Securities Registration Statement (s-1/a)

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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549

 

FORM S-1/A

Pre-Effective Amendment No. 1


 

REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933

 

Marijuana Co of America, Inc.
(Exact name of registrant as specified in its charter)

 

Utah
(State or other jurisdiction of incorporation or organization)

 

2833
(Primary Standard Industrial Classification Code Number)

 

94-1246221
(I.R.S. Employer Identification Number)

 

633 W. 5th Street, Suite 2826

Los Angeles, California 90071


Telephone: (888) 777-4362

(Address, including zip code, and telephone number,
including area code, of registrant’s principal executive offices)

__________________________________________________________

Jesus Quintero

Chief Executive Officer

Marijuana Company of America, Inc.

633 W. 5th Street, Suite 2826

Los Angeles, California 90071

Phone: (888) 777-4362
(Name, address, including zip code, and telephone number, including area code, of agent for service)

__________________________________________________________

Pacific Stock Transfer, Inc.

6725 Via Austi Pkwy

Suite 300

Las Vegas, NV 89119
Telephone: (800) 785-7782

(Name, address, including zip code, and telephone number, including area code, of agent for service)

__________________________________________________________

Copies to:

 

Independent Law PLLC

Alan T. Hawkins, Esq.

2106 NW 4th Place

Gainesville, FL 32603

Telephone: (352) 353-4048

 

From time to time after the effective date of this registration statement.
(Approximate date of commencement of proposed sale to the public)

 

 
 
 

 

 

If any of the securities being registered on this Form are to be offered on a delayed or continuous basis pursuant to Rule 415 under the Securities Act of 1933 check the following box:   

 

If this Form is filed to register additional securities for an offering pursuant to Rule 462(b) under the Securities Act, please check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering.  

 

If this Form is a post-effective amendment filed pursuant to Rule 462(c) under the Securities Act, check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering.  

 

If this Form is a post-effective amendment filed pursuant to Rule 462(d) under the Securities Act, check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering.   

 

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company” and “emerging growth company” in Rule 12b-2 of the Exchange Act.

 

Large accelerated filer Accelerated filer
Non-accelerated filer Smaller reporting company
  Emerging growth company

 

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 7(a)(2)(B) of the Securities Act.  

 

Calculation of Registration Fee

 

Title of Each Class
of Securities to be
Registered
   Amount to be
Registered (1)
  Proposed Maximum
Offering Price
Per Share
  Proposed Maximum
Aggregate Offering
Amount
  Amount of
Registration Fee
Common stock to be offered for resale by selling stockholder     300,000,000     $ 0.0041 (2)   $ 1,230,000     $ 134.19 (3)
                                 

 

(1)     Consists of up to 300,000,000 shares of common stock to be sold to White Lion Capital, LLC (“White Lion”) under the investment agreement dated June 17, 2020.  As of August 31, 2021, the Company had 4,712,514,738 shares of common stock in the public float.  The 300,000,000 shares being registered represent approximately 6.4% of the shares in the public float as of August 31, 2021.  Assuming all of these shares are sold, the registrant’s total number of issued and outstanding shares of common stock will be 6,355,130,705, calculated on the total number of shares issued and outstanding at August 31, 2021 of 6,055,130,705. The total number of registered shares will then represent approximately 5% of the issued and outstanding shares.
   
(2) Estimated solely for the purpose of calculating the amount of the registration fee in accordance with Rule 457(c) under the Securities Act of 1933. The maximum price per Share and the maximum aggregate offering price are based on the average of the $0.0042 (high) and $0.004 (low) sale price of the Registrant's Common Stock as reported on the OTC on 08/30/2021, which date is within five business days prior to filing this Registration Statement.
   
(3) Based on the price per share of $0.004 for Marijuana Company of America, Inc.’s common stock on August 30, 2021, as reported by the OTC Markets Group. 

 

The registrant hereby amends this registration statement on such date or dates as may be necessary to delay its effective date until the registrant shall file a further amendment which specifically states that this registration statement shall thereafter become effective in accordance with Section 8(a) of the Securities Act of 1933 or until the registration statement shall become effective on such date as the Securities and Exchange Commission, acting pursuant to said Section 8(a), may determine. 

 

 
 

 

EXPLANATORY NOTE

 

The sole purpose of this Pre-Effective Amendment No. 1 to the Registration Statement on Form S-1 (Registration No. 333-259235) of Marijuana Company of America, Inc. is to update the auditor’s opinion on page F-2. The Company mistakenly included a non-final draft audit opinion in the original filing that was not the final version approved by our auditors. Other than replacing the auditors’ opinion, no change is made to the disclosures herein and the exhibits filed herewith.

 

 

 

 
 
 

 

 

The information in this prospectus is not complete and may be changed. The selling stockholder may not sell these securities until the registration statement filed with the Securities and Exchange Commission is effective. This prospectus is not an offer to sell these securities and it is not soliciting an offer to buy these securities in any state where the offer or sale is not permitted.

 

Subject to Completion, Dated September 3, 2021

 

Preliminary Prospectus

 

MARIJUANA COMPANY OF AMERICA, INC.

 

 

 

Marijuana Company of America, Inc.

 

300,000,000 Shares of Common Stock

 

This prospectus relates to the resale of up to 300,000,000 shares of our common stock, par value $0.001 per share, (the “Common Shares”), issuable to White Lion Capital, LLC. (“White Lion”), a selling stockholder, pursuant to a “put right” under an investment agreement (the “Investment Agreement”), dated June 17, 2020, that we entered into with White Lion. The Investment Agreement permits us to “put” up to ten million dollars ($10,000,000) in shares of our common stock to White Lion, under certain circumstances, over a period of up to twenty-four (24) months or until $10,000,000 of such shares have been “put.” On August 17, 2020, we put 63,333,815 shares of the Company's common stock, $0.001 value per share, to White Lion. On August 26, 2020, we put 63,679,032 shares Company's common stock, $0.001 value per share, to White Lion. White Lion may sell all or a portion of the shares being offered pursuant to this Prospectus at fixed prices, at prevailing market prices at the time of sale, at varying prices or at negotiated prices.

 

As of August 31, 2021, the Company had 4,712,514,738 shares of common stock in the public float. The 300,000,000 shares being registered represent approximately 6.4% of the shares in the public float at August 31, 2021.  Assuming all of these shares are sold, the registrant’s total number of issued and outstanding shares of common stock will be 6,355,130,705, calculated on the number of issued and outstanding shares at August 31, 2021 of 6,055,130,705. The total number of registered shares will then represent approximately 5% of the issued and outstanding shares.

 

White Lion is an underwriter within the meaning of the Securities Act of 1933 and any broker-dealers or agents that are involved in selling the shares may be deemed to be “underwriters” within the meaning of the Securities Act of 1933 in connection with such sales. In such event, any commissions received by such broker-dealers or agents and any profit on the resale of the shares purchased by them may be deemed to be underwriting commissions or discounts under the Securities Act of 1933.

 

Our common stock is quoted by the OTC Markets Group Fully-Reporting Pink Tier under the symbol “MCOA”. On August 30, 2021 the last-reported price of our common stock was $0.004 per share.

 

We will not receive any proceeds from the sale of shares of our common stock by the selling stockholder. However, we will receive proceeds from the sale of shares of our common stock pursuant to our exercise of the put right offered by White Lion. We will pay for expenses of this offering, except that the selling stockholder will pay any broker discounts or commissions or equivalent expenses and expenses of its legal counsel applicable to the sale of its shares.

  

Investing in our common stock involves risks. See “Risk Factors” beginning on page 21.

 

Neither the Securities and Exchange Commission nor any state securities commission has approved or disapproved of these securities or determined if this prospectus is truthful or complete. Any representation to the contrary is a criminal offense.

 

The date of this prospectus is August 31, 2021.

 

 
 
 

 

 

Table of Contents

 

    Page Number
About This Prospectus   3
Prospectus Summary   4
Risk Factors   21
Risks Related to Our Business   23
Risks Related to Our Company   29
Risks Related to Our Common Stock   31
Forward-Looking Statements   38
Use of Proceeds   38
Dilution   38
The Offering   38
Selling Stockholders   39
Plan of Distribution   40
Description of Securities   42
Experts and Counsel   45
Interest of Named Experts and Counsel   45
Information with Respect to Our Company   46
Description of Business   46
Description of Property   62
Legal Proceedings   62
Market Price of and Dividends on Our Common Equity and Related Stockholder Matters   63
Financial Statements   F-1
Management’s Discussion and Analysis of Financial Condition and Results of Operations   64
Change in and Disagreements with Accountants on Accounting and Financial Disclosure   81
Directors and Executive Officers   81
Executive Compensation   82
Security Ownership of Certain Beneficial Owners and Management   83
Where You Can Find More Information   86

  

 

 

 

2 
 
 

 

CAUTIONARY STATEMENT REGARDING FORWARD LOOKING STATEMENTS

 

Some of the statements contained or incorporated by reference in this prospectus are “forward-looking statements”. These statements are based on the current expectations, forecasts, and assumptions of our management and are subject to various risks and uncertainties that could cause our actual results to differ materially from those expressed or implied by the forward-looking statements. Forward-looking statements are sometimes identified by language such as “believe,” “may,” “could,” “estimate,” “continue,” “anticipate,” “intend,” “should,” “plan,” “expect,” “appear,” “future,” “likely,” “probably,” “suggest,” “goal,” “potential” and similar expressions and may also include references to plans, strategies, objectives, and anticipated future performance as well as other statements that are not strictly historical in nature. The risks, uncertainties, and other factors that could cause our actual results to differ materially from those expressed or implied in this prospectus include, but are not limited to, those noted under the caption “Risk Factors” beginning on page 21 of this prospectus. Readers should carefully review this information as well the risks and other uncertainties described in other filings we may make after the date of this prospectus with the Securities and Exchange Commission.

 

Readers are cautioned not to place undue reliance on forward-looking statements. They reflect opinions, assumptions, and estimates only as of the date they were made, and we undertake no obligation to publicly update or revise any forward-looking statements in this prospectus, whether as a result of new information, future events or circumstances, or otherwise.

 

ABOUT THIS PROSPECTUS

 

You should rely only on the information that we have provided in this prospectus and any applicable prospectus supplement. We have not authorized anyone to provide you with different information. No dealer, salesperson or other person is authorized to give any information or to represent anything not contained in this prospectus and any applicable prospectus supplement. You must not rely on any unauthorized information or representation. This prospectus is an offer to sell only the securities offered hereby, but only under circumstances and in jurisdictions where it is lawful to do so. You should assume that the information in this prospectus and any applicable prospectus supplement is accurate only as of the date on the front of the document, regardless of the time of delivery of this prospectus, any applicable prospectus supplement, or any sale of a security.

 

As used in this prospectus, the terms “we”, “us”, “our” and the “Company”, means Marijuana Company of America, Inc. and subsidiary companies cDistro, Inc., a Nevada corporation, Hempsmart Global, Inc., a Nevada corporation, H Smart, Inc, a Delaware corporation, MCOA CA, Inc., a California corporation, Hempsmart, Ltd., a United Kingdom corporation, H Smart Inc. (a California foreign registered corporation) and H Smart Inc., a Washington corporation. All dollar amounts refer to U.S. dollars unless otherwise indicated.

 

Hempsmart and other registered or common law trade names, trademarks, or service marks of the Company appearing in this prospectus are the property of H Smart, Inc. and/or Marijuana Company of America, Inc. Solely for convenience, our trademarks and trade names referred to in this prospectus may appear with and without the ® and symbols, but those references are not intended to indicate, in any way, that we will not assert, to the fullest extent under applicable law, our rights, or the right of the applicable licensor, to these trademarks and trade names.

 

3 
 
 

 

  

MARIJUANA COMPANY OF AMERICA, INC.

 

Prospectus Summary

 

This summary highlights selected information that is presented in greater detail elsewhere in this prospectus. This summary does not contain all the information you should consider before investing in our common stock. You should read this entire prospectus carefully, including the sections titled “Risk Factors” and “Management’s Discussion and Analysis of Financial Condition and Results of Operations,” and our financial statements and the related notes included elsewhere in this prospectus, before making an investment decision. Unless the context otherwise requires, the terms “cDistro,” “Hempsmart,” “the Company,” “we,” “us,” and “our” in this prospectus refer to Marijuana Company of America, Inc.

 

The Offering

 

This prospectus relates to the resale of up to 300,000,000 shares of the Common Shares, issuable to White Lion Capital, LLC (“White Lion”), a selling stockholder pursuant to a “put right” under an investment agreement (the “Investment Agreement”), dated June 17, 2020, that we entered into with White Lion. The Investment Agreement permits us to “put” in amounts up to ten million dollars ($10,000,000) in shares of our common stock to White Lion over a period of up to twenty-four (24) months or until $10,000,000 of such shares have been “put.” On August 17, 2020, we put 63,333,815 shares of the Company's common stock to White Lion, and on August 26, 2020, we put 63,679,032 shares Company's common stock, $0.001 value per share, to White Lion, pursuant to the Investment Agreement.

 

Our Company

 

Marijuana Company of America, Inc. is a Utah corporation is based in Escondido, California. The Company is a publicly listed company quoted on OTC Markets Pink Tier under the symbol “MCOA”.

 

We are focused on the research and development of (i) various species of hemp; (ii) beneficial uses of hemp and hemp derivatives; (iii) indoor and outdoor cultivation methods for hemp; (iv) technology used for cultivation and harvesting of different species of hemp, including, but not limited to, lighting, venting, irrigation, hydroponics, nutrients and soil; (v) different industrial hemp derived cannabinoids (“CBD”) and the possible health benefits thereof; and (vi) new and improved methods of hemp cannabinoid extraction omitting or eliminating the delta-9 tetrahydrocannabinol “THC” molecule.

 

Specifically, we develop and sell consumer products that include industrial hemp derived, non-psychoactive CBD as an ingredient, under the brand name “hempSMART™” through our wholly-owned subsidiary, H Smart, Inc. In addition, we provide consulting services to licensed cannabis and/or hemp operators with respect to financial accounting and bookkeeping and real property management. Our business also includes making selected investments and entering into joint ventures with start-up businesses in the legalized cannabis and hemp industries.

 

Our Products

 

hempSMART™

 

 

Our consumer products containing hemp and CBD are sold through our wholly-owned subsidiary H Smart, Inc. under the brand name hempSMART™. Our current hempSMART™ products offerings include the following:

 

 

4 
 
 

 

• hempSMART Brain™ a proprietary patented and formulated personal care consumer product encapsulated with enriched non-psychoactive industrial hemp derived CBD. This encapsulation is combined with other high quality, proprietary natural ingredients to compliment CBD to support the brain.

 

• hempSMART Pain™ capsules formulated with 10mg of full spectrum, non-psychoactive CBD per serving, derived from industrial hemp, which along with a proprietary blend of other natural ingredients, are intended to deliver an all-natural formulation for the temporary relief of minor discomfort associated with physical activity.

 

• hempSMART Pain Cream™ each container is formulated with 300mg of full spectrum non-psychoactive CBD derived from industrial hemp. This product contains a synergistic combination of natural botanicals and full spectrum hemp extract featuring CBD, cannabigerol, also known as CBG, and a broad range of terpenes. Our proprietary blend of Ayurvedic herbs along with menthol, cayenne pepper extract, rosemary oil, aloe gel, white willow bark, arnica, wintergreen extract and tea tree oil, is intended to provide an immediate cooling and soothing sensation. This topical product is formulated to help reduce minor discomfort and promote muscle relaxation on the areas to which it is applied.

 

• hempSMART Drops™ full spectrum hemp CBD oil tincture drops available in 250mg and 500mg bottles, enriched with non-psychoactive industrial hemp derived CBD, and available in four different flavors (lemon, mint, orange and strawberry). These drops are free of the THC isolate.

 

• hempSMART Pet Drops™ for cats and dogs, formulated with 250mg of full spectrum non-psychoactive CBD derived from industrial hemp. This product contains naturally occurring CBD derived from hemp seed oil, full spectrum hemp extract, fractionated coconut oil, and a rich bacon flavor.

 

• hempSMART Face™ a nourishing facial moisturizer combines full spectrum CBD from hemp with a unique blend of Ayurvedic herbs and botanicals. This facial moisturizer is designed to refresh, replenish and restore skin, providing long lasting hydration and balance.

 

• hempSMART Drink Mix, an industrial hemp based powderized premium CBD drink made with organic CBD infused with honey to be mixed with any beverage of preference.

 

cDistro, Inc. – Our CBD Wholesale Distributor Business

 

cDistro, Inc. Acquisition

 

On June 29, 2021 (the “Effective Date”), we entered into an Agreement and Plan of Merger (the “Merger Agreement”) with cDistro Merger Sub, Inc., our wholly-owned subsidiary (“Merger Sub”), and cDistro, Inc., a company engaged in the hemp and CBD product distribution business (“cDistro”). Pursuant to the terms of the Merger Agreement, on June 30, 2021 (the “Merger Effective Date”), Merger Sub merged with and into cDistro, with cDistro surviving the merger as our wholly-owned subsidiary (the “Merger”).

 

In connection with the Merger Agreement, on the Effective Date, we entered into an earnout agreement (the “Earnout Agreement”) with the sole securityholder of cDistro (the “cDistro Stockholder”) pursuant to which we agreed to issue additional shares of our common stock to the cDistro Stockholder conditioned upon the achievement of certain revenue milestones. Furthermore, on the Effective Date, the cDistro Stockholder entered into a Lock-Up and Leak-Out Agreement with us pursuant to which, among other thing, the cDistro Stockholder agreed to certain restrictions regarding the resale of our shares of common stock issued and to be issued pursuant to the Merger Agreement for a period of six months from the Effective Date. In addition, on the Effective Date, in connection with the Merger Agreement, we entered into a stock purchase agreement with cDistro pursuant to which purchased 350,000 shares of cDistro common stock at the price of $1.00 per share.

 

At the Merger Effective Date, all outstanding shares of common stock of cDistro were converted into the right to receive 265,164,070 shares of our common stock. In addition, we may be required to issue up to an additional 220,970,059 shares of our common stock pursuant to the Earnout Agreement. 

 

cDistro Business Overview

 

At its website www.cdistro.com, cDistro distributes a select list of quality CBD brands along with smoke and vape shop related products to wholesalers, c-stores, specialty retailers, and dispensaries in North America. Founded in Florida in 2020 by Ronald P. Russo, Jr., cDistro distributes a catalog of eight unique product lines currently being sold to over 250 customers. Through our acquisition of cDistro, we believe MCOA is positioned to take advantage of the developing market opportunity generated by consumers' growing demand for quality hemp products.

 

 

5 
 
 

Our Consulting Services

 

In addition to selling our hempSMART™ products, we also provide certain services to licensed cannabis and/or hemp operators. Our services include the following:

 

Financial Accounting and Bookkeeping

 

We provide financial accounting, bookkeeping and reporting protocols in order to allow licensed cannabis and/or hemp operators in those states where cannabis has been legalized for medicinal and/or recreational use, to report, collect, verify and state effective financial records and disclosure. We provide a comprehensive accounting strategy based on best accounting practices.

 

Real Property Management Consulting

 

Our property management consulting services consist of providing planning, budgeting, acquisition, accounting and management services to licensed cannabis and/or hemp operators in those states where cannabis and/or hemp has been legalized for medicinal and/or recreational use and who are searching for real property to conduct operations.

 

As of the date of this Offering Circular, we have not entered into any engagements for such services and have not generated any revenue related to such services.

 

Current Joint Ventures and Investments

 

Joint Ventures in Brazil and Uruguay

 

On September 30, 2020, we entered into two joint venture agreements with Marco Guerrero, our director, to form joint venture operations in Brazil and Uruguay to produce, manufacture, market and sell our hempSMART™ products in Latin America and to develop and sell hempSMART™ products globally.

 

Cannabis Global, Inc.

 

Joint Venture

 

On May 12, 2021, we entered into a joint venture agreement with Cannabis Global, Inc. (“Cannabis Global”) pursuant to which we will invest up to $250,000 into a newly formed entity (“MCOA Lynwood”) and Cannabis Global, through Natural Plant Extracts of California, Inc. (“Natural Plant”), an entity in which Cannabis Global owns a majority interest, will operate a regulated and licensed laboratory to manufacture various cannabis products in the State of California. As of the date hereof, we have invested $158,000.

 

Share Exchange

 

On September 30, 2020, we entered into a securities exchange agreement with Cannabis Global pursuant to which we issued 650,000,000 shares of our common stock to Cannabis Global in exchange for 7,222,222 shares of Cannabis Global common stock. In addition, we and Cannabis Global entered into a lock-up leak-out agreement which contains certain restrictions with respect to the sales of such securities.

 

 

6 
 
 

 

Joint Venture Subject to Ongoing Dispute

 

Bougainville Ventures, Inc.

 

On March 16, 2017, we entered into a joint venture agreement with Bougainville Ventures, Inc. (“Bougainville”) to, among other things, engage in the development and promotion of products in the legalized cannabis industry in Washington State. We believe that some of the funds we paid to Bougainville were misappropriated and that there was self-dealing with respect to those funds and that Bougainville misrepresented certain material facts in the joint venture agreement. As a result of the foregoing, on September 20, 2018, we filed suit against Bougainville, Andy Jagpal, Richard Cindric, et al. in Okanogan County Washington Superior Court. See Business – Legal Proceedings.

 

Corporate History

 

We were incorporated in the State of Utah on October 4, 1985, under the name of Mormon Mint, Inc. In 1999, Bekam Investments, Ltd. acquired 100% of our common stock and spun us off, changing our name to Converge Global, Inc. In October 2009, we filed Articles of Merger with the State of Utah pursuant to which Sparrowtech Resources, Inc., a Nevada corporation, was merged with and into us. On September 4, 2015, Donald Steinberg and Charles Larsen purchased 400,000,000 shares of common stock and 10,000,000 shares of Class A Preferred Stock from our then President, Cornelia Volino, for $105,000, resulting in a change of control of our Company. In connection with our change of control, we changed our business to focus on cannabis and legalized hemp and changed our name to Marijuana Company of America, Inc. with the State of Utah on November 9, 2015, which name change became effective on the OTC Markets on December 1, 2015.

 

The following table indicates the amount of impairments recorded by the Company quarter to quarter for investment activity quarter to quarter related to its joint venture investments:

 

 

MARIJUANA COMPANY OF AMERICA, INC.

INVESTMENT ROLL-FORWARD

AS OF JUNE 30, 2021

 

    INVESTMENTS   SHORT-TERM INVESTMENTS
                                                         
      TOTAL      

Global

Hemp

     

Cannabis

Global

                      Lynwood               Bougainville Ventues,       Gate C Research       Natural Plant              

TOTAL

Short-Term

      Global Hemp          
      INVESTMENTS       Group       Inc.       ECOX       Benihemp       JV       MoneyTrac       Inc.       Inc.       Extract       Vivabuds       Investments       Group       MoneyTrac  
Beginning balance @12-31-16   $ —       $ —                       $ —               $ —       $ —       $ —                       $ —               $ —    
                                                                                                                 
Investments made during 2017     3,049,275       10,775                       100,000               250,000       1,188,500       1,500,000                       —                 —    
                                                                                                                 
Quarter 03-31-17 equity method Loss     —                                                                                         —                    
                                                                                                                 
Quarter 06-30-17 equity method Loss     —                                                                                         —                    
                                                                                                                 
Quarter 09-30-17 equity method Loss     (375,000 )                                                     (375,000 )                             —                    
                                                                                                                 
Quarter 12-31-17 equity method accounting     313,702                                                       313,702                               —                    
                                                                                                                 
Impairment of Investment in 2017     (2,292,500 )     —                                                 (792,500 )     (1,500,000 )                     —                 —    
Balances as of 12/31/17   $ 695,477.00     $ 10,775.00     $ —       $ —       $ 100,000.00     $ —       $ 250,000.00     $ 334,702.00     $ —       $ —       $ —       $ —       $ —       $ —    

 

 

 

7 
 
 

 

    INVESTMENTS   SHORT-TERM INVESTMENTS
                                                         
      TOTAL      

Global

Hemp

     

Cannabis

Global

                      Lynwood               Bougainville Ventues,       Gate C Research       Natural Plant              

TOTAL

Short-Term

      Global Hemp          
      INVESTMENTS       Group       Inc.       ECOX       Benihemp       JV       MoneyTrac       Inc.       Inc.       Extract       Vivabuds       Investments       Group       MoneyTrac  
Investments made during 2018     986,654       986,654                                                                               —                    
                                                                                                                 
Quarter 03-31-18 equity method Loss     (37,673 )                                                     (37,673 )                             —                    
                                                                                                                 
Quarter 06-30-18 equity method Loss     (11,043 )                                                     (11,043 )                             —                    
                                                                                                                 
Quarter 09-30-18 equity method Loss     (10,422 )                             (10,422 )                                                     —                    
                                                                                                                 
Quarter 12-31-18 equity method Loss     (31,721 )     (31,721 )                     —                                                         —                    
                                                                                                                 
Moneytrac investment reclassified to Short-Term investments     (250,000 )                                             (250,000 )                                     250,000               250,000  
                                                                                                                 
Unrealized gains on trading securities - 2018     —                                                                                         560,000               560,000  
                                                                                                                 
Impairment of investment in 2018     (933,195 )     (557,631 )                     (89,578 )                     (285,986 )                             —                    
Balance @12-31-18   $ 408,077     $ 408,077     $ —       $ —       $ —       $ —       $ —       $ —       $ —       $ —       $ —       $ 810,000     $ —       $ —    

 

 

 

8 
 
 

 

 

    INVESTMENTS   SHORT-TERM INVESTMENTS
                                                         
      TOTAL      

Global

Hemp

     

Cannabis

Global

                      Lynwood               Bougainville Ventues,       Gate C Research       Natural Plant              

TOTAL

Short-Term

      Global Hemp          
      INVESTMENTS       Group       Inc.       ECOX       Benihemp       JV       MoneyTrac       Inc.       Inc.       Extract       Vivabuds       Investments       Group       MoneyTrac  
Investments made during quarter ended 03-31-19     129,040       129,040                                                                                                  
                                                                                                                 
Quarter 03-31-19 equity method Loss     (59,541 )     (59,541 )                                                                                                
                                                                                                                 
Unrealized gains on trading securities - quarter ended 03-31-19                                                                                             (135,000 )           $ (135,000 )
                                                                                                                 
Balance @03-31-19   $ 477,576     $ 477,576     $ —       $ —       $ —       $ —       $ —       $ —       $ —       $ —       $ —       $ 675,000     $ —       $ (135,000 )
                                                                                                                 
Investments made during quarter ended 06-30-19   $ 3,157,234     $ 83,646                                                             $ 3,000,000     $ 73,588                          
                                                                                                                 
Quarter 06-30-19 equity method Income (Loss)   $ (171,284 )   ($ 141,870 )                                                           $ (6,291 )   $ (23,123 )                        
                                                                                                                 
Unrealized gains on trading securities - quarter ended 06-30-19   $ —                                                                                         (150,000 )           $ (150,000 )
                                                                                                                 
Balance @06-30-19   $ 3,463,526     $ 419,352     $ —       $ —       $ —       $ —       $ —       $ —       $ —       $ 2,993,709     $ 50,465     $ 525,000     $ —       $ (285,000 )

 

 

9 
 
 

 

 

    INVESTMENTS   SHORT-TERM INVESTMENTS
                                                         
      TOTAL      

Global

Hemp

     

Cannabis

Global

                      Lynwood               Bougainville Ventues,       Gate C Research       Natural Plant              

TOTAL

Short-Term

      Global Hemp          
      INVESTMENTS       Group       Inc.       ECOX       Benihemp       JV       MoneyTrac       Inc.       Inc.       Extract       Vivabuds       Investments       Group       MoneyTrac  
                                                                                                                 
Investments made during quarter ended 09-30-19   $ 186,263                                                                             $ 186,263                          
                                                                                                                 
Quarter 09-30-19 equity method Income (Loss)   $ 122,863     $ 262,789                                                             $ (94,987 )   $ (44,939 )                        
                                                                                                                 
Sale of trading securities during quarter ended 09-30-19                                                                                           $ (41,667 )           $ (41,667 )
                                                                                                                 
Unrealized gains on trading securities - quarter ended 09-30-19   $ —                                                                                         (362,625 )           $ (362,625 )
                                                                                                                 
Balance @09-30-19   $ 3,772,652     $ 682,141     $ —       $ —       $ —       $ —       $ —       $ —       $ —       $ 2,898,722     $ 191,789     $ 120,708     $ —       $ (689,292 )

 

 

 

10 
 
 

 

 

    INVESTMENTS   SHORT-TERM INVESTMENTS
                                                         
      TOTAL      

Global

Hemp

     

Cannabis

Global

                      Lynwood               Bougainville Ventues,       Gate C Research       Natural Plant              

TOTAL

Short-Term

      Global Hemp          
      INVESTMENTS       Group       Inc.       ECOX       Benihemp       JV       MoneyTrac       Inc.       Inc.       Extract       Vivabuds       Investments       Group       MoneyTrac  
Investments made during quarter ended 12-31-19   $ 392,226     $ 262,414                                                                     $ 129,812                          
                                                                                                                 
Quarter 12-31-19 equity method Income (Loss)   $ (178,164 )   $ (75,220 )                                                           $ (23,865 )   $ (79,079 )                        
                                                                                                                 
Reversal of Equity method Loss for 2019   $ 272,285                                                                     $ 125,143     $ 147,142                          
                                                                                                                 
Impairment of investment in 2019   $ (3,175,420 )   $ (869,335 )                                                           $ (2,306,085 )   $ —                            
                                                                                                                 
Loss on disposition of investment   $ (389,664 )                                                                           $ (389,664 )                        
                                                                                                                 
Sale of trading securities during quarter ended 12-31-19   $ —                                                                                       $ (17,760 )           $ (17,760 )
                                                                                                                 
Unrealized gains on trading securities - quarter ended 12-31-19   $ —                                                                                         (75,545 )           $ (75,545 )
Balance @12-31-19   $ 693,915     $ —       $ —       $ —       $ —       $ —       $ —       $ —       $ —       $ 693,915     $ —       $ 27,403     $ —       $ (782,597 )

 

 

 

11 
 
 

 

 

    INVESTMENTS   SHORT-TERM INVESTMENTS
                                                         
      TOTAL      

Global

Hemp

     

Cannabis

Global

                      Lynwood               Bougainville Ventues,       Gate C Research       Natural Plant              

TOTAL

Short-Term

      Global Hemp          
      INVESTMENTS       Group       Inc.       ECOX       Benihemp       JV       MoneyTrac       Inc.       Inc.       Extract       Vivabuds       Investments       Group       MoneyTrac  
                                                                                                                 
Equity Loss for Quarter ended 03-31-20     126,845       126,845                                                                                                  
                                                                                                                 
Recognize Joint venture liabilities per JV agreement @03-31-20     394,848       394,848                                                                                                  
                                                                                                                 
Impairment of Equity Loss for Quarter ended 03-31-20     (521,692 )     (521,692 )                                                                                                
                                                                                                                 
Unrealized gains on trading securities - quarter ended 03-31-19                                                                                             (13,945 )           $ (13,945 )
Balance @03-31-20   $ 693,915     $ —       $ —       $ —       $ —       $ —       $ —       $ —       $ —       $ 693,915     $ —       $ 13,458     $ —       $ (796,542 )

 

 

 

 

12 
 
 

 

 

    INVESTMENTS   SHORT-TERM INVESTMENTS
                                                         
      TOTAL      

Global

Hemp

     

Cannabis

Global

                      Lynwood               Bougainville Ventues,       Gate C Research       Natural Plant              

TOTAL

Short-Term

      Global Hemp          
      INVESTMENTS       Group       Inc.       ECOX       Benihemp       JV       MoneyTrac       Inc.       Inc.       Extract       Vivabuds       Investments       Group       MoneyTrac  
Equity Loss for Quarter ended 06-30-20     (7,048 )     (7,048 )                                                                                                
                                                                                                                 
Impairment of Equity Loss for Quarter ended 06-30-20     7,048       7,048                                                                                                  
                                                                                                                 
Sales of of trading securities - quarter ended 06-30-20                                                                                             (13,458 )           ($ 13,458 )
Balance @06-30-20   $ 693,915     $ —       $ —       $ —       $ —       $ —       $ —       $ —       $ —       $ 693,915     $ —       $ —       $ 0     ($ 810,000 )
                                                                                                                 
Global Hemp Group trading securities issued     650,000             $ 650,000                                                                     $ 185,000     $ 185,000          
                                                                                                                 
Investment in Cannabis Global     —                                                                                                            
                                                                                                                 
Balance @09-30-20   $ 1,343,915     $ —       $ 650,000     $ —       $ —       $ —       $ —       $ —       $ —       $ 693,915     $ —       $ 185,000     $ 185,000     ($ 810,000 )
                                                                                                                 
Unrealized gain on Global Hemp Group securities - 4th Quarter 2020                                                                                           $ 54,064     $ 54,064          
                                                                                                                 
Unrealized gains on Cannabis Global Inc securities - 4th Quarter 2020     208,086             $ 208,086                                                                                          
Balance @12-31-20   $ 1,552,001     $ —       $ 858,086     $ —       $ —       $ —       $ —       $ —       $ —       $ 693,915     $ —       $ 239,064     $ 239,064     ($ 810,000 )
                                                                                                                 
Investment in ECOX     650,000                     $ 650,000                                                             $ 620,133     $ 620,133          
                                                                                                                 
Balance @03-31-21   $ 2,202,001     $ —       $ 858,086     $ 650,000     $ —       $ —       $ —       $ —       $ —       $ 693,915     $ 0     $ 859,197     $ 859,197     ($ 810,000 )
                                                                                                                 
Investments made during quarter ended 06-30-21     30,898                                     $ 30,898                                                                  
                                                                                                                 
Unrealized gain on Global Hemp Group securities - 2nd quarter 2021                                                                                           ($ 115,997 )   ($ 115,997 )        
                                                                                                                 
Balance @06-30-21   $ 2,232,899     $ —       $ 858,086     $ 650,000     $ —       $ 30,898     $ —       $ —       $ —       $ 693,915     $ —       $ 743,200     $ 743,200     ($ 810,000 )

 

 

 

13 
 
 

 

 

                   
  06-30-20 03-31-20 12-31-19 09-30-19 06-30-19 03-31-19 12-31-18 12-31-17    
This includes balances for: Note (h) Note (g) Note (f) Note (e) Note (d) Note (c) Note (b) Note (a)  
      - Debt obligation of JV 478,494 394,848 - 1,633,872 1,778,872 128,522 289,742 1,500,000  
      - Convertible NP, net of discount 2,784,044 3,040,324 3,193,548 2,688,555 2,149,170 1,536,271 1,132,668 394,555  
      - Long term debt - - - - - - - 172,856  
Total Debt balance 3,262,538 3,435,172 3,193,548 4,322,427 3,928,042 1,664,793 1,422,410 2,067,411  

  

 

Government Regulations

 

We are subject to local, federal and foreign laws and regulations pertaining to the sale of hemp derived CBD products in our operating jurisdictions, and we continuously monitor changes in laws, regulations and treaties.

 

The Agriculture Improvement Act of 2018, known as the "2018 Farm Bill", is United States federal legislation signed into law on December 20, 2018, that provides the legal framework for hemp-based products. The 2018 Farm Bill permanently removed “hemp” from the purview of the Controlled Substances Act, and accordingly, the U.S. Drug Enforcement Administration (“DEA”) no longer has any claim to interfere with the interstate commerce of hemp products. Some of the immediate impact from this legislation includes the ability for hemp farmers to access crop insurance and U.S. Department of Agriculture (“USDA”) programs for competitive grants.

 

The 2018 Farm Bill officially removes the DEA from enforcement of hemp regulations; however, the FDA retains its authority to regulate ingestible and topical hemp products, including hemp extracts that contain CBD. Although no longer a controlled substance under federal law, cannabinoids derived from industrial hemp are still subject to a patchwork of state regulations.

 

A range of federal laws and regulations govern sourcing, manufacturing, distribution, sales, and marketing of hemp derived CBD products in the U.S. Products sold for oral consumption as liquids, tablets, capsules, softgels, or gummies are under the purview of The Dietary Supplement Health and Education Act of 1994 (“DSHEA”). Under DSHEA, supplement manufacturing is regulated by the FDA for current Good Manufacturing Practices (“cGMP”) under 21 CFR Part 111. Furthermore, DSHEA defines a “dietary supplement” as a product intended to supplement the diet that contains one or more of the following: (a) a vitamin; (b) a mineral; (c) an herb or other botanical; (d) an amino acid; (e) a dietary substance for use by man to supplement the diet by increasing the total dietary intake; or (f) a concentrate, metabolite, constituent, extract, or combination of any ingredient described in clause (a) through (e). Thus, the law permits a wide range of dietary ingredients in dietary supplements, including CBD, which is an extract of hemp (Cannabis sativa L.), which is a legal botanical. CBD also falls under clause (e) as it is a dietary substance for use by man to supplement the diet by increasing the total dietary intake.

 

In conjunction with the enactment of the 2018 Farm Bill, the FDA released a statement about the regulatory status of CBD. The statement noted that the 2018 Farm Bill explicitly preserved the FDA’s authority to regulate products containing cannabis or cannabis-derived compounds under the U.S. Federal Food, Drug, and Cosmetic Act (“FDCA”) and Section 351 of the Public Health Service Act. This authority allows the FDA to continue enforcing the law to protect the public while also providing potential regulatory pathways for products containing cannabis and cannabis-derived compounds. The statement also noted the growing public interest in cannabis and cannabis-derived products, including CBD, and informed the public that the FDA will treat products containing cannabis or cannabis-derived compounds as it does any other FDA-regulated products — meaning the products will be subject to the same authorities and requirements as FDA-regulated products containing any other substance, regardless of the source of the substance, including whether the substance is derived from a plant that is classified as hemp under the 2018 Farm Bill. The FDA’s CBD enforcement discretion and regulatory actions with regards to CBD provide regulatory guidance to the CBD industry.

 

 

14 
 
 

 

Based upon publicly available information, to our knowledge, the FDA has not taken any enforcement actions against CBD companies that are compliant with the FDCA. The FDA, however, has sent warning letters to companies demanding they cease and desist from the production, distribution, or advertising of CBD products when these companies have made prohibited, misleading, and unapproved drug claims. We continue to monitor the FDA’s position on CBD.

 

We are subject to federal and state consumer protection laws, including laws protecting the privacy of customer non-public information; the handling of customer complaints; the requirement to provide warnings about exposures to chemicals with adverse health effects; and regulations prohibiting unfair and deceptive trade practices.

 

The growth and demand for online commerce has resulted in more stringent consumer protection laws that impose additional compliance burdens on online companies. These laws cover issues such as user privacy, spyware and the tracking of consumer activities, marketing e-mails and communications, other advertising and promotional practices, money transfers, pricing, product safety, content and quality of products and services, taxation, electronic contracts and other communications and information security.

 

There is uncertainty over whether or how existing laws governing issues such as sales and other taxes, auctions, libel, and personal privacy apply to the internet and commercial online services. These issues are predicted to take years to resolve. For example, tax authorities in some states, as well as a Congressional advisory commission, are currently reviewing the appropriate tax treatment of companies engaged in online commerce. Furthermore, new state tax regulations may subject us to additional state sales and income taxes. Other areas that may result in significant additional taxes or regulatory restrictions include, without limitation, new legislation or regulation; the application of laws and regulations from jurisdictions whose laws do not currently apply; or the application of existing laws and regulations to the internet and commercial online services. These taxes or restrictions could have an adverse effect on our cash flow, output, and overall financial condition. Furthermore, there is a possibility that we may be financially responsible for past failures to comply with requirements.

 

Cannabis Remains an Illegal Schedule 1 Drug under Federal Law

 

Psychoactive Cannabis containing greater than 0.3 percent THC (“Psychoactive Cannabis”) and its derivatives are illegal “Schedule 1” drugs under the Controlled Substances Act (21 U.S.C. § 811). As a Schedule 1 drug, Psychoactive Cannabis and derivatives are viewed as being highly addictive and having no medical value. The United States Drug Enforcement Agency enforces the CSA and persons violating it are subject to federal criminal prosecution. The criminal penalty structure in the CSA is determined based on the specific predicate violations, including but not limited to: simple possession, drug trafficking, attempt and conspiracy, distribution to minors, trafficking in drug paraphernalia, money laundering, racketeering, environmental damage from illegal manufacturing, continuing criminal enterprise, and smuggling. A first conviction under the CSA can generally result in possible fines from $250,000 to $50 million dollars, and incarceration for periods generally from five and up to forty years. For a second conviction, fines increase generally from $500,000 to $75 million dollars, and incarceration for periods generally from ten years to twenty years to life.

 

The United States Food & Drug Administration (“FDA”) is generally responsible for protecting the public health by ensuring the safety, efficacy, and security of (1) prescription and over the counter drugs; (2) biologics including vaccines, blood & blood products, and cellular and gene therapies; (3) foodstuffs including dietary supplements, bottled water, and baby formula; and, (4) medical devices including heart pacemakers, surgical implants, prosthetics, and dental devices.

 

Regarding its regulation of drugs, the FDA process requires a review that begins with the filing of an investigational new drug (IND) application, with follow on clinical studies and clinical trials that the FDA uses to determine whether a drug is safe and effective, and therefore subject to approval for human use by the FDA.

 

 

15 
 
 

 

Aside from the FDA’s mandate to regulate drugs, the FDA also regulates dietary supplement products and dietary ingredients under the Dietary Supplement Health and Education Act of 1994. This law prohibits manufacturers and distributors of dietary supplements and dietary ingredients from marketing products that are adulterated or misbranded. This means that these firms are responsible for evaluating the safety and labeling of their products before marketing to ensure that they meet all the requirements of the law and FDA regulations, including, but not limited to the following labeling requirements: (1) identifying the supplement; (2) nutrition labeling; (3) ingredient labeling; (4) claims; and, (5) daily use information.

 

The FDA has not approved Psychoactive Cannabis, hemp or derivatives as a safe and effective drug for any indication. As of the date of this filing, we have not, and do not intend to file an IND with the FDA, concerning any of our products that contain CBD derived from industrial hemp or cannabis delivered in the State of California pursuant to our joint venture with Natural Plant Extract discussed above. Further, our products containing CBD derived from industrial hemp are not marketed or sold using claims that their use is safe and effective treatment for any medical condition subject to the FDA’s jurisdiction.

 

The FDA has concluded that products containing Psychoactive Cannabis or industrial hemp derived CBD are excluded from the dietary supplement definition under sections 201(ff)(3)(B)(i) and (ii) of the U.S. Food, Drug & Cosmetic Act, respectively. The FDA’s position is that products containing Psychoactive Cannabis, and derivatives are Schedule 1 drugs under the CSA, and so are illegal. Our products containing CBD derived from industrial hemp or cannabis delivered in the State of California are not marketed or sold as dietary supplements. However, at some indeterminate future time, the FDA may choose to change its position concerning generally Psychoactive Cannabis and products containing hemp derived CBD, and may choose to enact regulations that are applicable to such products. In this event, our industrial hemp based products containing CBD and Psychoactive Cannabis delivered through our joint venture interest in Natural Plant Extract may be subject to regulation (See Risk Factors).

 

Brazilian Law Regarding Cannabis and Hemp

 

Brazilian law currently prohibits commercial and personal cannabis cultivation and processing inside the Brazilian territory. Medical marijuana is imported from outside Brazil for individuals with a physician’s prescription on a individual medical patient basis. This restriction applies to both marijuana and industrial hemp. There is no distinction between hemp and marijuana under Brazilian law. As a result, there is no specific legislation in Brazil relating to industrial hemp. However, on August 18, 2020, draft legislation was introduced that would allow Brazilian farmers to grow cannabis for medical and industrial purposes on domestic soil for the first time has been submitted to the country’s lower house of Congress. The bill was delivered to the House of Deputies speaker by lawmakers Paulo Teixeira and Luciano Ducci, co-sponsors of the bill who sit on the chamber’s special commission for the regulation of medicinal cannabis. On June 8, 2021, the bill was approved by the Brazilian Chamber of Deputies’ Special Commission and will now be submitted to the Federal Senate, Brazil's upper house of Congress.

 

Uruguayan Law on Cannabis

 

Cannabis is legal in Uruguay, and is one of the most widely used drugs in the nation. President Jose Mujica signed legislation to legalize recreational cannabis in December 2013, making Uruguay the first country in the modern era to legalize cannabis.

 

Sales and Marketing

 

We market and sell our services and products throughout the United States consistent with the Farm Bill, as well as in Canada and in the United Kingdom. We intend to expand our offerings to additional countries and jurisdictions that adopt state-regulated or government programs similar to the Farm Bill. Currently, we market and sell our hempSMART™ products directly through our website, and through our affiliate marketing program pursuant to which qualified sales affiliates use a secure multi-level-marketing sales software program that: facilitates order placement over the internet via a website; accounts for affiliate orders and sales; calculates referral benefits apportionable to specific sales associates; and calculates and accounts for loyalty and rewards benefits for returning customers. We plan to focus our sales and marketing efforts on direct sales on our website and intend to wind down and terminate our affiliate marketing and sales program during fiscal 2021.

 

16 
 
 

 

Research and Development

 

Our research and development activity for the fiscal year ended December 31, 2020 was primarily focused on formulations of our various hempSMART™ products.

 

Intellectual Property

 

In February 2019, the U.S. Patent and Trademark Office (“USPTO”) issued patent number 10,201,553 for our hempSMART™ Brain product. In addition, in June 2021, H Smart, Inc. was issued a trademark by the USPTO for the tradename hempSMART™.

 

Competition

 

The CBD industry is highly competitive and fragmented with numerous companies, consisting of publicly- and privately-owned companies Our competitors include sellers of hemp-based CBD products and professional services firms dedicated to the regulated hemp industry. We compete in markets where hemp has been legalized and regulated, which includes the United States, Canada and the United Kingdom. Our marketing efforts in Brazil and Uruguay are in the development stages. We expect that the quantity and composition of our competitive environment will continue to evolve as the global hemp industry develops. Additionally, increased competition worldwide is possible to the extent that new states, jurisdictions and countries enter the marketplace as a result of continued enactment of regulatory and legislative changes that de-criminalize and regulate hemp products, including the 2018 Farm Bill.

 

Legal Proceedings

 

Bougainville Ventures, Inc.  On March 16, 2017, we entered into a joint venture agreement with Bougainville to (i) jointly engage in the development and promotion of products in the legalized cannabis industry in Washington State; (ii) utilize Bougainville's high quality cannabis grow operations in the State of Washington, where it claimed to have an ownership interest in real property for use within the legalized cannabis industry; (iii) leverage Bougainville’s agreement with a Tier 3 I502 cannabis license holder to grow cannabis on the site; (iv) provide technical and management services and resources including, but not limited to: sales and marketing, agricultural procedures, operations, security and monitoring, processing and delivery, branding, capital resources and financial management; and (v) optimize collaborative business opportunities. We believe that some of the funds we paid to Bougainville were misappropriated and that there was self-dealing with respect to those funds. Additionally, we believe that Bougainville misrepresented material facts in the joint venture agreement including, but not limited to, Bougainville’s representations that: (i) it had an ownership interest in real property that was to be deeded to the joint venture; (ii) it had an agreement with a Tier 3 I502 cannabis license holder to grow cannabis on the real property; and (iii) that clear title to the real property associated with the Tier 3 I502 license would be deeded to the joint venture 30 days after we made our final funding contribution. As a result of the foregoing, on September 20, 2018, we filed suit against Bougainville, Andy Jagpal, Richard Cindric, et al. in Okanogan County Washington Superior Court seeking legal and equitable relief for breach of contract, fraud, breach of fiduciary duty, conversion, recession of the joint venture agreement, an accounting, quiet title to real property in our name, for the appointment of a receiver, the return to treasury of 15 million shares issued by us to Bougainville, and, for treble damages pursuant to the Consumer Protection Act in Washington State. We filed a lis pendens on the real property. The case is currently in litigation.

 

Employees

 

As of August 31, 2021, we had 4 full-time employees and no part-time employees.

 

Where You Can Find Us

 

Our executive office is located at 633 W. 5th Street, Suite 2826, Los Angeles, CA 90071. Our telephone number is (888) 777-4362.

 

 

17 
 
 

 

The Offering  

 

Common Stock Offered by the Selling Security Holder     300,000,000 shares of common stock, including 300,000,000 shares of common stock that may be put to White Lion, representing 6.4% of the public float as of August 31, 2021.
     
Common Stock in the Public Float Before the Offering    4,712,514,738 shares of common stock as of August 31, 2021.
     
Common Stock Outstanding After the Offering    6,355,130,705 shares of common stock. (1) 
     
Terms of the Offering    The selling security holder will determine when and how they will sell the common stock offered in this prospectus.
     
Termination of the Offering    The offering will conclude upon such time as all of the common stock has been sold pursuant to the registration statement, or 24 months after the effective date.
     
Use of Proceeds   We are not selling any shares of common stock in this offering and, as a result, will not receive any proceeds from this offering.  See “Use of Proceeds.”
     
Risk Factors   The common stock offered hereby involves a high degree of risk and should not be purchased by investors who cannot afford the loss of their entire investment. See “Risk Factors” beginning on page 21.
     
  (1) This total shows how many shares of common stock will be outstanding assuming 300,000,000 shares of common stock will be put to White Lion, calculated using the number of issued and outstanding shares of common stock at August 31, 2021 of 6,055,130,705.
         

 

 

18 
 
 

 

Summary of Financial Data    

 

The following information represents selected audited financial information for our company for the years ended December 31, 2020 and 2019 and the six months ended June 30, 2021 and 2020. The summarized financial information presented below is derived from and should be read in conjunction with our audited and unaudited financial statements, as applicable, including the notes to those financial statements which are included elsewhere in this prospectus along with the section entitled Management’s Discussion and Analysis of Financial Condition and Results of Operations in this prospectus.

 

    Years Ended
December 31,
  Six Months Ended
June 30,
(unaudited)
    2020   2019   2021   2020
Sales     267,584       673,919       51,810       156,474  
Related Party Sales     13,069       21,157       —         8,303  
Gross Profit     121,349       446,520       23,329       91,385  
Operating expenses     4,976,240       6,917,338       1,832,368       1,358,777  
Net loss from operations     (4,854,891 )     (6,470,818 )     (1,809,039 )     (1,267,392 )
Interest expense, net     (2,999,291 )     (4,682,247 )     (1,992,745 )     (1,772,096 )
Legal Contingency expense     —         (1,497,674 )                
Impairment gain (Loss) on Joint Ventures     (22,658 )     (478,400 )     (1,992,745 )     (1,772,096 )
Income (loss) on equity investment     106,305       (13,842 )     (394,194 )     (133,893 )
Loss on change in fair value of derivative liabilities     (4,698,072 )     (2,123,570 )     (1,629,289 )     1,142,272  
Unrealized Gain (loss) on trading securities     248,204       (677,584 )     504,137       (13,945 )
Realized loss on sale of trading securities     (2,603 )     (75,545 )     —         (2,603 )
Loss on disposition of investment     —         (389,664 )                
(Loss) Gain on settlement of debt     77,624       (3,770,974 )     (164,977 )     3,490  
Net loss   $ (12,145,382 )   $ (20,180,318 )   $ (5,486,107 )   $ (2,305,121 )

  

Balance Sheet Data:

 

(in thousands)

 

As of June 30, 2021   Actual  
As Adjusted(1)
Cash and cash equivalents   $ 179,811     $ 1,298,311  
Total assets     6,605,409       7,723,909  
Accumulated deficit     (91,795,702 )     (91,745,702 )
Total stockholders’ equity (deficit)   $ 1,082,637     $ 1,182,637  

 

(1)    On an as adjusted basis to give further effect to our issuance and sale of 300,000,000 shares of common stock in this offering at an offering price of $0.0041 per share, after deducting the estimated offering expenses payable by us.

 

 

  

19 
 
 

    

Investment Agreement

 

We entered into the Investment Agreement with White Lion on June 17, 2020. Pursuant to the Investment Agreement, White Lion committed to purchase up to ten million dollars ($10,000,000) of our common stock, over the course of 24 months. The obligations of White Lion as imposed by the terms of the Agreement are non-transferrable.

 

We may draw on the facility from time to time, as and when we determine appropriate in accordance with the terms and conditions of the Investment Agreement. The maximum number of shares that we are entitled to put in any one notice not to exceed (i) 250% of the Average Trading Volume, or (ii) or up to the beneficial ownership level for White Lion of 4.99% of common shares or common share equivalents. The Average Trading Volume is defined as the average trading volume of the Company's common shares in the five (5) trading days immediately preceding the respective put notice.

 

The purchase price of the shares put to White Lion shall be ninety five percent (95%) of the lowest traded price of the common stock for the five (5) business days prior to the closing date of the put transaction (the “Closing Date”). The Closing Date is the first business day that White Lion deposits the put shares, outlined in the put notice, into its brokerage account and is eligible to trade the shares.

 

The Investment Agreement also calls for White Lion to be compensated with five million (5,000,000) commitment shares, which have been issued and were registered in the Company’s S-1 made effective on August 13, 2020. 

 

There are circumstances under which we will not be entitled to put shares to White Lion, including, but are not limited to the following. Please reference the Investment Agreement, included as an exhibit, for a full list of put restrictions.

 

  We will not be entitled to put shares to White Lion unless there is an effective registration statement under the Securities Act to cover the resale of the shares by White Lion;

 

  We will not be entitled to put shares to White Lion to the extent that such shares would cause White Lion's beneficial ownership to exceed 4.99% of our outstanding shares;

 

  We will not be entitled to put shares to White Lion unless all of the Company's representations and warranties are accurate.  No statute, rule, regulation, executive order, decree, ruling or injunction shall have been enacted, entered, promulgated or adopted by any court or government authority of competent jurisdiction that prohibits or directly and materially adversely affects any of the transactions contemplated under the White Lion Agreement.

 

  We will not be entitled to put shares to White Lion unless the company's common stock is DWAC eligible and not subject to a “DTC Chill”.

 

  We will not be entitled to put shares to White Lion unless all reports, schedules, registrations, forms, statements, information and other documents required to have been filed by the Company with the SEC pursuant to the reporting requirements of the Exchange Act shall have been filed with the SEC within the applicable time periods prescribed for such filings under the Exchange Act.

 

  We will not be entitled to put shares to White Lion if we fail to reserve sufficient shares of our common stock for White Lion, pursuant to the terms of the White Lion Agreement.

 

The Investment Agreement further provides that the Company and White Lion are each entitled to customary indemnification from the other for any losses or liabilities we or it suffers as a result of any breach by the other of any provisions of the Investment Agreement or our registration rights agreement with White Lion, or as a result of any lawsuit brought by a third-party arising out of or resulting from the other party's execution, delivery, performance or enforcement of the Investment Agreement or the registration rights agreement.

 

 

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The Investment Agreement also contains representations and warranties of each of the parties. The assertions embodied in those representations and warranties were made for purposes of the Investment Agreement and are subject to qualifications and limitations agreed to by the parties in connection with negotiating the terms of the Investment Agreement. In addition, certain representations and warranties were made as of a specific date, may be subject to a contractual standard of materiality different from what a stockholder or investor might view as material, or may have been used for purposes of allocating risk between the respective parties rather than establishing matters as facts.

 

Registration Rights Agreement

 

Pursuant to the terms of a Registration Rights Agreement, dated June 17, 2020, between White Lion and us, we are obligated to file one or more registration statements with the SEC to register the resale by White Lion of shares of common stock issued or issuable under the Investment Agreement. The aggregate number of shares registered prior to this registration statement is zero. We have agreed that, in the event that this registration fails to register all of the shares necessary to fulfill our contractual obligations, we will amend this statement and file new registration statements. This registration process will continue until such time as all of the dollar amounts available under the credit line, using shares of common stock issuable under the Investment Agreement, have been registered for resale on effective registration statements. 

 

Risk Factors

 

An investment in our common stock involves a number of very significant risks. You should carefully consider the following risks and uncertainties in addition to other information in this prospectus in evaluating our company and our business before purchasing our securities. Our business, operating results and financial condition could be seriously harmed as a result of the occurrence of any of the following risks. You could lose all or part of your investment due to any of these risks. You should invest in our common stock only if you can afford to lose your entire investment.

 

General risk relating to COVID-19 pandemic

 

The novel coronavirus (COVID-19) pandemic may have an expected effect on our business, financial condition and results of operations.

 

In March 2020, the World Health Organization declared COVID-19 a global pandemic, and governmental authorities around the world have implemented measures to reduce the spread of COVID-19. These measures have adversely affected workforces, customers, supply chains, consumer sentiment, economies, and financial markets, and, along with decreased consumer spending, have led to an economic downturn across many global economies.

 

The COVID-19 pandemic has rapidly escalated in the United States, creating significant uncertainty and economic disruption, and leading to record levels of unemployment nationally. Numerous state and local jurisdictions have imposed, and others in the future may impose, shelter-in-place orders, quarantines, shut-downs of non-essential businesses, and similar government orders and restrictions on their residents to control the spread of COVID-19. Such orders or restrictions have resulted in temporary facility closures, work stoppages, slowdowns and travel restrictions, among other effects, thereby adversely impacting our operations. In addition, we expect to be impacted by a downturn in the United States economy, which could have an adverse impact on discretionary consumer spending and may have a significant impact on our business operations and/or our ability to generate revenues and profits.

 

In response to the COVID-19 disruptions, we have implemented a number of measures designed to protect the health and safety of our staff and contractors. These measures include restrictions on non-essential business travel, the institution of work-from-home policies wherever feasible and the implementation of strategies for workplace safety at our facilities that remain open. We are following the guidance from public health officials and government agencies, including implementation of enhanced cleaning measures, social distancing guidelines and wearing of masks.

 

 

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The extent to which COVID-19 ultimately impacts our business, financial condition and results of operations will depend on future developments, which are highly uncertain and unpredictable, including new information which may emerge concerning the severity and duration of the COVID-19 outbreak and the effectiveness of actions taken to contain the COVID-19 outbreak or treat its impact, among others. Additionally, while the extent to which COVID-19 ultimately impacts our operations will depend on a number of factors, many of which will be outside of our control. The COVID-19 outbreak is evolving and new information emerges daily; accordingly, the ultimate consequences of the COVID-19 outbreak cannot be predicted with certainty. In addition to the COVID-19 disruptions possibility adversely impacting our business and financial results, they may also have the effect of heightening many of the other risks described in “Risk Factors,” including risks relating to changes due to our limited operating history; our ability to generate sufficient revenue, to generate positive cash flow; our relationships with third parties, and many other factors. We will endeavor to minimize these impacts, but there can be no assurance relative to the potential impacts that may be incurred.

 

RISKS RELATED TO OUR FINANCIAL POSITION AND NEED FOR CAPITAL

 

If we fail to obtain the capital necessary to fund our operations, we may be required to cease or curtail our operations.

 

Although we expect the net proceeds of this offering to be sufficient to satisfy our capital requirements for a period of 12 months from the date of this Offering Circular, we believe that we will need to raise substantial additional capital to fund our continuing operations. Our business or operations may change in a manner that would consume available funds more rapidly than anticipated and substantial additional funding may be required to maintain operations, fund expansion, develop new or enhanced products, acquire complementary products or businesses or otherwise respond to competitive pressures and opportunities, such as a change in the regulatory environment. In addition, we may need to accelerate the growth of our sales capabilities and distribution beyond what is currently envisioned, and this would require additional capital. However, we may not be able to secure funding when we need it or on favorable terms. If we cannot raise adequate funds to satisfy our capital requirements, we may have to cease or curtail our operations.

 

Even if we can raise additional funding, we may be required to do so on terms that are dilutive to you.

 

The capital markets have been unpredictable in the past. In addition, it is generally difficult for early stage companies to raise capital under current market conditions. The amount of capital that a company such as ours is able to raise often depends on variables that are beyond our control. As a result, we may not be able to secure financing on terms attractive to us, or at all. If we are able to consummate a financing arrangement, the amount raised may not be sufficient to meet our future needs. If adequate funds are not available on acceptable terms, or at all, our business, including our results of operations, financial condition and our continued viability will be materially adversely affected.

 

We anticipate our operating expenses will increase, and we may never achieve profitability.

 

We launched our first hempSMART™ product, hempSMART Brain™, in November 2016. Since then, we have introduced a number of other consumer products, including, but not limited to, hempSMART Pain™, hempSMART™ Pet Drops™, and hempSMART™ Drops™. As we continue to produce other hempSMART™ products, we anticipate increases in our operating expenses, without realizing significant revenues from operations. Within the next 12 months, we anticipate that these increases in expenses will be attributed to (i) general and administrative costs; (ii) new research and development costs; (iii) advertising and website development; (iv) legal and accounting fees; (v) joint venture activities; and (vi) creating and maintaining distribution and supply chain channels.

 

As a result of some or all of these factors in combination, we anticipate that we will incur significant financial losses in the foreseeable future. There is limited history upon which to base any assumption as to the likelihood that our Company will prove successful. We cannot provide investors with any assurance that our business will attract customers and investors. If we are unable to address these risks, there is a high probability that our business will fail.

 

 

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Our independent registered public accounting firm has expressed substantial doubt about our ability to continue as a going concern, which may hinder our ability to obtain future financing.

 

Our financial statements as of December 31, 2020 have been prepared under the assumption that we will continue as a going concern for the next twelve months. Our independent registered public accounting firm included in its opinion for the year ended December 31, 2020 an explanatory paragraph referring to our recurring losses from operations and expressing substantial doubt in our ability to continue as a going concern without additional capital becoming available. Our ability to continue as a going concern is dependent upon our ability to develop profitable operations and to obtain additional funding sources. Our financial statements as of December 31, 2020 did not include any adjustments that might result from the outcome of this uncertainty. The reaction of investors to the inclusion of a going concern statement by our auditors, and our potential inability to continue as a going concern, in future years could materially adversely affect our share price and our ability to raise new capital or enter into strategic alliances.

 

RISKS RELATED TO OUR BUSINESS

 

We are dependent on the popularity of consumer acceptance of hemp products.

 

We believe the hemp industry is highly dependent upon consumer perception regarding the safety, efficacy and quality of hemp products distributed to such consumers. Consumer perception can be significantly influenced by scientific research or findings, regulatory investigations, litigation, media attention and other publicity regarding the consumption of hemp-based products. There has been limited scientific research on hemp and 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 hemp market or 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 our products and services and on our business, financial condition and results of operations. Further, adverse publicity reports or other media attention regarding the safety, efficacy and quality of hemp and related products in general, or our products specifically, or associating the consumption hemp or related products with illness or other negative effects or events, could also have such a material adverse effect. Such adverse publicity reports or other media attention could have a material adverse effect even if the adverse effects associated with such products resulted from consumers’ failure to consume such products appropriately or as directed. 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 in regard to our business and activities, whether true or not. Although we take care in protecting our image and reputation, we do not ultimately have direct control over how it is perceived by others. Reputational loss may result in decreased investor confidence, increased challenges in developing and maintaining community relations and an impediment to our overall ability to advance our business, thereby having a material adverse impact on our financial performance, financial condition, cash flows and growth prospects.

 

Due to our involvement in the hemp industry, we may have a difficult time obtaining and/or maintaining insurance that is desired to operate our business, which may expose us to significant risk and financial liability.

 

Insurance that is otherwise readily available, such as general liability and officers’ and directors’ insurance, is more difficult for us to find, and more expensive for us to obtain, because we service companies in the hemp and cannabis industry. There are no guarantees that we will be able to obtain or maintain insurance desired to operate our business in the future, or that the cost will be affordable to us. If we are forced to conduct our business without having obtained insurance that we deem is essential to our business, our growth may be inhibited and we may be exposed to significant risk and financial liabilities.

 

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Our products are relatively new and our industry is rapidly evolving.

 

Consideration must be given to our prospects in light of the risks, uncertainties and difficulties frequently encountered by companies in their early stage of development, particularly companies in the rapidly evolving legal cannabis and hemp industries. To be successful we must, among other things:

 

    Develop, manufacture and introduce new attractive and successful consumer products in our hempSMART™ brand;

 

    Attract and maintain a large customer base and develop and grow that customer base;

 

    Increase awareness of our hempSMART™ brand and develop effective marketing strategies to insure consumer loyalty;

 

    Establish and maintain strategic relationships with key sales, marketing, manufacturing and distribution providers;

 

    Respond to competitive developments; and

 

    Attract, retain and motivate qualified personnel.

 

There can be no assurance that our efforts will be successful or that we will ultimately be able to attain or maintain profitability.

 

We cannot guarantee that we will succeed in achieving our goals, and our failure to do so would have a material adverse effect on our business, prospects, financial condition and operating results.

 

Some of our hempSMART™ products such as hempSMART Brain and Pain are new and are only in the developmental stages of commercialization. We are not certain that these products will generate sales as anticipated or be desirable for their intended uses in their intended markets. Failure of our current or future hempSMART™ products to achieve and sustain market acceptance could have a material adverse effect on our business, financial condition and operating results.

 

As is typical in a new and rapidly evolving industry, demand and market acceptance for recently introduced products and services are subject to a high level of uncertainty and risk. Because the market for our products and services is evolving, it is difficult to predict with any certainty the ultimate size of the market for our services and products. We cannot guarantee that a market for our products or services will develop or that demand for our products or services will be sustainable. If the market for our products or services fails to develop, develops more slowly than expected or becomes saturated with competitors, our business, financial condition and operating results may be adversely affected.

 

We compete for market share with other companies, which may have longer operating histories, more financial resources and more research and development, manufacturing and marketing experience than we do.

 

We face and expect to continue to face competition from other companies some of which may have longer operating histories, more financial resources, more experience and greater brand recognition than us. Increased competition by larger and well-financed competitors and/or competitors that have longer operating histories, greater brand recognition and more research and development, manufacturing and marketing experience than us could have a material adverse effect on our business, financial condition and results of operations. As we operate in an early stage industry, we expect to face additional competition from new entrants which may result in downward price pressure on our products as new entrants increase production, which could have a material adverse effect on our business.

 

In addition, if the number of users of hemp derived products increases, the demand for products will increase and we expect that competition will become more intense, as current and future competitors begin to offer an increasing number of diversified products. To remain competitive, we will require a continued high level of investment in research and development together with marketing, sales and other support. We may not have sufficient resources to maintain research and development and sales efforts on a competitive basis, which could have a material adverse effect on our business, financial condition and results of operations.

 

 

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The hemp industry is subject to the risks inherent in an agricultural business, including the risk of crop failure.

 

The growing of hemp is an agricultural process. As such, a business with operations in the hemp industry is subject to the risks inherent in the agricultural business, including risks of crop failure presented by weather, insects, plant diseases and similar agricultural risks. Accordingly, there can be no assurance that artificial or natural elements, such as insects and plant diseases, will not entirely interrupt production activities or have an adverse effect on the production of hemp which could have a material adverse effect on our hempSMART™ products and accordingly our operations.

 

If our suppliers are unable to obtain sufficient hemp from which to process CBD, our ability to meet customer demand, generate sales, and maintain operations may be adversely effected.

 

Our products are not approved by the FDA or any other federal governmental authority.

 

The FDA has not approved our products for sale. The FDA also has not permitted the marketing of certain CBD-containing products, such as foods, tinctures, gummies, and other ingestible products. Our CBD-containing products are not intended for use in the diagnosis, cure, mitigation, treatment, or prevention of a disease or condition. We can provide no assurance that our products or operations are in compliance with federal regulations, including those enforced by the FDA. Failure to comply with FDA regulations or foreign regulations may result in among other things, warning letters, injunctions, product recalls, product seizures, fines and/or criminal prosecutions.

 

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

 

Some of our products that are intended to primarily contain U.S. hemp-derived CBD may contain trace amounts of THC. THC is an illegal or controlled substance in many jurisdictions, including under the federal laws of the U.S. Whether or not ingestion of THC (at low levels or otherwise) is permitted in a particular jurisdiction, there may be adverse consequences to consumers of our U.S. hemp products who test positive for any amounts of THC, even trace amounts, because of the presence of unintentional amounts of THC in our hemp products. In addition, certain metabolic processes in the body may negatively affect the results of drug tests. As a result, we may have to recall our products from the market. Positive tests for THC may adversely affect our reputation and our ability to obtain or retain customers. A claim or regulatory action against us based on such positive test results could materially and adversely affect our business, financial condition, operating results, liquidity, cash flow and operational performance.

 

We depend on key personnel to operate our business, and if we are unable to retain, attract and integrate qualified personnel, our ability to develop and successfully grow our business could be harmed.

 

We believe our success has depended and will continue to depend on the efforts and talents of our management team and employees. Our future success depends on our continuing ability to attract, develop, motivate and retain highly qualified and skilled employees, including employees with sufficient experience in the hemp industry. Qualified individuals, including individuals with sufficient experience in the hemp industry, are in high demand, and we may incur significant costs to attract and retain such individuals. In addition, the loss of any of our key employees or senior management could have a material adverse effect on our ability to execute our business plan and strategy, and we may not be able to find adequate replacements on a timely basis, or at all. If we do not succeed in attracting well-qualified employees or retaining and motivating existing employees, it could have a material adverse effect on our business, financial condition and results of operations.

 

We may be subject to constraints on marketing our products.

 

There may be restrictions on sales and marketing activities imposed by government regulatory bodies that can hinder the development of our business and operating results. Restrictions may include regulations that specify what, where and to whom product information and descriptions may appear and/or be advertised. Marketing, advertising, packaging and labeling regulations also vary from state to state, potentially limiting the consistency and scale of consumer branding communication and product education efforts. The regulatory environment in the U.S. limits our ability to compete for market share in a manner similar to other industries. If we are unable to effectively market our 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 our products, our sales and operating results could be adversely affected.

 

 

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Litigation, complaints, enforcement actions and governmental inquiries could have a material adverse effect on our business, financial condition and results of operations.

 

Our participation in the hemp industry may lead to litigation, formal or informal complaints, enforcement actions and governmental inquiries. Such litigation, complaints, enforcement actions and governmental inquiries may result in liability material to our financial statements as a whole or may negatively affect our operating results if changes to our business operations are required. The cost to defend such litigation, complaints, actions, or inquiries may be significant and may require a diversion of our resources, including the attention of our management. There also may be adverse publicity associated with such litigation, complaints, actions, or inquiries that could negatively affect customer perception our business, regardless of whether the allegations are valid or whether we are ultimately found liable.

 

We may be subject to product liability claims and product recalls.

 

As a distributor of products designed to be ingested by humans, we face an inherent risk of exposure to product liability claims, regulatory action and litigation if our products are alleged to have caused significant loss or injury. In addition, the sale of CBD products involves the risk of injury to consumers due to tampering by unauthorized third parties or product contamination, which may affect consumer confidence in our CBD products. Previously unknown adverse reactions resulting from human consumption of CBD products alone or in combination with other medications or substances could occur. We may be subject to various product liability claims, including inadequate warnings concerning possible side effects or interactions with other substances. A product liability claim or regulatory action against us could result in increased costs, adversely affect our reputation with our clients and consumers generally and have a material adverse effect on our business, financial condition and results of operations.

 

In addition, 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 one or more of our products are recalled due to an alleged product defect or for any other reason, we could be required to incur the unexpected expense of the recall and any legal proceedings that might arise in connection with the recall. We 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 attention from our management.

 

Additionally, if one or more of our products were subject to recall, the reputation of that product and our reputation could be harmed. A recall for any of the foregoing reasons could lead to decreased demand for our products and could have a material adverse effect on our business, financial condition and results of operations. Additionally, product recalls may lead to increased scrutiny of our operations by regulatory agencies in the jurisdictions in which we operate, requiring further attention from our management and potential legal fees and other expenses. Furthermore, any product recall affecting the CBD industry more broadly could lead consumers to lose confidence in the safety of the products, which could have a material adverse effect on our business, financial condition and results of operations.

 

Third parties with whom we do business may perceive themselves as being exposed to reputational risk because of their relationship with us due to our hemp-related business activities and may as a result, refuse to do business with us.

 

The third parties with whom we do business may perceive that they are exposed to reputational risk because of our hemp-related business activities. Any third-party service provider could suspend or withdraw its services if it perceives that the potential risks exceed the potential benefits of providing such services to us. Our failure to establish or maintain business relationships could have a material adverse effect on our business, financial condition and results of operations.

 

We may become subject to liability arising from fraudulent or illegal activity by our employees, independent contractors and consultants.

 

We are exposed to the risk that our 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 that violates government regulations and laws. It is not always possible for us to identify and deter misconduct by our employees and other third parties. The precautions we take to detect and prevent such misconduct may not be effective in controlling unknown or unmanaged risks or losses or in protecting us from governmental investigations or other actions or lawsuits stemming from a failure to comply with such laws or regulations. If any such actions are instituted against us, and we are not successful in defending such actions, such actions could have a significant impact on our business, including, but not limited to, the imposition of civil, criminal and administrative penalties, damages, monetary fines, contractual damages, reputational harm, any of which could have a material adverse effect on our business, financial condition and results of operations.

 

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Conflicts of interest may arise between us and our directors and officers which may have a material adverse effect on our operations.

 

We may be subject to various potential conflicts of interest because of the fact that some of our directors and officers may be engaged in a range of business activities. In addition, our executive officers and directors may devote time to their outside business interests so long as such activities do not materially or adversely conflict with our business or interfere with their duties to us. In some cases, our directors and executive officers may have fiduciary obligations associated with those business interests that interfere with their ability to devote time to our business and affairs and that could have a material adverse effect on our business, financial condition and results of operations.

 

Security threats to our information technology infrastructure and/or our physical buildings could expose us to liability and damage our reputation and business.

 

It is essential to our business strategy that our technology and network infrastructure and our physical buildings remain secure and are perceived by our customers and corporate partners to be secure. Despite security measures, however, any network infrastructure may be vulnerable to cyber-attacks by hackers and other security threats. We may face cyber-attacks that attempt to penetrate our network security, sabotage or otherwise disable our research, products and services, misappropriate our or our customers’ and partners’ proprietary information, which may include personally identifiable information, or cause interruptions of our internal systems and services. Despite security measures, we also cannot guarantee security of our physical buildings. Physical building penetration or any cyber-attacks could negatively affect our reputation, damage our network infrastructure and our ability to deploy our products and services, harm our relationship with customers and partners that are affected, and expose us to financial liability.

 


Confusion between legal hemp and illegal cannabis.

 

There is risk that confusion or uncertainty surrounding our products with regulated cannabis could occur on the state or federal level and impact us. We may, among other impacts, have difficulty with establishing banking relationships which may affect our business, prospects, assets or results of operation.

 

We are dependent on third parties for manufacturing our products. If we are not able to secure favorable arrangements with such third parties, our business and financial condition could be harmed.

 

We do not manufacture any of our products for commercial sale nor do we have the resources necessary to do so. We have contracted with and intend to continue to contract with third parties to manufacture our products. If we are unable to successfully enter into agreements for the manufacturing of our products or if we are not able to secure favorable commercial terms or arrangements with third parties for the manufacturing of our products, our business and financial condition could be harmed.

 

RISKS RELATED TO OUR JOINT VENTURES AND INVESTMENTS

 

If our joint ventures in Brazil and/or Uruguay are not successful or if we fail to realize the benefits we anticipate from such joint ventures, we may not be able to capitalize on the full market potential of our hempSMART™ products.

 

On September 30, 2020, we entered into two joint venture agreements with Marco Guerrero, our director, to form joint venture operations in Brazil and Uruguay to produce, manufacture, market and sell our hempSMART™ products in Latin America and to develop and sell hempSMART™ products globally. In connection with such joint ventures, we face numerous risks and uncertainties, including, but not limited to, effectively integrating our respective personnel, management controls and business relationships into an effective and cohesive operation. Further, we are subject to additional risks and uncertainties because we may be dependent upon, and subject to, liability, losses or damages relating to system controls and personnel that are not under our control. Moreover, the joint ventures may be subject to negative market conditions, economic downturns, and legal and political considerations in Brazil and Uruguay. While cannabis and hemp are legalized in Uruguay, Brazil is only considering legalization, and legalization there is not guaranteed.

 

 

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We will be dependent upon our strategic partners with respect to our current and future joint venture operations.

 

We will be dependent upon our strategic partners with respect to our current and future joint venture operations. Specifically, we will be dependent upon our strategic partners’ personnel, including their experience with respect to, among other things, compliance with applicable laws and regulations. If our strategic partners do not commit sufficient resources to the joint ventures’ operations or if we are unable to integrate such operations successfully and efficiently, our results of operations, financial condition and cash flows may be materially and adversely affected. In addition, conflicts or disagreements between us and our strategic partners may, among other things, delay or prevent the production, manufacturing, marketing and sales of our products, which may have a material adverse effect on our business and results of operations.

 

Our current and future joint ventures may be adversely affected by our lack of sole decision-making authority, our reliance on our co-venturers’ financial condition and liquidity and disputes between us and our co-venturers.

 

We have and may in the future form joint ventures with third parties in which we may not exercise sole decision-making authority regarding the operations of the joint venture. In certain cases, we may have little or no decision-making authority. Joint ventures are subject to various risks including, but not limited to, bankruptcy of the joint venture or failure of a third party to fund their required capital contributions. In addition, our partners or co-venturers may have economic or other business interests or goals which are inconsistent with our business interests or goals, and may be in a position to take actions contrary to our objectives. Furthermore, disputes between us and our partners or co-venturers may result in litigation or arbitration that would increase our expenses and prevent our management from focusing their time and effort on our business. The occurrence of any of the foregoing may have a material adverse effect on our business and results of operations.

 

We have invested and may continue to invest in securities of private companies and may hold a minority interest in such companies, which may limit our ability to sell or otherwise transfer those securities and direct management decisions of such companies.

 

We have invested and may continue to invest in securities of private companies and may hold a minority interest in such companies. In some cases, we may be restricted for a period by contract or applicable securities laws from selling or otherwise transferring those securities. In addition, any securities of private companies in which we invest may not have a liquid market and the inability to sell those securities on a timely basis or at acceptable prices may impair our ability to exit the investments when we consider appropriate. Further, to the extent we hold a minority interest in certain companies, we may be limited in our ability to direct management decisions of such companies.

 

Our business may be adversely affected by the coronavirus (“COVID-19”) pandemic.

The outbreak of COVID-19 evolved into a global pandemic as COVID-19 spread to many regions of the world. In response to COVID-19, governmental authorities around the world have implemented measures to reduce the spread of COVID-19. These measures have and may continue to adversely affect workforces, customers, supply chains, consumer sentiment, economies, and financial markets. In addition, decreased consumer spending has and may continue to lead to an economic downturn globally.

Specifically, numerous state and local jurisdictions have and may in the future impose shelter-in-place orders, quarantines, shut-downs of non-essential businesses, and similar government orders and restrictions on their residents to control the spread of COVID-19. Such orders or restrictions have resulted in temporary facility closures, work stoppages, slowdowns and travel restrictions, among other effects, thereby adversely impacting our operations. As a result of COVID-19, we have experienced a reduction in sales of our products and slower lead times with respect to the manufacturing of our products. In addition, we expect to be impacted by a downturn in the United States economy, which could have an adverse impact on discretionary consumer spending and may have a significant impact on our business operations and/or our ability to generate revenues and profits.

The extent to which COVID-19 impacts our business and operating results will depend on future developments that are highly uncertain and cannot be accurately predicted, including new information that may emerge concerning COVID-19, including variants such as the delta variant, and the actions to contain COVID-19 or treat its impact, among others. We do not yet know the full extent of the impacts of COVID-19 on our business; however, these effects could have a material impact on our operations and financial condition.

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RISKS RELATED TO OUR INTELLECTUAL PROPERTY

 

We may be subject to risks related to the protection and enforcement of our intellectual property rights, and third parties may enforce their intellectual property rights against us.

 

The ownership and protection of our intellectual property rights is a significant aspect of our future success. We rely on patents, trade secrets, trademarks, service marks technical know-how and other proprietary information (collectively, “Intellectual Property”) to maintain our competitive position. We try to protect our Intellectual Property by seeking registered protection where possible, developing and implementing standard operating procedures to protect Intellectual Property and entering into agreements with parties that have access to our Intellectual Property, such as our employees and consultants, to protect confidentiality and ownership.

 

It is possible that we may fail to identify Intellectual Property, fail to protect or enforce our Intellectual Property, inadvertently disclose such Intellectual Property or fail to register rights in relation to such Intellectual Property.

 

In relation to our agreements with parties that have access to our Intellectual Property, any of these parties may breach those agreements, and we may not have adequate remedies for any specific breach. In relation to our security measures, such security measures may be breached, and we may not have adequate remedies for any such breach. In addition, certain of our Intellectual Property, which has not yet been applied for or registered, may otherwise become known to or be independently developed by competitors or may already be the subject of applications for intellectual property registrations filed by our competitors, which could have a material adverse effect on our business, financial condition and results of operations.

 

We cannot provide any assurance that our Intellectual Property will not be disclosed in violation of agreements or that competitors will not otherwise gain access to our Intellectual Property or independently develop and file applications for intellectual property rights that adversely affect our Intellectual Property rights. Unauthorized parties may attempt to copy, reverse engineer, or otherwise obtain and use our Intellectual Property. Identifying and policing the unauthorized use of our current or future Intellectual Property rights could be difficult, expensive, time-consuming and unpredictable, as may be enforcing these rights against unauthorized use by others. We may be unable to effectively monitor and evaluate the products being distributed by our competitors and the processes used to produce such products. Additionally, if the steps taken to identify and protect our Intellectual Property rights are deemed inadequate, we may have insufficient recourse against third parties for enforcement of our Intellectual Property rights.

 

In any infringement proceeding, some or all of our Intellectual Property rights or arrangements or agreements seeking to protect the same for our benefit may be found invalid, unenforceable, or anti-competitive. An adverse result in any litigation or defense proceedings could put one or more of our Intellectual Property rights at risk of being invalidated or interpreted narrowly and could put existing intellectual property applications at risk of not being issued. Any or all of these events could have a material adverse effect on our business, financial condition and results of operations.

 

Additionally, other parties may claim that our products or services infringe on their proprietary rights or other intellectual property rights. Parties making claims against us may obtain injunctive or other equitable relief, which may have an adverse impact on our business. Such claims, whether or not meritorious, may result in the expenditure of significant financial and managerial resources, legal fees, result in injunctions, temporary restraining orders and/or require the payment of damages. In addition, we may need to obtain licenses from third parties who allege that we have infringed on their lawful rights. However, such licenses may not be available on terms acceptable to us, if at all. In addition, we may not be able to obtain licenses on terms that are favorable to us, or at all, or other rights with respect to intellectual property that we do not own.

 

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Our trade secrets may be difficult to protect.

 

Our success depends upon the skills, knowledge and experience of our scientific and technical personnel, our consultants and advisors, as well as our contractors. We rely in part on trade secrets to protect our proprietary hempSMART™ products and processes. However, trade secrets are difficult to protect. Although we enter into agreements with our corporate partners, employees, consultants, outside scientific collaborators, developers and other advisors which generally require that information received by such parties during the course of their relationship with us be kept confidential and include provisions with respect to the assignment of inventions to us, such agreements may be breached and may not effectively assign intellectual property rights to us. Our trade secrets also could be independently discovered by competitors, in which case we would not be able to prevent the use of such trade secrets by our competitors. Any enforcement proceedings with respect to our trade secretary may be expensive and time consuming. Any failure to obtain or maintain meaningful trade secret protection could adversely affect our business.

 

RISKS RELATED TO GOVERNMENT REGULATIONS

 

There is uncertainty surrounding the regulatory pathway for CBD.

 

The FDA currently does not permit the marketing of CBD-containing foods or dietary supplements, and we may be subject to enforcement action taken by the FDA concerning products containing derivatives from hemp. On February 4, 2021, Representative Kurt Schrader introduced H.R. 8179, a bill seeking to amend the U.S. Federal Food, Drug, and Cosmetic Act with respect to the regulation of certain hemp-derived CBD and which, if enacted into law, would permit the marketing of hemp-derived CBD and substances containing hemp-derived CBD as dietary supplements under the U.S. Federal Food, Drug, and Cosmetic Act, resolving ambiguity and providing clear guidance to stakeholders about how to comply with applicable FDA law. However, there can be no assurance that such bill will be enacted into law, and our failure to comply with FDA requirements may result in, among other things, warning letters, injunctions, product recalls, product seizures, fines and/or criminal prosecutions.

 

Legislation or regulations which impose substantial new regulatory requirements on the manufacture, packaging, labeling, advertising and distribution and sale of hemp-derived products could harm our business, results of operations, financial condition and prospects.

 

We believe that the sale of our hemp-derived products are in compliance with applicable U.S. regulations because our hemp products contain less than 0.3% THC and are sold only in states in the United States that have not prohibited the sale of hemp products. The rapidly changing regulatory landscape regarding hemp-derived products presents a substantial risk to the success and ongoing viability of the hemp industry in general and our ability to offer and market hemp-derived products. New legislation or regulations may be introduced at either the federal or state level which, if passed, could impose substantial new regulatory requirements on the manufacture, packaging, labeling, advertising and distribution and sale of hemp-derived products. New legislation or regulations may also require the reformulation, elimination or relabeling of certain products to meet new standards and revisions to certain sales and marketing materials, and it is possible that the costs of complying with these new regulatory requirements could be material.

 

“Marijuana” is illegal under the CSA. The 2018 Farm Bill modified the definition of “marijuana” in the CSA so that the definition of “marijuana” no longer includes hemp. The 2018 Farm Bill defines hemp as the “plant Cannabis sativa L. and any part of that plant, including the seeds thereof and all derivatives, extracts, cannabinoids, isomers, acids, salts, and salts of isomers, whether growing or not, with a delta-9 tetrahydrocannabinol concentration of not more than 0.3% on a dry weight basis.” All of our hemp-derived products contain less than 0.3% delta-9 tetrahydrocannabinol concentration content. As such, we believe that the manufacture, packaging, labeling, advertising, distribution and sale of our hemp-derived products do not violate the CSA. The FDA, however, does not permit the sale or distribution of certain products, including food and dietary supplements (such as tinctures and gummies). If federal or state regulatory authorities, however, were to determine that industrial hemp and derivatives could be treated by federal and state regulatory authorities as “marijuana”, we could no longer offer our CBD products legally and could potentially be subject to regulatory action. Violations of United States federal laws and regulations could result in significant fines, penalties, administrative sanctions, convictions or settlements arising from civil proceedings conducted by the United States federal government including but not limited to disgorgement of profits, cessation of business activities or divestiture. Any such actions could have a material adverse effect on our business.

 

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The FDA, Federal Trade Commission (“FTC”) and their state-level equivalents, also possess broad authority to enforce the provisions of federal and state law, respectively, applicable to consumer products and safeguards as such relate to foods and dietary supplements, including powers to issue a public warning or notice of violation letter to us, publicizing information about illegal products, detaining products intended for import or export (in conjunction with U.S. Customs and Border Protection) or otherwise deemed illegal, requesting a recall of illegal products from the market, and requesting the Department of Justice, or the state-level equivalent, to initiate a seizure action, an injunction action, or a criminal prosecution in the U.S. or respective state courts. The initiation of any regulatory action towards industrial hemp or hemp derivatives by the FDA, FTC or any other related federal or state agency, would result in greater legal cost to us, may result in substantial financial penalties and enjoinment from certain business-related activities, and if such actions were publicly reported, they may have a material adverse effect on our business and results of operations.

 

Our hempSMART™ sales in the UK may be subject to unforeseeable events and regulation that may have a material impact on our efforts to sell our hempSMART™ products in the UK.

 

Currently, the UK regulates wellness products containing CBD through its Medicines and Healthcare products Regulatory Agency (“MHRA”). Pursuant to the MHRA, only wellness products containing less than 0.2% THC may be sold in the UK. While we believe our hempSMART™ products are compliant with regulations in the UK, these regulations may change, and any such change may have a material effect on our ability to market and sell our hempSMART™ products in the UK. Additionally, we rely on affiliates in the UK for the administration of our business there. We have not to date established an effective warehousing protocol to efficiently store and deliver products there. The failure of our UK affiliates to efficiently handle the storage and distribution of our products may impact our ability to conduct business in the UK.

 

RISKS RELATED TO OUR COMMON STOCK

 

The market price of our common stock may be volatile and may not accurately reflect the long term value of our Company.

 

Securities markets have a high level of price and volume volatility, and the market price of securities of many companies has experienced substantial volatility in the past. This volatility may affect the ability of holders of our common stock to sell their securities at an advantageous price. Market price fluctuations in our common stock may be due to our operating results, failing to meet expectations of securities analysts or investors in any period, downward revision in securities analysts’ estimates, adverse changes in general market conditions or economic trends, acquisitions, dispositions, or other material public announcements by us or our competitors, along with a variety of additional factors. These broad market fluctuations may adversely affect the market price of our common stock. Financial markets have historically, at times, experienced significant price and volume fluctuations that have particularly affected the market prices of equity securities of companies and that have often been unrelated to the operating performance, underlying asset values, or prospects of such companies.

  

Accordingly, the market price of our common stock may decline even if our operating results, underlying asset values, or prospects have not changed. Additionally, these factors as well as other related factors may cause decreases in asset values that are deemed to be other than temporary, which may result in impairment losses. There can be no assurance that continuing fluctuations in the price and volume of our common stock will not occur. If such increased levels of volatility and market turmoil continue, our operations could be adversely impacted and the trading price of our common stock may be materially adversely affected.

 

The price of our common stock may fluctuate substantially.

 

You should consider an investment in our common stock to be risky, and you should invest in our common stock only if you can withstand a significant loss and wide fluctuations in the market value of your investment. Some factors that may cause the market price of our common stock to fluctuate, in addition to the other risks mentioned in this “Risk Factors” section and elsewhere in this Offering Circular, are:

 

· sale of our common stock by our stockholders, executives, and directors;
· volatility and limitations in trading volumes of our shares of common stock;

 

 

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· our ability to obtain financings to conduct and complete research and development activities and other business activities;
· the timing and success of introductions of new products by us or our competitors or any other change in the competitive dynamics of our industry, including consolidation among competitors;
· our ability to attract new customers;
· unanticipated safety concerns related to the use of our products;
· changes in our capital structure or dividend policy, future issuances of securities and sales of large blocks of common stock by our stockholders;
· our cash position;
· announcements and events surrounding financing efforts, including debt and equity securities;
· reputational issues;
· announcements of acquisitions, partnerships, collaborations, joint ventures, new products, capital commitments, or other events by us or our competitors;
· changes in general economic, political and market conditions in or any of the regions in which we conduct our business;
· changes in industry conditions or perceptions;
· analyst research reports, recommendation and changes in recommendations, price targets, and withdrawals of coverage;
· departures and additions of key personnel;
· disputes and litigations related to intellectual properties, proprietary rights, and contractual obligations;
· changes in applicable laws, rules or regulations and other dynamics; and
· other events or factors, many of which may be out of our control, including, but not limited to, pandemics such as COVID-19, war, or other acts of God.