ITEM 1A. RISK FACTORS
Our business is subject to numerous risks and uncertainties (“Risk Factors”). Certain Risk Factors may have a material adverse effect on our business, financial condition, and results of operations. Investing in our shares involves a high degree of risk. You should carefully consider the following risks, together with all of the other information contained in this Annual Report on Form 10-K, including the sections titled “ Cautionary Note Regarding Forward-Looking Statements ”, “ SUMMARY OF RISK FACTORS ”, and “ ITEM 7. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS ” and our consolidated financial statements and the related notes included elsewhere in this Annual Report on Form 10-K. Any of the following risks could have an adverse effect on our business, financial condition, operating results, or prospects and could cause the trading price of our common stock to decline, which would cause you to lose all or part of your investment. Our business, financial condition, operating results, or prospects could also be harmed by risks and uncertainties not currently known to us or that we currently do not believe are material.
In the following Risk Factors, the terms “us”, “we”, “Company,” “LFTD Partners” and “Lifted” are meant to include references to LFTD Partners, Lifted (including Lifted’s arrangement with Extrax NM, and Lifted’s collaboration with Diamond Supply Co., and Lifted’s past collaborations with Cali Sweets, Jeeter and SubCo), Highlandia, Lifted’s co-packers and co-manufacturers, future acquisition targets, and future asset purchases and/or joint ventures), Ablis and Bendistillery, as appropriate in the context of particular Risk Factors. These Risk Factors may cause our operations to vary materially from those contemplated by our forward-looking statements. These Risk Factors include:
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RISK FACTORS RELATING TO OUR COMPANY AND OUR STOCK
Because we are operating in a relatively new and evolving industry, we may not be able to successfully manage our business or maintain profitability
Because Lifted is operating in a relatively new and evolving industry, certain operating and business risks may not be recognized by management before substantial losses are incurred. Lifted's industry, and customer preferences, are constantly and quickly evolving. Consequently, Lifted finds it extremely difficult to predict future sales of its products and to anticipate raw goods needs for future production. This exposes Lifted to the risk that it will need to write off obsolete raw goods and slow-moving finished goods. No assurance or guarantee can be provided that future substantial losses will not occur.
Our acquisition of Lifted, our acquisitions of 4.99% of the outstanding equity of each of Ablis, Bend Spirits and Bendistillery d/b/a Crater Lake Spirits, and Lifted’s purchase of assets of hemp-derived products maker Oculus CRS, LLC, and merger with Oculus CHS Management Corp., involve significant risk, and there can be no assurance that the business of Lifted, or 4.99% of the common stock of each of Ablis, Bend Spirits and Bendistillery d/b/a Crater Lake Spirits, will be successful or generate any profit or other financial benefit for our Company.
As of December 31, 2025, LFTD Partners recorded a goodwill impairment charge on the Lifted Goodwill and Oculus Goodwill, reducing the carrying value of both to $0.
Also as of December 31, 2025, LFTD Partners recorded an impairment charge on its investments in Ablis, reducing the carrying value of LFTD Partners’ investment in Ablis to $0. LFTD Partners also recorded an impairment charge on its investments in Bendistillery (Bend Spirits had previously merged into Bendistillery in the second quarter of 2025), reducing the carrying value of LFTD Partners’ investment in Bendistillery to $99,800.
An inability by LFTD Partners to achieve financial benefit from Lifted, Ablis or Bendistillery may materially adversely affect our Company. The foregoing risks may have a material adverse effect on our Company and the trading price of our common stock.
We have incurred substantial losses in the past
Prior to the acquisition of Lifted on February 24, 2020, the Company had no sources of revenue, and the Company had a history of recurring losses, which has resulted in an accumulated deficit as of reported period end. We may incur significant losses in the future for a number of reasons, including the risks described in ITEM 1A. RISK FACTORS , and unforeseen expenses, difficulties, legal or regulatory challenges, complications and delays and other unknown events. Any failure to achieve and sustain profitability may materially adversely affect our Company and the trading price of our common stock. The foregoing risks may have a material adverse effect on our Company and the trading price of our common stock.
We have substantial ongoing payment obligations
We have substantial ongoing payment obligations, including payments on our Business Loan, payroll and benefits, rent and overhead costs, inventory purchases, legal fees and other professional fees, bonuses, preferred stock dividends, other operating expenses, income taxes, excise taxes, and other liabilities. A failure to pay our financial obligations when they become due and payable may materially adversely affect our Company and the trading price of our common stock. The foregoing risks may have a material adverse effect on our Company and the trading price of our common stock.
We have significant financial risk if our principal depository bank were to become bankrupt or insolvent
Surety Bank serves as our principal depository bank. If Surety Bank ever were to become bankrupt or insolvent, we could potentially lose millions of dollars of our cash on hand that is held in our checking and money market accounts at Surety Bank. We do not have insurance covering that risk. That risk may have a material adverse effect on our Company and the trading price of our common stock.
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We are subject to restrictions and covenants under our loan from Surety Bank
Prior to the WCL Payoff and Loan Term Changes (terms defined below), under the terms of our loan agreements with Surety Bank, we were obligated to comply with certain loan covenants and restrictions, including the following: (1) the ratio of our annual EBIDA (earnings before interest, depreciation and amortization), divided by our scheduled annual debt service payments to Surety Bank, must have been 1.5 or higher based on our tax returns, beginning with the 2023 return (although this loan covenant had been waived by Surety Bank in regard to 2024); (2) we must not permit the outstanding principal balance of the $3,000,000 Working Capital Loan to exceed 40% of the fair market value of the collateral securing the Working Capital Loan; and (3) we must have maintained our primary operating accounts with a $1,000,000 minimum deposit account balance with Surety Bank for the life of the $910,000 Business Loan. If for any reason we had failed to comply with these loan covenants and restrictions, Surety Bank would have been entitled to declare a default under the loan agreements. Such a default could have a material adverse effect on our Company and the trading price of our common stock.
Under the Business Loan, we are also subject to covenants not to take certain actions without the consent of Surety Bank, including such things as not, among other things:
Become subject to other liens or encumbrances;
Change ownership of Lifted;
Directly or indirectly issue, assume or create any additional indebtedness on the collateral.
If we were to violate any of these negative covenants, Surety Bank would be entitled to declare a default under the Business Loan Agreement. Such a default could have a material adverse effect on our Company and the trading price of our common stock.
We may need to raise substantial amounts of additional capital to pay our ongoing obligations and to pay for our operations
There is no guarantee that Lifted’s operations will generate sufficient free cash flow to allow us to pay our ongoing obligations described in the preceding risk factor. We may need to raise millions of dollars of additional capital just to pay our ongoing obligations. There is no guarantee that we can obtain the funding needed to pay these ongoing obligations on acceptable terms, if at all, and neither our directors, officers, nor any third party is obligated to provide any financing. Failure to raise substantial amounts of additional capital may materially adversely affect our Company. The foregoing risks may have a material adverse effect on our Company and the trading price of our common stock.
We may not be profitable in the future
We currently have one revenue-generating subsidiary, Lifted. Prior to the acquisition of Lifted on February 24, 2020, we had no sources of revenue, and had a history of recurring losses. We face many risks that could prevent us from achieving profits in future years. We cannot assure you that we will be profitable. Failure to achieve profitability will materially adversely affect our Company and the trading price of our common stock.
Also, our efforts to grow our business may be more costly than we expect and we may not be able to increase our revenue enough to offset higher operating expenses. We may incur significant losses in the future for a number of reasons, including as a result of newly-proposed or enacting laws or regulations, such as H.R. 5371, the “Continuing Appropriations, Agriculture, Legislative Branch, Military Construction and Veterans Affairs, and Extensions Act, 2026”, unforeseen laws, restrictions, taxes, expenses, difficulties, complications and delays, the other risks described herein and other unknown events. The amount of any future net losses will depend, in part, on the growth of our future expenses and our ability to generate revenue. Any future losses will have an adverse effect on our stockholders’ equity and working capital. Because of the numerous risks and uncertainties associated with producing and selling hemp-derived, kratom-derived, psychoactive and potentially nicotine products, as outlined herein, we are to accurately predict our future financial results. Even if we in the future, we may not be to sustain in subsequent periods. If we are to and sustain , the market price of our common stock may significantly decrease and our ability to raise capital, expand our business or continue our operations may be . Our to remain would decrease the value of our Company and could our ability to raise capital, expand our business, diversify our product offerings and continue our operations. The foregoing risks may have a material effect on our Company and the trading price of our common stock.
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The “going concern” qualification in our Annual Report on Form 10-K and our Quarterly Reports on Form 10-Q adversely impact our potential to raise capital
Our Annual Report on Form 10-K and our Quarterly Reports on Form 10-Q contain a so-called “going concern” qualification. This qualification is attributable to the substantial risk factors associated with our business and the regulatory environment surrounding the industries in which we operate, which at the present time make it very difficult for our management to represent to our auditors that we will be able to continue as a going concern. The presence of the “going concern” qualification in our Annual Report on Form 10-K and our Quarterly Reports on Form 10-Q adversely impacts our potential to raise debt or equity capital on acceptable terms and conditions, if at all. The foregoing qualification and related risks may have a material adverse effect on our Company and the trading price of our common stock.
Our future profitability may be significantly reduced by our annual company-wide management bonus pool
Our future profitability may be significantly reduced by our annual company-wide management bonus pool. Pursuant to the terms of the employment agreements that we have entered into with our senior executives, we have agreed to pay to our senior executives and their designees (who may include employees, contractors, consultants, and directors of our Company) an annual management bonus pool, which will be an aggregate annual amount that is equal to 33% of the amount, if any, by which our earnings before interest, taxes, depreciation and amortization (“EBITDA”) in a given calendar year exceeds our EBITDA during the prior calendar year, or 33% of the amount by which our EBITDA in a given calendar year exceeds a target amount that has been mutually agreed upon by the Chairman of our Compensation Committee of our Board of Directors and our senior executives. Depending upon the trajectory of our future growth, if any, in our EBITDA, which potentially could be achieved via mergers that might dilute our existing stockholders, the annual company-wide management bonus pool may turn out to be an extremely large amount of money. The obligation to pay such annual company-wide management bonus pool may materially adversely affect our Company and the trading price of our common stock.
We are adversely affected by many significant economic, health, safety and financial issues
Businesses are materially adversely affected by periods of significant economic slowdown or recession, wars, tariffs, pandemics, inflation, deflation, rising interest rates, or a public perception that any of these events are occurring or may occur, which could adversely affect our revenues, results of operations, and cash flow. In addition, as they relate to our proposed acquisitions, the capital and credit markets have experienced volatility and disruption. National and global political, trade, financial and business conditions have experienced difficulties. Access to financing often is negatively impacted. Credit is often limited. In many cases, the markets have exerted downward pressure on stock prices and credit capacity for certain issuers. Prominent risks include high interest rates, wars, pandemics, supply chain disruptions, regulatory risks, tariffs, energy dislocations and costs, rising health care costs, social and political unrest, safety and health risks, and many other issues. The foregoing risks may have a material effect on our Company and the trading price of our common stock.
We could be adversely affected by changes in the economy including inflation
Our operations, margins, and cash flow could be adversely affected by significant volatility in regard to tariffs, inflation, stress on the consumer, and many other national and international economic factors. We can provide no guarantee or assurance that our Company can successfully navigate these factors. The foregoing risk may have a material adverse effect on our Company and the trading price of our common stock.
Our payroll, benefits, sales commissions, rent and other operational costs are significant
Our operational costs are significant. We now employ over 100 people as employees and independent contractors. Our payroll and benefits costs, including health, dental and vision insurance for employees, are significant. We have expanded into more leased spaces. Our costs for accountants, lawyers and other consultants are significant. Our costs of raw materials, packaging, fulfillment and sales are significant. We have compensation arrangements for our salespeople that include significant commissions that are percentages of their sales. Lifted entered into an agreement with its Chief Strategy Officer (the “CSO”), effective as of April 1, 2025, pursuant to which, in addition to his base compensation of $10,000 every two weeks plus health insurance coverage, the CSO receives (1) a royalty on certain gummies manufactured by Lifted of between $0.005 and $0.01, and (2) certain quarterly and annual bonuses based upon Lifted’s quarterly and annual collected revenues on certain sales exceeding targets of $9,000,000 and $58,000,000, respectively. These and other significant operational costs may materially adversely affect our Company and the trading price of our common stock.
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Growth Capital may be unavailable or only available on dilutive, expensive, or otherwise unattractive or risky terms
The continued expansion of our business will require Growth Capital. For example, from time to time, we may enter into transactions to acquire assets or the capital stock or other equity interests of other entities, and it is likely that closing such transactions will require a significant amount of cash.
There can be no assurance that Lifted or any other acquisitions that we may make will be profitable or will generate the Growth Capital we need in the future.
There can be no assurance that we will obtain Growth Capital from third party equity investors. Our ability to obtain Growth Capital from third party equity investors will depend on investor demand, our performance and reputation, market conditions and other factors. Our inability to obtain Growth Capital from third party equity investors could result in the delay or indefinite postponement of our current business objectives or in our inability to continue to carry on our business. Even if Growth Capital is available from third party equity investors, it may only be available on highly dilutive or otherwise unattractive terms and conditions.
There can be no assurance that we will obtain Growth Capital from debt providers. Even if debt financing is available, it may only be available on very expensive or otherwise unattractive terms and conditions. For example, any debt financing secured in the future could involve restrictive covenants relating to capital raising activities and other financial and operational matters, which may be operationally burdensome and may make it more difficult for us to obtain additional capital and to pursue business opportunities, including potential acquisitions. Debt financings may also contain provisions that, if breached, may entitle lenders or their agents to accelerate the repayment of loans or realize upon security over our assets, and there is no assurance that we would be able to repay such loans in such an event or prevent the exercise of rights granted to secured parties pursuant to any such debt financing. Debt agreements may also contain covenant restrictions that limit our ability to operate our business, including restrictions on our ability to invest in our existing facilities, incur additional debt or issue guarantees, create additional liens, repurchase stock or make other restricted payments. As a result of these covenants, our ability to respond to changes in business and economic conditions and to engage in transactions, including obtaining additional financing and pursuing business , may be restricted.
In summary, we cannot assure you that we will be able to raise needed equity or debt capital on commercially acceptable terms, or at all. Delay, disruption, or failure to obtain sufficient financing may result in the delay or failure of our business plans. The foregoing risks may have a material adverse effect on our Company and the trading price of our common stock.
Our future capital requirements are uncertain
Our aggregate future capital requirements are uncertain. The amount of capital that we will need in the future will depend on many factors that we cannot predict with any certainty, including: the market acceptance of Lifted’s products and services; the amounts of packaging, inventory, employees, space and equipment that will be needed to operate our business and to be able to increase our production to meet consumer demand for our products in the future; the levels of promotion and advertising that will be required to launch Lifted’s new products and services and to achieve and maintain a competitive position in the marketplace; our business, product, capital expenditures and technology plans, and product and technology roadmaps; technological advances; our competitors’ responses to our products and services; our pursuit of mergers and acquisitions; our relationships with our vendors and customers; and our need to attract and retain talented employees and independent contractors. The terms and conditions, amounts and timing of our capital raises may not be in sync with our capital needs. The foregoing risks may have a material adverse effect on our Company and the trading price of our common stock.
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The visibility and trading volume of our common stock are low
The visibility and trading volume of our common stock are low, and any material increase in such visibility and trading volume may depend upon our ability to list our common stock on a recognized stock exchange, but our ability to satisfy the listing requirements for a recognized stock exchange cannot be guaranteed or assured, especially if we acquire a business that "touches the marijuana plant" in the U.S., which would prevent us from listing our common stock on NASDAQ or the NYSE under current law and the current policies of such exchanges. A continued inability to satisfy the listing requirements for a recognized stock exchange could materially adversely affect our Company and the visibility, trading volume, and trading price of our common stock.
Our common stock lacks a meaningful public market
At present, only a limited market exists for our common stock with a low average daily trading volume. There is no assurance that a regular trading market will develop and if developed, that it will be sustained. A potential investor may choose not to invest because of the low trading volume in our common stock, and an existing owner of our common stock may be unable to sell our common stock should he or she desire to do so. Or, if an existing owner of our common stock decides to sell our common stock, such sales could drive the price of our common stock significantly lower. Furthermore, it is unlikely that a lending institution will accept our common stock as pledged collateral for loans. The foregoing risks may have a material adverse effect on our Company and the trading price of our common stock.
Our common stock may never be listed on a recognized national exchange
Our common stock trades on the OTCQB Venture Market. Even if we do not acquire companies that "touch the marijuana plant" in the U.S., you should not assume that any effort to uplist the trading of our common stock to a recognized national exchange would be successful, or if successful, that compliance with the listing requirements of such recognized national exchange will be maintained, including but not limited to requirements associated with maintenance of a minimum net worth, minimum stock price, minimum number of shareholders, and ability to establish a sufficient number of market makers. A failure or inability to uplist the trading of our common stock to a recognized national exchange, or any failure to maintain compliance with the listing requirements of such recognized national exchange, may materially adversely affect our Company and the trading price of our common stock.
Unless and until our common stock is approved for listing on a recognized national exchange, many potential investors may be unwilling to purchase our common stock
Our common stock currently trades on the OTCQB Venture Market. Many funds and other potential investors are unable or unwilling to purchase stocks on the OTCQB Venture Market, being required or simply preferring to purchase stocks that have been approved for listing on a recognized national exchange, such as NASDAQ or the NYSE. Recognizing this situation, we would like to uplist from the OTCQB Venture Market to a recognized national exchange such as NASDAQ, if and when we meet NASDAQ’s listing requirements. Unless and until we successfully uplist, potential investor interest in our common stock may be muted, which may adversely affect our company and the trading price of our common stock.
Our common stock may be considered a “penny stock” and may be difficult to trade
The U.S. Securities and Exchange Commission (the “SEC”) has adopted regulations which generally define “penny stock” to be an equity security that has a market or exercise price of less than $5.00 per share, subject to specific exemptions. The market price of our common stock may be less than $5.00 per share and, therefore, may be designated as a penny stock according to SEC rules. This designation requires any broker or dealer selling these securities to disclose certain information concerning the transaction, to obtain a written agreement from the purchaser, and to determine that the purchaser is reasonably suitable to purchase the securities. These rules may restrict the ability of brokers or dealers to sell our common stock and may adversely affect the ability of investors to sell our common stock, and may materially adversely affect our business and the trading price of our common stock.
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A return on our securities is not guaranteed
There is no guarantee that our securities will earn any positive return in the short term or long term. A holding of our securities is speculative and involves a high degree of risk and should be undertaken only by holders whose financial resources are sufficient to enable them to assume such risks and who have no need for immediate liquidity in their investment. Holding of our securities is appropriate only for holders who have the capacity to absorb a loss of some or all of their holdings. This risk may materially adversely affect our Company and the trading price of our common stock.
Certain stock brokers will not handle our common stock
Certain stock brokers will not handle our common stock due to the SEC’s “penny stock” rules and heightened internal compliance scrutiny. Additionally, we believe that many brokers will not allow stockholders to deposit or hold our stock in their brokerage accounts due to our involvement in the cannabis industry. This has made it difficult for some investors to purchase, deposit, or even maintain holdings of our common stock in brokerage accounts. Further, while hemp is no longer classified as an illegal substance under the Farm Bill, the U.S. Food and Drug Administration (“FDA”) continues to regulate cannabis-derived products under the Federal Food, Drug, and Cosmetic Act (“FD&C Act”) and Section 351 of the Public Health Service Act. The FDA has raised concerns about the potential health risks of hemp-derived cannabinoids, including delta-8-THC and CBD, particularly regarding possible liver toxicity. The agency has also suggested that certain cannabinoids may be classified as drugs, making their sale without FDA approval potentially unlawful. In deference to the FDA’s position, some states and municipalities have imposed restrictions or outright bans on the sale of certain hemp-derived cannabinoid products. If the FDA or other regulatory authorities impose stricter licensing requirements, compliance obligations, or prohibitions on the sale of hemp-derived products, this could further limit investor access to our stock and impact our business operations. These factors, combined with existing brokerage restrictions may materially and affect our Company and the trading price of our common stock.
Options trading of our common stock is not currently possible
At the present time, potential investors have no ability to purchase or sell options to trade in our common stock. This situation has made it difficult for some potential investors to accumulate positions in our common stock, or to achieve their desired level of liquidity in their position in our common stock. The foregoing situation may materially adversely affect our Company and the trading price of our common stock.
Our common stock lacks institutional or analyst support
Our Company lacks institutional support. In addition, investment banks with research capabilities do not currently follow our common stock. This lack of institutional or analyst support lessens the trading volume and general market interest in our common stock, and may adversely affect an investor’s ability to trade a significant amount of our common stock. This lack of institutional or analyst support may materially adversely affect our Company and the trading price of our common stock. Moreover, in the event that we obtain securities or industry analyst coverage, if one or more of the analysts who cover us or our business downgrade our securities or publish inaccurate or unfavorable research about us or our business, our Company and the trading price of our common stock may be materially adversely affected.
The public float of our common stock is small
The public float of our common stock is small, which may limit the willingness or ability of some individuals, funds and institutions to invest in our common stock. This lack of liquidity may materially adversely affect our Company and the trading price of our common stock.
The trading price of our common stock may be volatile and could drop quickly and unexpectedly
The stocks of micro-cap and small-cap companies have experienced substantial volatility in the past, often based on factors unrelated to the financial performance or prospects of the companies involved. These factors include macro-economic developments in North America and globally, financial crises, pandemics, trade wars, military conflicts, and market perceptions of the attractiveness of particular industries. This volatility may materially adversely affect our Company by making it more difficult to raise capital or complete acquisitions. In addition, securities class-action litigation often has been brought against companies following periods of volatility in the market price of their securities. Our Company may in the future be the target of similar litigation, and/or litigation associated with the ingredients, formulations, labeling and packaging of products manufactured by Lifted and other acquired Cannabis Companies. could result in substantial legal fees and other costs and and our management’s attention and resources away from our business. For these reasons and others, quick and drops in the trading price of our common stock are likely from time to time. in our common stock price may materially affect our Company and the trading price of our common stock. The foregoing risks may have a material effect on our Company and the trading price of our common stock.
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We may be damaged by lawsuits
We are currently involved in multiple legal proceedings, both as a plaintiff and as a defendant, and we anticipate that additional lawsuits may arise in the future. Defending against or pursuing litigation requires significant management time, resources, and financial expenditures, including substantial legal fees and related costs. Ongoing or future legal disputes could divert management’s focus from business operations, result in unfavorable judgments or settlements, and create financial uncertainty. These legal risks may have a material adverse effect on our business, financial condition, and the trading price of our common stock.
Sales of shares of our common stock, or the perception in the public markets that these sales may occur in the future, may cause the trading price of our common stock to fall
Since the trading volume of our common stock is very low and the amount of our common stock in the public float is very small, any sales or attempts to sell our common stock, or the perception that sales or attempts to sell our common stock may occur, may adversely affect the trading price of our common stock. The market price of our common stock may decline significantly as a result of sales of a large number of shares of our common stock in the market. In addition, if any of our stockholders sells a large number of shares, or if we issue a large number of shares, the market price of our stock may decline.
Any issuance of additional common stock or common stock equivalents by us would result in dilution to our existing shareholders. Such issuances may be made at a price that reflects a discount to the then-current trading price of our common stock. Moreover, the perception in the public market that stockholders may sell shares of our stock or that we may issue additional shares of common stock may depress the market for our shares and make it more difficult for us to sell equity securities in the future at any time, if at all. The foregoing risks may have a material adverse effect on our Company and the trading price of our common stock.
We may issue additional shares of common stock, and options and warrants to purchase additional shares of common stock, without stockholder approval, which would dilute the current holders of our common stock
Our Board of Directors has authority, without action or vote of our shareholders, to issue shares of common stock, and/or options and warrants to purchase shares of common stock. We may issue shares of our common stock, or options or warrants to purchase shares of our common stock, to complete a business combination or to raise capital, or to incentivize our directors, officers and employees. Such stock issuances, and such issuances of options and warrants, could be made at a price that reflects a discount from the then-current trading price of our common stock. These issuances may dilute our stockholders’ ownership interests significantly. These issuances also may have the effect of reducing our stockholders’ influence on matters on which our stockholders vote. In addition, our stockholders and prospective investors may incur additional dilution if holders of currently outstanding stock options and warrants exercise those options or warrants to purchase shares of our common stock. The foregoing risks may have a material adverse effect on our Company and the trading price of our common stock.
The rights of the holders of our common stock may be impaired by the potential issuance of preferred stock
Our certificate of incorporation gives our Board of Directors the right to create one or more new series of preferred stock. As a result, the Board of Directors may, without stockholder approval, issue preferred stock with voting, dividend, conversion, liquidation or other rights that may adversely affect the voting power and equity interests of the holders of our common stock. Preferred stock, which could be issued with the right to more than one vote per share, could be used to discourage, delay or prevent a change of control of our Company, which may materially adversely affect the price of our common stock. The foregoing risks may have a material adverse effect on our Company and the trading price of our common stock.
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Our common stock may be subject to significant dilution
Our capital raising may include the sale of significant numbers of shares of our common stock or other securities convertible into our common stock, and may also include the issuance of significant numbers of options, warrants or other securities convertible into shares of our common stock. We also may issue significant numbers of shares of our common stock, or options, warrants, or other securities convertible into shares of our common stock, as a portion of the consideration for acquisitions. We are also likely to issue significant numbers of shares of common stock, options and/or warrants, or rights to purchase warrants, to our officers, directors, employees and/or independent contractors, and to investment bankers and finders, especially in connection with the closing of capital raises and acquisitions, or as incentives to attract and retain talented personnel. Such transactions may significantly increase the number of outstanding shares of our common stock, and may be highly dilutive to our existing stockholders. In addition, the securities that we issue may have rights, preferences or privileges senior to those of the holders of our outstanding common stock. This dilution may have a material adverse effect on our Company and the trading price of our common stock. In addition, we have options, warrants, and rights to purchase warrants, outstanding covering several million shares of our common stock. If all of these millions of options and warrants were to be exercised, the number of outstanding shares of our common stock would increase significantly. Moreover, additional shares may be issued in connection with future acquisition and business operations. The foregoing risks may have a material effect on our Company and the trading price of our common stock.
Raising capital by selling our common stock or convertible preferred stock is difficult to accomplish
Selling equity is difficult to accomplish in the current market, especially because of the regulatory landscape of the hemp industry and because the prices of stocks of many publicly traded Cannabis Companies have experienced significant declines during the past few years. This difficulty may make future acquisitions either unlikely, or too difficult and expensive. The foregoing risks may have a material adverse effect on our Company and the trading price of our common stock.
Raising capital by selling our common stock or convertible preferred stock could be expensive
If we were to raise capital by selling common stock or securities convertible into common stock, it could be expensive. Many potential purchasers of equity securities in micro-cap and small-cap publicly traded companies with extremely low trading volumes are only willing to purchase at a significant discount to the trading price of the common stock of such companies. In addition, we may be required to pay cash fees and/or fees in the form of warrants equal to 7% or more of the gross sales proceeds raised, in addition to legal, accounting and other fees and expenses. In addition, when it becomes known within the investment community that an issuer is seeking to raise equity capital, it is common for the common stock of that issuer to be sold off in the market, lowering the trading price of the issuer’s common stock in advance of the pricing of the issue. This may make our raising capital by selling equity securities significantly more expensive. The foregoing risks may have a material adverse effect on our Company and the trading price of our common stock.
Debt financing is difficult to obtain and could be expensive
Debt financing is difficult to obtain in the current credit markets, especially for Cannabis Companies and companies involved in the hemp-derived, psychoactive and nicotine industries. This difficulty may make future acquisitions either unlikely, or too difficult and expensive. Providers of debt may also be issued options, warrants, or rights to purchase warrants, to purchase shares of our common stock. The foregoing risks may have a material adverse effect on our Company and the trading price of our common stock.
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Raising capital by borrowing could be risky
If we were to raise capital by borrowing amounts to fund our operations or for additional acquisitions, that would be risky. Interest rates charged to Cannabis Companies typically are high, and often have short terms. Cash is required to service the debt and ongoing covenants and negative covenants are typically employed which can restrict the way in which we operate our business. If the debt comes due either upon maturity or an event of default, we may lack the resources at that time to either pay off or refinance the debt, or if we are able to refinance, the refinancing may be on terms that are less favorable than those originally in place, and may require additional equity or quasi-equity accommodations. The foregoing risks may have a material adverse effect on our Company and the trading price of our common stock.
Our financing decisions may be made without stockholder approval
Our financing decisions and related decisions regarding levels of debt, capitalization, distributions, acquisitions and other key operating parameters are determined by our Board of Directors in its discretion, in many cases without any notice to or vote by our stockholders. The foregoing risks may have a material adverse effect on our Company and the trading price of our common stock.
Our investor relations efforts may not be successful
Our investor relations efforts may not be successful. At the present time, due to the fact that billions of dollars of market capitalization have been lost by publicly traded corporations in the cannabis industry over the past few years, investor sentiment regarding equity or debt capital raises by Cannabis Companies is negative. This negative investor sentiment, combined with many other negative macro factors such as inflation, global conflicts, supply chain issues, tariffs, and high interest rates, has made it extremely difficult for the Company to attract Growth Capital on acceptable terms and conditions. The Company can provide no guarantee or assurance whatsoever that this profoundly negative investor sentiment could be reversed by traditional investor relations efforts. The foregoing risks may have a material adverse effect on our Company and the trading price of our common stock.
High interest rates may have an adverse effect on the trading price of our common stock
High interest rates may tend to make our common stock less attractive relative to other investments. The foregoing risk may have a material adverse effect on our Company and the trading price of our common stock.
Taxes and regulatory compliance costs may reduce our margins
Costs resulting from changes in or new income taxes, value added taxes, service taxes, sales and use taxes, excise taxes, taxes associated with Section 280E of the U.S. Internal Revenue Code, and other taxes, and the costs of managing compliance with taxes and regulatory matters, may adversely affect our margins. The foregoing risks may have a material adverse effect on our Company and the trading price of our common stock.
Tax interpretations and changes in tax regulations and legislation may adversely affect us
Tax interpretations, regulations and legislation in the various jurisdictions in which we operate are subject to measurement uncertainty and the interpretations can impact net income, income tax expense or recovery, and deferred income tax assets or liabilities. Tax rules and regulations, including those relating to foreign jurisdictions, are subject to interpretation and require judgment by us that may be challenged by the applicable taxation authorities upon audit. Although we believe our assumptions, judgments and estimates are reasonable, changes in tax laws or our interpretation of tax laws and the resolution of any tax audits may significantly impact the amounts provided for income taxes in our consolidated financial statements.
Moreover, the IRS or other taxing authorities may claim that certain hemp-derived cannabinoids, such as THC-O, are illegal, and the IRS or other taxing authorities may attempt to disallow the tax deductions of expenses related to those certain products pursuant to Section 280E of the U.S. Internal Revenue Code. Defending ourselves in this sort of matter, or in other matters brought before us by the IRS or by other taxing authorities, may impose significant burdens upon our management’s time and resources, and may require us to expend significant fees on consultants, lawyers and accounting professionals. No guarantee or assurance can be given that Lifted will be successful in any disputes or litigation against the IRS or other taxing authority, and any losses in such disputes or litigation could result in significant additional taxes and penalties becoming due and payable, which could materially affect our Company's balance sheet, net worth and liquidity, and could trigger under our loans from Surety Bank.
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On December 22, 2017, the U.S. government enacted comprehensive tax legislation commonly referred to as the Tax Cuts and Jobs Act (the “Tax Act”). The Tax Act requires complex computations to be performed that were not previously required by U.S. tax law, significant judgments to be made in interpretation of the provisions of the U.S. Tax Act, significant estimates in calculations, and the preparation and analysis of information not previously relevant or regularly produced. The Tax Act reduced the U.S. federal statutory tax rate, broadened the corporate tax base through the elimination or reduction of deductions, exclusions, and credits, limited the ability of U.S. corporations to deduct interest expense, and transitioned to a territorial tax system which allows for the repatriation of foreign earnings to the U.S. with a 100% federal dividends received deduction prospectively. In addition, the Tax Act required a one-time transitional tax on foreign cash equivalents and previously unremitted earnings. Several of the new provisions enacted as part of the Tax Act require clarification and guidance from the IRS and Treasury Department. The Treasury Department, the IRS, and other standard-setting bodies will continue to interpret or issue guidance on how provisions of the Tax Act will be applied or otherwise administered. As future guidance is issued, we may make adjustments to amounts that we have previously recorded that may materially impact our financial statements in the period in which the adjustments are made. Additionally, further guidance may be forthcoming from the Financial Accounting Standards Board (“FASB”) and SEC, as well as regulations, interpretations and rulings from state tax agencies, which could result in additional impacts, possibly with retroactive effect. Any such changes or potential additional impacts could affect our business and financial condition. These or other changes in U.S. tax laws could impact our profits, tax rate, and cash flows.
In addition, we may periodically restructure our legal entities and/or engage in mergers, and if taxing authorities were to disagree with our tax positions in connection with any such restructurings or mergers, our effective tax rate may be materially affected. In connection with such restructurings, we may also incur additional charges associated with consulting fees and other charges.
In addition, changes in tax interpretations and changes in tax regulations and legislation may impose significant burdens upon our management’s time and resources, and may require us to expend significant additional amounts on accounting, tax, legal and other matters.
All of the foregoing risks may materially adversely affect our Company and the trading price of our common stock.
We are adversely affected by regulatory uncertainties
Regulatory uncertainties regarding Cannabis Companies, and potential adverse changes in federal and state laws and government regulations, materially adversely affect our business and the trading price of our common stock. This risk is especially important relative to the hemp-derived, marijuana, psychoactive products and nicotine products industries, which are controversial socially, scientifically and legally. The foregoing risk may materially adversely affect our Company and the trading price of our common stock.
Legislative or regulatory changes that affect our products, including new taxes, could reduce demand for products or increase our costs
Taxes imposed on the sale of certain of our products by federal, state, and local governments in the United States, or other countries in which we operate could cause consumers to shift away from purchasing our products. This risk may materially adversely affect our Company and the trading price of our common stock.
A small number of stockholders have significant influence over us
A small number of our stockholders and members of our board of directors and management acting together are able to exert significant influence over us through their ability to influence the election of directors and all other matters that require action by our stockholders. The voting power of these individuals may have the effect of preventing or delaying a change in control of our Company which they oppose even if our other stockholders believe it is in their best interests.
In addition, our shareholders have authorized GJacobs to seek shareholders agreements and/or proxies from other parties, including potential future capital sources and the owners of potential future acquisition candidates. Pursuant to this authorization, GJacobs has signed a Stockholders Agreement with our largest stockholder, NWarrender, and with WJacobs, that will ensure that all 3,900,455 shares of our common stock issued to NWarrender in the Lifted Merger, and the many shares of our common stock owned and controlled by GJacobs and WJacobs, will be voted in concert on the election of directors, compensation matters, acquisitions and divestitures, capital raises, and other significant matters.
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Accordingly, our officers GJacobs, WJacobs and NWarrender, voting together, have substantial influence over our policies and management. We may take actions supported by the three of them that may not be viewed by some stockholders to be in our best interest, or the three of them could prevent or delay a change in our control which they oppose even if our other stockholders believe it is in their best interests. The foregoing risks may have a material adverse effect on our Company and the trading price of our common stock.
State law and our articles of incorporation and bylaws help preserve insiders’ control over us
Provisions of Nevada state law, our articles of incorporation and bylaws may discourage, delay or prevent a change in our management team that stockholders may consider favorable. These provisions may include: (1) authorizing the issuance of “blank check” preferred stock without any need for action by stockholders; (2) permitting stockholder action by written consent; and (3) establishing advance notice requirements for nominations for election to the board of directors, or for proposing matters that can be acted on by stockholders at stockholder meetings. These provisions, if included in our articles of incorporation or by-laws, could allow our board of directors to affect an investor’s rights as a stockholder since our board of directors could make it more difficult for preferred stockholders or common stockholders to replace members of the board of directors. Because the board of directors is responsible for appointing the members of the management team, these provisions may in turn affect any attempt to replace the current or future management team. The foregoing risks may have a material adverse effect on our Company and the trading price of our common stock.
Retaining and attracting directors and officers may be expensive
We cannot make any assurances regarding the retention of our current directors and officers. We do not currently have any director and officer liability insurance, which is a disincentive to serving as a director or officer of our Company. Some of our directors and officers may resign upon our raising money, upon our consummation of a business combination, or otherwise. Attracting new directors and officers, and retaining our current directors and officers, may be expensive. Certain other publicly traded companies pay their directors and officers significantly more than we do. The costs of future cash, bonus and equity incentives to retain and attract directors and officers may materially adversely affect our Company and the trading price of our common stock. The foregoing risks may have a material adverse effect on our Company and the trading price of our common stock.
We indemnify our directors and officers, and certain other parties
Our bylaws specifically limit the liability of our officers and directors to the fullest extent permitted by law. As a result, aggrieved parties may have a more limited right to action than they would have had if such provisions were not present. The bylaws also provide for indemnification of our officers and directors for any losses or liabilities they may incur as a result of the manner in which they operated our business or conducted internal affairs, provided that in connection with these activities they acted in good faith and in a manner which they reasonably believed to be in, or not opposed to, our best interest. In the ordinary course of business, we also may provide indemnifications of varying scope and terms to customers, vendors, lessors, business partners, independent contractors and other parties with respect to certain matters, including, but not limited to, losses arising out of our breach of such agreements, services to be provided by us, or from intellectual property infringement claims made by third parties. We may also agree to indemnify former officers, directors, employees and independent contractors of acquired companies in connection with the acquisition of such companies. Such indemnification agreements may not be subject to maximum clauses. It is not possible to determine the maximum potential amount of exposure in regard to these obligations to indemnify, due to the limited history of prior indemnification and the unique facts and circumstances involved in each particular situation. Use of our capital or assets for such indemnification would reduce amounts available for Company operations or for other purposes, which may materially affect our Company and the trading price of our common stock. The foregoing risks may have a material effect on our Company and the trading price of our common stock.
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We do not expect to pay dividends to holders of our common stock
For the foreseeable future, it is anticipated that earnings, if any, which may be generated from our operations will be used to finance our growth and that dividends may not be paid to the holders of our common stock. The foregoing risk may have a material adverse effect on our Company and the trading price of our common stock.
Our cost of being a publicly traded company will increase as our business operations expand
As we grow, our management expenses, legal, consulting and accounting fees, and other costs associated with being a publicly traded company will continue to increase. In the past, we have hired additional employees and professionals in order to improve our internal financial controls and accurate financial reporting, and otherwise to comply with the requirements of the Sarbanes-Oxley Act of 2002 (the “Sarbanes-Oxley Act”). From time to time, the Company has engaged a third party consulting firm that specializes in the implementation of the Sarbanes-Oxley Act, to assist management with the implementation of the Sarbanes-Oxley Act; we expect the services of this consulting firm to be costly. Our management expenses, legal and accounting fees, and other costs associated with being a publicly traded company are expected to increase. The foregoing risks may have a material adverse effect on our Company and the trading price of our common stock.
Decreased effectiveness of stock options and warrants could adversely affect our ability to attract and retain employees
We expect to use stock options, warrants, and/or rights to purchase warrants to purchase common stock as key components of our employee compensation program in order to align employees’ interests with the interests of our stockholders, encourage employee retention, and to provide competitive compensation packages. Volatility or lack of positive performance in our common stock price may adversely affect our ability to retain key employees or to attract additional highly-qualified personnel. At any given time, a portion of our outstanding employee stock options, warrants, and/or rights to purchase warrants to purchase common stock may have exercise prices in excess of our then-current common stock trading price, or may have expired worthless. To the extent these circumstances occur, our ability to retain employees may be adversely affected. As a result, we may have to incur increased compensation costs, change our equity compensation strategy, or find it difficult to attract, retain and motivate employees. The foregoing risks may have a material adverse effect on our Company and the trading price of our common stock.
The issuance of shares of Deferred Contingent Stock pursuant to the terms of the Lifted Merger could reduce our earnings and stock price
Pursuant to the terms of the Lifted Merger, a total of 645,000 shares of unregistered common stock of the Company were designated as contingent deferred compensation (the “Deferred Contingent Stock”) payable after the third anniversary of the Lifted Merger to certain employees of Lifted and the Company who have been specified by NWarrender in his discretion (the “Deferred Contingent Stock Recipients”), subject to certain conditions and requirements. The issuance of Deferred Contingent Stock increases the number of outstanding shares of our common stock, and thereby decreases our earnings per share. And, the potential sale of Deferred Contingent Stock by the Deferred Contingent Stock Recipients may depress the trading price of our common stock. As of December 31, 2025, 503,000 shares of Deferred Contingent Stock have been issued to the Deferred Contingent Stock Recipients and there were 142,000 shares of Deferred Contingent Stock that are issuable at the direction of the Deferred Contingent Stock Recipients. The foregoing risks may have a material adverse effect on our Company and the trading price of our common stock.
RISK FACTORS RELATING TO ACCOUNTING AND INTERNAL FINANCIAL CONTROLS
Tax and accounting requirements may change in ways that are unforeseen to us and we may face difficulty or be unable to implement or comply with any such changes
We are subject to numerous tax and accounting requirements, and changes in existing accounting or taxation rules or practices, or varying interpretations of current rules or practices, could have a significant adverse effect on our financial results, our financial and operational resources, and the manner in which we conduct our business or the marketability of any of our products. We plan to expand our operations in the future. These operations, and any expansion thereto, will require us to comply with the tax laws and regulations of multiple jurisdictions, within and outside of the United States of America, which may vary substantially. Complying with the tax laws of these jurisdictions can be time consuming and expensive and could potentially subject us to penalties and fees in the future if we fail to comply. The foregoing risks may have a material adverse effect on our Company and the trading price of our common stock.
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We may have exposure to greater than anticipated tax liabilities, which may harm our business
We may be subject to tax audits by federal, state, and local tax authorities, both within and outside of the United States of America. Any adverse outcome from a tax audit could seriously harm our business. In addition, determining our tax liabilities requires significant judgment by management, and there may be transactions where the ultimate tax determination is uncertain. Although we believe that the tax liabilities recorded in our financial statements are reasonable, the ultimate tax outcome relating to such amounts may differ for such period or periods and may seriously harm our business. Furthermore, due to shifting economic and political conditions, tax policies, laws, or rates in various jurisdictions, we may be subject to significant changes in ways that impair our financial results. Our results of operations and cash flows may be adversely affected by additional taxes imposed on us prospectively or retroactively or additional taxes or penalties resulting from the failure to comply with any collection obligations or failure to provide information for tax reporting purposes to various government agencies. The foregoing risks may have a material effect on our Company and the trading price of our common stock.
We incur increased costs as a result of operating as a public company and our management is required to devote substantial time to new compliance initiatives
As a public company, we incur significant legal, accounting, consulting and other expenses. In addition, the Sarbanes-Oxley Act, and rules implemented by the SEC, impose various requirements on public companies, including requirements to file annual, quarterly and event-driven reports with respect to our business and financial condition and operations and to establish and maintain effective disclosure and financial controls and corporate governance practices. Our management and other personnel may fail to improve or maintain effective internal controls over financial reporting (“ICFR”) and disclosure controls and procedures (“DCP”) necessary to ensure timely and accurate reporting of operational and financial results. Our management team has to devote a substantial amount of time to these compliance initiatives, and we may need to hire additional personnel to assist us with complying with these requirements. Moreover, these rules and regulations have increased and will continue to increase our legal and financial compliance costs and will make some activities more time consuming and costly. As mentioned above, from time-to-time, the Company has engaged a third party consulting firm that specializes in the implementation of the Sarbanes-Oxley Act, to assist management with the implementation of the Sarbanes-Oxley Act; the services of this consulting firm are .
Pursuant to Section 404 of the Sarbanes-Oxley Act (“Section 404”), we will be required to furnish a report by our management on our ICFR, which, after we have met certain requirements, must be accompanied by an attestation report on ICFR issued by our independent registered public accounting firm. To achieve compliance with Section 404 within the prescribed period, we will document and evaluate our ICFR, which is both costly, time-consuming and challenging. In this regard, we will need to continue to dedicate internal resources and adopt a detailed work plan to assess and document the adequacy of our ICFR, continue steps to improve control processes as appropriate, validate through testing that controls are functioning as documented, and implement a continuous reporting and improvement process for ICFR. Despite our efforts, there is a risk that we will not be able to conclude within the prescribed timeframe that our ICFR is effective as required by Section 404. This may result in one or more material weaknesses in our ICFR, which may cause an reaction in the financial markets due to a of confidence in the reliability of our financial statements. The foregoing risks may have a material effect on our Company and the trading price of our common stock.
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Management may not be able to successfully implement adequate internal controls over financial reporting
We are subject to various SEC reporting and other regulatory requirements. Management is responsible for establishing and maintaining adequate internal control over financial reporting.
As defined in Rules 13a-15(f) and 15d(f) under the Exchange Act, internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of our financial reporting and the preparation of financial statements for external purposes in accordance with US GAAP. Proper systems of ICFR and disclosure are critical to the operation of a public company. However, management may not be able to successfully establish and maintain effective internal controls over financial reporting, and our DCP or ICFR may not prevent all errors and all fraud. Due to complications associated with organic growth and acquisitions, and with modifications to internal control over financial reporting and other policies and procedures associated with many factors, our internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to risk that controls may become inadequate because of changes in conditions or operations, or that the degree of compliance with the policies or procedures may . Our efforts to remediate material may not be or prevent future material or significant in our internal control over financial reporting. It is not expected that our disclosure controls and procedures and internal controls over financial reporting will prevent all or . A control system, no matter how well designed and operated, can provide only reasonable, not absolute, assurance that the control system’s objectives will be met. Further, the design of a control system must reflect the fact that there are resource constraints and the benefits of such controls must be considered relative to their costs. Because of the inherent in all control systems, no evaluation of controls can provide absolute assurance that all control issues and instances of , if any, have been detected. Due to the inherent in a cost- control system, due to or may occur and may not be detected in a timely manner or at all. The inherent include the realities that judgments in decision-making can be , and that can occur because of simple or . Controls can also be by individual acts of certain persons, by of two or more people or by management override of the controls. Due to the inherent in a cost- control system, due to or may occur and may not be detected in a timely manner or at all. We cannot guarantee that we will not have a material in our internal controls in the future.
We anticipate that sometime in the future, we are going to be subject to having our internal financial controls audited by our outside accounting firm pursuant to the Sarbanes-Oxley Act. Any failure to implement required new or improved controls, or difficulties encountered in their implementation could cause us to fail to meet our reporting obligations. In addition, any testing by us conducted in connection with Section 404 of the Sarbanes-Oxley Act, or the subsequent testing by our independent registered public accounting firm, may reveal deficiencies in our internal controls over financial reporting that are deemed to be material weaknesses or that may require prospective or retrospective changes to our consolidated financial statements or identify other areas for further attention or improvement. Inferior internal controls could also cause investors to lose confidence in our reported financial information.
We are making, and are continuing to make, efforts to design, implement and document these internal financial controls, but these internal financial controls are complicated, time-consuming and expensive. Our internal financial controls are not complete, and additional work is required, which will continue to require substantial expenditure of management time and consulting fees. If the internal financial controls are deemed to not have been designed properly, or if they are not documented properly, or if they are implemented improperly or inadequately documented or deemed to be ineffective, our internal financial controls may not be approved by our outside auditors, and consequently our reputation may be damaged, or we may be subject to scrutiny by regulators or investors. If we experience any material weakness in our internal controls in the future, our financial statements may contain misstatements and we may be required to restate our financial statements. If we cannot provide reliable financial reports or prevent fraud, or if we are required to our financial statements, our reputation and operating results may be materially and affected. The foregoing risks may have a material effect on our Company and the trading price of our common stock.
RISK FACTORS RELATING TO LFTD PARTNERS, LIFTED (INCLUDING LIFTED’S ARRANGEMENT WITH EXTRAX NM, AND LIFTED’S COLLABORATION WITH DIAMOND SUPPLY CO., AND LIFTED’S PAST COLLABORATIONS WITH CALI SWEETS, JEETER AND SUBCO), HIGHLANDIA, LIFTED’S CO-PACKERS AND CO-MANUFACTURERS, FUTURE ACQUISITION TARGETS, AND FUTURE ASSET PURCHASES AND/OR JOINT VENTURES, ABLIS AND BENDISTILLERY (COLLECTIVELY, “LIFTED” OR THE “COMPANY”)
The delay in Lifted’s receipt of payments from certain customers have increasingly become an issue for Lifted
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The delay in Lifted’s receipt of payments from certain customers – primarily distributors – have increasingly become an issue for Lifted. Certain customers have become slower to pay Lifted for purchased product (“Slow Paying Customers”), and the Slow Paying Customers disregard payment terms. Management speculates that some Slow Paying Customers may be slow-paying Lifted because of their own sales collection issues, which may in part be caused by the regulatory uncertainty over our industry. As described below in the Accounts Receivable section under NOTE 2 – BASIS OF PRESENTATION AND SIGNIFICANT ACCOUNTING POLICIES , the Company has an accounting protocol which effectively causes the Company to recognize an allowance for doubtful accounts for all invoices older than 90 days. Consequently, the delay in Lifted’s receipt of payments from certain customers has a direct impact on the Company’s net receivables, net income, and earnings per share. The foregoing risk may have a material adverse effect on our Company and the trading price of our common stock.
Write offs of inventory continue to be significant for Lifted
Write offs of inventory continue to be significant for Lifted. Because consumers’ demands change very quickly, and because of the legal and regulatory challenges that Lifted faces, Lifted may find it necessary to write off certain raw goods because they will no longer be used in production. Or, if consumers are no longer interested in certain products, and the finished goods are slow-moving, those finished goods are written off. Lifted may have to record allowances against the value of hemp-derived products in inventory each quarter end, and these allowances may increase, as November 12, 2026 (the date by which intoxicating hemp-derived consumable products are banned under the Act) approaches. Moreover, any hemp-derived products in inventory on November 12, 2026 will have to be written off. The foregoing risks may have a material adverse effect on our Company and the trading price of our common stock.
Lifted’s collaborations with third-party companies may be unprofitable and fail
Collaborations with third-party companies may be unprofitable and fail. Factors that may contribute to failed, unprofitable collaborations include, but are not limited to:
Leadership absent from planning/update calls;
Inequality in regard to each side’s contributions to the collaborations, financial or otherwise;
Lack of cooperation;
Disagreement on topics such as formulation, product presentation, production needs, pricing, packaging, and marketing;
Micro-management to the point of annoyance or resentment of the other party, and operational inefficiency;
Lack of communication;
Lack of fulfillment of monetary obligations;
Limited or no ability to publicly announce the collaboration or the results of the collaboration;
Forced recalls;
Disclosure of Lifted's suppliers and distributors; and
Self-imposed testing requirements that are too stringent and cause delays in the launching of products, or testing results that cause products not be launched
The above factors are some of the reasons why Lifted’s collaborations with third-party companies may be unprofitable and fail, or may be unworkable. The foregoing risks may have a material adverse effect on our Company and the trading price of our common stock.
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The FDA has not approved any of Lifted’s products, and Lifted could face cease and desist letters, lawsuits or other enforcement actions by the FDA or DEA
Our hemp-derived, kratom-derived and other products are not intended for use in the diagnosis, cure, mitigation, treatment, or prevention of a disease or condition. Lifted has not applied to the FDA for any approvals of any of Lifted’s products, and may never do so. The FDA has not approved any of Lifted’s products for any purpose, and may never do so. Lifted may be subject to cease and desist letters, lawsuits or other enforcement actions by the FDA or the DEA for failure to obtain FDA or DEA approval of its products, or for Lifted’s packaging, labeling, advertisements and promotions of its products without any FDA or DEA approvals. For example, the FDA might take action against Lifted alleging that Lifted has engaged in the promotion of an unapproved drug. Historically, the FDA has issued cease and desist letters, filed lawsuits and taken enforcement actions against Lifted and other companies selling products that are similar to the products that Lifted sells. Defending cease and desist letters, lawsuits or other enforcement actions by the FDA or DEA may cause Lifted and LFTD Partners to expend a deal of management time and legal fees. Any and desist letters, lawsuits or other enforcement actions by the FDA or DEA may have a material effect on our company and the trading price of our common stock. There can be no guarantee or assurance whatsoever that the FDA’s or the DEA’s regulatory about hemp-derived, kratom-derived or other products that Lifted sells will be resolved in our favor. The foregoing risks may have a material effect on our Company and the trading price of our common stock.
Investors may file litigation including class action lawsuits against Lifted and/or LFTD Partners because the FDA has not approved Lifted’s products for any medical purpose, or because the FDA or DEA has issued cease and desist letters, or brought lawsuits or other enforcement actions against Lifted, or for other reasons associated with the formulation, packaging, labeling, lab testing, advertising, promotion, medical claims, ineffectiveness, or other characteristics of Lifted’s products
Investors may file litigation including class action lawsuits against Lifted and/or LFTD Partners for many different reasons, such as: (1) Lifted has not applied to the FDA for any approvals of any of Lifted’s products, and may never do so; (2) The FDA has not approved any of Lifted’s products for any medical purpose, and may never do so; (3) Lifted may be subject to cease and desist letters, lawsuits or other enforcement actions by the FDA for failure to obtain FDA approval of its products, or for Lifted’s packaging, labeling, advertisements and promotions of its products without any FDA approvals. For example, the FDA might take action against Lifted alleging that Lifted has engaged in the promotion of an unapproved drug. The FDA has issued cease and desist letters, filed lawsuits and taken enforcement actions against Lifted and other companies selling intoxicating products that are similar to Lifted’s products; (4) Lifted may be subject to cease and desist letters, lawsuits or other enforcement actions by the DEA that Lifted’s products are ; and (5) Investors may file including class action lawsuits Lifted and/or LFTD Partners for other reasons associated with the formulation, packaging, labeling, lab testing, advertising, promotion, medical , , or other characteristics of Lifted’s products. any lawsuits by investors may cause Lifted and LFTD Partners to expend a deal of management time and legal fees. The foregoing risks may have a material effect on our Company and the trading price of our common stock.
Investors may file litigation including class action lawsuits against Lifted and/or LFTD Partners due to drops in the trading price of LFTD Partners’ common stock triggered by FDA or DEA cease and desist letters, lawsuits or enforcement actions against Lifted
Our common stock has relatively low trading volume, and the trading price is volatile. FDA or DEA cease and desist letters, lawsuits or enforcement actions against Lifted may cause drops in the trading price of LFTD Partners’ common stock. Defending lawsuits by investors may cause Lifted and LFTD Partners to expend a great deal of management time and legal fees. The foregoing risks may have a material adverse effect on our Company and the trading price of our common stock.
Lifted may become subject to FDA 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 III controlled substance, it is possible that the FDA would seek to regulate cannabis under the Food, Drug and Cosmetics Act of 1938. Additionally, the FDA may issue rules and regulations, including good manufacturing practices, related to the growth, cultivation, harvesting and processing of medical cannabis. Clinical trials may be needed to verify the efficacy and safety of cannabis.
It is also possible that the FDA would require facilities where medical use cannabis is grown to register with the FDA 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 the Company is unable to comply with the potential regulations or registration requirements prescribed by the FDA, it may have an adverse effect on the Company’s 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 foregoing risks may have a material adverse effect on our Company and the trading price of our common stock.
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The Preventing Online Sales of E-Cigarettes to Children Act may have a material adverse effect on certain portions of Lifted’s online sales
The “Consolidated Appropriations Act, 2021” signed into law on December 27, 2020, includes the Preventing Online Sales of E-Cigarettes to Children Act, which extends the Jenkins Act and Prevent All Cigarette Trafficking Act (“PACT”) to cover all electronic nicotine delivery system (“ENDS”) products, including related accessories that do not contain nicotine (collectively, the “Amended PACT Act”). Under the Amended PACT Act, the United States Postal Service (“USPS”) was required to impose new restrictions that prohibit the shipping of ENDS products through USPS no later than April 2021. The Amended PACT Act also imposes a number of stringent requirements for online sales. As of March 27, 2021, online vape retailers were required to: (1) engage in third party identity verification for all sales; (2) use a shipping service that verifies age at delivery; (3) follow all Amended PACT Act shipping requirements; (4) register with the US Attorney General; (5) register with the tobacco tax administrator of any state in which products are sold; (6) collect all applicable local taxes; (7) share all transactions for a state with that state’s tax administrator following that state’s reporting rules; and (8) maintain records of any delivery interruptions or incomplete deliveries due to failure to confirm identity for five years.
These requirements are applicable to certain portions of Lifted’s online sales, and cause the online sale and delivery of certain of Lifted’s products to be restricted. The state-by-state reporting requirements of the Amended PACT Act are time-consuming. No assurance or guarantee whatsoever can be provided that the Amended Pact Act will not have a material adverse impact on a portion of Lifted’s future online sales. The foregoing risks may have a material adverse effect on our Company and the trading price of our common stock.
We could be subject to litigation that includes claims under RICO
The Racketeer Influenced Corrupt Organizations Act (“RICO”), which was originally designed to give prosecutors an additional tool to prosecute organized crime, is now sometimes being weaponized against cannabis companies, as Plaintiff’s attorneys sometimes add so-called “RICO” claims to ordinary commercial litigation in the cannabis industry. For example, Lifted and certain executives were sued by the same plaintiff’s attorney in two ordinary commercial lawsuits, and such plaintiff’s attorney chose to add RICO claims to the complaints in those cases. In one case, the judge has dismissed those RICO claims with prejudice. While we flatly that our Company has or is engaged in any “” activities, no assurance or guarantee can be given that RICO will not continue to be asserted either by ’s attorneys or by prosecutors. The foregoing risks may have a material effect on our Company and the trading price of our common stock.
Shipping companies may be unwilling to serve Lifted
The Amended PACT Act has spurred shipping companies to terminate their relationships with Lifted because the shipping companies are unwilling to ship or mail ENDS products on behalf of Lifted. The loss of reliable and consistent shipping companies negatively impacts Lifted’s ability to serve its customers, and thus Lifted’s financial results are negatively impacted. Moreover, the fewer shipping/mailing companies that are willing to ship/mail products on behalf of Lifted, may cause shipping/mailing to become prohibitively expensive, causing lost sales. The foregoing risks may have a material adverse effect on our Company and the trading price of our common stock.
Pandemics or disease outbreaks, such as the coronavirus, may disrupt consumption and trade patterns, supply chains, and production processes, which may materially affect Lifted’s operations and results of operations
A public health epidemic, such as the COVID-19 pandemic that began in 2020, or the fear of a potential epidemic or pandemic, poses the risk that we or our employees, contractors, suppliers, and other partners may be prevented from conducting business activities for an indefinite period of time, including due to shutdowns or other preventative measures that may be requested or mandated by governmental authorities, or the risk that our access to employees, raw materials supply, manufacturing, distribution, transportation, sales, collections, insurance, banking relationships, cash flow, customers or other important aspects of our business could be seriously disrupted. There can be no assurances that we will be allowed to operate during any future actual or anticipated epidemic disease outbreak or pandemic. The foregoing risks may have a material adverse effect on our Company and the trading price of our common stock.
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Lifted, Cannabis Companies, or the hemp-derived, kratom-derived, marijuana, psychoactive and nicotine industries more generally, may receive unfavorable publicity or become subject to negative consumer or investor perception
The hemp-derived, kratom-derived, marijuana, psychoactive and nicotine industries are highly dependent upon positive consumer and investor perception regarding the benefits, safety, efficacy and quality of the hemp-derived, kratom-derived, marijuana, psychoactive and nicotine products sold to consumers. The perception of the hemp-derived, kratom-derived, marijuana, psychoactive and nicotine products industries, and hemp-derived, kratom-derived, marijuana, psychoactive and nicotine products, currently and in the future, may be significantly influenced by scientific research or findings, regulatory investigations, litigation, political statements, media attention and other publicity (whether or not accurate or with merit) relating to the consumption of hemp-derived, kratom-derived, marijuana, psychoactive or nicotine products, including unexpected safety or efficacy concerns arising with respect to hemp-derived, kratom-derived, marijuana, psychoactive or nicotine products or the activities of industry participants. There can be no assurance that future scientific research, findings, regulatory proceedings, litigation, media or governmental attention or other research findings or publicity will be favorable to the hemp-derived, marijuana, psychoactive or nicotine markets. future scientific research reports, findings and regulatory proceedings that are, or , media attention or other publicity that is, perceived as less than, or that earlier research reports, findings or publicity (whether or not accurate or with merit) may result in a significant reduction in the demand for Lifted’s products. Further, publicity reports or other media attention regarding the safety, efficacy and quality of hemp-derived, kratom-derived, marijuana, psychoactive or nicotine products, or of Lifted’s products specifically, or associating the consumption of hemp-derived, kratom-derived, marijuana, psychoactive or nicotine products with illness or other effects or events, may affect Lifted. This publicity may arise even if the effects associated with hemp-derived, kratom-derived, marijuana, psychoactive or nicotine products resulted from consumers’ to use such products legally, appropriately or as directed. The foregoing risks may have a material effect on our Company and the trading price of our common stock.
Nicotine is an addictive chemical and governmental health authorities want to curb its use
Nicotine is a highly addictive chemical, and governmental health authorities want to curb its use, especially by minors. Nicotine products are subject to extensive scrutiny, regulations, restrictions and/or prohibition by governmental health authorities in order to curb nicotine use. The foregoing risks may have a material adverse effect on our Company and the trading price of our common stock.
Many nicotine products have been linked to cancer
Many nicotine products such as cigarettes and cigars have been linked to lung, mouth, throat and other cancers. If Lifted’s nicotine-containing products are perceived by government health authorities, or proven by scientific studies, as being carcinogenic, then such products could be subject to regulations, restrictions and/or prohibitions by governmental health authorities in order to prevent cancer. Governmental regulations may already prohibit or require warning labels to be displayed on such products in certain jurisdictions. Lawsuits related to the use of such products may also occur. Such governmental regulations, restrictions and/or prohibitions by governmental health authorities, and such lawsuits, may materially adversely affect our Company. The foregoing risks may have a material adverse effect on our Company and the trading price of our common stock.
Some vaping products may have been linked to deaths and illnesses
Federal, state and local authorities are investigating deaths and illnesses apparently related to vaping. We can provide no guarantees or assurances that nicotine products, vapes, e-liquids and electronic cigarettes will not be prohibited, banned and/or heavily regulated in response to these deaths and illnesses, nor that Lifted will not be sued by customers who use Lifted’s nicotine products, vapes, e-liquids and electronic cigarette products. Prohibition, banning or regulation of such products, or lawsuits related to the use of Lifted’s products, may have a material adverse effect on our Company. The foregoing risks may have a material adverse effect on our Company and the trading price of our common stock.
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If Lifted is not able to comply with all safety, health and environmental regulations applicable to its operations and industry, Lifted may be held liable for any breaches of those regulations
Safety, health and environmental laws and regulations may affect aspects of Lifted’s operations, including product development, working conditions, waste disposal, emission controls, the maintenance of air and water quality standards and land reclamation, and, with respect to environmental laws and regulations, impose limitations on the generation, transportation, storage and disposal of solid and hazardous waste. Lifted may also follow other standards for the conduct of its operations and may be subject to ongoing compliance inspections in respect of these standards. Compliance with safety, health and environmental laws and regulations may require significant expenditures, and failure to comply with such safety, health and environmental laws and regulations may result in the imposition of fines and penalties, the temporary or permanent suspension of operations, the imposition of clean-up costs resulting from contaminated properties, the imposition of damages and the loss of or refusal of governmental authorities to issue permits or licenses to Lifted or to certify Lifted’s compliance with manufacturing practices (“GMP”) standards. Exposure to these liabilities may arise in connection with Lifted’s existing operations, its historical operations and operations that it may undertake in the future. Lifted could also be held liable for worker exposure to substances and for causing or death. There can be no assurance that Lifted will at all times be in compliance with all safety, health and environmental laws and regulations notwithstanding Lifted’s attempts to comply with such laws and regulations.
Changes in applicable safety, health and environmental standards may impose stricter standards and enforcement, increased fines and penalties for non-compliance, more stringent environmental assessments of proposed projects and a heightened degree of responsibility for Lifted and its officers, directors, employees and independent contractors. Lifted may not be able to determine the specific impact that future changes in safety, health and environmental laws and regulations may have on its industry, operations and/or activities and our resulting financial position; however, Lifted may anticipate that capital expenditures and operating expenses may increase in the future as a result of the implementation of new and increasingly stringent safety, health and environmental laws and regulations. Further changes in safety, health and environmental laws and regulations, new information on existing safety, health and environmental conditions or other events, including legal proceedings based upon such conditions or an inability to obtain necessary permits in relation thereto, may require increased compliance expenditures by Lifted. The foregoing risks may have a material adverse effect on our Company and the trading price of our common stock.
Obtaining GMP certification may be expensive and time-consuming
Obtaining GMP certification may be expensive and consuming of management’s time. The foregoing risk may have a material adverse effect on our Company and the trading price of our common stock.
Lifted may be unable to obtain GMP certification, and as a result, may lose business opportunities and/or existing customers
Certain potential, or existing customers, of Lifted’s products may require that Lifted’s products are manufactured in a facility that has obtained GMP certification. Lifted may be unable to obtain GMP certification, and thus may lose these potential business opportunities and/or existing customers. The foregoing risk may have a material adverse effect on our Company and the trading price of our common stock.
Lifted may lose profits or become subject to liability arising from any breach of contract or fraudulent or illegal activity by our suppliers, testing labs, employees, independent contractors, consultants and others
Lifted is exposed to the risk that its suppliers, testing labs, employees, independent contractors, consultants, service providers, business partners and licensors may engage in breach of contract or fraudulent, disreputable or other illegal activity. Misconduct by these parties could include, but is not limited to, intentional undertakings of unauthorized activities, or reckless or negligent undertakings of authorized activities, in each case on Lifted’s behalf or in Lifted’s service, that violate: (1) confidentiality agreements; (2) other contracts; (3) government regulations; (4) manufacturing standards; (5) laws that require the true, complete and accurate reporting of financial information or data; or (6) Lifted’s agreements with insurers. Or, an individual or company may illicitly replicate Lifted’s products and attempt to sell these knock-off products as Lifted or as Lifted’s agent. Consequently, Lifted could be to the of sales, revenue and profits, class action and other , increased governmental inspections and related sanctions, the of any compliance certifications or the to obtain future compliance certifications, and reputational or brand as a result of prohibited activities that are undertaken without Lifted’s knowledge or permission and to Lifted’s confidentiality agreements, contracts, internal policies, procedures and operating requirements. Lifted may be required to expend substantial time, effort and legal fees in order to address such situations.
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Lifted may not always identify and prevent misconduct by its suppliers, testing labs, employees, independent contractors, consultants, service providers, business partners and licensors, and the precautions taken by Lifted to detect and prevent this activity may not be effective in controlling unknown, unanticipated or unmanaged risks or losses or in protecting Lifted from governmental investigations or other actions or lawsuits stemming from such misconduct. If any such actions are instituted against Lifted, and Lifted is not successful in defending itself or asserting its rights, those actions may have a significant impact on its business, including the imposition of civil, criminal or administrative penalties, damages, monetary fines and contractual damages, reputational , profits and future earnings or of its operations. The foregoing risks may have a material effect on our Company and the trading price of our common stock.
Lifted, Lifted’s co-packers, or third party facilities where Lifted stores inventory, may experience security breaches at its/their facilities, or losses as a result of the theft of inventory
Because of the concentration of inventory at Lifted’s, Lifted’s co-packers', and at third parties’ facilities, Lifted, Lifted’s co-packers, and Lifted’s third parties’ storage facilities are subject to the potential risks of security breaches and theft of inventory. These risks may result in significant losses of raw goods, finished goods, inventory, or supplies, expose Lifted to additional liability under applicable regulations and to potentially costly litigation or increased expenses relating to the resolution and future prevention of similar thefts, any of which may have an adverse effect on Lifted’s business, financial condition and results of operations. The foregoing risks may have a material adverse effect on our Company and the trading price of our common stock.
Lifted may be subject to risks related to its information technology systems, including the risk that it may be the subject of a cyber-attack and the risk that it may be in non-compliance with applicable privacy laws
Lifted may have purchased or entered into agreements with third parties for website services, hardware, networks, equipment, software, payment processing services, website “plug-in” software, applications, telecommunications and other information technology services (“IT”) in connection with its operations. Lifted’s operations depend, in part, on how well it and its vendors protect its IT against damage from a number of threats, including, but not limited to, cable cuts, damage to physical plants, natural disasters, intentional damage and destruction, fire, power loss, disruptions in internet and mobile commerce, hacking, computer viruses, vandalism, theft, malware, ransomware and phishing attacks. Any of these and other events may result in IT failures, operational and financial reporting delays, increases in capital expenses, including potentially ransom payments, or other potential costs and business that may result if Lifted’s customers assert regarding Lifted’s technology. Lifted’s operations may also depend on the timely maintenance, upgrade and replacement of networks, equipment and IT systems, software and applications. The of IT systems, or a component of IT systems, may, depending on the nature of any such , impact Lifted’s reputations and results of operations.
There are a number of laws protecting the confidentiality of customer personal information, and restricting the use and disclosure of that protected information. Lifted may collect and store personal information about its customers and is responsible for protecting that information from privacy breaches. A privacy breach may occur through a procedural or process failure, an IT malfunction or deliberate unauthorized intrusions. Theft of data for competitive purposes, particularly customer lists and preferences, is an ongoing risk whether perpetrated through employee collusion or negligence or through deliberate cyber-attack. Moreover, if Lifted is found to be in violation of the privacy or security rules under laws protecting the confidentiality of customer information, including as a result of data theft and privacy breaches, Lifted and may be subject to sanctions and civil or , which may increase its liabilities and its reputation.
As cyber threats continue to evolve, Lifted may be required to expand significant additional resources to continue to modify or enhance its protective measures or to investigate and remediate any information security vulnerabilities. Significant disruption to Lifted's IT system or breaches of data security may have a material adverse effect on its business' financial condition and results of operations. The foregoing risks may have a material adverse effect on our Company and the trading price of our common stock.
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Cyber incidents or malicious attacks on Lifted's information technology systems could damage our reputation, negatively impact our business, and expose us to litigation risk
Lifted uses computers in substantially all aspects of its business operations. It also uses mobile devices, social networking and other online activities to connect with team members and customers. Lifted relies heavily on various proprietary and third-party information systems. Its reputation for the secure handling of customer and other sensitive information is critical to the success of its business. Like other businesses, Lifted is potentially subject to a range of cyber incidents, including but not limited to state-sponsored cyber-attacks, industrial espionage, insider threats, computer denial-of-service attacks, computer viruses, ransomware and other malware, data leakage and compromise, wire fraud, phishing incidents and other cyber incidents. Due to such constant evolving nature and methods of security threats, Lifted may not detect cyber incidents and may not be able to quickly or properly respond to cyber , and the cost and operational expense of implementing, maintaining and protective measures to guard increasingly complex and sophisticated cyber could increase significantly. Lifted's information technology and network infrastructure may be to attacks by hackers or during routine operations, such as system upgrades, or during network or hardware , or due to employee , , or software or computer viruses, actions of employees or contractors, power , natural , acts of terrorism, with respect to third-party systems or vendors, or other .
A cybersecurity incident and breach of its information systems could lead to theft, destruction, loss of life, damage to property, environmental issues, misappropriation or release of sensitive and/or confidential information or intellectual property, which could result in business disruption, facility shutdown, negative publicity, violation of privacy laws, loss of customers, partners or suppliers, brand damage, adverse financial and operational results, potential litigation, and additional expenses, including the cost of remediating incidents or improving security measures, increased insurance costs, or ransomware payments; and of data.
Our management depends on relevant and reliable information for decision-making purposes, including key performance indicators and financial reporting. Any significant loss of data, failure to maintain reliable data, disruptions affecting our information systems, or delays or difficulties in transitioning to new systems could adversely affect our business, financial condition and results of operations. In addition, our ability to continue to operate our businesses without significant interruption in the event of a disaster or other disruption depends in part on the ability of our information systems to continue to operate properly. If our information systems fail and/or if our insurance does not sufficiently compensate us for any losses that we may incur, our revenues and profits could be reduced, and the reputation of our brands and our business could be adversely affected. In addition, remediation of such could result in significant, capital investments. The foregoing risks may have a material effect on our Company and the trading price of our common stock.
If Lifted's computer systems, or the computer systems of third party software or service providers, or the underlying infrastructure of the internet, are breached or compromised, and unauthorized access is obtained to Lifted's data or customer’s data, or authorized access is blocked or disabled, then we may incur significant legal exposure and liabilities, or a negative financial impact
Lifted's business involves the storage and transmission of its customers’ proprietary and sensitive data. We can provide no assurances that Lifted can effectively protect its customers’ data, as such data may in the future be materially breached or compromised as a result of events such as: third-party attempts to fraudulently induce Lifted's employees, independent contractors, partners or customers to disclose sensitive information such as usernames, passwords or other information to gain access to its customers’ data or IT systems, or data or our IT systems; efforts by individuals or groups of hackers and sophisticated organizations, such as state-sponsored organizations or nation-states, to launch coordinated attacks, including ransomware, destructive malware and distributed denial-of-service attacks; third-party attempts to abuse marketing, advertising, messaging or social products and functionalities to impersonate persons or organizations and disseminate information that is false, misleading or malicious; on third party and/or internally built IT infrastructure on which much of Lifted's business rely; resulting from and updates to software and IT systems; in the products or components across the broad ecosystem within which Lifted's services operate in conjunction with and are dependent on; existing within or resulting from new technologies, infrastructures, protocols, laws, rules, and regulations; attacks on, or in, the many different underlying networks and services that power the internet that Lifted depends on, most of which are not under our control or the control of our vendors, partners or customers; and employee or contractor or acts that compromise Lifted's computer systems.
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We can provide no assurances or guarantees whatsoever that our IT systems will provide security or otherwise be effective or that a material breach will not occur. For examples, and without limitations, Lifted's ability to mitigate these risks may be impacted by the following among other events: changes to, and growth in the complexity of, the techniques used to breach, obtain unauthorized access to, or sabotage IT systems and infrastructure, which are generally not recognized until launched against a target, and could result in Lifted being unable to anticipate or implement adequate measures to prevent such techniques; the continued evolution of internal IT systems as Lifted adopts new technologies and new ways of sharing data and communicating internally and with partners and customers, which increases the complexity of IT systems; the acquisition of new subsidiaries, requiring Lifted to incorporate and secure different or more complex IT environments; authorization by customers to third-party technology providers to access their customer data, which may lead to Lifted's customers’ inability to protect its data that is stored on Lifted’s servers and on third parties' servers; and of control over customers or third-party technology providers, or the processing of data by third-party technology providers, which may not allow Lifted to maintain the or security of such transmissions or processing.
We believe that, in the normal course of business, Lifted has been the target of malicious cyberattack attempts and has experienced other IT security incidents especially in regard to Lifted's banking, credit card, and other financial activities. There can be no assurance that future cyberattacks and other IT security incidents will not be material or significant. An IT security breach or incident could result in unauthorized parties obtaining access to, or the denial of authorized access to, Lifted's IT systems or data, or customers’ systems or data, including intellectual property and proprietary, sensitive or other confidential information. An IT security breach or incident could also result in litigation against us, negatively impact our future sales, our business, and lead to increases in insurance premiums and legal, regulatory and financial exposure and liability. All of the foregoing risks may have a material effect on our Company and the trading price of our common stock.
Cybersecurity attacks, business interruptions and compliance issues experienced by third parties could materially and adversely affect our financial condition, results of operation and cash flows
We rely on relationships with third parties, including suppliers, distributors, contract packers, contractors, cloud data storage and other information technology service providers and other external business partners, for certain functions or for services in support of our operations. These third-party service providers and partners, with whom we may share data, have, and could in the future, experience cybersecurity attacks. Third parties have been, and could in the future, experience challenges complying with laws and regulation, such as data protection requirements, and interruptions to business systems, disruption to operations, and employee failures. While we have procedures in place for selecting and managing our relationships with third-party service providers and other business partners, we do not have control over their business operations or governance and compliance systems, practices and procedures. Furthermore, our management of multiple third party service providers increases our operational complexity. Third parties have and could in the future experience cybersecurity attacks that may involve data we share with them or rely on them to provide to us with respect to timely notification and access to personnel and information concerning an incident, which may complicate our efforts to any issues that arise. As a result, we are subject to the risk that the activities associated with our third party service providers and partners will affect our business, even if the cyber security attack does not directly impact our systems or information. Additionally, these risks are also present in target companies, acquired businesses, joint ventures or companies that we invest in or with whom we partner. Such businesses use separate information systems or have not yet been fully integrated into our information systems. These risks may have a material effect on our Company and the trading price of our common stock.
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Lifted does not have the manpower, expertise or financial resources to effectively identify, detect, prevent or remediate cybersecurity risks
The identification, detection, prevention and remediation of known or potential IT security vulnerabilities, including those arising from third-party hackers, hardware or software, is extremely costly and time consuming. Lifted does not have the manpower, expertise or financial resources to effectively identify, detect, prevent or remediate cybersecurity risks. No assurance or guarantee whatsoever can be given that Lifted will not be seriously damaged by the exploitation of its cybersecurity vulnerabilities. These risks may have a material adverse effect on our Company and the trading price of our common stock.
If Lifted or our third-party service providers experience an actual or perceived cybersecurity event, our platform may be perceived as not being secure, and we may lose customers or incur significant liabilities, which would harm our business and operating results
Lifted's operations involve the storage, transmission and processing of internal and customers’ confidential, proprietary and sensitive data, which may include personally identifiable information, and financial information. Computer malware, ransomware, viruses, hacking, phishing and denial of service attacks by third parties have become more prevalent in internet-enabled commerce, and we believe that Lifted has been the target of hackers and scammers in the past, and likely will be the target of hackers and scammers in the future.
We may not be able to prevent material breaches of our IT systems caused by intentional or unintentional action or inaction by employees or third parties, which may result in the unauthorized access or release of our instances and ultimately our or our customers’ data, IP and other confidential business information.
A security breach suffered by Lifted or third-party service providers, an attack against our service availability or unauthorized access or loss of data could result in a disruption to our service, litigation, service level agreement claims, indemnification and other contractual obligations, regulatory investigations, government fines and penalties, reputational damage, loss of sales and customers, mitigation and remediation expenses and other significant costs and liabilities. In addition, we may incur significant economic and operational consequences in order to appropriately assess and respond to security incidents and to implement appropriate safeguards to protect against future . We do not believe that Lifted's insurance will be adequate or sufficient to cover the potentially significant that may result from an IT security .
Additionally, as we increase reliance on third-party and public cloud infrastructure, we depend in part on third-party security measures to protect against unauthorized access, cyberattacks and the mishandling of data. However, we have little or no ability to monitor our third-party service providers’ data security. Similarly, employee error or malfeasance in configuring, maintaining, and using services offered by third-party providers may affect our ability to monitor and secure such services. Any breach of our providers’ security measures or misconfiguration or misuse of our software or our providers’ services may result in unauthorized access to, or the misuse, loss or destruction of, our and our customers’ data or in a violation of our terms or applicable law, which may result in reputational or liability.
We cannot guarantee that Lifted's IT systems have not been compromised or that they do not contain exploitable defects or bugs that could result in a breach of or disruption to our platform, systems and network or the systems and networks of third parties that support us and our business. Third parties may also exploit vulnerabilities in, or obtain unauthorized access to, platforms, systems, networks, or physical facilities utilized by us or our third-party vendors or service providers. Furthermore, supply chain disruptions due to wars and/or sanctions (and resulting legal or regulatory developments) and any indirect effects may further complicate any existing supply chain constraints. All of the foregoing risks may have a material adverse effect on our Company and the trading price of our common stock.
Failure to maintain satisfactory compliance with certain privacy and data protections laws and regulations may subject us to substantial negative financial consequences and civil or criminal penalties
Complex local, state, national, foreign and international laws and regulations apply to the collection, use, retention, protection, disclosure, transfer and other processing of personal data. These privacy and data protection laws and regulations are quickly evolving, with new or modified laws and regulations proposed and implemented frequently and existing laws and regulations subject to new or different interpretations and enforcement. In addition, our legal and regulatory obligations in jurisdictions outside the U.S. are subject to unexpected changes, including the potential for regulatory or other governmental entities to enact new or additional laws or regulations, to issue rulings that invalidate prior laws or regulations or to increase penalties significantly. Becoming aware of, and complying with, these laws and regulations can be costly and can impede the development and offering of new products and services.
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These laws and regulations, as well as changes and new laws and regulations that apply to personal data, subject the Company to, among other things, additional costs and may require changes to our business practices, security systems, policies, and procedures. Any failure by Lifted to comply with applicable laws and regulations or other obligations to which we may be subject relating to personal data, or to protect personal data from unauthorized access, use or other processing, could result in enforcement actions and regulatory investigations against us, claims for damages by customers and other affected individuals, fines, loss of consumer confidence, and damage to our brand reputation, and which may subject us to government enforcement actions (including fines and injunctions), any of which could have a material adverse effect on our operations, financial performance, business. These risks may have a material effect on our Company and the trading price of our common stock.
An infectious hop latent viroid might adversely affect the availability and cost of our raw materials
It has been reported that experts have sounded an alarm over the global spread of a dangerous and infectious hop latent virus (HpLVd) that is threatening to potentially cause billions of dollars of losses for cannabis and hop growers. If this viroid were to cause significant problems for hemp growers in the US, it might potentially decrease the availability, and increase the cost, of hemp and hemp-derived cannabinoids that are the principal raw materials for many of our products. The foregoing risk may have a material adverse effect on our Company and the trading price of our common stock.
Communications by employees of regulatory agencies and/or law enforcement may disrupt the sales of our products
Employees of federal, state and local regulatory agencies and/or law enforcement sometimes make statements and/or issue correspondence that claim or imply that certain hemp-derived cannabinoid products are unsafe or illegal. These statements and correspondence, and industry publications and/or news media coverage of such statements and correspondence, sometimes trigger confusion, uncertainty or alarm among the distributors, retailers and consumers who purchase our products, and sometimes result in decreased sales or returns/exchanges of our products. The foregoing risks may have a material adverse effect on our Company and the trading price of our common stock.
Lifted’s production and shipping facilities are integral to its business and adverse changes or developments affecting our facilities may have an adverse impact on our business
Lifted production and shipping facilities are integral to its business. Adverse changes or developments affecting these facilities, including, but not limited to, the spoiling of raw and finished goods, a fire, an explosion, equipment failure, a power failure, a natural disaster, inclement weather, an epidemic, pandemic or other public health crisis, or a material failure of our security infrastructure, could reduce or require Lifted to entirely suspend operations at the affected facilities. The foregoing risks may have a material adverse effect on our Company and the trading price of our common stock.
Lifted may be unable to grow
Lifted's business is subject to a variety of business risks generally associated with developing companies. Lifted’s ability to grow, and to expand and maintain market acceptance for its products, will depend on a number of factors, many of which may be beyond its control. Future development and expansion could place significant strain on Lifted’s management personnel and likely will require them to recruit additional management personnel, and there is no assurance that it will be able to do so. The foregoing risks may have a material adverse effect on our Company and the trading price of our common stock.
Lifted may be unable to expand its operations quickly enough to meet demand or manage its operations beyond their current scale
There can be no assurance that Lifted will be able to manage its expanding operations effectively, that it will be able to sustain or accelerate its growth, or that such growth, if achieved, will result in profitable operations, or that Lifted will be able to attract and retain sufficient management personnel necessary for continued growth.
Demand for Lifted’s products is dependent on a number of social, political and economic factors that are beyond Lifted’s control. There is no assurance that an increase in existing demand will occur, that Lifted will benefit from any such demand increase or that its business will remain profitable even in the event of such an increase in demand. The foregoing risks may have a material adverse effect on our Company and the trading price of our common stock.
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Lifted may experience significant fluctuations in its operating results and growth rate
Lifted may not be able to accurately forecast its growth rate. Lifted’s revenue growth may not be sustainable, and its percentage growth rates may decrease. Lifted’s revenue and operating profit growth may depend on the continued growth of demand for its products and services, and its business may be affected by general economic and business conditions worldwide, and an evolving regulatory and legal landscape for Lifted’s products. A softening of demand, whether caused by changes in customer preferences or a weakening of the U.S. or global economies, may result in decreased revenue or growth.
Lifted’s sales and operating results may also fluctuate for many other reasons, including due to risks described elsewhere in this section and due to risks and uncertainties associated with the following topics and issues:
Issues associated with the legality or safety of products containing hemp-derived cannabinoids, kratom derivatives, marijuana, psychoactive substances, or other consumable products, including nicotine products;
Labor unavailability, supply chain disruptions, and other issues and problems associated with pandemics and other force majeure-type events and conditions;
Lifted’s ability to retain and increase sales to existing customers, attract new customers, satisfy customers’ demands, and maintain profit margins;
Lifted’s ability to retain and expand its network of wholesalers and distributors;
Lifted’s ability to expand its online sales;
Competition from substantially larger and financially stronger competitors;
Continued access to inventory and suppliers, some of whom may be acquired by competitors or otherwise become unavailable to Lifted;
Lifted’s ability to offer products on favorable terms, manage inventory, and fulfill orders;
The introduction of competitive stores, websites, applications, products, services, price decreases, or improvements, and changes in consumer preferences and trends;
Changes in usage or adoption rates of the internet, e-commerce, electronic devices, and web services, including outside the U.S.;
Timing, effectiveness, and costs of expansion and upgrades of Lifted’s systems and infrastructure;
The success of Lifted’s geographic, service, and product line expansions;
Lifted’s ability to properly store inventory to avoid spoilage and to ensure that devices (such as vapes) work properly;
Lifted’s ability to properly forecast product demand, so that excess inventory (which could eventually become spoiled or obsolete) is not built up;
The extent to which Lifted finances, and the terms of any such financing for, Lifted’s current operations and future growth;
The outcomes of current and future legal proceedings and claims, which may include significant settlement costs, legal fees, monetary damages or injunctive relief and which could have a material adverse impact on Lifted's operating results, balance sheet and liquidity;
Tax laws, rules and regulations, the interpretation of tax laws, rules and regulations such as IRS Code Section 280E, and tax audits and the potential for increased taxes and penalties, which could have a material adverse impact on Lifted's operating results, balance sheet and liquidity
Variations in the mix of products and services that Lifted sells;
Variations in Lifted’s level of merchandise and vendor returns;
The extent to which Lifted offers favorable shipping terms, reduces prices, offers discounts, and provides additional benefits to its customers;
Factors affecting Lifted’s reputation or brand images;
The extent to which Lifted invests in technology and content, fulfillment, and other expense categories;
Increases in the prices of energy products and commodities like plastic, batteries, paper and packing supplies;
The ability to collect amounts owed to Lifted when they become due;
The extent to which Lifted is affected by spyware, viruses, phishing and other spam emails, denial of service attacks, data theft, computer intrusions, outages, and similar events or cyberattacks; and
Terrorist attacks and armed hostilities.
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The foregoing risks may have a material adverse effect on our Company and the trading price of our common stock.
Lifted may be subject to risks related to the protection and enforcement of its intellectual property rights, or intellectual property it licenses from others, and may become subject to allegations that it or its licensors are in violation of intellectual property rights of third parties
The ownership, licensing and protection of trademarks, patents and intellectual property rights may be significant aspects of Lifted’s future success. Unauthorized parties may attempt to replicate or otherwise obtain and use Lifted’s look and feel, packaging, products and technology. Policing the unauthorized use of Lifted’s current or future trademarks, patents or other intellectual property rights now or in the future may be difficult, expensive, time consuming and unpredictable, as may be enforcing these rights against the unauthorized use by others. Identifying the unauthorized use of intellectual property rights is difficult as Lifted may be unable to effectively monitor and evaluate the products being distributed by its competitors, and the processes used to produce such products.
In addition, in any infringement proceeding, some or all of Lifted’s trademarks, patents or other intellectual property rights or other proprietary know-how, and that which they may license from others, or arrangements or agreements seeking to protect the same for Lifted’s benefit, may be found invalid, unenforceable, anticompetitive or not infringed or may be interpreted narrowly and such proceeding may put existing intellectual property applications at risk of not being issued. In addition, other parties may claim that Lifted’s products, or those that they license from others, infringe on their proprietary, copyright or patent protected rights. Such claims, whether or not meritorious, may result in the expenditure of significant financial and managerial resources and legal fees, result in injunctions or temporary restraining orders or require the payment of damages. As well, Lifted may need to obtain licenses from third parties who allege that Lifted has on their lawful rights. Such licenses may not be available on terms acceptable to Lifted, or at all. In addition, Lifted may not be to obtain or utilize on terms that are to them, or at all, licenses or other rights with respect to intellectual property that they do not own.
Lifted may also rely on certain trade secrets, technical know-how and proprietary information that are not protected by patents to maintain its competitive position. Lifted’s trade secrets, technical know-how and proprietary information, which are not protected by patents, may become known to or be independently developed by competitors, which may adversely affect Lifted. The foregoing risks may have a material adverse effect on our Company and the trading price of our common stock.
If we fail to protect our trademarks and trade secrets, we may be unable to successfully market our products and compete effectively
We rely on a combination of trademark and trade secrecy laws, confidentiality procedures and contractual provisions to protect our intellectual property rights. Failure to protect our intellectual property could harm our brands and our reputation, and adversely affect our ability to compete effectively. Further, enforcing or defending our intellectual property rights, including our trademarks and trade secrets, could result in the expenditure of significant financial and managerial resources. We regard our intellectual property, particularly our trademarks and trade secrets, as crucial to our business and our success. However, the steps taken by us to protect these proprietary rights may not be adequate and may not prevent third parties from infringing or misappropriating our trademarks, trade secrets or similar proprietary rights. In addition, other parties may seek to assert infringement claims against us, and we may have to pursue other parties to assert our rights. Any such claim or could be . In addition, any event that would our proprietary rights or any of by third parties could have a material effect on our ability to market or sell our brands, our products or recoup our associated research and development costs. The foregoing risks may have a material effect on our Company and the trading price of our common stock.
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Lifted may be exposed to risks relating to the laws of various countries as a result of its expanding international sales and distribution
Lifted’s products are currently sold and distributed internationally, and Lifted plans to expand these international sales and distribution. As a result, we are exposed to various levels of political, economic, legal and other risks and uncertainties associated with selling, distributing and exporting to these jurisdictions. These risks and uncertainties include, but are not limited to, changes in the laws, regulations and policies governing the production, sale and use of Lifted’s products, political instability, instability at the United Nations level, currency controls, fluctuations in currency exchange rates and rates of inflation, labor unrest, changes in taxation laws, regulations and policies, restrictions on foreign exchange and repatriation and changing political conditions and governmental regulations relating to foreign investment and our industries more generally.
Changes, if any, in the laws, regulations and policies relating to the advertising, production, sale and use of Lifted’s products or in the general economic policies in these jurisdictions, or shifts in political attitude related thereto, may adversely affect the profitability of our sales and distribution in these countries. As we explore novel business models, international regulations will become increasingly challenging to manage. Specifically, our operations may be affected in varying degrees by government regulations with respect to, but not limited to, restrictions on advertising, production, price controls, controls on currency remittance, and increased income taxes. Failure to comply strictly with applicable laws, regulations and local practices may result in additional taxes, costs, civil or criminal fines or penalties or other expenses being levied on our international operations, as well as other potential adverse consequences such as the loss of necessary permits or governmental approvals.
Furthermore, there is no assurance that we will be able to secure any requisite import and export approvals, licenses or permits that are necessary or desirable for the international sale and distribution of our products. Even if we obtain the necessary import and export approvals, there may be shipment delays or other challenges related to the delivery of our products to customers in other countries. Countries may also impose restrictions or limitations on imports. As a result, we may be required to establish facilities in one or more countries in the European Union (or elsewhere) where we wish to distribute our products in order to take advantage of the favorable legislation offered to producers located in these countries. The foregoing risks may have a material adverse effect on our Company and the trading price of our common stock.
Lifted faces risks associated with its expansion into new markets outside of the current jurisdictions where we conduct business
We plan in the future to expand our operations and business into jurisdictions outside of the jurisdictions where we currently conduct business. There can be no assurance that any market for our products will develop in any such foreign jurisdiction. We may face new or unexpected risks or significantly increase our exposure to one or more existing risk factors, including economic instability, new competition, changes in laws and regulations, the possibility that we may be in violation of these laws and regulations as a result of such changes, taxes, and potential litigation, among other risks. These risk factors may limit our capability to successfully expand our sales, distribution or export of our products to such jurisdictions. The foregoing risks may have a material adverse effect on our Company and the trading price of our common stock.
We may be unable to grow our revenues, or our revenues may decrease, and we may be forced to adjust our operations accordingly
Lifted’s ability to grow its revenues will depend on a number of factors, many of which are beyond our control, including, but not limited to, the availability of sufficient capital on suitable terms, changes in laws and regulations respecting the production and distribution of our products, competition from others, the size of the illicit market, and our ability to produce sufficient volumes of our products to meet demand. Our revenues may decrease for many reasons. Regulatory changes, particularly in the primary jurisdictions where we operate, may prohibit or restrict the sale of our products, or may attract new market entrants and more competition. In addition, any future development and expansion may place significant strain on our management personnel and likely will require us to recruit additional management personnel, and there is no assurance that we will be able to do so. The foregoing risks may have a material adverse effect on our Company and the trading price of our common stock.
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Price volatility may adversely affect operations
Lifted’s profitability is sensitive to fluctuations in the costs of raw goods, which may be impacted by changes in availability of supply (which itself depends on other factors such as weather, fuel, equipment, labor costs, raw goods costs, shipping costs, national holidays, and demand), tariffs, taxes, governmental policies, and other market conditions, all of which are factors beyond the control of Lifted. Lifted's operational results are also sensitive to manufacturing costs, and the overall condition of the intoxicating product industry. Price volatility may have a material adverse effect on Lifted's business, financial condition, and results of operations. The foregoing risks may have a material adverse effect on our Company and the trading price of our common stock.
We depend on a limited number of customers for a substantial portion of our revenue. If we fail to retain or expand our customer relationships or significant customers reduce their purchases, our revenue may decline significantly
Our business is dependent on a limited number of customers for a substantial portion of our revenue. If we fail to retain or expand our customer relationships or significant customers reduce their purchases, our revenue may decline significantly. The foregoing risks may have a material adverse effect on our Company and the trading price of our common stock.
Consumers in our industry are brand-conscious, so brand name recognition and acceptance of our products are critical to our success
Our business is in part dependent upon customer awareness of our brands and market acceptance of our products. If we do not successfully grow our brands and product offerings, we may not achieve and maintain satisfactory levels of acceptance by distributors, wholesalers and end consumers. Any failure of our brands to maintain or increase acceptance or market penetration may likely have a material adverse effect on our revenues and financial results. There can be no guarantee or assurance that any rebrand of Lifted’s brands will be successful or result in any additional sales or profits for Lifted. Moreover, we cannot predict whether our advertising, marketing and promotional programs will have the desired impact on our sales, products' branding and on consumer preferences. In addition, negative public relations and product quality issues, including negative perceptions regarding the industries in which we operate, whether real or imagined, may damage our reputation and brands and may cause customers to choose other brands’ products over our products. Our brand image may also be affected by reports, studies and articles, , or regulatory or other governmental action, whether involving our products or those of our competitors. The foregoing risks may have a material effect on our Company and the trading price of our common stock.
Lifted may have limited access to financial and insurance services and products
Some financial institutions and insurance companies refuse to provide a full range of financial and insurance services and products to Lifted because its business involves hemp-derived products, marijuana, psychoactive products, vaping products, and nicotine products. Or, the cost of insurance may be prohibitively high. The foregoing risks may have a material adverse effect on our Company and the trading price of our common stock.
We may not be able to obtain or afford insurance coverage in respect of the risks our business faces, or there may be coverage limitations and other exclusions which may result in such insurance not being sufficient to cover potential liabilities that we face
We may not be able to obtain or afford insurance coverage in respect of certain risks that our business faces, including product liability insurance, protecting our assets, the loss of employees, and operations. Even if insurance is obtained, our insurance coverage may be subject to coverage limits and exclusions and may not be available for the risks and hazards to which we are exposed. In addition, no assurance can be given that such insurance will be adequate to cover our liabilities, including potential product liability claims or product recall costs, or will be generally available in the future or, if available, that premiums will be commercially justifiable. If we were to incur substantial liability and such damages were not covered by insurance or were in excess of policy limits, then we may be exposed to material uninsured liabilities that may impede our liquidity, profitability or . The foregoing risks may have a material effect on our Company and the trading price of our common stock.
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Lifted may sustain losses that cannot be recovered through insurance or other preventative measures
There is no assurance that Lifted will not incur uninsured liabilities and losses, especially in regard to uninsured or uninsurable products, and product recalls. The foregoing risk may have a material adverse effect on our Company and the trading price of our common stock.
Increased labor costs, potential organization of our workforce, employee strikes, and other labor-related disruption may adversely affect our operations
It is difficult for Lifted to identify and hire new employees and independent contractors in the current environment: the labor market is limited and labor costs have increased. None of our employees are represented by a labor union or subject to a collective bargaining agreement. We cannot assure that our labor costs going forward will remain competitive based on various factors, such as: (1) labor costs may continue to increase as the labor supply is tight; (2) our workforce may organize in the future and labor agreements may be put in place that have significantly higher labor rates and company obligations; (3) our competitors may maintain significantly lower labor costs, putting us at a competitive disadvantage; and (4) our labor costs may increase in connection with our growth. The foregoing risks may have a material adverse effect on our Company and the trading price of our common stock.
Significant interruptions in our access to certain supply chains for key inputs such as raw materials, supplies, electricity, water and other utilities may impair our operations
Our business is dependent on a number of key inputs and their related costs, including raw materials, supplies and equipment related to our operations, co-packers, as well as electricity, water and other utilities. Our suppliers, co-packers and customers are dispersed. Governments may regulate or restrict the flow of labor or products, and Lifted’s operations, suppliers, customers and distribution channels could be severely impacted. For examples: China or other nations could regulate or restrict the flow of raw materials and products to the United States; the shipment of raw materials and products by sea and/or air from China and other locations to the United States may be banned, limited, disrupted, delayed or increased in cost; the Chinese New Year celebrations may disrupt or delay shipments of raw materials and products; states in which Lifted operates could impose prohibitions or restrictions on the operation of “non-essential” businesses, and might characterize Lifted as a “non-essential” business. Any significant future governmental-mandated or market-related delay, interruption, price increase or negative change in the availability or economics of the supply chain for key inputs and, in particular, rising or shipping and energy costs, may or our ability to continue production. In addition, our operations would be significantly affected by power , or equipment . Our ability to compete is 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 in maintaining our required supply of labor, equipment, parts and components. The foregoing risks may have a material effect on our Company and the trading price of our common stock.
We may be negatively impacted by challenging global economic conditions
Our business, financial condition, results of operations and cash flow may be negatively impacted by challenging global conditions, including high interest rates, inflation, bankruptcies, layoffs, wars, tariffs, pandemics, civil unrest, and many other factors beyond Lifted’s control. We are unable to predict the likelihood of the occurrence, duration or severity of such global economic conditions and disruptions caused thereby. Any general or market-specific economic downturn could have a material adverse effect on our business, financial condition, results of operations and cash flow. The foregoing risk may have a material adverse effect on our Company and the trading price of our common stock.
We face risks associated with the transportation of our products to consumers in a safe and efficient manner
We depend on fast, cost-effective, and efficient transportation services to distribute our products to distributors, wholesalers and end users. Any prolonged disruption of third-party transportation services may have a material adverse effect on our sales volumes or satisfaction with our services. Rising costs associated with third-party transportation services used by us to ship our products may also adversely impact our profitability, and more generally our business, financial condition and results of operations. The foregoing risks may have a material adverse effect on our Company and the trading price of our common stock.
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Lifted’s inventory may be stolen in transit
Lifted is subject to the potential risk of theft of inventory in transit. This risk, which has already occurred more than once, may result in significant losses of raw goods, finished goods, inventory, or supplies, expose Lifted to additional liability under applicable regulations and to potentially costly litigation or increased expenses relating to the resolution and future prevention of similar thefts, any of which may have an adverse effect on Lifted’s business, financial condition and results of operations. There can be no assurance that this risk can be effectively mitigated via insurance. The foregoing risk may have a material adverse effect on our Company and the trading price of our common stock.
Our products may be subject to recalls for a variety of reasons, which could require us to expend significant management and capital resources
Manufacturers and distributors of products such as those that Lifted sells are sometimes subject to the recall or return of their products for a variety of reasons, including product defects, such as contamination, adulteration, unintended harmful side effects or interactions with other substances, packaging safety, and inadequate or inaccurate labeling disclosure. There can be no assurance that any quality, potency or contamination problems will be detected in time to avoid unforeseen product recalls, regulatory action or lawsuits, whether frivolous or otherwise. If any of the products produced by us are recalled due to an alleged product defect or for any other reason, we may be required to incur the expense of the and any legal proceedings that might arise in connection with the . As a result of any such , we may a significant amount of sales and may not be to replace those sales at an acceptable gross profit or at all. In addition, a product may require significant management attention or our reputation and goodwill or that of our products or brands, and our relationships with customers.
Additionally, product recalls may lead to increased scrutiny of our operations by the FDA or by state regulatory agencies, requiring further management attention, increased compliance costs and potential lawsuits, legal fees, fines, penalties and other expenses. Any product recall affecting the hemp-derived, marijuana, psychoactive and nicotine products industries more broadly, whether or not involving us, may also lead consumers to lose confidence in the general safety and security of hemp-derived, marijuana, psychoactive and nicotine products, including products sold by us. The foregoing risks may have a material adverse effect on our Company and the trading price of our common stock.
Companies and regulators in the marijuana and alcohol industries are often hostile to the hemp-derived products industry, and sometimes use their political strength to seek prohibition, regulation and/or taxation of hemp-derived products including products, such as those containing delta-8-THC and delta-9-THC
Companies and regulators in the marijuana and alcohol industries are often hostile to the hemp-derived products industry, as they witness the growing popularity of hemp-derived products taking sales away from state-licensed marijuana dispensaries, or alcohol sales. They sometimes use their political strength to seek prohibition, stricter regulations and/or additional taxation of hemp-derived products, including for example, products containing delta-8-THC and delta-9-THC. Prohibitions, restrictions and taxes are now imposed on the shipment and/or sale of certain hemp-derived products in many states, and are being considered by other states. These restrictions, prohibitions and taxes may have a material adverse effect on Lifted. The foregoing risks may have a material adverse effect on our Company and the trading price of our common stock.
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Lifted may be subject to product liability claims or regulatory action if its products are alleged to have caused significant loss or injury
Lifted, as a manufacturer and distributor of products which in some cases are ingested by humans, face the risk of exposure to product liability claims, regulatory action and litigation if its products are alleged to have caused loss or injury. Lifted may be subject to these types of claims due to allegations that its products caused or contributed to injury, illness or death, failed to include adequate instructions for use, were defective, or failed to include adequate warnings concerning possible side effects or interactions with other substances. Previously unknown adverse reactions resulting from human consumption of hemp-derived products, marijuana, psychoactive substances, and nicotine alone or in combination with other medications or substances may also occur. Lifted may also be named as co-parties in product liability suits that are brought manufacturing partners that produce our products, packaging for those products, or the ingredients in those products. In addition, our customers and partners may bring suits us for the of our products to meet stated specifications or other requirements. Any such suits, even if not , could be , the attention of our management and our negotiations with distributors and/or customers. In addition, the manufacture and sale of any such products, like the manufacture and sale of any ingested product, involves a risk of to consumers due to tampering by third parties or product contamination. Lifted may in the future have to certain of its products as a result of potential contamination and quality assurance . A product liability claim or regulatory action Lifted may result in increased costs and may affect Lifted’s reputation and goodwill with its customers. There can be no assurance that Lifted will be to obtain product liability insurance on acceptable terms or with adequate coverage potential liabilities, if at all. Any attempt by us to limit our product liability through any of our insurance policies may not be enforceable or may be subject to exceptions. Insurance is expensive and may not be available in the future on acceptable terms, or at all. The to obtain sufficient insurance coverage on reasonable terms or to otherwise protect potential product liability may result in us becoming subject to significant liabilities that are and also may affect Lifted’s leases and other commercial arrangements with third parties. Our contract manufacturers or manufacturing partners may not have adequate insurance coverage themselves to cover , and we may not be named on their policies as an additionally insured party. If we experience a large , it may exceed any insurance coverage limits we have at that time, or our insurance carrier may to cover us or may raise our insurance rates to levels, any of which could our financial position. The foregoing risks may have a material effect on our Company and the trading price of our common stock.
We rely on third-party distributors to distribute our products, and those distributors may not perform their obligations
We rely on third-party distributors to distribute our products. If these distributors do not successfully sell our products, if there is a delay or interruption in the distribution of our products, or if these third parties damage our products, our revenue may be negatively impacted. Any damage to our products, such as product spoilage, may expose us to potential product liability, damage our reputation and the reputation of our brands or otherwise harm our business. The foregoing risks may have a material adverse effect on our Company and the trading price of our common stock.
We rely on third party vendors to manufacture some of our products, and those third party vendors may not perform their obligations
We rely on third party vendors to manufacture some of our products. If these third party vendors do not successfully carry out their contractual duties, if there is a delay or interruption in the manufacture of our products, or if these third party vendors produce defective products, it may negatively impact our revenue from product sales. Any negative impact to the production of our products by the third party vendors may expose us to potential product liability, damage our reputation and the reputation of our brands or otherwise harm our business. The foregoing risks may have a material adverse effect on our Company and the trading price of our common stock.
Certain events or developments in the cannabis and psychoactive products industries more generally may impact our reputation
Damage to our reputation can result from the actual or perceived occurrence of any number of events, including any negative publicity, whether true or not. As a producer and distributor of hemp-derived and other psychoactive products, there is a risk that our business might attract negative publicity. There is also a risk that the actions of other companies and service providers in the cannabis and psychoactive products industries may negatively affect the reputation of the industries as a whole and thereby negatively impact our reputation. The increased usage of social media and other web-based tools used to generate, publish and discuss user-generated content and to connect with other users has made it increasingly easier for individuals and groups to communicate and share negative opinions and views in regards to our activities and the cannabis and psychoactive products industries in general, whether true or not. We do not ultimately have direct control over how we or the cannabis or psychoactive products industries are perceived by others. Reputational issues may result in decreased investor confidence, increased challenges in developing and maintaining community relations and present an to our overall ability to advance our business strategy and realize on our growth prospects. This may also impact our ability to attract and/or maintain business partners that are not primarily engaged in the cannabis and psychoactive products industries, such as major convenience stores. The foregoing risks may have a material effect on our Company and the trading price of our common stock.
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Some companies in the cannabis and psychoactive products industries are owned or controlled by people with criminal backgrounds or by people with little regard for compliance with applicable laws, rules and regulations
The cannabis and psychoactive products industries includes people with criminal backgrounds or who operated their cannabis and psychoactive products businesses illegally for many years. In addition, the cannabis and psychoactive products industries include people who seem to have little regard for compliance with all applicable laws, rules and regulations. This has sometimes resulted in a competitive environment in which publicly traded companies are at a relative disadvantage to certain privately held companies. This “unlevel playing field” may have a material adverse effect on Lifted. The foregoing risks may have a material adverse effect on our Company and the trading price of our common stock.
The seasonality of Lifted’s business creates variable financial results, and may place increased strain on its operations
Sometimes a disproportionate amount of Lifted's net sales occur during a particular quarter. If Lifted does not stock or restock popular products in sufficient amounts such that it fails to meet seasonal customer demand, it may significantly affect Lifted’s revenue and future growth. In addition, Lifted may be unable to adequately staff its fulfillment operations during these peak periods and may be unable to meet the seasonal demand. The foregoing risks may have a material adverse effect on our Company and the trading price of our common stock.
Lifted cannot accurately predict future sales of particular products, so inventory write-offs occur
The hemp-derived, psychoactive and consumable goods industries are ever-evolving. Lifted cannot accurately predict future sales of particular products that Lifted sells. Some products sell faster than expected, and some products sell slower than expected. And some products sell fast, but then sales unexpectedly drop off quickly. When Lifted overstocks raw goods or finished goods, and the demand for finished goods is not as expected, then Lifted is required to take significant inventory markdowns or write-offs, which reduces profitability. Such inventory markdowns or write-offs are not uncommon. Also, if too many customers access Lifted’s websites within a short period of time due to increased demand, Lifted may experience system interruptions that make its website unavailable or prevent Lifted from efficiently fulfilling orders, which may reduce the volume of goods it sells and the attractiveness of its products and services. The foregoing risks may have a material adverse effect on our Company and the trading price of our common stock.
We may not be able to identify, audit, negotiate, finance or close future acquisitions
A significant component of our growth strategy focuses on acquiring majority equity ownership interests in companies outside of the hemp-derived and psychoactive products industries (“Outside Companies”). One of the challenges we have faced while having merger discussions with Outside Companies is that management of the Outside Companies is apprehensive of merging their companies with Lifted, given the tremendous regulatory challenges that Lifted faces. We generally have pursued a conservative mentality regarding the potential issuance of additional common stock of the Company, and regarding the pricing, term and other conditions of potential borrowings by the Company, so we may not be able to identify, audit, or acquire such equity ownership interests on acceptable terms, if at all. No guarantee or assurance whatsoever can be given that discussions/negotiations with any potential acquisition candidates will result in any letter of intent or definitive acquisition agreement. If we do enter any letter of intent or definitive acquisition agreement, we may need to finance all or a portion of the purchase price for an acquisition by incurring indebtedness or by selling shares of our common stock or convertible preferred stock. There can be no assurance that we will be able to obtain financing on terms that are favorable, if at all, which will limit our ability to acquire such equity ownership interests in the future. Target companies may not decide to proceed forward with mergers that are the subject of letters of intent. to acquire such equity ownership interests on acceptable terms, if at all, may have a material effect on our ability to increase assets, revenues and net income, and on the trading price of our common stock. The foregoing risks may have a material effect on our Company and the trading price of our common stock.
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Cannabis Companies and companies involved in selling products containing psychoactive substances or nicotine are subject to regulatory risks, both nationally and internationally
Lifted and other Cannabis Companies are subject to risks associated with the federal government’s and state and local governments’ evolving regulation of hemp, hemp-derived products, kratom-derived products, marijuana, psychoactive substances, tobacco, nicotine, and other consumable products. We can provide no assurance that one or more federal agencies, such as the FDA or the DEA, or state and local governments, will not attempt to impose rules, regulations, moratoriums, prohibitions, restrictions, limitations, taxes, or other impediments upon Cannabis Companies, and companies involved in selling hemp-derived products, kratom-derived products, marijuana, psychoactive substances, tobacco, nicotine, and other consumable products. For example, the US federal government has enacted a law that makes it more difficult to sell online and ship vape products. In addition, the FDA and certain states have enacted laws and regulations that prohibit or otherwise negatively impact the sale of certain hemp-derived, kratom-derived, psychoactive and nicotine products. Moreover, if Lifted or Cannabis Companies or companies involved in selling hemp-derived products, kratom-derived products, marijuana, psychoactive substances, tobacco, or nicotine expand internationally (of which there is no guarantee that they ever would), we can provide no guarantee or assurance that these companies will be to comply with all applicable governmental laws and regulations related to the sales of the products. Any to comply with all of such rules, regulations, , prohibitions, restrictions, , taxes, or other upon Cannabis Companies, and companies involved in selling the aforementioned products, could potentially result in lawsuits, substantial and , and/or other governmental actions. The foregoing risks may have a material effect on our Company and the trading price of our common stock.
Lifted’s sales are dependent upon the sale of hemp-derived, kratom-derived and psychoactive products, which may be restricted or prohibited by the FDA, the DEA or other governmental agencies, laws or regulations
Lifted’s sales are significantly dependent upon the sale of hemp-derived, kratom-derived and psychoactive products. The FDA, the DEA and other federal, state and local governments and agencies may impose laws, rules, regulations and executive orders that effectively prohibit Lifted from selling products containing hemp-derived, kratom-derived or psychoactive products. For example, the DEA has sent a letter saying that delta-9-THCO and delta-8-THCO “do not occur naturally in the cannabis plant and can only be obtained synthetically, and therefore do not fall under the definition of hemp”, and there could be a crackdown by the DEA or other regulatory authorities on products containing delta-9-THCO and/or delta-8-THCO, even though we believe that such products are federally lawful pursuant to the so-called "Farm Bill". Consequently, Lifted’s future financial prospects are uncertain, and no guarantee or assurance whatsoever can be made that Lifted will be able to continue to pay their financial obligations when they become due and payable in the future. The foregoing risks may have a material adverse effect on our Company and the trading price of our common stock.
Lifted may be forced to record allowances against, or write off, inventories of hemp-derived products, kratom-derived products, marijuana, psychoactive products, and/or nicotine-infused products, and/or the raw goods used in the manufacture of such products, if those products are subject to prohibitions on sales, either nationally or in particular states
Lifted may find it necessary to build and carry significant quantities of inventory, in order to be able to fulfill large orders received from distributors or other customers. If federal, FDA, DEA, and/or state laws and regulations prohibit the sale of certain hemp-derived products, kratom-derived products, marijuana, psychoactive products, and/or nicotine-infused products, then Lifted may find itself holding significant inventories of such products that cannot be sold, or raw goods that cannot be used, and therefore must be written off. Such write offs could be significant.
The Act will most likely negatively impact the pricing of hemp-derived products, the availability and price of raw goods, and production forecasting and sales, which may lead to the recording of inventory allowances against our hemp-derived inventory each quarter end leading up to November 12, 2026. Moreover, any hemp-derived products in inventory on November 12, 2026 (the date by which intoxicating hemp-derived consumable products are banned under the Act) will have to be written off. The foregoing risks may have a material adverse effect on our Company and the trading price of our common stock.
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Improper storage of hemp flower, or the improper infusion of hemp-distillate into hemp flower, may cause spoilage, and the hemp flower may need to be written off
If hemp flower is stored improperly, or if hemp-distillate is not properly infused into the hemp flower, the hemp flower may be spoiled and subsequently written off, hurting Lifted’s financial results. The foregoing risk may have a material adverse effect on our Company and the trading price of our common stock.
Machinery and equipment may be unusable or become obsolete, and may need to be written off
Certain machinery and equipment may not be able to be used by Lifted in the production of products, especially new products. For example, Lifted has experienced problems trying to use two machines that were designed to manufacture gummies and joints, respectively. If certain machinery and equipment is unusable or becomes obsolete, then the machinery and equipment may need to be written off, hurting Lifted’s financial results. The foregoing risk may have a material adverse effect on our Company and the trading price of our common stock.
We may not be able to successfully identify and execute future acquisitions or dispositions or to successfully manage the impacts of such transactions on our operations
We may not be able to successfully identify and execute future acquisitions or dispositions or to successfully manage the impacts of such transactions on our operations. Material acquisitions, dispositions and other strategic transactions involve a number of risks, including: (1) the potential disruption of our ongoing business; (2) the distraction of management away from the ongoing oversight of our existing business activities; (3) incurring additional indebtedness or stock dilution; (4) the anticipated benefits and cost savings of those transactions not being realized fully, or at all, or taking longer to realize than anticipated; (5) an increase in the scope and complexity of our operations; and (6) the loss or reduction of control over certain of our assets. Material acquisitions have been and may continue to be material to our business strategy. There is no guarantee that any acquisition will be accretive. The existence of one or more material liabilities of an acquired company that are unknown to us at the time of acquisition may result in our incurring those liabilities. A strategic transaction may result in a significant change in the nature of our business, operations and strategy, and we may encounter unforeseen or costs in or implementing a strategic transaction or integrating any acquired business into our operations. The foregoing risks may have a material effect on our Company and the trading price of our common stock.
Lifted may seek to enter into product collaborations, marketing relationships, affiliations, strategic alliances, or expand the scope of currently existing relationships, with third parties that Lifted believes will have a beneficial impact on Lifted, and there are risks that such product collaborations or other arrangements may not enhance Lifted's business in the desired manner
Lifted may expand the scope of, and may in the future enter into, product collaborations, strategic alliances and other arrangements with third parties that Lifted believes will complement or augment its existing business. Lifted's ability to complete further product collaborations, strategic alliances or other arrangements is dependent upon, and may be limited by, among other things, the availability of suitable candidates and capital. In addition, product collaborations, strategic alliances and other arrangements could present unforeseen obstacles or costs, may not enhance Lifted's business, and may involve risks that may adversely affect Lifted, including the investment of significant amounts of management time that may be diverted from Lifted's core operations in order to pursue and complete such product collaborations, strategic alliances or other arrangements. Lifted may become dependent on its product , strategic partners or other third parties, and actions by such entities may Lifted's business. Future product , strategic or other arrangements may result in the incurrence of debt, costs and contingent liabilities, and there can be no assurance that future product , strategic or other arrangements will be developed, maintained or the expected benefits to Lifted's businesses or that Lifted will be to consummate future product , strategic or other arrangements on terms, or at all. The foregoing risks may have a material effect on our Company and the trading price of our common stock.
Third parties with whom we do business may perceive themselves as being exposed to reputational risk as a result of their relationship with us
The parties with whom we do business, or with whom we would like to do business, may perceive that they are exposed to reputational risk as a result of our business activities relating to hemp-derived products, psychoactive substances and nicotine, which may hinder our ability to establish or maintain business relationships. These perceptions relating to our business activities may interfere with our relationship with service providers, particularly in the financial services industry in the United States and certain jurisdictions where our products are not legal. The foregoing risks may have a material adverse effect on our Company and the trading price of our common stock.
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We may be exposed to reputational risk as a result of our relationship with third parties with whom we do business
The parties with whom we do business may conduct themselves in such a way as to expose us to reputational risk. This reputational risk may damage Lifted's brands and its relationships with distributors, retailers, consumers, service providers, and others. The foregoing risks may have a material adverse effect on our Company and the trading price of our common stock.
Lifted relies on third-party distributors and wholesalers to distribute and/or sell a portion of its products, and those distributors and wholesalers may not perform their obligations or may have allegiances to their own or other competitors’ products
Lifted relies on third-party distributors and wholesalers to distribute a portion of its products. If these distributors and wholesalers do not successfully carry out their contractual duties, if these distributors and wholesalers have allegiances to their own or other competitors’ products, if there is a delay or interruption in the distribution of Lifted’s products, or if these third parties damage Lifted’s products in transit or improperly store the products, causing spoilage or functionality issues, then Lifted’s revenue may be negatively impacted. Any damage to Lifted’s products may expose Lifted to potential product liability, damage the reputation of Lifted’s brands or otherwise harm Lifted’s business. The foregoing risks may have a material adverse effect on our Company and the trading price of our common stock.
The FDA and the DEA are seriously concerned about many hemp-derived and kratom-derived products and plan to ban certain of them including 7-OH, which could severely reduce Lifted's sales and profits
The FDA and the DEA are seriously concerned about many hemp-derived, kratom-derived and psychoactive products, and plan to ban certain of them including kratom-derived 7-hydroxymitragynine (“7-OH”), which could severely reduce Lifted's sales and profits. The FDA and the DEA appear to believe that certain hemp-derived cannabinoids are drugs, and therefore that the sale of hemp-derived products containing cannabinoids should require FDA and DEA approval. In deference to the FDA and the DEA, various states and municipalities have declared that the sale of certain hemp-derived products are illegal. Separately, on July 29, 2025, during a joint press conference, the U.S. Food and Drug Administration (FDA or the Agency) recommended to the Drug Enforcement Administration (DEA) to classify 7-OH, a concentrated byproduct of the kratom plant, as a Schedule I controlled substance under the Controlled Substances Act (CSA). A classification of 7-OH as a Schedule I controlled substance now appears likely to occur, and could severely reduce Lifted's sales and profits. There can be no guarantee or assurance whatsoever that the FDA’s or the DEA's regulatory concerns about hemp-derived products or other intoxicating products including 7-OH will be resolved favorably for the hemp-derived products industry or other intoxicating products industries. Aggressive law enforcement the hemp-derived and intoxicating products industries by federal, state or local authorities and agencies may have a material effect upon Lifted. The foregoing risks may have a material effect on our Company and the trading price of our common stock.
Hemp-derived and kratom-derived products may be shown to have negative health and/or safety impacts upon consumers
The health and safety impacts of hemp-derived products have not yet been established via traditional scientific and/or clinical studies. The FDA appears to believe that certain hemp-derived products may have significant adverse health impacts upon human beings, especially in regard to potential liver toxicity or liver damage. If the FDA, scientific research and/or clinical studies ultimately demonstrate negative health and/or safety impacts of hemp-derived or kratom-derived products upon consumers, then Lifted’s business may be materially adversely affected. The foregoing risks may have a material adverse effect on our Company and the trading price of our common stock.
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Kratom-derived products may be shown to have negative health and/or safety impacts upon consumers
The health and safety impacts of kratom-derived products such as 7-OH have not yet been established via traditional scientific and/or clinical studies. The FDA appears to believe that 7-OH products are potentially harmful and believes that they pose serious health risks. The FDA notes that it has received reports of harmful effects associated with products containing 7-OH. If the FDA, scientific research and/or clinical studies ultimately demonstrate negative health and/or safety impacts of kratom-derived products, such as 7-OH, upon consumers, then Lifted’s business may be materially adversely affected. The foregoing risks may have a material adverse effect on our Company and the trading price of our common stock.
Hemp-derived products are federally illegal if they exceed 0.3% delta-9-THC on a dry weight basis
Hemp-derived products which exceed a delta-9-THC concentration of 0.3% on a dry weight basis are federally illegal. Certain states may consider hemp and hemp-derived products which exceed 0.3% total THC on a dry weight basis to be illegal. Any failure to keep the delta-9-THC or total THC concentration in hemp or hemp-derived products below the applicable legal standard could subject Lifted to action by regulatory authorities and/or to lawsuits by consumers, which may have a material adverse effect upon Lifted’s business and the trading price of our common stock.
In addition, the approval of medical and recreational marijuana by many states has created a situation in which it may be difficult or impossible for regulators and courts to determine whether the delta-9-THC levels reflected in consumers’ blood tests are the result of hemp-derived products or marijuana products. This may result in regulatory actions or lawsuits that may have a material adverse effect upon Lifted’s business.
Also, certain hemp-derived products may, over time, gradually increase their delta-9-THC or total THC concentration, and this may ultimately cause such products to exceed the applicable concentration level, making such products illegal in certain jurisdictions. If this happens, we may be subject to regulatory action that may have a material adverse effect upon Lifted and the trading price of our common stock.
Also, federal and state authorities may seek to classify cannabinoids that naturally occur in hemp, such as delta-8-THC, THCA, or THCO, as illegal. If this happens, we may be subject to regulatory action that may have a material adverse effect upon Lifted. All of the foregoing risks may have a material adverse effect on our Company and the trading price of our common stock.
The price of raw materials could spike as demand for certain products increases
Increased demand for certain raw materials may cause a spike in the price of these raw materials, which may materially adversely affect Lifted. The foregoing risk may have a material adverse effect on our Company and the trading price of our common stock.
Target companies may not be of the same caliber company as previous acquisitions, or target companies’ management may not fit well into our corporate culture
If we acquire a company that is not of the same caliber company as Lifted, or if we acquire a company that does not have management that is as talented and high energy as Lifted’s management, or if for whatever reason the management of the acquired company does not fit in well with the rest of our team, we may become less attractive for potential investors, future acquisition targets may be uninterested in merging into our Company, and the overall camaraderie among the players in our Company may disappear. The foregoing risks may have a material adverse effect on our Company and the trading price of our common stock.
Lifted may be unable to keep pace with rapid industry, technological and market changes
Lifted may be unable to keep pace with rapid industry, technological and market changes that could affect Lifted’s services, products and businesses, or so keeping pace may require a substantial amount of Lifted’s management time and substantial fees being paid to outside legal counsel and consultants. The foregoing risks may have a material adverse effect on our Company and the trading price of our common stock.
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Large competitors have entered the hemp-derived, marijuana, psychoactive and nicotine product industries, and we expect increased competition in the future; Lifted may be unable to compete effectively against larger companies in these industries
More and more major marijuana companies, tobacco companies, chain stores, manufacturers, retailers, alcoholic beverage and other consumer products companies, and distributors, with tremendous financial resources and marketing expertise are competing against Lifted in the hemp-derived, marijuana, psychoactive, and nicotine products industries. We expect increased competition in the future. Lifted may not have the personnel, products, marketing and distribution capabilities, and/or financial resources to compete effectively against such larger companies. The foregoing risks may have a material adverse effect on our Company and the trading price of our common stock.
Increases in labor costs could harm Lifted’s business
The U.S. in general, and Bend, Oregon in particular, have experienced very low unemployment, and higher minimum wages, which generally results in rising labor costs and limited access to qualified employment candidates. Such rising labor costs are adversely affecting the expenses of Ablis and Bendistillery, and may adversely affect the expenses of Lifted's business. The foregoing risks may have a material adverse effect on our Company and the trading price of our common stock.
We cannot predict the effect of inquiries, audits, lawsuits or actions by the DEA, the FDA, Federal Trade Commission, state attorneys general, other government agencies and/or quasi-government agencies, or plaintiffs’ attorneys, into the production, advertising, marketing, promotion, labeling, ingredients, usage and/or sale of Lifted’s products
Lifted is subject to the risks of investigations and/or enforcement actions or lawsuits by the DEA, the FDA, Federal Trade Commission (“FTC”), state attorneys general and/or other government and/or quasi-governmental agencies, or plaintiffs’ attorneys, relating to the advertising, marketing, promotion, ingredients, usage and/or sale of Lifted's products. If an inquiry by the DEA, the FDA, FTC, a state attorney general or other government or quasi-government agency, or by plaintiffs' attorneys, finds that Lifted’s products and/or the advertising, marketing, promotion, ingredients, usage and/or sale of such products are not in compliance with applicable laws or regulations, or that they are misleading, untruthful or unsubstantiated, Lifted may become subject to fines, product reformulations, product recalls, container changes, changes in the usage or sale of Lifted’s products, changes in its advertising, marketing and promotion practices, and/or injunctions on the sale of the products, or lawsuits, each of which may have a material effect on our business, financial condition or results of operations. The foregoing risks may have a material effect on our Company and the trading price of our common stock.
We may be required to obtain state, DEA and/or FDA permits, certifications and/or approvals in order to conduct business
Lifted may be required to obtain and maintain state, DEA and/or FDA permits, certifications and/or approvals in order to conduct business involving hemp-derived products, marijuana, psychoactive substances, nicotine, food, other edibles, and consumer goods. These permits, certifications and/or approvals may not be obtainable, or obtaining and maintaining them may involve enormous expenditures of time and money for consultants, studies, facilities, compliance, purchases, acquisitions and other matters. Failure to obtain and maintain all necessary permits, certifications and approvals, or the enormous expenditures of time and money associated with obtaining and maintaining all necessary permits, certifications and approvals, may have a material adverse effect on our business, financial condition or results of operations, and on the trading price of our common stock.
Lifted may be subject to investigations by OSHA or other workplace safety agencies
Lifted’s manufacturing, storage and shipping departments include the use of various machinery, equipment, vehicles and raw goods. Notwithstanding appropriate training protocols and safety measures, workplace accidents or deaths may occur, and may subject Lifted to investigations, fines and penalties by the Occupational Safety and Health Administration (“OSHA”) or other state or local workplace safety agencies. Such accidents, investigations, fines and penalties may have a material adverse effect on our business, reputation, financial condition or results of operations. The foregoing risks may have a material adverse effect on our Company and the trading price of our common stock.
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Lifted may be subject to personal injury or workman’s compensation claims
If notwithstanding appropriate training protocols and safety measures, Lifted’s employees are injured or killed on the job, Lifted may be subject to personal injury or workman’s compensation claims. Defending these claims may require the expenditure of substantial management time and legal fees, and may result in material judgments or settlements that may or may not be covered by insurance. Such settlements or judgments related to personal injury or workman’s compensation claims may have a material adverse effect on our business, reputation, financial condition or results of operations. The foregoing risks may have a material adverse effect on our Company and the trading price of our common stock.
Litigation regarding Lifted’s business and products, and related unfavorable media attention, may expose Lifted to significant liabilities and reduce demand for its products
From time to time third parties may claim that certain statements made in Lifted’s advertisements, certificates of analysis and/or on the labels of its products were false and/or misleading or otherwise not in compliance with standards applicable to food, other edibles, or non-prescription cannabinoid formulations under local, state or federal law, and/or that Lifted's products are not safe. Pending or threatened business-related and product-related litigation may consume significant financial and managerial resources and result in decreased demand for Lifted’s products, significant monetary awards against Lifted, and injury to Lifted’s and its management’s reputations. The foregoing risks may have a material adverse effect on our Company and the trading price of our common stock.
Criticism of Lifted’s products and/or criticism or a negative perception of Lifted’s industry, could adversely affect Lifted
Unfavorable reports on the health effects or pricing of Lifted’s products, specific ingredients in Lifted’s products, or product safety concerns, whether generated by scientists, researchers, journalists, consumers, government regulators, industry groups, or on social media may have an adverse effect on Lifted’s business, financial condition and results of operations. The foregoing risks may have a material adverse effect on our Company and the trading price of our common stock.
Vape, e-liquid, e-cigarette, and nicotine product risks
Some of Lifted’s inhalable products may contain nicotine or other substances. There is a risk that Lifted may be targeted by regulators or consumers with claims that its products are unsafe for vaping or consumption. The market for vapes, e-liquid, e-cigarettes, nicotine, and associated cartridges and paraphernalia is currently subjected to regulations and prohibitions of certain products in certain jurisdictions in response to deaths and illnesses that have occurred and that are apparently associated with vaping, and also in response to other health concerns of various types. These various prohibitions and regulations may have a material adverse effect on Lifted’s financial condition, operating results, liquidity, cash flow and operational performance. The foregoing risks may have a material adverse effect on our Company and the trading price of our common stock.
Sales of Lifted’s vape products are subject to uncertainty in the evolving vape market due to negative public sentiment and regulatory scrutiny
Vaping and electronic cigarettes were recently developed and therefore the scientific community has not yet had a sufficient period of time to study the long-term health effects of their use. Currently, there is no way of knowing with absolute certainty whether these products are safe for their intended use and the medical community is still studying these products’ health effects. If the scientific community were to determine conclusively that use of any or all of these products poses long-term health risks, then market demand for these products and their use may materially decline. Such a determination may also lead to litigation and significant regulation. Loss of demand for vape products, product liability claims and increased regulation stemming from unfavorable scientific studies on vaping products may have a material adverse effect on Lifted’s business, results of operations and financial condition. The foregoing risks may have a material adverse effect on our Company and the trading price of our common stock.
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Research regarding the health effects of hemp-derived products, marijuana, psychoactive substances and e-liquid containing nicotine is in relatively early stages and subject to further study which may impact demand for these products
Research and clinical trials on the potential benefits and the short-term and long-term effects of the use of hemp-derived products, marijuana, psychoactive substances and e-liquid containing nicotine on human health remains in relatively early stages and there is limited standardization. As such, there are inherent risks associated with using hemp-derived products, marijuana, psychoactive products and e-liquid containing nicotine. Moreover, future research and clinical trials may reach different or negative conclusions regarding the benefits, viability, safety, efficacy, dosing or other facts and perceptions related to hemp-derived products, marijuana, psychoactive products, and e-liquid containing nicotine, which may adversely affect social acceptance of hemp-derived products, marijuana, psychoactive products, e-liquid containing nicotine, and the demand for Lifted’s products. The foregoing risks may have a material adverse effect on our Company and the trading price of our common stock.
Lifted’s inability to innovate successfully and to provide new cutting edge products may adversely affect Lifted’s business and financial results
Lifted’s ability to compete in its highly competitive industry and to achieve its business growth objectives depends, in part, on its ability to develop new products and unique packaging. The success of Lifted's innovation, in turn, depends on its ability to identify consumer trends and cater to consumer preferences. If Lifted is not successful in its innovation activities, then its business, financial conditions and results of operations may be adversely affected. The foregoing risks may have a material adverse effect on our Company and the trading price of our common stock.
Changes in consumer preferences may reduce demand for some of Lifted’s products
Lifted’s industry is subject to changing consumer preferences and shifts in consumer preferences may adversely affect Lifted. There is increasing awareness of and concern for health, wellness and nutrition considerations, including concerns regarding caloric intake associated with sugar-sweetened beverages and the perceived undesirability of artificial ingredients. Lifted’s future success will depend, in part, upon its continued ability to develop and introduce different and innovative products that appeal to consumers. In order to retain and expand its market share, Lifted must continue to develop and introduce different and innovative products, although there can be no assurance of Lifted’s ability to do so. There is no assurance that consumers will continue to purchase Lifted’s products in the future. If certain finished goods are slow moving, they will be written off. Product lifecycles are uncertain and may never sell. The products Lifted currently market are in varying stages of their product lifecycles, and there can be no assurance that such products will become or remain profitable for Lifted. Lifted may be to volume growth through product and packaging initiatives. Lifted may also be to penetrate new markets.
Moreover, consumers are concerned about their health and wellness, and public and governmental officials and groups are increasingly vocal about smoking, vaping, and their potential adverse impacts. There has been a trend among many public health advocates to pursue a reduction in smoking and vaping, as well as increased public scrutiny of smoking and vaping. Increasing public concern in regard to smoking and vaping may reduce demand for Lifted’s products.
Additionally, as shopping patterns are being affected by the digital evolution and pandemics, with customers embracing shopping by way of mobile device applications, e-commerce retailers and e-commerce websites or platforms, Lifted may be unable to address or anticipate changes in consumer shopping preferences. If Lifted’s revenues decline, its business, financial condition and results of operations may be adversely affected. The foregoing risks may have a material adverse effect on our Company and the trading price of our common stock.
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Any expansion of Lifted outside of the United States exposes Lifted to uncertain conditions and other risks in international markets
As Lifted’s growth strategy includes eventually expanding internationally, if Lifted is unable to expand distribution of its products outside the United States, its growth rate could be adversely affected. In many international markets, Lifted has limited operating experience and in some areas it has no operating experience. It is costly to establish, develop and maintain international operations and to develop and promote brands in international markets. Lifted's percentage gross profit margins in many international markets are expected to be less than the comparable percentage gross profit margins obtained in the United States. Lifted faces substantial risks associated with having foreign operations, including: economic and/or political instability in international markets; unfavorable foreign currency exchange rates; restrictions on or costs relating to the repatriation of foreign profits to the United States, including possible taxes and/or withholding obligations on any repatriations; and tariffs and/or trade restrictions. These risks may have a significant impact on Lifted's ability to sell its products on a competitive basis in international markets and may have a material adverse effect on its business, financial condition and results of operations. Also, operations outside of the United States are subject to risks relating to appropriate compliance with legal and regulatory requirements in local jurisdictions, potential in staffing and managing local operations, higher product , particularly when products are shipped long distances, potentially higher of and/or , credit risk of local customers and distributors and potentially tax consequences. The foregoing risks may have a material effect on our Company and the trading price of our common stock.
International expansion efforts would likely significantly increase our operational expenses
We may in the future expand into other geographic areas, which could increase our operational, regulatory, compliance, reputational and foreign exchange rate risks. The failure of our operating infrastructure to support such expansion could result in operational failures and regulatory fines or sanctions. Future international expansion could require us to incur a number of up-front expenses, including those associated with obtaining regulatory approvals, as well as additional ongoing expenses, including those associated with infrastructure, staff and regulatory compliance. We may not be able to successfully identify suitable acquisition and expansion opportunities or integrate such operations successfully with our existing operations. The foregoing risks may have a material adverse effect on our Company and the trading price of our common stock.
Global or regional catastrophic events may impact Lifted’s operations and affect its ability to grow its business
Lifted’s business may be affected by unstable political conditions, civil unrest, large-scale terrorist acts, especially those directed against the United States or other major industrialized countries where its products are distributed, the outbreak or escalation of armed hostilities, major natural disasters or widespread outbreaks of infectious diseases such as COVID-19 and its mutations. Such events may impact the production and/or distribution of Lifted's products. In addition, such events may disrupt global or regional economic activity, which may affect consumer purchasing power, thereby reducing demand for Lifted's products. If Lifted is unable to grow its business internationally as a result of these factors, its growth rate may decline. The foregoing risks may have a material adverse effect on our Company and the trading price of our common stock.
We are currently operating in a period of significant economic and political uncertainty and capital markets disruption, and our business may be materially adversely affected in such an environment
Many factors are contributing to economic and political uncertainty and capital markets disruption in the U.S. and globally, including inflation, high interest rates, political polarization, natural catastrophes, and ongoing military conflicts in Ukraine, Israel, Syria, Yemen and other parts of the world. The durations and impacts of these adverse factors are unpredictable, and may lead to market disruptions, including significant volatility in commodity prices, credit and capital markets, as well as supply chain interruptions. The foregoing risks may have a material adverse effect on our Company and the trading price of our common stock.
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Lifted may rely on third party vendors to manufacture its products
Lifted may not manufacture certain raw or finished goods, but instead outsource manufacturing of these goods to third party vendors. In the event of a disruption and/or delay, or significant tariffs, Lifted may be unable to procure alternative vendors at commercially reasonable rates and/or within a reasonably short time period. If Lifted is unable to maintain good relationships with its largest vendors, or if its costs of co-packing increase, its business, financial condition and results of operations may be adversely affected.
Lifted does not have exclusive contracts with the majority of its vendors, which subjects Lifted to the risk that those vendors may sell the same products to Lifted’s competitors. In some cases, Lifted’s vendors may be affiliated with and manufacture other hemp-derived, marijuana, psychoactive or consumable products. In such cases, these products may compete directly with Lifted’s products.
Lifted’s vendors may make raw materials or finished products that sometimes fail to meet Lifted’s standards. This subjects Lifted to the risk that distributors, retail locations and consumers may be dissatisfied with Lifted’s products and demand a refund or a credit, and/or may refuse in the future to purchase Lifted’s products. In addition, Lifted’s contract manufacturers may not deliver their products to Lifted on schedule. Delays in scheduled product deliveries may cause distributors, retail locations and consumers to not purchase Lifted’s products, damaging Lifted’s brand reputation. The foregoing risks may have a material adverse effect on our Company and the trading price of our common stock.
Lifted relies upon third parties to carry and market its products
Unilateral decisions may be taken by Lifted’s distributors and wholesalers to discontinue carrying certain or all of Lifted's products that they are carrying at any time, which may cause Lifted’s business to suffer. The marketing efforts of Lifted’s distributors and wholesalers are important for Lifted’s success. If Lifted’s brands prove to be less attractive to Lifted’s existing distributors and wholesalers, or if Lifted fails to attract additional distributors and wholesalers, and/or if Lifted’s distributors and wholesalers do not market, promote and distribute Lifted’s products effectively, Lifted’s business, financial condition and results of operations may be adversely affected. The foregoing risks may have a material adverse effect on our Company and the trading price of our common stock.
Increases in costs and/or shortages of raw materials and/or ingredients and/or fuel/energy and/or costs of co-packing may harm Lifted’s business
The costs and availability of the raw materials used by Lifted are subject to fluctuations. For certain terpenes, distillate, flavors, raw goods, formulas and other products purchased from third-party suppliers, these suppliers own the proprietary rights to certain of their products. Lifted does not have possession of the list of the ingredients or formulas used in the production of certain of their products and certain of their blended concentrates, and Lifted may be unable to obtain comparable products from alternative suppliers on short notice. Industry-wide shortages of certain products have been, and may from time to time in the future be, encountered, which may interfere with and/or delay production of certain of Lifted’s products.
Moreover, volatility in the global oil markets has resulted in high fuel prices, which many shipping companies have passed on to their customers by way of higher base pricing and increased fuel surcharges. Due to the price sensitivity of our products, we may not be able to pass such increases on to our customers. In addition, certain of Lifted’s co-packing arrangements may allow such co-packers to increase their fees based on certain of their own cost increases. The prices of any of the above and other raw materials such as batteries and packaging, among others, may continue to rise or may rise in the future. Lifted may or may not be able to pass any of such increases on to its customers. In recent years, the United States has imposed tariffs on many products and goods imported from China and certain other countries. Additional tariffs imposed by the United States on a broader range of imports, or further retaliatory trade measures taken by China or other countries in response, may result in an increase in supply chain costs and/or shortages of raw materials. In addition, some of these raw materials are available from limited suppliers. The foregoing risks may have a material adverse effect on our Company and the trading price of our common stock.
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Lifted’s inability to accurately estimate demand for its products may adversely affect its business and financial results
Lifted may not correctly estimate demand for its existing products and/or new products. Lifted's ability to estimate demand for its products is imprecise, particularly with regard to new products, and may be less precise during periods of rapid growth, particularly in new markets. If Lifted materially underestimates demand for its products or is unable to secure sufficient ingredients or raw materials or experiences difficulties with its co-packing arrangements, including production shortages or quality issues, it may not be able to satisfy demand on a short-term basis. Moreover, industry-wide shortages of certain raw materials and products have been and may, from time to time in the future, be experienced, resulting in production fluctuations and/or product shortages. Such shortages may interfere with and/or delay production of certain of Lifted's products and may have a material adverse effect on its business and financial results. The foregoing risks may have a material effect on our Company and the trading price of our common stock.
If Lifted does not maintain sufficient inventory levels, if Lifted is unable to deliver its products to its customers in sufficient quantities, and/or if Lifted's customers’ or retailers’ inventory levels are too high, Lifted's operating results may be adversely affected
If Lifted does not accurately anticipate the future demand for a particular product or the time it will take to obtain new inventory, Lifted’s inventory levels may be inadequate and its results of operations may be negatively impacted. If Lifted fails to meet its shipping schedules, Lifted may damage its relationships with distributors and/or retailers, increase its distribution costs and/or cause sales opportunities to be delayed or lost. In order to be able to deliver its products on a timely basis, Lifted needs to maintain adequate inventory levels of the desired products. If the inventory of its products held by its distributors and/or retailers is too high, they will not place orders for additional products, which may unfavorably impact Lifted’s future sales and adversely affect its operating results. If Lifted overestimates distributor or retailer demand for its products, Lifted may end up with too much inventory, resulting in higher storage costs or less warehouse space and the risk of inventory spoilage. If Lifted to manage its inventory to meet demand, Lifted may its relationships with its distributors and retailers and may or sales , which may impact its future sales and affect its operating results. The foregoing risks may have a material effect on our Company and the trading price of our common stock.
The costs of packaging supplies are subject to price increases from time to time, and Lifted may be unable to pass all or some of such increased costs on to its customers
Lifted’s packaging suppliers may increase the prices that they charge Lifted for packaging supplies based on changes in the costs of the underlying commodities that are used to produce those packaging supplies. If the costs of these packaging supplies increase, Lifted may be unable to pass these costs along to its customers through corresponding adjustments to the prices it charges, which could have a material adverse effect on its results of operations. The foregoing risks may have a material adverse effect on our Company and the trading price of our common stock.
If Lifted encounters product recalls, its business may suffer and it may incur material losses
Lifted may be required from time to time to recall products entirely or from specific co-packers, markets or batches if such products become contaminated, damaged, mislabeled, cause fires, explode or otherwise become materially non-compliant with applicable federal, state or local regulatory requirements. Material product recalls may adversely affect Lifted’s profitability and its brand image. Lifted typically does not maintain recall insurance, so the negative financial impact of a recall upon Lifted may be significant. The foregoing risks may have a material adverse effect on our Company and the trading price of our common stock.
Lifted’s working capital may be inadequate or strained, and the issue may be exacerbated by account receivable collection issues
There has been significant financial stress on Lifted's industry. This stress, in certain cases, has caused distributors to refuse to make up-front payments, or to refuse to make timely payments on purchases, from vendors such as Lifted. Some distributors are apparently so cash-strapped that they are demanding that products be supplied to them on consignment, or to be subject to shelf-stocking fees. This difficult financial environment has strained Lifted’s working capital balance, and has made it increasingly difficult for Lifted to aggressively purchase the larger quantities of raw materials and inventory that are needed to fuel Lifted’s growth. Lifted’s inadequate or strained working capital is exacerbated by account receivable collection issues. The foregoing risks may have a material adverse effect on our Company and the trading price of our common stock.
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Lifted may be subject to payments-related risks and costs
Lifted may accept payments using a variety of methods, including credit card, debit card, credit accounts (including promotional financing), gift cards, direct debit from a customer’s bank account, consumer invoicing, physical bank check, and payment upon delivery. For existing and future payment options Lifted offers to its customers, Lifted may become subject to additional regulations and compliance requirements (including obligations to implement enhanced authentication processes that may result in significant costs and reduce the ease of use of its payments products), as well as fraud. For certain payment methods, including credit and debit cards, Lifted pays interchange and other fees, which may increase over time and raise its operating costs and lower profitability. Lifted may rely on third parties to provide payment processing services, including the processing of credit cards, debit cards, electronic checks, and promotional financing. In each case, it may disrupt Lifted’s business if these companies become unwilling or unable to provide these services to Lifted. Lifted may also be subject to payment card association operating rules, including data security rules, certification requirements, and rules governing electronic funds transfers, which may change or be reinterpreted to make it or for Lifted and to comply. If Lifted to comply with these rules or requirements, or if Lifted's data security systems are , compromised, or otherwise to detect or prevent activity, Lifted may be liable for card issuing banks’ costs, may be subject to and higher transaction fees, and may its ability to accept credit and debit card payments from its customers, process electronic funds transfers, or facilitate other types of online payments, and Lifted’s business and operating results may be affected. Lifted may also be subject to or voluntarily comply with a number of other laws and regulations relating to payments, money , international money transfers, privacy and information security, and electronic fund transfers. If Lifted were found to be in of applicable laws or regulations, Lifted may be subject to additional requirements and civil and , or may be to providing certain services. The foregoing risks may have a material effect on our Company and the trading price of our common stock.
If Lifted is not able to retain the full-time services of senior management, there may be an adverse effect on its operations and/or its operating performance until Lifted finds suitable replacements
Lifted's business is dependent, to a large extent, upon the services of its senior management. Lifted does not currently maintain key person life insurance on any members of its senior management. The loss of services of Lifted’s senior management may adversely affect its business until suitable replacements can be found. There may be a limited number of personnel with the requisite skills to serve in these positions, and Lifted may be unable to locate or employ such qualified personnel on acceptable terms. The foregoing risks may have a material adverse effect on our Company and the trading price of our common stock.
Climate change may negatively affect Lifted’s business
There is concern that a gradual increase in global average temperatures due to increased carbon dioxide and other greenhouse gases in the atmosphere may cause significant changes in weather patterns around the globe and an increase in the frequency and severity of natural disasters. Changing weather patterns may result in decreased agricultural productivity in certain regions, which may limit availability and/or increase the cost of certain raw goods used in Lifted’s products and may impact the food security of communities around the world. Increased frequency or duration of extreme or inclement weather conditions may also impair production capabilities, disrupt Lifted’s supply chains (including, without limitation, the availability of, and/or result in higher prices for raw goods and finished goods) and/or impact demand for Lifted’s products. Natural disasters and extreme weather conditions, such as bomb cyclones, hurricanes, wildfires, freezing temperatures, heavy snow, earthquakes or floods, may affect Lifted’s operations and the operation of Lifted’s supply chains and unfavorably impact the demand for, or Lifted’s consumers’ ability to purchase, Lifted’s products. The predicted effects of climate change may also result in regarding availability and quality of water, or less pricing for water, which may impact Lifted’s businesses and results of operations. In addition, public expectations for reductions in greenhouse gas emissions may result in increased energy, transportation and raw material costs, and may require Lifted to make additional investments in facilities and equipment. As a result, the effects of climate change may have a long-term impact on Lifted’s business and results of operations. Sales of Lifted’s products may also be influenced to some extent by weather conditions in the markets in which Lifted operates. Weather conditions may influence consumer demand for certain of Lifted’s products, which may have an effect on Lifted’s operations, either or . The foregoing risks may have a material effect on our Company and the trading price of our common stock.
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Potential changes in accounting standards or practices and/or taxation or new accounting standards, or changes in the assumptions used in accounting matters, may adversely affect Lifted’s financial results
From time to time, the FASB, the SEC and other regulatory bodies may issue new and revised standards, interpretations and other guidance that change US GAAP. Future changes in accounting standards or practices may have an impact on Lifted’s financial results. New accounting standards may be issued that change the way Lifted records revenues, expenses, assets and liabilities. The effects of such changes may include prescribing an accounting method where none had been previously specified, prescribing a single acceptable method of accounting from among several acceptable methods that currently exist, or revoking the acceptability of a current method and replacing it with an entirely different method, among others. These changes in accounting standards may adversely affect Lifted reported earnings or results of operations, financial condition and other financial measurers. Increases in direct and indirect income tax rates may affect after-tax income. Equally, increases in indirect taxes (including, but not limited to, environmental taxes pertaining to the disposal of beverage containers and/or indirect taxes on beverages) may affect Lifted’s products’ affordability and reduce Lifted’s sales. Accounting principles related to stock based compensation, inventory, revenue recognition, sales allowances, and income tax provisions, among others, are highly complex and involve many subjective assumptions, estimates and judgments by management. Changes to the accounting rules related to these areas or the interpretation of the rules, or changes in underlying assumptions, estimates or judgments by our management may affect reported financial results and Lifted’s financial position. The foregoing risks may have a material effect on our Company and the trading price of our common stock.
Fluctuations in Lifted’s effective tax rates may adversely affect its financial conditions and results of operations
Lifted may be subject to income and other taxes in both the U.S. and certain foreign jurisdictions. Therefore, Lifted may be subjected to audits for multiple tax years in various jurisdictions at once. At any given time, events may occur which change Lifted’s expectations about how any such tax audits will be resolved and thus, there may be variability in Lifted’s quarterly and/or annual tax rates. On December 22, 2017, President Trump signed into law the Tax Cuts and Jobs Act, which imposes broad and complex changes to the U.S. tax code and may have tax implications for Lifted. The foregoing risks may have a material adverse effect on our Company and the trading price of our common stock.
Growth of operations will depend on the acceptance of Lifted’s products and consumer discretionary spending
The acceptance of Lifted’s products by distributors, wholesalers and consumers is critically important to the success of Lifted. Acceptance of our products depends on several factors, including, but not limited to, availability, cost, ease of use, familiarity of use, convenience, effectiveness, safety and reliability. If 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. Shifts in customer preferences away from Lifted’s products, Lifted’s inability to develop products that appeal to both retailers and consumers, or changes in Lifted’s products that eliminate items popular with some consumers, may harm Lifted’s business. Also, Lifted's success will depend to a significant extent on discretionary user spending, which is influenced by general economic conditions and the availability of discretionary income. Accordingly, Lifted may experience an inability to generate revenue during economic downturns or during periods of uncertainty, such as during pandemics, when users may decide to purchase products that are cheaper or to purchasing any type of Lifted’s products, due to a of available capital. Any material in the amount of discretionary spending may have a material effect on Lifted’s sales, results of operations, business and financial condition. The foregoing risks may have a material effect on our Company and the trading price of our common stock.
We cannot be certain that the products that Lifted offers will become, or continue to be, appealing and as a result there may not be any demand for these products and Lifted’s sales may decrease, which may result in a loss of revenue
Demand for Lifted’s products depends on many factors, including the number of customers that Lifted is able to attract and retain over time, and the competitive environments in Lifted’s industry. This may force Lifted to reduce prices below the desired price levels or to increase promotional spending. Inability to anticipate changes in user preferences and to meet consumers’ needs in a timely and cost-effective manner all may result in immediate and longer term declines in the demand for the products Lifted plans to offer, which may adversely affect Lifted’s sales, cash flows and overall financial condition, or may lead to write-offs of slow-moving inventory. The foregoing risks may have a material adverse effect on our Company and the trading price of our common stock.
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Competition that Lifted faces is varied and strong
Lifted’s products and industries are subject to intense competition. Lifted faces 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. There is no guarantee that Lifted can develop or sustain a market position or expand its business. We anticipate that the intensity of competition in the future will increase.
Lifted competes with a number of entities in providing products to its customers. Such competitor entities include: (1) a variety of large multinational corporations, including but not limited to companies that have established loyal customer bases over several decades; (2) companies that have an established customer base, and have the same or a similar business plan as Lifted does and may be looking to expand nationwide; and (3) a variety of other local and national companies with which Lifted either currently or may, in the future, compete.
Many of Lifted’s current and potential competitors are well established and have longer operating histories, significantly greater financial and operational resources, and greater name and brand recognition than Lifted has. As a result, these competitors may have greater credibility with both existing and potential customers. They also may be able to offer more products and more aggressively promote and sell their products. Lifted’s competitors may also be able to support more aggressive pricing than Lifted will be able to, which may adversely affect sales, cause Lifted to decrease its prices to remain competitive, or otherwise reduce the overall gross profit earned on Lifted’s products. The foregoing risks may have a material adverse effect on our Company and the trading price of our common stock.
Competition from large, well-financed consumer products, marijuana, tobacco, kratom-derived or nicotine product manufacturers or distributors may adversely affect Lifted’s distribution relationships and may hinder development of Lifted’s existing markets, as well as prevent Lifted from expanding its markets
The tobacco, nicotine, hemp, marijuana, kratom-derived and consumer goods industries are highly competitive. Lifted competes with other hemp brands, marijuana, tobacco, nicotine, and other consumer goods companies for consumer acceptance, shelf space in retail outlets, and for the marketing support of distributors and wholesalers, many of whom also distribute or carry their own brands which compete with Lifted’s brands. Some of Lifted’s competitors have substantially greater financial resources than Lifted. Some of Lifted’s competitors place tremendous pressure on independent distributors to not carry competing brands such as Lifted’s.
Lifted’s competitors may have advantages such as lower production costs, greater financial and marketing resources, and more developed and extensive distribution networks. Lifted may not be able to grow its sales or inventory, or maintain its selling prices, whether in existing markets or as it enters new markets.
Increased competitor consolidations, marketplace competition, and competitive product and pricing pressures could impact Lifted’s earnings, market share and volume growth. Due to competition, Lifted may be unable to sufficiently maintain or develop its distribution channels, and it may be unable to achieve its revenue and financial targets. The foregoing risks may have a material adverse effect on our Company and the trading price of our common stock.
Lifted’s success depends, in part, on the attraction and retention of talented employees, which is not guaranteed
Lifted’s success does and will continue to require the acquisition and retention of highly talented and experienced individuals. Due to the growth in hemp-derived and psychoactive products industries, such individuals and the talent and experience they possess is in high demand. There is no guarantee that Lifted will be able to attract and maintain access to such individuals. The attraction and retention of such individuals may require the Company to offer stock, warrants and/or bonuses as incentives. If Lifted fails to attract, train, motivate and retain talented personnel, Lifted’s business, financial conditions, and operating results may be materially and adversely impacted. The foregoing risks may have a material adverse effect on our Company and the trading price of our common stock.
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Lifted depends on a limited number of suppliers of raw and packaging materials
Lifted relies upon a limited number of suppliers for raw and packaging materials used to make and package its products. Lifted’s success will depend in part upon its ability to successfully secure such materials from suppliers that are delivered with consistency and at a quality that meets its requirements. The price and availability of these materials are subject to market conditions. Increases in the price of Lifted’s products due to the increase in the cost of raw materials may have a negative effect on Lifted’s business.
If Lifted is unable to obtain sufficient quantities of raw and packaging materials, delays or reductions in product shipments may occur which would have a material adverse effect on Lifted’s business, financial conditions and results of operations. If Lifted's packaging suppliers replicate and sell Lifted’s proprietary or custom packaging designs to competitors, or disclose to competitors Lifted’s future products, there may be material adverse effects on Lifted’s business, financial conditions and results of operations. The supply and price of raw materials used to produce Lifted’s products can be affected by a number of factors beyond Lifted’s control, such as political tensions between the US and China, tariffs, freight- and port-related backups and other logistical problems, wildfires, frosts, droughts, other weather conditions, economic factors affecting growing decisions, and various plant diseases and pests. If any of the foregoing were to occur, no assurance can be given that such condition would not have a material adverse effect on Lifted’s business, financial condition and results of operations. In addition, Lifted’s results of operations are dependent upon its ability to accurately forecast its requirements of raw materials. Any by Lifted to accurately forecast its demand for raw materials may result in an to meet higher than anticipated demand for products or producing excess inventory, either of which may affect its results of operations. The foregoing risks may have a material effect on our Company and the trading price of our common stock.
Lifted depends on a small number of customers for a significant portion of its sales
Distributors’ and wholesalers’ buying power has increased, as competition in the hemp and consumer goods industries has increased, and as distributors and wholesalers have increased their own private brand offerings, leading to increasing margin demands of Lifted. Distributors and wholesalers are increasingly in a better position to resist Lifted’s price increases and demand lower prices, and to demand Lifted to provide larger and more tailored promotional programs. If Lifted does not successfully provide appropriate marketing, product, packaging, pricing and service to these distributors and wholesalers, Lifted’s product availability, sales and margins may suffer. Certain distributors and wholesalers make up a significant percentage of Lifted’s sales. The loss of sales of any of Lifted’s products by a major retailer may have a material adverse effect on our business and financial performance. The foregoing risks may have a material adverse effect on our Company and the trading price of our common stock.
Third party manufacturers may make decisions adverse to Lifted’s best interests
A portion of Lifted’s sales revenue is dependent on third party manufacturers that Lifted does not control. The majority of these manufacturers’ business comes from producing and/or selling either their own products or competitors’ products. As independent companies, these manufacturers make their own business decisions. They may have the right to determine whether, and to what extent, they manufacture Lifted’s products, Lifted’s competitors’ products and their own products. They may devote more resources to other products or take other actions detrimental to Lifted’s brands. In many cases, they are able to terminate their manufacturing arrangements with Lifted without cause. Lifted may need to increase support for its brands in their territories and may not be able to pass on price increases to them. Lifted’s financial condition may also be adversely affected by conditions beyond Lifted’s control, and Lifted’s business may suffer as a result. Deteriorating economic conditions may negatively impact the financial viability of third party manufacturers. Any of these factors may negatively affect Lifted’s business and financial performance. The foregoing risks may have a material effect on our Company and the trading price of our common stock.
Failure of third-party distributors upon which Lifted relies may adversely affect its business
Lifted may rely heavily on third party distributors for the sale of a portion of Lifted’s products to retailers. The loss of a significant distributor may have a material adverse effect on Lifted’s business, financial condition and results of operations. Lifted’s distributors may also provide distribution services to competing brands, as well as larger, national or international brands, and may be to varying degrees influenced by their continued business relationships with other larger companies. Lifted’s independent distributors may be influenced by a large competitor if they rely on that competitor for a significant portion of their sales. There can be no assurance that Lifted’s distributors will continue to effectively market and distribute Lifted’s products. The loss of any distributor or the inability to replace a poorly performing distributor in a timely fashion may have a material adverse effect on Lifted’s business, financial condition and results of operations. Furthermore, no assurance can be given that Lifted will successfully attract new distributors as it increases its presence in its existing markets or expand into new markets. The foregoing risks may have a material effect on our Company and the trading price of our common stock.
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Disruptions to production at Lifted’s manufacturing and distribution facilities may occur
Disruptions in production at Lifted’s manufacturing facilities may have material adverse effects on Lifted’s business. In addition, disruptions may occur at any of Lifted’s other facilities or those of Lifted’s suppliers or distributors. The disruptions may occur for many reasons, including pandemics, fire, natural disaster, inclement weather, bomb cyclones, water scarcity, manufacturing problems, disease, strikes, transportation or supply interruption, government regulation, cybersecurity attacks or terrorism. Alternative facilities with sufficient capacity or capabilities may not be available, may cost substantially more or may take a significant time to start production, each of which may negatively affect Lifted’s business and financial performance. The foregoing risks may have a material adverse effect on our Company and the trading price of our common stock.
Lifted may be subject to seasonality related to sales of its products
Lifted’s business may be subject to substantial seasonal fluctuations. Lifted’s operating results for any particular quarter may not necessarily be indicative of any other results. If for any reason Lifted’s sales were to be substantially below seasonal norms, then Lifted’s annual revenues and earnings may be materially and adversely affected. The foregoing risks may have a material adverse effect on our Company and the trading price of our common stock.
Lifted may fail to comply with applicable government laws and regulations
Lifted is subject to a variety of federal, state and local laws and regulations in the U.S. These laws and regulations apply to many aspects of its business including the manufacture, safety, labeling, transportation, advertising, sale of its products, consumer age verification, the collection and remittance of sales and use taxes, income taxes, payroll taxes, marijuana, tobacco and excise taxes, other fees, and the filing of related returns. Some of these laws (including tax laws and regulations such as excise and sales tax) and regulations are complex, ambiguous, subject to multiple interpretations, and/or subject to frequent changes. Sales and use taxes, excise taxes, or other fees or taxes may be improperly collected or remitted improperly or late. In addition, filings and amendments to filings may not be prepared and filed on time with the appropriate regulatory or government entity.
Violations of these laws or regulations in regard to the manufacture, safety, labeling, consumer age verification, transportation and advertising of Lifted's products may damage its reputation and/or result in regulatory actions with substantial penalties, or lawsuits filed against Lifted. In addition, any significant change in such laws or regulations or their interpretation, or the introduction of higher standards or more stringent laws or regulations, may result in increased compliance costs or capital expenditures. In particular, regulatory focus on the health, safety and marketing of vapes, smokable products, edible/ingestible products, and beverage products is increasing. Certain federal or state regulations or laws affecting the labeling of Lifted’s products, such as California’s “Prop 65,” which requires warnings on any product with substances that the state lists as potentially causing cancer or birth defects, are or may become applicable to Lifted’s products. If a regulatory authority finds that a current or future product, its label, or a production run or facility is not in compliance with the applicable regulations, we may be fined, or the products in may have to be , removed from the market, reformulated and/or have their packaging changed, which could affect our business, financial condition and results of operations. The foregoing risks may have a material effect on our Company and the trading price of our common stock.
Lifted may be subject to complex and/or ambiguous laws and regulations
Some of the laws and regulations governing Lifted's industry are complex and/or ambiguous, and are subject to different legal interpretations. Depending on what legal interpretations are enforced by regulatory agencies and the courts, we may be subject to prohibitions, restrictions, regulations, taxation or other requirements that we currently do not believe are applicable to us. The foregoing risks may have a material adverse effect on our Company and the trading price of our common stock.
Lifted faces various operating hazards that may result in the reduction of its operations
Lifted operations are subject to certain hazards and liability risks faced by beverage, food and edibles companies that manufacture and distribute drink products, food and other edibles, such as defective products, contaminated products and damaged products. The occurrence of such problems may result in a costly product recall and serious damage to Lifted’s reputation for product quality, and may potentially lead to lawsuits and governmental investigations. No assurance can be given that insurance (if any) will be adequate to fully cover any incidents of product contamination or injuries resulting from Lifted's operations and products. Lifted may not be able to continue to maintain insurance (if any) with adequate coverage for liabilities or risks arising from its business operations on acceptable terms. Even if insurance (if any) is adequate, insurance premiums may increase significantly which may result in higher costs for Lifted. The foregoing risks may have a material effect on our Company and the trading price of our common stock.
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Litigation and publicity concerning product safety or quality, health, human and workplace rights, and other issues may damage Lifted’s brand image and corporate reputation, and may adversely affect Lifted’s results of operations, business and financial conditions
Lifted’s success depends on its ability to build and maintain the brand images for its existing products, new products and brand extensions, and maintaining its corporate reputation. There can be no assurance that Lifted's advertising, marketing and promotional programs and its commitment to product safety and quality and human rights will have the desired impact on its products’ brand image and on consumer preference and demand. Product safety, quality and/or ingredient content issues, efficacy or lack thereof (real or imagined), or allegations of product contamination, even if false or unfounded, could tarnish the image of the affected brands and may cause consumers to choose other products. Furthermore, Lifted’s brand images or perceived product quality may be adversely affected by litigation, unfavorable reports in the media (internet or elsewhere), studies in general and regulatory or other governmental inquiries (in each case whether involving Lifted's products or those of its competitors) and proposed or new legislation affecting its industry. In addition, from time to time, there may be public policy endeavors that are either directly or indirectly related to Lifted’s products and packaging or to its business. These public policy debates can occasionally be the subject of backlash from advocacy groups that have a differing point of view and may result in media and consumer reaction, including product .
Similarly, Lifted’s sponsorship relationships or collaborations may subject Lifted to negative publicity as a result of actual or alleged misconduct by individuals or entities associated with organizations or individuals Lifted sponsors or supports or collaborates with. Likewise, campaigns by activists connecting Lifted or its supply chains with human and workplace rights issues may adversely impact Lifted’s corporate image and reputation. Allegations, even if untrue, that Lifted is not respecting one or more of the human rights found in the United Nations Universal Declaration of Human Rights; actual or perceived failure by Lifted’s suppliers or other business partners to comply with applicable labor and workplace rights laws, including child labor laws, or its actual or perceived abuse or misuse of migrant workers; and adverse publicity surrounding obesity and health concerns related to Lifted’s products, water usage, environmental impact, labor relations or the like may affect Lifted’s overall reputation and brand image, which in turn may have impacts on Lifted’s products’ acceptance by consumers.
Lifted may also incur significant liabilities, if lawsuits or claims result in decisions against Lifted, or litigation costs, regardless of the result. Further, any litigation may cause Lifted’s key employees to expend resources and time normally devoted to the operations of Lifted's business. The foregoing risks may have a material adverse effect on our Company and the trading price of our common stock.
It is difficult and costly for Lifted to protect its proprietary rights
Lifted’s commercial success will depend in part on obtaining and maintaining trademark protection, patent protection, and trade secret protection of its products and brands, as well as successfully defending that intellectual property against third-party challenges, which Lifted might not be able to do. Lifted will only be able to protect its intellectual property related to its trademarks, patents and brands (if any) to the extent that it has rights under valid and enforceable trademarks, patents or trade secrets that cover its products and brands, which it might not have. Changes in either the trademark and patent laws or in interpretations of trademark and patent laws in the U.S. and other countries may diminish the value of Lifted’s intellectual property (if any). Accordingly, Lifted cannot predict the breadth of claims that may be allowed or enforced in its issued trademarks or its issued patents (if any). The degree of future protection for Lifted’s proprietary rights is uncertain because legal means afford only limited protection and may not protect Lifted’s rights or permit Lifted to or keep its competitive . The foregoing risks may have a material effect on our Company and the trading price of our common stock.
Lifted may face intellectual property infringement claims that may be time-consuming and costly to defend, and could result in loss of significant rights and the assessment of treble damages
From time to time Lifted may face intellectual property infringement, misappropriation, or invalidity/non-infringement claims from third parties. Some of these claims may lead to litigation. The outcome of any such litigation can never be guaranteed, and an adverse outcome may affect Lifted negatively. For example, were a third party to succeed on an infringement claim against Lifted, Lifted may be required to pay substantial damages (including up to treble damages if such infringement were found to be willful). In addition, Lifted may face an injunction, barring it from conducting the activity. The outcome of the may require Lifted to enter into a license agreement which may not be acceptable, commercially reasonable, or practical terms or Lifted may be from obtaining a license at all. It is also possible that an finding of Lifted may require it to dedicate substantial resources and time in developing non- alternatives, which may or may not be possible.
Finally, Lifted may initiate claims to assert or defend its own intellectual property against third parties. Any intellectual property litigation, irrespective of whether Lifted is the plaintiff or the defendant, and regardless of the outcome, is expensive and time-consuming, and may divert Lifted’s management’s attention from its business and negatively affect Lifted’s operating results or financial condition. The foregoing risks may have a material adverse effect on our Company and the trading price of our common stock.
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Lifted may be subject to claims by third parties asserting that Lifted or Lifted’s employees have misappropriated the third parties’ intellectual property, or claiming ownership of what Lifted regards as its own intellectual property
Although Lifted tries to ensure that it, its employees, and independent contractors do not use the proprietary information or know-how of others in their work for Lifted, Lifted may be subject to claims that it, its employees, or independent contractors have used or disclosed intellectual property in violation of others’ rights. These claims may cover a range of matters, such as challenges to Lifted’s trademarks, as well as claims that its employees or independent contractors are using trade secrets or other proprietary information of any such employee’s former employer or independent contractors. As a result, Lifted may be forced to bring claims against third parties, or defend claims they may bring against Lifted, to determine the ownership of what Lifted regards as its intellectual property. If Lifted fails in or any such , in addition to paying monetary , Lifted may intellectual property rights or personnel. Even if Lifted is in or such , could result in substantial costs and be a to management. The foregoing risks may have a material effect on our Company and the trading price of our common stock.
We will not control businesses in which we own a minority equity ownership interest
We will not control any business in which we own a minority equity ownership interest, such as Ablis and Bendistillery. We can provide no assurance that the owner of the majority equity ownership interest of such business will be able to manage such business successfully. A failure by the controlling owner of a company in which we own a minority equity ownership interest may materially adversely affect our Company. The foregoing risks may have a material adverse effect on our Company and the trading price of our common stock.
Under US GAAP, we will not be able to consolidate our financial statements with the financial statements of companies in which we own minority equity ownership interests
US GAAP does not permit the consolidation of our financial statements with the financial statements of companies in which we own minority equity ownership interests and have no substantial influence over the management of the businesses. US GAAP also requires us to record these types of investments at cost minus impairment, if any, plus or minus changes resulting from observable price changes in orderly transactions for the identical or a similar investment of the same issuer. As such, we will not be allowed to consolidate into our financial statements any portion of the revenues, earnings or assets of companies in which we own minority equity ownership interests such as Ablis, and Bendistillery.
As a result of these effects of US GAAP, potential buyers or sellers of our stock may be confused because they may not be able to immediately understand the financial results and the values of the minority ownership interests that we have in certain businesses such as Ablis and Bendistillery, or future businesses. The foregoing risks may have a material adverse effect on our Company and the trading price of our common stock.
We may not be able to exit from minority equity ownership interests
We may not be able to exit from minority equity ownership interests in companies such as Ablis and Bendistillery on acceptable terms, if at all. Because our equity ownership interests in these companies will not allow us to clearly control the management, operations, and direction of the businesses, a potential sale or other exit from such investment may be extremely difficult or impossible to achieve on acceptable terms, if at all. The other owners of equity ownership interests in such businesses may refuse to cooperate with such a sale or exit, or may engage in business practices including but not limited to inflated salaries, stock dilution, obstructionist or delaying tactics, or other behavior that would result in our equity ownership interests having an extremely limited or non-existent market. The foregoing risks may have a material adverse effect on our Company and the trading price of our common stock.
We may not be able to properly brand our Company
In September 2021, we changed the name of our company to “LFTD Partners Inc.” from “Acquired Sales Corp.”, and we changed our ticker symbol to “LSFP” from “AQSP”. On March 15, 2022 we changed our ticker symbol to “LIFD”. Because we may acquire equity ownership interests in many different Cannabis Companies, with a range of products, packaging, names and cultures, we may not be able to properly brand our Company or properly represent all of the companies in which we are invested. Potential acquisition candidates, consumers, and potential investors may have difficulty assimilating all of our diverse business interests, and consequently may not give our common stock a proper valuation. Even if we change the name of our Company to a name that more properly reflects our focus on acquiring equity ownership interests in Cannabis Companies, such a name change may not be embraced by consumers or potential investors. Moreover, no assurances or guarantees may be provided that the Financial Industry Regulatory Authority (“FINRA”) will grant requests for ticker symbol changes, or that such ticker symbol changes will be embraced by consumers or potential investors. The foregoing risks may have a material adverse effect on our Company and the trading price of our common stock.
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We may not be able to properly market our products
Marketing our products properly will require a great deal of marketing expertise, an extensive and trained staff, and large amounts of marketing dollars. Our marketing expertise and experience is limited, our staff size and training is limited, and we lack large amounts of marketing dollars. A failure or inability to properly market our products may materially adversely affect our Company. The foregoing risks may have a material adverse effect on our Company and the trading price of our common stock.
We may not be able to properly manage multiple businesses
We may not be able to properly manage multiple businesses in the hemp-derived, psychoactive, and consumable products industries. Managing multiple businesses may be more complicated than managing a single line of business, and may require that we hire and manage executives with experience and expertise in different fields. We can provide no assurance that we will be able to do so successfully. A failure to properly manage multiple businesses may materially adversely affect our Company. The foregoing risks may have a material adverse effect on our Company and the trading price of our common stock.
We may not be able to successfully integrate new acquisitions
Even if we are able to acquire additional companies or assets, we may not be able to successfully integrate or achieve synergies among those companies or assets. For example, we may need to integrate or coordinate widely dispersed operations with different corporate cultures, operating margins, competitive environments, computer systems, accounting software, compensation schemes, business plans and growth potential requiring significant management time and attention. In addition, the successful integration or coordination of any companies we acquire will depend in large part on the retention of personnel critical to our combined business operations due to, for example, unique technical skills or management expertise. We may be unable to retain existing management, finance, accounting, engineering, sales, customer support, and operations personnel that are critical to the success of the integrated Company, resulting in disruption of operations, loss of key information, expertise or know-how, additional recruitment and training costs, and otherwise anticipated benefits of these acquisitions, including of revenue and . to integrate acquired businesses may have a material effect on our Company. The foregoing risks may have a material effect on our Company and the trading price of our common stock.
Any future acquisitions we may make that expand our business into new sectors also pose unique risks
Risks associated with entering into a new sector through an acquisition include, but are not limited to: (1) having no or limited experience in such sector; (2) exposure to certain governmental regulations and compliance requirements; (3) difficulties developing, manufacturing, and marketing the products of a newly acquired company; and (4) our lesser familiarity with consumer preferences in the new sector. Entry into new sectors may bring us into competition with new competitors that have potentially a larger, more established market presence. We cannot ensure that our entry into any new sectors will be profitable, and future profitability may be delayed or otherwise materially adversely affected. The foregoing risks may have a material adverse effect on our Company and the trading price of our common stock.
Our acquisitions of businesses may be extremely risky and we may lose all of our investments
We may invest in the marijuana, nicotine, hemp-derived, psychoactive, consumable products, or other risky industries. An investment in these companies may be extremely risky because, among other things, the companies we are likely to focus on: (1) may be viewed as being dangerous or illegal by the DEA or FDA, by state governments, or by other governmental or regulatory bodies and agencies; (2) typically have limited operating histories, narrower product lines and smaller market shares than larger businesses, which tend to render them more vulnerable to competitors’ actions and market conditions, as well as general economic downturns; (3) tend to be privately-owned and generally have little publicly available information and, as a result, we may not learn all of the material information we need to know regarding these businesses; (4) are more likely to depend on the management talents and efforts of a small group of people; and, as a result, the death, disability, resignation or termination of one or more of these people could have an adverse impact on the operations of any business that we may acquire; (5) may have less predictable operating results; (6) may from time to time be parties to ; (7) may be engaged in rapidly changing businesses with products subject to a substantial risk of ; (8) may require substantial additional capital to support their working capital, operations, expansion, marketing, research, or maintain their competitive position; and (9) their financial statements may be unaudited, prepared, and/or their internal financial controls may be or non-existent. Our to make accretive acquisitions that meet all of our criteria may have a material effect on our business, results of operations, and financial condition. The foregoing risks may have a material effect on our Company and the trading price of our common stock.
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Future acquisitions may fail to perform as expected
Future acquisitions may fail to perform as expected, for many reasons, many of which may be unforeseen. For examples: information supplied to us regarding future acquisitions may be incomplete, inaccurate or misleading; we may overestimate future acquisitions’ cash flow, underestimate their costs, or fail to understand their risks; the management of future acquisitions may clash with our management or our board of directors, lose focus on growing the profitability of their businesses, or may resign to pursue other interests; or future acquisitions may be crushed by larger and more experienced and financially stronger competitors. The foregoing risks may have a material adverse effect on our Company and the trading price of our common stock.
Competition may result in overpaying for acquisitions
Other investors with significant capital may compete with us for attractive investment opportunities. These competitors may include publicly traded companies, private equity firms, privately held buyers, individual investors, and other types of investors. Such competition may increase the price of acquisitions, or otherwise adversely affect the terms and conditions of acquisitions. The foregoing risks may have a material adverse effect on our Company and the trading price of our common stock.
We may have insufficient resources to cover our debts, operating expenses, dividends owed on our preferred stock, and the expenses of raising money and consummating acquisitions
We have limited cash to cover the costs of building inventory, hiring employees, expanding our operational footprint, our company-wide bonus pool, other business operating expenses, dividends owed on our preferred stock, and the expenses incurred in connection with money raising, performing due diligence and acquiring businesses, and the SEC filings and audit responsibilities associated with being a publicly traded company. If we do not have sufficient proceeds available to cover our expenses, we may be forced to attempt to obtain additional financing, either from our management or third parties. We may not be able to obtain additional financing on acceptable terms, if at all, and neither our management nor any third party is obligated to provide any financing. The foregoing risks may have a material adverse effect on our Company and the trading price of our common stock.
We may not be able to identify good acquisitions in the future
There can be no assurance that we will be successful in locating acquisition candidates meeting our criteria in the future. In the event that we complete a future merger or acquisition transaction, of which there can be no assurance, our success, if any, will be dependent upon the operations, financial condition and management of the target company, and upon numerous other factors beyond our control. If the operations, profitability, financial condition or management of the target company were to be disrupted or otherwise negatively impacted following a transaction, our Company and our common stock price may be negatively impacted. The foregoing risks may have a material adverse effect on our Company and the trading price of our common stock.
We may carry out actions that will not require our stockholders’ approval
The terms and conditions of any acquisition may require us to take actions that may not require our stockholders’ approval. In order to acquire certain companies or assets, we may issue additional shares of common or convertible preferred stock, or borrow money or issue debt instruments including debt convertible into capital stock. Not all of these actions would require our stockholders’ approval even if these actions dilute our stockholders’ economic or voting interests as shareholders. The foregoing risks may have a material adverse effect on our Company and the trading price of our common stock.
Our investigation of potential acquisitions will be limited
Our analysis of new business opportunities will be undertaken by or under the supervision of our Investment Committee. Inasmuch as we will have limited funds available to search for business opportunities and ventures, we will not be able to expend significant funds on a complete and exhaustive investigation of such business or opportunity. We will, however, investigate, to the extent believed reasonable by our Investment Committee, such potential business opportunities or ventures by conducting a “due diligence investigation”. In a due diligence investigation, we intend to obtain and review materials regarding the business opportunity. Typically, such materials will include information regarding a target company’s products, services, contracts, management, ownership, and financial information. In addition, we intend to cause our Investment Committee to personally meet with management and key personnel of target companies, ask questions regarding the target companies’ prospects, tour facilities, and conduct other reasonable of the target companies to the extent of our limited financial resources and management and technical expertise. There is a risk that the owners and/or the managers of potential acquisitions could and/or to material facts regarding the potential acquisitions, or that our shareholders may institute that our “due diligence ” of potential acquisitions were or in some way. Any of our typical due diligence to issues and relating to target companies may materially affect our Company. The foregoing risks may have a material effect on our Company and the trading price of our common stock.
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We will have only a limited ability to evaluate the directors and management of potential acquisitions
We may make a determination that our current directors and officers should not remain, or should change or reduce their roles, following money raising or a business combination, based on an assessment of the experience and skill sets of new directors and officers and the management of target companies. We cannot assure you that our assessment of these individuals will prove to be correct. The foregoing risks may have a material adverse effect on our Company and the trading price of our common stock.
We will be dependent on outside advisors to assist us
In order to supplement the business experience of management, we may employ investment bankers, accountants, technical experts, appraisers, attorneys, independent contractors or other consultants or advisors. The selection of any such advisors will be made by management and without any control from shareholders. Additionally, it is anticipated that such persons may be engaged by us on an independent basis without a continuing fiduciary or other obligation to us. The foregoing risks may have a material adverse effect on our Company and the trading price of our common stock.
If we are unable to successfully execute on our future operating plans, our financial condition and results of operation may be materially adversely affected, and we may not be able to continue as a going concern
It is critical that we meet our sales goals and increase sales going forward. If we do not meet our sales goals, our available cash and working capital may decrease and our financial condition will be negatively impacted. The foregoing risks may have a material adverse effect on our Company and the trading price of our common stock.
We may fail to manage our growth effectively
Future growth through acquisitions and organic expansion may place a significant strain on our managerial, operational, technical, training, systems and financial resources. We can give you no assurance that we will be able to manage our expanding operations properly or cost effectively. A failure to properly and cost-effectively manage our expansion may materially adversely affect our Company. The foregoing risks may have a material adverse effect on our Company and the trading price of our common stock.
We may be unable to effectively manage future growth
We may be subject to growth-related risks, including capacity constraints and pressure on our internal systems and controls. Our ability to manage growth effectively will require us to continue to implement and improve our operational and financial systems and to expand, train and manage our employee base. Rapid growth of our business may significantly strain our management, operations and technical resources. We may be unable to properly manage future growth. The foregoing risks may have a material adverse effect on our Company and the trading price of our common stock.
The management of companies we acquire may lose their enthusiasm or entrepreneurship after the sale of their businesses
We can give no assurance that the management of future companies we acquire will have the same level of enthusiasm for operating their businesses following their acquisition by us; or, if they cease performing services for the acquired businesses, that we will be able to install replacement management with the same skill sets, leadership and determination. There also is always a risk that management of companies we acquire will attempt to reenter the market and possibly seek to recruit our employees and independent contractors. The foregoing risks may have a material adverse effect on our Company and the trading price of our common stock.
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Complications with the implementation of our Inventory Management Software could adversely impact our business and operations
We rely on information systems and technology to manage our business and summarize operating results. We are in the process of implementing Inventory Management Software (“IMS”). IMS is designed to accurately maintain the quantities and costs of the Company’s raw goods and finished goods. The IMS implementation process has required, and will continue to require, the investment of significant personnel and financial resources. We may not be able to successfully implement the IMS without experiencing increased costs and other difficulties and our planned timeline to implement the remaining phases of our IMS may be delayed. If we are unable to successfully implement our IMS system as planned, our business, results of operations, and financial condition may be negatively impacted. Additionally, if we do not effectively implement the IMS as planned or the IMS does not operate as intended, the effectiveness of our internal controls over financial reporting may be adversely affected or our ability to adequately assess those controls could be . The foregoing risks may have a material effect on our Company and the trading price of our common stock.
Law enforcement officials may claim that Lifted's products are contaminated
There is a risk that law enforcement officials may claim that Lifted's products are contaminated with illegal drugs or other harmful substances. This risk may be heightened by some law enforcement officials' belief that hemp-derived, kratom-derived, and other intoxicating products need to be prohibited or heavily regulated, or by some law enforcement officials' use of mobile testing devices that may produce inaccurate and/or misleading test results that allow law enforcement officials to knowingly or unknowingly claim that legitimate products constitute threats to the public's health. For example, in February 2023, the district attorney in Montgomery County, Pennsylvania, held a press conference claiming that heroin and fentanyl had been found in certain hemp-derived cannabinoid-infused products being sold at a local retailer under three product brands, including the "Urb Extrax" brand of hemp-derived delta-8-THC gummies manufactured and sold by a third party unrelated to Lifted. These claims apparently were based upon mobile testing results obtained by Montgomery County law enforcement. However, when these products were later tested by a recognized lab hired by Montgomery County law enforcement, apparently no heroin or fentanyl was detected. the of any detectable levels of heroin or fentanyl in these products, the district attorney's made at the press conference were widely reported by various media outlets, and caused among consumers, and possibly caused to the companies and product brands involved and/or to the entire hemp-derived products industry. If in the future law enforcement officials were to claim that Lifted's products contain drugs or other contaminants, our Company may be materially affected. The foregoing risks may have a material effect on our Company and the trading price of our common stock.
RISK FACTORS ASSOCIATED WITH THE U.S. MARIJUANA INDUSTRY
At this point in time, our Company does not directly participate in the U.S. marijuana industry and does not "touch the marijuana plant" in the U.S. However, our Company may participate in the U.S. marijuana industry, and is actively considering mergers and acquisitions in the U.S. marijuana industry. Any such merger and acquisition of a Cannabis Company that "touches the marijuana plant" in the U.S. would subject our Company to a large number of significant risks. In anticipation of the potential consummation of such a merger and acquisition, set forth below are descriptions of some of the most significant risks associated with direct participation in the U.S. marijuana industry.
Cannabis remains illegal under U.S. federal law, and enforcement of cannabis laws could change
Cannabis is illegal under U.S. federal law. In those states in which the use of cannabis has been legalized, its use remains a violation of federal law pursuant to the Controlled Substances Act (21 U.S.C. § 811) (“CSA”). Under U.S. federal law, the possession, use, cultivation, and transfer of cannabis and any related drug paraphernalia is illegal, and any such acts are criminalized under the CSA. Cannabis is a Schedule I controlled substance under the CSA, and is thereby deemed to have a high potential for abuse, no accepted medical use in the United States, and a lack of safety for use under medical supervision. The concepts of “medical cannabis,” “retail cannabis” and “adult-use cannabis” do not exist under U.S. federal law. Even if cannabis is re-scheduled to Schedule III under the CSA, medical and adult-use cannabis would remain illegal under U.S. federal law without additional statutory changes, and the negative tax ramifications of U.S. Internal Revenue Code Section 280E may persist.
Unless and until Congress amends the CSA with respect to cannabis (and the President approves such amendment), there is a risk that federal authorities may enforce current federal law. If that occurs, we may be deemed to be producing, cultivating or dispensing cannabis and drug paraphernalia in violation of federal law. Since federal law criminalizing the use of cannabis pre-empts state laws that legalize its use, enforcement of federal law regarding cannabis is a significant risk and would greatly harm our business, prospects, revenue, results of operation and financial condition.
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Our activities may, and may continue to be, subject to evolving regulation by governmental authorities. We may become directly or indirectly engaged in the medical and adult-use cannabis industry in the U.S. where local and state law permits such activities. The legality of the production, cultivation, extraction, distribution, retail sales, transportation and use of cannabis differs among states in the U.S. Due to the current regulatory environment in the U.S., new risks may emerge, and management may not be able to predict all such risks.
Activities in the medical and adult-use cannabis industry are illegal under the applicable federal laws of the United States. There can be no assurances that the federal government of the United States will not seek to enforce the applicable laws against us. The consequences of such enforcement would be materially adverse to us and our business, including our reputation, profitability and the market price of our publicly traded shares, and could result in the forfeiture or seizure of all or substantially all of our assets.
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. It is further possible that Department of Justice or an aggressive federal prosecutor could allege that our Company, executives, and board of directors, and, potentially, our shareholders, “aided and abetted” violations of federal law by providing finances and services to our Company. Under these circumstances, federal prosecutors could seek to seize our assets, and to recover the “illicit profits” generated by our Company. In these circumstances, the Company’s operations would cease, shareholders may lose their entire investments and directors, officers and/or shareholders may be left to any charges them at their own expense and, if , be sent to federal prison.
Additionally, there can be no assurance as to the position the Trump administration or any future administration may take on cannabis, and a new administration could decide to enforce federal laws against state-regulated cannabis companies. Any enforcement of current federal cannabis laws could cause significant financial damage to us and our shareholders.
These results could have a material adverse effect on us, including, but not limited to, our reputation and ability to conduct business, our holding (directly or indirectly) of cannabis licenses in the United States, the marketability of our securities, our financial position, operating results, profitability or liquidity or the trading 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: (1) the time and resources that may be needed depend on the nature and extent of any information requested by the authorities involved, and (2) such time or resources could be substantial. The foregoing risks may have a material adverse effect on our Company and the trading price of our common stock.
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 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 where the sale and use of cannabis is currently legal, or if existing state laws are repealed or curtailed, the Company’s business or operations in those states or under those laws would be materially and adversely affected. As they amend or develop legislation and regulations, state and local regulators and legislatures may use the regulatory process to slow the growth of the Company, with the intent of creating increased opportunities for resident farmers and entrepreneurs, which could severely restrict our ability to operate in those jurisdictions. Federal actions against any individual or entity engaged in the cannabis industry or a substantial repeal of cannabis-related legislation could adversely affect the Company, our business and our assets or investments. Maintaining compliance with complex and ever-changing regulations and laws, including sometimes unclear regulations and laws, can be a task, and a materially compliant business can be found in of one or more laws, rules or regulations while remaining materially or substantially compliant with applicable state cannabis laws.
The rulemaking process at the state level that applies to cannabis operators in any state will be ongoing and result in frequent changes. As a result, a compliance program will be essential to manage regulatory risk. All operating policies and procedures implemented by the Company are expected to be compliance-based and are expected to be derived from the state regulatory structure governing ancillary cannabis businesses and their relationships to state-licensed or permitted cannabis operators, if any. Notwithstanding the Company’s efforts and diligence, regulatory compliance and the process of obtaining and maintaining regulatory approvals could be costly and time-consuming. No assurance can be given that the Company will receive or be able to maintain the requisite licenses, permits or cards to operate.
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In addition, local laws and ordinances could restrict the Company’s business activity. Although the Company’s operations are legal under the laws of the states in which the Company’s business operate, local governments have the ability to limit, restrict and ban cannabis businesses from operating within their jurisdiction. Land use, zoning, local ordinances and similar laws could be adopted or changed and have a material adverse effect on the Company’s business.
Multiple states where medical and/or adult-use cannabis is legal have or are considering special taxes or fees on businesses in the cannabis industry. It is uncertain at this time whether other states are in the process of reviewing such additional taxes and fees.
The implementation of special taxes or fees could have a material adverse effect upon the Company’s business, prospects, revenue, results of operation and financial condition. Certain of the states in which we may 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 could 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. The foregoing risks may have a material adverse effect on our Company and the trading price of our common stock.
The cannabis industry is relatively new
The cannabis industry and market are relatively new. In addition to being subject to general business risks, we expect to need to continue to build brand awareness in the industry and market share through significant investments in our strategy, production capacity, quality assurance and compliance with regulations. Research in Canada, the United States and internationally regarding the medical benefits, viability, safety, efficacy and dosing of cannabis or isolated cannabinoids, remains in relatively early stages. Few clinical trials on the benefits of cannabis or isolated cannabinoids have been conducted. Future research and clinical trials may draw opposing conclusions to statements contained in the articles, reports and studies currently favored, or could reach different or negative conclusions regarding the medical benefits, viability, safety, efficacy, dosing or other facts and perceptions related to medical cannabis, which could adversely affect social acceptance of cannabis and the demand for our products and dispensary services.
Accordingly, there is no assurance that the cannabis industry and the market for medicinal and/or adult-use cannabis will continue to exist and grow as currently anticipated or function and evolve in a manner consistent with management’s expectations and assumptions. Any event or circumstance that adversely affects the cannabis industry, such as the imposition of further restrictions on sales and marketing or further restrictions on sales in certain areas and markets could have a material adverse effect on our business, financial condition and results of operations. The foregoing risks may have a material adverse effect on our Company and the trading price of our common stock.
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 our common stock, to the extent that investors may lose their entire investments. The foregoing risk may have a material adverse effect on our Company and the trading price of our common stock.
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Our ability to grow our medical and adult-use cannabis product offerings and dispensary services may be limited
If we introduce or expand our medical and adult-use cannabis product offerings and dispensary services, we may incur losses or otherwise fail to enter certain markets successfully. Our expansion into new markets may place us in competitive and regulatory environments with which we are unfamiliar and involve various risks, including the need to invest significant resources and the possibility that returns on those investments will not be achieved for several years, if at all. In attempting to establish new product offerings or dispensary services, we may incur significant expenses and face various other challenges, such as expanding our work force and management personnel to cover these markets and complying with complicated cannabis regulations that apply to these markets. In addition, we may not successfully demonstrate the value of these product offerings and dispensary services to consumers, and failure to do so would compromise our ability to successfully expand these additional revenue streams. The foregoing risk may have a material effect on our Company and the trading price of our common stock.
We may not be able to obtain or maintain necessary permits and authorizations
We may not be able to obtain or maintain the necessary licenses, permits, certificates, authorizations or accreditations to operate our business in a timely fashion, if at all, or we may only be able to do so at great effort and expense. In addition, we may not be able to comply fully with the wide variety of laws and regulations applicable to the cannabis industry. Failure to comply with or to obtain the necessary licenses, permits, certificates, authorizations or accreditations could result in restrictions on our Company’s ability to operate in the cannabis industry, which could have a material adverse effect on our business, financial condition or results of operations. The foregoing risk may have a material adverse effect on our Company and the trading price of our common stock.
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 the Company’s ability to grow in such states. The foregoing risk may have a material adverse effect on our Company and the trading price of our common stock.
We may be adversely affected by the issuance of additional cannabis licenses to third parties
As the number of available licenses increase in the markets in which we operate, additional competition and increased product availability may result in competitors undercutting our prices. From time to time, we may need to reduce our prices in response to competitive and customer pressures and to maintain our market share, which could materially reduce our revenues. The foregoing risk may have a material adverse effect on our Company and the trading price of our common stock.
We may become subject to FDA 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 III controlled substance, it is possible that the FDA would seek to regulate cannabis under the Food, Drug and Cosmetics Act of 1938. Additionally, the FDA may issue rules and regulations, including good manufacturing practices, related to the growth, cultivation, harvesting and processing of cannabis. Clinical trials may be needed to verify the efficacy and safety of cannabis. It is also possible that the FDA would require facilities where medical use cannabis is grown to register with the FDA 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 the Company is unable to comply with the potential regulations or registration requirements prescribed by the FDA, it may have an adverse effect on the Company’s business, prospects, revenue, results of operation and financial condition.
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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 foregoing risk may have a material adverse effect on our Company and the trading price of our common stock.
As a cannabis business, we are subject to applicable anti-money laundering laws and regulations and have restricted access to banking and other financial services
Our plans to enter the marijuana industry may adversely affect our banking relationships, our access to banking and other financial services, and our ability to provide collateral and other security for loans.
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 (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 (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 U.S. Department of the Treasury’s Financial Crimes Enforcement Network (“FinCEN”), issued a memorandum on February 14, 2014 (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 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 are 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 for us to operate and conduct our business as planned or to operate .
In the United States, the “SAFE Banking Act” which has been passed by the U.S. House of Representatives seven times, most recently on July 14, 2022 as an amendment to the National Defense Authorization Act, would grant banks and other financial institutions immunity from federal criminal prosecution for servicing marijuana-related businesses if the underlying cannabis business follows state law. However, while the U.S. Senate Banking Committee passed the “SAFER Banking Act” on a bipartisan vote of 14-9 in September 2023, that bill has yet to be brought to the U.S. Senate floor and faces an uncertain future in the U.S. House of Representatives. The potential future passage of a bill is further complicated by the change in party control and the current narrow majorities in both chambers of the U.S. Congress. There can be no assurance that a bill will be passed as presently proposed or at all. Our Company does not undertake to provide any future updates to potential investors on potential federal or state legislation affecting cannabis.
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Transactions involving banks and other financial institutions are both difficult and unpredictable under the current legal and regulatory landscape. Legislative changes could help to reduce or eliminate these challenges for companies in the cannabis space and would improve the efficiency of both significant and minor financial transactions. The foregoing risks may have a material adverse effect on our Company and the trading price of our common stock.
We lack access to U.S. bankruptcy protections
Many courts have denied cannabis businesses bankruptcy protections because the use of cannabis is illegal under federal law. In the event of a bankruptcy, it would be very difficult for lenders to recoup their investments in the cannabis industry. If the Company were to experience a bankruptcy, there is no guarantee that U.S. federal bankruptcy protections would be available to us, which would have a material adverse effect on us. The foregoing risk may have a material adverse effect on our Company and the trading price of our common stock.
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 may be heavily regulated in all jurisdictions where we conduct business. Our operations are expected to be 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, are expected to 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 expected to be 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 effect on our business, prospects, revenue, results of operation and financial condition. Any to comply with the regulatory requirements applicable to our operations may lead to possible sanctions including the or imposition of additional conditions on licenses to operate our business; the or from a particular market or jurisdiction or of our key personnel; the imposition of additional or more inspection, testing and reporting requirements; and the imposition of and . In addition, changes in regulations, more vigorous enforcement thereof or other events could require extensive changes to our operations, increase compliance costs or give rise to material liabilities and/or of our licenses and other permits, which could have a material 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 impact our ongoing costs relating to regulatory compliance. Maintaining compliance with complex and ever-changing regulations, including sometimes unclear regulations and laws, can be a task, and a materially compliant business can be found in of one or more laws, rules or regulations while remaining materially or substantially compliant with applicable state cannabis laws. The foregoing risks may have a material effect on our Company and the trading price of our common stock.
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We expect to face intense competition
We expect to face intense competition from other companies, some of which have longer operating histories and more financial resources and manufacturing, retail and marketing experience than we do. Increased competition by larger and better financed competitors could materially and adversely affect our business, financial condition and results of operations.
Because of the early stage of the industry in which we may operate, we expect to face additional competition from new entrants, participants in the illicit market that face significantly lower costs to operate, and psychoactive hemp-derived products manufacturers. If the number of consumers of cannabis in the states in which we operate our business increases, the demand for products and qualified talent will increase and we expect that competition will become more intense, as current and future competitors begin to offer an increasing number of diversified products. To remain competitive, we expect to require a high level of investment in research and development, marketing, operations, accounting, sales, talent retention and client support. We may not have sufficient resources to maintain research and development, marketing, operations, accounting, sales, talent retention, and client support efforts on a competitive basis, which could materially and adversely affect our business, financial condition and results of operations. Additionally, as the number of available licenses increase in the markets in which we operate, additional competition and increased product availability may result in competitors undercutting our prices. From time to time, we may need to reduce our prices in response to competitive and customer pressures and to maintain our market share, which could materially reduce our revenues. A decline in the price of our common stock could affect our ability to raise further working capital and impact our ability to continue operations.
A prolonged decline in the price of our common stock could result in a reduction in the liquidity of our common stock and a reduction in our ability to raise capital, if needed. Such reductions may force us to reallocate funds from other planned uses and may have a significant negative effect on our business plan and operations, including our ability to develop new products and continue our current operations. If our stock price declines, there can be no assurance that we will be able to raise additional capital or generate funds from operations sufficient to meet our obligations. If we are unable to raise sufficient capital in the future, we may not be able to have the resources to continue our normal operations. The foregoing risks may have a material adverse effect on our Company and the trading price of our common stock.
We expect to face competition from the illicit market as well as the psychoactive hemp-derived products industry
We expect to face competition from the illicit market as well as the psychoactive hemp-derived products industry. The competition presented by illicit cannabis businesses, and the inability or unwillingness of law enforcement authorities to enforce existing laws prohibiting the unlicensed or otherwise illegal cultivation and sale of cannabis, could result in the perpetuation of the illegal market for cannabis and/or have a material adverse effect on the perception of cannabis use.
Psychoactive hemp-based products, which were legalized under the Farm Bill, are generally not subject to the intensive and costly state-level regulatory regimes that medical and adult-use cannabis are subject to. These products generally are not produced in adherence with the same laws, regulations, rules, tax regimes and other restrictions that are applicable to the sale and manufacture of cannabis; as a result, hemp product manufacturers have advantages over licensed cannabis manufacturers and sellers. In addition, although not subject to the same quality and health and safety regulations applicable to medical and adult-use cannabis businesses, if Farm Bill-compliant hemp products cause harm to their users, that could result in a material adverse effect on the perception of cannabis use and its legality. The foregoing risks may have a material adverse effect on our Company and the trading price of our common stock.
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We may face difficulties in enforcing our contracts
Because our contracts may involve cannabis and other activities that are not legal under federal law and in some state jurisdictions, we may face difficulties in enforcing our contracts in federal courts and certain state courts. We cannot be assured that we will have a remedy for breach of contract, which could have a material adverse effect on us. The foregoing risk may have a material adverse effect on our Company and the trading price of our common stock.
We have limited trademark protection
We may not 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 CSA, 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 we conduct 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. The foregoing risk may have a material adverse effect on our Company and the trading price of our common stock.
We may be subject to constraints on marketing our products
Certain states in which we may 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 the Company’s 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. The foregoing risk may have a material adverse effect on our Company and the trading price of our common stock.
We face risks related to the results of future clinical research
Research regarding the medical benefits, viability, safety, efficacy, dosing and social acceptance of cannabis or isolated cannabinoids remains in early stages. There have been relatively few clinical trials on the benefits of cannabis or isolated cannabinoids. Although we believe that various articles, reports and studies support our beliefs regarding the medical benefits, viability, safety, efficacy, dosing and social acceptance of cannabis, future research and clinical trials may prove such statements to be incorrect, or could raise concerns regarding, and perceptions relating to, cannabis. Further, the federal illegality of cannabis and associated limits on our ability to properly fund and conduct research on cannabis and the lack of formal FDA oversight of cannabis, there is limited information about the long-term safety and efficacy of cannabis in it various forms, when combusted or combined with various cannabis and/or non-cannabis derived ingredients and materials or when ingested, inhaled or topically applied. Future research or oversight may reveal negative health and safety effects, which may significantly impact our reputation, operations and financial performance.
Given these risks, uncertainties and assumptions, prospective purchasers of our common stock should not place undue reliance on such articles and reports. Future research studies and clinical trials may draw opposing conclusions to those stated in this Annual Report on Form 10-K or reach negative conclusions regarding the medical benefits, viability, safety, efficacy, dosing, social acceptance or other facts and perceptions related to cannabis, which could have a material adverse effect on the demand for our products, with the potential to have a material adverse effect on our business, prospects, revenue, results of operation and financial condition. The foregoing risk may have a material adverse effect on our Company and the trading price of our common stock.
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The re-classification of cannabis or changes in U.S. controlled substance laws and regulations could have a material adverse effect on our business, financial condition, and results of operations
If cannabis is re-classified as a Schedule II or lower controlled substance under the CSA, the ability to conduct research on the medical benefits of cannabis would most likely be more accessible; however, if cannabis is re-categorized as a Schedule II or lower controlled substance, the resulting re-classification would result in the need for approval by the FDA, if medical claims are made about our medical cannabis products. As a result of such a re-classification, the manufacture, importation, exportation, domestic distribution, storage, sale and use of such products could become subject to a significant degree of regulation by the DEA. In that case, we may be required to be registered to perform these activities and have the security, control, recordkeeping, reporting and inventory mechanisms required by the DEA to prevent drug loss and diversion. Obtaining the necessary registrations may result in delay of the manufacturing or distribution of our products. The DEA conducts periodic inspections of registered establishments that handle controlled substances. Failure to maintain compliance could have a material adverse effect on our business, financial condition and results of operations. The DEA may seek civil penalties, to renew necessary registrations, or initiate proceedings to restrict, or those registrations. In certain circumstances, could lead to proceedings. The foregoing risk may have a material effect on our Company and the trading price of our common stock.
Cannabis businesses are subject to unfavorable U.S. tax treatment and may incur significant tax liability
Under U.S. Internal Revenue Code Section 280E, we will not be allowed to take any deductions or credits for any amounts paid or incurred during the taxable year in carrying on business 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 certain expenses associated with cannabis businesses. Section 280E may have a lesser impact on cannabis cultivation and manufacturing operations. Accordingly, Section 280E has a significant impact on the operations and financial results of cannabis companies and an otherwise profitable business may operate at a loss, after taking into account its U.S. income tax expenses. The foregoing risk may have a material adverse effect on our Company and the trading price of our common stock.
We may be at a higher risk of IRS audit
We believe there is a greater likelihood that the IRS will audit the tax returns of cannabis-related businesses. Any such audit of our tax returns could result in us being required to pay additional tax, interest and penalties, as well as incremental accounting and legal expenses, which could be material. Moreover, an audit will divert our management’s attention and resources away from our business. The foregoing risk may have a material adverse effect on our Company and the trading price of our common stock.
As a cannabis businesses, we 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 is the 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. The foregoing risk may have a material adverse effect on our Company and the trading price of our common stock.
We are subject to proceeds of crime statutes
We are 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 regulations or guidelines, issued, administered or enforced by governmental authorities in the United States.
In the event that any of our business 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, among other things, and could restrict or otherwise jeopardize our ability to declare or pay dividends, or effect other distributions. The foregoing risk may have a material adverse effect on our Company and the trading price of our common stock.
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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, which could adversely affect our operating results and financial condition
We may compete for the acquisition of properties suitable for the cultivation, production and sale of medical and adult-use cannabis with entities engaged in agriculture and real estate investment activities, including corporate agriculture companies, cultivators, producers and sellers of cannabis. In addition, in certain markets the local governments have authority to choose where any cannabis establishment will be located. These authorized areas are frequently removed from other retail operations. Because the cannabis industry remains illegal under U.S. federal law, the disadvantaged tax status of businesses deriving their income from cannabis, and the reluctance of the banking industry to support cannabis businesses, it may be difficult for us to locate and obtain the rights to operate at various preferred locations. Property owners may violate their mortgages by leasing to us, and those property owners that are willing to allow use of their facilities may require payment of above fair market value rents to reflect the scarcity of such locations and the risks and costs of providing such facilities. All of these factors 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 terms than we expect.
Our competitors may 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, 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. The foregoing risks may have a material adverse effect on our Company and the trading price of our common stock.
We may 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 our common stock to the extent that investors may lose their entire investment. The foregoing risks may have a material adverse effect on our Company and the trading price of our common stock.
Our business may be subject to the risks inherent in agricultural operations
The Company’s business may involve the growing of cannabis, an agricultural product. The Company’s business may be subject to the risks inherent in the agricultural business, such as insects, plant diseases and similar agricultural risks. Even if the Company’s 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. The foregoing risk may have a material adverse effect on our Company and the trading price of our common stock.
We may be adversely impacted by rising or volatile energy costs and availability
The Company’s cannabis growing operations may require energy supply, which makes it vulnerable to rising energy costs. Accordingly, rising or volatile energy costs may adversely affect the business of the Company and our ability to operate profitably. Further, from time to time in some markets in which we operate, our demand for energy may exceed the available supply. We may have to rely on alternative power sources such as generators to power our cultivation and processing facilities. A more prolonged disruption in our ability to maintain sufficient power to operate our facilities could result in a significant disruption of our operations, damage to our agricultural products or equipment, and result in a material adverse effect to our business. The foregoing risks may have a material adverse effect on our Company and the trading price of our common stock.
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We may encounter unknown environmental risks
There can be no assurance that the Company 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. Climate change or significant weather events may accelerate or exacerbate environmental conditions in ways that adversely affect the business due to potential negative effects on agricultural conditions, increased difficulty in construction projects to support our operations, and ownership or leasing of real property generally. Upon encountering a hazardous condition, work at the facilities of the Company may be suspended. If the Company receives notice of a hazardous condition, it 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 the Company’s resources to correct the conditions. Such conditions could have a material impact on the investment returns of the Company.
In addition, the operations of the Company may be subject to environmental regulation in the various jurisdictions in which we operate. These regulations mandate, among other things, the maintenance of air and water quality standards and land reclamation. They also set forth limitations on the generation, transportation, storage and disposal of solid and hazardous waste. Environmental legislation is evolving in a manner which will require stricter standards and enforcement, increased fines and penalties for non-compliance, more stringent environmental assessments of proposed projects and a heightened degree of responsibility for companies and their officers, directors (or the equivalent thereof) and employees. There is no assurance that future changes in environmental regulation, if any, will not adversely affect the operations of the Company. The foregoing risks may have a material adverse effect on our Company and the trading price of our common stock.
We may have increased labor costs based on union activity
Labor unions are working to organize workforces in the cannabis industry in general, and regulators are increasingly requiring licensed cannabis companies to enter into labor peace agreements with unions as a condition of receiving a license. It is possible that our workforce will elect to be represented by a labor organization for purposes of collective bargaining, which could lead to work stoppages or increased labor costs and adversely affect our business, profitability and our ability to reinvest into the growth of our business. We cannot predict how stable our relationships with U.S. labor organizations will remain or whether we can meet any unions’ requirements without impacting our financial condition. Labor unions may also limit our flexibility in dealing with our workforce. Work stoppages and instability in our union relationships could delay the production and sale of our products, which could strain relationships with customers and cause a loss of revenues which would adversely affect our operations. The foregoing risks may have a material effect on our Company and the trading price of our common stock.
We may be required to disclose personal information of our investors, officers, directors and employees to regulators and failure to do so could endanger our ability to expand, endanger our licenses, or cause the Company to incur costs to redeem securities held by uncooperative shareholders
Ownership in and applications for cannabis licenses can entail lengthy disclosures of personal information to the relevant regulatory authorities. The obligation often extends to all persons holding an ownership interest in the license, whether direct, indirect, present, or future, and often includes those with a mere nominal interest. Analogous disclosures are often required from persons with managerial authority or control over the licenses, as well, including officers, directors, and managers. Disclosures can include providing personal information needed to satisfy extensive criminal history reports and investigations (e.g., fingerprints, address and employment history), tax returns, social security numbers, a history of personal addresses, employment agreements, and other personal information. While some states allow exceptions for individuals with ownership in publicly traded companies like the Company, not all states provide such exceptions. If these requirements were applied to all persons with ownership in the Company, all such persons would be required to comply or the Company would risk losing the opportunity to apply for or renew the license(s), or similarly face the possibility that the license may be revoked. The foregoing risks may have a material adverse effect on our Company and the trading price of our common stock.
There may be monthly, quarterly or annual charitable donation requirements tied to our receipt or maintaining of cannabis licenses; these charitable donation requirements may be costly, time-consuming and challenging (or impossible) to properly manage, value, or accrue for in our financial statements
In order to obtain or maintain a cannabis license that is issued to us, we may be required by a licensing body to make monthly, quarterly or annual charitable donations to individuals or entities. These charitable donations may be in the form of cash, goods, or services, and may be costly, both in terms of money and time. It may be challenging (or impossible) to properly manage, value, or accrue for our charitable obligations in our financial statements, or to properly disclose the status of our charitable obligations.
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Any failure to comply with our charitable obligations 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. The foregoing risks may have a material adverse effect on our Company and the trading price of our common stock.
We could be subject to criminal prosecution or civil liabilities under RICO
The Racketeer Influenced Corrupt Organizations Act (“RICO”) criminalizes the use of any profits from certain defined “racketeering” activities in interstate commerce. While intended to provide an additional cause of action against organized crime, due to the fact that cannabis is illegal under U.S. federal law, the production and sale of cannabis qualifies cannabis-related businesses as “racketeering” as defined by RICO. As such, all officers, directors and shareholders in a cannabis-related business could be subject to criminal prosecution under RICO, which carries substantial criminal penalties.
RICO can create civil liability as well: persons harmed in their business or property by actions which would constitute racketeering under RICO often have a civil cause of action against such “racketeers,” and can claim triple their amount of estimated damages in attendant court proceedings. The Company, as well as its officers, directors and shareholders could all be subject to civil claims under RICO. The foregoing risks may have a material adverse effect on our Company and the trading price of our common stock.
We could be subject to litigation regarding the potency of our marijuana products
Cannabis testing labs frequently employ different testing machines, protocols and methodologies, and in addition, testing machines, protocols and methodologies are constantly evolving. Consequently, cannabis testing labs sometimes disagree on the potency and other characteristics of tested marijuana product samples, such as in regard to delta-9-THC potency, and the presence of molds, pesticides, heavy metals, and other contaminants. As a result, even though our Company plans to use independent third party cannabis testing labs, our products may be subject to litigation questioning the accuracy of our certificates of analysis and/or our product labeling. The foregoing risks may have a material adverse effect on our Company and the trading price of our common stock.
Publicly traded marijuana companies are generally unprofitable and have lost hundreds of millions, if not billions, of dollars of investor money
Since publicly traded marijuana companies emerged during the past decade, most of those companies have been unprofitable and have lost hundreds of millions, if not billions, of dollars of investor money. No assurance or guarantee whatsoever can be given that our marijuana business will be profitable, and our investment in the marijuana industry may result in our stockholders losing a significant portion or all of the value of their investments in our Company. The foregoing risk may have a material adverse effect on our Company and the trading price of our common stock.
Federal legalization of marijuana could have significant negative impacts
We believe it is possible that federal legalization of marijuana could have significant negative impacts on our marijuana business. If marijuana is federally legalized in the U.S., then, for examples: (1) it may be impossible to prevent the importation of massive quantities of marijuana from Latin American countries such as Columbia, Jamaica, Paraguay, Mexico, or others, which could materially adversely impact the sales and profitability of our marijuana business; and (2) huge consumer products companies with substantially more resources than our Company, such as companies in the tobacco, alcohol and food products industries, may enter the marijuana industry. The foregoing risks may have a material adverse effect on our Company and the trading price of our common stock.
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RISK FACTORS RELATING TO THE BEVERAGE ALCOHOL BUSINESS
Changes in consumer preferences or public attitudes about alcohol may decrease demand for our beverage alcohol products
According to various news media reports, drinking alcohol is becoming less popular in the U.S., partly due to health concerns, and partly due to the rising popularity of marijuana, hemp-derived products, psychedelics or other psychoactive products, and so-called "mocktails". There is increasing awareness of and concern for health, wellness and nutrition considerations, including concerns regarding caloric intake and the perceived undesirability of artificial ingredients. There are also increasing studies on and concern for the potential adverse consequences from excess consumption of alcohol beverages. Some consumer advocacy groups and others have called for the curtailment of alcohol dissemination and consumption. If general consumer trends lead to a decrease in the demand for Bendistillery’s products or liquor in general, our sales and results of operations in the beverage alcohol segment, or our investment in Bendistillery, may be adversely affected. There is no assurance that the liquor segment will be able to maintain its current sales levels or experience growth in future periods. Further, the alcoholic beverage industry is subject to public and political attention over alcohol-related social , including drunk driving, underage drinking and health consequences from the of alcohol. In reaction to these , steps may be taken to restrict advertising, to impose additional labeling or packaging requirements, or to increase excise or other taxes on beverage alcohol products. Any such developments may have an impact on the financial condition, operating results and cash flows of Bendistillery, which may subsequently lead to an of our investment in Bendistillery. The foregoing risks may have a material effect on our Company and the trading price of our common stock.
Alcohol related laws, regulatory measures, or governmental policies could cause Bendistillery to incur material additional costs or liabilities
We own 4.99% of hemp-infused beverage maker Ablis, and of craft distiller Bendistillery. Bendistillery produces and sells alcohol. Federal, state, local, and foreign authorities regulate how companies produce, store, transport, distribute, and sell products containing alcohol and distilled spirits. Some countries and local jurisdictions prohibit or restrict the marketing or sale of distilled spirits in whole or in part. In the United States, at the federal level, the Alcohol and Tobacco Tax and Trade Bureau of the U.S. Department of the Treasury regulates the spirits and wine industry with respect to the production, blending, bottling, labeling, sales, advertising, and transportation of beverage alcohol. Similar regulatory regimes exist at the state level and in non-U.S. jurisdictions where Bendistillery sells its products. In addition, beverage alcohol products are subject to customs duties or excise taxation in many countries, including taxation at the federal, state, and local level in the United States. Laws of each nation define distilling and maturation requirements; for example, under U.S. federal and state regulations, bourbon and Tennessee whiskeys must be aged in new charred oak barrels. All authorizations, approvals or permits, if any, of any governmental authority or regulatory body of the United States or of any state are required in connection with the lawful selling of liquor. As 4.99% owner of Bendistillery, we are impacted by the regulatory risks relating to the production and sale of alcohol which is subject to extensive regulatory requirements regarding production, exportation, importation, marketing and promotion, labeling, distribution, pricing, and trade practices, among others.
Changes in laws, regulatory measures, or governmental policies, or the manner in which current ones are interpreted, could cause Bendistillery and target companies to incur material additional costs or liabilities, and jeopardize the growth of its business in any affected market. For instance, federal, state, or local governments may prohibit, impose, or increase limitations on advertising and promotional activities, or times or locations where beverage alcohol may be sold or consumed, or adopt other measures that could limit Bendistillery’s, and target companies’ opportunities to reach consumers or sell products. It is conceivable that television, newspaper, magazine, and/or internet advertising for beverage alcohol products could be limited or banned completely. Increases in regulation of this nature could substantially reduce consumer awareness of the products of Bendistillery and target companies in the affected markets and make the introduction of new products more challenging. If governmental bodies require increased additional product labeling, warning requirements, or otherwise limit the marketing or sale of Bendistillery’s products due to their contents or allegations concerning their potential to cause adverse health effects, or Bendistillery’s marketing of such products, Bendistillery’s sales of alcohol beverages may be affected. The impact of increased taxation on alcohol and distilled spirits may also have additional financial impacts on Bendistillery and target companies. The foregoing risks may have a material effect on our Company and the trading price of our common stock.
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Developments affecting production at Bendistillery’s distillery may negatively impact Bendistillery’s financial results
Adverse changes or developments affecting Bendistillery’s distillery in Bend, Oregon, including, but not limited to, management turnover, fire, power failure, natural disaster, public health crisis, or a material failure of security infrastructure, may reduce or require Bendistillery to entirely suspend operations. Additionally, due to many factors, including seasonality and production schedules of Bendistillery’s various products and packaging, actual production capacity may fluctuate throughout the year and may not reach full working capacity. If Bendistillery experiences contraction in their sales and distilling volumes, the excess capacity and unabsorbed overhead may have an adverse effect on gross margins, operating cash flows and overall financial performance of Bendistillery. The foregoing risks may have a material adverse effect on our Company and the trading price of our common stock.
Bendistillery faces substantial competition in the liquor industry and the broader market for alcoholic beverage products which may impact its business and financial results
The market for alcoholic beverage products within the United States is highly competitive due to the increasing number of domestic and international beverage companies with similar pricing and target drinkers, the introduction and expansion of hard seltzers, ready-to-drink canned cocktails, low alcohol-by-volume drinks and no-alcohol alternatives, gains in market share achieved by domestic specialty beers and imported beers, and the acquisition of craft distillers and brewers by larger distillers and brewers. Drinking habits are shifting, and the decline in alcohol consumption means that there are fewer target customers for distillers. We anticipate competition among domestic craft distillers and brewers will also remain strong as existing distillers and breweries build more capacity, expand geographically and add more products, flavors and styles. The continued growth in the sales of hard seltzers, ready-to-drink canned cocktails, low alcohol-by-volume drinks and no-alcohol alternatives, craft-brewed domestic beers and imported beers is expected to increase competition in the market for alcoholic beverages within the United States and, as a result, prices and market share of Bendistillery’s products may fluctuate and possibly decline.
The liquor and beer industry has seen continued consolidation among distillers and brewers in order to take advantage of cost savings opportunities for supplies, distribution and operations. Due to the increased leverage that these combined operations have in distribution and sales and marketing expenses, the costs to Bendistillery of competing may increase. The potential also exists for these large competitors to increase their influence with their distributors, making it difficult for smaller distillers and brewers to maintain their market presence or enter new markets. The increase in the number and availability of competing products and brands, the costs to compete and potential decrease in distribution support and opportunities may adversely affect Bendistillery’s business and financial results. The foregoing risks may have a material adverse effect on our Company and the trading price of our common stock.
Alcoholic beverage sales are subject to slowdowns and are seasonal
Bendistillery and target companies are involved in the sale of a variety of distilled alcoholic beverages including vodka, whiskey and gin, and their sales of such beverages are subject to occasional slowdowns and are seasonal. Also, many consumers are reducing or eliminating their alcohol consumption entirely. These factors could adversely affect the value of our ownership interest in those companies, which may materially adversely affect our Company and the trading price of our common stock.
Alcoholic beverage distributors are powerful and control much of the marketplace
Bendistillery and target companies distribute their distilled alcoholic beverages through a limited number of powerful distributors that control much of the marketplace for alcoholic beverages. Shelf space is limited, and distributors prioritize proven volume. On-premise sales have not fully rebounded in some markets post-pandemic. E-commerce and direct-to-consumer opportunities remain restricted or fragmented. In order for Bendistillery to grow, it will be required to maintain such relationships with their distributors and to enter into agreements with additional distributors. No assurance can be given that Bendistillery will be able to maintain its current distribution network or secure additional distributors on terms favorable to Bendistillery. If Bendistillery’s existing distribution agreements are terminated, it may not be able to enter into new distribution agreements on substantially similar terms, which may result in an increase in the costs of distribution. The loss of such distributors, or disruptions to the operations of such distributors, may adversely affect the value of our ownership interest in Bendistillery. The foregoing risks may have a material effect on our Company and the trading price of our common stock.
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The Oregon Liquor Control Commission has jurisdiction over our directors, officers and significant shareholders
Due to our minority ownership interest in Bendistillery, the Oregon Liquor Control Commission (“OLCC”) has jurisdiction over our directors, officers and significant shareholders. If the OLCC were to refuse to approve any of our directors, officers or significant shareholders, it may disrupt our management and corporate governance. The foregoing risks may have a material adverse effect on our Company and the trading price of our common stock.
