10-K: Bespoke Extracts Inc. Reports Annual Results, Focuses on Cannabis Market Expansion

Bespoke Extracts, Inc. reports its annual results for 2023, highlighting a shift towards the regulated cannabis market and away from CBD, with a focus on branded pre-rolled marijuana products.

Summary

• Bespoke Extracts, Inc., a Nevada corporation, has transitioned its focus to the regulated cannabis market, discontinuing its CBD operations.
• The company's primary business now involves producing and selling branded pre-rolled marijuana cigarettes, primarily in Colorado.
• In January 2023, Bespoke Extracts completed the acquisition of WonderLeaf assets, which are now operated by its subsidiary, Bespoke Extracts Colorado, LLC.
• For the year ended December 31, 2023, the company reported sales of $785,453, a significant increase from $3,407 in 2022, primarily due to sales of its Fresh Joints brand.
• The company incurred a net loss of $1,482,843 for 2023, compared to a net loss of $4,116,227 in 2022.
• As of December 31, 2023, Bespoke Extracts had a working capital deficit of $997,118 and an accumulated deficit of $25,366,641.
• The company's financial statements have been prepared assuming it will continue as a going concern, but there is substantial doubt about its ability to do so due to negative cash flows and working capital deficits.
• Bespoke Extracts plans to expand its cannabis business through acquisitions and facility improvements, requiring additional capital raises in the coming years.

Sentiment

Score: 4

Explanation: The document presents a mixed picture. While there's significant revenue growth and a reduction in net loss, the company's financial instability, going concern issues, and internal control weaknesses raise concerns. The dependence on future capital raises also adds uncertainty.

Positives

• The company has successfully transitioned to the regulated cannabis market and discontinued its CBD operations.
• Sales have increased significantly year-over-year, indicating growing market acceptance of its branded pre-roll products.
• The net loss has decreased substantially compared to the previous year, showing progress in financial performance.
• The acquisition of WonderLeaf assets provides a foundation for further growth in the cannabis sector.
• Bespoke Extracts is actively investing in brand building and product innovation to expand its market presence.

Negatives

• The company has a history of operating losses and a significant accumulated deficit.
• There is substantial doubt about the company's ability to continue as a going concern due to negative cash flows and working capital deficits.
• The company is dependent on raising additional capital to fund its operations and expansion plans.
• The company's internal controls over financial reporting are not effective, which could lead to material misstatements.
• The company's common stock is considered a penny stock, which may make it difficult for investors to buy and sell shares.

Risks

• The cannabis industry is subject to federal illegality, creating uncertainty and potential enforcement risks.
• The company may face difficulties in accessing banking and financial services due to the federal illegality of cannabis.
• The company's operating results may fluctuate significantly based on customer acceptance of its products.
• The company may have difficulties managing its growth, which could lead to higher operating losses.
• The company is subject to risks inherent in an agricultural business, including the risk of crop failure.
• The company may receive unfavorable publicity or become subject to negative consumer or investor perception.
• The company may be unable to seek the protection of the bankruptcy courts due to its involvement in the cannabis industry.
• The company's common stock is highly volatile and subject to wide fluctuations.

Future Outlook

The company plans to expand its focus to regulated cannabis markets in the United States, potentially through acquisitions and facility improvements, and expects to raise additional capital in the coming years.

Management Comments

• Management believes that there is a consistent supply of high-quality cannabis available in the state of Colorado.
• Management reviews daily price advertisements and quotes and plans out purchases of cannabis on a regular basis based on demand for the Company's products.
• Management has determined that the company does not have effective disclosure controls and procedures, or internal control over financial reporting as of December 31, 2022.

Industry Context

The company's shift to the regulated cannabis market reflects a broader trend in the industry, as more states legalize cannabis for medical and recreational use. The company is positioning itself to capitalize on the growing demand for branded cannabis products.

Comparison to Industry Standards

• The company's revenue growth from $3,407 to $785,453 year-over-year is significant, but it is still a small player compared to larger multi-state operators (MSOs) like Curaleaf, Trulieve, and Green Thumb Industries, which report revenues in the hundreds of millions or billions.
• The company's net loss of $1.48 million is substantial for a company of its size, and it is not uncommon for smaller cannabis companies to struggle with profitability in the early stages of growth. Larger MSOs are often profitable or have a clear path to profitability.
• The company's working capital deficit of $997,118 indicates a need for additional capital, which is a common challenge for smaller cannabis companies. Larger MSOs often have access to more diverse funding sources.
• The company's focus on pre-rolled products is a common strategy in the cannabis market, but it faces competition from numerous other brands. Larger MSOs often have a more diversified product portfolio.
• The company's reliance on a single state (Colorado) makes it more vulnerable to regulatory changes and market fluctuations compared to MSOs with operations in multiple states.
• The company's internal control weaknesses are a concern, as larger public companies in the cannabis industry are expected to have robust internal controls. Companies like Canopy Growth and Aurora Cannabis have faced scrutiny for internal control issues in the past.

Related Party Transactions

• During the year ended December 31, 2023, Infinity Management, LLC an affiliate of Michael Feinsod, the Companys chief executive officer, loaned the Company an additional $469,954.
• On September 5, 2023 $849,500 of notes payable were converted into a 5.0% interest bearing note due June 30, 2025 (the Infinity Note).
• During the year ended December 31, 2023 the Company received additional advances from Infinity Management, LLC. of $53,372.
• As of December 31, 2023 Michael Feinsod is owed a total of $206,772 of accrued salary and accounts payable of $156,944.

Stakeholder Impact

• Shareholders face significant risks due to the company's financial instability and the volatility of its stock.
• Employees may be affected by the company's financial challenges and potential need for restructuring.
• Customers may be impacted by the company's ability to maintain consistent product quality and availability.
• Suppliers may face risks related to the company's ability to pay its obligations.
• Creditors face risks due to the company's financial instability and potential inability to repay debts.

Next Steps

• The company plans to expand its focus to regulated cannabis markets in the United States.
• The company plans to pursue production of brands of pre-rolled joints and other processed marijuana products under newly created brand names.
• The company plans to explore licensing existing brands from other states and produce them in Colorado.
• The company plans to expand its portfolio to include new cannabis products and formats.
• The company plans to use a combination of cash, shares of common or preferred stock, warrants, notes, or other financing vehicles to complete acquisitions.

Key Dates

Keywords

cannabis, marijuana, pre-rolls, Colorado, regulated cannabis, adult-use, branded products, WonderLeaf, financial results, capital raise