Item
1. Business
CORPORATE
STRUCTURE
The
Greenrose Holding Company Inc. was incorporated as a blank check company on August 26, 2019 as a Delaware corporation formed for the
purpose of entering into a merger, share exchange, asset acquisition, stock purchase, recapitalization, reorganization or similar business
combinations with one or more businesses or entities. On November 26, 2021, Greenrose consummated its previously announced business combination
with Theraplant, LLC, a Connecticut limited liability company. On December 31, 2021, Greenrose completed the acquisition of substantially
all of the assets and assumed certain liabilities of True Harvest, LLC, an Arizona limited liability company.
The
Company operates through its wholly-owned subsidiaries, Theraplant and True Harvest.
References
herein to “Greenrose”, the “Company”, “we”, “us” or “our” refer to The Greenrose
Holding Company Inc. and its subsidiaries. References herein to “Theraplant” refer to Theraplant, LLC. References herein
to “True Harvest” refer to the business, operations and assumed assets and liabilities of True Harvest LLC, which are held
at True Harvest Holdings Inc., a Delaware corporation and wholly owned subsidiary of Greenrose.
The
Company’s Annual Report on Form 10-K, quarterly reports on Form 10-Q and current reports on Form 8-K, and amendments thereto, are
filed electronically with the Securities and Exchange Commission (“SEC”). The SEC maintains an internet site that contains
these reports at: www.sec.gov. You can also access these reports through links from our website at: www.greenroseholding.com. The Company
includes the website link solely as a textual reference. The information contained on our website is not incorporated by reference into
this report.
The
Company’s common stock trades on the OTCQX under the symbol “GNRS” and the Company’s public warrants trade on
the OTCQB under the symbol “GNRSW”.
Description
of the Business
Greenrose,
through its operating subsidiaries Theraplant and True Harvest, is engaged in the manufacture and processing of cannabis in the adult-use
and medical cannabis marketplace in Connecticut and Arizona. Greenrose owns and operates cannabis businesses or has management or consulting
services or other agreements to assist in operations with licensed operators. In addition, as a core part of our strategy, we expect
to vertically integrate in the states where we operate by adding retail stores in each of the states where we currently operate.
Greenrose
is focused on providing access to the quality cannabis and cannabinoid-based products at competitive pricing through state-of-the-art
cultivation and processing facilities and customer engagement channels, in store, online and at home. The Greenrose team believes that
a “cultivation led” vertically integrated approach will bring enhanced operating performance to our shareholders while also
bringing the best value to consumers. We believe that our cultivation expertise is a key competitive advantage in every state we operate
in. Our initial operational strategy revolves around five primary areas of focus:
(1)
cultivation & genetics;
(2)
retail & distribution;
(3)
manufacturing & processing;
(4)
wholesale; and
(5)
proprietary data and insights.
While
we focus on these five areas, we have determined that we have just one reportable business segment: the production and sale of cannabis
products.
Greenrose
governs its businesses in two operating regions with a team of functional experts at the corporate level that support local operators
in the execution of their vertically integrated businesses. This will include cultivation expertise to leverage best practices in phenotyping
and strain development across the organization. The focus is on indoor, growth methodology and technology deployment, with state-of-the-art
control and monitoring systems. Additionally, Greenrose will focus on retail, including customer experience to reinforce brand and product
adoption.
Cultivation
& Genetics:
Consistently
selecting and growing high-quality cannabis is one of the most important aspects of our business. In general, cannabis cultivation takes
place in three settings: indoor, outdoor and in greenhouses. While it is cost effective to grow cannabis outdoors, it is hard to control
pest infestations without the use of significant amounts of pesticides, and it is subject to other risks such as severe weather, disease
and mold. As a result, cannabis grown outdoors is significantly lower in quality than cannabis grown indoors or in greenhouses. Our focus
is growing the highest quality medicinal and adult-use cannabis. We therefore currently grow all of our cannabis in indoor facilities,
which allows us to grow under ideal climate conditions and better manage key variables to deliver optimal yielding plants. New strain
development and phenotyping operations are in place across our platform, enabling Greenrose companies to identify the differentiated
offerings to drive downstream production and consumer offerings. Our cultivation teams leverage retail and market data to identify future
trends that need to be supported back up the value chain. We will invest regularly to maintain, and where possible, to expand our high
performing facilities, leveraging growth techniques and technology across our platform.
As
of December 31, 2021, Greenrose has 49,500 square feet of canopy for cannabis cultivation, with an additional 14,000 added in the first
half of January. Greenrose has current expansion projects underway to add an additional 24,500 square feet of canopy for cannabis cultivation.
Employees
and Human Capital
The
Greenrose Holding Company Inc., the parent holding company, currently has six employees based in its Amityville, New York offices, including
five executive officers. Greenrose anticipates adding additional compensation arrangements including employee stock, and short-term incentive
plans. The incentive plans will be subject to approval by the Company’s board of directors with input from the Compensation Committee
of the board. We offer a comprehensive package of company-sponsored benefits to our team. Benefits include medical, dental and vision
plans.
Greenrose
prides itself on providing quality and professionalism at all levels of its business while producing the highest quality products at
competitive prices. Greenrose’s human capital includes highly trained employees with extensive experience in this industry and
a wide knowledge of our products and strains at all locations and operating companies. Greenrose encourages talented people from all
backgrounds to join our operating companies. We believe in building diverse teams and strive to make Greenrose a welcoming space where
everyone can make an impact on the Company’s success.
Theraplant
has over 100 personnel licensed to work in the facility, comprised of employees, security and other contractors. There are 91 full time
employees, with an average tenure of 2.8 years, and an average supervisor tenure of 5 years. The workforce is 40% female and about 20%
minority. A detailed employee handbook and training program ensures smooth onboarding for all new hires. All full-time employees are
eligible for health benefits after a 90-day waiting period. These benefits include medical, vision, and accident coverage.
True
Harvest has 90 personnel licensed to work in the facility, comprised of employees and contractors. Following the asset purchase on December
31, 2021, the prior senior management team did not continue on and we are in the process of aligning staff numbers and positions with
anticipated growth in an effort to effectively manage human capital. Detailed handbook and training programs are offered. Medical, dental
and vision benefits are offered to all full-time new hires. At both Theraplant and True Harvest we offer employees the opportunity to
grow and develop their careers. They are provided with comprehensive benefits and compensation packages which we believe are competitive
relative to our peers in the industry.
Greenrose
is dedicated to the principles of equal employment opportunity in any term, condition, or privilege of employment. Greenrose hires, promotes,
and makes assignments on the basis of employee qualifications and does not discriminate against applicants or employees on the basis
of age 40 or over, race, sex, color, national origin, sexual orientation, disability, genetic information, veteran status, or any other
status protected by the States of Arizona, Connecticut, New York and U.S. federal law.
Recent
Developments
Going
Concern
We
currently have projected negative cash flows until recreational cannabis is sold legally within the state of Connecticut. Based on
the current debt and interest obligations coupled with a working capital deficit of $103,434 thousand, we do not currently have
sufficient cash on hand and available liquidity to meet our obligations through the twelve months following the date the
consolidated financial statements are issued. Management believes it is taking all prudent actions to address the
substantial doubt about our ability to continue as a going concern, but we cannot assert that it is probable that our plans will fully
mitigate the liquidity challenges we face. Management believes it is taking all prudent actions to address the substantial doubt
about our ability to continue as a going concern, but we cannot assert that it is probable that our plans will fully mitigate the
liquidity challenges we face. Therefore, this condition raises substantial doubt about our ability to continue as a going
concern.
Management’s
plans to continue to evaluate different strategies to obtain the required funding of future operations. These plans may
include, but are not limited to additional amendments to or waivers of default, additional funding from current or new
investors, reduction in expenses, and operational and revenue improvement . We are currently in active discussions with the lenders under our
credit agreements (including certain of our related parties) for additional financing, a waiver of our compliance with covenants in and
events of default under the credit agreements; however, if we are unable to raise additional funding to
meet working capital needs, we will be forced to delay or reduce the scope of operations and/or limit or cease operations. The
negative cash flows and lack of financial resources raise substantial doubt as to our ability to continue as a going concern, and
that substantial doubt has not currently been alleviated through management’s plan.
The
accompanying consolidated financial statements have been prepared on a going concern basis that contemplates the realization of assets
and discharge of liabilities in their normal course of business. There is substantial doubt about the Company’s
ability to continue as a going concern for one year after the date that these consolidated financial statements are issued. These consolidated
financial statements do not include any adjustments that might be necessary from the outcome of this uncertainty.
Exchange
of Sponsor Promissory Notes for Greenrose Common Stock
On
February 2, 2022, the Company entered into an Exchange Agreement with the Company’s Sponsor to convert $2,640,500 in aggregate
principal amount of promissory notes and convertible notes (the “Sponsor Notes”) into (i) 685,289 shares of common stock
of the Company, par value of $0.0001 per share, and (ii) 1,892,500 non-callable private warrants entitling the holder thereof to purchase
one share of Common Stock at $11.50 per share for five (5) years from the date of issuance. The Sponsor Notes were non-interest bearing
and did not contain a stated maturity date. The non-callable private warrants contained the same terms and conditions as the private
warrants issued to the Company’s Sponsor and the Company’s underwriters in connection with its February 11, 2020 initial
public offering.
Simultaneously
with the entry of the Exchange Agreement, Greenrose issued all 685,289 shares of common stock of the Company to the Sponsor in a private
placement exempt from registration pursuant to Rule 506(b) of Regulation D under Section 4(a)(2) of the Securities Act of 1933, as amended.
Upon the issuance of the 685,289 shares of common stock and 1,892,500 warrants of the Company, the Sponsor Notes were cancelled and are
no longer outstanding.
The
terms and conditions of the conversion of the Sponsor Notes into shares of common stock and Private Warrants of the Company, including
the conversion price, were approved at a meeting of a special committee of the independent members of the board of directors of the Company,
in which members of the board of directors who were also members of the Sponsor were recused.
The
foregoing description of Exchange Agreement is not complete and is qualified in its entirety by reference to the complete text of the
Exchange Agreement, a copy of which is attached hereto as Exhibit 10.2 and is incorporated herein by reference.
Amendment
and Restatement of Company Bylaws
On
January 28, 2022, the Company adopted amended and restated bylaws, a copy of which is attached hereto as Exhibit 3.3 and is incorporated
herein by reference. Specifically, the amended and restated bylaws provide that any person who has been determined by a majority of the
members of board of directors (the “Board”) to have violated the confidentiality policy of the Company while serving as a
member of the Board shall be ineligible to be nominated to or serve as a member of the Board, absent a waiver.
Termination
of Futureworks Merger Agreement
On
January 6, 2022 (the “Termination Date”), Futureworks LLC (“Futureworks”) notified the Company that it was terminating
the Agreement and Plan of Merger (the “Merger Agreement”), dated March 12, 2021, by and between Futureworks, the Company
(formerly known as Greenrose Acquisition Corp.) and Futureworks Holdings, Inc., a Delaware corporation and wholly-owned subsidiary of
Greenrose (“FW Merger Sub”). Pursuant to the Merger Agreement, Futureworks was expected to be merged with and into FW Merger
Sub (the “Futureworks Merger”), with FW Merger Sub surviving the Merger as a wholly owned subsidiary of Greenrose. All related
ancillary agreements entered into on March 12, 2021, in connection with the Futureworks Merger and the Purchase Agreement, were also
terminated on the Termination Date. The material terms and conditions of the Merger Agreement were previously disclosed in the Current
Report on Form 8-K filed by the Company with the Securities and Exchange Commission on March 12, 2021 and are incorporated by reference
herein.
Amendment
No. 3 to the True Harvest Asset Purchase Agreement
True
Harvest Asset Purchase Agreement
On
December 31, 2021, in connection with the closing of its previously announced acquisition of substantially all of the assets and the
assumption of certain liabilities of True Harvest, LLC, an Arizona limited liability company (“True Harvest”) by True Harvest
Holdings, Inc., a Delaware corporation and a wholly-owned subsidiary (“TH Buyer”) of the Company, the Company, TH Buyer and
True Harvest entered into a third amendment (“Amendment No. 3”) to the Asset Purchase Agreement dated March 12, 2021 (as
amended from time to time, the “True Harvest Asset Purchase Agreement”). The acquisition of substantially all of the assets
and the assumption of certain liabilities of True Harvest (the “True Harvest Acquisition”) was completed on December 31,
2021.
Pursuant
to the True Harvest Asset Purchase Agreement, the Company paid aggregate consideration of $57.6 million at closing, consisting of:
| ● | $23.0
million in the form of a convertible note, of which all principal and interest is payable
in shares of common stock of the Company, par value $0.0001 per share (“Common Stock”)
at a conversion price of $10.00 per share or, at the holder’s election, cash; |
| ● | $4.6
million in assumed debt evidenced by three (3) promissory notes in favor of existing creditors
of True Harvest; and |
| ● | $17.5
million in shares of Common Stock valued at $3.95 per share. |
Pursuant
to an Amended Earnout Payment Agreement entered into by the Company, TH Buyer and True Harvest simultaneously with the entry into Amendment
No. 3, contingent upon True Harvest achieving a certain price point per pound of cannabis flower relative to total flower production
within 36 months following the close of the acquisition, Greenrose will pay additional consideration of up to $35.0 million in the form
of an earnout, payable in shares of Common Stock.
The
Company financed the True Harvest Acquisition using the proceeds of the Company’s delayed draw commitment from the Company’s
existing lenders (collectively the “Lenders”) of Seventeen Million Dollars ($17,000,000).
The
Common Stock issued to True Harvest as a portion of the consideration for the True Harvest Acquisition was issued in a private placement
exempt from registration pursuant to Rule 506(b) of Regulation D under Section 4(a)(2) of the Securities Act of 1933, as amended.
The
foregoing description of Amendment No. 3 to the True Harvest Asset Purchase Agreement and the Amended Earnout Payment Agreement is not
complete and is qualified in its entirety by reference to the complete text of Amendment No. 3 to the True Harvest Asset Purchase Agreement
(including the exhibits thereto), a copy of which is attached hereto as Exhibit 2.5 and is incorporated herein by reference.
True
Harvest Registration Rights Agreement
On
December 31, 2021, in connection with the closing of the True Harvest Acquisition, Greenrose entered into a Registration Rights Agreement
(the “True Harvest Registration Rights Agreement”) with True Harvest, as holder, pursuant to which Greenrose agreed that,
at the request of True Harvest, Greenrose will file a registration statement with the Securities and Exchange Commission covering the
resale of the shares of Common Stock issued as part of the consideration in the True Harvest Acquisition, and Greenrose will use its
reasonable best efforts to have the resale registration statement declared effective as soon as reasonably practicable after the filing
thereof. Additionally, True Harvest is entitled to piggyback registration rights.
The
foregoing description of the True Harvest Registration Rights Agreement is not complete and is qualified in its entirety by reference
to the complete text of the True Harvest Registration Rights Agreement, a copy of which is attached hereto as Exhibit 4.4 and is incorporated
herein by reference.
The
Company’s registration statement on Form S-1/A covering, among other securities, the True Harvest shares, was declared effective
by the Securities and Exchange Commission on February 9, 2022.
Convertible
Promissory Note
Also
on December 31, 2021, TH Buyer entered into a convertible promissory note (the “Convertible Promissory Note”) with True Harvest,
as lender, in aggregate principal amount of $23 million, representing a portion of the consideration paid to True Harvest in the True
Harvest Acquisition. The Convertible Promissory Note bears interest at a rate of 8.0% per annum and matures on December 31, 2024. Obligations
under the Convertible Promissory Note are guaranteed by Greenrose. All amounts of principal and interest may be paid in shares of Common
Stock of the Company at a conversion price equal to $10.00, subject to adjustment, or, at the holder’s election, in cash.
The foregoing description of the Convertible Promissory Note is not
complete and is qualified in its entirety by reference to the complete text of the Form of Convertible Promissory Note, a copy of which
is attached as an exhibit to the Amendment No. 3 to the Asset Purchase Agreement and is attached hereto as Exhibit 10.3 and is incorporated
herein by reference.
Unsecured
Promissory Notes
Also
on December 31, 2021, TH Buyer entered into three (3) unsecured promissory notes (the “Unsecured Promissory Notes”) with
certain existing creditors of True Harvest in aggregate amount of $4.6 million, representing the assumption of certain liabilities of
True Harvest in connection with the True Harvest Acquisition.
The
Unsecured Promissory Notes accrue interest on all outstanding principal amounts at a rate of twelve percent (12.0%) per annum. The Unsecured
Promissory Notes are payable in twenty-four (24) equal consecutive monthly payments beginning on January 15, 2022 until January 15, 2024.
On January 15, 2024, all amounts then outstanding including principal, accrued but unpaid interest and fees, if any, shall be due. The
lenders under the Unsecured Promissory Notes may choose to accelerate all amounts (including principal, accrued but unpaid interest and
fees, if any) upon the occurrence and continuation of specified events of default, provided that all payments on account of the principal
amount of the Unsecured Promissory Notes, together with all accrued interest thereon, are subject, subordinate and junior, in right of
payment and exercise of remedies, to the Company’s senior secured debt.
The foregoing description of the Unsecured Promissory Notes is not
complete and is qualified in its entirety by reference to the complete text of the Form of Unsecured Promissory Notes, a copy of which
is attached as an exhibit to the Amendment No. 3 to the Asset Purchase Agreement and is attached hereto as Exhibit 10.4 and is incorporated
herein by reference.
Amendment
No. 1 to the Credit Agreement
Credit
Agreement
On
December 31, 2021, immediately prior to the closing of the True Harvest Acquisition, the Company entered into Amendment No. 1 to Credit
Agreement (“Amendment No. 1 to Credit Agreement”) with DXR Finance, LLC (the “Agent”), and the Lenders. In connection
with Amendment No. 1 to Credit Agreement, the Company agreed to issue to the Agent on the delayed draw funding date a Warrant (“Warrant
No. 2”) representing 550,000 nonvoting shares of Common Stock. Amendment No. 1 to Credit Agreement also provided for certain technical
amendments to the Credit Agreement to facilitate the True Harvest Acquisition, including, but not limited to, permitting the Convertible
Promissory Note, the Unsecured Promissory Notes, and the Amended Earnout Payment Agreement.
The
Company drew Seventeen Million Dollars ($17,000,000) from the Delayed Draw Commitment to finance the True Harvest Acquisition. The loan
matures on November 26, 2024 and bears an interest rate of the LIBOR plus the applicable margin of 16% per annum, subject to a LIBOR
floor of 1.0%, provided that for the first 12 months after the Closing Date, interest at the rate of 8.5% per annum may be payable-in-kind
and thereafter interest at the rate of 5% per annum may be payable in kind. Interest is payable on the last business day of each quarter.
The
Delayed Draw included an incremental 550,000 warrants on the same terms and conditions issued to the lender for a total of 2,550,000
issued, with a modification to the Floor Amount for any cash election made, and providing at least one (1) business day prior notice
to the Agent to exercise the Delayed Draw Commitment.
The
foregoing description of the Amendment No. 1 to Credit Agreement is not complete and is qualified in its entirety by reference to the
complete text of the Amendment No. 1 to Credit Agreement, a copy of which is attached hereto as Exhibit 10.6 and is incorporated herein
by reference.
Amended
and Restated Warrant No. 1
In
connection with the Amendment No. 1 to Credit Agreement, on December 31, 2021, the Company amended and restated warrant no. 1 (the “Amended
and Restated Warrant No. 1”), originally issued to the Agent on November 26, 2021. Pursuant to the Amended and Restated Warrant
No. 1, the Agent may elect to receive cash in lieu of shares of Common Stock, then such cash payment would be subject to a floor amount
(the “Floor Amount”). The “Floor Amount” means:
| (1) | $6.00
per share for any cash election made following December 31, 2021 and prior to November 26,
2022; |
| | | |
| (2) | $7.00
per share for any cash election made on or after November 27, 2022 and before November 26,
2023; |
| | | |
| (3) | $8.00
per share for any cash election made on or after November 27, 2023 and before November 26,
2024; |
| | | |
| (4) | $9.00
per share for any cash election made on or after November 27, 2024 and before November 26,
2025; and |
| | | |
| (5) | $10.00
per share for any cash election made on or after November 27, 2025 and before November 26,
2026. |
The
Amended and Restated Warrant No. 1 was issued to the Agent in a private placement exempt from registration pursuant to Rule 506(b) of
Regulation D under Section 4(a)(2) of the Securities Act of 1933, as amended.
The
foregoing description of the Amended and Restated Warrant No. 1 is not complete and is qualified in its entirety by reference to the
complete text of the Amended and Restated Warrant No. 1, a copy of which is attached hereto as Exhibit 4.7 and is incorporated herein
by reference.
Warrant
No. 2
In
connection with the Amendment No. 1 to Credit Agreement, the Company, on December 31, 2021, issued warrant no. 2 (“Warrant No.
2”) to the Agent providing for an incremental 550,000 warrants on the same terms and conditions as the Amended and Restated Warrant
No. 1, for a total of 2,550,000 warrants issued, with the same modification to the Floor Amount for any cash election made.
The
Warrant No. 2 was issued to the Agent in a private placement exempt from registration pursuant to Rule 506(b) of Regulation D under Section
4(a)(2) of the Securities Act of 1933, as amended.
The
foregoing description of the Warrant No. 2 is not complete and is qualified in its entirety by reference to the complete text of the
Warrant No. 2, a copy of which is attached hereto as Exhibit 4.8 and is incorporated herein by reference.
THERAPLANT
General
Theraplant
is a well-established seed-to-wholesale cultivator, extractor, and processor that produces high quality cannabis products. Located in
the limited license state of Connecticut, Theraplant has captured a significant portion of Connecticut’s medical cannabis market
and is poised to capitalize on the projected $250 million adult-use cannabis market beginning in year 1 projected to increase to $725
million in year 4, according to MJBiz. Connecticut’s adult recreational use legislation was signed into law and became legal on
July 1, 2021 and we currently expect the cannabis market to open for recreational some time in 2022. We anticipate that we can capitalize
on dispensaries’ need to build inventory ahead of the opening of the recreational market. Led by cannabis industry veterans, Theraplant
maintains profitability while complying with Connecticut’s rigorous medical program regulations.
Theraplant
has been cultivating, processing and packaging medical cannabis and derivative products since 2014. Theraplant was recognized by the
Connecticut Department of Consumer Protection as the highest scoring license applicant, and in February 2014, was awarded the first of
only four cultivation licenses in the state.
In
September 2014, Theraplant was the first cultivator/producer to supply state-licensed dispensaries with medical cannabis products and
the sole source of supply in Connecticut for the first five months after medical legalization.
Theraplant
is run by a team of business and cannabis experts. Dan Emmans has designed and/or built over 1 million square feet of cultivation, processing
and retail facilities. He has 11+ years’ experience in the legal cannabis market around the country. Jennifer Mandzuk has implemented
many of Theraplant’s growth generating platforms. Collectively the team has demonstrated significant annual cultivation yield increases,
from 350 pounds in 2015, to 1,000 pounds in 2016, to 4,000 pounds in 2017, to 6,000 pounds in 2018, to 14,000 pounds in 2019, 12,000
pounds in 2020, due to a fire in the first quarter of 2020, and over 14,500 pounds in 2021. These gains came from careful optimization
of cannabis strain production, facility expansions, enhanced cultivation technologies, efficient manufacturing operations and business
positioning.
Connecticut
Cannabis Market
Connecticut
has fostered a successful medical marijuana program that now includes over 53,000 registered patients and over 1,200 registered physicians
with, according to a July 22, 2021 article in Forbes Magazine, sales of $143 million in 2020. There are currently 39 qualifying conditions
for adults and 11 for patients under 18. The state currently has 18 licensed medical marijuana dispensaries and four licensed medical
cultivation and processing facilities (including three other MSO’s: Curaleaf in Simsbury, CT, Pharma/Tuatara in Rocky Hill, CT,
and Advanced Grow Labs/Green Thumb Industries in West Haven, CT.
On
June 22, 2021, Governor Ned Lamont signed Connecticut Senate Bill 1201, An Act Concerning Responsible And Equitable Regulation Of Adult-Use
Cannabis, thereby legalizing adult-use recreational cannabis use in Connecticut. Anticipated revenues from combined medical and recreational
adult sales could generate $250 million in the first full year.
Cultivation& Genetics
Theraplant
has been a leader in Connecticut cultivation since its initial opening. Following its recently completed expansion of 30,000 square feet,
the first quarter of 2022, Theraplant’s operations now span 98,000 square feet with a current production capacity of nearly 40,000
pounds, which may be less based upon the number and type of strains in production. Situated on 10 acres, there is ample opportunity for
expansion up to 500,000 square feet to meet future demand. Theraplant currently maintains a genetics library of over 300 in-house variants,
with 30 strains in regular production and 15 strains in seasonal rotation. Theraplant employs an experienced R&D team, where Theraplant’s
breeding program is regularly developing new strains to meet evolving customer tastes and preferences, and to improve production efficiencies.
New equipment is tested and built to support research and development initiatives. The team has demonstrated key competencies in marrying
strains with high yield, high THC, and short growth cycles, and optimizing strain production to ensure high-yield, resilient genetics.
Manufacturing& Processing
Cutting-edge
processing operations have propelled Theraplant to meet all USP111/Pharmacopoeia quality standards and passing all finished product tests
since inception. Rebranding in 2019 and 2020 demonstrates Theraplant’s commitment to providing elevated customer experiences and
evolving to meet customers’ shifting demands. Such initiatives have helped increase brand awareness in Connecticut.. At any given
time, the production operations have over 100 SKUs on the Theraplant production menu, with about one week testing turnaround for flower,
and about two weeks turnaround for extracts. Theraplant’s size and streamlined operations have historically allowed, and we expect
it to continue, its products to remain competitively priced, while still maintaining profitability.
Theraplant’s
state-of-the-art facilities are based in Watertown, Connecticut. Theraplant employs quality equipment sourced from known suppliers in
the cannabis equipment industry. Carbon dioxide or ethanol extraction is followed by a series of proprietary refining processes yielding
oils and concentrates ranging from soft-and-buttery, to sap-like and brittle. Highly refined concentrates test between 75% to 95% THC.
There are dedicated functional spaces for each processing and postprocessing stage: extraction, filtration/distillation/formulation,
in-process storage, packaging, and finished goods vaults. Reclamation and distillation processes are utilized to minimize waste and maximize
return.
Our
quality control process helps to make sure that our products meet applicable standards. We believe we have a best-in-class compliance
department with nine full-time employees dedicated to ensuring regulatory and quality compliance. The quality control process is compliant
with state and local regulations. Quality and safety of products are tested at third-party labs in Connecticut, which have found no deficiencies
since Theraplant’s inception. Our products consistently exceed state testing and certification requirements.
We
believe Theraplant operates a safe and secure facility. Physical operations are secured and monitored continuously by third party licensed
security guards and state-of-the-art video monitoring systems. Only authorized personnel with appropriate clearances have access to Theraplant’s
facilities using card and bio-metric controls. Theraplant engages third party legal, environmental health and safety advisors to assist
in maintaining appropriate procedural, educational and training programs for its employees.
Wholesale& Distribution
Theraplant
sells and delivers products directly to dispensaries throughout Connecticut. We believe its operational efficiencies have yielded wholesale
price competitiveness and profitability. Supported by upstream efficiencies in the supply chain including manufacturing optimization
and automation, Theraplant serves dispensary customers and clients by providing what we believe to be premium, high-quality products
at a lower price point than competitors. We believe attractive price points retain customers and grow shelf space. Theraplant’s
purpose-built infrastructure ensures Theraplant manages production processes from start to finish, maintaining and tracking inventory
from seed to distribution using its own proprietary system.
Theraplant
has established relationships with all third-party Connecticut dispensaries, enabling dispensaries to place orders online 24/7. Theraplant’s
focus on inventory management and distribution are syndicated: Theraplant’s proprietary inventory management system provides real-time
menu updates and advanced analytics capabilities that assist in data-driven decision making and to better predict demand.
Theraplant
owns four delivery vehicles, which allow substantial control over distribution, timing and compliance with state regulations with an
average of two to three deliveries per dispensary per week, inventory is often 100% sold through at the dispensaries before next delivery,
with average order size steadily growing. Delivery vehicles are driven by what we believe to be reputable, licensed, third-party security
providers.
Cash
management practices are approved and audited by Theraplant’s current banking institutions.
Operational
Systems
Theraplant
has well established proprietary operating systems. Theraplant has developed systems that enable it to provide high quality products
and services at a lower cost. In its cultivation facilities, these systems include irrigation, rolling tables, specific nutrient schedules,
efficient manicuring, and trellising for plant support. These systems include efficient facility design, seed to sale tracking software,
and RFID tagging. Detailed systems for receiving and sending products through our inventory management operating systems and specific
documentation regarding policies, procedures, consumer education, employee education, compliance regulations, and security, is provided
by extensive training and manuals onsite.
Intellectual
Property (IP)
Theraplant
has intellectual property that gives it an advantage over our competitors. Intellectual property includes proprietary data with respect
to plant genetics, production facility design, proprietarily designed HVAC systems, environmental conditioning including but not limited
to nutrient/feeding schedules, extensive knowledge of strains for breeding, and specific manicuring techniques to increase yield and
potency.
Competition
Theraplant
is one of only four legal cannabis cultivators in Connecticut. Although we have a strong operating history in the state’s medical
cannabis market, and we believe we are well positioned to compete effectively in Connecticut’s newly established recreational cannabis
market, we will face significant competition from Theraplant’s competitors in Connecticut. We cannot assure you that, subsequent
to the Business Combinations, we will have the resources or ability to compete effectively in Connecticut’s cannabis market.
TRUE
HARVEST
General
True
Harvest is a cultivation services business operating under license from a third-party Arizona licensed cannabis operator. True Harvest
grows, processes, packages and sells cannabis under the Shango Fine Cannabis brand to approximately 60% of the existing retail stores
and medical dispensaries in Arizona.
True
Harvest was initially established in May 2015, completing construction on its initial grow facility in October 2015. True Harvest operates
within 74,000 square feet of the former Revlon manufacturing facility at 4301 West Buckeye Road, Phoenix, Arizona. This facility, built
in the late 1960s, in the aggregate exceeds 800,000 square feet. True Harvest is one of the largest indoor grow operators in the state.
The space occupied by True Harvest includes industrial sized water treatment, power and cooling infrastructure with seven flower rooms,
three vegetation rooms, one mother room and one clone room. An eighth flower room is in the process of being added, and a ninth and tenth
flower room are in the planning stage. Cooling capacity allows for substantial growth and reduction of risk during the summer season.
True Harvest has the potential to expand its cultivation footprint at the 4301 West Buckeye Road facility.
The
business operates with 50 strains in its library and with more than 20 in current rotation. The operations are managed through an agreement
with Gary P. Rexroad, a Shango executive with deep cannabis cultivation operations experience. Rexroad, together with True Harvest staff,
manage all aspects of operations at the True Harvest site, including genetic selection to planting, harvesting, production, packaging
and distribution. The relationship with Rexroad brings market leading expertise to the True Harvest team and its customer base and the
ability to sell its cannabis under the well-known premium cannabis brand, Shango Fine Cannabis.
True
Harvest’s largest customers are public multi-state cannabis operators (“MSO’s): Curaleaf, Cresco Labs and Harvest Health.
As one of the first wholesale operations in Arizona, True Harvest has developed long standing relationships with dispensaries throughout
the state. Same day delivery allows True Harvest to capitalize on market opportunities across the state. True Harvest utilizes bulk and
jar-based packaging to meet dispensary requirements and to better market the Shango brand.
True
Harvest managed through a period of industry-wide regulatory scrutiny, with a positive inspection report in 2020, demonstrating the enhancements
and improvements that the operation has made to meet state and local regulatory requirements.
Current
Market
The
State of Arizona legalized medical marijuana in 2010, and Arizona has since issued 130 vertically integrated licenses across the state;
each license includes one dispensary, one onsite grow and one off-site grow with no cap on production. The market is populated with a
number of public and private MSOs as well as local operators, including Copper State Farms, the largest in the state with close to 60
acres of greenhouse grow.
Adult
recreational cannabis was approved in the November 2020 elections and was implemented as of January 2021. This created an additional
130 licenses being made available to current medical license holders with certain financial considerations. The market has expanded significantly
since the legalization of medical marijuana, with 2021 revenues state-wide anticipated at approximately $1.23 billion, based on tax collection
estimates and a registered medical patient count of 290,075 (Q4 2021 AZDH) representing approximately 3.99% of the state’s adult
population.
Operational
Systems
Today,
True Harvest, through an agreement with Gary P. Rexroad, a Shango executive utilizes the Shango proprietary operating procedures, process
and systems to manage the employees and True Harvest facility Shango has developed systems that enable True Harvest to provide high quality
products and services at a lower cost. In the cultivation facilities these systems include proprietary plant genetics, programmed irrigation,
HVAC, rolling tables, floor drains, specific nutrient schedules, efficient manicuring, and trellising for plant support, and further
rely on efficient facility design and seed to sale tracking software. True Harvest also employs systems for receiving and sending products
through its inventory management operating systems. True Harvest employees and other staff members receive training regarding the company’s
policies and procedures and are provided manuals and handbooks on a variety of matters including, compliance regulations and security.
Cash
management practices are approved and audited by True Harvest’s current banking institutions.
Intellectual
Property
True
Harvest has intellectual property that gives it an advantage over its competitors. True Harvest’s intellectual property includes
production facility design, and environmental conditioning including but not limited to nutrient/feeding schedules, extensive knowledge
of strains for breeding, and specific manicuring techniques to increase yield and potency. The cultivation team includes highly trained
employees with extensive experience in the cannabis industry and a wide knowledge of True Harvest’s products and strains.
Item
1A. Risk Factors Section
RISK
FACTORS
An
investment in our securities involves a high degree of risk. You should carefully consider the risks described below before making an
investment decision. Our business, prospects, financial condition, or operating results could be harmed by any of these risks, as well
as other risks not known to us or that we consider immaterial as of the date of this Annual Report on Form 10-K. This Annual Report on
Form 10-Kalso contains forward-looking statements that involve risks and uncertainties. Our actual results could differ materially from
those anticipated in the forward-looking statements as a result of specific factors, including the risks described below. The trading
price of our securities could decline due to any of these risks, and, as a result, you may lose all or part of your investment.
Unless
the context otherwise requires, references in this section to “we,” “us,” “our,” “Greenrose”
and the “Company” refer to The Greenrose Holding Company Inc. and its subsidiaries following the Theraplant Merger, or to
Greenrose Acquisition Corp. prior to the Theraplant Merger, as the case may be.
Below
is a summary of the principal factors that make an investment in Greenrose speculative or risky. This summary does not address all of
the risks that we face. Additional discussion of the risks summarized in this risk factor summary, and other risks that we face, can
be found below, after this summary, and should be carefully considered, together with other information in this Annual Report on Form
10-K and our other filings with the Securities and Exchange Commission before making an investment decision regarding Acreage.
Such
risks and other factors may include, but are not limited to:
Regulatory
Risks Associated With Our Business And Industry
| |
● |
Cannabis
remains illegal under federal law, and therefore, strict enforcement of federal laws regarding cannabis would likely result in our
inability to execute our business plan. |
| |
|
|
| |
● |
We may
be subject to action by the U.S. federal government. |
| |
|
|
| |
● |
Due to
the conflicting views between state legislatures and the federal government regarding cannabis, cannabis businesses are subject to
inconsistent laws and regulations. |
| |
|
|
| |
● |
State
regulation of cannabis is uncertain. |
| |
|
|
| |
● |
We may
face limitations on ownership of cannabis licenses. |
| |
|
|
| |
● |
We may
become subject to Food and Drug Administration or Bureau of Alcohol, Tobacco, Firearms and Explosives regulation. |
| |
|
|
| |
● |
The cannabis
industry is an evolving industry, and we must anticipate and respond to changes. |
Risks
Related to Macro-Economic Conditions
| |
● |
The impact of global, regional
or local economic and market conditions may adversely affect our business, operating results and financial condition (including monetary
policy, recession, unemployment, money supply, global disorder, terrorist activity, instability in domestic and foreign financial
markets, global pandemic, and other factors beyond our control (including political, legal, and regulatory actions and policies in
response to the military conflict between Russia and Ukraine), and rising inflation). |
| |
|
|
| |
● |
The global COVID-19 pandemic
has and will continue to have an adverse effect on our results of operations. |
| |
|
|
| |
● |
Climate change risk to
our future operations from natural disasters and extreme weather conditions. |
| |
|
|
| |
● |
We may be adversely impacted
by rising or volatile energy costs. |
| |
|
|
| |
● |
Natural disasters and other
events beyond our control could harm our business. |
Risks
Related to the Company’s Operations
| |
● |
We have identified a material
weakness in our internal control over financial reporting as of December 31, 2020. |
| |
|
|
| |
● |
We may face litigation
and other risks as a result of the material weakness in our internal control over financial reporting. |
| |
|
|
| |
● |
Our independent registered
public accounting firm’s report contains an explanatory paragraph that expresses substantial doubt about our ability to continue
as a “going concern.” |
| |
|
|
| |
● |
Failure to maintain effective
internal controls over financial reporting could have a material adverse effect on Greenrose’s business, operating results
and stock price. |
| |
|
|
| |
● |
Greenrose is an emerging
growth company and a smaller reporting company and, as a result of the reduced disclosure and governance requirements applicable
to emerging growth companies and smaller reporting companies, our common stock may be less attractive to investors. |
| |
|
|
| |
● |
We are dependent on our
banking relations, and we may have difficulty accessing or consistently maintaining banking or other financial services due to our
connection with the cannabis industry. |
| |
|
|
| |
● |
There may be tax consequences
to the Theraplant Merger or the True Harvest Acquisition that may adversely affect us. |
| |
|
|
| |
● |
We will need to expand
our organization and may experience difficulties in recruiting needed additional employees and consultants, which could disrupt operations. |
| |
|
|
| |
● |
We have limited trademark
protection. |
| |
|
|
| |
● |
We face risks related to
our information technology systems, and potential cyber-attacks and security breaches. |
| |
|
|
| |
● |
We may have difficulty
using bankruptcy courts due to our involvement in the regulated cannabis industry. |
| |
|
|
| |
● |
We may continue to be subject
to constraints on marketing our products. |
| |
|
|
| |
● |
Cannabis businesses are
subject to unfavorable U.S. tax treatment. |
| |
|
|
| |
● |
Cannabis businesses may
be subject to civil asset forfeiture. |
| |
|
|
| |
● |
Due to our involvement
in the cannabis industry, we may have a difficult time obtaining the various insurances that are desired to operate our business,
which may expose us to additional risk and financial liability. |
| |
|
|
| |
● |
We may face difficulties
in enforcing our contracts. |
| |
|
|
| |
● |
Cannabis businesses are
subject to applicable anti-money laundering laws and regulations and have restricted access to banking and other financial services. |
| |
|
|
| |
● |
We may face difficulties
acquiring additional financing. |
| |
|
|
| |
● |
We operate in a highly
regulated sector and may not always succeed in complying fully with applicable regulatory requirements in all jurisdictions where
we carry on business. |
| |
|
|
| |
● |
We face security risks. |
| |
|
|
| |
● |
We face exposure to fraudulent
or illegal activity. |
| |
|
|
| |
● |
Our business is subject
to the risks inherent in agricultural operations. |
| |
|
|
| |
● |
We face an inherent risk of product liability and similar
claims |
Risks
Related to Theraplant
| |
● |
Connecticut
is a new market for cultivation licenses |
| |
|
|
| |
● |
Management
of Theraplant have interests in competing businesses that may create a conflict of interest in allocating their time. |
| |
|
|
| |
● |
Greenrose’s
and Theraplant’s ability to successfully operate the business thereafter will be largely dependent upon the efforts of certain
key personnel of Theraplant; the loss of such key personnel could negatively impact the operations and financial results of Greenrose. |
Risks
Related to True Harvest
| |
● |
Greenrose’s
Board did not obtain a fairness opinion in determining whether to proceed with the True Harvest Acquisition. |
| |
|
|
| |
● |
Theraplant
and True Harvest are located in different jurisdictions, and we may find it difficult integrating each into the Company. |
| |
|
|
| |
● |
True Harvest
has previously been subject to litigation. |
Risks
Related to the Securities of the Company
| |
● |
An active
trading market for our common stock and warrants may never develop or be sustained, which would adversely affect the liquidity and
price of our securities. |
| |
|
|
| |
● |
The sponsor
can earn a positive rate of return on its investment, even if other shareholders experience a negative rate of return in the post-
business-combination company. |
| |
|
|
| |
● |
Greenrose
may be required to take write-downs or write-offs, restructuring and impairment or other charges that could have a significant negative
effect on Greenrose’s financial condition, results of operations and the stock price, which could cause you to lose some or
all of your investment. |
| |
|
|
| |
● |
Our amended
and restated certificate of incorporation provides, subject to limited exceptions, that the Court of Chancery of the State of Delaware
will be the sole and exclusive forum for certain stockholder litigation matters, which could limit our stockholders’ ability
to obtain a favorable judicial forum for disputes with us or our directors, officers, employees or stockholders. |
| |
|
|
| |
● |
The future
sales of shares by existing stockholders and future exercise of registration rights may adversely affect the market price of the
Company’s common stock. |
| |
|
|
| |
● |
We may
not be able to timely and effectively implement controls and procedures required by Section 404 of the Sarbanes-Oxley Act of 2002
that will be applicable to us after the completion of a business combination. |
| |
|
|
| |
● |
A market
for our securities may not continue, which would adversely affect the liquidity and price of our securities. |
| |
|
|
| |
● |
We may
be subject to securities litigation, which is expensive and could divert management attention. |
| |
|
|
| |
● |
We do
not intend to pay cash dividends for the foreseeable future. |
| |
|
|
| |
● |
If securities
or industry analysts do not publish or cease publishing research or reports about the Company, its business, or its market, or if
they change their recommendations regarding our securities adversely, then the price and trading volume of our securities could decline. |
| |
|
|
| |
● |
Our internal
control over financial reporting may not be effective and our independent registered public accounting firm may not be able to certify
as to their effectiveness, which could have a significant and adverse effect on our business and reputation. |
Regulatory
Risks Associated With Our Business And Industry
Cannabis
remains illegal under federal law, and therefore, strict enforcement of federal laws regarding cannabis would likely result in our inability
to execute our business plan.
Cannabis,
other than hemp (defined by the U.S. government as Cannabis sativa L. with a THC concentration of not more than 0.3% on a dry
weight basis), is a Schedule I controlled substance under the Controlled Substances Act (“CSA”). Even in states or territories
that have legalized cannabis to some extent, the cultivation, possession, and sale of cannabis all violate the CSA and are punishable
by imprisonment, substantial fines and forfeiture. Moreover, individuals and entities may violate federal law if they aid and abet another
in violating the CSA, or conspire with another to violate the law, and violating the CSA is a predicate for certain other crimes, including
money laundering laws and the Racketeer Influenced and Corrupt Organizations Act. The U.S. Supreme Court has ruled that the federal government
has the authority to regulate and criminalize the sale, possession and use of cannabis, even for individual medical purposes, regardless
of whether it is legal under state law. For over five years, however, the U.S. government has not prioritized the enforcement of those
laws against cannabis companies complying with state law and their vendors. No reversal of that policy of prosecutorial discretion is
expected under a Biden administration given his campaign’s position on cannabis, discussed further below, although prosecutions
against state-legal entities cannot be ruled out.
On
January 4, 2018, then U.S. Attorney General Jeff Sessions issued a memorandum for all U.S. Attorneys (the “Sessions Memo”)
rescinding certain past DOJ memoranda on cannabis law enforcement, including the Memorandum by former Deputy Attorney General James Michael
Cole (the “Cole Memo”) issued on August 29, 2013, under the Obama administration. Describing the criminal enforcement of
federal cannabis prohibitions against those complying with state cannabis regulatory systems as an inefficient use of federal investigative
and prosecutorial resources, the Cole Memo gave federal prosecutors discretion not to prosecute state law compliant cannabis companies
in states that were regulating cannabis, unless one or more of eight federal priorities were implicated, including use of cannabis by
minors, violence, or the use of federal lands for cultivation. The Sessions Memo, which remains in effect, states that each U.S. Attorney’s
Office should follow established principles that govern all federal prosecutions when deciding which cannabis activities to prosecute.
As a result, federal prosecutors could and still can use their prosecutorial discretion to decide to prosecute even state-legal cannabis
activities. Since the Sessions Memo was issued nearly three years ago, however, U.S. Attorneys have generally not prioritized the targeting
of state law compliant entities.
Then
Attorney General William Barr testified in his confirmation hearing on January 15, 2019, that he would not upset “settled expectations,”
“investments,” or other “reliance interest[s]” arising as a result of the Cole Memo, and that he does not intend
to devote federal resources to enforce federal cannabis laws in states that have legalized cannabis “to the extent people are complying
with the state laws.” He stated: “My approach to this would be not to upset settled expectations and the reliance interests
that have arisen as a result of the Cole Memorandum and investments have been made and so there has been reliance on it, so I don’t
think it’s appropriate to upset those interests.” He also implied that the CSA’s prohibitions of cannabis may be implicitly
nullified in states that have legalized cannabis: “[T]he current situation … is almost like a back-door nullification of
federal law.” Industry observers generally have not interpreted former Attorney General Barr’s comments to suggest that the
DOJ would proceed with cases against participants who entered the state-legal industry after the Cole Memo’s rescission.
As
such, we cannot assure that each U.S. Attorney’s Office in each judicial district where we operate will not choose to enforce federal
laws governing cannabis sales against state-legal companies like our business clients. The basis for the federal government’s lack
of recent enforcement with respect to the cannabis industry extends beyond the strong public sentiment and ongoing prosecutorial discretion.
Since 2014, versions of the U.S. omnibus spending bill have included a provision prohibiting the DOJ, which includes the Drug Enforcement
Administration, from using appropriated funds to prevent states from implementing their medical-use cannabis laws. In USA vs. McIntosh,
the U.S. Court of Appeals for the Ninth Circuit held that the provision prohibits the DOJ from spending funds to prosecute individuals
who engage in conduct permitted by state medical-use cannabis laws and who strictly comply with such laws. The court noted that, if the
spending bill provision were not continued, prosecutors could enforce against conduct occurring during the statute of limitations even
while the provision was previously in force. Other courts that have considered the issue have ruled similarly, although courts disagree
about which party bears the burden of proof of showing compliance or noncompliance with state law. Our policies do not prohibit our state-licensed
cannabis retailers from engaging in the cannabis business for adult use that is permissible under state and local laws. Consequently,
certain of our retailers currently (and may in the future) sell adult-use cannabis, if permitted by such state and local laws now or
in the future, and therefore may be outside any protections extended to medical-use cannabis under the spending bill provision. This
could subject our clients to greater and/or different federal legal and other risks as compared to businesses where cannabis is sold
exclusively for medical use, which could in turn materially adversely affect our business. Furthermore, any change in the federal government’s
enforcement posture with respect to state-licensed cannabis sales, including the enforcement postures of individual federal prosecutors
in judicial districts where we operate, would result in our inability to execute our business plan, and we would likely suffer significant
losses with respect to client base, which would adversely affect our operations, cash flow and financial condition. While President Biden’s
campaign position on cannabis fell short of full legalization, he campaigned on a platform of relaxing enforcement of cannabis proscriptions,
including decriminalization generally. As of the date of this filing, the Biden administration and the U.S. Congress have not taken action
by legislation or executive order regarding the adult-use recreational cannabis market. Although the U.S. Attorney General could issue
policy guidance to federal prosecutors that they should not interfere with cannabis businesses operating in compliance with states’
laws, any such guidance would not have the force of law and could not be enforced by the courts. The President alone cannot legalize
medical cannabis, and as states have demonstrated, legalizing medical cannabis can take many different forms. While rescheduling cannabis
to the CSA’s Schedule II would ease certain research restrictions, it would not make the state medical or adult-use programs federally
legal. Additionally, President Biden has not appointed any known proponents of cannabis legalization to the Office of National Drug Control
Policy transition team. Furthermore, while industry observers are hopeful that changes in Congress, and the Biden presidency, will increase
the chances of federal cannabis policy reform, such as the Marijuana Opportunity Reinvestment and Expungement Act (or MORE Act), which
was originally co-sponsored by now Vice President Harris in the Senate, or banking reform, such as the SAFE Banking Act, we cannot provide
assurances about the content, timing or chances of passage of a bill legalizing cannabis, particularly in the Senate. Accordingly, we
cannot predict the timing of any change in federal law or possible changes in federal enforcement. In the unlikely event that the federal
government were to reverse its long-standing hands-off approach to the state legal cannabis markets and start more broadly enforcing
federal law regarding cannabis, we would likely be unable to execute our business plan, and our business and financial results would
be adversely affected.
There
is currently no interstate commerce in the cannabis industry due to the federal prohibition of cannabis as a Schedule I narcotic. The
relaxation of the federal laws prohibiting the sale of cannabis products across state lines will eventually lead to interstate commerce,
which could have a material adverse effect on the business of the company.
We
may be subject to action by the U.S. federal government.
Since
the cultivation, processing, production, distribution and sale of cannabis for any purpose, medical, adult use or otherwise, remain illegal
under U.S. federal law, it is possible that we may be forced to cease activities. The U.S. federal government, though, among others,
the Department of Justice, its sub-agency the Drug Enforcement Administration and the Internal Revenue Service, has the right to actively
investigate, audit and shut down cannabis growing facilities, processors and retailers. The U.S. federal government may also attempt
to seize our property. Any action taken by the Department of Justice, the Drug Enforcement Administration and/or the IRS to interfere
with, seize or shut down our operations will have an adverse effect on our business, prospects, revenue, results of operation and financial
condition.
Since
federal law criminalizing the use of cannabis pre-empts state laws that legalize its use, the federal government can assert criminal
violations of federal law despite state laws permitting the use of cannabis. It does not appear that federal law enforcement and regulatory
agencies are focusing resources on licensed marijuana related businesses that are operating in compliance with state law, although the
position of the current administration is unclear with respect efforts to reform, repeal or amendment the CSA to decriminalize cannabis,
or the timing of any such efforts. As the recession of the Cole Memorandum and the implementation of the Sessions Memorandum demonstrate,
the Department of Justice may at any time issue additional guidance that directs federal prosecutors to devote more resources to prosecuting
marijuana related businesses. We could face:
| (i) | seizure
of our cash and other assets used to support or derived from our cannabis subsidiaries; |
| (ii) | the
arrest of our employees, directors, officers, managers and investors; and |
| (iii) | ancillary
criminal violations of the Controlled Substances Act for aiding and abetting, and conspiracy
to violate the Controlled Substances Act by providing financial support to cannabis companies
that service or provide goods to state-licensed or permitted cultivators, processors, distributors
and/or retailers of cannabis. |
Despite
indications that the Biden Administration may take steps to decriminalize marijuana, the Department of Justice or an aggressive federal
prosecutor could allege that Greenrose and our Board, our executive officers and, potentially, our shareholders, “aided and abetted”
violations of federal law by providing finances and services to our portfolio cannabis companies. Under these circumstances, federal
prosecutors could seek to seize our assets, and to recover the “illicit profits” previously distributed to shareholders resulting
from any of our financing or services. In these circumstances, our operations would cease, shareholders may lose their entire investments
and directors, officers and/or shareholders may be left to defend any criminal charges against them at their own expense and, if convicted,
be sent to federal prison.
Any
enforcement of current federal marijuana laws could cause significant financial damage to us and our shareholders. Further, future U.S.
presidential administrations could choose to treat marijuana differently, including opting to enforce current the federal laws more aggressively.
Violations
of any federal laws and regulations could result in significant fines, penalties, administrative sanctions, convictions or settlements
arising from civil proceedings conducted by either the federal government or private citizens, or criminal charges, including, but not
limited to, disgorgement of profits, cessation of business activities or divestiture. These results could have a material adverse effect
on us, including our reputation and ability to conduct business, our holding (directly or indirectly) of cannabis licenses in the United
States, the listing of our securities on various stock exchanges, our financial position, operating results, profitability or liquidity
or the market price of our common stock. In addition, it is difficult to estimate the time or resources that would be needed for the
investigation or final resolution of any such matters because: (i) the time and resources that may be needed depend on the nature and
extent of any information requested by the authorities involved, and (ii) such time or resources could be substantial.
Our
business and our clients are subject to a variety of U.S. and foreign laws regarding financial transactions related to cannabis, which
could subject our clients to legal claims or otherwise adversely affect our business.
We
and our clients are subject to a variety of laws and regulations in the United States regarding financial transactions. Violations of
the U.S. anti-money laundering (AML) laws require proceeds from enumerated criminal activity, which includes trafficking in cannabis
in violation of the CSA. Financial institutions that both we and our clients rely on are subject to the Bank Secrecy Act, as amended
by Title III of the USA Patriot Act. The penalties for violation of these laws include imprisonment, substantial fines and forfeiture.
In
2014, the DOJ under the Obama administration directed federal prosecutors to exercise restraint in prosecuting AML violations arising
in the state legal cannabis programs and to consider the federal enforcement priorities enumerated in the Cole Memo when determining
whether to charge institutions or individuals based upon cannabis-related activity. Around the same time, the Treasury Department issued
guidance that clarified how financial institutions can provide services to cannabis-related businesses, consistent with financial institutions’
obligations under the Bank Secrecy Act. Then-Attorney General Sessions’ rescission of the DOJ’s guidance on the state cannabis
programs in early 2018 increased uncertainty and heighted the risk that federal law enforcement authorities could seek to pursue money
laundering charges against entities, or individuals, engaged in supporting the cannabis industry. On January 31, 2018, the Treasury Department
issued additional guidance that the 2014 Guidance would remain in place until further notice, despite the rescission of the DOJ’s
earlier guidance memoranda.
We
are subject to a variety of laws and regulations in the United States and the Money Laundering Control Act (U.S.), as amended, and the
rules and regulations thereunder and any related or similar rules, regulations or guidelines issued, administered or enforced by governmental
authorities in the United States. If any of our clients’ business activities, any dividends or distributions therefrom, or any
profits or revenue accruing thereby are found to be in violation of money laundering statutes, our clients could be subject to criminal
liability and significant penalties and fines. Any violations of these laws, or allegations of such violations, by our clients could
disrupt our operations and involve significant management distraction and expenses. As a result, a significant number of our clients
facing money laundering charges could materially affect our business, operations and financial condition. Additionally, proceeds from
our clients’ business activities, including payments we have received from those clients, could be subject to seizure or forfeiture
if they are found to be illegal proceeds of a crime transmitted in violation of anti-money laundering laws, which could have a material
adverse effect on our business. Finally, if any of our clients are found to be violating the above statutes, this could have a material
adverse effect on their ability to access or maintain financial services, as discussed in detail below, which could, in turn, have a
material adverse effect on our business.
State
regulation of cannabis is uncertain.
Due
to the conflicting views between state legislatures and the federal government regarding cannabis, cannabis businesses are subject to
inconsistent laws and regulations.
There
can be no assurance that the federal government will not enforce federal laws relating to cannabis and seek to prosecute cases involving
cannabis businesses that are otherwise compliant with state laws in the future.
There
is no guarantee that state laws legalizing and regulating the sale and use of cannabis will not be repealed or overturned, or that local
governmental authorities will not limit the applicability of state laws within their respective jurisdictions. Unless and until the United
States Congress amends the CSA with respect to cannabis (and as to the timing or scope of any such potential amendments there can be
no assurance), there is a risk that federal authorities may enforce current U.S. federal law.
State
regulation of cannabis is uncertain.
There
is no assurance that state laws legalizing and regulating the sale and use of cannabis will not be amended, repealed or overturned, or
that local governmental authorities will not limit the applicability of state laws within their respective jurisdictions. If the U.S.
federal government begins to enforce U.S. federal laws relating to cannabis in states
State
regulatory agencies may require us to post bonds or significant fees.
There
is a risk that a greater number of state regulatory agencies will begin requiring entities engaged in certain aspects of the business
or industry of legal marijuana to post a bond or significant fees when applying, for example, for a dispensary license or renewal as
a guarantee of payment of sales and franchise taxes. We are not able to quantify at this time the potential scope of such bonds or fees
in the states in which we currently operate or may in the future operate. Any bonds or fees of material amounts could have a negative
impact on the ultimate success of our business.
We
may face limitations on ownership of cannabis licenses.
In
certain states, the cannabis laws and regulations limit not only the number of cannabis licenses issued, but also the number of cannabis
licenses that one person or entity may own. Such limitations on the ownership of additional licenses within certain states may limit
our ability to expand in such states. We may employ joint ventures from time to time to ensure continued compliance with the applicable
regulatory guidelines. We will structure our joint ventures on a case-by-case basis but will generally try to maintain operational control
over the joint venture business and a variable economic interest through the applicable governing documents.
There
are risks related to the cannabis industry to which we may be subject.
We
will not invest in or consummate a business combination with a target business that we determine has been operating in violation of U.S.
federal laws, other than the Controlled Substances Act. Nevertheless, companies with operations in the cannabis industry entail special
considerations and risks. We will be subject to, and possibly adversely affected by, the following risks:
| ● | the
cannabis industry is extremely speculative, and its legality is uncertain and constantly
changing, making it subject to inherent risks; |
| ● | use
of cannabis that is not in compliance with the Controlled Substances Act is illegal under
federal law, and therefore, strict enforcement of federal laws regarding the use, cultivation,
processing and/or sale of cannabis would likely result in our inability to execute a business
plan in the cannabis industry; |
| ● | any
changes in the current policies of the Biden Administration and the Department of Justice
resulting in heightened enforcement of federal cannabis laws may negatively impact our ability
to pursue our prospective business operations and/or generate revenues; |
| ● | federal
courts may refuse to recognize the enforceability of contracts pertaining to any business
operations that are deemed illegal under federal law and, as a result, cannabis-related contracts
could prove unenforceable in such courts; |
| ● | consumer
complaints and negative publicity regarding cannabis related products and services could
lead to political pressure on states to implement new laws and regulations that are adverse
to the cannabis industry or to reverse current favorable laws and regulations relating to
cannabis; |
| ● | assets
leased or sold to cannabis businesses may be forfeited to the federal government in connection
with government enforcement actions under federal law; |
| ● | U.S.
Food and Drug Administration regulation of cannabis and the possible registration of facilities
where cannabis is grown could negatively affect the cannabis industry, which could directly
affect our financial condition; |
| ● | due
to our involvement in the regulated cannabis industry, we may have a difficult time obtaining
the various insurance policies that are needed to operate our business, which may expose
us to additional risks and financial liabilities; |
| ● | the
cannabis industry may face significant opposition from other industries that perceive cannabis
products and services as competitive with their own, including but not limited to the pharmaceutical
industry, adult beverage industry and tobacco industry, all of which have powerful lobbying
and financial resources; |
| ● | many
national and regional banks have been resistant to doing business with cannabis companies
because of the uncertainties presented by federal law and, as a result, we may have difficulty
accessing the service of banks, which may inhibit our ability to open bank accounts, obtain
financing in the future, or otherwise utilize traditional banking services; |
| ● | laws
and regulations affecting the regulated cannabis industry are varied, broad in scope and
subject to evolving interpretations, and may restrict the use of the properties we acquire
or require certain additional regulatory approvals, which could materially adversely affect
our operations; |
| ● | securities
exchanges may not list companies engaged in the cannabis industry; and |
| ● | Section
280E of the Internal Revenue Code, which disallows a tax deduction for any amount paid or
incurred in carrying on any trade or business that consists of trafficking in controlled
substances prohibited by federal or state law, is anticipated to prevent us from deducting
certain business expenditures, which would increase our net taxable income. |
Any
of the foregoing could have a material and adverse impact on our operations.
We
may become subject to Food and Drug Administration or Bureau of Alcohol, Tobacco, Firearms and Explosives regulation.
Cannabis
remains a Schedule I controlled substance under U.S. federal law. If the federal government reclassifies cannabis to a Schedule II controlled
substance, it is possible that the Food and Drug Administration would seek to regulate cannabis under the Food, Drug and Cosmetics Act
of 1938. Additionally, the Food and Drug Administration may issue rules and regulations, including good manufacturing practices, related
to the growth, cultivation, harvesting, processing and labeling of medical cannabis. Clinical trials may be needed to verify the efficacy
and safety of cannabis. It is also possible that the Food and Drug Administration would require facilities where medical use cannabis
is grown to register with the Food and Drug Administration and comply with certain federally prescribed regulations. In the event that
some or all of these regulations are imposed, the impact they would have on the cannabis industry is unknown, including the costs, requirements
and possible prohibitions that may be enforced. If we are unable to comply with the potential regulations or registration requirements
prescribed by the Food and Drug Administration, it may have an adverse effect on our business, prospects, revenue, results of operation
and financial condition.
It
is also possible that the federal government could seek to regulate cannabis under the U.S. Bureau of Alcohol, Tobacco, Firearms and
Explosives. The Bureau of Alcohol, Tobacco, Firearms and Explosives may issue rules and regulations related to the use, transporting,
sale and advertising of cannabis or cannabis products, including smokeless cannabis products.
The
cannabis industry is an evolving industry, and we must anticipate and respond to changes.
The
cannabis industry in the United States is growing significantly, although its development and evolution cannot yet be accurately predicted.
While Greenrose has attempted to identify many risks specific to the cannabis industry, you should carefully consider that there are
other risks that cannot be foreseen or are not described in this Annual Report on Form 10-K, which could materially and adversely affect
Greenrose’s business and financial performance. Greenrose’s long-term success will depend on its ability to successfully
adjust its strategy to meet the changing market dynamics. If Greenrose is unable to successfully adapt to changes in the cannabis industry,
Greenrose’s operations could be adversely affected.
Risks
Related to Macro-Economic Conditions
The
impact of global, regional or local economic and market conditions may adversely affect our business, operating results and financial
condition.
Our
performance is subject to global economic conditions and economic conditions in one or more of our key markets, which impact spending
by our clients and consumers. Many of our clients are small and medium-sized businesses that operate just a few retail locations, and
their access to capital, liquidity and other financial resources is constrained due to the regulatory restrictions applicable to cannabis
businesses. As a result, these clients may be disproportionately affected by economic downturns. Clients may choose to allocate their
spending to items other than our platform, especially during economic downturns.
Economic
conditions may also adversely impact retail sales of cannabis. Declining retail sales of cannabis could result in our clients going out
of business or deciding to stop using our platform to conserve financial resources. Negative economic conditions may also affect third
parties with whom we have entered into relationships and upon whom we depend in order to grow our business. Factors such as monetary
policy, recession, unemployment, money supply, global disorder, terrorist activity, instability in domestic and foreign financial markets,
global pandemic, and other factors beyond our control (including political, legal, and regulatory actions and policies in response to
the military conflict between Russia and Ukraine), and rising inflation may reduce our customers’ disposable income. Any one of
these changes could have a material adverse effect on our business, financial condition, results of operations or prospects.
Furthermore,
economic downturns could also lead to limitations on our ability to obtain debt or equity financing on favorable terms or at all, reduced
liquidity, decreases in the market price of our securities, decreases in the fair market value of our financial or other assets, and
write-downs of and increased credit and collectability risk on our receivables, any of which could have a material adverse effect on
our business, operating results or financial condition.
The
global COVID-19 pandemic has and will continue to have an adverse effect on our results of operations.
In
December 2019, a novel strain of coronavirus was reported to have surfaced in Wuhan, China, which has and is continuing to spread throughout
the world, including the United States. On January 30, 2020, the World Health Organization declared the outbreak of the coronavirus disease
(COVID-19) a “Public Health Emergency of International Concern.” On January 31, 2020, the U.S. Department of Health and Human
Services declared a public health emergency for the United States to aid the U.S., and on March 11, 2020, the World Health Organization
characterized the COVID-19 outbreak as a “pandemic.”
The
COVID-19 pandemic has resulted, including the spread of a number of variants of the virus, and other infectious diseases could result,
in a widespread health crisis that has and could continue to adversely affect the economies and financial markets worldwide, which may
delay or prevent the consummation of any of the Business Combinations, and the business of any of Theraplant or True Harvest or Greenrose
following Closing of any of the Business Combination could be materially and adversely affected. The extent of such impact will depend
on future developments, which are highly uncertain and cannot be predicted, including new information which may emerge concerning the
severity of COVID-19 and the actions to contain COVID-19 or treat its impact, among others.
The
disruptions posed by COVID-19 and various variants, including most recently the omicron variant, have continued, and other matters of
global concern may continue, for an extensive period of time, and if Greenrose is unable to recover from business disruptions due to
COVID-19 or other matters of global concern on a timely basis, Greenrose’s financial condition and results of operations may be
materially adversely affected. Greenrose may also incur additional costs due to delays caused by COVID-19, which could adversely affect
Greenrose’s financial condition and results of operations.
Climate
change risk to our future operations from natural disasters and extreme weather conditions.
Climate
change resulting from increased concentrations of carbon dioxide and other greenhouse gases in the atmosphere could present risks to
the Company’s future operations from natural disasters and extreme weather conditions, such as droughts, heat waves, hurricanes,
tornadoes, wildfires or flooding. Such extreme weather conditions could pose physical risks to our facilities and disrupt operation of
our supply chain and may impact operational costs. The impacts of climate change on global water resources may result in water scarcity,
which could in the future impact the Company’s ability to access sufficient quantities of water in certain locations and result
in increased costs. The Company is dependent upon electricity to power equipment at the indoor growing facilities. Impacts of climate
change may also impact the availability of electricity at its current and future locations. In recent years, shortages of electricity
have resulted in increased costs to users and interruptions in service. For example, California has experienced rolling blackouts due
to excessive demands on the electrical grid or as precautionary measures against the risk of wildfire, Texas recently experienced widespread
outages, rolling blackouts and electricity price spikes arising from cold weather conditions and other markets in which the Company operates
can experience significant power outages from time to time. Climate change may increase the frequency of such weather-related energy
security issues. In the event of a power outage or shortage, the Company will typically be dependent on the utility company and/or the
site host to restore power or provide power at a reasonable cost.
Concern
over climate change could result in new legal or regulatory requirements designed to mitigate the effects of climate change on the environment.
If such laws or regulations are more stringent than current legal or regulatory requirements, we may experience increased compliance
burdens and costs to meet the regulatory obligations and may adversely affect raw material sourcing, manufacturing operations and the
distribution of our products.
We
may be adversely impacted by rising or volatile energy costs.
Our
cannabis growing operations consume considerable energy, which makes us vulnerable to rising energy costs. Accordingly, rising or volatile
energy costs may adversely affect our business and our ability to operate profitably.
Natural
disasters and other events beyond our control could harm our business.
Natural
disasters or other catastrophic events, such as earthquakes, flooding, wildfires, power shortages, pandemics such as COVID-19, terrorism,
political unrest, telecommunications failure, vandalism, cyberattacks, geopolitical instability, war, drought, sea level rise and other
events beyond our control may cause damage or disruption to our operations, the operations of our suppliers and service providers, international
commerce and the global economy, and could seriously harm our revenue and financial condition and increase our costs and expenses. The
geographic location of our facilities, as well as the facilities of certain of our key suppliers and service providers, subject them
to earthquake and wildfire risks. If a major earthquake, wildfire or other natural disaster were to damage our facilities or the facilities
of suppliers and service providers or impact the ability of our employees or the employees of our suppliers and service providers to
travel to their workplace, we may experience potential impacts ranging from production and shipping delays to lost revenues and increased
costs, which could significantly harm our business. Moreover, planned widespread blackouts during the peak wildfire season, such as those
instituted in October 2019 by Pacific Gas and Electric, the public electric utility in the Northern California region, to avoid and contain
wildfires sparked during strong wind events by downed power lines or equipment failure particularly if prolonged or frequent, could impact
our operations and the operations of our suppliers and service providers located in the region. Many of our employees and the employees
of such suppliers and service providers reside in or surrounding counties and may be unable to travel to work for the duration of any
power shut off. We do not have multiple-site capacity for all of our operations in the event of a business disruption, and our insurance
may not be sufficient to cover losses or additional expense that we may sustain. Furthermore, other parties in our supply chain are similarly
vulnerable to natural disasters or other sudden, unforeseen, and severe adverse events. A natural disaster or other catastrophic event
in any of our major markets could have a material adverse impact on our business, financial condition, results of operations, or cash
flows. Also, in the event of damage or interruption, our insurance policies may not adequately compensate us for any losses that we may
incur.
We
may encounter unknown environmental risks.
There
can be no assurance that we will not encounter hazardous conditions, such as asbestos or lead, at the sites of the real estate used to
operate our businesses, which may delay the development of our businesses. Upon encountering a hazardous condition, work at our facilities
may be suspended. If we receive notice of a hazardous condition, we may be required to correct the condition prior to continuing construction.
If additional hazardous conditions were present, it would likely delay construction and may require significant expenditure of our resources
to correct the conditions. Such conditions could have a material impact on our investment returns.
Risks
Related to the Company’s Operations
We
have identified a material weakness in our internal control over financial reporting as of December 31, 2020. If we are unable to develop
and maintain an effective system of internal control over financial reporting, we may not be able to accurately report our financial
results in a timely manner, which may adversely affect investor confidence in us and materially and adversely affect our business and
operating results.
Management
and our audit committee concluded that it was appropriate to restate our previously issued audited financial statements as of and for
the period ended December 31, 2021. We also restated the financial statements as of February 13, 2020; and as of and for the periods
ended March 31, 2020, June 30, 2020 and September 30, 2020. As part of such process, we identified a material weakness in our internal
controls over financial reporting.
A
material weakness is a deficiency, or a combination of deficiencies, in internal control over financial reporting such that there is
a reasonable possibility that a material misstatement of our annual or interim financial statements will not be prevented or detected
and corrected on a timely basis.
As
described elsewhere in this report, we have identified, in light of the prior reclassification of private warrants from equity to liability,
as well as the reclassification of our redeemable common stock as temporary equity, a material weakness in our internal controls over
financial reporting relating to our accounting for complex financial instruments.
Effective
internal controls are necessary for us to provide reliable financial reports and prevent fraud. We continue to evaluate steps to remediate
the material weakness. These remediation measures may be time consuming and costly and there is no assurance that these initiatives will
ultimately have the intended effects.
If
we identify any new material weaknesses in the future, any such newly identified material weakness could limit our ability to prevent
or detect a misstatement of our accounts or disclosures that could result in a material misstatement of our annual or interim financial
statements. In such case, we may be unable to maintain compliance with securities law requirements regarding timely filing of periodic
reports in addition to applicable stock exchange listing requirements, investors may lose confidence in our financial reporting and our
stock price may decline as a result. We cannot assure you that the measures we have taken to date, or any measures we may take in the
future, will be sufficient to avoid potential future material weaknesses.
We
may face litigation and other risks as a result of the material weakness in our internal control over financial reporting.
As
a result of the material weakness, referred to in the preceding risk factor, the Restatement, the change in accounting for complex financial
instruments, and other matters raised or that may in the future be raised relating to any material weakness, we face potential for litigation
or other disputes which may include, among others, claims invoking the federal and state securities laws, contractual claims or other
claims arising from the Restatement and material weaknesses in our internal control over financial reporting and the preparation of our
financial statements. As of the date of this Registration Statement, we have no knowledge of any such potential claim, litigation or
dispute. However, we can provide no assurance that such litigation or dispute will not arise in the future. Any such litigation or dispute,
whether successful or not, could have a material adverse effect on our business, results of operations and financial condition or our
ability to complete any future acquisition or merger transactions.
Our independent registered public accounting
firm’s report contains an explanatory paragraph that expresses substantial doubt about our ability to continue as a going concern.
We currently have projected negative cash flows
until recreational cannabis is sold legally within the state of Connecticut. Based on the current debt and interest obligations coupled
with a working capital deficit of $103,434 thousand, we do not currently have sufficient cash on hand and available liquidity to meet
our obligations through the twelve months following the date the consolidated financial statements are issued.
Management is actively
looking to attain financing through debt or equity issuances, however, we cannot assure you that our plans to raise capital will be
successful. These factors, among others, raise substantial doubt about our ability to continue as a going concern. Further, the
explanatory paragraph that that expresses substantial doubt about our ability to continue as a going concern, has triggered a
violation of a debt covenant with one of our lenders which has caused all debt to be in default and is contained within currently
liabilities. Management is looking to cure or waive these events of default but cannot guarantee that these efforts will be
successful.
Greenrose
will incur significant increased expenses and administrative burdens as a public company, which could have an adverse effect on its business,
financial condition and results of operations.
Greenrose
will face a significant increase in insurance, legal, accounting, administrative and other costs and expenses as a public company that
none of the formerly corporate or company privately-held acquisition targets that we may attempt to purchase incur as a private company.
The Sarbanes-Oxley Act of 2002 (the “Sarbanes-Oxley Act”), including the requirements of Section 404, as well as rules and
regulations subsequently implemented by the SEC, the Dodd-Frank Wall Street Reform and Consumer Protection Act of 2010 (the “Dodd-Frank
Act”) and the rules and regulations promulgated and to be promulgated thereunder, the Public Company Accounting Oversight Board,
the SEC and the securities exchanges, impose additional reporting and other obligations on public companies. Compliance with public company
requirements will increase costs and make certain activities more time-consuming. A number of those requirements will require Greenrose
to carry out activities that Theraplant previously have not done. For example, Greenrose will adopt new internal controls and disclosure
controls and procedures. In addition, additional expenses associated with SEC reporting requirements will be incurred. Furthermore, if
any issues in complying with those requirements are identified (for example, if the auditors identify a material weakness or significant
deficiency in the internal control over financial reporting), Greenrose could incur additional costs rectifying those issues, and the
existence of those issues could adversely affect Greenrose’s reputation or investor perceptions of it. Being a public company could
make it more difficult or costly for Greenrose to obtain certain types of insurance, including director and officer liability insurance,
and Greenrose may be forced to accept reduced policy limits and coverage with increased self-retention risk or incur substantially higher
costs to obtain the same or similar coverage. Being a public company could also make it more difficult and expensive for Greenrose to
attract and retain qualified persons to serve on the Board, board committees or as executive officers. Furthermore, if Greenrose is unable
to satisfy its obligations as a public company, it could be subject to delisting of its Common Stock, fines, sanctions and other regulatory
action and potentially civil litigation.
The
additional reporting and other obligations imposed by various rules and regulations applicable to public companies will increase legal
and financial compliance costs and the costs of related legal, accounting and administrative activities. These increased costs will require
Greenrose to divert a significant amount of money that could otherwise be used to expand the business and achieve strategic objectives.
Advocacy efforts by shareholders and third parties may also prompt additional changes in governance and reporting requirements, which
could further increase costs.
Greenrose’s
management does not have significant experience managing a public company or complying with public company obligations, and fulfilling
these obligations will be expensive, time consuming, and may divert management’s attention from the day-to-day operation of its
business.
Greenrose’s
senior management does not have significant experience managing a publicly-traded company and have limited experience complying with
the increasingly complex laws pertaining to public companies. In particular, the significant regulatory oversight and reporting obligations
imposed on public companies will require substantial attention from Greenrose’s senior management and may divert attention away
from the day-to-day management of its after businesses, which could have a material adverse effect on Greenrose’s business, financial
condition and results of operations. Similarly, corporate governance obligations, including with respect to the development and implementation
of appropriate corporate governance policies, and concurrent service on the Board and possibly multiple board committees, will impose
additional burdens on Greenrose’s non-executive directors.
Additionally,
each of Theraplant and True Harvest have operated previously as a private company, Greenrose may be required to expend significant resources
to ensure that Greenrose has sufficient systems in place to allow it to comply with its obligations as a publicly-traded company.
Failure
to maintain effective internal controls over financial reporting could have a material adverse effect on Greenrose’s business,
operating results and stock price.
Prior
to the consummation of the Theraplant Merger or the True Harvest Acquisition, neither Theraplant nor True Harvest was a publicly listed
company, or an affiliate of a publicly listed company, and neither has dedicated accounting personnel and other resources to address
internal control and other procedures commensurate with those of a publicly listed company. Effective internal control over financial
reporting is necessary to increase the reliability of financial reports.
The
standards required for a public company under Section 404(a) of the Sarbanes-Oxley Act are significantly more stringent than those required
of Theraplant and True Harvest as a privately held company. Management may not be able to effectively and timely implement controls and
procedures that adequately respond to the increased regulatory compliance and reporting requirements. If Greenrose is not able to implement
the additional requirements of Section 404(a) in a timely manner or with adequate compliance, it may not be able to assess whether its
internal controls over financial reporting are effective, which may subject it to adverse regulatory consequences and could harm investor
confidence and the market price of the Common Stock.
Neither
Theraplant nor True Harvest nor their respective auditors were required to perform an evaluation of internal control over financial reporting
as of or for the years ended December 31, 2019 and 2020 in accordance with the provisions of the Sarbanes-Oxley Act as each of Theraplant
and True Harvest were private companies. Following completion of the Business Combination, Greenrose’s independent registered public
accounting firm will not be required to report on the effectiveness of its internal control over financial reporting pursuant to Section
404(b) of the Sarbanes-Oxley Act of 2002 until Greenrose’s first annual report on Form 10-K following the date on which it ceases
to qualify as an “emerging growth company,” which may be up to five full fiscal years following the date of the first sale
of common equity securities pursuant to an effective registration statement. If such evaluation were performed, control deficiencies
could be identified by our management, and those control deficiencies could also represent one or more material weaknesses. In addition,
Greenrose cannot, at this time, predict the outcome of this determination and whether Greenrose will need to implement remedial actions
in order to implement effective control over financial reporting. If in subsequent years Greenrose is unable to assert that Greenrose’s
internal control over financial reporting is effective, or if Greenrose’s auditors express an opinion that Greenrose’s internal
control over financial reporting is ineffective, Greenrose may fail to meet the future reporting obligations in a timely and reliable
manner and its financial statements may contain material misstatements. Any such failure could also adversely cause our investors to
have less confidence in the accuracy and completeness of our financial reports, which could have a material adverse effect on the price
of Greenrose’s securities.
Greenrose
is an emerging growth company and a smaller reporting company and, as a result of the reduced disclosure and governance requirements
applicable to emerging growth companies and smaller reporting companies, our common stock may be less attractive to investors.
Greenrose
is an “emerging growth company” as defined in Section 2(a)(19) of the Securities Act, as modified by the JOBS Act, and it
intends to take advantage of some of the exemptions from reporting requirements that are available to emerging growth companies, including:
| ● | not
being required to comply with the auditor attestation requirements in the assessment of Greenrose’s
internal control over financial reporting under Section 404(b) of the Sarbanes-Oxley Act; |
| ● | reduced
disclosure obligations regarding executive compensation in periodic reports and registration
statements; and |
| ● | not
being required to hold a non-binding advisory vote on executive compensation and shareholder
approval of any golden parachute payments not previously approved. |
Greenrose
may take advantage of these reporting exemptions until it is no longer an emerging growth company. Greenrose will remain an emerging
growth company until the earlier of (1) the last day of the fiscal year (a) following the fifth anniversary of the date of the first
sale of common equity securities pursuant to an effective registration statement, (b) in which Greenrose has total annual gross revenue
of at least $1.07 billion, or (c) in which Greenrose is deemed to be a large accelerated filer, which means the market value of the Common
Stock that is held by non-affiliates exceeds $700 million as of the prior June 30th, and (2) the date on which Greenrose has issued more
than $1.0 billion in non-convertible debt during the prior three-year period.
In
addition, Section 107 of the JOBS Act also provides that an emerging growth company can take advantage of the exemption from complying
with new or revised accounting standards provided in Section 7(a) (2)(B) of the Securities Act as long as Greenrose is an emerging growth
company. An emerging growth company can therefore delay the adoption of certain accounting standards until those standards would otherwise
apply to private companies. Greenrose has elected to avail itself of this exemption from new or revised accounting standards and, therefore,
it may not be subject to the same new or revised accounting standards as other public companies that are not emerging growth companies.
Investors may find the Common Stock less attractive because Greenrose relies on these exemptions, which may result in a less active trading
market for the Common Stock and the price of the Common Stock may be more volatile.
Greenrose
is also deemed to be a “smaller reporting company” as defined in Rule 12b-2 under the Exchange Act, and is thus allowed to
provide simplified executive compensation disclosures in its SEC filings, will be exempt from the provisions of Section 404(b) of Sarbanes-Oxley
requiring that an independent registered public accounting firm provide an attestation report on the effectiveness of internal control
over financial reporting and will have certain other reduced disclosure obligations with respect to its SEC filings. Greenrose will remain
a “smaller reporting company” as long as, as of the last Business Day its recently completed second fiscal quarter, (i) the
aggregate market value of its outstanding common stock held by non-affiliates (“public float”) is less than $250 million,
or (ii) it has annual revenues of less than $100 million and public float of less than $700 million.
Greenrose
cannot predict if investors will find its common stock less attractive because it will rely on the accommodations and exemptions available
to emerging growth companies and smaller reporting companies. If some investors find Greenrose common stock less attractive as a result,
there may be a less active trading market for the common stock and Greenrose’s share price may be more volatile.
We
are dependent on our banking relations, and we may have difficulty accessing or consistently maintaining banking or other financial services
due to our connection with the cannabis industry.
We
are dependent on the banking industry to support the financial functions of our products and solutions. Our business operating functions
including payroll for our employees, real estate leases, and other expenses are reliant on traditional banking. Additionally, many of
our clients pay us via wire transfer to our bank accounts, or via checks that we deposit into our banks. We require access to banking
services for both us and our clients to receive payments in a timely manner. Lastly, to the extent we rely on any lines of credit, these
could be affected by our relationships with financial institutions and could be jeopardized if we lose access to a bank account. Important
components of our offerings depend on client accounts and relationships, which in turn depend on banking functions. Most federal and
federally-insured state banks currently do not serve businesses that grow and sell cannabis products on the stated ground that growing
and selling cannabis is illegal under federal law, even though the Treasury Department’s Financial Crimes Enforcement Network,
or FinCEN, issued guidelines to banks in February 2014 that clarified how financial institutions can provide services to cannabis-related
businesses, consistent with financial institutions’ obligations under the Bank Secrecy Act. While the federal government has generally
not initiated financial crimes prosecutions against state-law compliant cannabis companies or their vendors, the government theoretically
could, at least against companies in the adult-use markets. The continued uncertainty surrounding financial transactions related to cannabis
activities and the subsequent risks this uncertainty presents to financial institutions may result in their discontinuing services to
the cannabis industry or limit their ability to provide services to the cannabis industry or ancillary businesses providing services
to the cannabis industry.
As
a result of federal-level illegality and the risk that providing services to state-licensed cannabis businesses poses to banks, cannabis-related
businesses face difficulties accessing banks that will provide services to them. When cannabis businesses are able to find a bank that
will provide services, they face extensive client due diligence in light of complex state regulatory requirements and guidance from FinCEN,
and these reviews may be time-consuming and costly, potentially creating additional barriers to financial services for, and imposing
additional compliance requirements on, us and our clients. FinCEN requires a party in trade or business to file with the U.S. Internal
Revenue Service, or the IRS, a Form 8300 report within 15 days of receiving a cash payment of over $10,000. If we fail to comply with
these laws and regulations, the imposition of a substantial penalty could have a material adverse effect on our business, results of
operations and financial condition. We cannot assure that our strategies and techniques for designing our products and solutions for
our clients will operate effectively and efficiently and not be adversely impacted by any refusal or reluctance of banks to serve businesses
that grow and sell cannabis products. A change in banking regulations or a change in the position of the banking industry that permits
banks to serve businesses that grow and sell cannabis products may increase competition for us, facilitate new entrants into the industry
offering products or solutions similar to those that we offer, or otherwise adversely affect our results of operations. Also, the inability
of potential clients in our target market to open accounts and otherwise use the services of banks or other financial institutions may
make it difficult for us to conduct business, including receiving payments in a timely manner.
Each
of Greenrose, Theraplant, and True Harvest has incurred and will incur substantial costs in connection with the Theraplant Merger and
the True Harvest Acquisition and related transactions, such as legal, accounting, consulting and financial advisory fees.
As
part of the Theraplant Merger and the True Harvest Acquisitions, each of Greenrose, Theraplant, and True Harvest utilized professional
service firms for legal, accounting and financial advisory services. Although the parties have been provided with estimates of the costs
for each advisory firm, the total actual costs may exceed those estimates. In addition, the companies may retain consulting services
to assist in the integration of the businesses upon closing. These consulting services may extend beyond the current estimated time frame
thus resulting in higher than expected costs.
Greenrose
may incur successor liabilities due to conduct arising prior to the completion of the Theraplant merger or the True Harvest acquisition.
Greenrose
may be subject to certain successor liabilities of Theraplant and True Harvest. Greenrose may become subject to litigation claims in
the operation of Theraplant’s and True Harvest’s business prior to the closing of the Business Combination, including, but
not limited to, with respect to tax, regulatory, employee or contract matters. Any litigation may be expensive and time-consuming and
could divert the attention of Greenrose’s management from its business and negatively affect its operating results or financial
condition. Furthermore, the outcome of any litigation cannot be guaranteed, and adverse outcomes can affect Greenrose and each of Theraplant
or True Harvest negatively.
A
member of our management team may be subject to litigation.
In
late March 2021, leakage was detected from the Piney Point, Florida site where HRK Holdings, LLC operates a ‘brownfield”
industrial real estate project, including phosphogypsum containment ponds or “stacks” to remediate wastewater containing
tailings from phosphate production. Operations at the phosphate plant for which the containment ponds were operated ceased twenty years
ago. Wastewater more recently contained in the leaking stack was labeled “mixed seawater” by the Florida Department of Environmental
Protection (“FDEP”) and contained sea water from dredging of Manatee Bay, rainwater, surface water runoff from local farmland,
and by-products of legacy phosphate production, making the mixed seawater high in phosphates and nitrates. One stack at the Piney Point
site experienced a serious liner tear in a pond estimated to contain approximately 480 million gallons of wastewater, and the FDEP issued
an emergency discharge order to reduce water volume of the affected stack. To minimize potential risk to public health and safety that
could occur in the event of a potential catastrophic failure of the stack and any resultant uncontrolled discharge of water, Florida
State and local County government officials ordered the immediate evacuation of more than 300 homes deemed to be within a zone of potential
flooding in the proximity of the Piney Point facility. Efforts of County, State and Federal agencies, along with HRK, succeeded in preventing
a catastrophic collapse of the stack after a four-day state of emergency, and on April 6, 2021, residents subject to the evacuation order
were permitted to return to their homes.
Efforts
have been ongoing to develop and implement a permanent resolution to the Piney Point facility’s challenges over a period of years
in addressing the issues presented in operating the site. Possible environmental impact of the stack leakage and emergency discharge
of wastewater into Manatee Bay are currently being evaluated. To date, FDEP testing of Tampa Bay affected by the discharged water meet
“marine water quality standards”, as defined by FDEP.
In
connection with responding to the Piney Point leak and emergency management thereof, public statements have been made by County and State
officials, including Gov. DeSantis of Florida (“Gov. DeSantis”), to the effect that HRK will be held accountable for the
incident. Subsequently, a lawsuit has been filed alleging violations of the federal Clean Water Act and the Resource Conservation and
Recovery Act, naming as defendants Gov. DeSantis, the Department of Environmental Protection (the “DEP”), HRK Holdings LLC
and the Manatee County Port Authority. As of early December 2021, all defendants have filed motions to dismiss. Gov. DeSantis’
administration argues that the lawsuit should be rejected as moot considering that the Court has appointed a receiver in a separate case.
In its motion, the DEP stated a position that because a receiver has been appointed, funding is in place, and the receiver is working
with an engineering firm on a plan to close the facility, the plaintiffs are not entitled to any additional relief from the court.
Greenrose
CEO William F. Harley III is the Managing Member and majority owner of The Arsenal Group, a partial owner of HRK Holdings LLC. At this
time, it is uncertain what impact on HRK, or on its investors, including The Arsenal Group, any effort to assert accountability or seek
any remedy in connection with the leak from the stack, subsequent emergency discharge of wastewater or future site management efforts
by government agencies may have.
If
our goodwill or intangible assets become impaired, we may be required to record a significant charge to earnings.
Under
generally accepted accounting principles, we review our amortizable intangible assets for impairment when events or changes in circumstances
indicate the carrying value may not be recoverable. Goodwill and indefinite-lived intangible assets are tested for impairment at least
annually. Factors that may indicate that the carrying value of our goodwill or intangible assets may not be recoverable include a decline
in stock price and market capitalization, reduced future cash flow estimates and slower growth rates in our industry. As a result of
an annual impairment test or a test upon an impairment indicator, if our goodwill or intangible assets are determined to be impaired,
we may be required to record a significant charge to earnings.
Changes
in laws or regulations, or a failure to comply with any laws and regulations, may adversely affect our business, investments and results
of operations.
We
are subject to laws and regulations enacted by national, regional and local governments. In particular, we will be required to comply
with certain SEC and other legal requirements. Compliance with, and monitoring of, applicable laws and regulations may be difficult,
time consuming and costly. Those laws and regulations and their interpretation and application may also change from time to time and
those changes could have a material adverse effect on our business, investments and results of operations. In addition, a failure to
comply with applicable laws or regulations, as interpreted and applied, could have a material adverse effect on our business and results
of operations.
There
may be tax consequences to the Theraplant Merger or the True Harvest Acquisition that may adversely affect us.
The
Theraplant Merger or the True Harvest Business Combination might not meet the statutory requirements of a tax-free reorganization, or
the parties might not obtain the intended tax-free treatment upon a transfer of shares or assets. A non-qualifying reorganization could
result in the imposition of substantial taxes.
If
we are unable to recruit, train, retain and motivate key personnel, we may not achieve our business objectives.
Our
future success depends on our ability to recruit, train, retain and motivate key personnel, including members of the management of Theraplant.
Additionally, we face challenges in attracting, retaining and motivating highly qualified personnel due to our relationship to the cannabis
industry, which is rapidly evolving and has varying levels of social acceptance. We do not maintain fixed term employment contracts or
key man life insurance with any of our employees. Any failure to attract, train, retain and motivate qualified personnel could materially
harm our operating results and growth prospects.
If
we fail to manage our growth effectively, our brand, business and operating results could be harmed.
We
have experienced rapid growth in our headcount and operations, which places substantial demands on management and our operational infrastructure.
To manage the expected growth of our operations and personnel, we will be required to improve existing, and implement new, transaction-processing,
operational and financial systems, procedures and controls. We will also be required to expand our finance, administrative and operations
staff. We intend to continue making substantial investments in our technology, sales and data infrastructure. As we continue to grow,
we must effectively integrate, develop and motivate a significant number of new employees, while maintaining the beneficial aspects of
our existing corporate culture, which we believe fosters innovation, teamwork and a passion for our products and clients. In addition,
our revenue may not grow at the same rate as the expansion of our business. There can be no assurance that our current and planned personnel,
systems, procedures and controls will be adequate to support our future operations or that management will be able to hire, train, retrain,
motivate and manage required personnel. If we are unable to manage our growth effectively, the quality of our platform, efficiency of
our operations, and management of our expenses could suffer, which could negatively impact our brand, business, profitability and operating
results.
We
will need to expand our organization and may experience difficulties in recruiting needed additional employees and consultants, which
could disrupt operations.
As
our development and commercialization plans and strategies develop, we will need additional managerial, operational, sales, marketing,
financial, legal and other resources. The competition for qualified personnel in the cannabis industry is intense. Due to this intense
competition, we may be unable to attract and retain the qualified personnel necessary for the development of our business or to recruit
suitable replacement personnel.
Our
management may need to divert a disproportionate amount of its attention away from our day-to-day activities and devote a substantial
amount of time to managing these growth activities. We may not be able to effectively manage the expansion of its operations, which may
result in weaknesses in its infrastructure, operational mistakes, loss of business opportunities, loss of employees and reduced productivity
among remaining employees. Our expected growth could require significant capital expenditures and may divert financial resources from
other projects, such as the development of additional products. If our management is unable to effectively manage its growth, its expenses
may increase more than expected, and its ability to generate and/or grow revenue could be reduced and it may not be able to implement
its business strategy. Our future financial performance and its ability to commercialize products and services and compete effectively
will depend, in part, on its ability to effectively manage any future growth.
Ongoing
compliance with applicable local suitability requirements for significant stockholders and senior officers
Under
applicable State licensure requirements, if Greenrose’s policymaking senior officers and significant stockholders were to be found
to be unsuitable under applicable law, there is a risk that the Company’s licensure in such State may be subject to administrative
action, suspension or revocation. Significant stockholder thresholds vary by local regulatory framework but are generally set at 5% or
10% of the shares outstanding of the applicant for the license transfer. Officer suitability applications are also submitted for each
natural person serving the applicant in a senior officer or policymaking role. In the event any person or stockholder whose suitability
determination is a requirement of license transfer were in the future to become unsuitable under applicable law, local licensing may
be put at risk of regulatory administrative action. To monitor compliance, Greenrose’s compliance procedures will include quarterly
verification of ongoing suitability under applicable law. If any party whose suitability was established in connection with Greenrose’s
applications for license transfer were in the future to become unsuitable, or any significant stockholder unknown to Greenrose were to
be unsuitable under applicable law, to preclude or mitigate regulatory risk, Greenrose has the right to repurchase such unsuitable party’s
stock. The repurchase price to be paid by Greenrose in any such repurchase may be material and unanticipated.
We
may have difficulty using bankruptcy courts due to our involvement in the regulated cannabis industry.
We
currently have no need or plans to seek bankruptcy protection. U.S. courts have held that debtors whose income is derived from cannabis
or cannabis assets in violation of the CSA cannot seek federal bankruptcy protections. A U.S. court could determine that our revenue
is derived from cannabis or cannabis assets and prevent us from obtaining bankruptcy protections if necessary.
We
may continue to be subject to constraints on marketing our products.
Certain
of the states in which we operate have enacted strict regulations regarding marketing and sales activities on cannabis products, which
could affect our cannabis retail clients’ demand for our listing and marketing services. There may be restrictions on sales and
marketing activities of cannabis businesses imposed by government regulatory bodies that can hinder the development of our business and
operating results because of the restrictions our clients face. If our clients 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 for our clients, this could hamper demand for our products and services from licensed cannabis retailers, which
could result in a loss of revenue.
Cannabis businesses are subject to unfavorable
U.S. tax treatment.
Section 280E of the Code
does not allow any deduction or credit for any amount paid or incurred during the taxable year in carrying on business, other than costs
of goods sold, if the business (or the activities which comprise the trade or business) consists of trafficking in controlled substances
(within the meaning of Schedules I and II of the Controlled Substances Act). The IRS has applied this provision to cannabis operations,
prohibiting them from deducting expenses associated with cannabis businesses beyond costs of goods sold and asserting assessments and
penalties for additional taxes owed. Section 280E may have a lesser impact on cannabis cultivation and manufacturing operations than
on sales operations, which directly affects our clients, who are cannabis retailers. However, Section 280E and related IRS enforcement
activity have had a significant impact on the operations of all cannabis companies. An otherwise profitable cannabis business may operate
at a loss after considering its U.S. income tax expenses.
Changes in existing laws, regulations or
other factors could negatively impact our future effective tax rate.
Our future effective tax
rate may be affected by such factors as changing interpretation of existing laws or regulations, the impact of accounting for equity-based
compensation, the impact of accounting for business combinations, and changes in overall levels of income before tax. In addition, in
the ordinary course of our business, there are many intercompany transactions and calculations where the ultimate tax determination is
uncertain.
Although we believe that
our tax estimates are reasonable, we cannot ensure that the final determination of tax audits or tax disputes will not be different from
what is reflected in our historical income tax provisions and accruals.
Cannabis businesses may be subject to civil
asset forfeiture.
Any property owned by participants
in the cannabis industry used in the course of conducting such business, or that represents proceeds of such business or is traceable
to proceeds of such business, could be subject to seizure by law enforcement and subsequent civil asset forfeiture because of the illegality
of the cannabis industry under federal law. Even if the owner of the property is never charged with a crime, the property in question
could still be seized and subject to an administrative proceeding by which, with minimal due process, it could be subject to forfeiture.
Forfeiture of assets of our cannabis business clients could adversely affect our revenues if it impedes their profitability or operations
and our clients’ ability to continue to subscribe to our services.
We will be subject to a variety
of laws that concern money laundering, financial recordkeeping and proceeds of crime. These include: the Bank Secrecy Act, as amended
by Title III of the USA Patriot Act, the Proceeds of Crime (Money Laundering) and the Corporate Transparency Act enacted in January 2021
and any related or similar rules, regulations or guidelines, issued, administered or enforced by governmental authorities in the United
States.
In the event that any of
our license agreements, or any proceeds thereof, in the United States were found to be in violation of money laundering legislation or
otherwise, such transactions may be viewed as proceeds of crime under one or more of the statutes noted above, or any other applicable
legislation. This could have a material adverse effect on us and, among other things, could restrict or otherwise jeopardize our ability
to declare or pay dividends, effect other distributions or subsequently repatriate such funds back to Canada.
Due to our involvement in the cannabis
industry, we may have a difficult time obtaining the various insurances that are desired to operate our business, which may expose us
to additional risk and financial liability.
Insurance that is otherwise
readily available, such as general liability and directors’ and officers’ insurance, is more difficult for us to find and
is more expensive or contains significant exclusions because we are cannabis industry participants. There are no guarantees that we will
be able to find such insurance coverage in the future or that the cost will be affordable to us. If we are forced to go without such
insurance coverage, it may prevent us from entering into certain business sectors, may inhibit our growth, and may expose us to additional
risk and financial liabilities. If we experience an uninsured loss, it may result in loss of anticipated cash flow and could materially
adversely affect our results of operations, financial condition, and business.
We may face difficulties in enforcing our
contracts.
Courts will not enforce a
contract deemed to involve a violation of law or public policy. Because cannabis remains illegal under U.S. federal law, parties to contracts
involving the state-legal cannabis industry have argued that the agreement was void as federally illegal or against public policy. Some
courts have accepted this argument in certain cases, usually against the company trafficking in cannabis. While courts have enforced
contracts related to activities by state-legal cannabis companies, and the trend is generally to enforce contracts with state-legal cannabis
companies and their vendors, there remains doubt and uncertainty that we will be able to enforce our commercial agreements in court for
this reason. We cannot be assured that we will have a remedy for breach of contract, which would have a material adverse effect on our
business.
If we fail to expand effectively into new
markets, our revenue and business will be adversely affected.
While a key part of our business
strategy is to add clients and consumers in our existing geographic markets, we intend to expand our operations into new markets if and
as cannabis continues to be legalized. Any such expansion places us in competitive markets with which we may be unfamiliar, requires
us to analyze the potential applicability of new and potentially complicated regulations regarding the usage, sale and marketing of cannabis,
and involves various risks, including the need to invest significant time and resources and the possibility that returns on such investments
will not be achieved for several years, if at all. As a result of such expansion, we may incur losses or otherwise fail to enter new
markets successfully. In attempting to establish a presence in new markets, we expect to incur significant expenses and face various
other challenges, such as expanding our compliance efforts to cover those new markets. These efforts may prove more expensive than we
currently anticipate, and we may not succeed in increasing our revenues sufficiently to offset these expenses. Our current and any future
expansion plans will require significant resources and management attention.
Cannabis businesses are subject to applicable
anti-money laundering laws and regulations and have restricted access to banking and other financial services.
We are subject to a variety
of laws and regulations in the United States that involve money laundering, financial record-keeping and proceeds of crime, including
the U.S. Currency and Foreign Transactions Reporting Act of 1970, (which we refer to as the Bank Secrecy Act), as amended by Title III
of the Uniting and Strengthening America by Providing Appropriate Tools Required to Intercept and Obstruct Terrorism Act of 2001 (which
we refer to as the USA Patriot Act), and any related or similar rules, regulations or guidelines, issued, administered or enforced by
governmental authorities in the United States. Accordingly, pursuant to the Bank Secrecy Act, banks or other financial institutions that
provide a cannabis business with a checking account, debit or credit card, small business loan or any other service could be found guilty
of money laundering, aiding and abetting, or conspiracy.
The United States Department
of the Treasury’s Financial Crimes Enforcement Network, which we refer to as FinCEN, issued a memorandum on February 14, 2014,
which we refer to as the FinCEN Memorandum, outlining the pathways for financial institutions to bank cannabis businesses in compliance
with federal enforcement priorities. The FinCEN Memorandum states that in some circumstances, it is permissible for banks to provide
services to cannabis-related businesses without risking prosecution for violation of federal money laundering laws. The FinCEN Memorandum
refers to the Cole Memorandum’s enforcement priorities.
The revocation of the Cole
Memorandum has not yet affected the status of the FinCEN Memorandum, nor has FinCEN given any indication that it intends to rescind the
FinCEN Memorandum itself. Shortly after the Sessions Memorandum was issued, FinCEN did state that it would review the FinCEN Memorandum,
but FinCEN has not yet issued further guidance.
Although the FinCEN Memorandum
remains intact, it is unclear whether the current administration will continue to follow its guidelines. The Department of Justice continues
to have the right and power to prosecute crimes committed by banks and financial institutions, such as money laundering and violations
of the Bank Secrecy Act, that occur in any state including states that have in some form legalized the sale of cannabis. Further, the
conduct of the Department of Justice’s enforcement priorities could change for any number of reasons. A change in the Department
of Justice’s priorities could result in the prosecution of banks and financial institutions for crimes that were not previously
prosecuted.
If our operations, or proceeds
thereof, dividend distributions or profits or revenues derived from our operations were found to be in violation of money laundering
legislation or otherwise, such transactions may be viewed as proceeds from a crime (the sale of a Schedule I drug) under the Bank Secrecy
Act’s money laundering provisions. This may restrict our ability to declare or pay dividends or effect other distributions.
The FinCEN Memorandum does
not provide any safe harbors or legal defenses from examination or regulatory or criminal enforcement actions by the Department of Justice,
FinCEN or other federal regulators. Thus, most banks and other financial institutions in the United States do not appear comfortable
providing banking services to cannabis-related businesses or relying on this guidance given that it has the potential to be amended or
revoked by the current administration. In addition to the foregoing, banks may refuse to process debit card payments and credit card
companies generally refuse to process credit card payments for cannabis-related businesses. As a result, we may have limited or no access
to banking or other financial services in the United States. In addition, federal money laundering statutes and Bank Secrecy Act regulations
discourage financial institutions from working with any organization that sells a controlled substance, regardless of whether the state
it operates in permits cannabis sales. Our inability or limitation of our ability to open or maintain bank accounts, obtain other banking
services and/or accept credit card and debit card payments may make it difficult for us to operate and conduct our business as planned
or to operate efficiently.
Banks and other depository
institutions are currently hindered by federal law from providing financial services to marijuana businesses, even in states where those
businesses are regulated. On March 7, 2019, Democratic representative Ed Perlmutter of Colorado introduced house bill H.R. 1595, known
as the Secure and Fair Enforcement (SAFE) Banking Act of 2019 (H.R. 1595), which we refer to as the SAFE Banking Act, which was reintroduced
in March 2021, and would protect banks and their employees from punishment for providing services to cannabis businesses that are legal
on a state level. The SAFE Banking Act has passed the U.S. House of Representatives five times, most recently in September 2021 as an
amendment to the FY22 National Defense Authorization Act. Previously, the SAFE Banking Act passed the House by a vote of 321 to 101 on
April 19, 2021, but was not included in the most recent version December, 2021 of the National Defense Authorization Act.
We may face difficulties acquiring additional
financing.
We may require equity and/or
debt financing to support on-going operations, to undertake capital expenditures or to undertake acquisitions and/or other business combination
transactions. There can be no assurance that additional financing will be available to us when needed or on terms which are acceptable.
Our inability to raise financing through traditional banking to fund on-going operations, capital expenditures or acquisitions could
limit our growth and may have a material adverse effect upon our business, prospects, revenue, results of operation and financial condition.
We operate in a highly regulated sector
and may not always succeed in complying fully with applicable regulatory requirements in all jurisdictions where we carry on business.
Our business and activities
are heavily regulated in all jurisdictions where we carry on business. Our operations are subject to various laws, regulations and guidelines
by state and local governmental authorities relating to the manufacture, marketing, management, transportation, storage, sale, pricing
and disposal of cannabis and cannabis oil, and also including laws and regulations relating to health and safety, insurance coverage,
the conduct of operations and the protection of the environment. Laws and regulations, applied generally, grant government agencies and
self-regulatory bodies broad administrative discretion over our activities, including the power to limit or restrict business activities
as well as impose additional disclosure requirements on our products and services. Achievement of our business objectives is contingent,
in part, upon compliance with regulatory requirements enacted by these governmental authorities and obtaining all necessary regulatory
approvals for the manufacture, production, storage, transportation, sale, import and export, as applicable, of our products. The commercial
cannabis industry is still a new industry at the state and local level. The effect of relevant governmental authorities’ administration,
application and enforcement of their respective regulatory regimes and delays in obtaining, or failure to obtain, applicable regulatory
approvals which may be required may significantly delay or impact the development of markets, products and sales initiatives and could
have a material adverse effect on our business, prospects, revenue, results of operation and financial condition.
While we endeavor to comply
with all relevant laws, regulations and guidelines and, to our knowledge, we are in compliance or are in the process of being assessed
for compliance with all such laws, regulations and guidelines, any failure to comply with the regulatory requirements applicable to our
operations may lead to possible sanctions including the revocation or imposition of additional conditions on licenses to operate our
business; the suspension or expulsion from a particular market or jurisdiction or of our key personnel; the imposition of additional
or more stringent inspection, testing and reporting requirements; and the imposition of fines and censures. In addition, changes in regulations,
more vigorous enforcement thereof or other unanticipated events could require extensive changes to our operations, increase compliance
costs or give rise to material liabilities and/or revocation of our licenses and other permits, which could have a material adverse effect
on our business, results of operations and financial condition. Furthermore, governmental authorities may change their administration,
application or enforcement procedures at any time, which may adversely impact our ongoing costs relating to regulatory compliance.
As our costs increase, we may not be able
to generate sufficient revenue to maintain profitability in the future.
Revenue for the business
of Theraplant may not be sustainable due to a number of factors, including the maturation of our business and the eventual decline in
the number of new major geographic markets in which the sale of cannabis is permitted and to which we have not already expanded. We may
not be able to generate sufficient revenue to sustain profitability. Additionally, our costs may increase in future periods as we expend
substantial financial and other resources on, among other things:
| o | sales and marketing, including continued
investment in our current marketing efforts and future marketing initiatives; |
| o | hiring of additional employees, including
our product and engineering teams; |
| o | expansion domestically in an effort to
increase our client usage, client base, and our sales to our clients; |
| o | development of new products, and increased
investment in the ongoing development of our existing products; and |
| o | general administration, including a significant
increase in legal and accounting expenses related to public company compliance, continued
compliance with various regulations applicable to cannabis industry businesses and other
work arising from the growth and maturity of our Company. |
These expenditures may not
result in additional revenue or the growth of our business. If we fail to continue to grow revenue or to sustain profitability, the market
price of our securities could decline, and our business, operating results and financial condition could be adversely affected.
We are and may continue to be subject to
constraints on marketing our products.
Certain of the states in
which we operate have enacted strict regulations regarding marketing and sales activities on cannabis 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.
We face security risks.
The business premises of
our operating locations are targets for theft. While we have implemented security measures at each location and continue to monitor and
improve such security measures, our cultivation, processing and dispensary facilities could be subject to break-ins, robberies and other
breaches in security. If there was a breach in security and we fell victim to a robbery or theft, the loss of cannabis plants, cannabis
oils, cannabis flowers, other cannabis goods and cultivation and processing equipment could have a material adverse impact on our business,
prospects, revenue, results of operation and financial condition.
As our business involves
the movement and transfer of cash which is collected from dispensaries or patients/customers and deposited into our bank, there is a
risk of theft or robbery during the transport of cash. Our transport, distribution, and delivery of finished cannabis goods inventory
including but not limited to wholesale delivery of finished products to retail customers and delivery of finished goods to end consumers
and other intermediaries, also is subject to risks of theft and robbery. We have engaged a security firm to provide security in the transport
and movement of large amounts of cash and products. Employees sometimes transport cash and/or products and, if requested, may be escorted
by armed guards. While we have taken robust steps to prevent theft or robbery of cash during transport, there can be no assurance that
there will not be a security breach during the transport and the movement of cash involving the theft of product or cash.
We face exposure to fraudulent or illegal
activity.
We face exposure to the risk
that employees, independent contractors or consultants may engage in fraudulent or other illegal activities. Misconduct by these parties
could be intentional, reckless and/or negligent conduct. There may be disclosure of unauthorized activities that violate government regulations,
manufacturing standards, healthcare laws, abuse laws and other financial reporting laws. Further, it may not always be possible for us
to identify and deter misconduct by our employees and other third parties, and the precautions we take to detect and prevent these activities
may not always be effective. As a result, we could face potential penalties and litigation.
Competition for the acquisition and leasing
of properties suitable for the cultivation, production and sale of medical and adult use cannabis may impede our ability to make acquisitions
or increase the cost of these acquisitions, and may generally impede our ability to expand, which could adversely affect our operating
results and financial condition.
We compete for the acquisition
of properties suitable for the cultivation, production and sale of medical and adult use cannabis with entities engaged in agriculture,
real estate investment, consumer products manufacturing and retail activities, including corporate agriculture companies, cultivators,
producers and sellers of cannabis. These competitors may prevent us from acquiring and leasing desirable properties, may cause an increase
in the price we must pay for properties or may result in us having to lease our properties on less favorable terms than we expect. Our
competitors may have greater financial and operational resources than we do and may be willing to pay more for certain assets or may
be willing to accept more risk than we believe can be prudently managed. In particular, larger companies may enjoy significant competitive
advantages that result from, among other things, a lower cost of capital and enhanced operating efficiencies. Our competitors may also
adopt transaction structures similar to ours, which would decrease our competitive advantage in offering flexible transaction terms.
In addition, due to a number of factors, including but not limited to potential greater clarity of the laws and regulations governing
medical use cannabis by state and federal governments, the number of entities and the amount of funds competing for suitable investment
properties may increase, resulting in increased demand and increased prices paid for these properties. If we pay higher prices for properties
or enter into leases for such properties on less favorable terms than we expect, our profitability and ability to generate cash flow
and make distributions to our stockholders may decrease. Increased competition for properties may also preclude us from acquiring those
properties that would generate attractive returns to us.
Our reputation and ability to do business
may be negatively impacted by the improper conduct by our business partners, employees or agents.
We cannot provide assurance
that our internal controls and compliance systems will protect us from acts committed by our employees, agents or business partners in
violation of U.S. federal or state or local laws. Any improper acts or allegations could damage our reputation and subject us to civil
or criminal investigations and related shareholder lawsuits, could lead to substantial civic and criminal monetary and non-monetary penalties
and could cause us to incur significant legal and investigatory fees.
We face risks due to industry immaturity
or limited comparable, competitive or established industry best practices.
As a relatively new industry,
there are not many established operators in the medical and adult use cannabis industries whose business models we can follow or build
upon. Similarly, there is no or limited information about comparable companies available for potential investors to review in making
a decision about whether to invest in us.
Shareholders and investors
should consider, among other factors, our prospects for success in light of the risks and uncertainties encountered by companies, like
us, that are in their early stages. For example, unanticipated expenses and problems or technical difficulties may occur, which may result
in material delays in the operation of our business. We may fail to successfully address these risks and uncertainties or successfully
implement our operating strategies. If we fail to do so, it could materially harm our business to the point of having to cease operations
and could impair the value of the Common Stock to the extent that investors may lose their entire investments.
We face risks related to our products.
We have committed and expect
to continue committing significant resources and capital to develop and market existing products and new products and services. These
products are relatively untested in the marketplace, and we cannot assure shareholders and investors that we will achieve market acceptance
for these products, or other new products and services that we may offer in the future. Moreover, these and other new products and services
may be subject to significant competition with offerings by new and existing competitors in the industry. In addition, new products and
services may pose a variety of challenges and require us to attract additional qualified employees. The failure to successfully develop,
manage and market these new products and services could seriously harm our business, prospects, revenue, results of operation and financial
condition.
We are dependent on the popularity of consumer
acceptance of our brand portfolio.
Our ability to generate revenue
and be successful in the implementation of our business plan is dependent on consumer acceptance of and demand for our products produced
and sold. Acceptance of our products depends on several factors, including availability, cost, ease of use, familiarity of use, convenience,
effectiveness, safety and reliability. If these customers do not accept our products, or if such products fail to adequately meet customers’
needs and expectations, our ability to continue generating revenues could be reduced.
Our business is subject to the risks inherent
in agricultural operations.
Our business involves the
growing of cannabis, an agricultural product. Our business is subject to the risks inherent in the agricultural business, such as insects,
plant diseases and similar agricultural risks that could deplete the viability of harvested cannabis and our revenue generating abilities.
Although our cultivation is substantially completed indoors under climate control, some cultivation may be completed outdoors, and there
can be no assurance that natural elements will not have a material adverse effect on any future production. In addition, events such
as system failures or utility outages, which could result from natural or man-made conditions, could limit our ability to control the
climates of our indoor grow and/or storage facilities that could result in damage, disease or rot to our products and our revenue generating
abilities.
We are dependent on key inputs, suppliers
and skilled labor.
The marijuana business is
dependent on a number of key inputs and their related costs, including raw materials and supplies related to growing operations, as well
as electricity, water and other local utilities. Any significant interruption or negative change in the availability or economics of
the supply chain for key inputs, such as the raw material cost of cannabis, or natural or other disruptions to power or other utility
systems, could materially impact our business, financial condition, results of operations or prospects. Some of these inputs may only
be available from a single supplier or a limited group of suppliers. If a sole source supplier were to go out of business, we might be
unable to find a replacement for such source in a timely manner, or at all. If a sole source supplier were to be acquired by a competitor,
that competitor may elect not to sell to us in the future. Any inability to secure required supplies and services, or to do so on appropriate
terms, could have a materially adverse impact on our business, prospects, revenue, results of operation and financial condition. We aim
to provide our vendor base with annual projections so that our vendors can better ensure a steady supply of raw materials and packaging.
We check in with our vendors at least once quarterly to update them to relevant real time changes in our annual plan.
For most important raw materials
and packaging, we aim to have both a primary vendor supplier and a secondary vendor supplier to ensure redundancy.
Our ability to compete and
grow will be dependent on us having access, at a reasonable cost and in a timely manner, to skilled labor, equipment, parts and components.
No assurances can be given that we will be successful in maintaining our required supply of skilled labor, equipment, parts and components.
This could have an adverse effect on our financial results.
Our sales are difficult to forecast.
As a result of recent and
ongoing regulatory and policy changes in the medical and adult use cannabis industries and unreliable levels of market supply, the market
data available is limited and unreliable. We must rely largely on our own market research to forecast sales, as detailed forecasts are
not generally obtainable from other sources in the states in which our business operates. Additionally, any market research and our projections
of estimated total retail sales, demographics, demand and similar consumer research, are based on assumptions from limited and unreliable
market data. A failure in the demand for our products to materialize as a result of competition, technological change or other factors
could have a material adverse effect on our business, results of operations and financial condition.
We may be subject to litigation.
We may become party to litigation
from time to time in the ordinary course of business, which could adversely affect our business. Should any litigation in which we become
involved be determined against us, such a decision could adversely affect our ability to continue operating and the market price for
the Common Stock and could potentially use significant resources. Even if we are involved in litigation and win, litigation can redirect
significant resources of Greenrose.
We face an inherent risk of product liability
and similar claims.
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 failed to meet expected standards or to have caused significant loss or injury. In addition, the
sale of our products involves the risk of injury to consumers due to tampering by unauthorized third parties or product contamination.
Previously unknown adverse reactions resulting from human consumption of our products alone or in combination with other medications
or substances could occur. We may be subject to various product liability claims, including, among others, that our products caused injury,
illness or death, include inadequate instructions for use or include inadequate warnings concerning possible side effects or interactions
with other substances. As an agricultural product, the quality of cannabis is inherently variable, and consumers may raise claims that
our quality control or labeling processes have not sufficiently ensured that our grown and manufactured processes are sufficient to meet
expected standards. A product liability claim or regulatory action against us could result in increased costs, could adversely affect
our reputation with our clients and consumers generally and could have a material adverse effect on our business, results of operations
and financial condition. There can be no assurances that we will be able to obtain or maintain product liability insurance on acceptable
terms or with adequate coverage against potential liabilities. Such insurance is expensive and may not be available in the future on
acceptable terms, or at all. The inability to obtain sufficient insurance coverage on reasonable terms or to otherwise protect against
potential product liability claims could prevent or inhibit the commercialization of our potential products.
We may be exposed to infringement or misappropriation
claims by third parties, which, if determined adversely to us, could subject us to significant liabilities and other costs.
Our success may depend on
our ability to use and develop new extraction technologies, recipes, know-how and new strains of marijuana without infringing the intellectual
property rights of third parties. We cannot assure that third parties will not assert intellectual property claims against us. We are
subject to additional risks if entities licensing intellectual property to us do not have adequate rights to the licensed materials.
If third parties assert copyright or patent infringement or violation of other intellectual property rights against us, we will be required
to defend ourselves in litigation or administrative proceedings, which can be both costly and time consuming and may significantly divert
the efforts and resources of management personnel. An adverse determination in any such litigation or proceedings to which we may become
a party could subject us to significant liability to third parties, require us to seek licenses from third parties, require us to pay
ongoing royalties or subject us to injunctions that may prohibit the development and operation of our applications.
If the Company fails to introduce or acquire
new products or services that achieve broad market acceptance on a timely basis, or if its products or services are not adopted as expected,
the combined company will not be able to compete effectively.
The Company will operate
in a highly competitive, quickly changing environment, and the combined company’s future success depends in part on its ability
to develop or acquire and introduce new products and services that achieve broad market acceptance. The Company’s ability to successfully
introduce and market new products is unproven. Because the Company will have a limited operating history and the market for its products,
including newly acquired or developed products, is rapidly evolving, it is difficult to predict the combined Company’s operating
results, particularly with respect to any new products that it may introduce. The Company’s future success will depend in large
part upon its ability to identify demand trends in the market in which it will operate and quickly develop or acquire, and design, manufacture
and sell, products and services that satisfy these demands in a cost-effective manner. In order to differentiate the Company’s
products and services from competitors’ products, the Company will need to increase focus and capital investment in research and
development. If the Company’s new products or services fail to achieve widespread market acceptance, or if we are unsuccessful
in capitalizing on opportunities in the market in which the Company will operate, the Company’s future growth may be slowed and
its business, results of operations and financial condition could be materially adversely affected. Successfully predicting demand trends
is difficult, and it is difficult to predict the effect that introducing a new product or service will have on existing product or service
sales. It is possible that the Company may not be successful with its new products and services, and as a result the Company’s
future growth may be slowed and its business, results of operations and financial condition could be materially adversely affected. Also,
the Company may not be able to respond effectively to new product or service announcements by competitors by quickly introducing competitive
products and services. In addition, the Company may acquire companies and technologies in the future. In these circumstances, the combined
company may not be able to successfully manage integration of the new product and service lines with the combined company’s existing
suite of products and services. If the Company is unable to effectively and successfully further develop these new product and service
lines, the Company may not be able to increase or maintain sales and the Company’s gross margin may be adversely affected. Furthermore,
the success of the Company’s new products will depend on several factors, including, but not limited to, market demand costs, timely
completion and introduction of these products, prompt resolution of any defects or bugs in these products, the Company’s ability
to support these products, differentiation of new products from those of the Company’s competitors, market acceptance of these
products, delays and quality issues in releasing new products and services. The occurrence of one or more of the foregoing factors may
result in lower quarterly revenue than expected, and the Company may in the future experience product or service introductions that fall
short of its projected rates of market adoption.
If the Company’s products fail to
achieve and sustain sufficient market acceptance, the combined company’s revenue will be adversely affected.
The Company’s success
will depend on its ability to develop and market products that are recognized and accepted as reliable, enabling and cost-effective.
Some potential customers of the combined company may already use products similar to what Theraplant currently offer and similar to what
the Company may offer in the future and may be reluctant to replace those products with what Theraplant currently offers or which the
combined company may offer in the future. Market acceptance of the Company’s products will depend on many factors, including the
Company’s ability to convince potential customers that the Company’s products are an attractive alternative to existing products.
Risks Related to Theraplant
Connecticut is a new market for cultivation
licenses
Introduction in Connecticut
of legislation authorizing recreational adult use may have an impact on patient or usage rates for medical use of cannabis; it is unclear
what impact such trends, if significant and prolonged, may have on the business or prospects of Theraplant. Additionally, the regulatory
framework implementing and administering the recently legalized adult use market in Connecticut is not yet complete, and development
and implementation of that framework may create uncertainties relating to the rules applicable to the issuance of new licenses as well
as the timing of and any limitations on adult use sales of cannabis in Connecticut.
Because our business is dependent, in part,
upon continued market acceptance of cannabis by consumers, any negative trends could adversely affect our business operations.
We are dependent on public
support, continued market acceptance and the proliferation of consumers in the state-level cannabis markets. While we believe that the
market and opportunities in the space will continue to grow, we cannot predict the future growth rate or size of the market. Any downturns
in, or negative outlooks on, the cannabis industry may adversely affect our business and financial condition.
Management of Theraplant have interests
in competing businesses that may create a conflict of interest in allocating their time.
While we intend to maintain
the key personnel of the Theraplant, the management of Theraplant have interests in competing businesses. For example, Daniel Emmans,
the Chief Executive Officer of Theraplant who will serve as Regional President, has an ownership interest in Northeast Bio, which is
seeking to obtain a license to cultivate cannabis in the State of Connecticut. While Mr. Emmans’ employment agreement requires
him to devote sufficient time to Greenrose’s business to carry out his duties, neither his employment agreement nor his non-competition
agreement restrict him from assisting any of these businesses in a way that may be competitive to Greenrose.
Greenrose’s and Theraplant’s
ability to successfully operate the business thereafter will be largely dependent upon the efforts of certain key personnel of Theraplant,
all of whom are expected to stay with Greenrose following the Theraplant merger. The loss of such key personnel could negatively impact
the operations and financial results of Greenrose.
Greenrose’s and Theraplant’s
ability to successfully operate the business following the closing is dependent upon the efforts of certain key personnel of Theraplant.
Although such key personnel are generally expected to remain with Greenrose following the Theraplant merger, and Greenrose has entered
into employment agreements with them that are effective as of the Closing and require such individual to agree to remain with Greenrose
as of the Closing, there can be no assurance that such individuals will continue to remain with Greenrose after the Closing. It is possible
that Theraplant may lose key personnel, the loss of which could negatively impact the operations and profitability of Greenrose.
Risks Related to True Harvest
Greenrose’s Board did not obtain
a fairness opinion in determining whether to proceed with the True Harvest Acquisition.
In analyzing the True Harvest
acquisition, the Board conducted significant due diligence on True Harvest. The Board believes because of the financial skills and background
of its directors, and the financial information supporting the True Harvest acquisition provided by Greenrose’s management team,
it was qualified to conclude that the True Harvest acquisition was fair from a financial perspective to Greenrose’s stockholders.
Notwithstanding the foregoing, the Board did not obtain a fairness opinion to assist it in its determination. There can be no assurance
that the consideration paid in connection with the True Harvest acquisition reflects the fair market value of the assets being purchased
in that transaction.
Theraplant and True Harvest are located
in different jurisdictions, and we may find it difficult integrating each into the Company.
As a result of the Theraplant
Merger and the True Harvest Acquisition, Greenrose acquired operations in two (2) states and managing each of these businesses and integrating
them into a single unified company may be difficult and could have a material adverse effect on Greenrose’s business, financial
condition and results of operations.
True Harvest has previously been subject
to litigation.
True Harvest is engaged in
litigation relating to various business matters, including a dispute relating to a consulting services agreement with a consulting firm
asserting that True Harvest is in breach of certain payment obligations, and that such party has filed liens securing its claims. Pursuant
to the asset purchase agreement between Greenrose and True Harvest, Greenrose is not assuming liability for any litigation affecting
True Harvest through the date of closing, and Greenrose understands any liability payable by True Harvest is to be paid by True Harvest
in accordance with any settlement agreement entered to resolve pending litigation.
Risks Related to Intellectual Property and
Information Technology
We have limited trademark protection.
We will not be able to register
any federal trademarks for our cannabis products. Because producing, manufacturing, processing, possessing, distributing, selling and
using cannabis is a crime under the Controlled Substances Act, the Patent and Trademark Office will not permit the registration of any
trademark that identifies cannabis products. As a result, we likely will be unable to protect our cannabis product trademarks beyond
the geographic areas in which it conducts business. The use of our trademarks outside the states in which we operate by one or more other
persons could have a material adverse effect on the value of such trademarks.’
We face risks related to our information
technology systems, and potential cyber-attacks and security breaches.
Our operations depend, in
part, on how well we and our suppliers protect networks, equipment, information technology, which we refer to as IT, systems and software
against damage and threats, including, but not limited to, cable cuts, damage to physical plants, natural disasters, intentional damage
and destruction, fire, power loss, hacking, computer viruses, vandalism and theft. Our operations also depend on the timely maintenance
and replacement of network equipment, IT systems and software, as well as pre-emptive expenses to mitigate associated risks. Given the
nature of our products and the lack of legal availability outside of channels approved by the federal government, as well as the concentration
of inventory in our facilities, there remains a risk of shrinkages, as well as theft. If there was a breach in security and we fell victim
to theft or robbery, the loss of cannabis plants, cannabis oils, cannabis flowers and cultivations and processing equipment, or if there
was a failure in information systems, it could adversely affect our reputation and business continuity.
Additionally, we may store
and collect personal information about customers and are responsible for protecting that information from privacy breaches that may occur
through procedural or process failure, IT malfunction or deliberate unauthorized intrusions. Any such theft or privacy breach would have
a material adverse effect on our business, prospects, revenue, results of operation and financial condition.
We are subject to laws, rules
and regulations in the United States (such as the California Consumer Privacy Act which became effective on January 1, 2020) and other
jurisdictions relating to the collection, processing, storage, transfer and use of personal data. Our ability to execute transactions
and to possess and use personal information and data in conducting our business subjects us to legislative and regulatory burdens that
may require us to notify regulators and customers, employees and other individuals of a data security breach. Evolving compliance and
operational requirements under the California Consumer Privacy Act and the privacy laws, rules and regulations of other jurisdictions
in which we operate impose significant costs that are likely to increase over time. In addition, non-compliance could result in proceedings
against us by governmental entities and/or significant fines, could negatively impact our reputation, and may otherwise adversely impact
our business, financial condition and operating results.
Risks Related to the Securities of the Company
An active trading market for our common
stock and warrants may never develop or be sustained, which would adversely affect the liquidity and price of our securities.
An active trading market
for our securities may never develop or, if developed, may not be sustained. In addition, the price of our securities could fluctuate
significantly for various reasons, many of which are outside our control, such as our performance, large purchases or sales of our common
stock, legislative changes and general economic, political or regulatory conditions. The release of our financial results may also cause
our share price to vary. If an active market for our securities does not develop, it may be difficult for you to sell our common stock
and/or warrants you own or purchase without depressing the market price for our securities or to sell the securities at all.
If we fail to maintain the
requirements for eligibility to be included for trading on the OTC Markets, or if our securities, including the public warrants were
to cease to be eligible for trading on the OTC Markets, there could be significant material adverse consequences, including a lack of
liquidity for our securities (including our public warrants), a limited availability of market quotations for our securities (including
our public warrants), a limited amount of news and analyst coverage for the combined company, and a decreased ability to obtain capital
or pursue acquisitions by issuing additional equity or convertible securities.
On June 21, 2021, Greenrose
filed a Form 25 with the SEC and voluntarily delisted its securities from the Nasdaq market as Greenrose’s securities were approved
for quotation on over the counter (OTC) markets as of June 22, 2021. Greenrose determined to voluntarily delist from Nasdaq because completion
of the Theraplant Merger would cause Greenrose to be out of compliance with Nasdaq requirements that companies traded on Nasdaq may not
be engaged in business that is not legal in the United States, and cannabis is not legal under current U.S. federal law. Greenrose believes
the OTC marketplaces have not historically enjoyed the same degree of liquidity as the Nasdaq market. Accordingly, Greenrose securityholders
may encounter lower trading volumes, broader spreads between bid and ask prices and generally less liquidity for Greenrose’s securities
than if those securities remained eligible, for quotation on the Nasdaq market.
The sponsor can earn a positive rate of return
on its investment, even if other shareholders experience a negative rate of return in the post- business-combination company.
On August 26, 2019, Greenrose
issued an aggregate of 4,312,500 shares of its common stock (also referred to as the “Founder’s Shares”) for an aggregate
purchase price of $25,000, or approximately $0.006 per share, to Greenrose’s sponsor. In its initial public offering, the Company
issued an aggregate of 17,250,000 of its units (each unit consisting of one share of Greenrose common stock, $0.0001 par value per share
and one warrant to purchase one share of Greenrose common stock at a price of $11.50 per share), at an offering price of $10.00 per Unit.
Consequently, the Company’s sponsor may realize a positive rate of return on its initial $25,000 investment even if the public
price per share of common stock of the Company drops to below $10.00 per share, in which case the public shareholders may experience
a negative rate of return on their investment.
Greenrose may be required to take write-downs
or write-offs, restructuring and impairment or other charges that could have a significant negative effect on Greenrose’s financial
condition, results of operations and the stock price, which could cause you to lose some or all of your investment.
Although Greenrose has conducted
due diligence on Theraplant and True Harvest, there can be no assurance that Greenrose’s diligence surfaced all material issues
that may be presented by the business of Theraplant and True Harvest, that it would be possible to uncover all material issues through
a customary amount of due diligence, or that factors outside of Theraplant’s and True Harvest’s and outside of Greenrose’s
control will not later arise. As a result of these factors, Greenrose may be forced to later write-down or write off assets, restructure
its operations, or incur impairment or other charges that could result in Greenrose reporting losses. Even if Greenrose’s due diligence
successfully identified certain risks, unexpected risks may arise and previously known risks may materialize in a manner not consistent
with Greenrose’s preliminary risk analysis. Even though these charges may be non-cash items and would not have an immediate impact
on Greenrose’s liquidity, the fact that Greenrose reports charges of this nature could contribute to negative market perceptions
about Greenrose or its securities. Accordingly, any stockholders who choose to remain stockholders could suffer a reduction in the value
of their shares. Such stockholders are unlikely to have a remedy for such reduction in value unless they are able to successfully claim
that the reduction was due to the breach by Greenrose’s officers or directors of a duty of care or other fiduciary duty owed to
them, or if they are able to successfully bring a private claim under securities laws that the proxy statement relating to the Business
Combination contained an actionable material misstatement or material omission.
Our amended and restated certificate of incorporation
provides, subject to limited exceptions, that the Court of Chancery of the State of Delaware will be the sole and exclusive forum for
certain stockholder litigation matters, which could limit our stockholders’ ability to obtain a favorable judicial forum for disputes
with us or our directors, officers, employees or stockholders.
Our amended and restated
certificate of incorporation requires, to the fullest extent permitted by law, that derivative actions brought in our name, actions against
directors, officers and employees for breach of fiduciary duty and other similar actions may be brought only in the Court of Chancery
in the State of Delaware and, if brought outside of Delaware, the stockholder bringing the suit will be deemed to have consented to service
of process on such stockholder’s counsel.
Any person or entity purchasing
or otherwise acquiring any interest in shares of our capital stock shall be deemed to have notice of and consented to the forum provisions
in our amended and restated certificate of incorporation.
This choice of forum provision
may limit a stockholder’s ability to bring a claim in a judicial forum that it finds favorable for disputes with us or any of our
directors, officers, other employees or stockholders, which may discourage lawsuits with respect to such claims, although our stockholders
will not be deemed to have waived our compliance with federal securities laws and the rules and regulations thereunder. Alternatively,
if a court were to find the choice of forum provision contained in our amended and restated certificate of incorporation to be inapplicable
or unenforceable in an action, we may incur additional costs associated with resolving such action in other jurisdictions, which could
harm our business, operating results and financial condition.
Our amended and restated
certificate of incorporation provides that the exclusive forum provision will be applicable to the fullest extent permitted by applicable
law. Section 27 of the Exchange Act creates exclusive federal jurisdiction over all suits brought to enforce any duty or liability created
by the Exchange Act or the rules and regulations thereunder and Section 22 of the Securities Act creates concurrent jurisdiction for
federal and state courts over all suits brought to enforce any duty or liability created by the Securities Act or the rules and regulations
thereunder. As a result, the exclusive forum provision will not apply to suits brought to enforce any duty or liability created by the
Exchange Act, the Securities Act or any other claim for which the federal courts have exclusive jurisdiction.
The future sales of shares by existing
stockholders and future exercise of registration rights may adversely affect the market price of the Company’s common stock.
Sales of a substantial number
of shares of the Company’s common stock in the public market could occur at any time. If the Company’s stockholders sell,
or the market perceives that the Company’s stockholders intend to sell, substantial amounts of the Company’s common stock
in the public market, the market price of the Company’s common stock could decline.
We may not be able to timely and effectively
implement controls and procedures required by Section 404 of the Sarbanes-Oxley Act of 2002 that will be applicable to us after the completion
of a business combination.
Theraplant and True Harvest
were not subject to Section 404 of the Sarbanes-Oxley Act of 2002. However, we will be required to provide management’s attestation
on internal controls commencing with its annual report for year ending December 31, 2021. The standards required for a public company
under Section 404 of the Sarbanes-Oxley Act of 2002 are significantly more stringent than those required as a privately-held company.
Management may not be able to effectively and timely implement controls and procedures that adequately respond to the regulatory compliance
and reporting requirements that are applicable to us. If Greenrose is not able to implement the additional requirements of Section 404
in a timely manner or with adequate compliance, Greenrose may not be able to assess whether its internal controls over financial reporting
are effective, which may subject it to adverse regulatory consequences and could harm investor confidence and the market price of its
common stock.
A market for our securities may not continue,
which would adversely affect the liquidity and price of our securities.
The price of our securities
may fluctuate significantly due to the market’s reaction to the Business Combination, including general market and economic conditions,
and being traded on the OTC market which is not a national stock exchange. An active trading market for our securities may never develop
or, if developed, may not be sustained. In addition, the price of our securities could vary due to general economic conditions and forecasts,
general business conditions and the release of financial reports. You may be unable to sell your securities unless a market can be sustained.
We may be subject to securities litigation,
which is expensive and could divert management attention.
The market price of our common
stock may be volatile and, in the past, companies that have experienced volatility in the market price of their stock have been subject
to securities class action litigation. We may be the target of this type of litigation in the future. Securities litigation against us
could result in substantial costs and divert management’s attention from other business concerns, which could seriously harm our
business.
We do not intend to pay cash dividends
for the foreseeable future.
We currently intend to retain
our future earnings, if any, to finance the further development and expansion of our business and do not intend to pay cash dividends
in the foreseeable future. Any future determination to pay dividends will be at the discretion of our board of directors and will depend
on our financial condition, results of operations, capital requirements, restrictions contained in future agreements and financing instruments,
business prospects and such other factors as our board of directors deems relevant.
If securities or industry analysts do not
publish or cease publishing research or reports about the Company, its business, or its market, or if they change their recommendations
regarding our securities adversely, then the price and trading volume of our securities could decline.
The trading market for our
securities will be influenced by the research and reports that industry or securities analysts may publish about us, our business, our
market, or our competitors. Securities and industry analysts do not currently, and may never, publish research on the Company. If no
securities or industry analysts commence coverage of the Company, our stock price and trading volume would likely be negatively impacted.
If any of the analysts who may cover the Company negatively change their recommendation regarding our stock adversely, or provide more
favorable relative recommendations about our competitors, the price of our securities would likely decline. If any analyst who may cover
the Company were to cease coverage of the Company or fail to regularly publish reports on it, we could lose visibility in the financial
markets, which could cause our stock price or trading volume to decline.
Our internal control over financial reporting
may not be effective and our independent registered public accounting firm may not be able to certify as to their effectiveness, which
could have a significant and adverse effect on our business and reputation.
As a public company, we are
required to comply with the SEC’s rules implementing Sections 302 and 404 of SOX, which require management to certify financial
and other information in our quarterly and annual reports and provide an annual management report on the effectiveness of internal control
over financial reporting. To comply with the requirements of being a public company, the Company will be required to provide the management
report on internal controls commencing with the annual report for fiscal year ended December 31, 2021, and we may need to undertake various
actions, such as implementing additional internal controls and procedures and hiring additional accounting or internal audit staff. The
standards required for a public company under Section 404 of SOX are significantly more stringent than those required of a privately-held
company. Further, as an emerging growth company, our independent registered public accounting firm is not required to formally attest
to the effectiveness of our internal controls over financial reporting pursuant to Section 404 until the date we are no longer an emerging
growth company.
Testing and maintaining these
controls can divert our management’s attention from other matters that are important to the operation of our business. If we identify
material weaknesses in the internal control over financial reporting of the Company or are unable to comply with the requirements of
Section 404 or assert that our internal control over financial reporting is effective, or if our independent registered public accounting
firm is unable to express an opinion as to the effectiveness of our internal controls over financial reporting when we no longer qualify
as an emerging growth company, investors may lose confidence in the accuracy and completeness of our financial reports and the market
price of our common stock could be negatively affected, and we could become subject to investigations by the SEC or other regulatory
authorities, which could require additional financial and management resources.
We are subject to proceeds of crime statutes.
We will be subject to a variety
of laws that concern money laundering, financial recordkeeping and proceeds of crime. These include: the Bank Secrecy Act, as amended
by Title III of the USA Patriot Act, the Proceeds of Crime (Money Laundering) and Terrorist Financing Act (Canada), the rules and regulations
under the Criminal Code of Canada and any related or similar rules, regulations or guidelines, issued, administered or enforced by governmental
authorities in the United States and Canada.
In the event that any of
our activities, or any proceeds thereof, in the United States were found to be in violation of money laundering legislation or otherwise,
such transactions may be viewed as proceeds of crime under one or more of the statutes noted above, or any other applicable legislation.
This could have a material adverse effect on us and, among other things, could restrict or otherwise jeopardize our ability to declare
or pay dividends or effect other distributions.
We lack access to U.S. bankruptcy protections.
Because cannabis is illegal
under U.S. federal law, and bankruptcy is a strictly federal proceeding, many courts have denied cannabis businesses federal bankruptcy
protections, thus making it very difficult for lenders to recoup their investments in the cannabis industry in the event of a bankruptcy.
If we were to seek protection from creditors pursuant to applicable bankruptcy or insolvency laws, there is no guarantee that U.S. federal
bankruptcy protections would be available to our United States operations, which would have a material adverse effect on us, our lenders
and other stakeholders. While state-level receivership options do exist in some states as an alternative to bankruptcy, the efficacy
of these alternatives cannot be guaranteed.
We face intense competition.
We face intense competition
from other companies, some of which have longer operating histories and more financial resources and manufacturing, retail and marketing
experience than us. Increased competition by larger and better financed competitors could materially and adversely affect our business,
financial condition and results of operations.