate significant revenues from sales of our products, we will not be able to earn profits or continue operations. We can
provide no assurance that we will generate any revenues or ever achieve profitability. If we are unsuccessful in addressing these risks,
our business will fail, and investors may lose all of their investment in our Company.
We need to raise additional funds, and such funds may not be
available on acceptable terms.
We may consider issuing additional debt or equity securities in the
future to fund our business plan, for general corporate purposes or for potential acquisitions or investments. If we issue equity or convertible
debt securities to raise additional funds, our existing stockholders may experience dilution, and the new equity or debt securities may
have rights, preferences, and privileges senior to those of our existing stockholders. If we incur additional debt, it may increase our
leverage relative to our earnings or to our equity capitalization, requiring us to pay additional interest expenses. We may not be able
to obtain financing on favorable terms, in which case, we may not be able to develop or enhance our products, execute our business plan,
take advantage of future opportunities, or respond to competitive pressures.
Risks Related to Our Common Stock and Its Market Value
We have limited capitalization and may require financing, which
may not be available.
We have limited capitalization, which increases our vulnerability to
general adverse economic and industry conditions, limits our flexibility in planning for and reacting to changes in our business and industry,
and may place us at a competitive disadvantage to competitors with sufficient capitalization. If we are unable to obtain sufficient financing
on satisfactory terms and conditions, we will be forced to curtail or abandon our plans or operations. Our ability to obtain financing
will depend upon a number of factors, many of which are beyond our control.
A limited public trading market exists for our common stock,
which makes it difficult for our stockholders to sell their common stock on the public markets. Any trading in our shares may have a significant
effect on our stock prices.
Although our common stock is listed for quotation on the OTC Markets
Pink Fully Reporting, under the symbol “CPMD,” the trading activity of our common stock is volatile and may not develop or
be sustained. As a result, any trading price of our common stock may not be an accurate indicator of the valuation of our common stock.
Any trading in our shares could have a significant effect on our stock price. If a more liquid public market for our common stock does
not develop, then investors may not be able to resell the shares of our common stock that they have purchased and may lose all of their
investment. No assurance can be given that an active market will develop or that a stockholder will ever be able to liquidate its shares
of common stock without considerable delay, if at all. Many brokerage firms may not be willing to affect transactions in the securities.
Even if an investor finds a broker willing to affect a transaction in our securities, the combination of brokerage commissions, state
transfer taxes, if any, and any other selling costs may exceed the selling price. Furthermore, our stock price may be impacted by factors
that are unrelated or disproportionate to our operating performance. These market fluctuations, as well as general economic, political,
and market conditions, such as recessions, interest rates, and international currency fluctuations, may adversely affect the market price
and liquidity of our common stock.
Our stock price has undergone a great deal of volatility, including
a significant decrease over the past few years. The volatility may mean that, at times, our stockholders may be unable to resell their
shares at or above the price at which they acquired them.
From January 1, 2018 through the date of this report, the price per
share of our common stock has ranged from a high of $4.00 to a low of $0.033. The price of our common stock has been, and may continue
to be, highly volatile and subject to wide fluctuations. The market value of our common stock has declined in the past, due in part to
our operating performance and to conversions of dilutive debt instruments that we have issued to fund operations. In the future, broad
market and industry factors may decrease the market price of our common stock, regardless of our actual operating performance. Recent
declines in the market price of our common stock have and could continue to affect our access to capital, and may, if they continue, impact
our ability to continue operations at the current level. In addition, any continuation of the recent declines in the price of our common
stock may curtail investment opportunities presented to us and negatively impact other aspects of our business, including our ability
to fund our operations. As a result of any such declines, many stockholders have been or may become unable to resell their shares at or
above the price at which they acquired them.
The volatility of the market price of our common stock could fluctuate
widely in price in response to various factors, many of which are beyond our control, including the following:
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our stock being held by a small number of persons whose sales (or lack of sales) could result in positive or negative pricing pressure on the market price for our common stock;
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actual or anticipated variations in our quarterly operating results;
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changes in our earnings estimates;
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our ability to obtain adequate working capital financing;
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changes in market valuations of similar companies;
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publication (or lack of publication) of research reports about us;
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changes in applicable laws or regulations, court rulings, enforcement, and legal actions;
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loss of any strategic relationships;
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additions or departures of key management personnel;
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actions by our stockholders (including transactions in our shares);
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speculation in the press or investment community;
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increases in market interest rates, which may increase our cost of capital;
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changes in our industry;
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competitive pricing pressures;
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our ability to execute our business plan; and
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economic and other external factors.
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In addition, the securities markets have from time to time experienced
significant price and volume fluctuations that are unrelated to the operating performance of particular companies. These market fluctuations
may also materially and adversely affect the market price of our common stock.
Our common stock may never be listed on a national exchange and
is subject to being removed from the OTC Pink Marketplace.
Our common stock is quoted for trading on the OTC Pink Marketplace
(“OTC Pink”). We still will be unable to list our stock on the OTC Markets Pink Fully Reporting if we do not meet the eligibility
standards for listing under the OTC Markets Pink Fully Reporting per OTC Markets guidelines. Should we continue to fail to satisfy the
eligibility standards of OTC Markets for the OTC Markets Pink Fully Reporting, the trading price of our common stock could continue to
suffer and the trading market for our common stock may be less liquid and our common stock price may be subject to increased volatility.
Our stock is categorized as a penny stock. Trading of our stock
may be restricted by the SEC’s penny stock regulations which may limit a stockholder’s ability to buy and sell our stock.
Our stock is categorized as a “penny stock”, as that term
is defined in SEC Rule 3a51-1, which generally provides that a “penny stock”, is any equity security that has a market price
(as defined) less than U.S. $5.00 per share, subject to certain exceptions. Our securities are covered by the penny stock rules, including
Rule 15g-9, which imposes additional sales practice requirements on broker-dealers who sell to persons other than established customers
and accredited investors. The penny stock rules require a broker-dealer, prior to a transaction in a penny stock not otherwise exempt
from the rules, to deliver a standardized risk disclosure document in a form prepared by the SEC which provides information about penny
stocks and the nature and level of risks in the penny stock market. The broker-dealer also must provide the customer with current bid
and offer quotations for the penny stock, the compensation of the broker-dealer and its salesperson in the transaction, and monthly account
statements showing the market value of each penny stock held in the customer’s account. The bid and offer quotations, and the broker-dealer
and salesperson compensation information, must be given to the customer orally or in writing prior to effecting the transaction and must
be given to the customer in writing before or with the customer’s confirmation. In addition, the penny stock rules require that
prior to a transaction in a penny stock not otherwise exempt from these rules, the broker-dealer must make a special written determination
that the penny stock is a suitable investment for the purchaser and receive the purchaser’s written agreement to the transaction.
These disclosure requirements may have the effect of reducing the level of trading activity in the secondary market for the stock that
is subject to these penny stock rules. Consequently, these penny stock rules may affect the ability of broker-dealers to trade our securities
and reduce the number of potential investors. We believe that the penny stock rules discourage investor interest in and limit the marketability
of our common stock.
According to SEC Release No. 34-29093, the market for “penny
stocks” has suffered in recent years from patterns of fraud and abuse. Such patterns include: (1) control of the market for the
security by one or a few broker-dealers that are often related to the promoter or issuer; (2) manipulation of prices through prearranged
matching of purchases and sales and through false and misleading press releases; (3) boiler-room practices involving high-pressure sales
tactics and unrealistic price projections by inexperienced salespersons; (4) excessive and undisclosed bid-ask differentials and markups
by selling broker-dealers; and (5) the wholesale dumping of the same securities by promoters and broker-dealers after prices have been
manipulated to a desired level, along with the resulting inevitable collapse of those prices and with consequent investor losses. The
occurrence of these patterns or practices could increase the future volatility of our share price.
FINRA sales practice requirements may also limit a stockholder’s
ability to buy and sell our stock.
In addition to the “penny stock” rules described above,
FINRA has adopted rules that require that in recommending an investment to a customer, a broker-dealer must have reasonable grounds for
believing that the investment is suitable for that customer. Prior to recommending speculative low-priced securities to their noninstitutional
customers, broker-dealers must make reasonable efforts to obtain information about the customer’s financial status, tax status,
investment objectives, and other information. Under interpretations of these rules, FINRA believes that there is a high probability that
speculative low-priced securities will not be suitable for at least some customers. The FINRA requirements make it more difficult for
broker-dealers to recommend that their customers buy our common stock, which may limit your ability to buy and sell our stock and have
an adverse effect on the market for our shares.
A low market price would
severely limit the potential market for our common stock.
Our common stock may trade
at a price below $5.00 per share, subjecting trading in the stock to certain SEC rules requiring additional disclosures by broker-dealers.
These rules generally apply to any non-NASDAQ equity security that has a market price share of less than $5.00 per share, subject to certain
exceptions (a “penny stock”). Such rules require the delivery, before any penny stock transaction, of a disclosure schedule
explaining the penny stock market and the risks associated therewith and impose various sales practice requirements on broker-dealers
who sell penny stocks to persons other than established customers and institutional or wealthy investors. For these types of transactions,
the broker-dealer must make a special suitability determination for the purchaser and have received the purchaser’s written consent
to the transaction before the sale. The broker-dealer also must disclose the commissions payable to the broker-dealer, current bid and
offer quotations for the penny stock, and, if the broker-dealer is the sole market maker, the broker-dealer must disclose this fact and
the broker-dealer’s presumed control over the market. Such information must be provided to the customer orally or in writing before
or with the written confirmation of trade sent to the customer. Monthly statements must be sent disclosing recent price information for
the penny stock held in the account and information on the limited market in penny stocks. The additional burdens imposed on broker-dealers
by such requirements could discourage broker-dealers from effecting transactions in our common stock.
An investor’s
ability to trade our common stock may be limited by trading volume.
A consistently active trading
market for our common stock may not occur on a national stock exchange or an automated quotation system. A limited trading volume may
prevent our stockholders from selling shares at such times or in such amounts as they otherwise may desire.
An active trading market
for our common stock may not be sustained.
Although our common stock
is listed on the OTCQB Market, the market for our shares has demonstrated varying levels of trading activity. Furthermore, the current
level of trading may not be sustained in the future. The lack of an active market for our common stock may impair investors’ ability
to sell their shares at the time they wish to sell them or at a price that they consider reasonable, may reduce the fair market value
of their shares and may impair our ability to raise capital to continue to fund operations by selling shares and may impair our ability
to acquire additional intellectual property assets by using our shares as consideration.
We have not voluntarily
implemented various corporate governance measures, in the absence of which, stockholders may have more limited protections against interested
director transactions, conflicts of interest and similar matters.
Federal legislation, including
the Sarbanes-Oxley Act of 2002, has resulted in the adoption of various corporate governance measures designed to promote the integrity
of corporate management and the securities markets. Some of these measures have been adopted in response to legal requirements. Others
have been adopted by companies in response to the requirements of national securities exchanges, on which their securities are listed.
Among the corporate governance measures that are required under the rules of national securities exchanges and NASDAQ are those that address
board of directors’ independence, audit committee oversight and the adoption of a code of ethics. While our board of directors has
adopted a Code of Ethics and an Audit Committee Charter, we have not yet adopted any of the other corporate governance measures, and,
since our securities are not currently listed on a national securities exchange or NASDAQ, we are not currently required to do so. In
the event that our common stock becomes listed, we will be required to adopt these other corporate governance measures, and we intend
to do so. It is possible that if we were to adopt some or all of these corporate governance measures, stockholders would benefit from
somewhat greater assurances that internal corporate decisions were being made by disinterested directors and that policies had been implemented
to define responsible conduct. For example, in the absence of audit, nominating and compensation committees comprised of at least a majority
of independent directors, decisions concerning matters such as compensation packages to our senior officers and recommendations for director
nominees may be made by a majority of directors who have an interest in the outcome of the matters being decided. Prospective investors
should bear in mind our current lack of corporate governance measures in formulating their investment decisions.
To date, we have not paid any cash dividends, and no cash dividends
will be paid in the foreseeable future.
We do not anticipate paying cash dividends on our common stock in the
foreseeable future and we may not have sufficient funds legally available to pay dividends. Even if the funds are legally available for
distribution, we may nevertheless decide not to pay any dividends. We currently intend to retain all earnings for our operations.
If we fail to develop or maintain an effective system of internal
controls, we may not be able to accurately to report our financial results or prevent financial fraud. As a result, current and potential
stockholders could lose confidence in our financial reporting.
We are subject to the risk that sometime in the future our independent
registered public accounting firm could communicate to the board of directors that we have deficiencies in our internal control structure
that they consider to be “significant deficiencies.” A “significant deficiency” is defined as a deficiency, or
a combination of deficiencies, in internal controls over financial reporting such that there is more than a remote likelihood that a material
misstatement of the entity’s financial statements will not be prevented or detected by the entity’s internal controls.
Effective internal controls are necessary for us to provide reliable
financial reports and effectively prevent fraud. If we cannot provide reliable financial reports or prevent fraud, we could be subject
to regulatory action or other litigation and our operating results could be harmed. We are required to document and test our internal
control procedures to satisfy the requirements of Section 404 of the Sarbanes-Oxley Act of 2002 (the “Sarbanes-Oxley Act,”
or “SOX”), which requires our management to annually assess the effectiveness of our internal control over financial reporting.
We currently are not an “accelerated filer” as defined
in Rule 12b-2 under the Securities Exchange Act of 1934, as amended. Section 404 of the Sarbanes-Oxley Act of 2002 (“Section 404”)
requires us to include an internal control report with our Annual Report on Form 10-K. That report must include management’s assessment
of the effectiveness of our internal control over financial reporting as of the end of the fiscal year. This report must also include
disclosure of any material weaknesses in internal control over financial reporting that we have identified. As of December 31, 2020, the
management of the Company assessed the effectiveness of the Company’s internal control over financial reporting based on SEC guidance
on conducting such assessments and on the criteria for effective internal control over financial reporting established in Internal Control
and Integrated Framework, issued by the Committee of Sponsoring Organizations of the Treadway Commission (“COSO”). Management
concluded, during the year-ended December 31, 2020, that the Company’s internal controls and procedures were effective to detect
the inappropriate application of U.S. GAAP rules. A material weakness in the effectiveness of our internal controls over financial reporting
may increase the chance of fraud and the loss of customers, reduce our ability to obtain financing, and require additional expenditures
to comply with these requirements. Any of these consequences could have a material adverse effect on our business, results of operations
and financial condition. For additional information, see Item 9A – Controls and Procedures.
It may be time-consuming, difficult, and costly for us to develop and
implement the internal controls and reporting procedures required by the Sarbanes-Oxley Act. We may need to hire additional financial
reporting, internal controls, and other finance personnel in order to develop and implement appropriate internal controls and reporting
procedures. If we are unable to comply with the internal controls requirements of the Sarbanes-Oxley Act, then we may not be able to obtain
the independent accountant certifications required by such act, which may preclude us from keeping our filings with the SEC current.
If we are unable to maintain the adequacy of our internal controls,
as those standards are modified, supplemented, or amended from time to time, we may not be able to ensure that we may conclude on an ongoing
basis that we have effective internal control over financial reporting in accordance with Section 404. Failure to achieve and maintain
an effective internal control environment could cause us to face regulatory action and cause investors to lose confidence in our reported
financial information, either of which could adversely affect the value of our common stock.
Because our current directors, executive officers, and preferred
stockholders beneficially hold Sixty-Seven and One Half Percent (67.5%) of our common stock, they can exert significant control over our
business and affairs and have actual or potential interests that may depart from those of subscribers in our private placements.
Our current directors and our executive officers beneficially own or
control approximately forty one and eight tenths percent (41.8%) of our issued and outstanding shares of common stock as of December 31,
2020. Additionally, the holdings of our directors, and executive officers, and preferred stockholders may increase in the future upon
vesting or other maturation of exercise rights under any of the restricted stock grants, options, or warrants they may hold or in the
future be granted, or if they otherwise acquire additional shares of our common stock. The interests of such persons may differ from the
interests of our other stockholders. As a result, in addition to their board seats and offices, such persons, irrespective of how the
Company’s other stockholders vote, may have significant influence over and may control corporate actions requiring stockholder approval,
including the following actions:
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electing or defeating the election our directors;
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to amending or preventing the amendment of our Certificate of Incorporation or By-laws;
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effecting or preventing a transaction, sale of assets, or other corporate transaction; and
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controlling the outcome of any other matter submitted to our stockholders for vote.
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Such persons' stock ownership may discourage a potential acquirer from
making a tender offer or otherwise attempting to obtain control of the Company, which in turn could reduce our stock price or prevent
our stockholders from realizing a premium over our stock price.
Our certificate of incorporation allows our board to create new
series of preferred stock without approval by our stockholders, which could adversely affect the rights of the holders of our common stock.
Our board of directors has the authority to fix and determine the relative
rights and preferences of preferred stock. Our board of directors also has the authority to issue preferred stock without stockholder
approval. As a result, our board of directors could authorize the issuance of a series of preferred stock granting holders a preferred
right to our assets upon liquidation, the right to receive dividend payments before dividends are distributed to the holders of common
stock, and the right to redemption of the shares, together with a premium prior to the redemption of our common stock. In addition, our
board of directors could authorize the issuance of a series of preferred stock that has greater voting power than our common stock or
that is convertible into our common stock, which could decrease the relative voting power of our common stock or result in dilution to
our existing stockholders.
Our financial and operating
performance is adversely affected by the coronavirus pandemic.
The recent outbreak of a strain
of coronavirus (COVID-19) in the U.S. has had an unfavorable impact on our business operations. Mandatory closures of businesses
imposed by the federal, state and local governments to control the spread of the virus is disrupting the operations of our management,
business and finance teams. In addition, the COVID-19 outbreak has adversely affected the U.S. economy and financial markets, which may
result in a long-term economic downturn that could negatively affect future performance. The extent to which COVID-19 will impact
our business and our consolidated financial results will depend on future developments which are highly uncertain and cannot be predicted
at the time of the filing of this Form 10-K, but is expected to result in a material adverse impact on our business, results of operations
and financial condition.
Cautionary Note
We have sought to identify what we believe to be the most significant
risks to our business, but we cannot predict whether, or to what extent, any of such risks may be realized nor can we guarantee that we
have identified all possible risks that might arise. Investors should carefully consider all of such risk factors before making an investment
decision with respect to our common stock.