Blog: SUGARMADE, INC. : Entry into a Material Definitive Agreement, Regulation FD Disclosure, Financial Statements and Exhibits (form 8-K) –

Item 1.01 Entry into a Material Definitive Agreement.

On April 28, 2022, Lemon Glow Company, Inc. (“Lemon Glow”), a wholly owned
subsidiary of Sugarmade, Inc. (the “Company”) and Cannabis Global, Inc.
(“Cannabis Global”) entered into a Cultivation and Supply Agreement (the
“Agreement”). Cannabis Global owns a majority stake of Natural Plant Extract of
California, Inc. which operates a licensed cannabis manufacturing and
distribution operation in Lynwood, California.

The Agreement provides that during the Spring 2022 cannabis cultivation season,
Lemon Glow will outsource the cultivation of cannabis to licensed growers in
Lake County, California; oversee and co-manage the cultivation; and sell
cannabis to Cannabis Global conforming to its specifications. Lemon Glow will
cultivate only the cannabis chemovars (commonly called “strains”) approved by
Cannabis Global. The cultivation will be conducted in accordance with
regulations adopted by California’s Department of Cannabis Control; Lake County,
California; and other state and local governmental entities that may have legal
jurisdiction over the cultivation.

Under the terms of the Agreement, Lemon Glow will present a cultivation,
harvest, and processing plan to Cannabis Global by May 15, 2022 (the “Plan”).
Lemon Glow will begin executing the Plan as soon as practicable thereafter with
the harvest expected to occur mid-October 2022 (the “Harvest”). The Harvest will
be stored as “Fresh Frozen” cannabis. Fresh Frozen cannabis is immediately flash
frozen upon harvest, instead of the traditional process of drying and curing

Under the terms of the Agreement, Cannabis Global is obligated to purchase the
Harvest, up to 25,000 pounds (the “Target Yield”). Cannabis Global has an option
to increase the Target Yield for subsequent growing seasons by 25% within 45
days of the current Harvest. Cannabis Global is required to pay Lemon Glow
$28.00 per pound for the Fresh Frozen cannabis, up to the Target Yield. If the
Target Yield is achieved, the aggregate purchase price would be $700,000 (the
“Purchase Price”). The Purchase Price shall be paid as a series of cash payments
and a convertible promissory note, as more fully described below.

The cash portion of the Purchase Price will be paid in cash as five $40,000
monthly installments due on the 15th of each month, commencing May 15, 2022, and
a final balloon payment of up to $100,000 on October 15, 2022, depending on the
size of the Harvest.

The other portion of the Purchase Price is a $400,000 convertible promissory
note due April 28, 2023, bearing 8% interest per year was irrevocably issued to
Lemon Glow on April 28, 2022 (the “Convertible Note”). At any time after 90 days
of issuance, the Convertible Note is convertible by Lemon Glow into Cannabis
Global common stock at 75% of the 10-day average closing price prior to
conversion (the “Discount Price”). Interest paid on the Convertible Note is also
convertible by Lemon Glow into Cannabis Global common stock at the Discount
Price. Lemon Glow may not convert any amount due under the Convertible Note if,
after giving effect to such conversion, Lemon Glow would beneficially own in
excess of 4.99% of Cannabis Global’s outstanding common stock; provided,
however, that Lemon Glow may waive this limitation on 61 days advanced notice.

Events of default include, but are not limited to, failure to pay principal or
interest; failure of Cannabis Global common stock to remain listed for trading
on OTC Markets or a principal U.S. national securities exchange for a period of
five trading days; notice to Lemon Glow that Cannabis Global cannot or will
refuse to convert principal or interest into common stock; failure by Cannabis
Global to convert principal or interest into common stock not remedied for three
days; any default on other indebtedness in excess of $100,000; any default
causing acceleration under another Cannabis Global debt obligation; the
occurrence of certain bankruptcy and insolvency events; and the failure of
Cannabis Global to instruct the transfer agent to remove restrictive legends
when converted common stock becomes eligible for resale under Rule 144 of the
Securities Act of 1933, as amended.

Upon an event of default, Lemon Glow may declare the entire unpaid principal and
interest due to be payable immediately; convert the unpaid principal and
interest due at the Conversion Price; or exercise such other rights as Lemon
Glow may have under the Convertible Note, the Agreement, other transaction
documents or applicable law. Lemon Glow may transfer, sell, pledge, hypothecate
or otherwise grant a security interest in the Convertible Note, subject to
certain specified restrictions. The choice of law provision provides for Nevada
law to govern the Convertible Note.

Ownership of harvested cannabis will transfer to Cannabis Global upon receipt of
the cannabis or upon Lemon Glow notifying Cannabis Global that it has packaged
the Target Yield (the “Completion Notice”). Upon receipt of the Completion
Notice, Cannabis Global has 30 days to pick up the Target Yield. If Cannabis
Global has not taken possession of the cannabis within 30 days, Cannabis Global
will become responsible for the ongoing cost of storage, including utilities and
labor. Cannabis Global is obligated to use its best efforts to take possession
of the entire Harvest within 180 days. After the 180-day period, any remaining
amounts of the Harvest not picked up by Cannabis Global are considered abandoned
by Cannabis Global and will become Lemon Glow’s property.

Under the terms of the Agreement, Lemon Glow warrants it shall have good title,
right and authority to sell all of the cannabis, free and clear of all liens,
encumbrances and restrictions of any kind. The parties agree to maintain in
confidence all matters and activities relating to or undertaken pursuant to the
Agreement. The Agreement contains a cross-indemnification and hold harmless
provision, which includes attorney fees. The Agreement is non-assignable without
mutual consent. Upon the expiration of a 15-day notice period commencing upon
receipt of a notice of default which remains uncured, the non-defaulting party
may immediately terminate the Agreement, seek equitable relief and damages, or
cure such default at the defaulting party’s expense. The Agreement also includes
an appendix forecasting future cannabis harvests. The forecasts are not legally
binding upon the parties, but the parties have agreed in principle to use them
when entering into renewals or new similar agreements for subsequent growing
seasons. The choice of law provision provides for California law to govern the

The foregoing summaries of the Cultivation and Supply Agreement and the
Convertible Note are qualified in their entireties by reference to the full
agreement and convertible promissory note, which are attached hereto as Exhibit
10.1 and Exhibit 10.2, respectively, and incorporated by reference herein.

Item 7.01 Regulation FD Disclosure.

On May 2, 2022, Sugarmade, Inc. issued a press release with a letter addressed
to shareholders describing a change in its business strategy. The press release
is furnished herewith as Exhibit 99.1 to this Current Report on Form 8-K. A copy
of the May 2, 2022 press release is attached as Exhibit 99.1 to this Current
Report on Form 8-K.

On May 4, 2022, Sugarmade, Inc. issued a press release announcing the matters
discussed in Item 1.01 of this Current Report on Form 8-K. A copy of the May 4,
2022 press release is attached as Exhibit 99.2 to this Current Report on Form

The information included in this Item 7.01, including Exhibit 99.1 and Exhibit
99.2, shall not be deemed to be “filed” for purposes of Section 18 of the
Securities Exchange Act of 1934, as amended (the “Exchange Act”), or otherwise
subject to the liabilities of that section, nor shall such information be deemed
incorporated by reference in any filing under the Securities Act of 1933, as
amended, or the Exchange Act, except as shall be expressly set forth by specific
reference in such a filing. The information set forth under this Item 7.01 shall
not be deemed an admission as to the materiality of any information herein.

Item 9.01 Financial Statements and Exhibits.

(d) Exhibits

Exhibit No.   Description

10.1            Cultivation and Supply Agreement by and between Cannabis Global,
              Inc. and Lemon Glow Company, Inc. dated April 28, 2022
10.2            $400,000 Convertible Promissory Note due April 28, 2023 bearing 8%
              interest per year issued by Cannabis Global, Inc. to Lemon Glow
              Company, Inc. on April 28, 2022
99.1            Press Release issued by the registrant on May 2, 2022
99.2            Press Release issued by the registrant on May 4, 2022
104           Cover Page Interactive Data File (embedded within the Inline XBRL

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