10-Q

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

(Mark One)

☒	QUARTERLY REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
	For the quarterly period ended September 30, 2020

or

☐	TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
	For the transition period from ___________ to ___________

Commission File Number: 000-55136

Emerald Bioscience, Inc.

(Exact name of registrant as specified in its charter)

Nevada	45-0692882
(State or other jurisdiction of incorporation or organization)	(I.R.S. Employer Identification No.)

5910 Pacific Center Blvd, San Diego, CA 92121

(Address of principal executive offices) (Zip Code)

(949) 480-9051

(Registrant’s telephone number, including area code)

_____________________________________________________________

(Former name, former address and former fiscal year, if changed since last report)

Securities registered pursuant to Section 12(b) of the Act:

Title of each class	Trading Symbol(s)	Name of each exchange on which registered
None	None	None

Securities registered pursuant to Section 12(g) of the Act:

Title of each class	Trading Symbol(s)	Name of each exchange on which registered
Common Stock, par value $0.001	EMBI	OTCQB

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. ☒ Yes     ☐ No

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). ☒ Yes     ☐ No

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.

Large accelerated filer	☐	Accelerated filer	☐
Non-accelerated filer	☒	Smaller reporting company	☒
		Emerging growth company	☐

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). ☐ Yes ☒ No

As of November 5, 2020, there were 250,074,415 shares of the issuer’s $0.001 par value common stock issued and outstanding.

TABLE OF CONTENTS

PART I-FINANCIAL INFORMATION
Item 1.	Financial Statements:	4
	Condensed Consolidated Balance Sheets as of September 30, 2020 (Unaudited) and December 31, 2019	4
	Condensed Consolidated Statements of Comprehensive Loss for the Three and Nine Months Ended September 30, 2020 and 2019 (Unaudited)	5
	Condensed Consolidated Statements of Cash Flows for the Nine Months Ended September 30, 2020 and 2019 (Unaudited)	6
	Condensed Consolidated Statements of Stockholders’ Equity (Deficit) for the Three and Nine Months Ended September 30, 2020 and 2019 (Unaudited)	7
	Notes to the Unaudited Condensed Consolidated Financial Statements	8
Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	26
Item 3.	Quantitative and Qualitative Disclosures about Market Risk	33
Item 4.	Controls and Procedures	33
PART II - OTHER INFORMATION
Item 1.	Legal Proceedings	34
Item 1A.	Risk Factors	34
Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	34
Item 3.	Defaults Upon Senior Securities	34
Item 4.	Mine Safety Disclosures	34
Item 5.	Other Information	34
Item 6.	Exhibits	34

2

FORWARD-LOOKING STATEMENTS

Statements in this Quarterly Report on Form 10-Q that are not descriptions of historical facts are forward-looking statements that are based on management’s current expectations and assumptions and are subject to risks and uncertainties. If such risks or uncertainties materialize or such assumptions prove incorrect, our business, operating results, financial condition and stock price could be materially negatively affected. In some cases, you can identify forward-looking statements by terminology including “anticipates,” “believes,” “can,” “continue,” “could,” “estimates,” “expects,” “intends,” “may,” “plans,” “potential,” “predicts,” “should,” “will,” “would” or the negative of these terms or other comparable terminology. Factors that could cause actual results to differ materially from those currently anticipated include those set forth in the section titled “Risk Factors” including, without limitation, risks relating to:

• the results of our research and development activities, including uncertainties relating to the discovery of potential product candidates and the preclinical and clinical testing of our product candidates;

• the early stage of our product candidates presently under development;

• our need for substantial additional funds in order to continue our operations, and the uncertainty of whether we will be able to obtain the funding we need;

• our ability to obtain and, if obtained, maintain regulatory approval of our current product candidates, and any of our other future product candidates, and any related restrictions, limitations, and/or warnings in the label of any approved product candidate;

• our ability to retain or hire key scientific or management personnel;

• our ability to protect our intellectual property rights that are valuable to our business, including patent and other intellectual property rights;

• our dependence on the University of Mississippi, third-party manufacturers, suppliers, research organizations, testing laboratories and other potential collaborators;

• our ability to develop successful sales and marketing capabilities in the future as needed;

• the size and growth of the potential markets for any of our approved product candidates, and the rate and degree of market acceptance of any of our approved product candidates;

• competition in our industry;

• the duration and impact of the novel coronavirus (“COVID-19”) pandemic; and

• regulatory developments in the United States and foreign countries.

We operate in a rapidly-changing environment and new risks emerge from time to time. As a result, it is not possible for our management to predict all risks, such as the COVID-19 outbreak and associated business disruptions including delayed clinical trials and laboratory resources, nor can we assess the impact of all factors on our business or the extent to which any factor, or combination of factors, may cause actual results to differ materially from those contained in any forward-looking statements we may make. In light of these risks, uncertainties and assumptions, the forward-looking events and circumstances discussed in this report may not occur and actual results could differ materially and adversely from those anticipated or implied in the forward-looking statements. You should not rely upon forward-looking statements as predictions of future events. Although we believe that the expectations reflected in the forward-looking statements are reasonable, we cannot guarantee that the future results, levels of activity, performance or events and circumstances reflected in the forward-looking statements will be achieved or occur. Moreover, neither we nor any other person assumes responsibility for the accuracy and completeness of the forward-looking statements. The forward-looking statements included in this report speak only as of the date hereof, and except as required by law, we undertake no obligation to update publicly any forward-looking statements for any reason after the date of this report to conform these statements to actual results or to changes in our expectations.

3

PART I - FINANCIAL INFORMATION

Item 1. Financial Statements

EMERALD BIOSCIENCE, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED BALANCE SHEETS

(UNAUDITED)

	September 30, 2020 (Unaudited)			December 31, 2019 (Note 2)
ASSETS
Current assets
Cash	$	4,224,601		$	1,829,977
Restricted cash		4,538			4,538
Prepaid expenses		116,226			152,695
Other current assets		3,333			7,550
Total current assets		4,348,698			1,994,760
Property and equipment, net		887			1,983
Total assets	$	4,349,585		$	1,996,743
LIABILITIES AND STOCKHOLDERS’ EQUITY
Current liabilities
Accounts payable	$	731,632		$	129,809
Accounts payable to related party		21,400			10,000
Accrued interest due to related party		81,813			-
PPP loan current		71,102			-
Other current liabilities		263,830			420,406
Derivative liabilities		41,149			410,603
Total current liabilities		1,210,926			970,818
Noncurrent liabilities
PPP loan non-current		45,598			-
Multi-draw credit agreement - related party		450,000			-
Convertible multi-draw credit agreement - related party, net of discount		789,694			387,070
Derivative liabilities, non-current		-			90,797
Total liabilities		2,496,218			1,448,685
Commitments and contingencies
Stockholders’ equity
Preferred stock, $0.001 par value; 20,000,000 shares authorized; no shares issued and outstanding at September 30, 2020 and December 31, 2019		-			-
Common stock, $0.001 par value; 500,000,000 shares authorized; 250,074,415 and 182,895,247 shares issued and outstanding at September 30, 2020 and December 31, 2019, respectively		250,074			182,895
Additional paid-in-capital		38,835,167			32,538,445
Accumulated deficit		(37,231,874	)		(32,173,282	)
Total stockholders’ equity		1,853,367			548,058
Total liabilities and stockholders’ equity	$	4,349,585		$	1,996,743
See accompanying notes to the condensed consolidated financial statements.

4

EMERALD BIOSCIENCE, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE LOSS

(UNAUDITED)

	For the Three Months Ended September 30,						For the Nine Months Ended September 30,
	2020			2019			2020			2019
Operating expenses
Research and development	$	346,217		$	513,004		$	1,574,357		$	1,522,031
General and administrative		1,192,003			990,110			3,395,729			3,267,037
Total operating expenses		1,538,220			1,503,114			4,970,086			4,789,068
Operating loss		(1,538,220	)		(1,503,114	)		(4,970,086	)		(4,789,068	)
Other expense (income)
Change in fair value of derivative liabilities		(424,138	)		3,126,464			(433,688	)		(2,024,660	)
Fair value of derivative liabilities in excess of proceeds		-			-			-			322,644
Interest expense		182,614			301,547			520,594			711,575
Total other expense (income), net		(241,524	)		3,428,011			86,906			(990,441	)
Loss before income taxes		(1,296,696	)		(4,931,125	)		(5,056,992	)		(3,798,627	)
Provision for income taxes		-			-			1,600			1,600
Net loss and comprehensive loss	$	(1,296,696	)	$	(4,931,125	)	$	(5,058,592	)	$	(3,800,227	)
Loss per common share:
Basic	$	(0.01	)	$	(0.04	)	$	(0.02	)	$	(0.03	)
Diluted	$	(0.01	)	$	(0.04	)	$	(0.03	)	$	(0.03	)
Weighted average shares of common stock outstanding used to compute earnings per share:
Basic		256,758,472			133,001,746			207,536,173			132,885,675
Diluted		257,255,653			133,001,746			208,434,966			167,690,989

See accompanying notes to the condensed consolidated financial statements.

5

EMERALD BIOSCIENCE, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(UNAUDITED)

	For the Nine Months Ended September 30,
	2020			2019
Cash flows from operating activities:
Net Loss	$	(5,058,592	)	$	(3,800,227	)
Adjustments to reconcile net loss to net cash used in operating activities:
Depreciation		1,096			1,096
Stock-based compensation expense		241,216			514,683
Change in fair value of derivative liabilities		(433,688	)		(2,024,660	)
Fair value of derivative liabilities in excess of proceeds		-			322,644
Amortization of debt discount		402,624			438,964
Changes in assets and liabilities:
Prepaid expenses		36,469			(302,248	)
Other current assets		4,217			(766	)
Accounts payable		601,823			191,333
Accounts payable to related party		11,400			-
Accrued interest due to related party		81,813			-
Other current liabilities		(156,576	)		134,469
Net cash used in operating activities		(4,268,198	)		(4,524,712	)
Cash flows from financing activities:
Proceeds from the sale of common stock and warrants – net of $854,078 issuance costs for September 30, 2020		6,085,589			-
Proceeds from multi-draw credit agreement – related party, net of $0 and $9,301 issuance costs for the September 30, 2020 and September 30, 2019 periods, respectively		450,000			3,990,699
Proceeds from PPP loan		116,700			-
Proceeds from pre-funded warrant exercises		10,533			-
Net cash provided by financing activities		6,662,822			3,990,699
Net increase (decrease) in cash and restricted cash		2,394,624			(534,013	)
Cash and restricted cash, beginning of period	$	1,834,515		$	1,857,885
Cash and restricted cash, end of period	$	4,229,139		$	1,323,872
Supplemental disclosures of cash-flow information:
Reconciliation of cash and restricted cash:
Cash	$	4,224,601		$	1,319,360
Restricted cash		4,538			4,512
Total cash and restricted cash shown in the consolidated statements of cash flows	$	4,229,139		$	1,323,872
Cash paid during the period for:
Interest	$	35,645		$	272,611
Income taxes		1,600			1,600
Supplemental disclosures of non-cash financing activities:
Reclassification of warrant liabilities to equity from exercise of warrants	$	26,563		$	144,375
Proceeds allocated to equity classified warrants issued with convertible multi-draw credit agreement		-			716,110
Fair value of compound derivative liability bifurcated from convertible multi-draw credit agreement		-			193,414
Beneficial conversion feature on convertible multi-draw credit agreement		-			1,584,850
See accompanying notes to the condensed consolidated financial statements.

6

EMERALD BIOSCIENCE, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY (DEFICIT)

(UNAUDITED)

	Common Stock				Additional Paid-In		Accumulated			Total Stockholders’
	Shares		Amounts		Capital		Deficit			Deficit
Balance, January 1, 2019		133,907,747	$	133,908	$	17,528,947	$	(33,225,107	)	$	(15,562,252	)
Stock-based compensation expense		-		-		171,493		-			171,493
Warrants issued in connection with convertible multi-draw credit agreement, related party		-		-		716,110		-			716,110
Beneficial conversion feature in connection with convertible multi-draw credit agreement - related party		-		-		1,584,850		-			1,584,850
Net loss for the three months ended March 31, 2019		-		-		-		(14,774,392	)		(14,774,392	)
Balance, March 31, 2019		133,907,747	$	133,908	$	20,001,400	$	(47,999,499	)	$	(27,864,191	)
Stock-based compensation expense		-		-		173,084		-			173,084
Series B warrant exercises		187,500		187		144,188		-			144,375
Net income for the three months ended June 30, 2019		-		-		-		15,905,290			15,905,290
Balance, June 30, 2019		134,095,247	$	134,095	$	20,318,672	$	(32,094,209	)	$	(11,641,442	)
Stock-based compensation expense		-		-		170,106		-			170,106
Net loss for the three months ended September 30, 2019		-		-		-		(4,931,125	)		(4,931,125	)
Balance, September 30, 2019		134,095,247	$	134,095	$	20,488,778	$	(37,025,334	)	$	(16,402,461	)

	Common Stock				Additional Paid-In		Accumulated			Total Stockholders’ Equity
	Shares		Amounts		Capital		Deficit			(Deficit)
Balance, January 1, 2020		182,895,247	$	182,895	$	32,538,445	$	(32,173,282	)	$	548,058
Stock-based compensation expense		-		-		64,142		-			64,142
Series B warrant exercises		312,500		313		26,250		-			26,563
Net loss for the three months ended March 31, 2020		-		-		-		(2,341,660	)		(2,341,660	)
Balance, March 31, 2020		183,207,747	$	183,208	$	32,628,837	$	(34,514,942	)	$	(1,702,897	)
Stock-based compensation expense		-		-		28,709		-			28,709
Net loss for the three months ended June 30, 2020		-		-		-		(1,420,236	)		(1,420,236	)
Balance, June 30, 2020		183,207,747	$	183,208	$	32,657,546	$	(35,935,178	)	$	(3,094,424	)
Stock-based compensation expense		-		-		148,365		-			148,365
Common stock and warrants issued		56,333,334		56,333		6,029,256		-			6,085,589
Exercise of pre-funded warrants		10,533,334		10,533		-		-			10,533
Net loss for the three months ended September 30, 2020		-		-		-		(1,296,696	)		(1,296,696	)
Balance, September 30, 2020		250,074,415	$	250,074	$	38,835,167	$	37,231,874	)	$	1,853,367

See accompanying notes to the condensed consolidated financial statements.

7

EMERALD BIOSCIENCE, INC. AND SUBSIDIARIES

NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(UNAUDITED)

1. Nature of Operations and Business Activities

Nature of Operations

Emerald Bioscience, Inc. (the “Company”) was initially incorporated in Nevada on March 16, 2011 as Load Guard Logistics, Inc. On October 31, 2014, the Company closed a reverse merger transaction (the “Merger”) pursuant to which Nemus, a California corporation (“Nemus Sub”), became the Company’s wholly-owned subsidiary, and the Company assumed the operations of Nemus Sub. Nemus Sub was incorporated in the State of California on July 17, 2012. On November 3, 2014, the Company changed its name to Nemus Bioscience, Inc. by merging with Nemus Sub to form a Nevada company.

In January 2018, the Company entered into a securities purchase agreement with Emerald Health Sciences, Inc. (“Emerald Health Sciences”), pursuant to which Emerald Health Sciences purchased a majority of the equity interest in the Company, resulting in a change in control (the “Emerald Financing”). As part of the transaction, the Company’s Board members, with the exception of Dr. Brian Murphy, the Company’s CEO/CMO, tendered their resignation and Emerald Health Sciences appointed two new nominees to the Board. Later, in October 2018, the Board appointed Dr. Avtar Dhillon, the Chairman, Chief Executive Officer and President of Emerald Health Sciences, as the Executive Chairman of the Company’s Board. On August 7, 2020, Dr. Brian Murphy resigned and Punit Dhillon was appointed as the Chief Executive Officer of the Company.

On February 11, 2019, the Company’s Board of Directors (the “Board”) and majority stockholder unanimously approved an amendment to the Company’s articles of incorporation to change the name of the Company to Emerald Bioscience, Inc. Effective March 25, 2019, the Company filed a Certificate of Amendment with the Nevada Secretary of State changing the Company’s name to Emerald Bioscience, Inc.

In August 2019, the Company formed a new subsidiary in Australia, EMBI Australia Pty Ltd., an Australian proprietary limited company (“EMBI Australia”), in order to qualify for the Australian government’s research and development tax credit for research and development dollars spent in Australia. The primary purpose of EMBI Australia is to conduct clinical trials for the Company’s product candidates.

On December 17, 2019, Dr. Avtar Dhillon resigned as the Chairman of the Company’s Board and the Company entered into a Board Observer Agreement with Emerald Health Sciences. Refer to Note 8 - Related Party Matters for additional information.

The Company is a biopharmaceutical company located in San Diego, California that plans to research, develop and commercialize therapeutics derived from cannabinoids through several license agreements with the University of Mississippi (“UM”). UM is the only entity federally permitted and licensed to cultivate cannabis for research purposes in the United States.

As of September 30, 2020, the Company has devoted substantially all its efforts to securing product licenses, carrying out research and development, building infrastructure and raising capital. The Company has not yet realized revenue from its planned principal operations and is a number of years away from potentially being able to do so.

Liquidity and Going Concern

The Company has incurred operating losses and negative cash flows from operations since inception and as of September 30, 2020, had an accumulated deficit of $37,231,874, stockholders’ equity of $1,853,367 and working capital of $3,137,772. The Company anticipates operating losses and negative cash flows from operations into the foreseeable future in order to advance and develop potential drug candidates into preclinical and clinical development activities and support its corporate infrastructure which includes the costs associated with being a public company. As of September 30, 2020, the Company had unrestricted cash in the amount of $4,224,601 as compared to $1,829,977 as of December 31, 2019.

8

As the Company approaches its first clinical trial, it expects to ramp up research and development spending and to increase cash used in operating activities. However, based on the Company’s expected cash requirements, without obtaining additional funding management believes that the Company will not have enough funds to commence clinical studies. These conditions give rise to substantial doubt as to the Company’s ability to continue as a going concern within one year after the date that the financial statements are issued. The accompanying Condensed Consolidated Financial Statements do not include any adjustments that might result from the outcome of this uncertainty.

The Company’s continued existence is dependent on its ability to raise sufficient additional funding to cover operating expenses and to carry out its research and development activities. On October 5, 2018, the Company entered into a Multi-Draw Credit Agreement (the “Credit Agreement”) with Emerald Health Sciences (See Note 4).

On April 29, 2020, the Company entered into an Amended and Restated Multi-Draw Credit Agreement (the “Amended Credit Agreement”) with Emerald Health Sciences, which amends and restates the Credit Agreement. The Amended Credit Agreement provides for a credit facility in the principal amount of up to $20,000,000, which includes, without limitation, the advances totaling $6,000,000 that were granted prior to the amendment.

Prior to the date of the Amended Credit Agreement, the Company had made three drawdowns in an aggregate principal amount of $6,000,000, and had issued to Emerald Health Sciences warrants to purchase an aggregate of 7,500,000 shares of common stock of the Company at an exercise price of $0.50 per share of Common Stock, in accordance with the terms of the Credit Agreement.

During the nine months ended September 30, 2020, the Company effected the fourth and fifth advances under the Amended Credit Agreement in the amounts of $150,000 and $300,000, respectively. The advances bear interest at 7% per annum and mature on October 5, 2022. The Company used the proceeds from the advances for general corporate and working capital purposes. Emerald Health Sciences elected that the fourth and fifth advances are not convertible into shares of Common Stock and no warrants were issued with the advances.

On April 22, 2020, the Company entered into a Paycheck Protection Program Promissory Note in the principal amount of $116,700 (the “PPP Loan”) from City National Bank (the “PPP Loan Lender”). The PPP Loan was obtained pursuant to the Paycheck Protection Program (the “PPP”) of the Coronavirus Aid, Relief, and Economic Security Act (the “CARES Act”) administered by the U.S. Small Business Administration (“SBA”) (Note 4).

On July 31, 2020, the Company entered into the August 2020 Financing (Note 5), pursuant to which the Company sold 56,333,334 common stock units each consisting of one share of common stock and one common stock warrant and 60,333,334 pre-funded units each consisting of one pre-funded warrant and one common stock warrant in a registered public offering. The net proceeds from the transaction were $6.1 million. The common stock warrants and prefunded warrants have an exercise price of $0.06 and $0.001, respectively. The term of the common stock warrants is five years, and the pre-funded warrants are exercisable until all the pre-funded warrants have been exercised in full. The Company intends to use the net proceeds of the offering for general corporate purposes, including working capital.

During March 2020, the Company approved a plan to defer up to 50% of the members of senior management’s compensation and 100% of the Board of Director and committee fees indefinitely. Upon the closing of the August 2020 Financing, the Company’s Board of Directors determined that the Company had been sufficiently financed to pay the deferred salaries and fees, including a 10% retention bonus, to management and the Board in the aggregate amount of $293,078.

The Company plans to continue to pursue funding through public or private equity or debt financings, licensing arrangements, asset sales, government grants or other arrangements. However, the Company cannot provide any assurances that such additional funds will be available on reasonable terms, or at all. If the Company raises additional funds by issuing equity securities, substantial dilution to existing stockholders would result.

9

In December 2019, a novel strain of coronavirus (“COVID-19”) emerged in Wuhan, China. Since then, it has spread to the United States and infections have been reported around the world. On March 11, 2020, the World Health Organization declared the outbreak of COVID-19 as a global pandemic, which continues to spread throughout the United States, Australia and around the world, where the Company has operations and conducts laboratory research and clinical studies. In response to the outbreak, federal and state authorities in the United States have introduced various recommendations and measures to try to limit the pandemic, including travel restrictions, border closures, nonessential business closures, quarantines, self-isolations, shelters-in-place and social distancing. The COVID-19 outbreak and the response of governmental authorities to try to limit it are having a significant impact on the private sector and individuals, including unprecedented business, employment and significant economic disruptions to the global financial markets. These disruptions are likely to impact the Company’s ability to raise additional capital and obtain the necessary funds.

Notably, the Company relies on third-party manufacturers to produce its product candidates. The manufacturing of the active pharmaceutical ingredient of THCVHS is conducted in the United States. Formulation of the eye drop for testing is also performed in the United States but can rely on regulatory-accepted excipients that can be sourced from countries outside the United States, such as China. In connection with the recent pandemic of a COVID-19, there could possibly be an impact on sourcing materials that are part of the eye drop formulation, as well as impacting volunteer and/or patient recruitment in Australia for clinical studies. The location of the proposed clinical trial is Melbourne, Australia and since the COVID-19 outbreak in that country, the city has experienced multiple health emergency lockdowns which have had a negative impact on the conduct and timelines of clinical studies. Therefore, the Company has shifted its first-in-human studies of THCVHS from the second half of 2020, to the 2021 timeframe.

After considering the plans to alleviate substantial doubt, management has concluded that there is substantial doubt about the Company’s ability to continue as a going concern within one year after the date that the financial statements are issued.

2. Summary of Significant Accounting Policies

Basis of Presentation

In the opinion of management, the accompanying Unaudited Condensed Consolidated Financial Statements have been prepared on a consistent basis with the Company’s Audited Consolidated Financial Statements for the fiscal year ended December 31, 2019, and include all adjustments, consisting of only normal recurring adjustments, necessary to fairly state the information set forth herein. The Condensed Consolidated Financial Statements have been prepared in accordance with the rules and regulations of the Securities and Exchange Commission (“SEC”) and therefore, omit certain information and footnote disclosures necessary to present the financial statements in accordance with generally accepted accounting principles in the United States (“GAAP”).

The results of operations for the three and nine months ended September 30, 2020 are not necessarily indicative of the results to be expected for the year ending December 31, 2020 or any future periods. The Condensed Consolidated Balance Sheet as of December 31, 2019 was derived from the Company’s audited financial statements as of December 31, 2019, which are included in the Company’s Annual Report on Form 10-K filed with the SEC on March 20, 2020. The unaudited financial statements included in this Quarterly Report on Form 10-Q should be read in conjunction with the audited consolidated financial statements and notes thereto included in the Company’s Annual Report on Form 10-K for the fiscal year ended December 31, 2019, which includes a broader discussion of the Company’s business and the risks inherent therein.

Use of Estimates

The preparation of the Condensed Consolidated Financial Statements in conformity with GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the Condensed Consolidated Financial Statements and the reported amounts of income and expense during the reporting period. Actual results could differ from those estimates. The most significant accounting estimates inherent in the preparation of the Company’s financial statements include estimates as to the appropriate carrying value of certain assets and liabilities, which are not readily apparent from other sources. Such estimates and judgments are utilized for stock-based compensation expense, equity securities, derivative liabilities, and debt with embedded features.

10

Risks and Uncertainties

The Company’s operations are subject to a number of risks and uncertainties, including but not limited to, changes in the general economy, the size and growth of the potential markets for any of the Company’s product candidates, results of research and development activities, uncertainties surrounding regulatory developments in the United States and Australia, and the Company’s ability to attract new funding.

Fair Value Measurements

Certain assets and liabilities are carried at fair value under GAAP. Fair value is defined as the exchange price that would be received for an asset or paid to transfer a liability (the “exit price”) in the principal or most advantageous market for the asset or liability in an orderly transaction between market participants on the measurement date. Valuation techniques used to measure fair value must maximize the use of observable inputs and minimize the use of unobservable inputs. A fair value hierarchy based on three levels of inputs, of which the first two are considered observable, and the last is considered unobservable, is used to measure fair value:

Level 1:	Valuations for assets and liabilities traded in active markets from readily available pricing sources such as quoted prices in active markets for identical assets or liabilities.
Level 2:	Observable inputs (other than Level 1 quoted prices) such as quoted prices in active markets for similar assets or liabilities, quoted prices in markets that are not active for identical or similar assets or liabilities, or other inputs that are observable or can be corroborated by observable market data.
Level 3:	Unobservable inputs that are supported by little or no market activity and that are significant to determining the fair value of the assets or liabilities, including pricing models, discounted cash flow methodologies and similar techniques.

The carrying values of the Company’s financial instruments, with the exception of the Amended Credit Agreement and derivative liabilities, including, cash, prepaid expenses, accounts payable, the PPP loan and other current liabilities approximate their fair value due to the short maturities of these financial instruments. The derivative liabilities are valued on a recurring basis utilizing Level 3 inputs (Note 3). The PPP loan is considered conventional debt with an interest rate that approximates current market rates, interest and principal payments will be made through 2022. Due to the PPP loan’s relatively short term the carrying value approximates fair value. As of December 31, 2019, the fair value of the advances under the Credit Agreement was $1,877,938, the carrying amount of the liability at December 31, 2019 was $387,070 and is included in Convertible multi-draw credit agreement - related party, net of discount in the Company’s Condensed Consolidated Balance Sheets. As of September 30, 2020, the Company no longer engages a third party valuation specialist to value the Credit Agreement, as amended, as it is not practical to do so solely for the purpose of disclosing the estimated fair value of the financial instrument. Information pertinent to estimating the fair value of the Amended Credit Agreement includes valuing the embedded conversion feature and considering the discounted cash flows of the interest and principal payments through maturity (Note 4).

Convertible Instruments

The Company accounts for hybrid contracts with embedded conversion features in accordance with GAAP. ASC 815, Derivatives and Hedging Activities (“ASC 815”) requires companies to bifurcate conversion options from their host instruments and account for them as free-standing derivative financial instruments according to certain criteria. The criteria includes circumstances in which (a) the economic characteristics and risks of the embedded derivative instrument are not clearly and closely related to the economic characteristics and risks of the host contract, (b) the hybrid instrument that embodies both the embedded derivative instrument and the host contract is not re-measured at fair value under otherwise applicable generally accepted accounting principles with changes in fair value reported in earnings as they occur and (c) a separate instrument with the same terms as the embedded derivative instrument would be considered a derivative instrument.

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The Company accounts for convertible debt instruments with embedded conversion features in accordance with ASC 470-20, Debt with Conversion and Other Options (“ASC 470-20”) if it is determined that the conversion feature should not be bifurcated from their host instruments. Under ASC 470-20, the Company records, when necessary, discounts to convertible notes for the intrinsic value of conversion options embedded in debt instruments based upon the difference between the fair value of the underlying common stock at the commitment date and the embedded effective conversion price. When the Company determines that the embedded conversion option should be bifurcated from its host instrument, the embedded feature is accounted for in accordance with ASC 815. Under ASC 815, a portion of the proceeds received upon the issuance of the hybrid contract is allocated to the fair value of the derivative. The derivative is subsequently marked to market at each reporting date based on current fair value, with the changes in fair value reported in the results of operations.

The Company also follows ASC 480-10, Distinguishing Liabilities from Equity (“ASC 480-10”) when evaluating the accounting for its hybrid instruments. A financial instrument that embodies an unconditional obligation, or a financial instrument other than an outstanding share that embodies a conditional obligation, that the issuer must or may settle by issuing a variable number of its equity shares shall be classified as a liability (or an asset in some circumstances) if, at inception, the monetary value of the obligation is based solely or predominantly on any one of the following: (a) a fixed monetary amount known at inception (for example, a payable settled with a variable number of the issuer’s equity shares); (b) variations in something other than the fair value of the issuer’s equity shares (for example, a financial instrument indexed to the Standard and Poor’s S&P 500 Index and settled with a variable number of the issuer’s equity shares); or (c) variations inversely related to changes in the fair value of the issuer’s equity shares (for example, a written put option that could be net share settled). Hybrid instruments meeting these criteria are not further evaluated for any embedded derivatives and are carried as a liability at fair value at each balance sheet date with a re-measurement reported in other expense (income) in the accompanying Condensed Consolidated Statements of Comprehensive Loss.

When determining the short-term vs. long-term classification of derivative liabilities, the Company first evaluates the instruments’ exercise provisions. Generally, if a derivative is a liability and exercisable within one year, it will be classified as short-term. However, because of the unique provisions and circumstances that may impact the accounting for derivative instruments, the Company carefully evaluates all factors that could potentially restrict the instrument from being exercised or create a situation where exercise would be considered remote. The Company re-evaluates its derivative liabilities at each reporting period end and makes updates for any changes in facts and circumstances that may impact classification.

Warrants Issued in Connection with Financings

The Company generally accounts for warrants issued in connection with debt and equity financings as a component of equity, unless the warrants include a conditional obligation to issue a variable number of shares or there is a deemed possibility that the Company may need to settle the warrants in cash. For warrants issued with a conditional obligation to issue a variable number of shares or the deemed possibility of a cash settlement, the Company records the fair value of the warrants as a liability at each balance sheet date and records changes in fair value in other expense (income) in the Condensed Consolidated Statements of Comprehensive Loss.

Debt Issuance Costs and Interest

Discounts related to bifurcated derivatives, freestanding instruments issued in bundled transactions, and issuance costs are recorded as a reduction to the carrying value of the debt and amortized over the life of the debt using the effective interest method. The Company makes changes to the effective interest rate, as necessary, on a prospective basis. For debt facilities that provide for multiple advances, the Company initially defers any issuance costs until the first advance is made and then amortizes the costs over the life of the facility.

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Research and Development Expenses and Licensed Technology

Research and development costs are expensed when incurred. These costs may consist of external research and development expenses incurred under agreements with third-party contract research organizations and investigative sites, third-party manufacturing organizations and consultants; license fees; employee-related expenses, which include salaries and benefits for the personnel involved in the Company’s preclinical and clinical drug development activities; facilities expense, depreciation and other allocated expenses; and equipment and laboratory supplies.

Costs incurred for the rights to use licensed technologies in the research and development process, including licensing fees and milestone payments, are charged to research and development expense as incurred in situations where the Company has not identified an alternative future use for the acquired rights, and are capitalized in situations where there is an identified alternative future use. No cost associated with the use of licensed technologies has been capitalized to date.

Stock-Based Compensation Expense

Stock-based compensation expense is estimated at the grant date based on the fair value of the award, and the cost is recognized as expense ratably over the vesting period with forfeitures accounted for as they occur. The Company uses the Black-Scholes Merton option pricing model for estimating the grant date fair value of stock options using the following assumptions:

• Volatility - Stock price volatility is estimated over the expected term based on a blended rate of industry peers and the Company’s actual stock volatility adjusted for periods in which significant financial variability was identified.

• Expected term - The expected term is based on a simplified method which defines the life as the weighted average of the contractual term of the options and the vesting period for each award.

• Risk-free rate - The risk-free interest rate for the expected term of the option is based on the average market rate on U.S. Treasury securities in effect during the period in which the awards were granted.

• Dividends - The dividend yield assumption is based on the Company’s history and expectation of paying no dividends in the foreseeable future.

Loss Per Common Share

The Company applies FASB ASC No. 260, Earnings per Share in calculating its basic and diluted net loss per common share. Basic loss per share of common stock is computed by dividing net loss available to common stockholders by the weighted-average number of shares of common stock outstanding for the period. The diluted loss per share of common stock is computed by giving effect to all potential common stock equivalents outstanding for the period determined using the treasury stock method. For purposes of this calculation, options to purchase common stock, restricted stock subject to vesting, warrants to purchase common stock and common shares underlying convertible debt instruments are considered to be common stock equivalents.

The computations of basic and diluted net loss per common share are as follows:

	Three Months Ended September 30, (Unaudited)						Nine Months Ended September 30, (Unaudited)
	2020			2019			2020			2019
Basic net loss per share:
Net loss	$	(1,296,696	)	$	(4,931,125	)	$	(5,058,592	)	$	(3,800,227	)
Weighted average common shares outstanding – basic		256,758,472			133,001,746			207,536,173			132,885,675
Net loss per share - basic	$	(0.01	)	$	(0.04	)	$	(0.02	)	$	(0.03	)
Diluted net loss per share:
Net loss (as adjusted)	$	(1,720,835	)	$	(4,931,125	)	$	(5,401,484	)	$	(5,656,982	)
Weighted average common shares outstanding – diluted		257,255,653			133,001,746			208,434,966			167,690,989
Net loss per share - diluted	$	(0.01	)	$	(0.04	)	$	(0.03	)	$	(0.03	)

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The following outstanding shares of common stock equivalents were excluded from the computation of diluted net loss per share of common stock for the periods presented because including them would have been anti-dilutive:

	Three Months Ended September 30, (Unaudited)				Nine Months Ended September 30, (Unaudited)
	2020		2019		2020		2019
Stock options		25,000,678		4,512,715		25,000,678		4,512,715
Unvested restricted stock		-		1,093,501		-		1,093,501
Common shares underlying convertible debt		5,215,457		15,000,000		5,215,457		15,000,000
Warrants		145,336,155		57,943,250		22,304,750		144,934,542

Recent Accounting Pronouncements

In August 2020, the FASB issued ASU 2020-06, Debt—Debt with Conversion and Other Options (Subtopic 470-20) and Derivatives and Hedging—Contracts in Entity’s Own Equity (Subtopic 815-40): Accounting for Convertible Instruments and Contracts in an Entity’s Own Equity. This ASU amends the guidance on convertible instruments and the derivatives scope exception for contracts in an entity’s own equity and improves and amends the related EPS guidance for both Subtopics. The ASU will be effective for annual reporting periods after December 15, 2023 and interim periods within those annual periods and early adoption is permitted in annual reporting periods ending after December 15, 2020. We are still assessing the impact of ASU 2020-06 on our condensed consolidated financial statements.

In December 2019, the FASB issued ASU No. 2019-12 Income Taxes (Topic 740) simplifying the Accounting for Income Taxes. The Board issued this update as part of its Simplification Initiative to improve areas of GAAP and reduce cost and complexity while maintaining usefulness of the financial statements. The main provisions remove certain exceptions, including the exception to the general methodology for calculating income taxes in an interim period when a year-to-date loss exceeds the anticipated loss for the year. In addition, the amendments simplify income tax accounting in the areas such as income-based franchise taxes, eliminating the requirements to allocate consolidated current and deferred tax expense in certain instances and a requirement that an entity reflects the effect of enacted changes in tax laws or rates in the annual effective tax rate computation in the interim period that includes the enactment date. For public companies, the standard is effective for fiscal years beginning after December 15, 2020, and interim periods therein, with early adoption permitted. The Company plans to adopt this ASU on the effective date of January 1, 2021. However, it may adopt the update earlier if circumstances arise making early adoption favorable to the Company. The amendments in the update related to foreign subsidiaries will be applied on a modified retrospective basis, the amendments to franchise taxes will be applied on either a retrospective or modified retrospective basis and all other amendments will be applied on a prospective basis. The Company is still evaluating the impact from adopting this standard. However, because the Company’s deferred tax assets and liabilities are fully reserved, it does not expect a material impact from the adoption of this standard.

3. Warrants and Derivative Liabilities

Warrants

There are significant judgments and estimates inherent in the determination of the fair value of the Company’s warrants. These judgments and estimates include assumptions regarding the Company’s future operating performance, the time to completing a liquidity event and the determination of the appropriate valuation methods. If the Company had made different assumptions, the fair value of the warrants could have been significantly different (See Note 2).

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Warrants vested and outstanding as of September 30, 2020 are summarized as follows:

					Number of Warrants
	Exercise		Term		Vested and
Source	Price		(Years)		Outstanding
Pre 2015 Common Stock Warrants	$	1.00	6-10			1,110,000
2015 Common Stock Warrants	$	1.15-5.00	5-10			220,000
2016 Common Stock Warrants to Service Providers	$	1.15		10		40,000
2016 Series C Common Stock Warrants to Placement Agent	$	0.40		5		125,000
2017 Series D Common Stock Warrants to Placement Agent	$	0.25		5		480,000
2017 Common Stock Warrants to Service Provider	$	0.41		5		125,000
2018 Emerald Financing Warrants	$	0.10		5		3,400,000
Emerald Multi-Draw Credit Agreement Warrants	$	0.50		5		7,500,000
2019 Common Stock Warrants	$	0.35		5		8,000,000
2020 Common Stock Warrants	$	0.06		5		116,666,668
2020 Common Stock Warrants to Placement Agent	$	0.075		4.99		8,166,667
2020 Pre-Funded Warrants	$	0.001	indefinite			49,800,000
Total warrants vested and outstanding as of September 30, 2020						195,633,335

Emerald Multi-Draw Credit Agreement Warrants

During the nine months ended September 30, 2019, the Company issued 5,000,000 fully vested common stock warrants to Emerald Health Sciences, in conjunction with advances under the Credit Agreement discussed below (See Note 4). The warrants were equity classified at issuance and the Company allocated an aggregate of $716,110 of the gross proceeds to the warrants on a relative fair value basis. The proceeds allocated to the warrants were recorded as discounts to each advance and are being amortized over the term of the debt. The warrants vested immediately and had an estimated aggregate fair value of $1,830,573 utilizing the Black-Scholes Merton option pricing model with the following assumptions:

	At Issuance
Dividend yield		0.00	%
Volatility factor	91.6-92.1		%
Risk-free interest rate	2.23-2.51		%
Expected term (years)		5.0
Underlying common stock price	$	0.33-0.69

August 2020 Financing Warrants

In connection with the August 2020 Financing (Note 5), the Company issued 116,666,668 common stock warrants, 8,166,667 common stock warrants to the placement agent and 60,333,334 pre-funded warrants. The warrants were equity classified at issuance and the Company allocated $2,462,462 and $2,986,500 of the gross proceeds to the common stock warrants and pre-funded warrants on a relative fair value basis, respectively. The common stock warrants issued to the placement agent were valued at $261,333 and recorded as equity issuance costs within equity. The warrants vested immediately and were valued utilizing the Black-Scholes Merton option pricing model with the following assumptions:

	Common Stock Warrants			Pre-funded Warrants			Placement Agent Warrants
Dividend yield		0.00	%		0.00	%		0.00	%
Volatility factor		91.64	%		93.86	%		91.64	%
Risk-free interest rate		0.19	%		0.52	%		0.19	%
Expected term (years)		5.0			10			4.99
Underlying common stock price	$	0.05		$	0.05		$	0.05

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Derivative Liabilities

The following tables summarize the activity of derivative liabilities for the periods indicated:

	Nine Months Ended September 30, 2020
	December 31, 2019, Fair Value of Derivative Liabilities			Fair Value of Derivative Liabilities Issued		Change in Fair value of Liabilities			Reclassification of Derivatives to Equity			September 30, 2020, Fair Value of Derivative Liabilities
Emerald Multi-Draw Credit Agreement - compound derivative liability (1)	$	90,797		$	-	$	(90,797	)	$	-		$	-
Emerald Financing - warrant liability (2)		276,024			-		(234,875	)		-			41,149
Series B - warrant liability (3)		134,579			-		(108,016	)		(26,563	)		-
Total derivative liabilities	$	501,400		$	-	$	(433,688	)	$	(26,563	)	$	41,149
Less, noncurrent portion of derivative liabilities		(90,797	)										-
Current balance of derivative liabilities	$	410,603										$	41,149

	Nine Months Ended September 30, 2019
	December 31, 2018, Fair Value of Derivative Liabilities			Fair Value of Derivative Liabilities Issued		Change in Fair value of Derivative Liabilities			Reclassification of Derivatives to Equity			September 30, 2019, Fair Value of Derivative Liabilities
Emerald Multi Draw Credit Agreement - compound derivative liability (1)	$	219,453		$	516,058	$	(167,905	)	$	-		$	567,606
Emerald Financing - warrant liability (2)		15,251,413			-		(1,895,193	)		-			13,356,220
Series B - warrant liability (3)		487,500			-		38,438			(144,375	)		381,563
Total derivative liabilities	$	15,958,366		$	516,058	$	(2,024,660	)	$	(144,375	)	$	14,305,389
Less, noncurrent portion of derivative liabilities		(219,453	)										(567,606	)
Current balance of derivative liabilities	$	15,738,913										$	13,737,783

Emerald Multi-Draw Credit Agreement Compound Derivative Liability (1)

In connection with the advances under the Credit Agreement (See Note 4), the Company bifurcated a compound derivative liability related to a contingent interest feature and acceleration upon default provision (contingent put option) provided to Emerald Health Sciences. The Company’s estimate of fair value of the compound derivative liability was determined by using a differential cash flows valuation model, wherein the fair value of the underlying debt facility and its conversion right are estimated both with and without the presence of the contingent interest feature, holding all other assumptions constant. The resulting difference between the estimated fair values in both scenarios is the estimated fair value of the compound derivative. The fair value of the underlying debt facility was estimated by calculating the expected cash flows with consideration of the estimated probability of a change in control transaction, defined as an event of default by the agreement, and applying the expected default interest rate from the date of such default through maturity. The expected cash flows are then discounted back to the reporting date using a benchmark market yield. The conversion right component of the compound derivative was measured using a standard Black-Scholes model for each payment period.

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On April 29, 2020, the Company entered into the Amended Credit Agreement which removed the change in control provision as an event of default for advances before and after the amendment. As a result of the modification, the contingent interest feature component of the compound derivative is no longer required to be bifurcated as a derivative liability. During the nine months ended September 30, 2020, the liability has been reduced to $0 through an adjustment to the change in fair value of derivative liabilities.

Because Emerald Health Sciences would forgo the contingent interest if the contingent put option was exercised upon an event of default, the value ascribed to the contingent put option within the compound derivative is considered de minimis before and after the amendment to the Credit Agreement.

Emerald Financing Warrant Liability (2)

In January and February 2018, the Company issued 44,200,000 warrants to purchase common stock in conjunction with the Emerald Financing. The warrants vest immediately and have an exercise price of $0.10 per share with a term of five years and are exercisable in cash or through a cashless exercise provision. The warrants contained an anti-dilution protection feature that provided the investors with price protection if the Company subsequently issued or sold any shares of common stock, stock options, or convertible securities at a price less than the exercise price of $0.10. In connection with the August 2020 Financing, this provision was waived, and the exercise price was permanently set to $0.10. In addition, the warrants contain a contingent put option if the Company undergoes a subsequent financing that results in a change in control. The warrant holders also have the right to participate in subsequent financing transactions on an as-if converted basis.

In December 2019, Emerald Health Sciences paid the aggregate exercise price of $4,080,000 in the form of a reduction of the corresponding amount of obligations outstanding under the Credit Agreement to exercise 40,800,000 Emerald Financing Warrants. Under the Warrant Exercise Agreement between the Company and Emerald Health Sciences, the proceeds from the warrants were first applied directly to the accrued interest balance at the exercise date with the remainder applied to the oldest outstanding principal balances under the Credit Agreement. Immediately prior to exercise, the warrants were adjusted to fair value which considered the closing trading price on the exercise date (See Note 4).

The Company reviewed the warrants for liability or equity classification under the guidance of ASC 480-10, Distinguishing Liabilities from Equity, and concluded that the warrants should be classified as a liability and re-measured to fair value at the end of each reporting period. The Company also reviewed the warrants under ASC 815, Derivatives and Hedging/Contracts in Entity’s Own Equity, and determined that the warrants also meet the definition of a derivative. With the assistance of a third-party valuation specialist, the Company valued the warrant liabilities utilizing the Monte Carlo valuation method pursuant to the accounting guidance of ASC 820-10, Fair Value Measurements.

The warrant liabilities were valued using Monte Carlo simulations conducted at the balance sheet dates using the following assumptions:

	September 30, 2020			December 31, 2019
Dividend yield		0.00	%		0.00	%
Volatility factor		80.8	%		79.5	%
Risk-free interest rate		0.14	%		1.62	%
Expected term (years)		2.38			3.13
Underlying common stock price	$	0.04		$	0.13

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Series B Warrant Liability (3)

In conjunction with the Redeemable Convertible Series B Preferred Stock financing, the Company issued the 2015 Series B Financing Warrants originally exercisable at a price of $1.15 per share. The warrants are exercisable in cash or through a cashless exercise provision and contain certain cash redemption rights. The Series B Financing Warrants also had a “down-round” protection feature if the Company subsequently issued or sold any shares of common stock, stock options, or convertible securities at a price less than the current exercise price. The down round provision was triggered and automatically adjusted down to $0.10 on December 28, 2017, after the Company entered into the Convertible Promissory Note (See Note 4) and again to $0.00 on January 19, 2018, as a result of the Emerald Financing. The strike price for these warrants is now permanently reset. However, because the remaining warrant holders still had certain cash redemption rights upon the occurrence of certain fundamental transactions, as defined in the Series B Financing Warrant agreements, the warrants continued to require liability classification. Subsequent to the repricing that occurred as a result of the Emerald Financing, the warrants have been valued using a Black Scholes Merton Option Pricing Model.

To compute the fair value of the warrants, the Company utilized the following assumptions in the Black Scholes Merton Option Pricing Model for the periods indicated:

	As of December 31, 2019
Dividend yield		0.00	%
Volatility factor		79.2	%
Risk-free interest rate		1.60	%
Expected term (years)		0.64
Underlying common stock price	$	0.13

During the nine months ended September 30, 2020, 312,500 Series B Common Stock Warrants with an intrinsic value of $26,563 were exercised for no consideration per share, which resulted in the issuance of 312,500 shares of common stock. Prior to exercise, these Series B Common Stock Warrants were adjusted to fair value using a Black Scholes Merton Option Pricing Model which considered the closing trading price on the exercise dates. Because the exercise price of these options had been reset to $0.00, the fair value derived from the valuation model approximated the market value of the Company’s common stock on the exercise dates.

As of September 30, 2020, the remaining Series B Common Stock Warrants expired unexercised.

4. Debt

Multi-Draw Credit Agreement- Related Party

The Company’s Debt with Emerald Health Sciences consists of the following:

	Conversion Price		As of September 30, 2020			As of December 31, 2019
Total principal value of convertible debt—related party	$	0.40	$	2,014,500		$	2,014,500
Unamortized debt discount				(1,220,838	)		(1,622,344	)
Unamortized debt issuance costs				(3,968	)		(5,086	)
Carrying value of total convertible debt - related party				789,694			387,070
Total principal value of non-convertible debt—related party		n/a		450,000			-
Total carrying value of advances under the multi-draw credit agreement			$	1,239,694		$	387,070

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On October 5, 2018, the Company entered into the Credit Agreement with Emerald Health Sciences, a related party (See Note 8). On April 29, 2020, the Company entered into the Amended Credit Agreement with Emerald Health Sciences, which amends and restates the Credit Agreement. For all pre-existing and new advances, the Amended Credit Agreement removed the change in control as an event of default (See Note 3) and defers the quarterly payment of interest until the Company completes a capital raise of at least $5,000,000. As of September 30, 2020, interest is no longer being deferred as a result of the August 2020 Financing. The amendments to the pre-existing advances were accounted for as a modification. For all advances made after the Credit Agreement was amended, advances will be convertible at a reduced conversion price of $0.25 per share of Common Stock, unless Emerald Health Sciences provides notice that the advance will not be convertible.

For all outstanding advances, the Amended Credit Agreement provides for a credit facility to the Company of up to $20,000,000 and is unsecured. Advances under the Amended Credit Agreement bear interest at an annual rate of 7% and mature on October 5, 2022. At Emerald Health Sciences’ election, convertible advances and unpaid interest may be converted into common stock at the fixed conversion price of the underlying advance, subject to customary adjustments for stock splits, stock dividends, recapitalizations, etc. As of September 30, 2020, the unused portion of the credit facility is $13,550,000. The drawdowns are subject to approval by the Company’s Board, which is controlled by the directors of Emerald Health Sciences. As such, the Company does not consider the facility available until advance requests are approved, drawn down and funded. The Amended Credit Agreement is still in place; however, there is no guarantee of continued funding.

The Amended Credit Agreement provides for customary events of default which may result in the acceleration of the maturity of the advances in addition to, but not limited to, cross acceleration to certain other indebtedness of the Company. In the case of an event of default arising from specified events of bankruptcy or insolvency or reorganization, all outstanding advances will become due and payable immediately without further action or notice. If any other event of default under the Amended Credit Agreement occurs or is continuing, Emerald Health Sciences may, by written notice, terminate its commitment to make any advances and/or declare all the advances with any other amounts payable due immediately. If any amount under the Amended Credit Agreement is not paid when due, such overdue amount shall bear interest at an annual default interest rate of the applicable rate plus 10%, until such amount is paid in full.

In connection with each advance under the Amended Credit Agreement, the Company has agreed to issue to Emerald Health Sciences warrants to purchase shares of common stock in an amount equal to 50% of the number of shares of common stock that each advance may be converted into. The warrants have a term of five years that are immediately exercisable upon issuance. Under the Amended Credit Agreement, Emerald Health Sciences may issue notice that no warrants will be granted at the time of the advance request. The warrants issued under the Credit Agreement have an exercise price of $0.50 per share and any warrants issued under the Amended Credit Agreement will have a reduced exercise price of $0.35 per share. The exercise prices are subject to adjustment in the event of certain stock dividends and distributions, stock splits, stock combinations, reclassifications or similar events or upon any distributions of assets, including cash, stock or other property to the Company’s stockholders (See Note 3).

In accounting for each advance and the warrants issued under the Amended Credit Agreement, the Company allocates the proceeds between the debt host and the freestanding warrants on a relative fair value basis for each advance. On the date of each advance, if the effective conversion rate of the debt is less than the market value of the Company’s common stock, the Company records a beneficial conversion feature as a discount to the debt and an increase to additional paid-in capital. The debt discounts related to the warrants, beneficial conversion features and compound derivatives, if any, are being amortized over the term of the Amended Credit Agreement using the effective interest rate method. Amortization of the debt discount is recognized as non-cash interest expense and the compound derivatives related to the contingent interest feature and acceleration upon default provision are remeasured at fair value in subsequent periods in the Company’s Condensed Consolidated Balance Sheets.

19

On November 1, 2018, an initial advance was made for $2,000,000 and the Company issued 2,500,000 warrants with an exercise price of $0.50 per share (See Note 3). In accounting for the convertible advance and warrants under the Credit Agreement, $1,684,920 of the proceeds was allocated to the debt and $315,080 was allocated to equity classified warrants. A beneficial conversion feature of $90,080 and a compound derivative liability of $204,102 were also recorded.

During the nine months ended September 30, 2019, the Company initiated two advances, each in the amount of $2,000,000, for an aggregate principal amount of $4,000,000, and the Company issued an aggregate of 5,000,000 warrants with an exercise price of $0.50 per share (See Note 3). In accounting for the convertible advances and warrants, an aggregate amount of $3,283,890 was allocated to the debt and $716,110 was allocated to equity classified warrants. A beneficial conversion feature of $1,584,850 and compound derivative liabilities of an aggregate of $516,058 were recorded (See Note 3). Of the $516,058 in compound derivatives, $322,644 was recorded as other expense in the Condensed Consolidated Statements of Comprehensive Loss for the nine months ended September 30, 2019, as the value of the beneficial conversion feature exceeded the proceeds allocated to the third draw.

During the year ended December 31, 2019, the Company used $3,985,500 in proceeds from the exercise of the 2018 Emerald Financing Warrants to prepay a portion of the outstanding principal balance. In connection with the prepayment, the Company recorded an extinguishment loss of $725,425 in the fourth quarter of 2019. The extinguishment loss was calculated as the difference between the fair value of the consideration paid to extinguish the debt and carrying value of the debt host plus the related compound derivative liability.

During the nine months ended September 30, 2020, the Company effected a fourth and fifth advances in the amounts of $150,000 and $300,000, respectively. The Lender has elected that the fourth and fifth advances will not be convertible into shares of Common Stock and gave notice to the Company that no warrants will be issued in connection with the advances.

Aggregate financing costs of $63,007 have been incurred and are recorded as a discount to the debt host and are being amortized using the effective interest rate method and recognized as non-cash interest expense over the term of the Amended Credit Agreement. As of September 30, 2020, the unamortized debt discount on the convertible advances will be amortized over a remaining period of approximately 2.01 years. As of September 30, 2020, the fair value of the shares underlying the convertible advances under the Amended Credit agreement was $211,523. As of September 30, 2020, the if-converted value did not exceed the principal balance.

PPP Loan

On April 24, 2020, the Company received funding from the PPP Loan Lender pursuant to the PPP of the CARES Act administered by the SBA for a principal amount of $116,700. The PPP Loan matures on April 24, 2022 and bears interest at a rate of 1.00% per year. Interest and principal are payable monthly commencing seven months from the date of funding. The PPP Loan may be prepaid at any time prior to maturity with no prepayment penalties. Funds from the PPP Loan may only be used by the Company for payroll costs, costs for continuing group healthcare benefits, mortgage interest payments, rent, utility and interest on any other debt obligations that were incurred before February 15, 2020.

All or a portion of the principal from the PPP Loan may be forgiven by the SBA and the PPP Loan Lender upon application by the Company within 60 days but not later than 120 days after loan approval and upon documentation of expenditures in accordance with the SBA requirements. Under the CARES Act, loan forgiveness is available for the sum of documented payroll costs, covered rent payments, and covered utilities during an eight-week period, or a longer period if elected by the Company, commencing on the date of loan approval. For purposes of the CARES Act, payroll costs exclude compensation of an individual employee in excess of $100,000, prorated annually. Not more than 25% of the forgiveness amount may be for non-payroll costs. Forgiveness is reduced if full-time headcount declines, or if salaries and wages of employees with salaries of $100,000 or less annually are reduced by more than 25%. After approval of the forgiveness amount and seven-month deferral period, the PPP Loan Lender will provide the Company with written notification of re-amortization of the PPP Loan and the remaining balance.

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Interest Expense

The Company’s interest expense consists of the following:

	Three Months Ended September 30,				Nine Months Ended September 30,
	2020		2019		2020		2019
Related party interest expense – stated rate	$	44,087	$	107,334	$	117,459	$	272,611
PPP loan interest expense – stated rate		294		-		511		-
Non-cash interest expense:
Amortization of debt discount		137,849		190,886		401,507		429,355
Amortization of transaction costs		384		3,327		1,117		9,609
	$	182,614	$	301,547	$	520,594	$	711,575

5. Stockholders’ Equity (Deficit) and Capitalization

Common Stock

August 2020 Financing

On July 31, 2020, the Company entered into a Securities Purchase Agreement with certain institutional investors for the issuance and sale of securities, with H.C. Wainwright & Co., LLC acting as the placement agent, pursuant to which the Company sold 56,333,334 common units, each consisting of one share of common stock and one warrant to purchase one share of common stock, and 60,333,334 pre-funded units, each consisting of one pre-funded warrant to purchase one share of common stock and one warrant to purchase one share of common stock, in a registered public offering which closed on August 4, 2020 (the “August 2020 Financing”). The common units and pre-funded units were sold at a price per unit of $0.06 and $0.059, respectively, for gross aggregate proceeds of $6,939,667. The common stock warrants and prefunded warrants have an exercise price of $0.06 and $0.001, respectively. The common stock warrants have a term of five years, and the pre-funded warrants are exercisable until all the pre-funded warrants have been exercised in full (Note 3).

In connection with the August 2020 Financing, the Company incurred issuance costs of $854,078, for net proceeds of $6,085,589. Additionally, the Company issued warrants to purchase 8,166,667 shares of common stock to the placement agent, which represent 7% of the total shares of common stock and pre-funded warrants sold in the offering. The placement agent warrants have an exercise price of $0.075 per share and a term of five years.

6. Stock-Based Compensation

Stock Incentive Plan

On October 31, 2014, after the closing of the Merger, the Board approved the Company’s 2014 Omnibus Incentive Plan (the “2014 Plan”). The 2014 Plan initially reserved 3,200,000 shares for future grants. In October 2018, the Company increased the share reserve under the 2014 Plan to equal 10% of the number of issued and outstanding shares of common stock of the Company. In August 2020, the Company approved Amendment No. 2 to the 2014 Plan, which increased the share reserve by an additional 7,876,835 shares over the 10% of the number of issued and outstanding shares of common stock, and removed certain restrictions on the number of shares of common stock and the amount of cash-based awards up to which participants of the 2014 Plan can receive in a calendar year. The 2014 Plan authorizes the issuance of awards including stock options, stock appreciation rights, restricted stock, stock units and performance units to employees, directors, and consultants of the Company. As of September 30, 2020, the Company had 6,040,097 shares available for future grant under the 2014 Plan.

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Stock Options

The following is a summary of option activities under the Company’s 2014 Plan for the nine months ended September 30, 2020:

	Number of Shares			Weighted Average Exercise Price		Weighted Average Remaining Contractual Term (Years)
Outstanding, December 31, 2019		3,317,642		$	0.33		8.34
Granted		24,200,000			0.05
Cancelled		(1,861,964	)		0.08
Forfeited		(655,000	)		0.42
Outstanding, September 30, 2020		25,000,678		$	0.07		9.73
Exercisable, September 30, 2020		4,410,668		$	0.07		9.73

During the nine months ended September 30, 2020, no stock options were exercised. The weighted-average fair value of stock options granted during the nine months ended September 30, 2020 was $0.04.

The fair value of each stock option grant was estimated on the date of grant using the Black-Scholes option pricing model under the following assumptions:

	Nine Months Ended September 30, 2020
Dividend yield		0.00	%
Risk-free interest rate		0.28-0.38	%
Expected term (years)	5.56-6.01
Volatility	92.55-93.84		%

Restricted Stock Awards

During the nine months ended September 30, 2020, 643,501 restricted stock awards (“RSAs”) with a weighted average grant date fair value of $0.26 vested and were released from their service condition restriction. At September 30, 2020, there are no unvested RSA awards outstanding under the 2014 Plan.

Awards Granted Outside the 2014 Plan

Options

During the nine months ended September 30, 2020, 325,929 stock options with a weighted average exercise price of $0.25 were forfeited in connection with the separation and release of the Company’s former CFO. As of September 30, 2020, an additional 869,144 options vested and outstanding with a weighted average exercise price of $0.25 were cancelled unexercised.

Restricted Stock Awards

The following is a summary of RSA activity outside of the Company’s 2014 Plan during the nine months ended September 30, 2020:

	Number of Shares			Weighted Average Grant Date Fair Value
Unvested, December 31, 2019		450,000		$	0.19
Granted		-			-
Released		(450,000	)		0.19
Unvested, September 30, 2020		-		$	-

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Stock-Based Compensation Expense

The Company recognizes compensation expense using the straight-line method over the requisite service period. Stock-based compensation is included in the Condensed Consolidated Statements of Comprehensive Loss in general and administrative or research and development, depending upon the nature of services provided. Stock-based compensation expense (including compensation expense for RSAs discussed above) was as follows:

	Three Months Ended September 30,				Nine Months Ended September 30,
	2020		2019		2020		2019
Research and development	$	44,010	$	-	$	82,463	$	-
General and administrative		104,355		170,106		158,753		514,683
	$	148,365	$	170,106	$	241,216	$	514,683

The total amount of unrecognized compensation cost was $879,628 as of September 30, 2020. This amount will be recognized over a weighted average period of 3.59 years.

7. Significant Contracts - University of Mississippi

UM 5050 Prodrug and UM 8930 Analog Agreements

In July 2018, the Company renewed its ocular licenses for UM 5050, related to the prodrug formulation of tetrahydrocannabinol (“THC”), and UM 8930, related to an analog formulation of cannabidiol (“CBD”). On May 24, 2019, the ocular delivery licenses were replaced by “all fields of use” licenses for both UM 5050 and UM 8930 (collectively, the “License Agreements”). Pursuant to the License Agreements, UM granted the Company an exclusive, perpetual license, including, with the prior written consent of UM, the right to sublicense, to intellectual property related to UM 5050 and UM 8930 for all fields of use.

The License Agreements contain certain milestone payments, royalty and sublicensing fees payable by the Company, as defined therein. Each License Agreement provides for an annual maintenance fee of $75,000 payable on the anniversary of the effective date. The upfront payment for UM 5050 is $100,000 and the upfront payment for UM 8930 is $200,000. In addition, in March 2020, the Company was notified by the United States Patent and Trademark Office, that a notice of allowance was issued for the proprietary analog of cannabidiol, CBDVHS, under the UM 8930 License Agreement. As a result, the Company was required to pay UM a fee of $200,000. The milestone payments payable for each license are as follows:

i)	$100,000 paid within 30 days following the submission of the first Investigational New Drug Application (“NDA”) to the Food and Drug Administration or an equivalent application to a regulatory agency anywhere in the world, for a product;
ii)	$200,000 paid within 30 days following the first submission of an NDA, or an equivalent application to a regulatory agency anywhere in the world, for each product that is administered in a different route of administration from that of the early submitted product(s); and
iii)	$400,000 paid within 30 days following the approval of an NDA, or an equivalent application to a regulatory agency anywhere in the world, for each product that is administered in a different route of administration from that of the early approved product(s).

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The royalty percentage due on net sales under each License Agreement is in the mid-single digits. The Company must also pay to UM a portion of all licensing fees received from any sublicensees, subject to a minimum royalty on net sales, and the Company is required to reimburse patent costs incurred by UM related to the licensed products. The royalty obligations apply by country and by licensed product, and end upon the later of the date that no valid claim of a licensed patent covers a licensed product in a given country, or ten years after the first commercial sale of such licensed product in such country.

Each License Agreement continues, unless terminated, until the later of the expiration of the last to expire of the patents or patent applications within the licensed technology or the expiration of the Company’s payment obligations under such License Agreement. UM may terminate each License Agreement, by giving written notice of termination, upon the Company’s material breach of such License Agreement, including failure to make payments or satisfy covenants, representations or warranties without cure, noncompliance, a bankruptcy event, the Company’s dissolution or cessation of operations, the Company’s failure to make reasonable efforts to commercialize at least one product or failure to keep at least one product on the market after the first commercial sale for a continuous period of one year, other than for reasons outside the Company’s control, or the Company’s failure to meet certain pre-established development milestones. The Company may terminate each License Agreement upon 60 days’ written notice to UM.

As of September 30, 2020, with the exception of the fee due for the notice of allowance for CBDVHS, none of the other milestones under these license agreements have been met.

UM 5070 License Agreement

In January 2017, the Company entered into a license agreement with UM pursuant to which UM granted us an exclusive, perpetual license, including the right to sublicense, to intellectual property related to a platform of cannabinoid-based molecules (“UM 5070”), to research, develop and commercialize products for the treatment of infectious diseases.

The Company paid UM an upfront license fee under the license agreement. Under the license agreement, the Company is also responsible for annual maintenance fees that will be credited against royalties in the current fiscal year, contingent milestone payments upon achievement of development and regulatory milestones, and royalties on net sales of licensed products sold for commercial use. The aggregate milestone payments due under the license agreement if all the milestones are achieved is $700,000 and the royalty percentage due on net sales is in the mid-single digits. The Company must also pay to UM a percentage of all licensing fees we receive from any sublicensees, subject to a minimum royalty on net sales by such sublicensees. The Company’s royalty obligations apply on a country by country and licensed product by licensed product basis, and end upon the later of the date that no valid claim of a licensed patent covers a licensed product in a given country, or ten years after first commercial sale of such licensed product in such country.

The license agreement continues, unless terminated, until the later of the expiration of the last to expire of the patents or patent applications within the licensed technology or expiration of the Company’s payment obligations under the license. UM may terminate the license agreement, effective with the giving of notice, if: (a) the Company fails to pay any material amount payable to UM under the license agreement and do not cure such failure within 60 days after UM notifies us of such failure, (b) the Company materially breaches any covenant, representation or warranty in the license agreement and do not cure such breach within 60 days after UM notifies the Company of such breach, (c) the Company fails to comply in any material respect with the terms of the license and do not cure such noncompliance within 60 days after UM notifies us of such failure, (d) the Company is subject to a bankruptcy event, (e) the Company dissolves or ceases operations or (f) if after the first commercial sale of a product during the term of the license agreement, the Company materially fails to make reasonable efforts to commercialize at least one product or fail to keep at least one product on the market after the first commercial sale for a continuous period of one year, other than for reasons outside of the Company’s control. The Company may terminate the license agreement upon 60 days’ written notice to UM.

As of September 30, 2020, none of the milestones under this license agreement have been met.

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8. Related Party Matters

Emerald Health Sciences

On February 1, 2018, the Company entered into an Independent Contractor Agreement with Emerald Health Sciences, pursuant to which Emerald Health Sciences agreed to provide such services as are mutually agreed between the Company and Emerald Health Sciences, including reimbursement for reasonable expenses incurred in the performance of the Independent Contractor Agreement. These services included, but were not limited to, corporate advisory services and technical expertise in the areas of business development, marketing, investor relations, information technology and product development. The Independent Contractor Agreement had an initial term of 10 years and specified compensation which was agreed upon between the Company’s Chief Executive Officer and Emerald Health Sciences’ Chairman, CEO and President on a month-to-month basis. The fee due under this agreement was payable on a monthly basis. Effective December 31, 2019, the Independent Contractor Agreement was terminated. As of September 30, 2020, the Company maintains an accrual of $7,032 in expenses under the Independent Contractor Agreement which have yet to be paid. Under this agreement, no expenses were incurred for the three and nine months ended September 30, 2020. Under this agreement, for the three and nine months ended September 30, 2019, the Company incurred expenses of $150,000 and $450,000, respectively.

On December 17, 2019, Dr. Avtar Dhillon resigned as the Chairman of the Board and the position of Chairman of the Finance and Business Development Committee of the Board. Concurrently, the Company entered into a Board Observer Agreement with Emerald Health Sciences to allow Dr. Dhillon to continue as a representative of Emerald Health Sciences as a non-voting observer in future meetings of the Board.

On December 19, 2019, the Company entered into an Independent Contractor Services Agreement with Dr. Avtar Dhillon, pursuant to which Dr. Dhillon will provide ongoing corporate finance and strategic business advisory services to the Company. In exchange for his services, Dr. Dhillon will receive a monthly fee of $10,000, with (i) $5,000 paid each month and (ii) $5,000 accruing from the effective date and payable upon the Company’s completion of a material financing. The Board will review the monthly rate paid to Dr. Dhillon within 90 days of the end of each fiscal year. The Independent Contractor Services Agreement has an initial term of one year and will renew automatically thereafter unless terminated earlier by either party. The Independent Contractor Services Agreement may be terminated by either party for cause upon written notice to the other party if the other party defaults in the performance of the agreement in any material respect or materially breaches the terms of the agreement, or without cause upon 30 days’ prior written notice to the other party. On March 30, 2020, the Company and Dr. Dhillon amended the Independent Contractor Services Agreement by agreeing to accrue 100% of Dr. Dhillon’s consulting fees until the Board of Directors determines that the Company has been sufficiently financed to make such payments at which point the Company agrees to pay Dr. Dhillon all of his accrued consulting fees, and a bonus of 10% of his accrued consulting fees, less applicable tax and other withholdings. The deferral was paid concurrent with the August 2020 Financing. Under this agreement, for the three and nine months ended September 30, 2020, the Company incurred fees of $31,000 and $97,387, respectively. As of September 30, 2020, the Company has accrued $10,000 in expense related to the Independent Contractor Services Agreement.

In addition, on August 10, 2020, Emerald Health Sciences, Inc. transferred Dr. Avatar Dhillon 500,000 shares of the Company’s common stock at a deemed price of $0.10 in exchange for the cancellation of $50,000 of debt.

As of September 30, 2020, Jim Heppell and Punit Dhillon are board members of the Company and Emerald Health Pharmaceuticals, a subsidiary of Emerald Health Sciences, Inc. As of September 30, 2020, Jim Heppell is also a board member of Emerald Health Sciences, Inc. The Company’s CEO, Punit Dhillon also served as a board member of Emerald Health Sciences, Inc. until he tendered his resignation from such board on August 10, 2020. Additionally, the Company shares the same office location as Emerald Health Pharmaceuticals.

On August 10, 2020, Emerald Health Sciences, Inc. extinguished debt of $186,667 by transferring 1,566,666 shares of the Company’s common stock at a deemed price of $0.10 per share to certain officers, employees and directors of the Company.

9. Subsequent Events

Stock Incentive Plan

On October 5, 2020, the Company granted 2,000,000 stock options under the 2014 Plan to an employee. The stock options have an exercise price of $0.05 per share and a fair market value of $0.04 per share on the date of grant. The stock options vest 10% on the grant date with the remaining 90% vesting semi-annually over a four-year period.

In connection with the departure of the Company’s Chief Medical Officer, 3,968,271 stock options have been forfeited on November 6, 2020.

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Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations.

The following discussion and analysis of our financial condition and results of operations should be read in conjunction with our financial statements for the three and nine months ended September 30, 2020 and 2019 (unaudited) and the year ended December 31, 2019 together with the notes thereto. In addition to historical information, this discussion and analysis contains forward-looking statements that involve risks, uncertainties and assumptions. Our actual results may differ materially from those anticipated in these forward-looking statements as a result of certain factors, including, but not limited, to those set forth under “Risk Factors” and elsewhere in this Quarterly Report on Form 10-Q.

Unless otherwise provided in this Quarterly Report, references to “we,” “us,” “our,” “the Company,” and “Emerald Bioscience” in this discussion and analysis refer to Emerald Bioscience, Inc., a Nevada corporation formerly known as Nemus Bioscience, Inc. and Load Guard Logistics, Inc., together with its wholly-owned subsidiaries, Nemus, a California corporation, and EMBI Australia Pty Ltd., an Australian proprietary limited company.

Overview

We are a biopharmaceutical company targeting the discovery, development, and commercialization of cannabinoid-derived therapeutics, through a number of license agreements with the University of Mississippi (“UM”). UM holds the only contract to cultivate cannabis for research purposes on behalf of the Federal Government of the United States and has held that federal license since 1968, and it has significant expertise in cannabis cultivation and the extraction, separation, processing and manufacture of cannabis extracts as well as the chemistry and physiology of cannabinoid molecules. We strive to serve as UM’s partner for the development and commercialization of cannabinoid- derived therapeutics, and the realization of this partnership will depend on the successful development of these compounds through the regulatory requirements of drug approval agencies, like the Food and Drug Administration (the “FDA”) in the United States and the European Medicines Agency in the European Union.

Effective March 25, 2019, we changed our name from Nemus Bioscience, Inc. to Emerald Bioscience, Inc.

In August 2019, we formed a new subsidiary in Australia, EMBI Australia Pty Ltd, in order to qualify for the Australian government’s research and development tax credit for research and development dollars spent in Australia. The primary purpose of EMBI Australia is to conduct clinical trials for our product candidates.

Recent Events and Significant Contracts.

Expansion of UM 5050 and UM 8930 Licenses from Ocular Delivery Only to All Fields of Use

On May 24, 2019, we executed two restated and amended license agreements with UM which expanded our use of UM 5050, a prodrug of tetrahydrocannabinol (“THC”), and UM 8930, an analog of cannabidiol (“CBD”), expanded our scope of field of use from ocular delivery only to all fields of use. Pursuant to these license agreements, we have exclusive, perpetual, worldwide licenses related to UM 5050 and UM 8930. Additionally, with the prior written consent of UM, we have the right to sublicense the licensed intellectual property.

The exclusive license for tetrahydrocannabinol-valine-hemisuccinate (“THCVHS”), the proprietary prodrug of THC, is expected to allow us to explore related uses for the active moiety of the prodrug, namely THC. Independent in vitro and in vivo studies have demonstrated the potential use of THC in a variety of potential indications based on the ability of the cannabinoid to act as an anti-inflammatory, anti-fibrotic, and/or inhibitor of neovascularization. The Company has generated data related to these effects using an ex vivo human tissue model of the eye. The prodrug technology employed in THCVHS is designed to enhance the pharmacokinetic and pharmacodynamics of the active part of the molecule, once introduced into the body through various routes of administration being considered by the development team.

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The exclusive license of cannabidiol-valine-hemisuccinate (“CBDVHS”), the analog of CBD, is expected to permit us to expand research and development into organ systems outside of the current ocular space. Potential disease targets over time could involve the central nervous system, the gastrointestinal tract, the endocrine/metabolic system, reproductive system diseases, or as yet unrecognized opportunities. This bioengineered version of CBD is expected to enlarge the disease target pool by virtue of new routes of administration into the body, thereby enhancing bioavailability. The determination by the DEA that CBDVHS is not a controlled substance permits us to enlarge the potential pool of clinical test sites and a more diverse patient pool in the study of disease. We expect to develop strategic collaborations to identify and advance these applications.

THCVHS

THCVHS, our lead ocular compound, is a prodrug of THC. We have delayed our first-in-human studies of THCVHS, from the second half of 2020, to the third quarter of 2021. The first-in-human studies are expected to be conducted in both normal subjects and patients with glaucoma or ocular hypertension in Australia (the “Clinical Trial”). We are eligible under the AusIndustry research and development tax incentive program to obtain a cash amount from the Australian Taxation Office. The tax incentive is available to us based on specific criteria with which we must comply. The manufacturing of the active pharmaceutical ingredient of THCVHS is conducted in the United States. Formulation of the eye drop for testing is also performed in the United States but can rely on regulatory-accepted excipients that can be sourced from countries outside the United States, such as China. In connection with the recent pandemic of COVID-19 there could possibly be an impact on sourcing materials that are part of the eye drop formulation, as well as impacting volunteer and/or patient recruitment in Australia for clinical studies.

During 2019 and the nine months ended September 30, 2020, we achieved various milestones related to the research and development of THCVHS, including the following:

• UM completed experiments showing that THCVHS was statistically superior in lowering intraocular pressure (“IOP”) in normotensive rabbits compared to the prostaglandin-based therapy, latanoprost, the current standard-of-care for treating glaucoma. Significance was reached across multiple timepoints during a seven-day course of dosing using a validated rabbit normotensive ocular model and THCVHS exerted pharmacologic activity consistent with once or twice-daily dosing.

• Glauconix Biosciences Inc. (“Glauconix”) completed their pilot study to research the mechanism of action and IOP-lowering ability of THC when administered into an ex vivo model of a 3D-human trabecular meshwork using both healthy and glaucomatous-derived tissues. The Glauconix study is supportive of the mechanism of action of THCVHS in lowering IOP, a defining disease process of hypertensive glaucoma. Additionally, biomarkers associated with inflammation and fibrosis in both normal tissue and tissues affected by glaucoma were significantly decreased, pointing to anti-inflammatory and anti-fibrotic activities that are often associated with the cannabinoid class of molecules in other disease-states. The data also revealed that biomarkers associated with neovascularization, a disease process of new blood vessel formation that can damage the retina in a variety of ocular diseases, were also inhibited by THC, prompting further study for the utility of this drug in diseases of the retina. These data were consistent with the in vivo rabbit IOP response data that was conducted in parallel to the Glauconix study, as were internal Glauconix validation testing using cannabinoid receptor stimulator molecules that acted as proxy receptor agonists for THC, the active moiety of THCVHS.

• In August 2019, EMBI Australia Pty Ltd entered into a start-up agreement with Novotech (Australia) Pty Limited (“Novotech”). The start-up agreement is being entered into in connection with the launch of the Clinical Trial. We expect to pay approximately $45,000 in professional fees and pass through costs in connection with the services provided for in the start-up agreement. Additionally, on September 26, 2019, EMBI Australia Pty Ltd and Novotech executed a Master Services Agreement and anticipate entering into project agreements covering all anticipated services to be provided by Novotech in connection with the Clinical Trial.

• In August 2019, EMBI Australia entered into a master service agreement and initial statement of work with Agilex Biolabs Pty Ltd (“Agilex”), pursuant to which Agilex would assist with the assay set up for the anticipated Clinical Trial.

• In August 2019, we executed an agreement with Bioscience Laboratories, Inc. to complete Draize testing in advance of the anticipated Clinical Trial.

• AMRI worked toward closing the synthesis validation pathway to manufacture cGMP API of THCVHS with validation of drug product purity. On April 30, 2019, we entered into an additional agreement with AMRI related to non-GMP synthesis of a demonstration batch of our prodrug, THCVHS. In August 2019, our manufacturing agreement with AMRI for THCVHS that was executed in July 2018 was replaced by the agreement with Noramco, discussed below.

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· On August 7, 2019, we entered into a first amendment to our agreement with Noramco to manufacture THCVHS (the “Noramco Agreement,” as amended from time to time). CBDVHS was being manufactured pursuant to the Noramco Agreement prior to the amendment. We paid $257,800 upfront to add the manufacture of THCVHS to the Noramco Agreement, and additional payments will be made upon Noramco’s shipping of the GMP active pharmaceutical ingredient to us. All other material terms of the Noramco Agreement remain the same.

· In January 2019, we engaged RRD International, LLC (“RRD”) to provide strategic ophthalmic 505(b)(2) regulatory planning, prepare a Pre- IND meeting briefing book, and schedule and represent us at the Pre-IND meeting with the FDA. In May 2019, we executed a change order to extend our work with RRD as we continue to progress toward our Pre-IND meeting. In August 2019, we executed an additional work order with RRD to assist us in preparing an investigator’s brochure to support the Clinical Trial.

· In January 2019, we executed an agreement with Pharmaceuticals International, Inc. (“PII”) to conduct studies to determine options for producing a sterile dosage form which can be dosed in humans in a clinical study. PII will conduct appropriate formulation studies to determine storage and processing options. Pursuant to the terms of the agreement, we paid $72,500 to initiate the project. After the initial evaluation, we have agreed to pay additional fees and expenses upon the completion of certain milestones.

CBDVHS

CBDVHS is our proprietary CBD analog. We have embarked on studies with UM exploring the utility of our drug candidate CBDVHS as a topical formulation for the potential treatment and management of several ocular diseases, including but not limited to, uveitis, dry eye syndrome, macular degeneration and diabetic retinopathy.

In July 2019, we engaged Glauconix to conduct research as to whether CBD or CBDVHS is associated with an increase in IOP and, if so, what the potential mechanism of action would be by exposing the 3D-human trabecular meshwork tissue constructs to these molecules. In December 2019, we announced that data generated by Glauconix Biosciences, Inc. showed significant anti-inflammatory and anti-fibrotic activity in ocular tissue with CBDVHS when compared to CBD, indicating therapeutic potential as a neuroprotectant, especially in diseases of the retina. Additionally, CBD was associated with biomarkers related to the elevation of IOP while CBDVHS was not associated with elevating IOP at anti-fibrotic concentrations.

In the second quarter of 2019, UM also completed pre-clinical experiments showing that CBDVHS exhibited an ability to penetrate multiple chambers of the eye and reach the optic nerve. These findings support the therapeutic potential to provide ocular neuroprotection of retinal ganglion cells, an important goal in treating diseases that lead to vision loss. The data were published in the peer-reviewed Journal of Ocular Pharmacology and Therapeutics in a paper entitled, “Analog Derivatization of Cannabidiol for Improved Ocular Permeation” (2019; volume 35 (5): 1-10).

In February 2019, we entered into the Noramco Agreement to provide manufacturing and product development services for our analog formulation of CBD. We paid $146,386 upfront and additional payments will be made upon Noramco’s shipment of the active pharmaceutical ingredient.

We plan to continue to work with UM to explore other potential indications and associated routes of administration based on the expanded UM5050 and UM 8930 exclusive licenses. Our decision to advance a potential therapeutic candidate will be influenced by several criteria, including but not limited to, pre-clinical data, synthesis and formulation capability as well as prevailing market conditions.

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In July 2019, we engaged StemoniX to evaluate CBD and CBDVHS in a human in vitro neural model that has application for epilepsy. The series of experiments are designed to provide insight into how these cannabinoids stabilize neuronal cells. In November and December 2019, we also executed additional pre-clinical research agreements with StemoniX related to CBDVHS.

In December 2019, we announced data generated by StemoniX, that CBDVHS was both pharmacologically and therapeutically distinct from CBD when studied in an in vitro human neural tissue model mimicking chemically induced seizure-like hyperactivity. Additionally, CBDVHS was observed to gain potency in anti-seizure-like activity over the seven-day observation period, whereas the suppressive effect afforded by CBD dissipated by day three. In the assessment of safety parameters of CBDVHS, the molecule was not found to be toxic to the neurologic cells tested in multiple assays, both in acute and longer-term exposure.

Critical Accounting Policies and Estimates

Our Management’s Discussion and Analysis of Financial Condition and Results of Operations section discusses our financial statements, which have been prepared in accordance with accounting principles generally accepted in the United States of America. The preparation of these financial statements requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities at the date of the financial statements and the reported amounts of income and expenses during the reporting period. On an on-going basis, management evaluates its estimates and judgments, including those related to accrued expenses, financing operations, and contingencies and litigation. Management bases its estimates and judgments on historical experience and on various other factors that are believed to be reasonable under the circumstances, the results of which form the basis for making judgments about the carrying value of assets and liabilities that are not readily apparent from other sources. Actual results may differ from these estimates under different assumptions or conditions. The most significant accounting estimates inherent in the preparation of our financial statements include estimates as to the appropriate carrying value of certain assets and liabilities which are not readily apparent from other sources. We consider certain accounting policies related to fair value measurements, convertible instruments, warrants issued in connection with financings, stock-based compensation expense, and earnings per share to be critical accounting policies that require the use of significant judgments and estimates relating to matters that are inherently uncertain and may result in materially different results under different assumptions and conditions.

Management assessed the critical accounting policies as disclosed in our Annual Report on Form 10-K for the year ended December 31, 2019 and determined that there were no changes to our critical accounting policies and estimates during the three and nine months ended September 30, 2020.

Recently Issued and Adopted Accounting Pronouncements

See Note 2 to the accompanying condensed consolidated financial statements included in Part I, Item 1 of this Quarterly Report on Form 10-Q for information on recently issued accounting pronouncements and recently adopted accounting pronouncements. While we expect certain recently adopted accounting pronouncements to impact our estimates in future periods, the impact upon adoption was not significant to our current estimates and operations.

Results of Operations

For the three months ended September 30, 2020 and 2019

Revenues. To date, we have not generated any revenues, and do not expect to generate any revenue from the sale of products in the near future.

29

Operating expenses. For the three months ended September 30, 2020, our total operating expenses were $1,538,220 as compared to $1,503,114 for the three months ended September 30, 2019. The increase in operating expenses was due to the items noted below:

Research and development. Research and development expenses for the three months ended September 30, 2020 were $346,217, which consisted of expenses including salaries and benefits and consulting fees for the staff involved in our preclinical and clinical drug development activities, the annual license maintenance fee paid to UM, and fees related to contract manufacturing paid to Noramco. Research and development expenses for the three months ended September 30, 2019 were $513,004, which consisted of expenses including salaries and benefits and consulting fees for the staff involved in our preclinical and clinical drug development activities, contract research and development fees paid to Glauconix, StemoniX and Bioscience Laboratories, regulatory consulting fees paid to RRD, fees related to contract manufacturing paid to Noramco, fees related to contract formulation work paid to PII and fees paid to Novotech and Agilex in preparation of the Clinical Trial. The decrease in research and development expense of $166,787 was primarily due to a decrease contract manufacturing activity, regulatory consulting fees and license fees during the three months ended September 30, 2020.

General and administrative. General and administrative expenses for the three months ended September 30, 2020 were $1,192,003, which primarily consisted of salaries, general legal, insurance, consulting fees and professional fees related to the Company’s capital raising efforts and regulatory filings. By comparison, general and administrative expenses for the three months ended September 30, 2019 were $990,110, which primarily consisted of salaries, stock compensation expense, general legal and patent related fees, consulting fees and professional fees related to the Company’s capital raising efforts and regulatory filings. General and administrative expenses increased period over period primarily due to increases in severance from the separation of our former CEO, insurance, and audit fees which were offset by a decrease in salaries and stock-based compensation expense.

Other expense (income). For the three months ended September 30, 2020, we had other income of $241,524 related primarily to interest expense of $182,614 and a decrease in the fair value of our derivative liabilities of $424,138.

For the three months ended September 30, 2019, the Company had other expense of $3,428,011 related primarily to the increase in fair value of our derivative liabilities by $3,126,464 which was driven by an increase in our stock price. This amount was offset by interest expense of $301,547.

The decrease in interest expense period over period was related to a lower principal balance on the Credit Agreement from the paydown of the facility in December 2019.

Net loss and comprehensive loss. For the three months ended September 30, 2020, we had a net loss of $1,296,696 as compared to a net loss of $4,931,125 for the three months ended September 30, 2019. The change was primarily attributable to the decrease in other expense. We expect to incur net losses for the foreseeable future.

For the nine months ended September 30, 2020 and 2019

Operating expenses. For the nine months ended September 30, 2020, our total operating expenses were $4,970,086 as compared to $4,789,068 for the nine months ended September 30, 2019. The increase in operating expenses was due to the items noted below:

Research and development. Research and development expenses for the nine months ended September 30, 2020 were $1,574,357, which consisted of salaries and benefits and consulting fees for the staff involved in our preclinical and clinical drug development activities, contract research and development fees paid to UM, fees related to contract manufacturing paid to Noramco, fees related to contract formulation work paid to PII, a $200,000 license fee incurred under the UM 8930 Analog Agreement for the receipt for the first United States Patent and Trademark Office notice of allowance and the annual license maintenance fee for UM 5070.

Research and development expenses for the nine months ended September 30, 2019 were $1,522,031, which consisted of the upfront payments for the all fields of use licenses for UM 5050 and UM 8930, the annual license maintenance fee for UM 5070, salaries and benefits and consulting fees for the staff involved in our preclinical and clinical drug development activities, contract research and development fees paid to UM, Glauconix, StemoniX and Bioscience Laboratories, regulatory consulting fees paid to RRD, fees related to contract manufacturing paid to AMRI, Noramco and ElSohly Laboratories, fees related to contract formulation work paid to PII and fees paid to Novotech and Agilex in preparation of the Clinical Trial.

30

For the nine months ended September 30, 2020, research and development expenses increased by $52,326, as compared to the nine months ended September 30, 2019. R&D expense remained relatively constant period over period.

General and administrative. General and administrative expenses for the nine months ended September 30, 2020 were $3,395,729, which primarily consisted of salaries, severance, insurance, general legal and fees, consulting fees and professional fees related to the Company’s capital raising efforts and regulatory filings. By comparison, general and administrative expenses for the nine months ended September 30, 2019 were $3,267,037, which primarily consisted of salaries, stock compensation expense, general legal and patent related fees, consulting fees and professional fees related to the Company’s capital raising efforts and regulatory filings. General and administrative expenses increased by $128,692 primarily due to increases in legal, accounting and severance from the departure of the Company’s former CEO and CFO.

Other expense (income). For the nine months ended September 30, 2020, the Company had other expense of $86,906 related primarily to interest expense under the Credit Agreement, which was offset by a gain from the decrease in the fair value of our derivative liabilities. For the nine months ended September 30, 2019, the Company had other income of $990,441 related primarily to the decrease in fair value of our derivative liabilities which was driven by the decrease in our stock price. In addition, we initiated drawdowns under the Credit Agreement which required us to bifurcate compound embedded derivatives and record an additional charge for the fair value of such instruments in excess of proceeds. The decrease of $1,077,347 in other income period over period was attributable to the change in fair value of derivative liabilities from fluctuations in the Company’s stock price during the period and the quantity of outstanding instruments underlying the derivative balance. In December 2019, 40,800,000 of the Emerald Financing Warrants were exercised which caused a decrease in the overall balance of the derivative liability. The proceeds from the exercise of the Emerald Financing Warrants were used to pay down a portion of the Credit Agreement which also decreased interest expense recognized for the nine months ended September 30, 2020 as compared to the nine months ended September 30, 2019.

Net (loss) income and comprehensive (loss) income. For the nine months ended September 30, 2020, we had a net loss of $5,058,592 as compared to a net loss of $3,800,227 for the nine months ended September 30, 2019. The increase in the net loss was primarily attributable to the decrease in other income from our derivative liabilities and offset by an increase in operating expenses. We expect to incur net losses for the foreseeable future.

Liquidity and Capital Resources

We have incurred operating losses and negative cash flows from operations since our inception and as of September 30, 2020, had an accumulated deficit of $37,231,874, stockholders’ equity of $1,853,367 and working capital of $3,137,772. We anticipate that we will continue to incur net losses into the foreseeable future in order to advance and develop potential drug candidates into preclinical and clinical development activities and support our corporate infrastructure, which includes the costs associated with being a public company. We had cash of $4,224,601 as of September 30, 2020, as compared to $1,829,977 as of December 31, 2019. The increase was primarily attributable to the proceeds received in the August 2020 Financing. Without additional funding, management believes that we will not have enough funds to meet our obligations beyond one year after the date the Condensed Consolidated Financial Statements are issued. These conditions give rise to substantial doubt as to our ability to continue as a going concern.

On October 5, 2018, we secured a Credit Agreement with Emerald Health Sciences (the “Credit Agreement”), providing us with a credit facility of up to $20,000,000. Under the Credit Agreement, we may draw a remaining amount of up to $14,000,000 in advances from Emerald Health Sciences from time to time. The advances are subject to approval by our Board, which is controlled by the directors of Emerald Health Sciences. As such, we do not consider the facility available until advance requests are approved, drawn down and funded. As of March 31, 2020, we had effected three drawdowns under the Credit Agreement, each in the amount of $2,000,000, for an aggregate principal amount of $6,000,000 in advances, and have issued to Emerald Health Sciences warrants to purchase an aggregate of 7,500,000 shares of common stock at an exercise price of $0.50 per share. On December 20, 2019, we entered into a Warrant Exercise Agreement with Emerald Health Sciences, pursuant to which Emerald Health Sciences has exercised 40,800,000 of such warrants and paid the aggregate exercise price of approximately $4,080,000 for the related warrant shares in the form of a reduction of the corresponding amount of obligations outstanding under the Credit Agreement. Upon consummation of the transactions under the Warrant Exercise Agreement, the total outstanding principal amount excluding discounts under the Credit Agreement was $2,014,500.

31

On April 22, 2020, we entered into a Paycheck Protection Program Promissory Note in the principal amount of $116,700 (the “PPP Loan”) from City National Bank. The PPP Loan was obtained pursuant to the Paycheck Protection Program of the Coronavirus Aid, Relief, and Economic Security Act administered by the U.S. Small Business Administration. We used the proceeds of the PPP loan for payment of payrolls and rent for our office space.

On April 29, 2020, we entered into an Amended and Restated Multi-Draw Credit Agreement with Emerald Health Sciences, which amends and restates the Credit Agreement, as reported in the current report on the Form 8-K filed with the SEC on April 29, 2020. The Amended Credit Agreement provides for a credit facility to us in the principal amount of up to $20,000,000, which includes, without limitation, the advances totaling $6,000,000 that were granted prior to the amendment and advances of at least $150,000 for each of May, June and July 2020. During the nine months ended September 30, 2020, we received the fourth and fifth advances of $150,000 and $300,000 pursuant to the Amended Credit Agreement. The advances bear interest at 7% per annum and mature on October 5, 2022.

On July 28, 2020, we filed a registration statement on Form S-1/A, which has been declared effective as of July 31, 2020, and on July 31, 2020, we filed a related registration statement on a Form S-1MEF that became effective under Rule 462(b). On July 31, 2020, we sold 56,333,334 common stock units each consisting of one share of common stock and one common stock warrant and 60,333,334 pre-funded units each consisting of one pre-funded warrant and one common stock warrant, which securities were registered under the foregoing registration statements under a securities purchase agreement, as reported in our current report on the Form 8-K filed with the SEC on August 5, 2020. The net proceeds from the transaction were $6.1 million. The common stock warrants and prefunded warrants have an exercise price of $0.06 and $0.001, respectively. The term of the common stock warrants is five years, and the pre-funded warrants are exercisable until all the pre-funded warrants have been exercised in full. We intend to use the net proceeds of the Offering for general corporate purposes, including working capital.

During March 2020, we approved a plan to defer up to 50% of the members of senior management’s compensation and 100% of the Board of Director and committee fees indefinitely. In August 2020, subsequent to closing the August 2020 Financing, our Board of Directors determined that we have been sufficiently financed and authorized us to pay the deferred compensation and fee balances together with a retention bonus of 10% of such balance.

In December 2019, a novel strain of coronavirus (“COVID-19”) emerged in Wuhan, China. Since then, it has spread to the United States and infections have been reported around the world. On March 11, 2020, the World Health Organization declared the outbreak of COVID-19 as a global pandemic, which continues to spread throughout the United States, Australia and around the world, where the Company has operations and conducts laboratory research and clinical studies. In response to the outbreak, federal and state authorities in the United States have introduced various recommendations and measures to try to limit the pandemic, including travel restrictions, border closures, nonessential business closures, quarantines, self-isolations, shelters-in-place and social distancing. The COVID-19 outbreak and the response of governmental authorities to try to limit it are having a significant impact on the private sector and individuals, including unprecedented business, employment, and significant economic disruptions to the global financial markets. These disruptions could impact our ability to raise additional capital and obtain the necessary funds.

Notably, we rely on third-party manufacturers to produce our product candidates. The manufacturing of the active pharmaceutical ingredient of THCVHS is conducted in the United States. Formulation of the eye drop for testing is also performed in the United States but can rely on regulatory-accepted excipients that can be sourced from countries outside the United States, such as China. In connection with the recent COVID-19 pandemic, there could possibly be an impact on sourcing materials that are part of the eye drop formulation, as well as impacting volunteer and/or patient recruitment in Australia for clinical studies. Therefore, we have shifted the expected start of our first-in-human studies of the lead drug candidate, THCVHS, from the second half of 2020, to the 2021 timeframe.

The ultimate impact on us and overall delay in our drug product research and development is unknown, but our operations and financial condition will suffer in the event of business interruptions, delayed clinical trials, production or a lack of laboratory resources due to the pandemic. As of the date of this filing, we are aware of the impact on our business as a result of COVID-19 but uncertain as to the extent of this impact on our condensed consolidated financial statements. There is uncertainty as to the duration and hence the potential impact. As a result, we are unable to estimate the potential impact on our business as of the date of this filing.

32

Going Concern

Our independent registered public accounting firm has issued a report on our audited financial statements for the fiscal year ended December 31, 2019 that included an explanatory paragraph referring to our recurring operating losses and expressing substantial doubt in our ability to continue as a going concern. Our condensed consolidated financial statements have been prepared on a going concern basis, which assumes the realization of assets and settlement of liabilities in the normal course of business. Our ability to continue as a going concern is dependent upon our ability to generate profitable operations in the future and/or to obtain the necessary financing to meet our obligations and repay our liabilities arising from normal business operations when they become due. The outcome of these matters cannot be predicted with any certainty at this time and raise substantial doubt that we will be able to continue as a going concern. Our condensed consolidated financial statements do not include any adjustments to the amount and classification of assets and liabilities that may be necessary should we be unable to continue as a going concern.

Off-Balance Sheet Arrangements

There are no off-balance sheet arrangements that have or are reasonably likely to have a current or future effect on our financial condition, changes in financial condition, revenues or expenses, results of operations, liquidity, capital expenditures or capital resources that is material to investors.

Item 3. Quantitative and Qualitative Disclosures about Market Risk.

Not applicable.

Item 4. Controls and Procedures.

Evaluation of disclosure controls and procedures. We maintain controls and procedures that are designed to ensure that information required to be disclosed in the reports that we file or submit under the Securities Exchange Act of 1934 is recorded, processed, summarized and reported within the time periods specified in the SEC’s rules and forms, and that such information is accumulated and communicated to our management, including our principal executive and principal financial officers, as appropriate, to allow timely decisions regarding required disclosures. In designing and evaluating the disclosure controls and procedures, management recognizes that any control and procedures, no matter how well designed and operated, can only provide reasonable assurance of achieving the desired control objectives, and in reaching a reasonable level of assurance, management necessarily is required to apply its judgment in evaluating the cost-benefit relationship of possible controls and procedures.

We conducted an evaluation, under the supervision and with the participation of our principal executive and financial officers, of the effectiveness of the design and operation of our disclosure controls and procedures as of September 30, 2020. Based upon their evaluation and subject to the foregoing, the principal executive and financial officers have concluded that, as of the end of the period covered by this report, the disclosure controls and procedures were effective at a reasonable assurance level.

Changes in internal controls. Management determined there were no changes in our internal control over financial reporting that occurred during the fiscal quarter covered by this report that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.

33

PART II - OTHER INFORMATION

Item 1. Legal Proceedings

There have been no other material developments with respect to previously reported legal proceedings discussed in our Annual Report on Form 10-K for the year ended December 31, 2019.

Item 1A. Risk Factors.

Investing in our common stock involves a high degree of risk. Our Annual Report on Form 10-K for the year ended December 31, 2019 includes a detailed discussion of our risk factors under the heading “Part I, Item 1A-Risk Factors.” There are no changes from the risk factors previously disclosed in our Annual Report on Form 10-K. You should carefully consider the risk factors discussed in our Annual Report on Form 10-K, as well as the other information in this report before deciding whether to invest in shares of our common stock. The occurrence of any of the risks discussed in the Annual Report on Form 10-K could harm our business, financial condition, results of operations or growth prospects. In that case, the trading price of our common stock could decline, and you may lose all or part of your investment.

Item 2. Unregistered Sales of Equity Securities and Use of Proceeds.

None.

Item 3. Defaults Upon Senior Securities.

None.

Item 4. Mine Safety Disclosures.

Not applicable.

Item 5. Other Information.

On October 12, 2020, Mr. Dennis Kim provided notice of his resignation from his position as the Chief Medical Officer of Emerald Bioscience, Inc. His resignation is effective November 6, 2020, and is due to personal reasons and is not the result of any disagreement with the Company on any matter relating to the Company’s operations, policies, or practices.

Item 6. Exhibits.

4.1	Form of Common Warrant(1)
4.2	Form of Pre-Funded Warrant(1)
10.1	Form of Securities Purchase Agreement, dated as of July 31, 2020, between the Company and certain purchasers set forth in the signature page thereto(1)
10.2	Separation and Release Agreement, dated August 7, 2020, by and between Emerald Bioscience, Inc. and Brian Murphy(2)
10.3	Employment Agreement, dated August 10, 2020, by and between Emerald Bioscience, Inc. and Punit Dhillon(2)
10.4	Amendment No. 2 to 2014 Omnibus Incentive Plan(2)
31.1*	Certification of Principal Executive Officer, pursuant to Rule 13a-14 and 15d-14 of the Securities Exchange Act of 1934
31.2*	Certification of Principal Financial Officer, pursuant to Rule 13a-14 and 15d-14 of the Securities Exchange Act of 1934
32.1*	Certification of Principal Executive Officer, pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002
32.2*	Certification of Principal Financial Officer, pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002

________

(1)	Included as exhibit to our Current Report on Form 8-K filed on August 5, 2020.
(2)	Included as exhibit to our Current Report on Form 8-K filed on August 12, 2020.

(*) Filed herewith.

34

SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.

	Emerald Bioscience, Inc., a Nevada corporation
November 6, 2020	By:	/s/ Punit Dhillon
		Punit Dhillon
	Its:	Chief Executive Officer, Chairman of the Board, and Director (Principal Executive Officer)

November 6, 2020	By:	/s/ Richard Janney
		Richard Janney
	Its:	Principal Accounting Officer (Principal Financial and Accounting Officer)

35

EX-31.1

EXHIBIT 31.1

Certification of Principal Executive Officer,

Required by Rule 13a-14(a) of the Securities Exchange Act of 1934, as Amended,

as Adopted Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002

I, Punit Dhillon, certify that:

1.	I have reviewed this quarterly report on Form 10-Q of Emerald Bioscience, Inc. for the quarter ended September 30, 2020;
2.	Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;
3.	Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;
4.	The registrant’s other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:

(a)	Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;
(b)	Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;
(c)	Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and
(d)	Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and

5. The registrant’s other certifying officer(s) and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions):

(a)	All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting, which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and
(b)	Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.

/s/ Punit Dhillon

Punit Dhillon

Chief Executive Officer, Chairman of the Board, and Director

Date: November 6, 2020

EX-31.2

EXHIBIT 31.2

Certification of Principal Financial Officer,

Required by Rule 13a-14(a) of the Securities Exchange Act of 1934, as Amended,

as Adopted Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002

I, Richard Janney, certify that:

1.	I have reviewed this quarterly report on Form 10-Q of Emerald Bioscience, Inc. for the quarter ended September 30, 2020;
2.	Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;
3.	Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;
4.	The registrant’s other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:

(a)	Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;
(b)	Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;
(c)	Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and
(d)	Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and

5. The registrant’s other certifying officer(s) and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions):

(a) All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and

(b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.

/s/ Richard Janney

Richard Janney

Principal Accounting Officer

Date: November 6, 2020

EX-32.1

EXHIBIT 32.1

Certification of Principal Executive Officer, pursuant to 18 U.S.C. Section 1350,

as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002

In connection with the Quarterly Report of Emerald Bioscience, Inc. a Nevada corporation (the “Company”) on Form 10-Q for the quarter ended September 30, 2020, as filed with the Securities and Exchange Commission on the date hereof (the “Report”), Punit Dhillon, Chief Executive Officer, Chairman of the Board, and Director of the Company, certifies to the best of his knowledge, pursuant to 18 U.S.C. § 1350, as adopted pursuant to § 906 of the Sarbanes-Oxley Act of 2002, that:

(1)	The Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934; and
(2)	The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company.

A signed original of this written statement required by Section 906 has been provided to the Company and will be retained by the Company and furnished to the Securities and Exchange Commission or its staff upon request.

/s/ Punit Dhillon

Punit Dhillon

Chief Executive Officer, Chairman of the Board, and Director

November 6, 2020

EX-32.2

EXHIBIT 32.2

Certification of Principal Financial Officer, pursuant to 18 U.S.C. Section 1350,

as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002

In connection with the Quarterly Report of Emerald Bioscience, Inc. a Nevada corporation (the “Company”) on Form 10-Q for the quarter ended September 30, 2020, as filed with the Securities and Exchange Commission on the date hereof (the “Report”), Richard Janney, Principal Accounting Officer of the Company, certifies to the best of his knowledge, pursuant to 18 U.S.C. § 1350, as adopted pursuant to § 906 of the Sarbanes-Oxley Act of 2002, that:

(1)	The Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934; and
(2)	The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company.

A signed original of this written statement required by Section 906 has been provided to the Company and will be retained by the Company and furnished to the Securities and Exchange Commission or its staff upon request.

/s/ Richard Janney

Richard Janney

Principal Accounting Officer

November 6, 2020

XML

Document and Entity Information - shares	9 Months Ended
	Sep. 30, 2020	Nov. 05, 2020
Document and Entity Information [Abstract]
Entity Registrant Name	Emerald Bioscience, Inc.
Entity Central Index Key	0001516551
Current Fiscal Year End Date	--12-31
Entity Filer Category	Non-accelerated Filer
Entity Common Stock, Shares Outstanding		250,074,415
Document Type	10-Q
Document Period End Date	Sep. 30, 2020
Amendment Flag	false
Document Fiscal Year Focus	2020
Document Fiscal Period Focus	Q3
Entity Shell Company	false
Entity Small Business	true
Entity Emerging Growth Company	false
Entity Interactive Data Current	Yes

XML

CONDENSED CONSOLIDATED BALANCE SHEETS - USD ($)	Sep. 30, 2020	Dec. 31, 2019
Current assets
Cash	$ 4,224,601	$ 1,829,977
Restricted cash	4,538	4,538
Prepaid expenses	116,226	152,695
Other current assets	3,333	7,550
Total current assets	4,348,698	1,994,760
Property and equipment, net	887	1,983
Total assets	4,349,585	1,996,743
Current liabilities
Accounts payable	731,632	129,809
Accounts payable to related party	21,400	10,000
Accrued interest due to related party	81,813
PPP loan current	71,102
Other current liabilities	263,830	420,406
Derivative liabilities	41,149	410,603
Total current liabilities	1,210,926	970,818
Noncurrent liabilities
PPP loan non-current	45,598
Multi-draw credit agreement - related party	450,000
Convertible multi-draw credit agreement - related party, net of discount	789,694	387,070
Derivative liabilities, non-current	0	90,797
Total liabilities	2,496,218	1,448,685
Commitments and contingencies
Stockholders' equity
Preferred stock, $0.001 par value; 20,000,000 shares authorized; no shares issued and outstanding at September 30, 2020 and December 31, 2019	0	0
Common stock, $0.001 par value; 500,000,000 shares authorized; 250,074,415 and 182,895,247 shares issued and outstanding at September 30, 2020 and December 31, 2019, respectively	250,074	182,895
Additional paid-in-capital	38,835,167	32,538,445
Accumulated deficit	(37,231,874)	(32,173,282)
Total stockholders' equity	1,853,367	548,058
Total liabilities and stockholders' equity	$ 4,349,585	$ 1,996,743

XML

CONDENSED CONSOLIDATED BALANCE SHEETS (Parentheticals) - $ / shares	Sep. 30, 2020	Dec. 31, 2019
Statement Of Financial Position [Abstract]
Preferred stock (in dollars per share)	$ 0.001	$ 0.001
Preferred stock, shares authorized	20,000,000	20,000,000
Preferred stock, shares issued	0	0
Preferred stock, shares outstanding	0	0
Common stock, par value (in dollars per share)	$ 0.001	$ 0.001
Common stock, shares authorized	500,000,000	500,000,000
Common stock, shares issued	250,074,415	182,895,247
Common stock, shares outstanding	250,074,415	182,895,247

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CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE LOSS (UNAUDITED) - USD ($)	3 Months Ended		9 Months Ended
	Sep. 30, 2020	Sep. 30, 2019	Sep. 30, 2020	Sep. 30, 2019
Operating expenses
Research and development	$ 346,217	$ 513,004	$ 1,574,357	$ 1,522,031
General and administrative	1,192,003	990,110	3,395,729	3,267,037
Total operating expenses	1,538,220	1,503,114	4,970,086	4,789,068
Operating loss	(1,538,220)	(1,503,114)	(4,970,086)	(4,789,068)
Other expense (income)
Change in fair value of derivative liabilities	(424,138)	3,126,464	(433,688)	(2,024,660)
Fair value of derivative liabilities in excess of proceeds				322,644
Interest expense	182,614	301,547	520,594	711,575
Total other expense (income), net	(241,524)	3,428,011	86,906	(990,441)
Loss before income taxes	(1,296,696)	(4,931,125)	(5,056,992)	(3,798,627)
Provision for income taxes			1,600	1,600
Net loss and comprehensive loss	$ (1,296,696)	$ (4,931,125)	$ (5,058,592)	$ (3,800,227)
Loss per common share:
Basic (in dollars per share)	$ (0.01)	$ (0.04)	$ (0.02)	$ (0.03)
Diluted (in dollars per share)	$ (0.01)	$ (0.04)	$ (0.03)	$ (0.03)
Weighted average shares of common stock outstanding used to compute earnings per share:
Basic (in shares)	256,758,472	133,001,746	207,536,173	132,885,675
Diluted (in shares)	257,255,653	133,001,746	208,434,966	167,690,989

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CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED) - USD ($)	9 Months Ended
	Sep. 30, 2020	Sep. 30, 2019
Cash flows from operating activities:
Net Loss	$ (5,058,592)	$ (3,800,227)
Adjustments to reconcile net loss to net cash used in operating activities:
Depreciation	1,096	1,096
Stock-based compensation expense	241,216	514,683
Change in fair value of derivative liabilities	(433,688)	(2,024,660)
Fair value of derivative liabilities in excess of proceeds		322,644
Amortization of debt discount	402,624	438,964
Changes in assets and liabilities:
Prepaid expenses	36,469	(302,248)
Other current assets	4,217	(766)
Accounts payable	601,823	191,333
Accounts payable to related party	11,400
Accrued interest due to related party	81,813
Other current liabilities	(156,576)	134,469
Net cash used in operating activities	(4,268,198)	(4,524,712)
Cash flows from financing activities:
Proceeds from the sale of common stock and warrants - net of $854,078 issuance costs for September 30, 2020	6,085,589
Proceeds from multi-draw credit agreement - related party, net of $0 and $9,301 issuance costs for the September 30, 2020 and September 30, 2019 periods, respectively	450,000	3,990,699
Proceeds from PPP loan	116,700
Proceeds from pre-funded warrant exercises	10,533
Net cash provided by financing activities	6,662,822	3,990,699
Net increase (decrease) in cash and restricted cash	2,394,624	(534,013)
Cash and restricted cash, beginning of period	1,834,515	1,857,885
Cash and restricted cash, end of period	4,229,139	1,323,872
Reconciliation of cash and restricted cash:
Cash	4,224,601	1,319,360
Restricted cash	4,538	4,512
Total cash and restricted cash shown in the consolidated statements of cash flows	4,229,139	1,323,872
Cash paid during the period for:
Interest	35,645	272,611
Income taxes	1,600	1,600
Supplemental disclosures of non-cash financing activities:
Reclassification of warrant liabilities to equity from exercise of warrants	$ 26,563	144,375
Proceeds allocated to equity classified warrants issued with convertible multi-draw credit agreement		716,110
Fair value of compound derivative liability bifurcated from convertible multi-draw credit agreement		193,414
Beneficial conversion feature on convertible multi-draw credit agreement		$ 1,584,850

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CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED) (Parentheticals) - USD ($)	9 Months Ended
	Sep. 30, 2020	Sep. 30, 2019
Statement Of Financial Position [Abstract]
Proceeds from the sale of common stock and warrants net	$ 854,078
Common stock issuance costs	$ 0	$ 9,301

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CONDENSED CONSOLIDATED STATEMENTS OF STOCKHOLDERS' DEFICIT (UNAUDITED) - USD ($)	Common Stock	Additional Paid-In Capital	Accumulated Deficit	Total
Balance at Dec. 31, 2018	$ 133,908	$ 17,528,947	$ (33,225,107)	$ (15,562,252)
Balance (in shares) at Dec. 31, 2018	133,907,747
Increase (Decrease) in Stockholders' Equity [Roll Forward]
Stock-based compensation expense		171,493		171,493
Warrants issued in connection with convertible multi-draw credit agreement, related party		716,110		716,110
Beneficial conversion feature in connection with convertible multi-draw credit agreement - related party		1,584,850		1,584,850
Net Loss			(14,774,392)	(14,774,392)
Balance at Mar. 31, 2019	$ 133,908	20,001,400	(47,999,499)	(27,864,191)
Balance (in shares) at Mar. 31, 2019	133,907,747
Balance at Dec. 31, 2018	$ 133,908	17,528,947	(33,225,107)	(15,562,252)
Balance (in shares) at Dec. 31, 2018	133,907,747
Increase (Decrease) in Stockholders' Equity [Roll Forward]
Net Loss				(3,800,227)
Balance at Sep. 30, 2019	$ 134,095	20,488,778	(37,025,334)	(16,402,461)
Balance (in shares) at Sep. 30, 2019	134,095,247
Balance at Mar. 31, 2019	$ 133,908	20,001,400	(47,999,499)	(27,864,191)
Balance (in shares) at Mar. 31, 2019	133,907,747
Increase (Decrease) in Stockholders' Equity [Roll Forward]
Stock-based compensation expense		173,084		173,084
Series B warrant exercises	$ 187	144,188		144,375
Series B warrant exercises (in shares)	187,500
Net Loss			15,905,290	15,905,290
Balance at Jun. 30, 2019	$ 134,095	20,318,672	(32,094,209)	(11,641,442)
Balance (in shares) at Jun. 30, 2019	134,095,247
Increase (Decrease) in Stockholders' Equity [Roll Forward]
Stock-based compensation expense		170,106		170,106
Net Loss			(4,931,125)	(4,931,125)
Balance at Sep. 30, 2019	$ 134,095	20,488,778	(37,025,334)	(16,402,461)
Balance (in shares) at Sep. 30, 2019	134,095,247
Balance at Dec. 31, 2019	$ 182,895	32,538,445	(32,173,282)	548,058
Balance (in shares) at Dec. 31, 2019	182,895,247
Increase (Decrease) in Stockholders' Equity [Roll Forward]
Stock-based compensation expense		64,142		64,142
Series B warrant exercises	$ 313	26,250		26,563
Series B warrant exercises (in shares)	312,500
Net Loss			(2,341,660)	(2,341,660)
Balance at Mar. 31, 2020	$ 183,208	32,628,837	(34,514,942)	(1,702,897)
Balance (in shares) at Mar. 31, 2020	183,207,747
Balance at Dec. 31, 2019	$ 182,895	32,538,445	(32,173,282)	548,058
Balance (in shares) at Dec. 31, 2019	182,895,247
Increase (Decrease) in Stockholders' Equity [Roll Forward]
Net Loss				(5,058,592)
Balance at Sep. 30, 2020	$ 250,074	38,835,167	(37,231,874)	1,853,367
Balance (in shares) at Sep. 30, 2020	250,074,415
Balance at Mar. 31, 2020	$ 183,208	32,628,837	(34,514,942)	(1,702,897)
Balance (in shares) at Mar. 31, 2020	183,207,747
Increase (Decrease) in Stockholders' Equity [Roll Forward]
Stock-based compensation expense		28,709		28,709
Net Loss			(1,420,236)	(1,420,236)
Balance at Jun. 30, 2020	$ 183,208	32,657,546	(35,935,178)	(3,094,424)
Balance (in shares) at Jun. 30, 2020	183,207,747
Increase (Decrease) in Stockholders' Equity [Roll Forward]
Stock-based compensation expense		148,365		148,365
Common stock and warrants issued	$ 56,333	6,029,256		6,085,589
Common stock and warrants issued (in shares)	56,333,334
Exercise of pre-funded warrants	$ 10,533			10,533
Exercise of pre-funded warrants (in shares)	10,533,334
Net Loss			(1,296,696)	(1,296,696)
Balance at Sep. 30, 2020	$ 250,074	$ 38,835,167	$ (37,231,874)	$ 1,853,367
Balance (in shares) at Sep. 30, 2020	250,074,415

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Nature of Operations and Business Activities

9 Months Ended

Sep. 30, 2020

Accounting Policies [Abstract]

Nature of Operations and Business Activities

1. Nature of Operations and Business Activities

Nature of Operations

Emerald Bioscience, Inc. (the “Company”) was initially incorporated in Nevada on March 16, 2011 as Load Guard Logistics, Inc. On October 31, 2014, the Company closed a reverse merger transaction (the “Merger”) pursuant to which Nemus, a California corporation (“Nemus Sub”), became the Company’s wholly-owned subsidiary, and the Company assumed the operations of Nemus Sub. Nemus Sub was incorporated in the State of California on July 17, 2012. On November 3, 2014, the Company changed its name to Nemus Bioscience, Inc. by merging with Nemus Sub to form a Nevada company.

In January 2018, the Company entered into a securities purchase agreement with Emerald Health Sciences, Inc. (“Emerald Health Sciences”), pursuant to which Emerald Health Sciences purchased a majority of the equity interest in the Company, resulting in a change in control (the “Emerald Financing”). As part of the transaction, the Company’s Board members, with the exception of Dr. Brian Murphy, the Company’s CEO/CMO, tendered their resignation and Emerald Health Sciences appointed two new nominees to the Board. Later, in October 2018, the Board appointed Dr. Avtar Dhillon, the Chairman, Chief Executive Officer and President of Emerald Health Sciences, as the Executive Chairman of the Company’s Board. On August 7, 2020, Dr. Brian Murphy resigned and Punit Dhillon was appointed as the Chief Executive Officer of the Company.

On February 11, 2019, the Company’s Board of Directors (the “Board”) and majority stockholder unanimously approved an amendment to the Company’s articles of incorporation to change the name of the Company to Emerald Bioscience, Inc. Effective March 25, 2019, the Company filed a Certificate of Amendment with the Nevada Secretary of State changing the Company’s name to Emerald Bioscience, Inc.

In August 2019, the Company formed a new subsidiary in Australia, EMBI Australia Pty Ltd., an Australian proprietary limited company (“EMBI Australia”), in order to qualify for the Australian government’s research and development tax credit for research and development dollars spent in Australia. The primary purpose of EMBI Australia is to conduct clinical trials for the Company’s product candidates.

On December 17, 2019, Dr. Avtar Dhillon resigned as the Chairman of the Company’s Board and the Company entered into a Board Observer Agreement with Emerald Health Sciences. Refer to Note 8 - Related Party Matters for additional information.

The Company is a biopharmaceutical company located in San Diego, California that plans to research, develop and commercialize therapeutics derived from cannabinoids through several license agreements with the University of Mississippi (“UM”). UM is the only entity federally permitted and licensed to cultivate cannabis for research purposes in the United States.

As of September 30, 2020, the Company has devoted substantially all its efforts to securing product licenses, carrying out research and development, building infrastructure and raising capital. The Company has not yet realized revenue from its planned principal operations and is a number of years away from potentially being able to do so.

Liquidity and Going Concern

The Company has incurred operating losses and negative cash flows from operations since inception and as of September 30, 2020, had an accumulated deficit of $37,231,874, stockholders’ equity of $1,853,367 and working capital of $3,137,772. The Company anticipates operating losses and negative cash flows from operations into the foreseeable future in order to advance and develop potential drug candidates into preclinical and clinical development activities and support its corporate infrastructure which includes the costs associated with being a public company. As of September 30, 2020, the Company had unrestricted cash in the amount of $4,224,601 as compared to $1,829,977 as of December 31, 2019.

As the Company approaches its first clinical trial, it expects to ramp up research and development spending and to increase cash used in operating activities. However, based on the Company’s expected cash requirements, without obtaining additional funding management believes that the Company will not have enough funds to commence clinical studies. These conditions give rise to substantial doubt as to the Company’s ability to continue as a going concern within one year after the date that the financial statements are issued. The accompanying Condensed Consolidated Financial Statements do not include any adjustments that might result from the outcome of this uncertainty.

The Company’s continued existence is dependent on its ability to raise sufficient additional funding to cover operating expenses and to carry out its research and development activities. On October 5, 2018, the Company entered into a Multi-Draw Credit Agreement (the “Credit Agreement”) with Emerald Health Sciences (See Note 4).

On April 29, 2020, the Company entered into an Amended and Restated Multi-Draw Credit Agreement (the “Amended Credit Agreement”) with Emerald Health Sciences, which amends and restates the Credit Agreement. The Amended Credit Agreement provides for a credit facility in the principal amount of up to $20,000,000, which includes, without limitation, the advances totaling $6,000,000 that were granted prior to the amendment.

Prior to the date of the Amended Credit Agreement, the Company had made three drawdowns in an aggregate principal amount of $6,000,000, and had issued to Emerald Health Sciences warrants to purchase an aggregate of 7,500,000 shares of common stock of the Company at an exercise price of $0.50 per share of Common Stock, in accordance with the terms of the Credit Agreement.

During the nine months ended September 30, 2020, the Company effected the fourth and fifth advances under the Amended Credit Agreement in the amounts of $150,000 and $300,000, respectively. The advances bear interest at 7% per annum and mature on October 5, 2022. The Company used the proceeds from the advances for general corporate and working capital purposes. Emerald Health Sciences elected that the fourth and fifth advances are not convertible into shares of Common Stock and no warrants were issued with the advances.

On April 22, 2020, the Company entered into a Paycheck Protection Program Promissory Note in the principal amount of $116,700 (the “PPP Loan”) from City National Bank (the “PPP Loan Lender”). The PPP Loan was obtained pursuant to the Paycheck Protection Program (the “PPP”) of the Coronavirus Aid, Relief, and Economic Security Act (the “CARES Act”) administered by the U.S. Small Business Administration (“SBA”) (Note 4).

On July 31, 2020, the Company entered into the August 2020 Financing (Note 5), pursuant to which the Company sold 56,333,334 common stock units each consisting of one share of common stock and one common stock warrant and 60,333,334 pre-funded units each consisting of one pre-funded warrant and one common stock warrant in a registered public offering. The net proceeds from the transaction were $6.1 million. The common stock warrants and prefunded warrants have an exercise price of $0.06 and $0.001, respectively. The term of the common stock warrants is five years, and the pre-funded warrants are exercisable until all the pre-funded warrants have been exercised in full. The Company intends to use the net proceeds of the offering for general corporate purposes, including working capital.

During March 2020, the Company approved a plan to defer up to 50% of the members of senior management’s compensation and 100% of the Board of Director and committee fees indefinitely. Upon the closing of the August 2020 Financing, the Company’s Board of Directors determined that the Company had been sufficiently financed to pay the deferred salaries and fees, including a 10% retention bonus, to management and the Board in the aggregate amount of $293,078.

The Company plans to continue to pursue funding through public or private equity or debt financings, licensing arrangements, asset sales, government grants or other arrangements. However, the Company cannot provide any assurances that such additional funds will be available on reasonable terms, or at all. If the Company raises additional funds by issuing equity securities, substantial dilution to existing stockholders would result.

In December 2019, a novel strain of coronavirus (“COVID-19”) emerged in Wuhan, China. Since then, it has spread to the United States and infections have been reported around the world. On March 11, 2020, the World Health Organization declared the outbreak of COVID-19 as a global pandemic, which continues to spread throughout the United States, Australia and around the world, where the Company has operations and conducts laboratory research and clinical studies. In response to the outbreak, federal and state authorities in the United States have introduced various recommendations and measures to try to limit the pandemic, including travel restrictions, border closures, nonessential business closures, quarantines, self-isolations, shelters-in-place and social distancing. The COVID-19 outbreak and the response of governmental authorities to try to limit it are having a significant impact on the private sector and individuals, including unprecedented business, employment and significant economic disruptions to the global financial markets. These disruptions are likely to impact the Company’s ability to raise additional capital and obtain the necessary funds.

Notably, the Company relies on third-party manufacturers to produce its product candidates. The manufacturing of the active pharmaceutical ingredient of THCVHS is conducted in the United States. Formulation of the eye drop for testing is also performed in the United States but can rely on regulatory-accepted excipients that can be sourced from countries outside the United States, such as China. In connection with the recent pandemic of a COVID-19, there could possibly be an impact on sourcing materials that are part of the eye drop formulation, as well as impacting volunteer and/or patient recruitment in Australia for clinical studies. The location of the proposed clinical trial is Melbourne, Australia and since the COVID-19 outbreak in that country, the city has experienced multiple health emergency lockdowns which have had a negative impact on the conduct and timelines of clinical studies. Therefore, the Company has shifted its first-in-human studies of THCVHS from the second half of 2020, to the 2021 timeframe.

After considering the plans to alleviate substantial doubt, management has concluded that there is substantial doubt about the Company’s ability to continue as a going concern within one year after the date that the financial statements are issued.

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Summary of Significant Accounting Policies

9 Months Ended

Sep. 30, 2020

Accounting Policies [Abstract]

Summary of Significant Accounting Policies

2. Summary of Significant Accounting Policies

Basis of Presentation

In the opinion of management, the accompanying Unaudited Condensed Consolidated Financial Statements have been prepared on a consistent basis with the Company’s Audited Consolidated Financial Statements for the fiscal year ended December 31, 2019, and include all adjustments, consisting of only normal recurring adjustments, necessary to fairly state the information set forth herein. The Condensed Consolidated Financial Statements have been prepared in accordance with the rules and regulations of the Securities and Exchange Commission (“SEC”) and therefore, omit certain information and footnote disclosures necessary to present the financial statements in accordance with generally accepted accounting principles in the United States (“GAAP”).

The results of operations for the three and nine months ended September 30, 2020 are not necessarily indicative of the results to be expected for the year ending December 31, 2020 or any future periods. The Condensed Consolidated Balance Sheet as of December 31, 2019 was derived from the Company’s audited financial statements as of December 31, 2019, which are included in the Company’s Annual Report on Form 10-K filed with the SEC on March 20, 2020. The unaudited financial statements included in this Quarterly Report on Form 10-Q should be read in conjunction with the audited consolidated financial statements and notes thereto included in the Company’s Annual Report on Form 10-K for the fiscal year ended December 31, 2019, which includes a broader discussion of the Company’s business and the risks inherent therein.

Use of Estimates

The preparation of the Condensed Consolidated Financial Statements in conformity with GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the Condensed Consolidated Financial Statements and the reported amounts of income and expense during the reporting period. Actual results could differ from those estimates. The most significant accounting estimates inherent in the preparation of the Company’s financial statements include estimates as to the appropriate carrying value of certain assets and liabilities, which are not readily apparent from other sources. Such estimates and judgments are utilized for stock-based compensation expense, equity securities, derivative liabilities, and debt with embedded features.

Risks and Uncertainties

The Company’s operations are subject to a number of risks and uncertainties, including but not limited to, changes in the general economy, the size and growth of the potential markets for any of the Company’s product candidates, results of research and development activities, uncertainties surrounding regulatory developments in the United States and Australia, and the Company’s ability to attract new funding.

Fair Value Measurements

Certain assets and liabilities are carried at fair value under GAAP. Fair value is defined as the exchange price that would be received for an asset or paid to transfer a liability (the “exit price”) in the principal or most advantageous market for the asset or liability in an orderly transaction between market participants on the measurement date. Valuation techniques used to measure fair value must maximize the use of observable inputs and minimize the use of unobservable inputs. A fair value hierarchy based on three levels of inputs, of which the first two are considered observable, and the last is considered unobservable, is used to measure fair value:

Level 1:	Valuations for assets and liabilities traded in active markets from readily available pricing sources such as quoted prices in active markets for identical assets or liabilities.
Level 2:	Observable inputs (other than Level 1 quoted prices) such as quoted prices in active markets for similar assets or liabilities, quoted prices in markets that are not active for identical or similar assets or liabilities, or other inputs that are observable or can be corroborated by observable market data.
Level 3:	Unobservable inputs that are supported by little or no market activity and that are significant to determining the fair value of the assets or liabilities, including pricing models, discounted cash flow methodologies and similar techniques.

The carrying values of the Company’s financial instruments, with the exception of the Amended Credit Agreement and derivative liabilities, including, cash, prepaid expenses, accounts payable, the PPP loan and other current liabilities approximate their fair value due to the short maturities of these financial instruments. The derivative liabilities are valued on a recurring basis utilizing Level 3 inputs (Note 3). The PPP loan is considered conventional debt with an interest rate that approximates current market rates, interest and principal payments will be made through 2022. Due to the PPP loan’s relatively short term the carrying value approximates fair value. As of December 31, 2019, the fair value of the advances under the Credit Agreement was $1,877,938, the carrying amount of the liability at December 31, 2019 was $387,070 and is included in Convertible multi-draw credit agreement - related party, net of discount in the Company’s Condensed Consolidated Balance Sheets. As of September 30, 2020, the Company no longer engages a third party valuation specialist to value the Credit Agreement, as amended, as it is not practical to do so solely for the purpose of disclosing the estimated fair value of the financial instrument. Information pertinent to estimating the fair value of the Amended Credit Agreement includes valuing the embedded conversion feature and considering the discounted cash flows of the interest and principal payments through maturity (Note 4).

Convertible Instruments

The Company accounts for hybrid contracts with embedded conversion features in accordance with GAAP. ASC 815, Derivatives and Hedging Activities (“ASC 815”) requires companies to bifurcate conversion options from their host instruments and account for them as free-standing derivative financial instruments according to certain criteria. The criteria includes circumstances in which (a) the economic characteristics and risks of the embedded derivative instrument are not clearly and closely related to the economic characteristics and risks of the host contract, (b) the hybrid instrument that embodies both the embedded derivative instrument and the host contract is not re-measured at fair value under otherwise applicable generally accepted accounting principles with changes in fair value reported in earnings as they occur and (c) a separate instrument with the same terms as the embedded derivative instrument would be considered a derivative instrument.

The Company accounts for convertible debt instruments with embedded conversion features in accordance with ASC 470-20, Debt with Conversion and Other Options (“ASC 470-20”) if it is determined that the conversion feature should not be bifurcated from their host instruments. Under ASC 470-20, the Company records, when necessary, discounts to convertible notes for the intrinsic value of conversion options embedded in debt instruments based upon the difference between the fair value of the underlying common stock at the commitment date and the embedded effective conversion price. When the Company determines that the embedded conversion option should be bifurcated from its host instrument, the embedded feature is accounted for in accordance with ASC 815. Under ASC 815, a portion of the proceeds received upon the issuance of the hybrid contract is allocated to the fair value of the derivative. The derivative is subsequently marked to market at each reporting date based on current fair value, with the changes in fair value reported in the results of operations.

The Company also follows ASC 480-10, Distinguishing Liabilities from Equity (“ASC 480-10”) when evaluating the accounting for its hybrid instruments. A financial instrument that embodies an unconditional obligation, or a financial instrument other than an outstanding share that embodies a conditional obligation, that the issuer must or may settle by issuing a variable number of its equity shares shall be classified as a liability (or an asset in some circumstances) if, at inception, the monetary value of the obligation is based solely or predominantly on any one of the following: (a) a fixed monetary amount known at inception (for example, a payable settled with a variable number of the issuer’s equity shares); (b) variations in something other than the fair value of the issuer’s equity shares (for example, a financial instrument indexed to the Standard and Poor’s S&P 500 Index and settled with a variable number of the issuer’s equity shares); or (c) variations inversely related to changes in the fair value of the issuer’s equity shares (for example, a written put option that could be net share settled). Hybrid instruments meeting these criteria are not further evaluated for any embedded derivatives and are carried as a liability at fair value at each balance sheet date with a re-measurement reported in other expense (income) in the accompanying Condensed Consolidated Statements of Comprehensive Loss.

When determining the short-term vs. long-term classification of derivative liabilities, the Company first evaluates the instruments’ exercise provisions. Generally, if a derivative is a liability and exercisable within one year, it will be classified as short-term. However, because of the unique provisions and circumstances that may impact the accounting for derivative instruments, the Company carefully evaluates all factors that could potentially restrict the instrument from being exercised or create a situation where exercise would be considered remote. The Company re-evaluates its derivative liabilities at each reporting period end and makes updates for any changes in facts and circumstances that may impact classification.

Warrants Issued in Connection with Financings

The Company generally accounts for warrants issued in connection with debt and equity financings as a component of equity, unless the warrants include a conditional obligation to issue a variable number of shares or there is a deemed possibility that the Company may need to settle the warrants in cash. For warrants issued with a conditional obligation to issue a variable number of shares or the deemed possibility of a cash settlement, the Company records the fair value of the warrants as a liability at each balance sheet date and records changes in fair value in other expense (income) in the Condensed Consolidated Statements of Comprehensive Loss .

Debt Issuance Costs and Interest

Discounts related to bifurcated derivatives, freestanding instruments issued in bundled transactions, and issuance costs are recorded as a reduction to the carrying value of the debt and amortized over the life of the debt using the effective interest method. The Company makes changes to the effective interest rate, as necessary, on a prospective basis. For debt facilities that provide for multiple advances, the Company initially defers any issuance costs until the first advance is made and then amortizes the costs over the life of the facility.

Research and Development Expenses and Licensed Technology

Research and development costs are expensed when incurred. These costs may consist of external research and development expenses incurred under agreements with third-party contract research organizations and investigative sites, third-party manufacturing organizations and consultants; license fees; employee-related expenses, which include salaries and benefits for the personnel involved in the Company’s preclinical and clinical drug development activities; facilities expense, depreciation and other allocated expenses; and equipment and laboratory supplies.

Costs incurred for the rights to use licensed technologies in the research and development process, including licensing fees and milestone payments, are charged to research and development expense as incurred in situations where the Company has not identified an alternative future use for the acquired rights, and are capitalized in situations where there is an identified alternative future use. No cost associated with the use of licensed technologies has been capitalized to date.

Stock-Based Compensation Expense

Stock-based compensation expense is estimated at the grant date based on the fair value of the award, and the cost is recognized as expense ratably over the vesting period with forfeitures accounted for as they occur. The Company uses the Black-Scholes Merton option pricing model for estimating the grant date fair value of stock options using the following assumptions:

· Volatility - Stock price volatility is estimated over the expected term based on a blended rate of industry peers and the Company’s actual stock volatility adjusted for periods in which significant financial variability was identified.

· Expected term - The expected term is based on a simplified method which defines the life as the weighted average of the contractual term of the options and the vesting period for each award.

· Risk-free rate - The risk-free interest rate for the expected term of the option is based on the average market rate on U.S. Treasury securities in effect during the period in which the awards were granted.

· Dividends - The dividend yield assumption is based on the Company’s history and expectation of paying no dividends in the foreseeable future.

Loss Per Common Share

The Company applies FASB ASC No. 260, Earnings per Share in calculating its basic and diluted net loss per common share. Basic loss per share of common stock is computed by dividing net loss available to common stockholders by the weighted-average number of shares of common stock outstanding for the period. The diluted loss per share of common stock is computed by giving effect to all potential common stock equivalents outstanding for the period determined using the treasury stock method. For purposes of this calculation, options to purchase common stock, restricted stock subject to vesting, warrants to purchase common stock and common shares underlying convertible debt instruments are considered to be common stock equivalents.

The computations of basic and diluted net loss per common share are as follows:

		Three Months Ended September 30, (Unaudited)						Nine Months Ended September 30, (Unaudited)
		2020			2019			2020			2019
Basic net loss per share:
Net loss	$	(1,296,696	)	$	(4,931,125	)	$	(5,058,592	)	$	(3,800,227	)
Weighted average common shares outstanding – basic		256,758,472			133,001,746			207,536,173			132,885,675
Net loss per share - basic	$	(0.01	)	$	(0.04	)	$	(0.02	)	$	(0.03	)
Diluted net loss per share:
Net loss (as adjusted)	$	(1,720,835	)	$	(4,931,125	)	$	(5,401,484	)	$	(5,656,982	)
Weighted average common shares outstanding – diluted		257,255,653			133,001,746			208,434,966			167,690,989
Net loss per share - diluted	$	(0.01	)	$	(0.04	)	$	(0.03	)	$	(0.03	)

The following outstanding shares of common stock equivalents were excluded from the computation of diluted net loss per share of common stock for the periods presented because including them would have been anti-dilutive:

	Three Months Ended September 30, (Unaudited)				Nine Months Ended September 30, (Unaudited)
	2020		2019		2020		2019
Stock options		25,000,678		4,512,715		25,000,678		4,512,715
Unvested restricted stock		—		1,093,501		—		1,093,501
Common shares underlying convertible debt		5,215,457		15,000,000		5,215,457		15,000,000
Warrants		145,336,155		57,943,250		22,304,750		144,934,542

Recent Accounting Pronouncements

In August 2020, the FASB issued ASU 2020-06, Debt—Debt with Conversion and Other Options (Subtopic 470-20) and Derivatives and Hedging—Contracts in Entity’s Own Equity (Subtopic 815-40): Accounting for Convertible Instruments and Contracts in an Entity’s Own Equity. This ASU amends the guidance on convertible instruments and the derivatives scope exception for contracts in an entity’s own equity and improves and amends the related EPS guidance for both Subtopics. The ASU will be effective for annual reporting periods after December 15, 2023 and interim periods within those annual periods and early adoption is permitted in annual reporting periods ending after December 15, 2020. We are still assessing the impact of ASU 2020-06 on our condensed consolidated financial statements.

In December 2019, the FASB issued ASU No. 2019-12 Income Taxes (Topic 740) simplifying the Accounting for Income Taxes. The Board issued this update as part of its Simplification Initiative to improve areas of GAAP and reduce cost and complexity while maintaining usefulness of the financial statements. The main provisions remove certain exceptions, including the exception to the general methodology for calculating income taxes in an interim period when a year-to-date loss exceeds the anticipated loss for the year. In addition, the amendments simplify income tax accounting in the areas such as income-based franchise taxes, eliminating the requirements to allocate consolidated current and deferred tax expense in certain instances and a requirement that an entity reflects the effect of enacted changes in tax laws or rates in the annual effective tax rate computation in the interim period that includes the enactment date. For public companies, the standard is effective for fiscal years beginning after December 15, 2020, and interim periods therein, with early adoption permitted. The Company plans to adopt this ASU on the effective date of January 1, 2021. However, it may adopt the update earlier if circumstances arise making early adoption favorable to the Company. The amendments in the update related to foreign subsidiaries will be applied on a modified retrospective basis, the amendments to franchise taxes will be applied on either a retrospective or modified retrospective basis and all other amendments will be applied on a prospective basis. The Company is still evaluating the impact from adopting this standard. However, because the Company’s deferred tax assets and liabilities are fully reserved, it does not expect a material impact from the adoption of this standard.

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Warrants and Derivative Liabilities

9 Months Ended

Sep. 30, 2020

Warrants And Derivative Liabilities [Abstract]

Warrants and Derivative Liabilities

3. Warrants and Derivative Liabilities

Warrants

There are significant judgments and estimates inherent in the determination of the fair value of the Company’s warrants. These judgments and estimates include assumptions regarding the Company’s future operating performance, the time to completing a liquidity event and the determination of the appropriate valuation methods. If the Company had made different assumptions, the fair value of the warrants could have been significantly different (See Note 2).

Warrants vested and outstanding as of September 30, 2020 are summarized as follows:

					Number of Warrants
	Exercise		Term		Vested and
Source	Price		(Years)		Outstanding
Pre 2015 Common Stock Warrants	$	1.00	6—10			1,110,000
2015 Common Stock Warrants	$	1.15—5.00	5—10			220,000
2016 Common Stock Warrants to Service Providers	$	1.15		10		40,000
2016 Series C Common Stock Warrants to Placement Agent	$	0.40		5		125,000
2017 Series D Common Stock Warrants to Placement Agent	$	0.25		5		480,000
2017 Common Stock Warrants to Service Provider	$	0.41		5		125,000
2018 Emerald Financing Warrants	$	0.10		5		3,400,000
Emerald Multi-Draw Credit Agreement Warrants	$	0.50		5		7,500,000
2019 Common Stock Warrants	$	0.35		5		8,000,000
2020 Common Stock Warrants	$	0.06		5		116,666,668
2020 Common Stock Warrants to Placement Agent	$	0.075		4.99		8,166,667
2020 Pre-Funded Warrants	$	0.001	indefinite			49,800,000
Total warrants vested and outstanding as of September 30, 2020						195,633,335

Emerald Multi-Draw Credit Agreement Warrants

During the nine months ended September 30, 2019, the Company issued 5,000,000 fully vested common stock warrants to Emerald Health Sciences, in conjunction with advances under the Credit Agreement discussed below (See Note 4). The warrants were equity classified at issuance and the Company allocated an aggregate of $716,110 of the gross proceeds to the warrants on a relative fair value basis. The proceeds allocated to the warrants were recorded as discounts to each advance and are being amortized over the term of the debt. The warrants vested immediately and had an estimated aggregate fair value of $1,830,573 utilizing the Black-Scholes Merton option pricing model with the following assumptions:

	At Issuance
Dividend yield	0.00%
Volatility factor	91.6—92.1
Risk-free interest rate	2.23—2.51
Expected term (years)	5.0
Underlying common stock price	$0.33—0.69

August 2020 Financing Warrants

In connection with the August 2020 Financing (Note 5), the Company issued 116,666,668 common stock warrants, 8,166,667 common stock warrants to the placement agent and 60,333,334 pre-funded warrants. The warrants were equity classified at issuance and the Company allocated $2,462,462 and $2,986,500 of the gross proceeds to the common stock warrants and pre-funded warrants on a relative fair value basis, respectively. The common stock warrants issued to the placement agent were valued at $261,333 and recorded as equity issuance costs within equity. The warrants vested immediately and were valued utilizing the Black-Scholes Merton option pricing model with the following assumptions:

	Common Stock Warrants			Pre-funded Warrants			Placement Agent Warrants
Dividend yield		0.00	%		0.00	%		0.00	%
Volatility factor		91.64	%		93.86	%		91.64	%
Risk-free interest rate		0.19	%		0.52	%		0.19	%
Expected term (years)		5.0			10			4.99
Underlying common stock price	$	0.05		$	0.05		$	0.05

Derivative Liabilities

The following tables summarize the activity of derivative liabilities for the periods indicated:

	Nine Months Ended September 30, 2020
	December 31, 2019, Fair Value of Derivative Liabilities			Fair Value of Derivative Liabilities Issued		Change in Fair value of Liabilities			Reclassification of Derivatives to Equity			September 30, 2020, Fair Value of Derivative Liabilities
Emerald Multi-Draw Credit Agreement - compound derivative liability (1)	$	90,797		$	—	$	(90,797	)	$	—		$	—
Emerald Financing - warrant liability (2)		276,024			—		(234,875	)		—			41,149
Series B - warrant liability (3)		134,579			—		(108,016	)		(26,563	)		—
Total derivative liabilities	$	501,400		$	—	$	(433,688	)	$	(26,563	)	$	41,149
Less, noncurrent portion of derivative liabilities		(90,797	)										—
Current balance of derivative liabilities	$	410,603										$	41,149

	Nine Months Ended September 30, 2019
	December 31, 2018, Fair Value of Derivative Liabilities			Fair Value of Derivative Liabilities Issued		Change in Fair value of Derivative Liabilities			Reclassification of Derivatives to Equity			September 30, 2019, Fair Value of Derivative Liabilities
Emerald Multi Draw Credit Agreement - compound derivative liability (1)	$	219,453		$	516,058	$	(167,905	)	$	—		$	567,606
Emerald Financing - warrant liability (2)		15,251,413			—		(1,895,193	)		—			13,356,220
Series B - warrant liability (3)		487,500			—		38,438			(144,375	)		381,563
Total derivative liabilities	$	15,958,366		$	516,058	$	(2,024,660	)	$	(144,375	)	$	14,305,389
Less, noncurrent portion of derivative liabilities		(219,453	)										(567,606	)
Current balance of derivative liabilities	$	15,738,913										$	13,737,783

Emerald Multi-Draw Credit Agreement Compound Derivative Liability (1)

In connection with the advances under the Credit Agreement (See Note 4), the Company bifurcated a compound derivative liability related to a contingent interest feature and acceleration upon default provision (contingent put option) provided to Emerald Health Sciences. The Company’s estimate of fair value of the compound derivative liability was determined by using a differential cash flows valuation model, wherein the fair value of the underlying debt facility and its conversion right are estimated both with and without the presence of the contingent interest feature, holding all other assumptions constant. The resulting difference between the estimated fair values in both scenarios is the estimated fair value of the compound derivative. The fair value of the underlying debt facility was estimated by calculating the expected cash flows with consideration of the estimated probability of a change in control transaction, defined as an event of default by the agreement, and applying the expected default interest rate from the date of such default through maturity. The expected cash flows are then discounted back to the reporting date using a benchmark market yield. The conversion right component of the compound derivative was measured using a standard Black-Scholes model for each payment period.

On April 29, 2020, the Company entered into the Amended Credit Agreement which removed the change in control provision as an event of default for advances before and after the amendment. As a result of the modification, the contingent interest feature component of the compound derivative is no longer required to be bifurcated as a derivative liability. During the nine months ended September 30, 2020, the liability has been reduced to $0 through an adjustment to the change in fair value of derivative liabilities.

Because Emerald Health Sciences would forgo the contingent interest if the contingent put option was exercised upon an event of default, the value ascribed to the contingent put option within the compound derivative is considered de minimis before and after the amendment to the Credit Agreement.

Emerald Financing Warrant Liability (2)

In January and February 2018, the Company issued 44,200,000 warrants to purchase common stock in conjunction with the Emerald Financing. The warrants vest immediately and have an exercise price of $0.10 per share with a term of five years and are exercisable in cash or through a cashless exercise provision. The warrants contained an anti-dilution protection feature that provided the investors with price protection if the Company subsequently issued or sold any shares of common stock, stock options, or convertible securities at a price less than the exercise price of $0.10. In connection with the August 2020 Financing, this provision was waived, and the exercise price was permanently set to $0.10. In addition, the warrants contain a contingent put option if the Company undergoes a subsequent financing that results in a change in control. The warrant holders also have the right to participate in subsequent financing transactions on an as-if converted basis.

In December 2019, Emerald Health Sciences paid the aggregate exercise price of $4,080,000 in the form of a reduction of the corresponding amount of obligations outstanding under the Credit Agreement to exercise 40,800,000 Emerald Financing Warrants. Under the Warrant Exercise Agreement between the Company and Emerald Health Sciences, the proceeds from the warrants were first applied directly to the accrued interest balance at the exercise date with the remainder applied to the oldest outstanding principal balances under the Credit Agreement. Immediately prior to exercise, the warrants were adjusted to fair value which considered the closing trading price on the exercise date (See Note 4).

The Company reviewed the warrants for liability or equity classification under the guidance of ASC 480-10, Distinguishing Liabilities from Equity, and concluded that the warrants should be classified as a liability and re-measured to fair value at the end of each reporting period. The Company also reviewed the warrants under ASC 815, Derivatives and Hedging/Contracts in Entity’s Own Equity, and determined that the warrants also meet the definition of a derivative. With the assistance of a third-party valuation specialist, the Company valued the warrant liabilities utilizing the Monte Carlo valuation method pursuant to the accounting guidance of ASC 820-10, Fair Value Measurements.

The warrant liabilities were valued using Monte Carlo simulations conducted at the balance sheet dates using the following assumptions:

	September 30, 2020			December 31, 2019
Dividend yield		0.00	%		0.00	%
Volatility factor		80.8	%		79.5	%
Risk-free interest rate		0.14	%		1.62	%
Expected term (years)		2.38			3.13
Underlying common stock price	$	0.04		$	0.13

Series B Warrant Liability (3)

In conjunction with the Redeemable Convertible Series B Preferred Stock financing, the Company issued the 2015 Series B Financing Warrants originally exercisable at a price of $1.15 per share. The warrants are exercisable in cash or through a cashless exercise provision and contain certain cash redemption rights. The Series B Financing Warrants also had a “down-round” protection feature if the Company subsequently issued or sold any shares of common stock, stock options, or convertible securities at a price less than the current exercise price.  The down round provision was triggered and automatically adjusted down to $0.10 on December 28, 2017, after the Company entered into the Convertible Promissory Note (See Note 4) and again to $0.00 on January 19, 2018, as a result of the Emerald Financing. The strike price for these warrants is now permanently reset. However, because the remaining warrant holders still had certain cash redemption rights upon the occurrence of certain fundamental transactions, as defined in the Series B Financing Warrant agreements, the warrants continued to require liability classification. Subsequent to the repricing that occurred as a result of the Emerald Financing, the warrants have been valued using a Black Scholes Merton Option Pricing Model.

To compute the fair value of the warrants, the Company utilized the following assumptions in the Black Scholes Merton Option Pricing Model for the periods indicated:

	As of December 31, 2019
Dividend yield		0.00	%
Volatility factor		79.2	%
Risk-free interest rate		1.60	%
Expected term (years)		0.64
Underlying common stock price	$	0.13

During the nine months ended September 30, 2020, 312,500 Series B Common Stock Warrants with an intrinsic value of $26,563 were exercised for no consideration per share, which resulted in the issuance of 312,500 shares of common stock. Prior to exercise, these Series B Common Stock Warrants were adjusted to fair value using a Black Scholes Merton Option Pricing Model which considered the closing trading price on the exercise dates. Because the exercise price of these options had been reset to $0.00, the fair value derived from the valuation model approximated the market value of the Company’s common stock on the exercise dates.

As of September 30, 2020, the remaining Series B Common Stock Warrants expired unexercised.

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Debt

9 Months Ended

Sep. 30, 2020

Debt Disclosure [Abstract]

Debt

4. Debt

Multi-Draw Credit Agreement- Related Party

The Company’s Debt with Emerald Health Sciences consists of the following:

	Conversion Price		As of September 30, 2020			As of December 31, 2019
Total principal value of convertible debt—related party	$	0.40	$	2,014,500		$	2,014,500
Unamortized debt discount				(1,220,838	)		(1,622,344	)
Unamortized debt issuance costs				(3,968	)		(5,086	)
Carrying value of total convertible debt - related party				789,694			387,070
Total principal value of non-convertible debt—related party		n/a		450,000			—
Total carrying value of advances under the multi-draw credit agreement			$	1,239,694		$	387,070

On October 5, 2018, the Company entered into the Credit Agreement with Emerald Health Sciences, a related party (See Note 8). On April 29, 2020, the Company entered into the Amended Credit Agreement with Emerald Health Sciences, which amends and restates the Credit Agreement. For all pre-existing and new advances, the Amended Credit Agreement removed the change in control as an event of default (See Note 3) and defers the quarterly payment of interest until the Company completes a capital raise of at least $5,000,000. As of September 30, 2020, interest is no longer being deferred as a result of the August 2020 Financing. The amendments to the pre-existing advances were accounted for as a modification. For all advances made after the Credit Agreement was amended, advances will be convertible at a reduced conversion price of $0.25 per share of Common Stock, unless Emerald Health Sciences provides notice that the advance will not be convertible.

For all outstanding advances, the Amended Credit Agreement provides for a credit facility to the Company of up to $20,000,000 and is unsecured. Advances under the Amended Credit Agreement bear interest at an annual rate of 7% and mature on October 5, 2022. At Emerald Health Sciences’ election, convertible advances and unpaid interest may be converted into common stock at the fixed conversion price of the underlying advance, subject to customary adjustments for stock splits, stock dividends, recapitalizations, etc. As of September 30, 2020, the unused portion of the credit facility is $13,550,000. The drawdowns are subject to approval by the Company’s Board, which is controlled by the directors of Emerald Health Sciences. As such, the Company does not consider the facility available until advance requests are approved, drawn down and funded. The Amended Credit Agreement is still in place; however, there is no guarantee of continued funding.

The Amended Credit Agreement provides for customary events of default which may result in the acceleration of the maturity of the advances in addition to, but not limited to, cross acceleration to certain other indebtedness of the Company. In the case of an event of default arising from specified events of bankruptcy or insolvency or reorganization, all outstanding advances will become due and payable immediately without further action or notice. If any other event of default under the Amended Credit Agreement occurs or is continuing, Emerald Health Sciences may, by written notice, terminate its commitment to make any advances and/or declare all the advances with any other amounts payable due immediately. If any amount under the Amended Credit Agreement is not paid when due, such overdue amount shall bear interest at an annual default interest rate of the applicable rate plus 10%, until such amount is paid in full.

In connection with each advance under the Amended Credit Agreement, the Company has agreed to issue to Emerald Health Sciences warrants to purchase shares of common stock in an amount equal to 50%  of the number of shares of common stock that each advance may be converted into. The warrants have a term of five years that are immediately exercisable upon issuance. Under the Amended Credit Agreement, Emerald Health Sciences may issue notice that no warrants will be granted at the time of the advance request. The warrants issued under the Credit Agreement have an exercise price of $0.50 per share and any warrants issued under the Amended Credit Agreement will have a reduced exercise price of $0.35 per share. The exercise prices are subject to adjustment in the event of certain stock dividends and distributions, stock splits, stock combinations, reclassifications or similar events or upon any distributions of assets, including cash, stock or other property to the Company’s stockholders (See Note 3).

In accounting for each advance and the warrants issued under the Amended Credit Agreement, the Company allocates the proceeds between the debt host and the freestanding warrants on a relative fair value basis for each advance. On the date of each advance, if the effective conversion rate of the debt is less than the market value of the Company’s common stock, the Company records a beneficial conversion feature as a discount to the debt and an increase to additional paid-in capital. The debt discounts related to the warrants, beneficial conversion features and compound derivatives, if any, are being amortized over the term of the Amended Credit Agreement using the effective interest rate method. Amortization of the debt discount is recognized as non-cash interest expense and the compound derivatives related to the contingent interest feature and acceleration upon default provision are remeasured at fair value in subsequent periods in the Company’s Condensed Consolidated Balance Sheets.

On November 1, 2018, an initial advance was made for $2,000,000 and the Company issued 2,500,000 warrants with an exercise price of $0.50 per share (See Note 3). In accounting for the convertible advance and warrants under the Credit Agreement, $1,684,920 of the proceeds was allocated to the debt and $315,080 was allocated to equity classified warrants. A beneficial conversion feature of $90,080 and a compound derivative liability of $204,102 were also recorded.

During the nine months ended September 30, 2019, the Company initiated two advances, each in the amount of $2,000,000, for an aggregate principal amount of $4,000,000, and the Company issued an aggregate of 5,000,000 warrants with an exercise price of $0.50 per share (See Note 3). In accounting for the convertible advances and warrants, an aggregate amount of $3,283,890 was allocated to the debt and $716,110 was allocated to equity classified warrants. A beneficial conversion feature of $1,584,850 and compound derivative liabilities of an aggregate of $516,058 were recorded (See Note 3). Of the $516,058 in compound derivatives, $322,644 was recorded as other expense in the Condensed Consolidated Statements of Comprehensive Loss for the nine months ended September 30, 2019, as the value of the beneficial conversion feature exceeded the proceeds allocated to the third draw.

During the year ended December 31, 2019, the Company used $3,985,500 in proceeds from the exercise of the 2018 Emerald Financing Warrants to prepay a portion of the outstanding principal balance. In connection with the prepayment, the Company recorded an extinguishment loss of $725,425 in the fourth quarter of 2019. The extinguishment loss was calculated as the difference between the fair value of the consideration paid to extinguish the debt and carrying value of the debt host plus the related compound derivative liability.

During the nine months ended September 30, 2020, the Company effected a fourth and fifth advances in the amounts of $150,000 and $300,000, respectively. The Lender has elected that the fourth and fifth advances will not be convertible into shares of Common Stock and gave notice to the Company that no warrants will be issued in connection with the advances.

Aggregate financing costs of $63,007 have been incurred and are recorded as a discount to the debt host and are being amortized using the effective interest rate method and recognized as non-cash interest expense over the term of the Amended Credit Agreement. As of September 30, 2020, the unamortized debt discount on the convertible advances will be amortized over a remaining period of approximately 2.01 years. As of September 30, 2020, the fair value of the shares underlying the convertible advances under the Amended Credit agreement was $211,523. As of September 30, 2020, the if-converted value did not exceed the principal balance.

PPP Loan

On April 24, 2020, the Company received funding from the PPP Loan Lender pursuant to the PPP of the CARES Act administered by the SBA for a principal amount of $116,700. The PPP Loan matures on April 24, 2022 and bears interest at a rate of 1.00% per year. Interest and principal are payable monthly commencing seven months from the date of funding. The PPP Loan may be prepaid at any time prior to maturity with no prepayment penalties. Funds from the PPP Loan may only be used by the Company for payroll costs, costs for continuing group healthcare benefits, mortgage interest payments, rent, utility and interest on any other debt obligations that were incurred before February 15, 2020.

All or a portion of the principal from the PPP Loan may be forgiven by the SBA and the PPP Loan Lender upon application by the Company within 60 days but not later than 120 days after loan approval and upon documentation of expenditures in accordance with the SBA requirements. Under the CARES Act, loan forgiveness is available for the sum of documented payroll costs, covered rent payments, and covered utilities during an eight-week period, or a longer period if elected by the Company, commencing on the date of loan approval. For purposes of the CARES Act, payroll costs exclude compensation of an individual employee in excess of $100,000, prorated annually. Not more than 25% of the forgiveness amount may be for non-payroll costs. Forgiveness is reduced if full-time headcount declines, or if salaries and wages of employees with salaries of $100,000 or less annually are reduced by more than 25%. After approval of the forgiveness amount and seven-month deferral period, the PPP Loan Lender will provide the Company with written notification of re-amortization of the PPP Loan and the remaining balance.

Interest Expense

The Company’s interest expense consists of the following:

	Three Months Ended September 30,				Nine Months Ended September 30,
	2020		2019		2020		2019
Related party interest expense – stated rate	$	44,087	$	107,334	$	117,459	$	272,611
PPP loan interest expense – stated rate		294		—		511		—
Non-cash interest expense:
Amortization of debt discount		137,849		190,886		401,507		429,355
Amortization of transaction costs		384		3,327		1,117		9,609
	$	182,614	$	301,547	$	520,594	$	711,575

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Stockholders' Equity (Deficit) and Capitalization

9 Months Ended

Sep. 30, 2020

Stockholders' Equity Note [Abstract]

Stockholders' Equity (Deficit) and Capitalization

5. Stockholders' Equity (Deficit) and Capitalization

Common Stock

August 2020 Financing

On July 31, 2020, the Company entered into a Securities Purchase Agreement with certain institutional investors for the issuance and sale of securities, with H.C. Wainwright & Co., LLC acting as the placement agent, pursuant to which the Company sold 56,333,334 common units, each consisting of one share of common stock and one warrant to purchase one share of common stock, and 60,333,334 pre-funded units, each consisting of one pre-funded warrant to purchase one share of common stock and one warrant to purchase one share of common stock, in a registered public offering which closed on August 4, 2020 (the ''August 2020 Financing'' ). The common units and pre-funded units were sold at a price per unit of $0.06 and $0.059, respectively, for gross aggregate proceeds of $6,939,667. The common stock warrants and prefunded warrants have an exercise price of $0.06 and $0.001, respectively. The common stock warrants have a term of five years, and the pre-funded warrants are exercisable until all the pre-funded warrants have been exercised in full (Note 3).

In connection with the August 2020 Financing, the Company incurred issuance costs of $854,078, for net proceeds of $6,085,589. Additionally, the Company issued warrants to purchase 8,166,667 shares of common stock to the placement agent, which represent 7% of the total shares of common stock and pre-funded warrants sold in the offering. The placement agent warrants have an exercise price of $0.075 per share and a term of five years.

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Stock-Based Compensation

9 Months Ended

Sep. 30, 2020

Share-based Payment Arrangement [Abstract]

Stock-Based Compensation

6. Stock-Based Compensation

Stock Incentive Plan

On October 31, 2014, after the closing of the Merger, the Board approved the Company’s 2014 Omnibus Incentive Plan (the “2014 Plan”). The 2014 Plan initially reserved 3,200,000 shares for future grants. In October 2018, the Company increased the share reserve under the 2014 Plan to equal 10% of the number of issued and outstanding shares of common stock of the Company. In August 2020, the Company approved Amendment No. 2 to the 2014 Plan, which increased the share reserve by an additional 7,876,835 shares over the 10% of the number of issued and outstanding shares of common stock, and removed certain restrictions on the number of shares of common stock and the amount of cash-based awards up to which participants of the 2014 Plan can receive in a calendar year. The 2014 Plan authorizes the issuance of awards including stock options, stock appreciation rights, restricted stock, stock units and performance units to employees, directors, and consultants of the Company. As of September 30, 2020, the Company had 6,040,097 shares available for future grant under the 2014 Plan.

Stock Options

The following is a summary of option activities under the Company's 2014 Plan for the nine months ended September 30, 2020:

	Number of Shares			Weighted Average Exercise Price		Weighted Average Remaining Contractual Term (Years)
Outstanding, December 31, 2019		3,317,642		$	0.33		8.34
Granted		24,200,000			0.05
Cancelled		(1,861,964	)		0.08
Forfeited		(655,000	)		0.42
Outstanding, September 30, 2020		25,000,678		$	0.07		9.73
Exercisable, September 30, 2020		4,410,668		$	0.07		9.73

During the nine months ended September 30, 2020, no stock options were exercised. The weighted-average fair value of stock options granted during the nine months ended September 30, 2020 was $0.04.

The fair value of each stock option grant was estimated on the date of grant using the Black-Scholes option pricing model under the following assumptions:

	Nine Months Ended September 30, 2020
Dividend yield	0.00%
Risk-free interest rate	0.28—0.38%
Expected term (years)	5.56—6.01
Volatility	92.55—93.84%

Restricted Stock Awards

During the nine months ended September 30, 2020, 643,501 restricted stock awards ( ''RSAs'' ) with a weighted average grant date fair value of $0.26 vested and were released from their service condition restriction. At September 30, 2020, there are no unvested RSA awards outstanding under the 2014 Plan.

Awards Granted Outside the 2014 Plan

Options

During the nine months ended September 30, 2020, 325,929 stock options with a weighted average exercise price of $0.25 were forfeited in connection with the separation and release of the Company's former CFO. As of September 30, 2020, an additional 869,144 options vested and outstanding with a weighted average exercise price of $0.25 were cancelled unexercised.

Restricted Stock Awards

The following is a summary of RSA activity outside of the Company's 2014 Plan during the nine months ended September 30, 2020:

	Number of Shares			Weighted Average Grant Date Fair Value
Unvested, December 31, 2019		450,000		$	0.19
Granted		—			—
Released		(450,000	)		0.19
Unvested, September 30, 2020		—		$	—

Stock-Based Compensation Expense

The Company recognizes compensation expense using the straight-line method over the requisite service period. Stock-based compensation is included in the Condensed Consolidated Statements of Comprehensive Loss in general and administrative or research and development, depending upon the nature of services provided. Stock-based compensation expense (including compensation expense for RSAs discussed above) was as follows:

	Three Months Ended September 30,				Nine Months Ended September 30,
	2020		2019		2020		2019
Research and development	$	44,010	$	—	$	82,463	$	—
General and administrative		104,355		170,106		158,753		514,683
	$	148,365	$	170,106	$	241,216	$	514,683

The total amount of unrecognized compensation cost was $879,628 as of September 30, 2020. This amount will be recognized over a weighted average period of 3.59 years.

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Significant Contracts - University of Mississippi

9 Months Ended

Sep. 30, 2020

Significant Contracts [Abstract]

Significant Contracts - University of Mississippi

7. Significant Contracts - University of Mississippi

UM 5050 Prodrug and UM 8930 Analog Agreements

In July 2018, the Company renewed its ocular licenses for UM 5050, related to the prodrug formulation of tetrahydrocannabinol (“THC”), and UM 8930, related to an analog formulation of cannabidiol (“CBD”). On May 24, 2019, the ocular delivery licenses were replaced by “all fields of use” licenses for both UM 5050 and UM 8930 (collectively, the “License Agreements”). Pursuant to the License Agreements, UM granted the Company an exclusive, perpetual license, including, with the prior written consent of UM, the right to sublicense, to intellectual property related to UM 5050 and UM 8930 for all fields of use.

The License Agreements contain certain milestone payments, royalty and sublicensing fees payable by the Company, as defined therein. Each License Agreement provides for an annual maintenance fee of $75,000 payable on the anniversary of the effective date. The upfront payment for UM 5050 is $100,000 and the upfront payment for UM 8930 is $200,000. In addition, in March 2020, the Company was notified by the United States Patent and Trademark Office, that a notice of allowance was issued for the proprietary analog of cannabidiol, CBDVHS, under the UM 8930 License Agreement. As a result, the Company was required to pay UM a fee of $200,000. The milestone payments payable for each license are as follows:

i)	$100,000 paid within 30 days following the submission of the first Investigational New Drug Application (“NDA”) to the Food and Drug Administration or an equivalent application to a regulatory agency anywhere in the world, for a product;
ii)	$200,000 paid within 30 days following the first submission of an NDA, or an equivalent application to a regulatory agency anywhere in the world, for each product that is administered in a different route of administration from that of the early submitted product(s); and
iii)	$400,000 paid within 30 days following the approval of an NDA, or an equivalent application to a regulatory agency anywhere in the world, for each product that is administered in a different route of administration from that of the early approved product(s).

The royalty percentage due on net sales under each License Agreement is in the mid-single digits. The Company must also pay to UM a portion of all licensing fees received from any sublicensees, subject to a minimum royalty on net sales, and the Company is required to reimburse patent costs incurred by UM related to the licensed products. The royalty obligations apply by country and by licensed product, and end upon the later of the date that no valid claim of a licensed patent covers a licensed product in a given country, or ten years after the first commercial sale of such licensed product in such country.

Each License Agreement continues, unless terminated, until the later of the expiration of the last to expire of the patents or patent applications within the licensed technology or the expiration of the Company’s payment obligations under such License Agreement. UM may terminate each License Agreement, by giving written notice of termination, upon the Company’s material breach of such License Agreement, including failure to make payments or satisfy covenants, representations or warranties without cure, noncompliance, a bankruptcy event, the Company’s dissolution or cessation of operations, the Company’s failure to make reasonable efforts to commercialize at least one product or failure to keep at least one product on the market after the first commercial sale for a continuous period of one year, other than for reasons outside the Company’s control, or the Company’s failure to meet certain pre-established development milestones. The Company may terminate each License Agreement upon 60 days’ written notice to UM.

As of September 30, 2020, with the exception of the fee due for the notice of allowance for CBDVHS, none of the other milestones under these license agreements have been met.

UM 5070 License Agreement

In January 2017, the Company entered into a license agreement with UM pursuant to which UM granted us an exclusive, perpetual license, including the right to sublicense, to intellectual property related to a platform of cannabinoid-based molecules (“UM 5070”), to research, develop and commercialize products for the treatment of infectious diseases.

The Company paid UM an upfront license fee under the license agreement. Under the license agreement, the Company is also responsible for annual maintenance fees that will be credited against royalties in the current fiscal year, contingent milestone payments upon achievement of development and regulatory milestones, and royalties on net sales of licensed products sold for commercial use. The aggregate milestone payments due under the license agreement if all the milestones are achieved is $700,000 and the royalty percentage due on net sales is in the mid-single digits. The Company must also pay to UM a percentage of all licensing fees we receive from any sublicensees, subject to a minimum royalty on net sales by such sublicensees. The Company’s royalty obligations apply on a country by country and licensed product by licensed product basis, and end upon the later of the date that no valid claim of a licensed patent covers a licensed product in a given country, or ten years after first commercial sale of such licensed product in such country.

The license agreement continues, unless terminated, until the later of the expiration of the last to expire of the patents or patent applications within the licensed technology or expiration of the Company’s payment obligations under the license. UM may terminate the license agreement, effective with the giving of notice, if: (a) the Company fails to pay any material amount payable to UM under the license agreement and do not cure such failure within 60 days after UM notifies us of such failure, (b) the Company materially breaches any covenant, representation or warranty in the license agreement and do not cure such breach within 60 days after UM notifies the Company of such breach, (c) the Company fails to comply in any material respect with the terms of the license and do not cure such noncompliance within 60 days after UM notifies us of such failure, (d) the Company is subject to a bankruptcy event, (e) the Company dissolves or ceases operations or (f) if after the first commercial sale of a product during the term of the license agreement, the Company materially fails to make reasonable efforts to commercialize at least one product or fail to keep at least one product on the market after the first commercial sale for a continuous period of one year, other than for reasons outside of the Company’s control. The Company may terminate the license agreement upon 60 days’ written notice to UM.

As of September 30, 2020, none of the milestones under this license agreement have been met.

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Related Party Matters

9 Months Ended

Sep. 30, 2020

Related Party Transactions [Abstract]

Related Party Matters

8. Related Party Matters

Emerald Health Sciences

On February 1, 2018, the Company entered into an Independent Contractor Agreement with Emerald Health Sciences, pursuant to which Emerald Health Sciences agreed to provide such services as are mutually agreed between the Company and Emerald Health Sciences, including reimbursement for reasonable expenses incurred in the performance of the Independent Contractor Agreement. These services included, but were not limited to, corporate advisory services and technical expertise in the areas of business development, marketing, investor relations, information technology and product development. The Independent Contractor Agreement had an initial term of 10 years and specified compensation which was agreed upon between the Company's Chief Executive Officer and Emerald Health Sciences' Chairman, CEO and President on a month-to-month basis. The fee due under this agreement was payable on a monthly basis. Effective December 31, 2019, the Independent Contractor Agreement was terminated. As of September 30, 2020, the Company maintains an accrual of $7,032 in expenses under the Independent Contractor Agreement which have yet to be paid. Under this agreement, no expenses were incurred for the three and nine months ended September 30, 2020. Under this agreement, for the three and nine months ended September 30, 2019, the Company incurred expenses of $150,000 and $450,000, respectively.

On December 17, 2019, Dr. Avtar Dhillon resigned as the Chairman of the Board and the position of Chairman of the Finance and Business Development Committee of the Board. Concurrently, the Company entered into a Board Observer Agreement with Emerald Health Sciences to allow Dr. Dhillon to continue as a representative of Emerald Health Sciences as a non-voting observer in future meetings of the Board.

On December 19, 2019, the Company entered into an Independent Contractor Services Agreement with Dr. Avtar Dhillon, pursuant to which Dr. Dhillon will provide ongoing corporate finance and strategic business advisory services to the Company. In exchange for his services, Dr. Dhillon will receive a monthly fee of $10,000, with (i) $5,000 paid each month and (ii) $5,000 accruing from the effective date and payable upon the Company's completion of a material financing. The Board will review the monthly rate paid to Dr. Dhillon within 90 days of the end of each fiscal year. The Independent Contractor Services Agreement has an initial term of one year and will renew automatically thereafter unless terminated earlier by either party. The Independent Contractor Services Agreement may be terminated by either party for cause upon written notice to the other party if the other party defaults in the performance of the agreement in any material respect or materially breaches the terms of the agreement, or without cause upon 30 days' prior written notice to the other party. On March 30, 2020, the Company and Dr. Dhillon amended the Independent Contractor Services Agreement by agreeing to accrue 100% of Dr. Dhillon's consulting fees until the Board of Directors determines that the Company has been sufficiently financed to make such payments at which point the Company agrees to pay Dr. Dhillon all of his accrued consulting fees, and a bonus of 10% of his accrued consulting fees, less applicable tax and other withholdings. The deferral was paid concurrent with the August 2020 Financing. Under this agreement, for the three and nine months ended September 30, 2020, the Company incurred fees of $31,000 and $97,387, respectively. As of September 30, 2020, the Company has accrued $10,000 in expense related to the Independent Contractor Services Agreement.

In addition, on August 10, 2020, Emerald Health Sciences, Inc. transferred Dr. Avatar Dhillon 500,000 shares of the Company’s common stock at a deemed price of $0.10 in exchange for the cancellation of $50,000 of debt.

As of September 30, 2020, Jim Heppell and Punit Dhillon are board members of the Company and Emerald Health Pharmaceuticals, a subsidiary of Emerald Health Sciences, Inc. As of September 30, 2020, Jim Heppell is also a board member of Emerald Health Sciences, Inc. The Company's CEO, Punit Dhillon also served as a board member of Emerald Health Sciences, Inc. until he tendered his resignation from such board on August 10, 2020. Additionally, the Company shares the same office location as Emerald Health Pharmaceuticals.

On August 10, 2020, Emerald Health Sciences, Inc. extinguished debt of $186,667 by transferring 1,566,666 shares of the Company’s common stock at a deemed price of $0.10 per share to certain officers, employees and directors of the Company.

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Subsequent Events

9 Months Ended

Sep. 30, 2020

Subsequent Events [Abstract]

Subsequent Events

9. Subsequent Events

Stock Incentive Plan

On October 5, 2020, the Company granted 2,000,000 stock options under the 2014 Plan to an employee. The stock options have an exercise price of $0.05 per share and a fair market value of $0.04 per share on the date of grant. The stock options vest 10% on the grant date with the remaining 90% vesting semi-annually over a four-year period.

In connection with the departure of the Company’s Chief Medical Officer, 3,968,271 stock options have been forfeited on November 6, 2020.

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Summary of Significant Accounting Policies (Policies)

9 Months Ended

Sep. 30, 2020

Accounting Policies [Abstract]

Basis of Presentation

Basis of Presentation

In the opinion of management, the accompanying Unaudited Condensed Consolidated Financial Statements have been prepared on a consistent basis with the Company’s Audited Consolidated Financial Statements for the fiscal year ended December 31, 2019, and include all adjustments, consisting of only normal recurring adjustments, necessary to fairly state the information set forth herein. The Condensed Consolidated Financial Statements have been prepared in accordance with the rules and regulations of the Securities and Exchange Commission (“SEC”) and therefore, omit certain information and footnote disclosures necessary to present the financial statements in accordance with generally accepted accounting principles in the United States (“GAAP”).

The results of operations for the three and nine months ended September 30, 2020 are not necessarily indicative of the results to be expected for the year ending December 31, 2020 or any future periods. The Condensed Consolidated Balance Sheet as of December 31, 2019 was derived from the Company’s audited financial statements as of December 31, 2019, which are included in the Company’s Annual Report on Form 10-K filed with the SEC on March 20, 2020. The unaudited financial statements included in this Quarterly Report on Form 10-Q should be read in conjunction with the audited consolidated financial statements and notes thereto included in the Company’s Annual Report on Form 10-K for the fiscal year ended December 31, 2019, which includes a broader discussion of the Company’s business and the risks inherent therein.

Use of Estimates

Use of Estimates

The preparation of the Condensed Consolidated Financial Statements in conformity with GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the Condensed Consolidated Financial Statements and the reported amounts of income and expense during the reporting period. Actual results could differ from those estimates. The most significant accounting estimates inherent in the preparation of the Company’s financial statements include estimates as to the appropriate carrying value of certain assets and liabilities, which are not readily apparent from other sources. Such estimates and judgments are utilized for stock-based compensation expense, equity securities, derivative liabilities, and debt with embedded features.

Risks and Uncertainties

Risks and Uncertainties

The Company’s operations are subject to a number of risks and uncertainties, including but not limited to, changes in the general economy, the size and growth of the potential markets for any of the Company’s product candidates, results of research and development activities, uncertainties surrounding regulatory developments in the United States and Australia, and the Company’s ability to attract new funding.

Fair Value Measurements

Fair Value Measurements

Certain assets and liabilities are carried at fair value under GAAP. Fair value is defined as the exchange price that would be received for an asset or paid to transfer a liability (the “exit price”) in the principal or most advantageous market for the asset or liability in an orderly transaction between market participants on the measurement date. Valuation techniques used to measure fair value must maximize the use of observable inputs and minimize the use of unobservable inputs. A fair value hierarchy based on three levels of inputs, of which the first two are considered observable, and the last is considered unobservable, is used to measure fair value:

Level 1:	Valuations for assets and liabilities traded in active markets from readily available pricing sources such as quoted prices in active markets for identical assets or liabilities.
Level 2:	Observable inputs (other than Level 1 quoted prices) such as quoted prices in active markets for similar assets or liabilities, quoted prices in markets that are not active for identical or similar assets or liabilities, or other inputs that are observable or can be corroborated by observable market data.
Level 3:	Unobservable inputs that are supported by little or no market activity and that are significant to determining the fair value of the assets or liabilities, including pricing models, discounted cash flow methodologies and similar techniques.

The carrying values of the Company’s financial instruments, with the exception of the Amended Credit Agreement and derivative liabilities, including, cash, prepaid expenses, accounts payable, the PPP loan and other current liabilities approximate their fair value due to the short maturities of these financial instruments. The derivative liabilities are valued on a recurring basis utilizing Level 3 inputs (Note 3). The PPP loan is considered conventional debt with an interest rate that approximates current market rates, interest and principal payments will be made through 2022. Due to the PPP loan’s relatively short term the carrying value approximates fair value. As of December 31, 2019, the fair value of the advances under the Credit Agreement was $1,877,938, the carrying amount of the liability at December 31, 2019 was $387,070 and is included in Convertible multi-draw credit agreement - related party, net of discount in the Company’s Condensed Consolidated Balance Sheets. As of September 30, 2020, the Company no longer engages a third party valuation specialist to value the Credit Agreement, as amended, as it is not practical to do so solely for the purpose of disclosing the estimated fair value of the financial instrument. Information pertinent to estimating the fair value of the Amended Credit Agreement includes valuing the embedded conversion feature and considering the discounted cash flows of the interest and principal payments through maturity (Note 4).

Convertible Instruments

Convertible Instruments

The Company accounts for hybrid contracts with embedded conversion features in accordance with GAAP. ASC 815, Derivatives and Hedging Activities (“ASC 815”) requires companies to bifurcate conversion options from their host instruments and account for them as free-standing derivative financial instruments according to certain criteria. The criteria includes circumstances in which (a) the economic characteristics and risks of the embedded derivative instrument are not clearly and closely related to the economic characteristics and risks of the host contract, (b) the hybrid instrument that embodies both the embedded derivative instrument and the host contract is not re-measured at fair value under otherwise applicable generally accepted accounting principles with changes in fair value reported in earnings as they occur and (c) a separate instrument with the same terms as the embedded derivative instrument would be considered a derivative instrument.

The Company accounts for convertible debt instruments with embedded conversion features in accordance with ASC 470-20, Debt with Conversion and Other Options (“ASC 470-20”) if it is determined that the conversion feature should not be bifurcated from their host instruments. Under ASC 470-20, the Company records, when necessary, discounts to convertible notes for the intrinsic value of conversion options embedded in debt instruments based upon the difference between the fair value of the underlying common stock at the commitment date and the embedded effective conversion price. When the Company determines that the embedded conversion option should be bifurcated from its host instrument, the embedded feature is accounted for in accordance with ASC 815. Under ASC 815, a portion of the proceeds received upon the issuance of the hybrid contract is allocated to the fair value of the derivative. The derivative is subsequently marked to market at each reporting date based on current fair value, with the changes in fair value reported in the results of operations.

The Company also follows ASC 480-10, Distinguishing Liabilities from Equity (“ASC 480-10”) when evaluating the accounting for its hybrid instruments. A financial instrument that embodies an unconditional obligation, or a financial instrument other than an outstanding share that embodies a conditional obligation, that the issuer must or may settle by issuing a variable number of its equity shares shall be classified as a liability (or an asset in some circumstances) if, at inception, the monetary value of the obligation is based solely or predominantly on any one of the following: (a) a fixed monetary amount known at inception (for example, a payable settled with a variable number of the issuer’s equity shares); (b) variations in something other than the fair value of the issuer’s equity shares (for example, a financial instrument indexed to the Standard and Poor’s S&P 500 Index and settled with a variable number of the issuer’s equity shares); or (c) variations inversely related to changes in the fair value of the issuer’s equity shares (for example, a written put option that could be net share settled). Hybrid instruments meeting these criteria are not further evaluated for any embedded derivatives and are carried as a liability at fair value at each balance sheet date with a re-measurement reported in other expense (income) in the accompanying Condensed Consolidated Statements of Comprehensive Loss.

When determining the short-term vs. long-term classification of derivative liabilities, the Company first evaluates the instruments’ exercise provisions. Generally, if a derivative is a liability and exercisable within one year, it will be classified as short-term. However, because of the unique provisions and circumstances that may impact the accounting for derivative instruments, the Company carefully evaluates all factors that could potentially restrict the instrument from being exercised or create a situation where exercise would be considered remote. The Company re-evaluates its derivative liabilities at each reporting period end and makes updates for any changes in facts and circumstances that may impact classification.

Warrants Issued in Connection with Financings

Warrants Issued in Connection with Financings

The Company generally accounts for warrants issued in connection with debt and equity financings as a component of equity, unless the warrants include a conditional obligation to issue a variable number of shares or there is a deemed possibility that the Company may need to settle the warrants in cash. For warrants issued with a conditional obligation to issue a variable number of shares or the deemed possibility of a cash settlement, the Company records the fair value of the warrants as a liability at each balance sheet date and records changes in fair value in other expense (income) in the Condensed Consolidated Statements of Comprehensive Loss .

Debt Issuance Costs and Interest

Debt Issuance Costs and Interest

Discounts related to bifurcated derivatives, freestanding instruments issued in bundled transactions, and issuance costs are recorded as a reduction to the carrying value of the debt and amortized over the life of the debt using the effective interest method. The Company makes changes to the effective interest rate, as necessary, on a prospective basis. For debt facilities that provide for multiple advances, the Company initially defers any issuance costs until the first advance is made and then amortizes the costs over the life of the facility.

Research and Development Expenses and Licensed Technology

Research and Development Expenses and Licensed Technology

Research and development costs are expensed when incurred. These costs may consist of external research and development expenses incurred under agreements with third-party contract research organizations and investigative sites, third-party manufacturing organizations and consultants; license fees; employee-related expenses, which include salaries and benefits for the personnel involved in the Company’s preclinical and clinical drug development activities; facilities expense, depreciation and other allocated expenses; and equipment and laboratory supplies.

Costs incurred for the rights to use licensed technologies in the research and development process, including licensing fees and milestone payments, are charged to research and development expense as incurred in situations where the Company has not identified an alternative future use for the acquired rights, and are capitalized in situations where there is an identified alternative future use. No cost associated with the use of licensed technologies has been capitalized to date.

Stock-Based Compensation Expense

Stock-Based Compensation Expense

Stock-based compensation expense is estimated at the grant date based on the fair value of the award, and the cost is recognized as expense ratably over the vesting period with forfeitures accounted for as they occur. The Company uses the Black-Scholes Merton option pricing model for estimating the grant date fair value of stock options using the following assumptions:

· Volatility - Stock price volatility is estimated over the expected term based on a blended rate of industry peers and the Company’s actual stock volatility adjusted for periods in which significant financial variability was identified.

· Expected term - The expected term is based on a simplified method which defines the life as the weighted average of the contractual term of the options and the vesting period for each award.

· Risk-free rate - The risk-free interest rate for the expected term of the option is based on the average market rate on U.S. Treasury securities in effect during the period in which the awards were granted.

· Dividends - The dividend yield assumption is based on the Company’s history and expectation of paying no dividends in the foreseeable future.

Loss Per Common Share

Loss Per Common Share

The Company applies FASB ASC No. 260, Earnings per Share in calculating its basic and diluted net loss per common share. Basic loss per share of common stock is computed by dividing net loss available to common stockholders by the weighted-average number of shares of common stock outstanding for the period. The diluted loss per share of common stock is computed by giving effect to all potential common stock equivalents outstanding for the period determined using the treasury stock method. For purposes of this calculation, options to purchase common stock, restricted stock subject to vesting, warrants to purchase common stock and common shares underlying convertible debt instruments are considered to be common stock equivalents.

The computations of basic and diluted net loss per common share are as follows:

		Three Months Ended September 30, (Unaudited)						Nine Months Ended September 30, (Unaudited)
		2020			2019			2020			2019
Basic net loss per share:
Net loss	$	(1,296,696	)	$	(4,931,125	)	$	(5,058,592	)	$	(3,800,227	)
Weighted average common shares outstanding – basic		256,758,472			133,001,746			207,536,173			132,885,675
Net loss per share - basic	$	(0.01	)	$	(0.04	)	$	(0.02	)	$	(0.03	)
Diluted net loss per share:
Net loss (as adjusted)	$	(1,720,835	)	$	(4,931,125	)	$	(5,401,484	)	$	(5,656,982	)
Weighted average common shares outstanding – diluted		257,255,653			133,001,746			208,434,966			167,690,989
Net loss per share - diluted	$	(0.01	)	$	(0.04	)	$	(0.03	)	$	(0.03	)

The following outstanding shares of common stock equivalents were excluded from the computation of diluted net loss per share of common stock for the periods presented because including them would have been anti-dilutive:

	Three Months Ended September 30, (Unaudited)				Nine Months Ended September 30, (Unaudited)
	2020		2019		2020		2019
Stock options		25,000,678		4,512,715		25,000,678		4,512,715
Unvested restricted stock		—		1,093,501		—		1,093,501
Common shares underlying convertible debt		5,215,457		15,000,000		5,215,457		15,000,000
Warrants		145,336,155		57,943,250		22,304,750		144,934,542

Recent Accounting Pronouncements

Recent Accounting Pronouncements

In August 2020, the FASB issued ASU 2020-06, Debt—Debt with Conversion and Other Options (Subtopic 470-20) and Derivatives and Hedging—Contracts in Entity’s Own Equity (Subtopic 815-40): Accounting for Convertible Instruments and Contracts in an Entity’s Own Equity. This ASU amends the guidance on convertible instruments and the derivatives scope exception for contracts in an entity’s own equity and improves and amends the related EPS guidance for both Subtopics. The ASU will be effective for annual reporting periods after December 15, 2023 and interim periods within those annual periods and early adoption is permitted in annual reporting periods ending after December 15, 2020. We are still assessing the impact of ASU 2020-06 on our condensed consolidated financial statements.

In December 2019, the FASB issued ASU No. 2019-12 Income Taxes (Topic 740) simplifying the Accounting for Income Taxes. The Board issued this update as part of its Simplification Initiative to improve areas of GAAP and reduce cost and complexity while maintaining usefulness of the financial statements. The main provisions remove certain exceptions, including the exception to the general methodology for calculating income taxes in an interim period when a year-to-date loss exceeds the anticipated loss for the year. In addition, the amendments simplify income tax accounting in the areas such as income-based franchise taxes, eliminating the requirements to allocate consolidated current and deferred tax expense in certain instances and a requirement that an entity reflects the effect of enacted changes in tax laws or rates in the annual effective tax rate computation in the interim period that includes the enactment date. For public companies, the standard is effective for fiscal years beginning after December 15, 2020, and interim periods therein, with early adoption permitted. The Company plans to adopt this ASU on the effective date of January 1, 2021. However, it may adopt the update earlier if circumstances arise making early adoption favorable to the Company. The amendments in the update related to foreign subsidiaries will be applied on a modified retrospective basis, the amendments to franchise taxes will be applied on either a retrospective or modified retrospective basis and all other amendments will be applied on a prospective basis. The Company is still evaluating the impact from adopting this standard. However, because the Company’s deferred tax assets and liabilities are fully reserved, it does not expect a material impact from the adoption of this standard.

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Summary of Significant Accounting Policies (Tables)

9 Months Ended

Sep. 30, 2020

Accounting Policies [Abstract]

Schedule of basic and diluted net loss per share

		Three Months Ended September 30, (Unaudited)						Nine Months Ended September 30, (Unaudited)
		2020			2019			2020			2019
Basic net loss per share:
Net loss	$	(1,296,696	)	$	(4,931,125	)	$	(5,058,592	)	$	(3,800,227	)
Weighted average common shares outstanding – basic		256,758,472			133,001,746			207,536,173			132,885,675
Net loss per share - basic	$	(0.01	)	$	(0.04	)	$	(0.02	)	$	(0.03	)
Diluted net loss per share:
Net loss (as adjusted)	$	(1,720,835	)	$	(4,931,125	)	$	(5,401,484	)	$	(5,656,982	)
Weighted average common shares outstanding – diluted		257,255,653			133,001,746			208,434,966			167,690,989
Net loss per share - diluted	$	(0.01	)	$	(0.04	)	$	(0.03	)	$	(0.03	)

Schedule of outstanding shares of common stock equivalents were excluded from the computation of diluted earnings per share

	Three Months Ended September 30, (Unaudited)				Nine Months Ended September 30, (Unaudited)
	2020		2019		2020		2019
Stock options		25,000,678		4,512,715		25,000,678		4,512,715
Unvested restricted stock		—		1,093,501		—		1,093,501
Common shares underlying convertible debt		5,215,457		15,000,000		5,215,457		15,000,000
Warrants		145,336,155		57,943,250		22,304,750		144,934,542

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Warrants and Derivative Liabilities (Tables)

9 Months Ended

Sep. 30, 2020

Derivative Liabilities Line Items

Schedule of warrants vested and outstanding

					Number of Warrants
	Exercise		Term		Vested and
Source	Price		(Years)		Outstanding
Pre 2015 Common Stock Warrants	$	1.00	6—10			1,110,000
2015 Common Stock Warrants	$	1.15—5.00	5—10			220,000
2016 Common Stock Warrants to Service Providers	$	1.15		10		40,000
2016 Series C Common Stock Warrants to Placement Agent	$	0.40		5		125,000
2017 Series D Common Stock Warrants to Placement Agent	$	0.25		5		480,000
2017 Common Stock Warrants to Service Provider	$	0.41		5		125,000
2018 Emerald Financing Warrants	$	0.10		5		3,400,000
Emerald Multi-Draw Credit Agreement Warrants	$	0.50		5		7,500,000
2019 Common Stock Warrants	$	0.35		5		8,000,000
2020 Common Stock Warrants	$	0.06		5		116,666,668
2020 Common Stock Warrants to Placement Agent	$	0.075		4.99		8,166,667
2020 Pre-Funded Warrants	$	0.001	indefinite			49,800,000
Total warrants vested and outstanding as of September 30, 2020						195,633,335

Schedule of the activity of derivative liabilities

	Nine Months Ended September 30, 2020
	December 31, 2019, Fair Value of Derivative Liabilities			Fair Value of Derivative Liabilities Issued		Change in Fair value of Liabilities			Reclassification of Derivatives to Equity			September 30, 2020, Fair Value of Derivative Liabilities
Emerald Multi-Draw Credit Agreement - compound derivative liability (1)	$	90,797		$	—	$	(90,797	)	$	—		$	—
Emerald Financing - warrant liability (2)		276,024			—		(234,875	)		—			41,149
Series B - warrant liability (3)		134,579			—		(108,016	)		(26,563	)		—
Total derivative liabilities	$	501,400		$	—	$	(433,688	)	$	(26,563	)	$	41,149
Less, noncurrent portion of derivative liabilities		(90,797	)										—
Current balance of derivative liabilities	$	410,603										$	41,149

	Nine Months Ended September 30, 2019
	December 31, 2018, Fair Value of Derivative Liabilities			Fair Value of Derivative Liabilities Issued		Change in Fair value of Derivative Liabilities			Reclassification of Derivatives to Equity			September 30, 2019, Fair Value of Derivative Liabilities
Emerald Multi Draw Credit Agreement - compound derivative liability (1)	$	219,453		$	516,058	$	(167,905	)	$	—		$	567,606
Emerald Financing - warrant liability (2)		15,251,413			—		(1,895,193	)		—			13,356,220
Series B - warrant liability (3)		487,500			—		38,438			(144,375	)		381,563
Total derivative liabilities	$	15,958,366		$	516,058	$	(2,024,660	)	$	(144,375	)	$	14,305,389
Less, noncurrent portion of derivative liabilities		(219,453	)										(567,606	)
Current balance of derivative liabilities	$	15,738,913										$	13,737,783

Emerald Multi-Draw Credit Agreement Warrants

Derivative Liabilities Line Items

Schedule of input and valuation technique used to value derivative liabilities

	At Issuance
Dividend yield	0.00%
Volatility factor	91.6—92.1
Risk-free interest rate	2.23—2.51
Expected term (years)	5.0
Underlying common stock price	$0.33—0.69

August 2020 Financing Warrants

Derivative Liabilities Line Items

Schedule of input and valuation technique used to value derivative liabilities

	Common Stock Warrants			Pre-funded Warrants			Placement Agent Warrants
Dividend yield		0.00	%		0.00	%		0.00	%
Volatility factor		91.64	%		93.86	%		91.64	%
Risk-free interest rate		0.19	%		0.52	%		0.19	%
Expected term (years)		5.0			10			4.99
Underlying common stock price	$	0.05		$	0.05		$	0.05

Emerald Financing Warrant Liability

Derivative Liabilities Line Items

Schedule of input and valuation technique used to value warrant liabilities

	September 30, 2020			December 31, 2019
Dividend yield		0.00	%		0.00	%
Volatility factor		80.8	%		79.5	%
Risk-free interest rate		0.14	%		1.62	%
Expected term (years)		2.38			3.13
Underlying common stock price	$	0.04		$	0.13

Series B Warrant Liability

Derivative Liabilities Line Items

Schedule of input and valuation technique used to value warrant liabilities

	As of December 31, 2019
Dividend yield		0.00	%
Volatility factor		79.2	%
Risk-free interest rate		1.60	%
Expected term (years)		0.64
Underlying common stock price	$	0.13

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Debt (Tables)

9 Months Ended

Sep. 30, 2020

Debt Disclosure [Abstract]

Schedule of convertible and non-convertible advances

	Conversion Price		As of September 30, 2020			As of December 31, 2019
Total principal value of convertible debt—related party	$	0.40	$	2,014,500		$	2,014,500
Unamortized debt discount				(1,220,838	)		(1,622,344	)
Unamortized debt issuance costs				(3,968	)		(5,086	)
Carrying value of total convertible debt - related party				789,694			387,070
Total principal value of non-convertible debt—related party		n/a		450,000			—
Total carrying value of advances under the multi-draw credit agreement			$	1,239,694		$	387,070

Schedule of interest expense

	Three Months Ended September 30,				Nine Months Ended September 30,
	2020		2019		2020		2019
Related party interest expense – stated rate	$	44,087	$	107,334	$	117,459	$	272,611
PPP loan interest expense – stated rate		294		—		511		—
Non-cash interest expense:
Amortization of debt discount		137,849		190,886		401,507		429,355
Amortization of transaction costs		384		3,327		1,117		9,609
	$	182,614	$	301,547	$	520,594	$	711,575

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Stock-Based Compensation (Tables)

9 Months Ended

Sep. 30, 2020

Share-based Payment Arrangement [Abstract]

Schedule of summary of stock option activity

	Number of Shares			Weighted Average Exercise Price		Weighted Average Remaining Contractual Term (Years)
Outstanding, December 31, 2019		3,317,642		$	0.33		8.34
Granted		24,200,000			0.05
Cancelled		(1,861,964	)		0.08
Forfeited		(655,000	)		0.42
Outstanding, September 30, 2020		25,000,678		$	0.07		9.73
Exercisable, September 30, 2020		4,410,668		$	0.07		9.73

Schedule of fair value assumptions of stock option granted

	Nine Months Ended September 30, 2020
Dividend yield	0.00%
Risk-free interest rate	0.28—0.38%
Expected term (years)	5.56—6.01
Volatility	92.55—93.84%

Schedule of RSA activity

	Number of Shares			Weighted Average Grant Date Fair Value
Unvested, December 31, 2019		450,000		$	0.19
Granted		—			—
Released		(450,000	)		0.19
Unvested, September 30, 2020		—		$	—

Schedule of stock-Based compensation Expense

	Three Months Ended September 30,				Nine Months Ended September 30,
	2020		2019		2020		2019
Research and development	$	44,010	$	—	$	82,463	$	—
General and administrative		104,355		170,106		158,753		514,683
	$	148,365	$	170,106	$	241,216	$	514,683

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Nature of Operations and Business Activities (Detail Textuals) - USD ($)	1 Months Ended		2 Months Ended	9 Months Ended
	Jul. 31, 2020	Apr. 29, 2020	Aug. 31, 2020	Sep. 30, 2020	Jun. 30, 2020	Apr. 22, 2020	Mar. 31, 2020	Dec. 31, 2019	Sep. 30, 2019	Jun. 30, 2019	Mar. 31, 2019	Dec. 31, 2018	Nov. 30, 2018
Nature Of Operations And Business Activities [Line Items]
Accumulated deficit				$ (37,231,874)				$ (32,173,282)
Stockholders' deficit				1,853,367	$ (3,094,424)		$ (1,702,897)	548,058	$ (16,402,461)	$ (11,641,442)	$ (27,864,191)	$ (15,562,252)
Working capital deficit				(3,137,772)
Cash and cash equivalents				$ 4,224,601				$ 1,829,977
Description of senior management's compensation plan			Upon the closing of the August 2020 Financing, the Company’s Board of Directors determined that the Company had been sufficiently financed to pay the deferred salaries and fees, including a 10% retention bonus, to management and the Board in the aggregate amount of $293,078.	During March 2020, the Company approved a plan to defer up to 50% of the members of senior management’s compensation and 100% of the Board of Director and committee fees indefinitely.
Paycheck Protection Program Promissory Note (PPP Note)
Nature Of Operations And Business Activities [Line Items]
Principal amount of promissory Note						$ 116,700
Multi-Draw Credit Agreement
Nature Of Operations And Business Activities [Line Items]
Principal amount of promissory Note									$ 4,000,000
Exercise Price									$ 0.50				$ 0.50
Amended and Restated Multi-Draw Credit Agreement
Nature Of Operations And Business Activities [Line Items]
Principal amount of credit facility		$ 20,000,000
Credit facility advances		6,000,000
Draw downs loans In aggregate principal amount		$ 6,000,000
Warrants to purchase shares of common stock issued and outstanding		7,500,000
Interest rates per annum		7.00%
Maturity date		Oct. 05, 2022
Exercise Price		$ 0.50
fourth amended and Restated Multi-Draw Credit Agreement
Nature Of Operations And Business Activities [Line Items]
Credit facility advances per month				$ 150,000
Fifth Amended And Restated Multi Draw Credit Agreement [Member]
Nature Of Operations And Business Activities [Line Items]
Credit facility advances per month				$ 300,000
Securities Purchase Agreement with H.C. Wainwright & Co., LLC
Nature Of Operations And Business Activities [Line Items]
Number of common stock units sold	56,333,334
Number of pre-funded units sold	60,333,334
Gross proceeds of units sold	$ 6,100,000
Term Of Warrants	5 years
Securities Purchase Agreement with H.C. Wainwright & Co., LLC | Common Stock Warrants
Nature Of Operations And Business Activities [Line Items]
Exercise Price	$ 0.06
Securities Purchase Agreement with H.C. Wainwright & Co., LLC | Pre-funded Warrants
Nature Of Operations And Business Activities [Line Items]
Exercise Price	$ 0.001

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Summary of Significant Accounting Policies (Details) - USD ($)	3 Months Ended						9 Months Ended
	Sep. 30, 2020	Jun. 30, 2020	Mar. 31, 2020	Sep. 30, 2019	Jun. 30, 2019	Mar. 31, 2019	Sep. 30, 2020	Sep. 30, 2019
Basic net loss per share:
Net Loss	$ (1,296,696)	$ (1,420,236)	$ (2,341,660)	$ (4,931,125)	$ 15,905,290	$ (14,774,392)	$ (5,058,592)	$ (3,800,227)
Weighted average common shares outstanding - basic	256,758,472			133,001,746			207,536,173	132,885,675
Net loss per share - basic	$ (0.01)			$ (0.04)			$ (0.02)	$ (0.03)
Diluted net loss per share:
Net loss (as adjusted)	$ (1,720,835)			$ (4,931,125)			$ (5,401,484)	$ (5,656,982)
Weighted average common shares outstanding - diluted	257,255,653			133,001,746			208,434,966	167,690,989
Net loss per share - diluted	$ (0.01)			$ (0.04)			$ (0.03)	$ (0.03)

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Summary of Significant Accounting Policies (Details 1) - shares	3 Months Ended		9 Months Ended
	Sep. 30, 2020	Sep. 30, 2019	Sep. 30, 2020	Sep. 30, 2019
Warrants
Nature of Operations, Business Activities and Summary of Significant Accounting Policies [Line Items]
Anti-dilutive excluded from the calculation of diluted loss per common share	145,336,155	57,943,250	22,304,750	144,934,542
Common shares underlying convertible debt
Nature of Operations, Business Activities and Summary of Significant Accounting Policies [Line Items]
Anti-dilutive excluded from the calculation of diluted loss per common share	5,215,457	15,000,000	5,215,457	15,000,000
Stock options
Nature of Operations, Business Activities and Summary of Significant Accounting Policies [Line Items]
Anti-dilutive excluded from the calculation of diluted loss per common share	25,000,678	4,512,715	25,000,678	4,512,715
Unvested restricted stock
Nature of Operations, Business Activities and Summary of Significant Accounting Policies [Line Items]
Anti-dilutive excluded from the calculation of diluted loss per common share	0	1,093,501	0	1,093,501

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Summary of Significant Accounting Policies (Detail Textuals) - USD ($)	Sep. 30, 2020	Dec. 31, 2019
Accounting Policies [Abstract]
Fair value of advances under the Credit Agreement		$ 1,877,938
Convertible multi-draw credit agreement - related party, net of discount	$ 789,694	$ 387,070

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Warrants and Derivative Liabilities (Details)	9 Months Ended
	Sep. 30, 2020 $ / shares shares
Class of Warrant or Right [Line Items]
Amount Vested and Outstanding | shares	195,633,335
Pre 2015 Common Stock Warrants
Class of Warrant or Right [Line Items]
Exercise Price | $ / shares	$ 1.00
Amount Vested and Outstanding | shares	1,110,000
Pre 2015 Common Stock Warrants | Minimum
Class of Warrant or Right [Line Items]
Term (Years)	6 years
Pre 2015 Common Stock Warrants | Maximum
Class of Warrant or Right [Line Items]
Term (Years)	10 years
2015 Common Stock Warrants
Class of Warrant or Right [Line Items]
Amount Vested and Outstanding | shares	220,000
2015 Common Stock Warrants | Minimum
Class of Warrant or Right [Line Items]
Exercise Price | $ / shares	$ 1.15
Term (Years)	5 years
2015 Common Stock Warrants | Maximum
Class of Warrant or Right [Line Items]
Exercise Price | $ / shares	$ 5.00
Term (Years)	10 years
2016 Common Stock Warrants to Service Providers
Class of Warrant or Right [Line Items]
Exercise Price | $ / shares	$ 1.15
Term (Years)	10 years
Amount Vested and Outstanding | shares	40,000
2016 Series C Common Stock Warrants to Placement Agent
Class of Warrant or Right [Line Items]
Exercise Price | $ / shares	$ 0.40
Term (Years)	5 years
Amount Vested and Outstanding | shares	125,000
2017 Series D Common Stock Warrants to Placement Agent
Class of Warrant or Right [Line Items]
Exercise Price | $ / shares	$ 0.25
Term (Years)	5 years
Amount Vested and Outstanding | shares	480,000
2017 Common Stock Warrants to Service Provider
Class of Warrant or Right [Line Items]
Exercise Price | $ / shares	$ 0.41
Term (Years)	5 years
Amount Vested and Outstanding | shares	125,000
2018 Emerald Financing Warrants
Class of Warrant or Right [Line Items]
Exercise Price | $ / shares	$ 0.10
Term (Years)	5 years
Amount Vested and Outstanding | shares	3,400,000
Emerald Multi-Draw Credit Agreement Warrants
Class of Warrant or Right [Line Items]
Exercise Price | $ / shares	$ 0.50
Term (Years)	5 years
Amount Vested and Outstanding | shares	7,500,000
2019 Common Stock Warrants
Class of Warrant or Right [Line Items]
Exercise Price | $ / shares	$ 0.35
Term (Years)	5 years
Amount Vested and Outstanding | shares	8,000,000
2020 Common Stock Warrants
Class of Warrant or Right [Line Items]
Exercise Price | $ / shares	$ 0.06
Term (Years)	5 years
Amount Vested and Outstanding | shares	116,666,668
2020 Common Stock Warrants to Placement Agent
Class of Warrant or Right [Line Items]
Exercise Price | $ / shares	$ 0.075
Term (Years)	4 years 11 months 26 days
Amount Vested and Outstanding | shares	8,166,667
2020 Pre-Funded Warrants
Class of Warrant or Right [Line Items]
Exercise Price | $ / shares	$ 0.001
Amount Vested and Outstanding | shares	49,800,000

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Warrants and Derivative Liabilities (Details 1) - Pricing Model - Emerald Multi-Draw Credit Agreement Warrants	Sep. 30, 2020 Percent $ / shares
Minimum
Class of Warrant or Right [Line Items]
Underlying common stock price | $ / shares	$ 0.33
Maximum
Class of Warrant or Right [Line Items]
Underlying common stock price | $ / shares	$ 0.69
Dividend yield
Class of Warrant or Right [Line Items]
Warrants and rights outstanding measurement input	0
Volatility factor | Minimum
Class of Warrant or Right [Line Items]
Warrants and rights outstanding measurement input	91.6
Volatility factor | Maximum
Class of Warrant or Right [Line Items]
Warrants and rights outstanding measurement input	92.1
Risk-free interest rate | Minimum
Class of Warrant or Right [Line Items]
Warrants and rights outstanding measurement input	2.23
Risk-free interest rate | Maximum
Class of Warrant or Right [Line Items]
Warrants and rights outstanding measurement input	2.51
Expected term (years)
Class of Warrant or Right [Line Items]
Expected Term	5 years

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Warrants and Derivative Liabilities (Details 2) - Pricing Model	Sep. 30, 2020 Percent $ / shares
Dividend yield | Common Stock Warrants
Class of Warrant or Right [Line Items]
Warrants and rights outstanding measurement input	0
Dividend yield | Pre-funded Warrants
Class of Warrant or Right [Line Items]
Warrants and rights outstanding measurement input	0
Dividend yield | Placement agent warrants
Class of Warrant or Right [Line Items]
Warrants and rights outstanding measurement input	0
Measurement Input, Price Volatility [Member] | Common Stock Warrants
Class of Warrant or Right [Line Items]
Warrants and rights outstanding measurement input	91.64
Measurement Input, Price Volatility [Member] | Pre-funded Warrants
Class of Warrant or Right [Line Items]
Warrants and rights outstanding measurement input	93.86
Measurement Input, Price Volatility [Member] | Placement agent warrants
Class of Warrant or Right [Line Items]
Warrants and rights outstanding measurement input	91.64
Risk-free interest rate | Common Stock Warrants
Class of Warrant or Right [Line Items]
Warrants and rights outstanding measurement input	0.19
Risk-free interest rate | Pre-funded Warrants
Class of Warrant or Right [Line Items]
Warrants and rights outstanding measurement input	0.52
Risk-free interest rate | Placement agent warrants
Class of Warrant or Right [Line Items]
Warrants and rights outstanding measurement input	0.19
Expected term (years) | Common Stock Warrants
Class of Warrant or Right [Line Items]
Expected Term	5 years
Expected term (years) | Pre-funded Warrants
Class of Warrant or Right [Line Items]
Expected Term	10 years
Expected term (years) | Placement agent warrants
Class of Warrant or Right [Line Items]
Expected Term	4 years 11 months 26 days
Weighted-average fair value of warrants | Common Stock Warrants
Class of Warrant or Right [Line Items]
Underlying common stock price | $ / shares	$ 0.05
Weighted-average fair value of warrants | Pre-funded Warrants
Class of Warrant or Right [Line Items]
Underlying common stock price | $ / shares	0.05
Weighted-average fair value of warrants | Placement agent warrants
Class of Warrant or Right [Line Items]
Underlying common stock price | $ / shares	$ 0.05

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Warrants and Derivative Liabilities (Details 3) - USD ($)	9 Months Ended
	Sep. 30, 2020	Sep. 30, 2019	Dec. 31, 2019	Dec. 31, 2018
Fair Value Of Derivative Liabilities [Roll Forward]
Fair Value of Derivative Liabilities	$ 501,400	$ 15,958,366
Fair Value of Derivative Liabilities Issued	0	516,058
Change in Fair value of Derivative Liabilities	(433,688)	(2,024,660)
Reclassification of Derivatives to Equity	(26,563)	(144,375)
Fair Value of Derivative Liabilities	41,149	14,305,389
Less, noncurrent portion of derivative liabilities	0	(567,606)	$ (90,797)	$ (219,453)
Current balance of derivative liabilities	41,149	13,737,783	$ 410,603	$ 15,738,913
Emerald Financing - Warrant Liability
Fair Value Of Derivative Liabilities [Roll Forward]
Fair Value of Derivative Liabilities	276,024	15,251,413
Fair Value of Derivative Liabilities Issued	0	0
Change in Fair value of Derivative Liabilities	(234,875)	(1,895,193)
Reclassification of Derivatives to Equity	0	0
Fair Value of Derivative Liabilities	41,149	13,356,220
Emerald Multi-Draw Credit Agreement - compound derivative liability
Fair Value Of Derivative Liabilities [Roll Forward]
Fair Value of Derivative Liabilities	90,797	219,453
Fair Value of Derivative Liabilities Issued	0	516,058
Change in Fair value of Derivative Liabilities	(90,797)	(167,905)
Reclassification of Derivatives to Equity	0	0
Fair Value of Derivative Liabilities	0	567,606
Series B Warrant Liability
Fair Value Of Derivative Liabilities [Roll Forward]
Fair Value of Derivative Liabilities	134,579	487,500
Fair Value of Derivative Liabilities Issued	0	0
Change in Fair value of Derivative Liabilities	(108,016)	38,438
Reclassification of Derivatives to Equity	(26,563)	(144,375)
Fair Value of Derivative Liabilities	$ 0	$ 381,563

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Warrants and Derivative Liabilities (Details 4) - Monte Carlo simulations - Emerald Financing	Sep. 30, 2020 Percent $ / shares	Dec. 31, 2019 Percent $ / shares
Class of Warrant or Right [Line Items]
Shares Issued, Price Per Share | $ / shares	$ 0.04	$ 0.13
Dividend yield
Class of Warrant or Right [Line Items]
Warrants and rights outstanding measurement input	0	0
Volatility factor
Class of Warrant or Right [Line Items]
Warrants and rights outstanding measurement input	80.8	79.5
Risk-free interest rate
Class of Warrant or Right [Line Items]
Warrants and rights outstanding measurement input	0.14	1.62
Expected term (years)
Class of Warrant or Right [Line Items]
Expected Term	2 years 4 months 17 days	3 years 1 month 17 days

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Warrants and Derivative Liabilities (Details 5) - Pricing Model - Series B warrant	Dec. 31, 2019 Percent $ / shares
Class of Warrant or Right [Line Items]
Underlying common stock price | $ / shares	$ 0.13
Dividend yield
Class of Warrant or Right [Line Items]
Warrants and rights outstanding measurement input	0
Volatility factor
Class of Warrant or Right [Line Items]
Warrants and rights outstanding measurement input	79.2
Risk-free interest rate
Class of Warrant or Right [Line Items]
Warrants and rights outstanding measurement input	1.60
Expected term (years)
Class of Warrant or Right [Line Items]
Expected Term	7 months 20 days

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Warrants and Derivative Liabilities (Detail Textuals) - USD ($)	1 Months Ended		3 Months Ended	9 Months Ended		12 Months Ended
	Feb. 16, 2018	Jan. 19, 2018	Mar. 31, 2019	Sep. 30, 2020	Sep. 30, 2019	Dec. 31, 2019	Dec. 28, 2017
Class of Warrant or Right [Line Items]
Decrease in derivative liability through an adjustment to change in fair value of derivative liabilities				$ 0
Warrants issued in connection with convertible multi draw credit agreement related party value			$ 716,110
Warrant vested aggregate fair value utilizing the Black-Scholes option pricing model				$ (433,688)	$ (2,024,660)
Emerald Financing Warrant Liability
Class of Warrant or Right [Line Items]
Total number of warrants issued	44,200,000	44,200,000
Warrant exercise price	$ 0.10	$ 0.10
Term of warrant	5 years	5 years
Aggregate exercise price of outstanding credit agreement						$ 4,080,000
Warrants exercise						40,800,000
Emerald Multi-Draw Credit Agreement Warrants
Class of Warrant or Right [Line Items]
Number of warrants issued					5,000,000
Warrant exercise price				$ 0.50
Term of warrant				5 years
Warrants issued in connection with convertible multi draw credit agreement related party value					$ 716,110
Emerald Multi-Draw Credit Agreement Warrants | Warrant
Class of Warrant or Right [Line Items]
Warrant vested aggregate fair value utilizing the Black-Scholes option pricing model					$ 1,830,573
Series B Warrants
Class of Warrant or Right [Line Items]
Number of warrants issued				312,500
Value of common stock called by warrants				$ 26,563
Total number of warrants issued				312,500
Warrant exercise price				$ 0.00			$ 0.10
Conversion price, per share (in dollars per share)		$ 0.00
Series B Warrants | Warrant
Class of Warrant or Right [Line Items]
Warrant exercise price				$ 1.15
Common Stock Warrants
Class of Warrant or Right [Line Items]
Gross proceeds of warrants on a relative fair value basis				$ 2,462,462
2020 Common Stock Warrants
Class of Warrant or Right [Line Items]
Number of warrants issued				116,666,668
Warrant exercise price				$ 0.06
Term of warrant				5 years
2020 Common Stock Warrants to Placement Agent
Class of Warrant or Right [Line Items]
Number of warrants issued				8,166,667
Value of warrants issued recorded as equity issuance costs within equity				$ 261,333
Warrant exercise price				$ 0.075
Term of warrant				4 years 11 months 26 days
Pre-funded Warrants
Class of Warrant or Right [Line Items]
Number of warrants issued				60,333,334
Gross proceeds of warrants on a relative fair value basis				$ 2,986,500

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Debt (Details) - USD ($)	Sep. 30, 2020	Dec. 31, 2019
Short-term Debt [Line Items]
Total principal value of non-convertible debt - related party	$ 789,694	$ 387,070
Convertible debt | Emerald Health Sciences Inc
Short-term Debt [Line Items]
Conversion price	$ 0.40
Total principal value of convertible debt - related party	$ 2,014,500	2,014,500
Unamortized debt discount	(1,220,838)	(1,622,344)
Unamortized debt issuance costs	(3,968)	(5,086)
Carrying value of total convertible debt - related party	789,694	387,070
Total principal value of non-convertible debt - related party	450,000	0
Total carrying value of advances under the multi-draw credit agreement	$ 1,239,694	$ 387,070

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Debt (Details 1) - USD ($)	3 Months Ended		9 Months Ended
	Sep. 30, 2020	Sep. 30, 2019	Sep. 30, 2020	Sep. 30, 2019
Debt Disclosure [Abstract]
Related party interest expense - stated rate	$ 44,087	$ 107,334	$ 117,459	$ 272,611
PPP loan interest expense - stated rate	294	0	511	0
Non-cash interest expense:
Amortization of debt discount	137,849	190,886	401,507	429,355
Amortization of transaction costs	384	3,327	1,117	9,609
Interest Expense	$ 182,614	$ 301,547	$ 520,594	$ 711,575

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Debt (Detail Textuals) - USD ($)		1 Months Ended		3 Months Ended	9 Months Ended		12 Months Ended
	Oct. 05, 2018	Apr. 24, 2020	Nov. 30, 2018	Dec. 31, 2019	Sep. 30, 2020	Sep. 30, 2019	Dec. 31, 2019	Dec. 31, 2018
Debt Instrument [Line Items]
Derivative liability				$ 501,400	$ 41,149	$ 14,305,389	$ 501,400	$ 15,958,366
Convertible multi-draw credit agreement issuance costs					$ 63,007
Unamortized debt discount period					2 years 3 days
Fair value of derivative liabilities in excess of proceeds						$ 322,644
Fair value of shares underlying convertible debt					$ 211,523
Paycheck Protection Program
Debt Instrument [Line Items]
Maturity date		Apr. 24, 2022
Principal amount of promissory Note		$ 116,700
Interest rate		1.00%
Excess payroll costs exclude compensation of an individual employee		$ 100,000
Percentage of forgiveness amount for nonpayroll costs		25.00%
Amount of salaries		$ 100,000
Percentage of reduction in annual salary		25.00%
Multi-Draw Credit Agreement
Debt Instrument [Line Items]
Warrant exercise price			$ 0.50			$ 0.50
Proceeds from related party debt			$ 2,000,000			$ 2,000,000
Number of warrant issued			2,500,000			5,000,000
Allocation of debt on the basis of relative fair value			$ 1,684,920			$ 3,283,890
Allocation of warrant on the basis of relative fair value			315,080			716,110
Beneficial conversion feature			90,080			1,584,850
Derivative liability			$ 204,102			516,058
Proceeds from warrant exercises							3,985,500
Loss on extinguishment of debt				725,425
Fair value of derivative liabilities in excess of proceeds						322,644
Principal amount of promissory Note						4,000,000
Emerald Financing
Debt Instrument [Line Items]
Derivative liability				$ 276,024	41,149	$ 13,356,220	$ 276,024	$ 15,251,413
Emerald Financing | Multi-Draw Credit Agreement
Debt Instrument [Line Items]
Maximum amount that can be borrowed over the life of the credit facility	$ 20,000,000
Interest rate percentage	7.00%
Maturity date	Oct. 05, 2022
Unused portion of the credit facility					13,550,000
Warrant coverage on the debt facility	50.00%
Warrant exercise price	$ 0.50
Reduced exercise price of warrant	0.35
Emerald Health Sciences Inc | Multi-Draw Credit Agreement
Debt Instrument [Line Items]
Conversion price	$ 0.25
Amount of capital raise	$ 5,000,000
Emerald Health Sciences Inc | Independent contractor agreement
Debt Instrument [Line Items]
Credit facility effected fourth advances					150,000
Credit facility effected fifth advances					$ 300,000

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Stockholders' Equity (Deficit) and Capitalization (Detail Textuals) - USD ($)	1 Months Ended	9 Months Ended
	Jul. 31, 2020	Sep. 30, 2020	Sep. 30, 2019
Equity [Line Items]
Stock issuance costs		$ 0	$ 9,301
August 2020 Financing | Securities purchase agreement | Institutional investors and H.C. Wainwright & Co., LLC
Equity [Line Items]
Number of common stock units sold	56,333,334
Number of pre-funded units sold	60,333,334
Common units sold price per unit	$ 0.06
Pre-funded units sold price per unit	$ 0.059
Gross proceeds of units sold	$ 6,939,667
Warrants and rights outstanding term	5 years
Stock issuance costs	$ 854,078
Proceeds from stock issuance	$ 6,085,589
August 2020 Financing | Securities purchase agreement | Institutional investors and H.C. Wainwright & Co., LLC | Placement agent
Equity [Line Items]
Warrant exercise price	$ 0.075
Warrants and rights outstanding term	5 years
Warrants to purchase an aggregate shares of common stock	8,166,667
Percentage of total shares of common stock and pre-funded warrants sold in offering	7.00%
August 2020 Financing | Securities purchase agreement | Institutional investors and H.C. Wainwright & Co., LLC | Common Stock Warrants
Equity [Line Items]
Common stock and pre-funded stock units sold description	each consisting of one share of common stock and one warrant to purchase one share of common stock
Warrant exercise price	$ 0.06
August 2020 Financing | Securities purchase agreement | Institutional investors and H.C. Wainwright & Co., LLC | Pre-funded Warrants
Equity [Line Items]
Common stock and pre-funded stock units sold description	each consisting of one pre-funded warrant to purchase one share of common stock and one warrant to purchase one share of common stock
Warrant exercise price	$ 0.001

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Stock-Based Compensation (Details) - Omnibus Incentive Plan 2014 - Stock options - $ / shares	9 Months Ended	12 Months Ended
	Sep. 30, 2020	Dec. 31, 2019
Number of Shares
Balance at the beginning	3,317,642
Granted	24,200,000
Cancelled	(1,861,964)
Forfeited	(655,000)
Balance at the ending	25,000,678	3,317,642
Exercisable	4,410,668
Weighted Average Exercise Price
Balance at the beginning	$ 0.33
Granted	0.05
Cancelled	0.08
Forfeited	0.42
Balance at the ending	0.07	$ 0.33
Exercisable	$ 0.07
Share-based compensation arrangement by share-based payment award, options, additional disclosures
Weighted Average Remaining Contractual Term (Years)	9 years 8 months 23 days	8 years 4 months 2 days
Weighted Average Remaining Contractual Term (Years), Exercisable	9 years 8 months 23 days

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Stock-Based Compensation (Details 1) - Stock options - Omnibus Incentive Plan 2014	9 Months Ended
	Sep. 30, 2020
Share-based Compensation Arrangement by Share-based Payment Award [Line Items]
Dividend Yield	0.00%
Minimum
Share-based Compensation Arrangement by Share-based Payment Award [Line Items]
Risk-free interest rate	0.28%
Expected term (in years)	5 years 6 months 21 days
Volatility	92.55%
Maximum
Share-based Compensation Arrangement by Share-based Payment Award [Line Items]
Risk-free interest rate	0.38%
Expected term (in years)	6 years 3 days
Volatility	93.84%

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Stock-Based Compensation (Details 2) - Restricted stock awards	9 Months Ended
	Sep. 30, 2020 $ / shares shares
Number of Shares
Unvested, December 31, 2019 | shares	450,000
Granted | shares	0
Released | shares	(450,000)
Unvested, September 30, 2020 | shares	0
Weighted Average Grant Date Fair Value
Unvested, December 31, 2019 | $ / shares	$ 0.19
Granted | $ / shares	0
Released | $ / shares	0.19
Unvested, September 30, 2020 | $ / shares	$ 0

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Stock-Based Compensation (Details 3) - USD ($)	3 Months Ended		9 Months Ended
	Sep. 30, 2020	Sep. 30, 2019	Sep. 30, 2020	Sep. 30, 2019
Share-based Payment Arrangement, Expensed and Capitalized, Amount [Line Items]
Stock-based compensation expense	$ 148,365	$ 170,106	$ 241,216	$ 514,683
Research and development
Share-based Payment Arrangement, Expensed and Capitalized, Amount [Line Items]
Stock-based compensation expense	44,010	0	82,463	0
General and administrative
Share-based Payment Arrangement, Expensed and Capitalized, Amount [Line Items]
Stock-based compensation expense	$ 104,355	$ 170,106	$ 158,753	$ 514,683

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Stock-Based Compensation (Detail Textuals) - USD ($)	1 Months Ended	3 Months Ended	9 Months Ended
	Oct. 31, 2014	Sep. 30, 2020	Sep. 30, 2020	Sep. 30, 2019
Share-based Compensation Arrangement by Share-based Payment Award [Line Items]
Number of forfeiture of shares granted			325,929
Weighted average exercise price of forfeiture of shares (in dollars per share)		$ 0.25	$ 0.25
Vested and Expected to Vest		869,144	869,144
Weighted average exercise price of vested and outstanding (in dollars per share)		$ 0.25	$ 0.25
Stock-based compensation expense			$ 241,216	$ 514,683
Restricted stock awards
Share-based Compensation Arrangement by Share-based Payment Award [Line Items]
Number of shares granted			643,501
Weighted-average fair value of stock options granted (in dollars per share)		$ 0.26	$ 0.26
Number of restricted common stock granted			0
Number of restricted common stock vested			450,000
Omnibus Incentive Plan 2014 | Stock options
Share-based Compensation Arrangement by Share-based Payment Award [Line Items]
Number of shares reserved for future grants	3,200,000	6,040,097	6,040,097
Weighted-average fair value of stock options granted (in dollars per share)		$ 0.04	$ 0.04
Percentage of share reserve of the number of issued and outstanding shares	10.00%
Aggregate number of shares granted			24,200,000
Number of additional shares reserved for future grants	7,876,835

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Stock-Based Compensation (Detail Textuals 1)	9 Months Ended
	Sep. 30, 2020 USD ($)
Share-based Payment Arrangement [Abstract]
Total amount of unrecognized compensation cost related to non-vested stock options	$ 879,628
Recognized weighted average period	3 years 7 months 2 days

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Significant Contracts - University of Mississippi (Detail Textuals) - USD ($)		1 Months Ended
	Jan. 10, 2017	Jul. 31, 2018	Sep. 30, 2020
University Of Mississippi Agreements [Line Items]
Annual maintenance fee payable			$ 75,000
UM 5050 pro-drug agreements | University of Mississippi | Intellectual Property
University Of Mississippi Agreements [Line Items]
Payment for upfront fees		$ 100,000
UM 8930 analogue agreements | University of Mississippi | Intellectual Property
University Of Mississippi Agreements [Line Items]
Payment for upfront fees		200,000
Annual fees for license agreement		$ 200,000
UM 5070 license agreement | University of Mississippi | Intellectual Property
University Of Mississippi Agreements [Line Items]
Term of agreement	1 year
Notice period for termination	60 days
Aggregate milestone payments if milestones achieved	$ 700,000
Um 5050 Pro-Drug And Um 8930 Analog Agreements | University of Mississippi | Intellectual Property | Milestone 1
University Of Mississippi Agreements [Line Items]
Term of agreement		30 days
Aggregate milestone payments if milestones achieved		$ 100,000
Um 5050 Pro-Drug And Um 8930 Analog Agreements | University of Mississippi | Intellectual Property | Milestone 2
University Of Mississippi Agreements [Line Items]
Term of agreement		30 days
Aggregate milestone payments if milestones achieved		$ 200,000
Um 5050 Pro-Drug And Um 8930 Analog Agreements | University of Mississippi | Intellectual Property | Milestone 3
University Of Mississippi Agreements [Line Items]
Term of agreement		30 days
Aggregate milestone payments if milestones achieved		$ 400,000

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Related Party Matters (Detail Textuals) - USD ($)		1 Months Ended		3 Months Ended		9 Months Ended
	Aug. 10, 2020	Mar. 30, 2020	Dec. 19, 2019	Sep. 30, 2020	Sep. 30, 2019	Sep. 30, 2020	Sep. 30, 2019
Emerald Health Sciences Inc | Officers, employees and directors
Related Party Transaction [Line Items]
Number of of common shares shares	$ 186,667
Independent contractor agreement | Dr. Avtar Dhillon
Related Party Transaction [Line Items]
Monthly fee			$ 10,000
Monthly fee paid each month			5,000
Monthly fee accruing from effective date			$ 5,000
Percentage of accrued consulting fees		100.00%
Percentage of bonus for accrued consulting fees		10.00%
Fees incurred under agreement				$ 31,000		$ 97,387
Accrued expense under agreement				10,000		$ 10,000
Independent contractor agreement | Emerald Health Sciences Inc
Related Party Transaction [Line Items]
Initial term of agreement						10 years
Expense incurred under agreement					$ 150,000		$ 450,000
Accrued expense under agreement				$ 7,032		$ 7,032

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Subsequent Events (Detail Textuals) - Subsequent Event - 2014 Plan - $ / shares	Nov. 06, 2020	Oct. 05, 2020
Employee
Subsequent Event [Line Items]
Granted		2,000,000
Exercise price of stock options granted		$ 0.05
Weighted-average fair value of stock options granted		$ 0.04
Vesting period of stock options granted		4 years
Employee | Vesting on grant date
Subsequent Event [Line Items]
Vesting percentage		10.00%
Employee | Vesting semi-annually
Subsequent Event [Line Items]
Vesting percentage		90.00%
Chief Medical Officer
Subsequent Event [Line Items]
Number of stock options forfeited	3,968,271