“Item 1A. Risk Factors” of our Annual Report on Form 10-K for the fiscal year ended May 31, 2023 includes a discussion of our known material risk factors, other than risks that could apply to any issuer or offering. A summary of our risk factors is included below. Except for the below risk factors, there have been no material changes from the risk factors described in our Form 10-K.
| ● | We may not achieve the expected revenue or other benefits from the craft beer operations acquired. |
| ● | We may experience difficulties integrating HEXO’s operations and realizing the expected benefits of the HEXO arrangement. |
| ● | Additional impairments of our goodwill, impairments of our intangible and other long-lived assets, and changes in the estimated useful lives of intangible assets could have a material adverse impact on our financial results. |
| ● | Our business is dependent upon regulatory approvals and licenses, ongoing compliance and reporting obligations, and timely renewals. |
| ● | Government regulation is evolving, and unfavorable changes or lack of commercial legalization could impact our ability to carry on our business as currently conducted and the potential expansion of our business. |
| ● | Our production and processing facilities are integral to our business and adverse changes or developments affecting our facilities may have an adverse impact on our business. |
| ● | We face intense competition, and anticipate competition will increase, which could hurt our business. |
| ● | Regulations constrain our ability to market and distribute our products in Canada. |
| ● | United States regulations relating to hemp-derived CBD products are new and rapidly evolving, and changes may not develop in the timeframe or manner most favorable to our business objectives. |
| ● | Changes in consumer preferences or public attitudes about alcohol could decrease demand for our beverage alcohol products. |
| ● | SweetWater, Breckenridge, Montauk and our recently-acquired craft beer brands each face substantial competition in the beer industry or the broader market for alcoholic beverage products which could impact our business and financial results. |
| ● | We have a limited operating history and a history of net losses, and we may not achieve or maintain profitability in the future. |
| ● | We are subject to litigation, arbitration and demands, which could result in significant liability and costs, and impact our resources and reputation. |
| ● | Our strategic alliances and other third-party business relationships may not achieve the intended beneficial impact and expose us to risks. |
| ● | We may not be able to successfully identify and execute future acquisitions, dispositions or other equity transactions or to successfully manage the impacts of such transactions on our operations. |
| ● | We are subject to risks inherent in an agricultural business, including the risk of crop failure. |
| ● | We depend on significant 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 could decline significantly. |
| ● | Our products may be subject to recalls for a variety of reasons, which could require us to expend significant management and capital resources. |
| ● | 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. |
| ● | Management may not be able to successfully establish and maintain effective internal controls over financial reporting. |
| ● | The price of our common stock in public markets has experienced and may continue to experience severe volatility and fluctuations. |
| ● | The volatility of our stock and the stockholder base may hinder or prevent us from engaging in beneficial corporate initiatives. |
| ● | The terms of our outstanding warrants may limit our ability to raise additional equity capital or pursue acquisitions, which may impact funding of our ongoing operations and cause significant dilution to existing stockholders. |
| ● | We may not have the ability to raise the funds necessary to settle conversions of the convertible securities in cash or to repurchase the convertible securities upon a fundamental change. |
| ● | We are subject to other risks generally applicable to our industry and the conduct of our business. |
We may have to recognize significant impairments in the carrying value of our investment in the MedMen secured convertible notes as a result of MedMen’s potential restructuring or liquidation undertakings.
On August 31, 2021, we acquired an indirect interest in certain senior secured convertible notes issued by MedMen. The notes are only exercisable upon U.S. federal legalization of cannabis or in certain other limited circumstances. The notes are secured by a collateral portfolio consisting of assets and/or equity interests of numerous MedMen U.S. operating subsidiaries and intermediate holding entities. We currently record this investment in our financial statements as a convertible note receivable with a value of as February 29, 2024 of $32,000.
On January 24, 2024, MedMen disclosed that its chief executive officer had stepped down and its board had appointed a chief restructuring officer. In light of such developments, if MedMen experiences any restructuring activities, such as asset sales, liquidations, debt restructuring, foreclosures or assignments, it may lead to significant changes in MedMen’s operations and asset base, impacting the recoverability of our investment carrying values. If MedMen is unable to continue as a going concern, then the value of our investments may be significantly impacted. Restructuring and liquidation proceedings may impact the recoverability of our investments, particularly if there are competing claims on assets or if the process is subject to state and local laws rather than U.S. bankruptcy laws. While our investment in MedMen benefits from security interests in certain of its assets, the realization of these interests could be challenging, especially in jurisdictions where U.S. bankruptcy laws do not apply. In such cases, we may be reliant on state and local restructuring processes or other negotiated arrangements to recover value from our collateral.
The occurrence of any restructurings or liquidations with respect to MedMen or any of its assets or businesses could lead to significant impairments in the carrying value of our investment in the MedMen convertible notes, which could materially and adversely affect our financial results and the value of our investment portfolio.
