Item
1. Description of Business
This
Annual Report (including, but not limited to, the following disclosures regarding our Business) contains forward-looking statements regarding
our business, financial condition, results of operations and prospects. Words such as “expects,” “anticipates,”
“intends,” “plans,” “believes,” “seeks,” “estimates” and similar expressions
or variations of such words are intended to identify forward-looking statements but are not the exclusive means of identifying forward-looking
statements in this Annual Report. Additionally, statements concerning future matters such as the development of new products, enhancements
or technologies, sales levels, expense levels and other statements regarding matters that are not historical are forward-looking statements.
Forward-looking
statements in this Annual Report reflect our good faith judgment based on facts and factors currently known to us. Forward-looking statements
are inherently subject to risks and uncertainties and actual results and outcomes may differ materially from the results and outcomes
discussed in or anticipated by the forward-looking statements. Readers are urged not to place undue reliance on these forward-looking
statements, which speak only as of the date of this Annual Report. We undertake no obligation to revise or update any forward-looking
statements in order to reflect any event or circumstance that may arise after the date of this Annual Report. Readers are urged to carefully
review and consider the various disclosures made in this Annual Report, which attempt to advise interested parties of the risks and factors
that may affect our business, financial condition, results of operations and prospects.
Corporate
History
The
Company was incorporated as “Minaro Corp.” under the laws of the State of Nevada on March 14, 2017.
On
December 18, 2022, Minaro Corp., a Nevada corporation (the “Company”), Yulia Lazaridou, the majority shareholder of the Company
(“Lazaridou”), Pineapple Consolidated, Inc., a California corporation (“PCI”) and the shareholders of PCI (“PCI
Shareholders”), entered into a Share Exchange Agreement (the “Exchange Agreement”). Pursuant to the Exchange Agreement,
the PCI Shareholders exchanged (the “Exchange Transaction”) 50,000 outstanding shares of common stock of PCI, representing
fifty percent (50%) of the outstanding shares of PCI common stock, for eighteen million (18,000,000) newly issued shares of Minaro common
stock.
In
addition, on December 18, 2022, in a transaction related to and a condition to the Exchange Transaction, Lazaridou and the Company entered
into that certain Resignation, Separation and Release Agreement (the “Resignation Agreement”), pursuant to which (a) the
Company redeemed 2,800,000 shares of Company common stock owned by Lazaridou (the “Lazaridou Shares’) in exchange for a payment
by the Company of $540,904 and (b) Lazaridou, as of December 21, 2022, resigned as the sole director, officer and employee of the Company.
In
order to fund the payment for the Lazaridou Shares, contemporaneous with the Exchange, on December 18, 2022, PCI loaned $540,904 to the
Company. The loan (the “PCI Loan”) matures on June 30, 2023 and earns interest at an annual rate of 1%.
In
addition, on December 18, 2022, Lazaridou, as sole director and majority shareholder, executed a written consent in lieu of a meeting
providing that (i) Matthew Feinstein be elected as the sole director of the Company as well as Chief Executive Officer, President, Secretary,
Chairman of the Board and Interim Chief Financial Officer, (ii) accepted the resignation of Lazaridou and (iii) approved the Exchange
Agreement and Resignation Agreement. As a result of these transactions, the PCI Shareholders own a majority of the shares of Minaro common
stock, and the Company owns fifty percent (50%) of the PCI common stock.
On
January 5, 2023, the Company filed Restated Articles of Incorporation with the State of Nevada following approval of the sole director
and majority shareholder (“Restated Articles”). The Restated Articles (i) changed the name of the Company to Pineapple Express
Cannabis Company, (ii) added an additional authorized class of capital stock, namely ten million (10,000,000) shares of Preferred Stock,
in addition to the previously authorized seventy-five million (75,000,000) shares of Common Stock. As a result, the name of the Company
now has been changed to Pineapple Express Cannabis Company.
On
December 30, 2022 the Company applied to the Financial Industry Regulatory Authority (“FINRA”) for approval with respect
to the change of the Company’s name in the Restated Articles. The Company separately applied to FINRA to change the Company’s
stock ticker trading symbol. When that application is granted, the Company intends to announce the symbol change.
Business
Operations
Pineapple
Express Cannabis Company FKA Minaro Corp. is based in Los Angeles, California. The Company’s operating subsidiary, Ananas Growth
Ventures, serves as an incubator, helping early-stage ventures and startups in the cannabis sector through funding, mentoring, and training.
The Company is engaged in legal cannabis retail under the brand name of Pineapple Express though its 50% owned asset, Pineapple Consolidated
Inc. (pineappleconsolidated.com) which runs a cannabis delivery service, Pineapple Express, via www.PineappleExpress.com. Pineapple Consolidated
also owns and manages retail cannabis ventures under the Pineapple Express name, and seeks to become the leading portfolio management
company in the U.S. cannabis industry. With its headquarters in Los Angeles, California, Pineapple Express is rapidly increasing its
footprint throughout the state and looking to scale into underdeveloped markets.
Office
facilities
The
Company currently subleases office space at 10351 Santa Monica Blvd. #420, Los Angeles, CA 90025 through its 50% owned asset, Pineapple Consolidated, Inc. (“PCI”). The
lease contract is on a month-to-month basis while the Company looks for a more permanent office location.
Research
And Development Expenditures
We
have not incurred any research expenditures since our incorporation.
Bankruptcy
Or Similar Proceedings
There
has been no bankruptcy, receivership or similar proceeding entered into either voluntarily by the Company and involuntarily against the
Company.
Reorganizations,
Purchase Or Sale Of Assets
On December 18, 2022, the Company executed a Share Exchange Agreement, resulting in the exchange of 50,000 shares of PCI common stock
(50% ownership) for 18 million newly issued shares of the Company’s common stock. The previous majority shareholder of the Company,
Lazaridou, redeemed 2,800,000 of Company common stock and no longer holds any of the Compay’s common stock.
As part of the transaction,
Lazaridou resigned as the sole director, officer, and employee of the Company, while Matthew Feinstein was elected as the new director
and assumed multiple executive roles. Additionally, the Company changed its name to Pineapple Express Cannabis Company by filing Restated
Articles of Incorporation with the State of Nevada and added a new class of capital stock (10,000,000 shares of Preferred Stock in addition
to the previously authorized 75,000,000 shares of Common Stock).
Compliance
With Government Regulation
We
will be required to comply with all regulations, rules and directives of governmental authorities and agencies applicable to the construction
and operation of any facility in any jurisdiction which we would conduct activities.
We
do not believe that any existing or probable government regulation on our business will have a material impact on the way we conduct
our business.
Employees
And Employment Agreements
We
have no employees as of the date of this report. Our sole officer and director, Matthew Feinstein, currently devotes as much time as
needed to provide management services to company matters. As our business and operations increase, we will assess the need for full-time
management and administrative support personnel.
Regulatory
Overview
As
of the date of this filing, 37 states and four (4) territories allow for the medical use of cannabis products, while 17 of those
states, the District of Columbia, the Northern Mariana Islands, and Guam have also legalized the adult-use of cannabis. Although legalized
in some states, cannabis is a “Schedule 1” drug under the Controlled Substances Act (21 U.S.C. § 811) (“CSA”)
and is illegal under federal law.
On
August 29, 2013, the Department of Justice set out its prosecutorial priorities in light of various states legalizing cannabis for medicinal
and/or recreational use. The “Cole Memorandum” provided that when states have implemented strong and effective regulatory
and enforcement systems to control the cultivation, distribution, sale, and possession of cannabis, conduct in compliance with those
laws and regulations is less likely to threaten the federal priorities. Indeed, a robust system may affirmatively address those priorities
by, for example, implementing effective measures to prevent diversion of cannabis outside of the regulated system and to other states,
prohibiting access to cannabis by minors, and replacing an illicit cannabis trade that funds criminal enterprises with a tightly regulated
market in which revenues are tracked and accounted for. In those circumstances, consistent with the traditional allocation of federal-state
efforts in this area, the Cole Memorandum provided that enforcement of state law by state and local law enforcement and regulatory bodies
should remain the primary means of addressing cannabis-related activity. If state enforcement efforts are not sufficiently robust to
protect against the harms set forth above, the federal government may seek to challenge the regulatory structure itself in addition to
continuing to bring individual enforcement actions, including criminal prosecutions, focused on those harms.
On
January 4, 2018, Attorney General Jeff Sessions issued a memorandum for all United States Attorneys concerning cannabis enforcement under
the Controlled Substances Act (CSA). Mr. Sessions rescinded all previous prosecutorial guidance issued by the Department of Justice regarding
cannabis, including the August 29, 2013 “Cole Memorandum”.
In
rescinding the Cole Memorandum, Mr. Sessions stated that U.S. Attorneys must decide whether or not to pursue prosecution of cannabis
activity based upon factors including: the seriousness of the crime, the deterrent effect of criminal prosecution, and the cumulative
impact of particular crimes on the community. Mr. Sessions reiterated that the cultivation, distribution, and possession of marijuana
continues to be a crime under the U.S. Controlled Substances Act.
On
March 23, 2018, President Donald J. Trump signed into law a $1.3 trillion-dollar spending bill that included an amendment known as “Rohrabacher-Blumenauer,”
which prohibits the Justice Department from using federal funds to prevent certain states “from implementing their own State laws
that authorize the use, distribution, possession or cultivation of medical cannabis.”
On
December 20, 2018, President Donald J. Trump signed into law the Agriculture Improvement Act of 2018, otherwise known as the “Farm
Bill”. Prior to its passage, hemp, a member of the cannabis family, was classified as a Schedule 1 controlled substance, and so
illegal under the federal CSA.
With
the passage of the Farm Bill, hemp cultivation is now broadly permitted. The Farm Bill explicitly allows the transfer of hemp-derived
products across state lines for commercial or other purposes. It also puts no restrictions on the sale, transport, or possession of hemp-derived
products, so long as those items are produced in a manner consistent with the law.
Under
Section 10113 of the Farm Bill, hemp cannot contain more than 0.3 percent THC. THC refers to the chemical compound found in cannabis
that produces the psychoactive “high” associated with cannabis. Any cannabis plant that contains more than 0.3 percent THC
would be considered non-hemp cannabis—or marijuana—under the CSA and would not be legally protected under this new legislation
and would be treated as an illegal Schedule 1 drug.
Additionally,
there will be significant, shared state-federal regulatory power over hemp cultivation and production. Under Section 10113 of the Farm
Bill, state departments of agriculture must consult with the state’s governor and chief law enforcement officer to devise a plan
that must be submitted to the Secretary of the United States Department of Agriculture (hereafter referred to as the “USDA”).
A state’s plan to license and regulate hemp can only commence once the Secretary of USDA approves that state’s plan. In states
opting not to devise a hemp regulatory program, USDA will construct a regulatory program under which hemp cultivators in those states
must apply for licenses and comply with a federally run program. This system of shared regulatory programming is similar to options states
had in other policy areas, such as health insurance marketplaces under the Affordable Care Act, or workplace safety plans under the Occupational
Health and Safety Act—both of which had federally-run systems for states opting not to set up their own systems.
The
Farm Bill outlines actions that are considered violations of federal hemp law (including such activities as cultivating without a license
or producing cannabis with more than 0.3 percent THC). The Farm Bill details possible punishments for such violations, pathways for violators
to become compliant, and even which activities qualify as felonies under the law, such as repeated offenses.
One
of the goals of the previous 2014 Farm Bill was to generate and protect research into hemp. The 2018 Farm Bill continues this effort.
Section 7605 re-extends the protections for hemp research and the conditions under which such research can and should be conducted. Further,
section 7501 of the Farm Bill extends hemp research by including hemp under the Critical Agricultural Materials Act. This provision recognizes
the importance, diversity, and opportunity of the plant and the products that can be derived from it, but also recognizes that there
is a still a lot to learn about hemp and its products from commercial and market perspectives.
On
January 21, 2021, Joseph R. Biden, Jr. was sworn in as President of the United States. President Biden’s Attorney General, Merrick
Garland, was confirmed by the United States Senate on March 10, 2021. It is not yet known whether the Department of Justice (“DOJ”),
under President Biden and Attorney General Garland, will re-adopt the Cole Memorandum or announce a substantive marijuana enforcement
policy. During his Senate confirmation, Merrick Garland told Senator Cory Booker (D-NJ), “It does not seem to me useful the use
of limited resources that we have to be pursuing prosecutions in states that have legalized and are regulating the use of marijuana,
either medically or otherwise.” Such statements are not official declarations or policies of the DOJ and are not binding on the
DOJ, any United States Attorney, or the United States federal courts. Substantial uncertainty regarding United States federal enforcement
remains. To date, there have been no new federal cannabis memorandums issued by the Biden Administration or any published change in federal
enforcement policy.
Item
1A. Risk Factors
Risks
Related to Our Company and Our Business
We
have a limited operating history and operate in a new industry, and we may not succeed.
We
have a limited operating history and may not succeed. We are subject to all risks inherent in a developing business enterprise. Our likelihood
of continued success must be considered in light of the problems, expenses, difficulties, complications, and delays frequently encountered
in connection with manufacturing specialty products and the competitive and regulatory environment in which we operate. For example,
the cannabis industry is a new industry that may not succeed, particularly should the Federal government change course and decide to
prosecute those dealing in medical or recreational cannabis. In such event, there may not be an adequate market for our products. As
a new industry, there are few established players whose business models we can follow. Similarly, there is little information about comparable
companies for potential investors to review in making a decision about whether to invest in the Company.
Potential
investors should consider, among other factors, our prospects for success in light of the risks and uncertainties encountered by companies
that, like us, are in their early stages. For example, unanticipated expenses, unexpected problems, and technical difficulties may occur
and they may result in material delays in the operation of our business, in particular with respect to our new products. We may not 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 point investors may lose
their entire investment.
Uncertainty
of profitability.
Our
business strategy may result in increased volatility of revenues and earnings. As we will only develop a limited number of products and
services at a time, our overall success will depend on a limited number of products and services, which may cause variability and unsteady
profits and losses depending on the products and services offered and their market acceptance.
Our
revenues and our profitability may be adversely affected by economic conditions and changes in the market for medical and recreational
marijuana. Our business is also subject to general economic risks that could adversely impact the results of operations and financial
condition.
Because
of the anticipated nature of the products and services that we offer and attempt to develop, it is difficult to accurately forecast revenues
and operating results and these items could fluctuate in the future due to a number of factors. These factors may include, among other
things, the following:
|
● |
Our
ability to raise sufficient capital to take advantage of opportunities and generate sufficient revenues to cover expenses. |
|
|
|
|
● |
Our
ability to source strong opportunities with sufficient risk adjusted returns. |
|
|
|
|
● |
Our
ability to manage our capital and liquidity requirements based on changing market conditions generally and changes in the developing
legal medical marijuana and recreational marijuana industries. |
|
|
|
|
● |
The
acceptance of the terms and conditions of our services. |
|
|
|
|
● |
The
amount and timing of operating and other costs and expenses. |
|
|
|
|
● |
The
nature and extent of competition from other companies that may reduce market share and create pressure on pricing and investment
return expectations. |
|
|
|
|
● |
Adverse
changes in the national and regional economies in which we will participate, including, but not limited to, changes in our performance,
capital availability, and market demand. |
|
|
|
|
●
|
Adverse
changes in the projects in which we plan to invest which result from factors beyond our control, including, but not limited to, a
change in circumstances, capacity and economic impacts. |
|
|
|
|
● |
Adverse
developments in the efforts to legalize marijuana or increased federal enforcement. |
|
|
|
|
● |
Changes
in laws, regulations, accounting, taxation, and other requirements affecting our operations and business. |
|
|
|
|
● |
Our
operating results may fluctuate from year to year due to the factors listed above and others not listed. At times, these fluctuations
may be significant. |
Cannabis
remains illegal under federal law.
Cannabis
is a categorized as a Schedule I controlled substance by the Drug Enforcement Agency and the United States Department of Justice and
is illegal to grow, possess and consume under federal law. Even in those jurisdictions in which the use of medical cannabis has been
legalized at the state level, its use remains a violation of federal law. The United States Supreme Court has ruled in United States
v. Oakland Cannabis Buyers’ Coop. and Gonzales v. Raich that it is the federal government that has the right to regulate and criminalize
cannabis, even for medical purposes. Therefore, federal law criminalizing the use of cannabis preempts state laws that legalize its use
for medicinal or adult-retail purposes. Strict enforcement of federal law regarding cannabis would likely result in our inability to
proceed with our business plan.
The
previous Obama administration has effectively stated that it is not an efficient use of resources to direct federal law enforcement agencies
to prosecute those lawfully abiding by state-designated laws allowing the use and distribution of medical cannabis. In furtherance thereof,
on August 29, 2013, the Department of Justice provided guidance to all U.S. federal prosecutors with respect to the enforcement of laws
regarding cannabis via the publication of a memorandum authored by former US Attorney General James M. Cole (the “Cole Memo”).
The Cole Memo stated that enforcement should be focused on eight priorities, which is to prevent: (1) distribution of cannabis to minors;
(2) revenue from sale of cannabis to criminal enterprises, gangs and cartels; (3) transfer of cannabis from states where it is legal
to states where it is illegal; (4) cannabis activity from being a pretext for trafficking of other illegal drugs or illegal activity;
(5) violence of use of firearms in cannabis growth and distribution; (6) drugged driving and adverse public health consequences from
cannabis use; (7) growth of cannabis on federal lands; and (8) cannabis possession or use on federal property.
On
January 4, 2017, the U.S. Attorney General Jeff Sessions rescinded the Cole Memo and restored the “rule of law.” Such rescission
essentially shifts federal policy from the hands-off approach adopted under the Obama administration to allowing federal prosecutors
across the U.S. to decide individually how to prioritize resources to crack down on pot possession, distribution and cultivation of the
drug in states where it is legal. Furthermore, the Trump administration has previously indicated that it will pursue the enforcement
of federal cannabis laws.
While
we do not believe our current activities involve those enumerated in the Cole Memo, in light of the rescission of the memo by the current
Attorney General, federal prosecutors will now have significant discretion on their interpretation of these priorities, and no assurances
can be given that federal prosecutors will agree with our position. We therefore cannot provide assurance that our actions are in full
compliance with the Cole Memo or any other state or federal laws or regulations. In addition, there is no guarantee that the current
administration will not further change its policy regarding the strict enforcement of federal laws or the eight listed priorities. Additionally,
any new administration that follows could change this policy and decide to enforce the federal laws even stronger. Any such change in
the federal government’s enforcement of current federal laws could cause significant financial damage to us and our shareholders.
The
cannabis industry faces strong opposition.
It
is believed by many that large well-funded businesses may have a strong economic opposition to the cannabis industry. We believe that
the pharmaceutical industry does not want to cede control of any product that could generate significant revenue. For example, medical
cannabis will likely adversely impact the existing market for medicines sold by mainstream pharmaceutical companies that contain active
ingredients from cannabis. Furthermore, the medical marijuana industry could face a material threat from the pharmaceutical industry,
should marijuana displace other drugs or encroach upon the pharmaceutical industry’s products. The pharmaceutical industry is well
funded with a strong and experienced lobby that eclipses the funding of the medical cannabis movement. Any inroads the pharmaceutical
industry could make in halting or impeding the cannabis industry could have a detrimental impact on our proposed business.
Additionally,
we are substantially dependent on continued market acceptance and proliferation of consumers of cannabis, medical marijuana, and recreational
marijuana. We believe that as marijuana becomes more accepted the stigma associated with marijuana use will diminish and as a result
consumer demand will continue to grow. While we believe that the market and opportunity in the marijuana space continues to grow, we
cannot predict the future growth rate and size of the market. Any negative outlook on the marijuana industry will adversely affect our
business operations.
There
is uncertainty regarding the availability of U.S. federal patent and trademark protection.
As
long as cannabis remains illegal under U.S. federal law, the benefit of certain federal laws and protections which may be available to
most businesses, such as federal trademark and patent protection regarding the intellectual property of a business, may not be available
to us. As a result, our intellectual property may never be adequately or sufficiently protected against the use or misappropriation by
third parties. In addition, since the regulatory framework of the cannabis industry is in a constant state of flux, we can provide no
assurance that it will ever obtain any protection of its intellectual property, whether on a federal, state, or local level.
There
may be a U.S. Food and Drug Administration (“FDA”) risk.
If
legalization occurs federally, the FDA could impose additional regulations or risks on cannabis.
We
could experience difficulty enforcing our contracts.
Due
to the nature of our business and the fact that our equity method investee, Pineapple Consolidated, Inc. contracts involve cannabis and
other activities that are not legal under U.S. federal law and in some jurisdictions, we may face difficulties in enforcing our contracts
in federal and certain state courts. The inability to enforce any of our contracts could have a material adverse effect on our business,
operating results, financial condition, or prospects.
We
and our customers and clients may have difficulty accessing the service of banks, which may make it difficult for them to operate.
Since
the use of cannabis is illegal under federal law, there is a compelling argument that banks cannot accept for deposit funds from businesses
involved with cannabis. While the Financial Crimes Enforcement Network (“FinCEN”) has provided guidance to financial institutions
on how to provide services to marijuana-related businesses consistent with their Bank Secrecy Act obligations, the decision to open,
close, or refuse accounts and/or relationships are made at the discretion of the banking institution. Consequently, businesses involved
in the cannabis industry often have trouble finding a bank willing to accept their business. The inability to open bank accounts may
make it difficult for us and our clients to operate.
Due
to our ancillary involvement in the cannabis industry, we may have a difficult time obtaining the various insurances that are desired
to operate our business, which may expose us to additional risk and financial liability.
Insurance
that is otherwise readily available, such as general liability, and directors and officer’s insurance, is more difficult for us
to find, and more expensive, because we are service providers to companies in the cannabis industry. There are no guarantees that we
will be able to find such insurances in the future, or that the cost will be affordable to us. If we are forced to go without such insurances,
it may prevent us from entering into certain business sectors, may inhibit our growth, and may expose us to additional risk and financial
liabilities.
The
cannabis industry is relatively new.
We
are operating in a relatively new industry and market. In addition to being subject to general business risks, we must continue to build
brand awareness in this industry and market share through significant investments in our strategy, production capacity, quality assurance
and compliance with regulations. Research in the United States and internationally regarding the medical benefits, viability, safety,
efficacy and dosing of cannabis or isolated cannabinoids, such as cannabidiol, or CBD, and tetrahydrocannabinol, or THC, 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.
We
face risks due to industry immaturity or limited comparable, competitive, or established industry best practices.
As
a relatively new industry, there are not many established operators in the medical and adult use cannabis industries whose business models
we can follow or build upon. Similarly, there is no or limited information about comparable companies available for potential investors
to review in making a decision about whether to invest in us.
Shareholders
and investors should consider, among other factors, our prospects for success in light of the risks and uncertainties encountered by
companies, like us, that are in their early stages. For example, unanticipated expenses and problems or technical difficulties may occur,
which may result in material delays in the operation of our business. We may fail to successfully address these risks and uncertainties
or successfully implement our operating strategies. If we fail to do so, it could materially harm our business to the point of having
to cease operations and could impair the value of the Subordinate Voting Shares to the extent that investors may lose their entire investments.
Our
ability to grow our medical and adult-use cannabis product offerings and dispensary services may be limited.
As
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.
Laws
and regulations affecting the cannabis industry are constantly changing, which could detrimentally affect our business, and we cannot
predict the impact that future regulations may have on us.
Local,
state and federal medical cannabis laws and regulations are broad in scope, and they are subject to evolving interpretations, which could
require our licensees to incur substantial costs associated with compliance or to alter one or more of their sales or marketing practices.
For example, the rescission of the Cole Memo by U.S. Attorney General Jeff Sessions on January 4, 2018. In addition, violations of these
laws, or allegations of such violations, could disrupt our license business and result in a material adverse effect on our revenues under
our license agreements, which would negatively affect our profitability and financial condition.
In
addition, it is possible that regulations may be enacted in the future that will be directly applicable to us and our business. We cannot
predict the nature of any future laws, regulations, interpretations or applications, nor can we determine what effect additional governmental
regulations or administrative policies and procedures, when and if promulgated, could have on our business. These potential effects could
include, however, requirements for the revisions to our business model to meet new standards, the recall or discontinuance of certain
products, or additional record keeping and reporting requirements. Any or all of these requirements could have a material adverse effect
on our business, financial condition, and results of operations.
We
are subject to complex laws and regulations, including environmental laws and regulations, which can adversely affect the cost, manner
and feasibility of doing business.
We
are subject to complex laws and regulations, including environmental laws and regulations, which can adversely affect the cost, manner
and feasibility of doing business. The operations and facilities of our facilities will be subject to extensive federal, state, and local
laws and regulations relating to the growth of cannabis and the manufacture and distribution of products containing cannabis (and/or
its psychoactive compound, THC). Such existing laws or regulations regarding cannabis and its psychoactive compound, as currently interpreted
or reinterpreted in the future, or future laws or regulations, may adversely affect our businesses and sales. Consequently, our revenues
would thereby decrease, which may have a material adverse effect on our results of operations.
Ordinary
and necessary business deduction other than the cost of goods sold are disallowed by the Internal Revenue Service for Cannabis companies
under the Internal Revenue Code (the “IRC”) Section 280E.
IRC
Section 280E prohibits cannabis businesses from deducting ordinary and necessary business expenses pertaining to cannabis sale, forcing
the Company to contend with higher effective federal tax rates than similar companies in other industries. This onerous tax burden significantly
impacts the profitability of the cannabis businesses and may make the pricing of its products less competitive.
If
no additional states allow the medicinal or adult-retail use of cannabis, or if one or more states that currently allow it, reverse their
position, we may not be able to continue our growth, or the market for our products and services may decline.
As
of January 31, 2023, 37 states and the District of Columbia, the Northern Mariana Islands, Guam and Puerto Rico have passed laws allowing
some degree of medical use of cannabis, while eighteen (18) of those states and the District of Columbia, the Northern Mariana Islands,
and Guam, have also legalized the adult-use of cannabis. There can be no assurance that number of states that allow the use of medicinal
and recreational cannabis will grow, and if it does not, there can be no assurance that the 37 existing states and/or the District of
Columbia will not reverse their position and make medicinal and recreational cannabis illegal again. If either of these things happens,
then not only will the growth of our business be materially impacted, but we may experience declining revenue as the market for our products
and services declines.
Arizona,
Montana, New Jersey, South Dakota, New York, Virginia, Connecticut, and New Mexico passed laws allowing recreational (adult-use) marijuana
and Mississippi and Alabama passed an initiative allowing medical marijuana.
We
may not be able to effectively control and manage our growth.
Our
strategy envisions a period of potentially rapid growth. We currently maintain nominal administrative and personnel capacity due to the
startup nature of our business, and our expected growth may impose a significant burden on our future planned administrative and operational
resources. The growth of our business may require significant investments of capital and increased demands on our management, workforce
and facilities. We will be required to substantially expand our administrative and operational resources and attract, train, manage and
retain qualified management and other personnel. Failure to do so or satisfy such increased demands would interrupt or would have a material
adverse effect on our business and results of operations.
Our
industry is highly competitive, and we have less capital and resources than many of our competitors which may give them an advantage
in developing and marketing products similar to ours or make our products obsolete.
We
are involved in a highly competitive industry where we may compete with numerous other companies who offer alternative methods or approaches,
who may have far greater resources, more experience, and personnel perhaps more qualified than we do. Such resources may give our competitors
an advantage in developing and marketing products similar to ours or products that make our products obsolete. There can be no assurance
that we will be able to successfully compete against these other entities.
The
success of our new and existing partnerships, products, and services is uncertain, and large resources may be required to sustain our
current business model.
We
have committed, and expect to continue to commit, significant resources and capital to develop and market existing partnership, product,
and service enhancements as well as new partnerships, products and services. These partnerships, products and services are relatively
new and untested, and we cannot assure you that we will achieve market acceptance for these partnerships, products, and services, or
other new partnerships, products and services that we may offer in the future. Moreover, these and other new partnerships, products and
services may be subject to significant competition with offerings by new and existing competitors in our sector. In addition, new partnerships,
products, services and enhancements may pose a variety of technical challenges and require us to attract additional qualified employees.
The failure to successfully develop and market these new partnerships, products, services, or enhancements could seriously harm our business,
financial condition and results of operations.
Our
business is dependent upon continued market acceptance by consumers.
We
are substantially dependent on continued market acceptance of our products and our licensees’, lessee’s, or tenant’s
products by consumers. Although we believe that the use of cannabis in the United States is gaining stronger consumer acceptance, we
cannot predict the future growth rate and size of this market.
If
we fail to successfully introduce new partnerships or products, we may lose market position.
New
partnerships, products, and product improvements, and line extensions will be an important factor in our sales growth. If we fail to
identify emerging consumer and technological trends, to maintain and improve the competitiveness of our existing partnerships and products
or to successfully introduce new products on a timely basis, we may lose market position. Continued business development, product development,
and marketing efforts have all the risks inherent in the development of new partnerships, products, and line extensions, including development
delays, the failure of new partnerships, products and line extensions to achieve anticipated levels of market acceptance and the cost
of failed product introductions.
We
may be unable to adequately protect or enforce our patents and proprietary rights.
Our
continuing success depends, in part, on our ability to protect our intellectual property and maintain the proprietary nature of our technology
through a combination of patents, trademarks, licenses and other intellectual property arrangements, without infringing the proprietary
rights of third parties. We cannot assure that these patents, trademarks, licenses and other intellectual property arrangements will
be held valid if challenged, or that other parties will not claim rights in or ownership of our patent and other proprietary rights.
We also cannot assure that our pending patents will be issued. Moreover, patents issued to us or those we license patents from may be
circumvented or fail to provide adequate protection.
Litigation
brought by third parties claiming infringement of their intellectual property rights or trying to invalidate intellectual property rights
owned or used by us may be costly and time consuming.
We
may face lawsuits from time to time alleging that our intellectual property infringes on third-party intellectual property, and/or seeking
to invalidate or limit our ability to use our intellectual property.
If
we become involved in litigation, we may incur substantial expense defending these claims and the proceedings may divert the attention
of management, even if we prevail. An adverse determination in proceedings of this type could subject us to significant liabilities,
allow our competitors to market competitive products without a license from us, prohibit us from marketing our products or require us
to seek licenses from third parties that may not be available on commercially reasonable terms, if at all.
If
we are deemed an investment company under the Investment Company Act, applicable restrictions could have an adverse effect on our business.
The
Investment Company Act contains substantive legal requirements that regulate the manner in which “investment companies” are
permitted to conduct their business activities. We believe that we have conducted our business in a manner that does not result in being
characterized as an “investment company” under the Investment Company Act because we are primarily engaged in a non-investment
company business. Although a portion of our assets may constitute investments in non-controlled entities, namely our subsidiary, PEC,
provided capital to canna-related business clientele, we believe that we are not an investment company as defined by the Investment Company
Act. While we intend to conduct our operations such that we will not be deemed an investment company, such a determination would require
us to initiate burdensome compliance requirements and comply with restrictions imposed by the Investment Company Act that would limit
our activities, including limitations on our capital structure and our ability to transact with affiliates, which would have an adverse
effect on our financial condition. To avoid such a determination, we may be required to conduct our business in a manner that does not
subject us to the requirements of the Investment Company Act, which could have an adverse effect on our business. For example, we may
be required to sell certain of our assets and pay significant taxes upon the sale or transfer of such assets.
Damage
from catastrophic weather and other natural events and climate change could result in losses to our Company.
Our
buildings and land are susceptible to natural disaster type of events that could interrupt and halt our tenant’s ability to grow
and cultivate marijuana. They are located in areas that may experience catastrophic weather and other natural events from time to time,
including fires, windstorms or hurricanes, earthquakes, flooding or other severe weather. These adverse weather and natural events could
cause substantial damages or losses to our properties which could exceed our insurance coverage. In the event of a loss in excess of
insured limits, we could lose our capital invested in the affected property, as well as anticipated future revenue from that property.
We could also continue to be obligated to repay any obligations related to the property. Any such loss could materially and adversely
affect our business and our financial condition and results of operations. In addition, changes in federal and state legislation and
regulation on climate change could result in increased capital expenditures to improve the energy efficiency of our existing properties
and could also require us to spend more on our new development properties without a corresponding increase in revenue.
We
may be required to recognize impairment charges that could materially affect our results of operations.
We
assess our goodwill and other intangible assets, and our other long-lived assets as and when required by accounting principles generally
accepted in the United States (“GAAP”) to determine whether they are impaired. If they are impaired, we would record appropriate
impairment charges. It is possible that we may be required to record significant impairment charges in the future and, if we do so, our
results of operations could be materially adversely affected.
Our
industry is subject to intense competition.
The
Company has entered the cannabis distribution business as a result of the Pineapple Consolidated, Inc. (PCI) share exchange. There is
potential that PCI will face intense competition from other companies, some of which can be expected to have longer operating histories
and more financial resources and experience than the Company. Increased competition by larger and better-financed competitors could materially
and adversely affect the business, financial condition, results of operations or prospects of the PCI.
Because
of the early stage of the industry in which the PCI operates, the Company expects to face additional competition from new entrants. To
become and remain competitive, PCI will require research and development, marketing, sales and support. PCI may not have sufficient resources
to maintain research and development, marketing, sales and support efforts on a competitive basis which could materially and adversely
affect the business, financial condition, results of operations or prospects of the Company.
As
well, the legal landscape for medical and recreational marijuana is changing internationally. More countries have passed laws that allow
for the production and distribution of medical marijuana in some form or another. We have some international partnerships in place, which
may be affected if more countries legalize medical marijuana. Increased international competition might lower the demand for our products
on a global scale.
New
well-capitalized entrants into our industry may develop large-scale operations which will make it difficult for our business to compete
and remain profitable.
Currently,
the marijuana industry generally is comprised of individuals and small to medium-sized entities, however, the risk remains that large
conglomerates and companies who also recognize the potential for financial success through investment in this industry could strategically
purchase or assume control of larger dispensaries and cultivation facilities. In doing so, these larger competitors could establish price
setting and cost controls which would effectively “price out” many of the individuals and small to medium-sized entities
who currently make up the bulk of the participants in the varied businesses operating within and in support of the medical marijuana
industry. While the trend in most state laws and regulations seemingly deters this type of takeover, this industry remains quite nascent,
so what the landscape will be in the future remains largely unknown, which in itself is a risk.
Our
proposed business plan is subject to all business risks associated with new business enterprises, including the absence of any significant
operating history upon which to evaluate an investment. The likelihood of our success must be considered in light of the problems, expenses,
difficulties, complications and delays frequently encountered in connection with the formation of a new business, the development of
new strategy and the competitive environment in which the Company will operate. It is possible that the Company will incur losses in
the future. There is no guarantee that the Company will be profitable.
Risks
Related to Ownership of Our Common Stock
Due
to our connection to the cannabis industry, there can be no assurance that our shares of common stock will ever be approved for listing
on a national securities exchange.
Currently,
shares of our common stock are traded on the OTC Pink Market and are not listed on any national securities exchange, such as the New
York Stock Exchange or the NASDAQ Stock Market. Even if we desire to have our shares listed on a national securities exchange, the fact
that our business is associated with the use of cannabis, the legal status of which is uncertain in some states and at the federal level,
may make any efforts to become listed on a securities exchange more problematic as we believe national exchanges may be reluctant to
list shares of companies whose business is associated with the recreational use of cannabis. While we plan to work with NASDAQ or other
exchanges in an attempt to change their views of responsible cannabis related businesses, there can be no assurance that our common stock
will ever be listed on NASDAQ or any other national securities exchange. As a result, our common stock may never develop an active trading
market which may limit our investors’ ability to liquidate their investments or cause our stock price to be particularly volatile.
Our
stock may be traded infrequently and in low volumes, so you may be unable to sell your shares at or near the quoted bid prices if you
need to sell your shares.
Until
our common stock is listed on a national securities exchange, our common stock may only trade on one of the OTC Markets (if we are successful
in applying to trade on such marketplaces) or on the OTC Pink Market. In those markets, however, the shares of our common stock may trade
infrequently and in low volumes, meaning that the number of persons interested in purchasing our common stock at or near bid prices at
any given time may be relatively small or non-existent. An investor may find it difficult to obtain accurate quotations as to the market
value of our common stock or to sell his or her shares at or near bid prices or at all. In addition, if we fail to meet the criteria
set forth in SEC reporting regulations, various requirements would be imposed by law on broker-dealers who sell our securities to persons
other than established customers and accredited investors. Consequently, such regulations may deter broker-dealers from recommending
or selling our common stock, which may further affect the liquidity of our common stock. This would also make it more difficult for us
to raise capital.
There
currently is no active public market for our common stock and there can be no assurance that an active public market will ever develop.
Failure to develop or maintain a trading market could negatively affect the value of our common stock and make it difficult or impossible
for you to sell your shares.
There
is currently no active public market for shares of our common stock, and one may never develop. Our common stock is currently traded
on the OTC Pink Market. The OTC Pink Market is a thinly traded market and lacks the liquidity of certain other public markets with which
some investors may have more experience. We may not ever be able to satisfy the requirements to be quoted on the OTC Markets or satisfy
the listing requirements to be listed on a national securities exchange, which are often more widely traded and liquid markets. Some,
but not all, of the factors which may delay or prevent the quotation or listing of our common stock on a more widely-traded and liquid
market include the following: our stockholders’ equity may be insufficient; the market value of our outstanding securities may
be too low; our net income from operations may be too low; our common stock may not be sufficiently widely held; we may not be able to
secure market makers for our common stock; and we may fail to meet the rules and requirements mandated by the several exchanges and markets
to have our common stock listed. Should we fail to satisfy the initial listing standards of the national exchanges or OTC Markets, or
our common stock is otherwise rejected for listing or quotation, and remains traded on the OTC Pink Market, the trading price of our
common stock could suffer and the trading market for our common stock may be less liquid, and our common stock price may be subject to
increased volatility, making it difficult or impossible to sell shares of our common stock.
We
do not intend to pay dividends in the foreseeable future.
We
do not intend to pay any cash dividends in the foreseeable future. We do not plan on making any cash distributions in the manner of a
dividend or otherwise. Our Board of Directors presently intends to follow a policy of retaining earnings, if any.
Investors
may experience dilution of their ownership interests because of the future issuance of additional shares of our common or preferred stock
or other securities that are convertible into or exercisable for our common or preferred stock.
In
the future, we may issue our authorized but previously unissued equity securities, resulting in the dilution of the ownership interests
of our present stockholders. We are authorized to issue an aggregate of 75,000,000 shares of common stock and 10,00,000 shares of “blank
check” preferred stock. We may issue additional shares of our common stock or other securities that are convertible into or exercisable
for our common stock in connection with hiring or retaining employees, future acquisitions, future sales of our securities for capital
raising purposes, or for other business purposes. The future issuance of any such additional shares of our common stock may create downward
pressure on the trading price of the common stock. We will need to raise additional capital in the near future to meet our working capital
needs, and there can be no assurance that we will not be required to issue additional shares, warrants or other convertible securities
in the future in conjunction with these capital raising efforts, including at a price (or exercise or conversion prices) below the price
an investor paid for stock.
Being
a public company is expensive and administratively burdensome.
As
a company whose common stock is registered under Section 12(g) of the Securities Exchange Act of 1934, as amended (the “Exchange
Act”), we are fully subject to the information and reporting requirements of the Exchange Act and other federal securities laws,
rules and regulations related thereto, including compliance with the Sarbanes-Oxley Act. Complying with these laws and regulations requires
the time and attention of our Board of Directors and management and increases our expenses.
Among
other things, we are required to:
|
● |
maintain
and evaluate a system of internal controls over financial reporting in compliance with the requirements of Section 404 of the Sarbanes-Oxley
Act and the related rules and regulations of the SEC and the Public Company Accounting Oversight Board; |
|
|
|
|
● |
maintain
policies relating to disclosure controls and procedures; |
|
|
|
|
● |
prepare
and distribute periodic reports in compliance with our obligations under federal securities laws; |
|
|
|
|
● |
institute
a more comprehensive compliance function, including corporate governance; and |
|
|
|
|
● |
involve,
to a greater degree, our outside legal counsel and accountants in the above activities. |
The
costs of preparing and filing annual and quarterly reports, proxy statements and other information with the SEC and furnishing audited
reports to stockholders are expensive and much greater than that of a privately-held company, and compliance with these rules and regulations
may require us to hire additional financial reporting, internal controls and other finance personnel, and will involve a material increase
in regulatory, legal and accounting expenses and the attention of management. There can be no assurance that we will be able to comply
with the applicable regulations in a timely manner, if at all. In addition, being a public company makes it more expensive for us to
obtain director and officer liability insurance. In the future, we may be required to accept reduced coverage or incur substantially
higher costs to obtain this coverage.
Our
common stock is subject to the “penny stock” rules of the SEC and the trading market in the securities is limited, which
makes transactions in the stock cumbersome and may reduce the value of an investment in the stock.
Rule
15g-9 under the Exchange Act establishes the definition of a “penny stock,” for the purposes relevant to us, as any equity
security that has a market price of less than $5.00 per share or with an exercise price of less than $5.00 per share, subject to certain
exceptions. For any transaction involving a penny stock, unless exempt, the rules require: (a) that a broker or dealer approve a person’s
account for transactions in penny stocks; and (b) the broker or dealer receive from the investor a written agreement to the transaction,
setting forth the identity and quantity of the penny stock to be purchased.
In
order to approve a person’s account for transactions in penny stocks, the broker or dealer must: (a) obtain financial information
and investment experience objectives of the person and (b) make a reasonable determination that the transactions in penny stocks are
suitable for that person and the person has sufficient knowledge and experience in financial matters to be capable of evaluating the
risks of transactions in penny stocks.
The
broker or dealer must also deliver, prior to any transaction in a penny stock, a disclosure schedule prescribed by the SEC relating to
the penny stock market, which, in highlight form: (a) sets forth the basis on which the broker or dealer made the suitability determination;
and (b) confirms that the broker or dealer received a signed, written agreement from the investor prior to the transaction. Generally,
brokers may be less willing to execute transactions in securities subject to the “penny stock” rules. This may make it more
difficult for investors to dispose of our common stock and cause a decline in the market value of our common stock.
Disclosure
also has to be made about the risks of investing in penny stocks in both public offerings and in secondary trading and about the commissions
payable to both the broker or dealer and the registered representative, current quotations for the securities and the rights and remedies
available to an investor in cases of fraud in penny stock transactions. Finally, monthly statements have to be sent disclosing recent
price information for the penny stock held in the account and information on the limited market in penny stocks.
Offers
or availability for sale of a substantial number of shares of our common stock may cause the price of our common stock to decline.
If
our stockholders sell substantial amounts of our common stock in the public market, including upon the expiration of any lockup periods
or the statutory holding period under Rule 144, or issued upon the conversion of preferred stock, it could create a circumstance commonly
referred to as an “overhang” and in anticipation of which the market price of our common stock could fall. The existence
of an overhang, whether or not sales have occurred or are occurring, also could make more difficult our ability to raise additional financing
through the sale of equity or equity-related securities in the future at a time and price that we deem reasonable or appropriate.
An
investment in our securities is speculative and there can be no assurance of any return on any such investment.
An
investment in our securities is speculative and there is no assurance that investors will obtain any return on their investment. Investors
will be subject to substantial risks involved in an investment in our Company, including the risk of losing their entire investment.
Our
Articles of Incorporation provide that, unless we consent in writing to the selection of an alternative forum, the Eighth Judicial District
Court of Clark County, Nevada will be the sole and exclusive forum for substantially all disputes between us and our stockholders, which
could limit our stockholders’ ability to obtain a favorable judicial forum for disputes with us or our directors, officers, or
employees.
Our
Articles of Incorporation provide that, unless we consent in writing to the selection of an alternative forum, the Eighth Judicial District
Court of Clark County, Nevada will be the exclusive forum for any derivative action or proceeding brought on our behalf; any action asserting
a breach of fiduciary duty; any action asserting a claim against us arising pursuant to the Nevada Revised Statutes, our Articles of
Incorporation or our bylaws. This choice of forum provision does not preclude or contract the scope of exclusive federal or concurrent
jurisdiction for any actions brought under the Securities Act or the Exchange Act. Accordingly, our exclusive forum provision will not
relieve us of our duties to comply with the federal securities laws and the rules and regulations thereunder, and our stockholders will
not be deemed to have waived our compliance with these laws, rules and regulations.
Any
person or entity purchasing or otherwise acquiring any interest in any of our securities shall be deemed to have notice of and consented
to these provisions. These exclusive-forum provisions may limit a stockholder’s ability to bring a claim in a judicial forum of
its choosing for disputes with us or our directors, officers or other employees, which may discourage lawsuits against us and our directors,
officers and other employees.
If
a court were to find the choice of forum provision contained in our Articles of Incorporation to be inapplicable or unenforceable in
an action, we may incur additional costs associated with resolving such action in other jurisdictions, which could harm our business,
results of operations, and financial condition. Even if we are successful in defending against these claims, litigation could result
in substantial costs and be a distraction to management and other employees.