Healthier Choices Management Corp. (the “Company”) is a holding company
focused on providing consumers with healthier daily choices with respect to nutrition and other lifestyle alternatives. The Company currently operates nine retail vape stores in the Southeast region of the United States, through which it
offers e-liquids, vaporizers and related products. The Company also operates Ada’s Natural Market, a natural and organic grocery store, through its wholly owned subsidiary Healthy Choice Markets, Inc. and Paradise Health and Nutrition, stores that
offer fresh produce, bulk foods, vitamins and supplements, packaged groceries, meat and seafood, deli, baked goods, dairy products, frozen foods, health & beauty products and natural household items through its wholly owned subsidiary Healthy
Choice Markets 2, LLC. The Company also sells vitamins and supplements on the Amazon.com marketplace through its wholly owned subsidiary Healthy U Wholesale, Inc. The Company also operates HCMC Intellectual Property Holdings, LLC, a new wholly owned
subsidiary formed to hold, market and expand on its current intellectual property assets. The Company markets the Q-Cup™ technology under the vape segment; this patented technology is based on a small, quartz cup called the Q-Cup™, which a customer
partially fills with either cannabis or CBD concentrate (approximately 50mg) purchased from a third party. The Q-Cup™ is then inserted into the Q-Cup™ Tank or Globe that heats the cup from the outside without coming in direct contact with the solid
concentrate. This Q-Cup™ technology provides significantly more efficiency and an “on the go” solution for consumers who prefer to vape concentrates either medicinally or recreationally.
NATURAL AND ORGANIC GROCERIES and DIETARY SUPPLEMENTS BUSINESS
Healthy Choice and Healthy Choice Markets 2 are specialty retailer of natural and organic groceries and dietary supplements. We focus on providing
high-quality products at affordable prices, exceptional customer service, nutrition education and community outreach. We strive to generate long-term relationships with our customers based on quality and service by:
Our History and Founding Principles
We are committed to maintaining the following founding principles, which have helped foster our growth:
Our Market
We operate within the natural products retail industry, which is a subset of the United States grocery industry and the dietary supplement business. This
industry includes conventional supermarkets, natural, gourmet and specialty food markets, mass and discount retailers, warehouse clubs, independent health food stores, dietary supplement retailers, drug stores, farmers’ markets, food co-ops, mail
order and online retailers and multi-level marketers. Industry-wide sales of natural and organic foods and dietary supplements have experienced meaningful growth over the past several years, and we believe that growth will continue for the
foreseeable future.
We believe the growth in sales of natural and organic foods and dietary supplements continues to be driven by numerous factors, including:
Our Competitive Strengths
We are well-positioned to capitalize on favorable natural and organic grocery and dietary supplement industry dynamics as a result of the following
competitive strengths:
Strict focus on high-quality natural and organic grocery
products. We offer high-quality products and brands, including an extensive selection of widely-recognized natural and organic food, dietary supplements, body care products, pet care products and books. We offer our customers approximately
10,000 Stock Keeping Units (SKUs) of natural and organic products. We believe our broad product offering enables our customers to shop our stores for substantially all of their grocery and dietary supplement purchases. In our grocery departments, we
primarily sell USDA certified organic produce and do not approve for sale grocery products that are known to contain artificial colors, flavors, preservatives or sweeteners or partially hydrogenated or hydrogenated oils. In addition, we only sell
pasture-raised, humanely-raised dairy products. Consistent with this strategy, our product selection does not include items that do not meet our strict quality guidelines. Our store managers enhance our robust product offering by customizing their
stores’ selections to address the preferences of local customers.
Engaging customer service experience based on education
and empowerment. We strive to offer consistently exceptional customer service in a shopper-friendly environment, which we believe creates a differentiated shopping experience, enhances customer loyalty and generates repeat visits from our
clientele. A key aspect of our customer service model is to provide free nutrition education to our customers. We believe this focus provides an engaging retail experience while also empowering our customers to make informed decisions about their
health. We offer our science-based nutrition education through our trained employees, our newsletter and sales flyer, community out-reach programs, one-on-one nutrition health coaching, nutrition classes and cooking demonstrations.
Our Growth Strategies
We expect to pursue several strategies to continue our profitable growth, including:
Expand our store base. We intend to expand our
store base through the acquisition of new stores.
Increase sales from existing customers. In order to
increase our average ticket and the number of customer transactions, we plan to continue offering an engaging customer experience by providing science-based nutrition education and a differentiated merchandising strategy that delivers affordable,
high-quality natural and organic grocery products and dietary supplements. We also plan to continue to utilize targeted marketing efforts to reach our existing customers, which we anticipate will drive customer transactions and convert occasional,
single-category customers into core, multi-category customers.
Grow our customer base. We plan to implement
several measures aimed at building our brand awareness and growing our customer base, including: (i) redesigning our website (www.adasmarket.com)
to enhance functionality, create a more engaging user experience and increase its reach and effectiveness; (ii) introducing customer appreciation programs at all our stores; and (iii) developing new collateral marketing materials. We believe offering
nutrition education has historically been one of our most effective marketing strategies for reaching new customers and increasing the demand for natural and organic groceries and dietary supplements in our markets.
Improve operating margins. We expect to continue to
improve our operating margins as we benefit from investments we have made or are making in fixed overhead and information technology. As we add additional stores, we expect to achieve greater economies of scale through sourcing and distribution. To
achieve additional operating margin expansion, we intend to further optimize performance, maintain appropriate store labor levels and effectively manage product selection and pricing.
Our Products
Product Selection Guidelines. We have a set of
strict quality guidelines covering all products we sell. For example:
● we sell USDA certified organic produce; and
Our product review team analyzes all new products and approves them for sale based on ingredients, price and uniqueness within the current product set. We
actively research new products in the marketplace through our product vendors, private label manufacturers, scientific findings, customer requests and general trends in popular media. Our stores are able to fully merchandise all departments by
providing an extensive assortment of natural and organic products. We do not believe we need to sell conventional products to fill our selection, increase our margins or attract more customers.
What We Sell. We operate both a full-service
natural and organic grocery stores and dietary supplement stores within our retail locations. The following is a breakdown of our product mix:
Quality Assurance. We endeavor to ensure the
quality of the products we sell. We work with reputable suppliers we believe are compliant with established regulatory and industry guidelines. Our purchasing department requires a complete supplier and product profile as part of the approval
process. Our dietary supplement suppliers must follow Food and Drug Administration (FDA) current good manufacturing practices supported by quality assurance testing for both the base ingredients and the finished product. We expect our suppliers to
comply with industry best practices for food safety.
Many of our suppliers are inspected and certified under the USDA National Organic Program, voluntary industry associations, and other third-party auditing
programs with regards to additional ingredients, manufacturing and handling standards. We operate all our stores in compliance with the National Organic Program standards, which restricts the use of certain substances for cleaning and pest control
and requires rigorous recordkeeping, among other requirements.
Our Pricing Strategy
We believe our pricing strategy allows our customers to shop our stores on a regular basis for their groceries and dietary supplements.
The key elements of our pricing strategy include:
As we expand our store base, we believe there are opportunities for increased leverage in fixed costs, such as administrative expenses, as well as
increased economies of scale in sourcing products. We strive to keep our product, operating and general and administrative costs low, which allows us to continue to offer attractive pricing for our customers.
Store Management and Staffing. Our store staffing
includes a manager and assistant manager, with department managers in each of the dietary supplement, grocery, dairy and frozen, produce, body care and receiving departments, as well as several non-management employees. Our regional manager is
responsible for monthly store profit and loss, including labor, merchandising and inventory costs.
To ensure a high level of service, all employees receive training and guidance on customer service skills, product attributes and nutrition education.
Employees are carefully trained and evaluated based on a requirement that they present nutrition information in an appropriate and legally compliant educational context while interacting with customers. Additionally, store employees are cross-trained
in various functions, including cashier duties, stocking and receiving product.
Inventory. We use a robust merchandise management
and perpetual inventory system that values goods at average cost. We manage shelf stock based on weeks-on-hand relative to sales, resupply time and minimum economic order quantity.
Sourcing and Vendors. We source from
approximately 460 suppliers, and offer over 4,000 brands. These suppliers range from small independent businesses to multi-national conglomerates. As of December 31, 2020, we purchased approximately 70% of the goods we sell from our top 20
suppliers. For the fiscal year ended December 31, 2020, approximately 27% of our total purchases were from one vendor. We maintain good relations with all our suppliers and believe we have adequate alternative supply methods, including
self-distribution.
We have longstanding relationships with our suppliers, and we require disclosure from them regarding quality, freshness, potency and safety data
information. Our bulk food private label products are packaged by us in pre-packed sealed bags to help prevent contamination while in transit and in our stores. Unlike most of our competitors, most of our private label nuts, trail mix and flours are
refrigerated in our warehouse and stores to maintain freshness.
Our Employees
Commitment to our employees is one of our five founding principles. Employees are eligible for health, long-term disability, vision and dental insurance
coverage, as well as Company paid short-term disability and life insurance benefits, after they meet eligibility requirements. Additionally, our employees are offered a 401(k) retirement savings plan with discretionary contribution matching
opportunities. This further offers our employees the opportunity to become more familiar with our products, which we believe improves the customer service our employees are able to provide. We believe these and other factors result in higher
retention rates and encourage our employees to appreciate our culture, which helps them better promote our brand.
Our Customers
The growth in the natural and organic grocery and dietary supplement industries and growing consumer interest in health and nutrition have led to an
increase in our core customer base. We believe the demands for affordable, nutritious food and dietary supplements are shared attributes of our core customers, regardless of their socio-economic status. Additionally, we believe our core customers
prefer a retail store environment that offers carefully selected natural and organic products and dietary supplements. Our customers tend to be interested in health and nutrition, and expect our store employees to be highly knowledgeable about these
topics and related products.
Competition
The grocery and dietary supplement retail business is a large, fragmented and highly competitive industry, with few barriers to entry. Our competition
varies by market and includes conventional supermarkets such as Publix and Winn-Dixie, mass or discount retailers such as Wal-Mart and Target, natural and gourmet markets such as Whole Foods and The Fresh Market, specialty food retailers such as
Trader Joe’s, independent health food stores, dietary supplement retailers, drug stores, farmers’ markets, food co-ops, mail order and online retailers and multi-level marketers. These businesses compete with us for customers on the basis of price,
selection, quality, customer service, shopping experience or any combination of these or other factors. They also compete with us for products and locations. In addition, some of our competitors are expanding to offer a greater range of natural and
organic foods. We believe our commitment to carrying only carefully vetted, affordably priced and high-quality natural and organic products and dietary supplements, as well as our focus on providing nutritional education, differentiate us in the
industry and provide a competitive advantage.
The Grocery business and COVID-19
Starting March 2020, the COVID-19 pandemic had little impact on the grocery segment of the business, other than the Green Leaf Grill. Demand for
groceries, vitamins and supplements, and household products remained strong. However, due to many local businesses temporarily closing and local dinning restrictions, the Green Leaf Grill located at Adas Natural Market was forced to temporarily
close for most of 2020.
To address the impact of the virus, we have instituted strict cleaning protocols at all locations, provided PPP equipment for all employees and offered
online ordering and curbside pick-up for all customers preferring to not enter the store.
VAPORIZER AND E-LIQUID BUSINESS
Retail Stores
While evaluating retail store operations in 2020, management decided to decrease the inventory levels on hand for all of its vape stores in March 2020, due
to a major decreased in foot traffic or temporary closure of some stores a result of the Coronavirus (COVID-19) pandemic. Management decided not close any stores in 2020.
Vaporizers
“Vaporizers” are battery-powered products that enable users to inhale nicotine vapor. Regardless of their construction, they are comprised of three
functional components:
When a user draws air through the vaporizer, the air flow is detected by a sensor, which activates a heating element that vaporizes the solution stored in
the mouthpiece/cartridge, the solution is then vaporized and it is this vapor that is inhaled by the user. The cartridge contains either a nicotine solution or a nicotine free solution, either of which may be flavored.
Vaporizers feature a tank or chamber, a heating element and a battery. The vaporizer user fills the tank with e-liquid or the chamber with dry herb or
leaf. The vaporizer battery can be recharged and the tank and chamber can be refilled.
Our Brands
We sell a wide variety of our e-liquid under the Vape Store brand. Our in-house engineering and graphic design teams work to provide aesthetically
pleasing, technologically advanced and affordable vaporizer and e-liquid flavor options. We are in the process of preparing to commercialize additional brands which we intend to market to new customers and demographics.
Our Improvements and Product Development on Intellectual Property
We have developed, trademarked and are preparing to commercialize additional products. We include product development expenses as part of our operating
expenses. In October 2018, we announced the granting of three US patents related to our Q-Cup™ technology. This Q-Cup™ technology provides microdosing potentially more efficiency depending on the vaping method and an “on the go” solution for
consumers who prefer to vape concentrates either medicinally or recreationally. In addition, we have a suite of patent applications pending in the United States. There is no assurance that we will be awarded patents for of any of these pending patent
applications.
The Market for Vaporizers
We market our vaporizers as an alternative to traditional tobacco cigarettes and cigars. We offer our products in multiple nicotine strengths and flavors.
Advertising
Currently, we advertise our products primarily through point of sale materials and displays at retail locations. We also attempt to build brand awareness
through social media marketing activities, price promotions, in-store and on premise promotions, public relations and radio advertising. Some of our competitors promote their brands through print media and television commercials, and through
celebrity endorsements, and have substantial resources to devote to such efforts. We believe that our and our competitors’ efforts have helped increase our sales, our product acceptance and general industry awareness.
Distribution and Sales
The Company sells directly to consumers through the company owned retail vape stores. Our management believes that consumers are shifting towards vape
stores for an enhanced experience. This enhanced experienced is derived from the greater variety of products at the stores, the knowledgeable staff and the social atmosphere. The Company anticipates a portion of future revenue will continue to come
from its retail stores.
Business Strategy
We believe and are seeing in our current stores that there is a large consumer demand centered on vaporizer products and the “atmosphere” created by the
vape stores. We believe that our reputation and our experience in the vaporizer industry, from a development, customer service and production perspective, give us an advantage in attracting customers.
Moreover, we believe that our history with our suppliers, including the volume of products we source, gives us an advantage over other market participants
as it relates to favorable pricing, priority as to inventory supply and delivery and first access to new products, including first access to next generation products and technology.
Our goal is to achieve a position of sustainable leadership in the vaporizer industry. Our strategy consists of the following key elements:
● develop new product offerings with new technology and performance advancements;
● continue our product focus on vape related products;
● invest in and leverage our existing brand through marketing and advertising;
● expanding into new potential markets;
● align our product offerings and cost with market demand; and
● consider diversifying our line of business.
Competition
Competition in the vaporizer and e-liquid industry is intense. We compete with other sellers of vaporizes, most notably Altria Group, Inc., JT
International, Imperial Tobacco, and Reynolds American, Inc., which are big tobacco companies that have vaporizer and electronic cigarette business segments. The nature of our competitors is varied as the market is highly fragmented and the barriers
to entry into the business are low. Our direct competitors sell products that are substantially similar to ours excluding any products which we hold patents. As a general matter, we have access to market and sell the similar vaporizers as our
competitors and we sell our products at substantially similar prices as our competitors; accordingly, the key competitive factors for our success is the quality of service we offer our customers, the scope and effectiveness of our marketing efforts,
including media advertising campaigns and, increasingly, the ability to identify and develop new sources of customers.
As discussed above, we compete against “big tobacco”, U.S. cigarette manufacturers of both conventional tobacco cigarettes and electronic cigarettes like
Altria Group, Inc., JT International, Imperial Tobacco, and Reynolds American, Inc. We compete against “big tobacco” who offers not only conventional tobacco cigarettes and electronic cigarettes and vaporizers, but also smokeless tobacco products
such as “snus” (a form of moist ground smokeless tobacco that is usually sold in sachet form that resembles small tea bags), chewing tobacco and snuff. “Big tobacco” has nearly limitless resources, global distribution networks in place and a customer
base that is fiercely loyal to their brands. Furthermore, we believe that “big tobacco” is devoting more attention and resources to developing, acquiring technology patents, and offering electronic cigarettes, vaporizers and e-liquids as these
markets grow. Because of their well-established sales and distribution channels, marketing expertise and significant resources, “big tobacco” is better positioned than small competitors like us to capture a larger share of the electronic cigarette
market. We also compete against numerous other smaller manufacturers or importers of cigarettes. There can be no assurance that we will be able to compete successfully against any of our competitors, some of whom have far greater resources, capital,
experience, market penetration, sales and distribution channels than us. If our major competitors were, for example, to significantly increase the level of price discounts offered to consumers, we could respond by offering price discounts, which
could have a materially adverse effect on our business, results of operations and financial condition.
Manufacturing
We have no manufacturing capabilities and do not intend to develop any manufacturing capabilities. Third party manufacturers make our products to meet our
design specifications. We depend on third party manufacturers for our vaporizer e-liquid and accessories. Our customers associate certain characteristics of our products including the weight, feel, draw, unique flavor, packaging and other attributes
of our products to the brands we market, distribute and sell. Any interruption in supply and or consistency of our products may harm our relationships and reputation with customers, and have a material adverse effect on our business, results of
operations and financial condition. In order to minimize the risk of supply interruption, we currently utilize several third-party manufacturers to manufacture our products to our specifications.
We currently utilize several manufacturers both domestically and internationally. We contract with our manufacturers on a purchase order basis. We do not
have any output or requirements contracts with any of our manufacturers. Our manufacturers provide us with finished products, which we hold in inventory for distribution, sale and use.
Source and Availability of Product
We believe that an adequate supply of product will be available to us as needed and from multiple sources and suppliers.
Patent Litigation
Third party patent lawsuits alleging our infringement of patents, trade secrets or other intellectual property rights have and could force us to do one or
more of the following:
Future third party lawsuits alleging our infringement of patents, trade secrets or other intellectual property rights could have a material adverse effect
on our business, results of operations and financial condition.
We are required to obtain licenses to patents or proprietary rights of others and may be required to obtain more in the future and as the product continues
to evolve. We cannot assure you that any future licenses required under any such patents or proprietary rights would be made available on terms acceptable to us or at all. If we do not obtain such licenses, we could encounter delays in product market
introductions while we attempt to design around such patents, or could find that the development, manufacture, or sale of products requiring such licenses could be foreclosed. Litigation may be necessary to defend against claims of infringement
asserted against us by others, or assert claims of infringement to enforce patents issued to us or exclusively licensed to us, to protect trade secrets or know-how possessed by us, or to determine the scope and validity of the proprietary rights of
others. In addition, we may become involved in oppositions in foreign jurisdictions, reexamination declared by the United States Patent and Trademark Office, or interference proceedings declared by the United States Patent and Trademark Office to
determine the priority of inventions with respect to our patent applications or those of our licensors. Litigation, opposition, reexamination or interference proceedings could result in substantial costs to and diversion of effort by us, and may have
a material adverse impact on us. In addition, we cannot assure you that our efforts to maintain or defend our patents will be successful.
Patent Enforcement
On November 30, 2020, the Company filed a patent infringement lawsuit against Philip Morris USA, Inc. and Philip Morris Products S.A. in the U.S. District
Court for the Northern District of Georgia (the “Complaint”). The lawsuit alleges infringement on HCMC-owned patent(s) by the Philip Morris product known and marketed as “IQOS™.” Philip Morris claims that it is currently approaching 14 million
users of its IQOS® product and has reportedly invested over $3 billion in their smokeless tobacco products.
Regulations
Since a 2010 U.S. Court of Appeals decision, the Food and Drug Administration (“FDA”) is permitted to regulate electronic cigarettes as “tobacco products”
under the Family Smoking Prevention and the Tobacco Control Act. Under this decision, the FDA is not permitted to regulate electronic cigarettes as “drugs” or “devices” or a “combination product” under the Federal Food, Drug and Cosmetic Act unless
they are marketed for therapeutic purposes. This is contrary to anti-smoking devices like nicotine patches, which undergo more extensive FDA regulation. Because the Company does not market its electronic cigarettes for therapeutic purposes, the
Company’s electronic cigarettes are subject to being classified as “tobacco products” under the Tobacco Control Act. The Tobacco Control Act grants the FDA broad authority over the manufacture, sale, marketing and packaging of tobacco products,
although the FDA is prohibited from issuing regulations banning all cigarettes or all smokeless tobacco products, or requiring the reduction of nicotine yields of a tobacco product to zero.
On September 9, 2020 the FDA began enforcing rules that extended its regulatory authority to electronic cigarettes
and certain other tobacco products under the Tobacco Control Act. The rules required that electronic cigarette and e-liquid manufacturers (i) register with the FDA and report electronic cigarette products and ingredient listings; (ii) market new
electronic cigarette products only after FDA review; (iii) only make direct and implied claims of reduced risk if the FDA confirms that scientific evidence supports the claim and that marketing the electronic cigarette product will benefit public
health as a whole; (iv) not distribute free samples; (v) implement minimum age and identification restrictions to prevent sales to individuals under age 21; (vi) include a health warning; and (vii) not sell electronic cigarettes in vending machines,
unless in a facility that never admits youth. It is not known how long finalizing and implementing this regulatory process to may take. Accordingly, the Company has responded by beginning to take the necessary steps to ensure compliance.
In this regard, total compliance and related costs are not possible to predict and depend substantially on the future requirements imposed by the FDA under
the Tobacco Control Act. Costs, however, could be substantial and could have a material adverse effect on the Company’s business, results of operations and financial condition. In addition, failure to comply with the Tobacco Control Act and with FDA
regulatory requirements could result in significant financial penalties and could have a material adverse effect on the Company’s business, financial condition and results of operations and ability to market and sell the Company’s products. At
present, it is difficult to predict whether the Tobacco Control Act will impact the Company to a greater degree than competitors in the industry, thus affecting the Company’s competitive position.
State and local governments currently legislate and regulate tobacco products, including what is considered a tobacco product, how tobacco taxes are
calculated and collected, to whom and by whom tobacco products can be sold and where tobacco products may or may not be smoked. State and local regulation of the e-cigarette market and the usage of e-cigarettes is beginning to accelerate.
As local regulations expand, vaporizers and electronic cigarettes may lose their appeal as an alternative to cigarettes, which may have the effect of
reducing the demand for the Company’s products and as a result have a material adverse effect on the Company’s business, results of operations and financial condition.
At present, neither the Prevent All Cigarette Trafficking Act (which prohibits the use of the U.S. Postal Service to mail most tobacco products, which
would require individuals and businesses that make interstate sales of cigarettes or smokeless tobacco to comply with state tax laws) nor the Federal Cigarette Labeling and Advertising Act (which governs how cigarettes can be advertised and marketed)
apply to electronic cigarettes. The application of either or both of these federal laws to vaporizers and electronic cigarettes would have a material adverse effect on the Company’s business, results of operations and financial condition.
On July 1, 2015, the FDA published a document entitled “Advanced notice of proposed rulemaking” or the Advance. Through the Advance, the FDA solicited
public comments on whether it should issue rules with respect to nicotine exposure warning and child-resistant packaging for e-liquids containing nicotine. Following public comment, the FDA may issue proposed rules in furtherance of the purposes
outlined in the Advance and ultimately pass the rules as proposed or in modified form. We cannot predict whether rules will be passed or if they will have a material adverse effect on our future results of operations and financial conditions.
The Company expects that the tobacco industry will experience significant regulatory developments over the next few years, driven principally by the World
Health Organization’s FCTC. The FCTC is the first international public health treaty on tobacco, and its objective is to establish a global agenda for tobacco regulation with the purpose of reducing initiation of tobacco use and encouraging
cessation. Regulatory initiatives that have been proposed, introduced or enacted include:
If Vaporizers, electronic cigarettes, or e-liquids, are subject to one or more significant regulatory initiates enacted under the FCTC, the Company’s
business, results of operations and financial condition could be materially and adversely affected.
Seasonality
Our business is active throughout the calendar year and does not experience significant fluctuation caused by seasonal changes in consumer purchasing.
The Vape Business and COVID-19
Starting March 2020, the COVID-19 pandemic had moderate to significant impact on the vape business depending on the location of the retail store. Several
stores, located in smaller towns, saw a greater negative impact than stores located in larger retail environments. As stores reopened and retail consumers re-emerged, operations at all locations have stabilized.
To address the impact of the virus, we have instituted strict cleaning protocols at all locations, provided PPP equipment for all employees and offered
curbside pick-up for all customers preferring to not enter the store.
Insurance and Risk Management
We use a combination of insurance and self-insurance to cover workers’ compensation, general liability, product liability, director and officers’
liability, employment practices liability, associate healthcare benefits and other casualty and property risks. Changes in legal trends and interpretations, variability in inflation rates, changes in the nature and method of claims settlement,
benefit level changes due to changes in applicable laws, insolvency of insurance carriers and changes in discount rates could all affect ultimate settlements of claims. We evaluate our insurance requirements and providers on an ongoing basis.
Information Technology Systems
We have made significant investments in overhead and information technology infrastructure, including purchasing, receiving, inventory, point of sale,
warehousing, distribution, accounting, reporting and financial systems.
Segment Information
We have two reporting segments, natural and organic retail stores (“Grocery”) and vapor products (“Vapor”), through which we conduct all of our business.
Going Concern and Liquidity
The accompanying consolidated financial statements have been prepared in conformity with accounting principles generally accepted in the United States of
America (“GAAP”), which contemplate the continuation of the Company as a going concern for the next twelve months from the issuance of this Form 10-K and realization of assets and satisfaction of liabilities in the normal course of business and do
not include any adjustments that might result from the outcome of any uncertainties related to our going concern assessment. The carrying amounts of assets and liabilities presented in the consolidated financial statements do not necessarily purport
to represent realizable or settlement values.
The Company currently and historically has reported net losses and cash
outflows from operations. As of December 31, 2020, cash and cash equivalents totaled approximately $0.9 million. Subsequent to the year ended December 31, 2020, the Company entered into a $5.0 million Securities Purchase Agreement (See Note
17. Subsequent Events for further discussion). The Company anticipates that its current cash, cash equivalent and cash generated from operations and $5.0 million received
from the Securities Purchase Agreement described above will be sufficient to meet the projected operating expenses for the foreseeable future through a year and a day from the issuance of these consolidated financial statements. Should we require
additional funds (either through equity or debt financing, collaborative agreements or from other sources) we have no commitments to obtain such additional financing, and we may not be able to obtain any such additional financing on terms favorable
to us, or at all.