SUMMARY CONSOLIDATED FINANCIAL INFORMATION AND OPERATING
DATA
The following
tables set forth our summary consolidated financial information and
operating data as of the year ended December 31, 2020 and for the
period of incorporation on March 13, 2019 through December 31,
2019. You should read the following summary consolidated
financial information and operating data in conjunction with, and
it is qualified in its entirety by reference to, our audited
consolidated financial statements and the related notes thereto and
the sections entitled “Capitalization”,
“Selected
Consolidated Financial Information and Operating Data” and
“Management’s
Discussion and Analysis of Financial Condition and Results of
Operations”, each of which are included elsewhere in this
prospectus.
Our summary
consolidated statement of income information and operating data for
the year ended December 31, 2020, and our related summary
consolidated balance sheet information as of December 31, 2020 have
been derived from our audited consolidated financial statements for
the year ended December 31, 2020 and for the period from
incorporation March 13, 2019 (inception) through December 31, 2019
prepared in accordance with International Financial Reporting
Standards (IFRS) as issued by the International Accounting
Standards Board (IASB), which are included elsewhere in this
prospectus. The summary historical consolidated financial data
as of June 30, 2021 and for the six months ended June 30, 2021 and
2020 has been derived from our unaudited interim consolidated
financial statements, which are included elsewhere in this
prospectus. The unaudited interim consolidated financial statements
reflect, in the opinion of management, all adjustments of a normal,
recurring nature that are necessary for a fair presentation of the
results of the unaudited interim periods.
Our historical results for the
periods presented below are not necessarily indicative of the
results to be expected for any future periods.
An investment in our securities is highly speculative and involves
a high degree of risk. We operate in a dynamic and rapidly
changing industry that involves numerous risks and
uncertainties. You should carefully consider the factors
described below, together with all of the other information
contained in this prospectus, including the audited and unaudited
financial statements and the related notes included in this
prospectus, before deciding whether to invest in our
securities. These risk factors are not presented in the order
of importance or probability of occurrence. If any of the
following risks actually occurs, our business, financial condition
and results of operations could be materially and adversely
affected. In that event, the market price of our securities
could decline, and you could lose part or all of your
investment. Some statements in this prospectus, including
statements in the following risk factors, constitute
forward-looking statements. Please refer to the section
entitled “Cautionary note regarding forward-looking
statements.”
Risks
Related to our Business and Industry
We
are an early-stage company with limited operating history and may
never become profitable.
We are an early-stage company
focused on cultivating, processing and supplying natural,
medicinal-grade cannabis oil and high quality cannabis derived
medical and wellbeing products to large channel distributors,
newly-formed in March 2019, and have limited operating history.
Flora has only started to grow and harvest commercial cannabis
crops and has not yet produced oil extracts, and we will require
time to maximize production and refine operating
procedures. Further, until our Research Technology and
Processing Center has been constructed and becomes operational, we
will not have sufficient infrastructure as a processor nor have the
ability to extract CBD oil in any material amounts. We are
currently in discussions with distributors with whom we intend to
engage although no definitive agreements have been signed until the
import requirements are met with local jurisdictions. We have
limited financial resources and minimal operating cash flow. In
addition, we do not currently have significant revenues and for the
year ended December 31, 2020, had losses of $14.33 million and an
accumulated deficit of $17.29 million and for the six months ended
June 30, 2021, had losses of $5.14 million and an accumulated
deficit of $22.38 million.
Additionally, there can be no
assurance that additional funding will be available to us for the
development of our business, which will require the commitment of
substantial resources. Accordingly, you should consider our
prospects in light of the costs, uncertainties, delays and
difficulties frequently encountered by companies in the early
stages of development. Potential investors should carefully
consider the risks and uncertainties that a company with a limited
operating history will face. In particular, potential investors
should consider that we may be unable to:
The
recent Coronavirus (“COVID-19”) outbreak or similar pandemics could
adversely affect our operations.
The Company’s operations could be
significantly adversely affected by the effects of a widespread
global outbreak of a contagious disease and other unforeseen
events, including the recent outbreak a of respiratory illness
caused by COVID-19 and the related economic repercussions. We
cannot accurately predict the effects COVID-19 will have on our
operations and the ability of others to meet their obligations with
the Company, including uncertainties relating to the ultimate
geographic spread of the virus, the severity of the disease, the
duration of the outbreak, and the length of travel and quarantine
restrictions imposed by governments of affected countries. In
addition, a significant outbreak of contagious diseases in the
human population could result in a widespread health crisis that
could adversely affect the economies and financial markets of many
countries, resulting in an economic downturn that could further
affect the Company’s operations and ability to finance its
operations.
Agricultural activity has been declared as an essential activity in
Colombia. Cosechemos is operating under a protocol authorized by
the Colombian government. At the farm in Santander, all employees
receive a new mask and a new set of surgical gloves daily. Hand
sanitizer is provided and hand washing protocols are in place. The
employees are also provided a transparent face protection mask,
which is replaced every 30 days. All employees have their
temperature taken three times daily and must report to the Health
and Safety office if they are experiencing any symptoms, including
diarrhea, cough, runny nose, or headache. If an employee reports
any of these symptoms, the employee is sent home to isolate for 14
days and, if the symptoms persist for 72 hours, the employee is
required to go to a hospital.
The farm
is located in a rural area, and to date, there have been less than
a dozen positive cases of COVID-19 reported.
Recent and future acquisitions and strategic investments could be
difficult to integrate, divert the attention of key management
personnel, disrupt our business, dilute shareholder value, and harm
our results of operations and financial condition.
We have
recently acquired the businesses of Vessel, Kasa, Breeze, Cronomed,
as well as the assets of the Quipropharma Lab, and we may in the
future seek to acquire or invest in, businesses, products, or
technologies that we believe could complement our operations or
expand our breadth, enhance our capabilities, or otherwise offer
growth opportunities. Our diversity of product offerings may
not be successful. While our growth strategy includes broadening
our service and product offerings, implementing an aggressive
marketing plan and employing product diversification, there can be
no assurance that our systems, procedures and controls will be
adequate to support our operations as they expand. We cannot
assure you that our existing personnel, systems, procedures or
controls will be adequate to support our operations in the future
or that we will be able to successfully implement appropriate
measures consistent with our growth strategy. As part of our
planned growth and diversified product offerings, we may have to
implement new operational and financial systems, procedures and
controls to expand, train and manage our employee base, and
maintain close coordination among our staff. We cannot guarantee
that we will be able to do so, or that if we are able to do so, we
will be able to effectively integrate them into our existing staff
and systems. Additionally, the integration of our acquisitions and
pursuit of potential future acquisitions may divert the attention
of management and cause us to incur various expenses in
identifying, investigating, and pursuing suitable acquisitions,
whether or not they are consummated. Any acquisition, investment or
business relationship may result in unforeseen operating
difficulties and expenditures. In addition, we have limited
experience in acquiring other businesses. Specifically, we may not
successfully evaluate or utilize the acquired products, assets or
personnel, or accurately forecast the financial impact of an
acquisition transaction, including accounting charges. Moreover,
the anticipated benefits of any acquisition, investment, or
business relationship may not be realized, or we may be exposed to
unknown risks or liabilities of our acquisitions.
We may
not be able to find and identify desirable acquisition targets or
we may not be successful in entering into an agreement with any one
target. Acquisitions could also result in dilutive issuances of
equity securities or the incurrence of debt, which could harm our
results of operations. In addition, if an acquired business fails
to meet our expectations, our business, results of operations, and
financial condition may suffer. In some cases, minority
shareholders may exist in certain of our non-wholly-owned
acquisitions (for businesses we do not purchase as an 100% owned
subsidiary) and may retain minority shareholder rights which
could make a future change of control or corporate approvals for
actions more difficult to achieve and/or more costly.
We also
make strategic investments in early-stage companies developing
products or technologies that we believe could complement our
business or expand our breadth, enhance our technical capabilities,
or otherwise offer growth opportunities. These investments may be
in early-stage private companies for restricted stock. Such
investments are generally illiquid and may never generate value.
Further, the companies in which we invest may not succeed, and our
investments would lose their value.
Certain conditions or events could disrupt the Company’s supply
chains, disrupt operations, and increase operating expenses.
Conditions or events including, but not limited to, the following
could disrupt the Company’s supply chains and in particular its
ability to deliver its products, interrupt operations at its
facilities, increase operating expenses, resulting in loss of
sales, delayed performance of contractual obligations or require
additional expenditures to be incurred: (i) extraordinary weather
conditions or natural disasters such as hurricanes, tornadoes,
floods, fires, extreme heat, earthquakes, etc.; (ii) a local,
regional, national or international outbreak of a contagious
disease, including the COVID-19 coronavirus, Middle East
Respiratory Syndrome, Severe Acute Respiratory Syndrome, H1N1
influenza virus, avian flu, or any other similar illness could
result in a general or acute decline in economic activity; (iii)
political instability, social and labour unrest, war or terrorism;
or (iv) interruptions in the availability of basic commercial and
social services and infrastructure including power and water
shortages, and shipping and freight forwarding services including
via air, sea, rail and road.
Cannabis laws, regulations, and guidelines are dynamic and subject
to changes.
Cannabis laws and regulations are
dynamic and subject to evolving interpretations which could require
us to incur substantial costs associated with compliance or alter
certain aspects of our business plan. It is also possible that
regulations may be enacted in the future that will be directly
applicable to certain aspects of our businesses. We cannot predict
the nature of any future laws, regulations, interpretations or
applications, nor can we determine what effect additional
governmental regulations or administrative policies and procedures,
when and if promulgated, could have on our business. Management
expects that the legislative and regulatory environment in the
cannabis industry in Colombia and internationally will continue to
be dynamic and will require innovative solutions to try to comply
with this changing legal landscape in this nascent industry for the
foreseeable future. Compliance with any such legislation may have a
material adverse effect on our business, financial condition and
results of operations.
Public opinion can also exert a
significant influence over the regulation of the cannabis industry.
A negative shift in the public’s perception of the cannabis
industry could affect future legislation or regulation in different
jurisdictions.
Demand for cannabis and derivative products could be adversely
affected and significantly influenced by scientific research or
findings, regulatory proceedings, litigation, media attention or
other research findings.
The legal cannabis industry in
Colombia is at an early stage of its development. Consumer
perceptions regarding legality, morality, consumption, safety,
efficacy and quality of medicinal cannabis are mixed and evolving
and can be significantly influenced by scientific research or
findings, regulatory investigations, litigation, media attention
and other publicity regarding the consumption of medicinal cannabis
products. There can be no assurance that future scientific
research, findings, regulatory proceedings, litigation, media
attention or other research findings or publicity will be
favourable to the medicinal cannabis market or any particular
product, or consistent with earlier publicity. Future research
reports, findings, regulatory proceedings, litigation, media
attention or other publicity that are perceived as less favourable
than, or that question, earlier research reports, findings or
publicity, could have a material adverse effect on the demand for
medicinal cannabis and on our business, results of operations,
financial condition and cash flows. Further, adverse publicity
reports or other media attention regarding cannabis in general or
associating the consumption of medicinal cannabis with illness or
other negative effects or events, could have such a material
adverse effect. Public opinion and support for medicinal cannabis
use has traditionally been inconsistent and varies from
jurisdiction to jurisdiction. Our ability to gain and increase
market acceptance of our business may require substantial
expenditures on investor relations, strategic relationships and
marketing initiatives. There can be no assurance that such
initiatives will be successful and their failure to materialize
into significant demand may have an adverse effect on our financial
condition.
Damage to the Company’s reputation can be the result of the actual
or perceived occurrence of any number of events, and could include
any negative publicity, whether such publicity is accurate or
not.
The increased usage of social
media and other web-based tools used to generate, publish and
discuss user-generated content and to connect with other users has
made it increasingly easier for individuals and groups to
communicate and share opinions and views regarding the Company and
its activities, whether true or not. Although the Company believes
that it operates in a manner that is respectful to all stakeholders
and that it takes pride in protecting its image and reputation, it
does not ultimately have direct control over how it is perceived by
others. Reputational loss may result in decreased ability to enter
into new customer, distributor or supplier relationships, retain
existing customers, distributors or suppliers, reduced investor
confidence and access to capital, increased challenges in
developing and maintaining community relations and an impediment to
our overall ability to advance our projects, thereby having a
material adverse effect on our financial performance, financial
condition, cash flows and growth prospects.
We
are subject to the inherent risk of exposure to product liability
claims, actions and litigation.
As a distributor of products
designed to be ingested by humans, we face an inherent risk of
exposure to product liability claims, regulatory action and
litigation if our products are alleged to have caused bodily harm
or injury. In addition, the sale of our products involves the risk
of injury to consumers due to tampering by unauthorized third
parties or product contamination. Adverse reactions resulting from
human consumption of our products alone or in combination with
other medications or substances could occur. We may be subject to
various product liability claims, including, among others, that our
products caused injury or illness, include inadequate instructions
for use or include inadequate warnings concerning health risks,
possible side effects or interactions with other substances.
Product liability claims or regulatory actions against us could
result in increased costs, could adversely affect our reputation
with our clients and consumers generally, and could have a material
adverse effect on our results of operations and financial
condition. There can be no assurances that we will be able to
obtain or maintain product liability insurance on acceptable terms
or with adequate coverage against potential liabilities. Such
insurance is expensive and may not be available in the future on
acceptable terms, or at all. The inability to obtain sufficient
insurance coverage on reasonable terms or to otherwise protect
against potential product liability claims could prevent or inhibit
the commercialization of our potential products.
We
are subject to the inherent risks involved with product
recalls.
Manufacturers and distributors of
products are sometimes subject to the recall or return of their
products for a variety of reasons, including product defects, such
as contamination, unintended harmful side effects or interactions
with other substances, packaging safety and inadequate or
inaccurate labelling disclosure. If any of our products are
recalled due to an alleged product defect or for any other reason,
we could be required to incur the unexpected expense of the recall
and any legal proceedings that might arise in connection with the
recall. We may lose a significant amount of sales and may not be
able to replace those sales at an acceptable margin, or at all. In
addition, a product recall may require significant management
attention. There can be no assurance that any quality, potency or
contamination problems will be detected in time to avoid unforeseen
product recalls, regulatory action or lawsuits. Additionally, if
our products are subject to recall, our reputation could be harmed.
A recall for any of the foregoing reasons could lead to decreased
demand for our products and could have a material adverse effect on
our results of operations and financial condition. Additionally,
product recalls may lead to increased scrutiny of our operations by
regulatory agencies, requiring further management attention,
potential loss of applicable licenses, and potential legal fees and
other expenses.
The
Company’s products could have unknown side effects.
If the products the Company sells
are not perceived to have the effects intended by the end user, its
business may suffer and the business may be subject to products
liability or other legal actions. Many of the Company’s products
contain innovative ingredients or combinations of ingredients.
There is little long-term data available with respect to efficacy,
unknown side effects and/or interaction with individual human
biochemistry, or interaction with other drugs. Moreover, there is
little long-term data available with respect to efficacy, unknown
side effects and/or its interaction with individual animal
biochemistry. As a result, the Company’s products could have
certain side effects if not taken as directed or if taken by an end
user that has certain known or unknown medical conditions.
The Company may be unable to
anticipate changes in its potential client requirements that could
make the Company’s existing products and services obsolete. The
Company’s success will depend, in part, on its ability to continue
to enhance its product and service offerings so as to address the
increasing sophistication and varied needs of the market and
respond to technological and regulatory changes and emerging
industry standards and practices on a timely and cost-effective
basis.
Research regarding the medical benefits, viability, safety,
efficacy, use and social acceptance of cannabis or isolated
cannabinoids (such as CBD and THC) remains in early stages.
There have been relatively few
clinical trials on the benefits of cannabis or isolated
cannabinoids (such as CBD and THC). Although the Company believes
that the articles, reports and studies support its beliefs
regarding the medical benefits, viability, safety, efficacy, dosing
and social acceptance of cannabis, future research and clinical
trials may prove such statements to be incorrect, or could raise
concerns regarding, and perceptions relating to, cannabis. Given
these risks, uncertainties and assumptions, investors should not
place undue reliance on such articles and reports. Future research
studies and clinical trials may draw opposing conclusions to those
stated herein or reach negative conclusions related to medical
cannabis, which could have a material adverse effect on the demand
for the Company’s products, which could result in a material
adverse effect on our business, financial condition and results of
operations or prospects.
The
Company’s inventory has a shelf life and may reach its expiration
and not be sold.
The Company holds finished goods
in inventory and its inventory has a shelf life. Finished goods in
the Company’s inventory may include cannabis flower, cannabis oil
products and cosmeceutical. The Company’s inventory may reach its
expiration and not be sold. Although management regularly reviews
the quantity and remaining shelf life of inventory on hand, and
estimates manufacturing and sales lead times in order to manage its
inventory, write-downs of inventory may still be required. Any such
write-down of inventory could have a material adverse effect on the
Company’s business, financial condition, and results of
operations.
The seasonal trends in our business create variability in
our financial and operating results.
Our financial and operating
results are subject to seasonal and quarterly variations
in our net revenue and operating income and, as a result, our
quarterly results may fluctuate and could be below
expectations.
Our business has realized a
disproportionate amount of our net revenue and earnings for prior
fiscal years in the third and fourth quarter as a result of the
holiday season, and we expect this seasonal impact on our
operations to continue in the future. If we experience lower than
expected net revenue during any third or fourth quarter, it may
have disproportionately large effects on our operating results and
financial condition for that year. Any factors that harm our third
or fourth quarter operating results, including disruptions in our
brands or our supply chains or unfavorable economic conditions,
could have a disproportionate effect on our results of operations
and our financial condition for our entire fiscal year.
The
Company may not be able to maintain effective quality control
systems.
The Company may not be able to
maintain an effective quality control system. The Company ascribes
its early successes, in part, on its commitment to product quality
and its effective quality control system. The effectiveness of the
Company’s quality control system and its ability to obtain or
maintain GMP certification with respect to its manufacturing,
processing and testing facilities depend on a number of factors,
including the design of its quality control procedures, training
programs, and its ability to ensure that its employees adhere to
the Company’s policies and procedures. The Company also depends on
service providers such as toll manufacturers and contract
laboratories to manufacture, process or test its products, that are
subject to GMP certification requirements.
We expect that regulatory
agencies will periodically inspect our and our service providers’
facilities to evaluate compliance with applicable GMP requirements.
Failure to comply with these requirements may subject us or our
service providers to possible regulatory enforcement actions. Any
failure or deterioration of the Company’s or its service providers’
quality control systems, including loss of GMP certification, may
have a material adverse effect on the Company’s business, results
of operations and financial condition.
Energy prices and supply may be subject to change or curtailment
due to new laws or regulations, imposition of new taxes or tariffs,
interruptions in production by suppliers, imposition of
restrictions on energy supply by government, worldwide price levels
and market conditions.
The Company requires diesel and
electric energy and other resources for its cultivation and harvest
activities and for transportation of cannabis. The Company relies
upon third parties for its supply of energy resources used in its
operations. The prices for and availability of energy resources may
be subject to change or curtailment, respectively, due to, among
other things, new laws or regulations, imposition of new taxes or
tariffs, interruptions in production by suppliers, imposition of
restrictions on energy supply by government, worldwide price levels
and market conditions. Although the Company attempts to mitigate
the effects of fuel shortages, electricity outages and cost
increases, the Company’s operations will continue to depend on
external suppliers of fuel and electricity. If energy supply is cut
for an extended period and the Company is unable to find
replacement sources at comparable prices, or at all, the Company’s
business, financial condition and results of operations could be
materially and adversely affected.
The
cannabinoid industry faces strong opposition and may face similar
opposition in other jurisdictions in which we operate.
Many political and social
organizations oppose hemp and cannabis and their legalization, and
many people, even those who support legalization, oppose the sale
of hemp and cannabis in their geographies. Our business will need
support from local governments, industry participants, consumers
and residents to be successful. Additionally, there are large,
well-funded businesses that may have a strong opposition to the
cannabis industry. For example, the pharmaceutical and alcohol
industries have traditionally opposed cannabis legalization. Any
efforts by these or other industries opposed to cannabis would make
in halting or impeding the cannabis industry could have detrimental
effects on our business.
We
are subject to the risks inherent in an agricultural
business.
Our business involves the growing
of cannabis, which is an agricultural product. The occurrence of
severe adverse weather conditions, especially droughts, fires,
storms or floods is unpredictable and may have a potentially
devastating impact on agricultural production and may otherwise
adversely affect the supply of cannabis. Adverse weather conditions
may be exacerbated by the effects of climate change and may result
in the introduction and increased frequency of pests and diseases.
The effects of severe adverse weather conditions may reduce our
yields or require us to increase our level of investment to
maintain yields. Additionally, higher than average temperatures and
rainfall can contribute to an increased presence of insects and
pests, which could negatively affect cannabis crops. Future
droughts could reduce the yield and quality of our cannabis
production, which could materially and adversely affect our
business, financial condition and results of operations.
The occurrence and effects of
plant disease, insects and pests can be unpredictable and
devastating to agricultural production, potentially rendering all
or a substantial portion of the affected harvests unsuitable for
sale. Even when only a portion of the production is damaged, our
results of operations could be adversely affected because all or a
substantial portion of the production costs may have been incurred.
Although some plant diseases are treatable, the cost of treatment
can be high and such events could adversely affect our operating
results and financial condition. Furthermore, if we fail to control
a given plant disease and the production is threatened, we may be
unable to adequately supply our customers, which could adversely
affect our business, financial condition and results of operations.
There can be no assurance that natural elements will not have a
material adverse effect on production.
Our
operations could be materially and adversely affected if the supply
of cannabis seeds is ceased or delayed and we do not find
replacement suppliers and obtain all necessary
authorizations.
If for any reason the supply of
cannabis seeds is ceased or delayed, we would have to seek
alternate suppliers and obtain all necessary authorization for the
new seeds. If replacement seeds cannot be obtained at comparable
prices, or at all, or if the necessary authorizations are not
obtained, our business, financial condition and results of
operations would be materially and adversely affected.
Many of our competitors have
greater resources that may enable them to compete more effectively
than us in the cannabis industry.
The industry in which we operate
is subject to intense and increasing competition. Some of our
competitors have a longer operating history and greater capital
resources and facilities, which may enable them to compete more
effectively in this market. We expect to face additional
competition from existing licensees and new market entrants who are
granted licenses in Colombia, who are not yet active in the
industry. If a significant number of new licenses are granted in
the near term, we may experience increased competition for market
share and may experience downward pricing pressure on our products
as new entrants increase production. Such competition may cause us
to encounter difficulties in generating revenues and market share,
and in positioning our products in the market. If we are unable to
successfully compete with existing companies and new entrants to
the market, our lack of competitive advantage will have a negative
effect on our business and financial condition.
The
Company could face competitive risks from the development and
distribution of synthetic cannabis.
The pharmaceutical industry and
others may attempt to enter the cannabis industry and, in
particular, the medical cannabis industry through the development
and distribution of synthetic products that emulate the effects of
and treatment provided by naturally occurring cannabis. If
synthetic cannabis products are widely adopted, the widespread
popularity of such synthetic cannabis products could change the
demand, volume and profitability of the botanical cannabinoid
industry. This could adversely affect our ability to secure
long-term profitability and success through the sustainable and
profitable operation of our business.
The
legalization of adult-use, recreational cannabis may reduce sales
of medical cannabis.
Legalization of the sale to
adults of recreational, non-medical cannabis in any country may
increase competition in the medical cannabis market. We may not be
able to achieve our business plan in a highly competitive market
where recreational, adult-use cannabis is legal, or the market may
experience a drop in the price of cannabis and cannabis products
over time, decreasing our profit margins.
The
Company is reliant on third party transportation services and
importation services to deliver its products to customers.
The Company relies on third party
transportation services and importation services to deliver its
products to its customers. The Company is exposed to the inherent
risks associated with relying on third party transportation
service-providers, including logistical problems, delays, loss or
theft of product and increased shipping and insurance costs. Any
delay in transporting the product, breach of security or loss of
product, could have a material adverse effect on the Company’s
business, financial performance and results of operations. Further,
any breach of security and loss of product during transport could
affect the Company’s status as a licensed producer in
Colombia.
The
Company is dependent on suppliers to supply equipment, parts and
components for the operation of its business.
The Company’s ability to compete
and grow will be dependent upon having access, at a reasonable cost
and in a timely manner, to equipment, parts and components. No
assurances can be given that the Company will be successful in
maintaining the required supply of equipment, parts and components.
It is also possible that the final costs of the major equipment
contemplated by capital expenditure programs may be significantly
greater than anticipated or available, in which circumstance there
could be a materially adverse effect on the Company’s financial
results.
We
may not be able to establish and maintain bank accounts in certain
countries.
There is a risk that banking
institutions in countries where we operate will not open accounts
for us or will not accept payments or deposits from proceeds
related to the cannabis industry. Such risks could increase our
costs or prevent us from expanding into certain
jurisdictions.
The
Company may be subject to cyber-security and privacy risks that
could disrupt its operations and expose the Company to financial
losses, contractual losses, liability, reputational damage and
additional expense.
The Company may be subject to
risks related to our information technology systems, including
cyber-attacks, malware, ransomware and phishing attacks that could
target our intellectual property, trade secrets, financial
information, personal information of our employees, customers and
patients, including sensitive personal health information. The
occurrence of such an attack could disrupt our operations and
expose the Company to financial losses, contractual damages,
liability under labour and privacy laws, reputational damage and
additional expenses. We have implemented security measures to
protect our data and information technology systems; however, such
measures may not be effective in preventing cyber-attacks. We may
be required to allocate additional resources to implement
additional preventative measures including significant investments
in information technology systems. A serious cyber-security breach
could have a material adverse effect on our business, financial
condition and results of operations.
The Company may collect and store
certain personal information about customers and is responsible for
protecting such information from privacy breaches. A privacy breach
may occur through procedural or process failure, information
technology malfunction, or deliberate unauthorized intrusions. In
addition, theft of data is an ongoing risk whether perpetrated via
employee collusion or negligence or through deliberate
cyber-attack. Any such privacy breach or theft could have a
material adverse effect on the Company’s business, financial
condition and results of operations. If the Company were found to
be in violation of privacy or security rules or other laws
protecting the confidentiality of information, the Company could be
subject to sanctions and civil or criminal penalties, which could
increase its liabilities, harm its reputation and have a material
adverse effect on the Company’s business, financial condition and
results of operations.
The Company may incur significant costs to defend its intellectual
property and other proprietary rights.
The ownership and protection of
trademarks, patents, trade secrets and intellectual property rights
are significant aspects of the Company's future success.
Unauthorized parties may attempt to replicate or otherwise obtain
and use the Company's products and technology. Policing the
unauthorized use of the Company's current or future trademarks,
patents, trade secrets or intellectual property rights could be
difficult, expensive, time-consuming and unpredictable, as may be
enforcing these rights against unauthorized use by others.
In addition, other parties may
claim that the Company's products infringe on their proprietary and
perhaps patent protected rights. Such claims, regardless of their
merit, may result in the expenditure of significant financial and
managerial resources, legal fees, injunctions, temporary
restraining orders and/or require the payment of damages. As well,
the Company may need to obtain licenses from third parties who
allege that the Company has infringed on their lawful rights. Such
licenses may not be available on terms acceptable to the Company or
at all. In addition, the Company may not be able to obtain or
utilize on terms that are favorable to it, or at all, licenses or
other rights with respect to intellectual property that it does not
own.
Risks
Related to Operations in Colombia
We
are reliant on certain licenses and authorizations to operate in
Colombia.
Our ability to grow, store and
sell cannabis in Colombia is dependent on our ability to sustain
and/or obtain the necessary licenses and authorizations by certain
authorities in Colombia. To date, we have received the
Non-Psychoactive Cannabis Cultivation License, the Cannabis
Derivatives Manufacturing License and the Psychoactive Cannabis
Cultivation License including a quota for export of 7,800 kilograms
in 2021. The effects of the compliance regime, any delays in
obtaining, or failure to obtain or keep the regulatory approvals
may significantly delay or impair the development of markets,
products and sales initiatives and could have a material adverse
effect on our business, results of operations and financial
condition.
The licenses and authorizations
are subject to ongoing compliance and reporting requirements and
our ability to obtain, sustain or renew any such licenses and
authorizations on acceptable terms is subject to changes in
regulations and policies and to the discretion of the applicable
authorities or other governmental agencies in Colombia and
potentially in other foreign jurisdictions. Failure to comply with
the requirements of the licenses or authorizations or any failure
to maintain the licenses or authorizations would have a material
adverse effect on our business, financial condition and operating
results. Specifically, the validity of the licenses for the
cultivation of psychoactive cannabis, non-psychoactive and the
manufacture of cannabis derivatives is five years, pursuant to
Article 2.8.11.2.1.3. of Decree 613 of 2017 and the Law 1787 of
2016 in relation to the medical and scientific use of cannabis.
Such licenses may be renewed for an equal period as many times as
requested by the licensee. The license will remain valid as long as
it complies with the requirements established by law.
Although we believe that we will
meet the requirements to obtain, sustain or renew the necessary
licenses and authorizations, there can be no guarantee that the
applicable authorities will issue these licenses or authorizations.
Should the authorities fail to issue the necessary licenses or
authorizations, we may be curtailed or prohibited from the
production and/or distribution of cannabis or from proceeding with
the development of our operations as currently proposed and our
business, results of operations and financial condition may be
materially adversely affected.
Restrictions or regulations concerning changes in corporate
structure may discourage transactions that otherwise could involve
payment of a premium over prevailing market process for our
securities.
Colombian cannabis licenses are
granted on a non-transferable, non-exchangeable and non-assignable
basis. Any breach of this restriction may result in the revocation
of the license. While there are no specific regulations or
restrictions regarding the effects of a change in control,
modification of the corporate structure, issuance of shares, or any
changes in holders or final beneficiaries on the cannabis licenses,
these restrictions may discourage transactions that otherwise could
involve payment of a premium over prevailing market prices for our
securities.
Our
operations are located in Colombia, which may make it more
difficult for investors to understand and predict how changing
market and economic conditions will affect our financial
results.
Our operations are located in
Colombia and, consequently, are subject to the economic, political
and tax conditions prevalent in that country. The economic
conditions in Colombia are subject to different growth
expectations, market weaknesses and business practices than
economic conditions in other markets. We may not be able to predict
how changing market conditions in Colombia will affect our
financial results.
As of the date of this
prospectus, Colombia’s long-term foreign currency sovereign credit
ratings were affirmed “Baa2” by Moody’s, “BBB-” by S&P and
“BBB” by Fitch, three of the main rating agencies worldwide. The
stable outlook reflects their expectation that Colombia’s
established political institutions and track record of consensus on
key economic policies will contribute to economic stability and
continuity over the coming two to three years.
Colombia’s economy, like most
Latin-American countries, continues to suffer from the effects of
lower commodity prices, mainly oil, reflected in its elevated level
of external debt. Even though the country has taken measures to
stabilize the economy, it is uncertain how these measures will be
perceived and if the intended goal of increasing investor’s
confidence will be achieved.
Colombia’s financial and securities markets are influenced by the
economic and market conditions in other countries.
Financial and securities markets
in Colombia are influenced by the economic and market conditions in
other countries, including other South American emerging market
countries. Although economic conditions in these countries may
differ significantly from economic conditions in Colombia,
international investors’ reactions to developments in these other
countries, may substantially affect capital inflows into the
Colombian economy, and the market value of securities of issuers
with operations in Colombia.
Economic downturn or volatility
could have a material adverse effect on our business, financial
condition and results of operations. In addition, weakening of
economic conditions could lead to reductions in demand for our
products. Further, weakened economic conditions or a
recession could reduce the amount of income customers are able to
spend on our products. In addition, as a result of volatile or
uncertain economic conditions, we may experience the negative
effects of increased financial pressures on our clients. For
instance, our business, financial condition and results of
operations could be negatively affected by increased competitive
pricing pressure, which could result in the incurrence of increased
bad debt expense. If we are not able to timely and appropriately
adapt to changes resulting from a weak economic environment, our
business, results of operations and financial condition may be
materially and adversely affected.
While
we do not currently operate in protected areas established by the
National System of Protected Areas, we cannot provide assurances
that areas in which we operate will not be subject to risks
associated therewith in the future.
Under Colombian laws, competent
governmental authorities are not allowed to grant any type of
cannabis licenses on properties that are located within areas
registered as national parks or protected areas in the National
System of Protected Areas (“SINAP”). Additionally, the Colombian
government is entitled to create new protected areas based on their
environmental relevance, which might result in the prohibition to
conduct any type of activities on those areas or the need to obtain
specific environmental authorizations or permits.
We do not operate in a protected
area and we believe that we are not currently at risk of
expropriation pursuant to the SINAP, but we cannot assure you that
the areas in which we operate will not be subject to such risks in
the future.
Economic and political conditions in Colombia may have an adverse
effect on our financial condition and results of operations.
Our operations are located in
Colombia. Consequently, our financial condition and results of
operations depend significantly on macroeconomic and political
conditions prevailing in Colombia. Decreases in the growth rate,
periods of negative growth, increases in inflation, changes in law,
regulation, policy, or future judicial rulings and interpretations
of policies involving exchange controls and other matters such as
(but not limited to) currency depreciation, inflation, interest
rates, taxation, banking laws and regulations and other political
or economic developments in or affecting Colombia may affect the
overall business environment and may, in turn, adversely affect our
financial condition and results of operations in the future. The
Colombian government frequently intervenes in Colombia’s economy
and from time to time makes significant changes in monetary, fiscal
and regulatory policy. Our business and results of operations or
financial condition may be adversely affected by changes in
government or fiscal policies, and other political, diplomatic,
social and economic developments that may affect Colombia. We
cannot predict what policies the Colombian government will adopt
and whether those policies would have a negative effect on the
Colombian economy or on our business and financial performance in
the future.
We cannot assure you whether
current stability in the Colombian economy will be sustained. If
the condition of the Colombian economy were to deteriorate, we
would likely be adversely affected.
Colombia could experience substantial inflation in the future
resulting in the Company’s costs in the Colombian peso increasing
significantly.
Colombia has in the past
experienced double-digit rates of inflation. If Colombia
experiences substantial inflation in the future, the Company’s
costs in Colombian peso terms will increase significantly, subject
to movements in applicable exchange rates. Inflationary pressures
may also curtail the Company’s ability to access global financial
markets in the longer term and its ability to fund planned capital
expenditures, and could materially adversely affect the Company’s
business, financial condition and results of operations. The
Colombian government’s response to inflation or other significant
macro-economic pressures may include the introduction of policies
or other measures that could increase the Company’s costs, reduce
operating margins and materially adversely affect its business,
financial condition and results of operations.
Certain of the Company’s key documents are in Spanish, and
translations may not exist or be readily available.
As a result of the Company
conducting its operations in Colombia, certain of the Company’s
subsidiaries’ books and records, including key documents such as
material contracts and financial documentation are principally
negotiated and entered into in the Spanish language and English
translations may not exist or be readily available. The Company
relies on the use of professional translators for in person
meetings with non-Spanish speakers where required, and for document
translation. The Company does not foresee that significant
additional accommodations will be required. The Company does not
have a formal communication plan that sets out measures that will
be taken to mitigate any potential communication-related issues as
it does not consider one necessary. All material documents provided
to the directors are in the English language. If any material
documents are in an original language other than English, the
documents are translated by certified translators. All members of
the Company’s Board of Directors and its executive officers are
fluent in English. Additionally, the following directors and
officers of the Company are fluent in the Spanish language: Luis
Merchan, President, CEO and Director; Damian Lopez, VP Strategy and
Legal; and Javier Franco, VP Agriculture.
The
Colombian government and the Central Bank exercise significant
influence on Colombia’s economy.
Although the Colombian government
has not imposed foreign exchange restrictions since 1990,
Colombia’s foreign currency markets have historically been
extremely regulated. Colombian law permits the Central Bank of
Colombia (the “Central Bank”) to impose foreign exchange controls
to regulate the remittance of dividends and/or foreign investments
in the event that the foreign currency reserves of the Central Bank
fall below a level equal to the value of three months of imports of
goods and services into Colombia. An intervention that precludes
our Colombian subsidiary from possessing, utilizing or remitting
U.S. Dollars would impair our financial condition and results of
operations, and would impair the Colombian subsidiary’s ability to
convert any dividend payments to U.S. dollars.
The Colombian government and the
Central Bank may also seek to implement new policies aimed at
controlling further fluctuation of the Colombian peso against the
U.S. dollar and fostering domestic price stability. The Central
Bank may impose certain mandatory deposit requirements in
connection with foreign-currency denominated loans obtained by
Colombian residents. We cannot predict or control future actions by
the Central Bank in respect of such deposit requirements, which may
involve the establishment of a different mandatory deposit
percentage. The U.S. dollar/Colombian peso exchange rate has shown
some instability in recent years.
Colombia has experienced and continues to experience internal
security issues that have had or could have a negative effect on
the Colombian economy and our financial condition.
Colombia is subject to sustained
internal security issues, primarily due to the activities of
guerrilla groups, such as dissidents from the former Revolutionary
Armed Forces of Colombia (Fuerzas
Armadas Revolucionarias de Colombia), or “FARC,” the
National Liberation Army (Ejército de Liberación Nacional), or
“ELN,” paramilitary groups, drug cartels and criminal gangs
(Bacrim). In remote
regions of the country with minimal governmental presence, these
groups have exerted influence over the local population and funded
their activities by protecting and rendering services to drug
traffickers and participating in drug trafficking activities. Even
though the Colombian government’s policies have reduced guerilla
presence and criminal activity, particularly in the form of
terrorist attacks, homicides, kidnappings and extortion, such
activity persists in Colombia, and possible escalation of such
activity and the effects associated with them have had and may have
in the future a negative effect on the Colombian economy and on us,
including on our customers, employees, results of operations and
financial condition. The Colombian government commenced peace
talks with the FARC in August 2012, and peace negotiations with the
ELN began in November 2016. The Colombian government and the FARC
signed a peace deal on September 26, 2016, which was amended after
voters rejected it in the referendum held on October 2, 2016. The
new agreement was signed on November 24, 2016 and was ratified by
the Colombian Congress on November 30, 2016 and is being
implemented after four years of negotiations. Pursuant to the peace
agreements negotiated between the FARC and the Colombian government
in 2016, the FARC occupies five seats in the Colombian Senate and
five seats in the Colombian House of Representatives. The new deal
clarifies protection to private property, is expected to increase
the government’s presence in rural areas and bans former rebels
from running for office in certain newly created congressional
districts in post-conflict zones. As a result, during the
transition process, Colombia may experience an increase in internal
security issues, drug-related crime and guerilla and paramilitary
activities, which may have a negative effect on the Colombian
economy. Our business or financial condition could be adversely
affected by rapidly changing economic or social conditions,
including the Colombian government’s response to implementation of
the agreement with FARC and ongoing peace negotiations, if any,
which may result in legislation that increases the tax burden of
Colombian companies.
Despite efforts by the Colombian
government, drug-related crime, guerrilla paramilitary activity and
criminal bands continue to exist in Colombia, and allegations have
surfaced regarding members of the Colombian congress and other
government officials having ties to guerilla and paramilitary
groups. Although the Colombian government and ELN have been in
talks since February 2017 to end a five-decade war, the Colombian
government has suspended the negotiations after a series of rebel
attacks. On January 17, 2019, a car with explosives burst through
the gates at a police academy in Bogotá resulting in 21 people dead
and many injured. The Colombian Defense Minister confirmed that the
terrorist attack was perpetrated by the ELN. Any possible
escalation in the violence associated with this terrorist attack
and/or these activities may have a negative effect on the Colombian
economy. In addition, the current administration has not honored
the peace protocols to be applied in the event of a suspension of
peace negotiations entered into by the prior administration, on the
grounds that these protocols are only binding to the administration
that agreed to them. This situation could result in escalated
violence by the ELN and may have a negative effect on the
credibility of the Colombian government which could in turn have a
negative effect on the Colombian economy. Any terrorist activity in
Colombia generally may disrupt supply chains and discourage
qualified individuals from being involved with our
operations.
Political and economic instability in the region may affect the
Colombian economy and, consequently, our results of operations and
financial condition.
Some of Colombia’s neighboring
countries, particularly Venezuela, have experienced and continue to
experience periods of political and economic
instability. According to figures from the United Nations,
more than two million Venezuelans have emigrated amid food and
medicine shortages and profound political divisions in their
country. Approximately half of those migrants have opted
to live in Colombia, and many have arrived with only what they
could carry. Providing migrants with access to healthcare,
utilities and education may have a negative effect on Colombia’s
economy if the Colombian government is not able to respond
adequately to legalize migrants, generate programs to help them
find formal jobs, and increase tax revenue and consumption.
Moreover, diplomatic relations
with Venezuela and Ecuador have from time to time been tense and
affected by events surrounding the Colombian military forces’
confrontations with guerilla groups, particularly on Colombia’s
borders with each of Venezuela and Ecuador. More recently, the
Colombian government joined an international campaign against
Nicolás Maduro asking him to relinquish power, which has further
increased diplomatic tensions with Venezuela.
On November 19, 2012, the
International Court of Justice placed a sizeable area of the
Caribbean Sea within Nicaragua’s exclusive economic zone, which
until then had been deemed by Colombia as part of its own exclusive
economic zone. A worsening of diplomatic relations between Colombia
and Nicaragua involving the disputed waters could result in the
Nicaraguan government taking measures, or a reaction among the
Nicaraguan public, which would be detrimental to Colombian-owned
interests in that country.
Further economic and political
instability in Colombia’s neighboring countries or any future
deterioration in relations with Venezuela, Ecuador, Nicaragua and
other countries in the region may result in the closing of borders,
the imposition of trade barriers and a breakdown of diplomatic
ties, or a negative effect on Colombia’s trade balance, economy and
general security situation, which may adversely affect our results
of operations and financial condition.
Finally, political conditions
such as changes in the United States policies related to
immigration and remittances could affect the regions in which we
operate. Economic conditions in the United States and the region
generally may be affected by the new United States-Mexico-Canada
Agreement. This could have an indirect effect on the Colombian
economy and other countries in which we may operate.
The
Company is subject to risks from its construction projects,
including the anticipated construction of its Research Technology
and Processing Center.
The Company is subject to a
number of risks in connection with the construction of facilities
in Colombia, including the availability and performance of
engineers and contractors, suppliers and consultants and the
receipt of required governmental approvals, licenses and permits.
Any delay in the performance of any one or more of the contractors,
suppliers, consultants or other persons on which the Company is
dependent in connection with its construction activities, a delay
in or failure to receive the required governmental approvals,
licenses and permits in a timely manner or on reasonable terms, or
a delay in or failure in connection with the completion and
successful operation of the operational elements in connection with
construction could delay or prevent the construction of the
Research Technology and Processing Center as planned. Until the
Company’s Research Technology and Processing Center has been
constructed and becomes operational, the Company will not have the
ability to extract CBD oil in any material amount. There can be no
assurance that current or future construction plans implemented by
the Company will be successfully completed on time, within budget
and without design defect, that the necessary personnel and
equipment will be available in a timely manner or on reasonable
terms to successfully complete construction projects, that the
Company will be able to obtain all necessary governmental
approvals, licenses and permits, or that the completion of the
construction, the start-up costs and the ongoing operating costs
will not be significantly higher than anticipated by the Company.
Any of the foregoing factors could adversely affect our operations
and financial condition.
Any
additional taxes resulting from changes to tax regulations or the
interpretation thereof in Colombia or other countries where we
operate, could adversely affect our consolidated results.
Uncertainty relating to tax
legislation poses a constant risk to us. Colombian national
authorities have levied new taxes in recent years. Changes in
legislation, regulation and jurisprudence can affect tax burdens by
increasing tax rates and fees, creating new taxes, limiting stated
expenses and deductions, and eliminating incentives and non-taxed
income.
Additional tax regulations could
be implemented that could require us to make additional tax
payments, negatively affecting our financial condition, results of
operation, and cash flow. In addition, either national or local
taxing authorities may not interpret tax regulations in the same
way that we do. Differing interpretations could result in future
tax litigation and associated costs.
Risks
Related to Our Regulatory Framework
Marijuana remains illegal under U.S. federal law, and the
enforcement of U.S. cannabis laws could change.
There are significant legal
restrictions and regulations that govern the cannabis industry in
the United States. Marijuana remains a Schedule I drug under the
Controlled Substances Act, making it illegal under federal law in
the United States to, among other things, cultivate, distribute or
possess cannabis in the United States. In those states in which the
use of marijuana has been legalized, its use remains a violation of
federal law pursuant to the Controlled Substances Act. The
Controlled Substances Act classifies marijuana as a Schedule I
controlled substance, and as such, medical and adult cannabis use
is illegal under U.S. federal law. Unless and until the U.S.
Congress amends the Controlled Substances Act with respect to
marijuana (and the President approves such amendment), there is a
risk that federal authorities may enforce current federal law.
Financial transactions involving proceeds generated by, or intended
to promote, cannabis-related business activities in the United
States may form the basis for prosecution under applicable U.S.
federal money laundering legislation. While the approach to
enforcement of such laws by the federal government in the United
States has trended toward non-enforcement against individuals and
businesses that comply with medical or adult-use cannabis
regulatory programs in states where such programs are legal, strict
compliance with state laws with respect to cannabis will neither
absolve us of liability under U.S. federal law, nor will it provide
a defense to any federal proceeding which may be brought against
us. Since U.S. federal law criminalizing the use of marijuana
pre-empts state laws that legalize its use, enforcement of federal
law regarding marijuana is a significant risk and would greatly
harm our business, prospects, revenue, results of operation and
financial condition. The enforcement of federal laws in the United
States is a risk to our business and any proceedings brought
against us thereunder may materially, adversely affect our
operations and financial performance.
Our activities are, and will
continue to be, subject to evolving regulation by governmental
authorities. The legality of the production, cultivation,
extraction, distribution, retail sales, transportation and use of
cannabis differs among states in the United States. Due to the
current regulatory environment in the United States, new risks may
emerge; management may not be able to predict all such risks.
Due to the conflicting views
between state legislatures and the federal government regarding
cannabis, cannabis businesses are subject to inconsistent laws and
regulations. There can be no assurance that the federal government
will not enforce federal laws relating to marijuana and seek to
prosecute cases involving marijuana businesses that are otherwise
compliant with state laws in the future. The prior U.S.
administration attempted to address the inconsistent treatment of
cannabis under state and federal law in the Cole Memorandum that
Deputy Attorney General James Cole sent to all U.S. Attorneys in
August 2013, which outlined certain priorities for the U.S.
Department of Justice (the “DOJ”) relating to the prosecution of
cannabis offenses. The Cole Memorandum noted that, in jurisdictions
that have enacted laws legalizing cannabis in some form and that
have also implemented strong and effective regulatory and
enforcement systems to control the cultivation, production,
distribution, sale and possession of cannabis, conduct in
compliance with such laws and regulations was not a priority for
the DOJ. However, the DOJ did not provide (and has not provided
since) specific guidelines for what regulatory and enforcement
systems would be deemed sufficient under the Cole Memorandum.
On January 4, 2018, former U.S.
Attorney General Jeff Sessions formally issued the Sessions
Memorandum, which rescinded the Cole Memorandum effective upon its
issuance. The Sessions Memorandum stated, in part, that current law
reflects “Congress’ determination that cannabis is a dangerous drug
and cannabis activity is a serious crime,” and Mr. Sessions
directed all U.S. Attorneys to enforce the laws enacted by Congress
and to follow well-established principles when pursuing
prosecutions related to cannabis activities.
As a result of the Sessions
Memorandum, federal prosecutors are now free to utilize their
prosecutorial discretion to decide whether to prosecute cannabis
activities, despite the existence of state-level laws that may be
inconsistent with federal prohibitions. No direction was given to
federal prosecutors in the Sessions Memorandum as to the priority
they should ascribe to such cannabis activities, and thus it is
uncertain how active U.S. federal prosecutors will be in the future
in relation to such activities.
There can be no assurance that
the federal government will not enforce federal laws relating to
cannabis and seek to prosecute cases involving cannabis businesses
that are otherwise compliant with state laws in the future. Jeff
Sessions resigned as U.S. Attorney General on November 7, 2018. On
February 14, 2019, William Barr was confirmed as U.S. Attorney
General. Mr. Barr has stated that he does not support cannabis
legalization but has also stated that he does not intend to
prosecute cannabis businesses that are in compliance with state
laws. Most states that have legalized cannabis continue to craft
their regulations pursuant to the Cole Memorandum. Federal
enforcement agencies have taken little or no action against
state-compliant cannabis businesses. However, the DOJ may change
its enforcement policies at any time, with or without advance
notice.
The uncertainty of U.S. federal
enforcement practices going forward and the inconsistency between
U.S. federal and state laws and regulations present major risks for
the Company.
Any
failure on our part to comply with applicable regulations could
prevent us from being able to carry on our business, and there may
be additional costs associated with any such failure.
Our business activities are
heavily regulated in all jurisdictions where we do business. Our
operations are subject to various laws, regulations and guidelines
by governmental authorities relating to the cultivation,
processing, manufacture, marketing, management, distribution,
transportation, storage, sale, packaging, labelling, pricing and
disposal of cannabis and cannabis products. In addition, we are
subject to laws and regulations relating to employee health and
safety, insurance coverage and the environment. Laws and
regulations, applied generally, grant government agencies and
self-regulatory bodies broad administrative discretion over our
activities, including the power to limit or restrict business
activities as well as impose additional disclosure requirements on
our products and services.
Any failure by us to comply with
the applicable regulatory requirements could
There can be no assurance that
any future regulatory or agency proceedings, investigations or
audits will not result in substantial costs, a diversion of
management’s attention and resources or other adverse consequences
to our business.
Achievement of our business
objectives is contingent, in part, upon compliance with regulatory
requirements enacted by governmental authorities and obtaining all
necessary regulatory approvals for the cultivation, processing,
production, storage, distribution, transportation, sale, import and
export, as applicable, of our products. Any failure to comply with
the regulatory requirements applicable to our operations may lead
to possible sanctions, including:
In addition, changes in
regulations, government or judicial interpretation of regulations,
or more vigorous enforcement thereof or other unanticipated events
could require extensive changes to our operations, increase
compliance costs or give rise to material liabilities or a
revocation of our licenses and other permits. Furthermore,
governmental authorities may change their administration,
application or enforcement procedures at any time, which may
adversely affect our ongoing regulatory compliance costs. There is
no assurance that we will be able to comply or continue to comply
with applicable regulations.
The
FDA Limits the Ability to Discuss the Medical Benefits of
CBD.
Under FDA rules it is illegal for
companies to make “health claims” or claim that a product has a
specific medical benefit. The FDA has not recognized any medical
benefits derived from CBD, which means that Company is not legally
permitted to advertise any potential health claims related to its
CBD products. Because of the perception among many consumers that
CBD is a health/medicinal product, Company’s inability to make such
health claims about its CBD products, may limit Company’s ability
to market and sell its product to consumers, which would negatively
affect Company’s revenues and profits.
The
legal cannabis market is a relatively new industry. As a result,
the size of our target market is difficult to quantify, and
investors will be reliant on their own estimates on the accuracy of
market data.
Because the cannabis industry is
in a nascent stage, there is a lack of information about comparable
companies available for potential investors to review in deciding
about whether to invest in us and, few, if any, established
companies whose business model we can follow or upon whose success
we can build. Accordingly, investors should rely on their own
estimates regarding the potential size, economics and risks of the
cannabis market in deciding whether to invest in our Units or
Common Shares. We are an early-stage company that has not generated
net income. There can be no assurance that our growth estimates are
accurate or that the cannabis market will be large enough for our
business to grow as projected.
Although we are committed to
researching and developing new markets and products and improving
existing products, there can be no assurances that such research
and market development activities will prove profitable or that the
resulting markets or products, if any, will be commercially viable
or successfully produced and marketed. We must rely largely on our
own market research to forecast sales and design products as
detailed forecasts and consumer research are not generally
obtainable from reliable third-party sources in Canada and in other
international jurisdictions.
In addition, there is no
assurance that the industry and market will continue to exist and
grow as currently estimated or anticipated or function and evolve
in the manner consistent with management’s expectations and
assumptions. We could also be subject to other events or
circumstances that that adversely affect the cannabis industry,
such as the imposition of further restrictions on sales and
marketing or further restrictions on sales in certain areas and
markets.
Risks
Related to Financials and Accounting
We
may increase our foreign sales in the future, and such sales may be
subject to unexpected regulatory requirements and other
barriers.
Our functional currency is
denominated in U.S. dollars. We currently expect that sales will be
denominated in Colombian pesos and may, in the future, have sales
denominated in the currencies of additional countries in which we
establish operations or distribution. In addition, we incur the
majority of our operating expenses in Colombia pesos. In the
future, the proportion of our sales that are international may
increase. Such sales may be subject to unexpected regulatory
requirements and other barriers. Any fluctuation in the exchange
rates of foreign currencies may negatively affect our business,
financial condition and results of operations. We have not
previously engaged in foreign currency hedging. If we decide to
hedge our foreign currency exposure, we may not be able to hedge
effectively due to lack of experience, unreasonable costs or
illiquid markets. In addition, those activities may be limited in
the protection they provide from foreign currency fluctuations and
can themselves result in losses.
Assumptions, estimates and judgments related to critical accounting
matters could significantly affect our reported financial results
or financial condition.
The preparation of financial
statements in conformity with International Financial Reporting
Standards issued by the International Accounting Standards Board
requires management to make estimates and assumptions that affect
the amounts reported in the financial statements and accompanying
notes. We base our estimates on historical experience and on
various other assumptions that we believe to be reasonable under
the circumstances, as provided in the notes to our financial
statements, the results of which form the basis for making
judgments about the carrying values of assets, liabilities, equity,
revenue and expenses that are not readily apparent from other
sources. Our operating results may be adversely affected if the
assumptions change or if actual circumstances differ from those in
the assumptions, which could cause our operating results to fall
below the expectations of securities analysts and investors,
resulting in a decline in the price of our Common Shares.
Significant assumptions and estimates used in preparing the
financial statements include those related to the credit quality of
accounts receivable, income tax credits receivable, share based
payments, impairment of non-financial assets, fair value of
biological assets, as well as revenue and cost recognition.
There
are tax risks the Company may be subject to in carrying on business
in multiple jurisdictions.
We and our subsidiaries will
operate and, accordingly, will be subject to income tax and other
forms of taxation in multiple jurisdictions. We may be subject to
income taxes and non-income taxes in a variety of jurisdictions and
our tax structure may be subject to review by both domestic and
foreign taxation authorities. Those tax authorities may
disagree with our interpretation and/or application of relevant tax
rules. A challenge by a tax authority in these circumstances might
require us to incur costs in connection with litigation against the
relevant tax authority or reaching a settlement with the tax
authority and, if the tax authority’s challenge is successful,
could result in additional taxes (perhaps together with interest
and penalties) being assessed on us, and as a result an increase in
the amount of tax payable by us. In addition, we may be subject to
different taxes imposed by the Colombian government, and changes
within such tax, legal and regulatory framework may have an adverse
effect on our financial results.
Taxation laws and rates which
determine taxation expenses may vary significantly in different
jurisdictions, and legislation governing taxation laws and rates
are also subject to change. Therefore, our earnings may be affected
by changes in the proportion of earnings taxed in different
jurisdictions, changes in taxation rates, changes in estimates of
liabilities and changes in the amount of other forms of taxation.
The determination of our provision for income taxes and other tax
liabilities will require significant judgment (including based on
external advice) as to the interpretation and application of these
rules. We may have exposure to greater than anticipated tax
liabilities or expenses.
Additionally, dividends and other
intra-group payments made by our subsidiaries or international
branches may expose the recipients of such payments to taxes in
their jurisdictions of organization and operation and such
dividends and other intra-group payments may also be subject to
withholding taxes imposed by the jurisdiction in which the entity
making the payment is organized or tax resident. Unless such
withholding taxes are fully creditable or refundable, dividends and
other intra-group payments may increase the amount of tax paid by
us. Although the Company and its subsidiaries arrange
themselves and their affairs with a view to minimizing the
incurrence of such taxes, there can be no assurance that we will
succeed.
Restrictions on Deduction of Certain Expenses for U.S. Federal
Income Tax Purposes
Section 280E of the Internal
Revenue Code of 1986, as amended (the “Code”), prohibits businesses
from deducting certain expenses associated with trafficking
controlled substances for United States federal income tax
purposes. The IRS has invoked Code Section 280E in tax audits
against various cannabis businesses in the U.S. that are permitted
under applicable state laws. Section 280E of the Code prohibits
cannabis businesses that are deemed to be trafficking in controlled
substances from deducting certain ordinary and necessary business
expenses, forcing them to pay higher effective federal tax rates
than similar companies in other industries. The effective tax rate
on a cannabis business depends on how large its ratio of
non-deductible expenses is to its total revenues. Therefore,
businesses in the legal cannabis industry may be less profitable
than they would otherwise be.
Although the IRS issued a
clarification allowing the deduction of certain expenses, the scope
of such items is interpreted very narrowly and the bulk of
operating costs and general administrative costs are not permitted
to be deducted. While there are currently several pending cases
before various administrative bodies and federal courts challenging
these restrictions, there is no guarantee that these authorities
will issue an interpretation of Code Section 280E favorable to
cannabis businesses.
There is a risk that we will be a passive foreign investment
company (“PFIC”) for U.S. federal income tax purposes for the
current or any future taxable year, which could result in material
adverse U.S. federal income tax consequences if you are a U.S.
Holder.
If our
Company (or any of our non-U.S. subsidiaries) is a PFIC for any
taxable year during which a U.S. Holder (as defined below under
“Certain Material Tax
Considerations—Certain Material U.S. Federal Income Tax
Considerations”) owns Common Shares or Unit Warrants,
certain adverse U.S. federal income tax consequences could apply to
such U.S. Holder. See “Certain Material Tax
Considerations—Certain Material U.S. Federal Income Tax
Considerations” for further information. The determination
of whether a corporation is a PFIC for a taxable year depends, in
part, on the application of complex U.S. federal income tax rules
that are subject to differing interpretations. In addition, the
determination of whether a corporation will be a PFIC for any
taxable year generally can only be made after the close of such
taxable year. Therefore, it is possible that we could be classified
as a PFIC for our initial taxable year or in future years due to
changes in the nature of our business, composition of our assets or
income, as well as changes in our market capitalization. In
particular, our PFIC status will depend, in part, on the amount of
cash that we raise in this offering and how quickly we utilize the
cash in our business. Based upon the foregoing, it is uncertain
whether we will be a PFIC for our current taxable year or any
future taxable year. We have not determined, if we (or any of our
non-U.S. subsidiaries) were to be classified as a PFIC for a
taxable year, whether we will provide information necessary for a
U.S. Holder to make a “qualified electing fund” election which, if
available, would result in tax treatment different from (and
generally less adverse than) the general tax treatment for PFICs.
Accordingly, U.S. Holders should assume that they will not be able
to make a qualified electing fund election with respect to the
Common Shares or Unit Warrants. The PFIC rules are complex, and
each U.S. Holder should consult its tax advisor regarding the PFIC
rules, the elections which may be available to it, and how the PFIC
rules may affect the U.S. federal income tax consequences relating
to the ownership and disposition of our Common Shares or Unit
Warrants.
Failure to develop our internal controls over financial reporting
as we grow could have an adverse effect on our operations.
As our
Company matures we will need to continue to develop and improve our
current internal control systems and procedures to manage our
growth. We are required to establish and maintain appropriate
internal controls over financial reporting. Failure to establish
appropriate controls, or any failure of those controls once
established, could adversely affect our public disclosures
regarding our business, financial condition or results of
operations. In addition, management’s assessment of internal
controls over financial reporting may identify weaknesses and
conditions that need to be addressed in our internal controls over
financial reporting or other matters that may raise concerns for
investors. For example, the re-audit of our financial statements
for the period March 13, 2019 (inception) to December 31, 2019,
under PCAOB auditing standards, identified changes in expenditures
that were not appropriately recorded and founders' warrants that
were revalued. Additionally, during the 2020 audit, the Company’s
auditors noted material weaknesses and made certain recommendations
to management regarding these material weaknesses related to
goodwill impairment testing, financial reporting processes related
to the newly acquired subsidiaries in Colombia and intercompany and
related party transactions. Our management has taken steps
towards remediating such weaknesses through our hiring of
additional accounting personnel in Canada and Colombia. Any actual
or perceived weaknesses and conditions that need to be addressed in
our internal control over financial reporting, disclosure of
management’s assessment of our internal controls over financial
reporting or disclosure of our public accounting firm’s attestation
to or report on management’s assessment of our internal controls
over financial reporting may have an adverse effect on the price of
our Common Shares.
Risks
Related to Our Common Shares and this Offering
Investing in an emerging market poses a greater degree of risk than
investing in more mature market economies.
Emerging market investment
generally poses a greater degree of risk than investment in more
mature market economies because the economies in the developing
world are more susceptible to destabilization resulting from
domestic and international developments. All of our operations are
in Colombia. See “Risks Related to
Operations in Colombia.”
We
will need, but may be unable to, obtain additional funding on
satisfactory terms, which could dilute our shareholders or impose
burdensome financial restrictions on our business.
In the future, we hope to rely on
revenues generated from operations to fund all of the cash
requirements of our activities. However, there can be no assurance
that we will be able to generate any significant cash from our
operating activities in the future. Future financings may not be
available on a timely basis, in sufficient amounts or on terms
acceptable to us, if at all. Any debt financing or other financing
of securities senior to the Common Shares will likely include
financial and other covenants that will restrict our flexibility.
Any failure to comply with these covenants would have a material
adverse effect on our business, prospects, financial condition and
results of operations because we could lose our existing sources of
funding and impair our ability to secure new sources of funding.
There can be no assurance that we will be able to generate any
investor interest in our securities. If we do not obtain additional
financing, our business may never commence, in which case you would
likely lose the entirety of your investment in the Company.
Even
if this offering is successful, we will need to raise additional
funding, which may not be available on acceptable terms, or at all.
Failure to obtain this necessary capital when needed may force us
to delay, limit or terminate our product development efforts or
other operations.
We expect the net proceeds from this offering to be
$27,400,000 (or $31,585,000 if the underwriters exercise in full
their option to purchase up to 1,500,000 additional Common
Shares and/or up to an additional 750,000 Unit Warrants from us)
before deducting offering expenses payable by us. We expect that
the net proceeds from this offering will be sufficient to fund our
current operations for at least through the end of 2023. However,
our operating plan may change as a result of many factors currently
unknown to us, and we may need to seek additional funds sooner than
planned, through public or private equity or debt financings,
government or other third-party funding, marketing and distribution
arrangements and other collaborations, strategic alliances or a
combination of these approaches. Raising funds in the current
economic environment may present additional challenges. It is not
certain that we have accounted for all costs and expenses of future
development and regulatory compliance. Even if we believe we have
sufficient funds for our current or future operating plans, we may
seek additional capital if market conditions are favorable or if we
have specific strategic considerations.
Any additional fundraising
efforts may divert our management from their day-to-day activities,
which may adversely affect our ability to develop and commercialize
our products. In addition, we cannot guarantee that future
financing will be available in sufficient amounts or on terms
acceptable to us, if at all. Moreover, the terms of any financing
may adversely affect the holdings or the rights of our shareholders
and the issuance of additional securities, whether equity or debt,
by us, or the possibility of such issuance, may cause the market
price of our shares to decline. The sale of additional equity or
convertible securities may dilute our existing shareholders. The
incurrence of indebtedness would result in increased fixed payment
obligations and we may be required to agree to certain restrictive
covenants, such as limitations on our ability to incur additional
debt, limitations on our ability to acquire, sell or license
intellectual property rights and other operating restrictions that
could adversely affect our ability to conduct our business. We
could also be required to seek funds through arrangements with
collaborative partners or otherwise at an earlier stage than
otherwise would be desirable and we may be required to relinquish
rights to some of our technologies or product candidates or
otherwise agree to terms unfavorable to us, any of which may have a
material adverse effect on our business, operating results and
prospects.
If we are unable to obtain
funding on a timely basis, we may be required to significantly
curtail, delay or discontinue one or more of our research or
development programs or the commercialization of any product, or be
unable to expand our operations or otherwise capitalize on our
business opportunities, as desired, which could materially affect
our business, financial condition and results of operations.
You
may experience immediate and substantial dilution in the net
tangible book value of the Common Shares you purchase in this
offering.
The offering price of the Common
Shares underlying the Units offered pursuant to this prospectus is
substantially higher than the net tangible book value per Common
Share. Therefore, if you purchase Units in this offering, you will
incur immediate and substantial dilution in the pro forma net
tangible book value per Common Share from the price per unit that
you pay for the underlying Common Share. If the holders of
outstanding options or warrants exercise those options or warrants
at prices below the offering price, you will incur further
dilution. See the section entitled “Dilution” below for a more
detailed discussion of the dilution you will incur if you purchase
securities in this offering.
Holders of our Common Shares are subject to dilution resulting from
the issuance of equity-based compensation by us.
We have awarded warrants to
management to incentivize their performance and retention.
Any additional equity grants and any exercise of existing warrants
will cause our shareholders to be diluted and may negatively affect
the price of the Common Shares.
There is no
public market for the warrants being offered in this
offering.
There is no established public trading market for the warrants
being offered in this offering, and we do not expect a market to
develop. In addition, we do not intend to apply to list any of the
warrants on any securities exchange or nationally recognized
trading system, including NASDAQ. Without an active market, the
liquidity of the warrants will be limited.
Holders of the
warrants purchased in this offering will have no rights as Common
Shareholders until such holders exercise such warrants and acquire
our Common Shares.
Until holders of warrants purchased in this offering acquire
our Common Shares upon exercise thereof, holders of such warrants
will have no rights with respect to the Common Shares underlying
such warrants. Upon exercise of any of the warrants purchased in
this offering, such holders will be entitled to exercise the rights
of a Common Shareholder only as to matters for which the record
date occurs after the exercise date.
The Unit
Warrants and Underwriters’ Warrants are speculative in
nature.
The Unit Warrants being sold in this offering have an exercise
price of $3.75 per Common Share and the Underwriters’ Warrants have
an exercise price of $3.30 per Common Share. The Unit Warrants will
expire on the fifth anniversary from the issuance date, and the
Underwriters’ Warrants will expire on the sixth anniversary from
the effective date of this offering. In the event our Common Share
price does not exceed the per share exercise price of the Unit
Warrants or Underwriters’ Warrants during the period when such
warrants are exercisable, such warrants will not have any
value.
The resale by
the selling shareholders may cause the market price of our Common
Shares to decline.
The resale of the Common Shares
by the selling shareholders, as well as the issuance of Common
Shares in this offering could result in resales of our Common
Shares by our current shareholders concerned about the potential
dilution of their holdings. In addition, the resale by the selling
shareholders could have the effect of depressing the market price
for our Common Shares.
We
continue to incur increased costs as a result of operating as a
public company and our management is required to devote substantial
time to new compliance initiatives.
As a public company, particularly
after we are no longer an emerging growth company, we will continue
to incur significant legal, accounting and other expenses that we
did not incur as a private company. In addition, the Sarbanes-Oxley
Act of 2002, or the Sarbanes-Oxley Act, and rules implemented by
the U.S. Securities and Exchange Commission, or the SEC, and
NASDAQ, impose various requirements on public companies, including
requirements to file annual, quarterly and event-driven reports
with respect to our business and financial condition and operations
and establish and maintain effective disclosure and financial
controls and corporate governance practices. Our existing
management team will continue to devote a substantial amount of
time to these compliance initiatives, and we may need to hire
additional personnel to assist us with complying with these
requirements. Moreover, these rules and regulations will continue
to increase our legal and financial compliance costs and will make
some activities more time consuming and costly.
Pursuant to Section 404 of the
Sarbanes-Oxley Act, or Section 404, we will be required to furnish
a report by our management on our ICFR, which, after we are no
longer an emerging growth company, must be accompanied by an
attestation report on ICFR issued by our independent registered
public accounting firm. To achieve compliance with Section 404
within the prescribed period, we will document and evaluate our
ICFR, which is both costly and challenging. In this regard, we
will need to continue to dedicate internal resources, potentially
engage outside consultants and adopt a detailed work plan to assess
and document the adequacy of our ICFR, continue steps to
improve control processes as appropriate, validate through testing
that controls are functioning as documented and implement a
continuous reporting and improvement process for ICFR. As an
example, the re-audit of our financial statements for the period
March 13, 2019 (inception) to December 31, 2019, under PCAOB
auditing standards, identified changes in expenditures that were
not appropriately recorded and founders' warrants that were
revalued. Our management believes that such weakness in our
recording has since been remedied; however, despite our efforts,
there is a risk that neither we nor our independent registered
public accounting firm will be able to conclude within the
prescribed timeframe that our ICFR is effective as required by
Section 404. This could result in a determination that there are
one or more material weaknesses in our ICFR, which could cause
an adverse reaction in the financial markets due to a loss of
confidence in the reliability of our consolidated financial
statements.
In addition, changing laws,
regulations and standards relating to corporate governance and
public disclosure are creating uncertainty for public companies,
increasing legal and financial compliance costs and making some
public company required activities more time consuming. These laws,
regulations and standards are subject to varying interpretations,
in many cases due to their lack of specificity and, as a result,
their application in practice may evolve over time as new guidance
is provided by regulatory and governing bodies. This could result
in continuing uncertainty regarding compliance matters and higher
costs necessitated by ongoing revisions to disclosure and
governance practices. We continue to invest resources to comply
with evolving laws, regulations and standards, and this investment
may result in increased general and administrative expenses and
divert management’s time and attention from revenue generating
activities to compliance activities. If our efforts to comply with
new laws, regulations and standards differ from the activities
intended by regulatory or governing bodies, regulatory authorities
may initiate legal proceedings against us and our business may be
harmed.
If we
fail to meet applicable listing requirements, NASDAQ may delist our
Common Shares from trading, in which case the liquidity and market
price of our Common Shares could decline.
We cannot assure you that we will
be able to meet the continued listing standards of NASDAQ in the
future. If we fail to comply with the applicable listing standards
and NASDAQ delists our Common Shares, we and our shareholders could
face significant material adverse consequences, including:
Ownership of our Units and/or Common Shares may be considered
unlawful in some jurisdictions and holders of our Units and/or
Common Shares may consequently be subject to liability in such
jurisdictions.
Cannabis-related financial
transactions, including investment in the securities of cannabis
companies and receipt of any associated benefits, such as
dividends, are currently subject to anti-money laundering and a
variety of other laws that vary by jurisdiction, many of which are
unsettled and still developing. While the interpretation of these
laws is unclear, in some jurisdictions, financial benefit directly
or indirectly arising from conduct that would be considered
unlawful in such jurisdiction may be viewed to be within the
purview of these laws, and persons receiving any such benefit,
including investors in an applicable jurisdiction, may be subject
to liability under such laws. Each prospective investor should
therefore contact his, her or its own legal advisor regarding the
ownership of our Units and/or Common Shares and any related
potential liability.
Our
executive officers and directors and their respective affiliates
may continue to exercise significant control over our Company after
this offering, which will limit your ability to influence corporate
matters and could delay or prevent a change in corporate
control.
Our executive officers and
directors currently represent beneficial ownership, in the
aggregate, of approximately
14.8% of our outstanding Common Shares. Immediately
following the completion of this offering, and disregarding any
Common Shares that they purchase in this offering, if any, the
existing holdings of our executive officers and directors and their
affiliates will represent beneficial ownership, in the aggregate,
of approximately 12.4% of our outstanding Common Shares. As a
result, these shareholders may be able to influence our management
and affairs and control the outcome of matters submitted to our
shareholders for approval, including the election of directors and
any sale, merger, consolidation, or sale of all or substantially
all of our assets. These shareholders may have interests, with
respect to their Common Shares, that are different from those of
investors in this offering, and the concentration of voting power
among one or more of these shareholders may have an adverse effect
on the price of our Common Shares. In addition, this concentration
of ownership might adversely affect the market price of our Common
Shares by:
The
Company’s directors and officers may have a conflicts of interest
in conducting their duties.
We may be subject to various
potential conflicts of interest because of the fact that some of
our officers and directors may be engaged in a range of business
activities. In addition, our executive officers and directors may
devote time to their outside business interests, so long as such
activities do not materially or adversely interfere with their
duties to the Company. In some cases, our executive officers and
directors may have fiduciary obligations associated with these
business interests that interfere with their ability to devote time
to our business and affairs and that could adversely affect our
operations. These business interests could require significant time
and attention of our executive officers and directors.
We
have broad discretion in how we use the proceeds of this offering
and may not use these proceeds effectively, which could affect our
results of operations and cause the price of our Common Shares to
decline.
We will have considerable
discretion in the application of the net proceeds of this offering.
We intend to use the net proceeds from this offering for operating
capacity, working capital and general corporate purposes. As a
result, investors will be relying upon management’s judgment with
only limited information about our specific intentions for the use
of the balance of the net proceeds of this offering. We may use the
net proceeds for purposes that do not yield a significant return or
any return at all for our shareholders. In addition, pending their
use, we may invest the net proceeds from this offering in a manner
that does not produce income or that loses value.
We
are a foreign private issuer and intend to take advantage of less
frequent and detailed reporting obligations.
We are a “foreign private
issuer”, as such term is defined in Rule 405 under the U.S.
Securities Act of 1933, as amended, or the Securities Act, and are
not subject to the same requirements that are imposed upon U.S.
domestic issuers by the SEC. Under the Exchange Act, we will be
subject to reporting obligations that, in certain respects, are
less detailed and less frequent than those of U.S. domestic
reporting companies. As a result, we will not file the same reports
that a U.S. domestic issuer would file with the SEC, although we
will be required to file or furnish to the SEC the continuous
disclosure documents that we are required to file in Canada under
Canadian securities laws. In addition, our officers, directors, and
principal shareholders are exempt from the reporting and “short
swing” profit recovery provisions of Section 16 of the Exchange
Act. Therefore, our shareholders may not know on as timely a basis
when our officers, directors and principal shareholders purchase or
sell shares, as the reporting deadlines under the corresponding
Canadian insider reporting requirements are longer.
As a foreign private issuer, we
will be exempt from the rules and regulations under the Exchange
Act related to the furnishing and content of proxy statements. We
will also be exempt from Regulation FD, which prohibits issuers
from making selective disclosures of material non-public
information. While we will comply with the corresponding
requirements relating to proxy statements and disclosure of
material non-public information under Canadian securities laws,
these requirements differ from those under the Exchange Act and
Regulation FD and shareholders should not expect to receive the
same information at the same time as such information is provided
by U.S. domestic companies. In addition, we will have more time
than U.S. domestic companies after the end of each fiscal year to
file our annual report with the SEC and will not be required under
the Exchange Act to file quarterly reports with the SEC.
In addition, as a foreign private
issuer, we have the option to follow certain Canadian corporate
governance practices, except to the extent that such laws would be
contrary to U.S. securities laws, and provided that we disclose the
requirements we are not following and describe the Canadian
practices we follow instead. We may in the future elect to follow
home country practices in Canada with regard to certain corporate
governance matters.
As a result, our shareholders may
not have the same protections afforded to shareholders of U.S.
domestic companies that are subject to all corporate governance
requirements.
We
may lose our status as a foreign private issuer in the United
States, which would result in increased costs related to regulatory
compliance under United States securities laws.
The Company will cease to qualify
as a “foreign private issuer,” as defined in Rule 405 under the
Securities Act and Rule 3b-4 under the United States Securities
Exchange Act of 1934, as amended (the “Exchange Act”), if, as of
the last business day of our second fiscal quarter, more than 50
percent of our outstanding Common Shares are directly or indirectly
owned by residents of the United States and any of the following
three circumstances applies: (i) the majority of our executive
officers or directors are U.S. citizens or residents; (ii)more than
50% of our assets are located in the United States; or (iii) our
business is administered principally in the United States. If
we determine that we fail to qualify as a foreign private issuer,
the Company will cease to be eligible to avail itself of the forms
and rules designated for foreign private issuers beginning on the
first day of the fiscal year following such
determination. Among other things, this will result in loss of
the exemption from registration under the Exchange Act provided by
Rule 12g3-2(b) thereunder, and, if the Company is required to
register our Common Shares under section 12(g) of the Exchange Act,
we will have to do so as a domestic issuer. Further, any
securities that we issue in unregistered or unqualified offerings
both within and outside the United States will be “restricted
securities” (as defined in Rule 144(a)(3) under the Securities Act)
and will continue to be subject to United States resale
restrictions notwithstanding their resale in “offshore
transactions” pursuant to Regulation S under the Securities
Act. As a practical matter, this will likely require us to
register more offerings of our securities under the Securities Act
on either a primary offering or resale basis, even if they take
place entirely outside the United States. The resulting legal
and administrative costs of complying with the resulting regulatory
requirements are anticipated to be substantial, and to subject the
Company to additional exposure to liability for which we may not be
able to obtain insurance coverage on favorable terms or at
all.
If
our share price fluctuates after the offering, you could lose a
significant part of your investment.
The market price of our Common
Shares could be subject to wide fluctuations in response to, among
other things, the risk factors described in this section of this
prospectus, and other factors beyond our control, such as
fluctuations in the valuation of companies perceived by investors
to be comparable to us. Furthermore, the stock markets have
experienced price and volume fluctuations that have affected and
continue to affect the market prices of equity securities of many
companies. These fluctuations often have been unrelated or
disproportionate to the operating performance of those companies.
These broad market and industry fluctuations, as well as general
economic, political, and market conditions, such as recessions,
interest rate changes or international currency fluctuations, may
negatively affect the market price of our Common Shares. In the
past, many companies that have experienced volatility in the market
price of their stock have been subject to securities class action
litigation. We may be the target of this type of litigation in the
future. Securities litigation against us could result in
substantial costs and divert our management’s attention from other
business concerns, which could seriously harm our business.
Volatility in the market price of
our Common Shares may prevent investors from being able to sell
their shares at or above the public offering price. As a result,
you may suffer a loss on your investment.
The regulated
nature of our business may impede or discourage a takeover, which
could reduce the market price of our Common Shares.
We require and hold various
government licenses to operate our business. These licensing
requirements could impede a merger, amalgamation, takeover or other
business combination involving us or discourage a potential
acquiror from making a tender offer for our Common Shares, which,
under certain circumstances, could reduce the market price of our
Common Shares.
We do
not intend to pay dividends on our Common Shares in the near
future, and, consequently, your ability to achieve a return on your
investment will depend on appreciation in the price of our Common
Shares.
We have never declared or paid
any cash dividend on our Common Shares and do not currently intend
to do so in the foreseeable future. We currently anticipate that we
will retain future earnings for the development, operation and
expansion of our business and do not anticipate declaring or paying
any cash dividends in the foreseeable future. Therefore, the
success of an investment in the Common Shares will depend upon any
future appreciation in their value. There is no guarantee that the
Common Shares will appreciate in value or even maintain the price
at which you purchased them.
Future issuances of debt securities, which would rank senior to our
Common Shares upon our bankruptcy or liquidation, and future
issuances of preferred stock, which could rank senior to our Common
Shares for the purposes of dividends and liquidating distributions,
may adversely affect the level of return you may be able to achieve
from an investment in our Common Shares.
In the future, we may attempt to
increase our capital resources by offering debt securities. Upon
bankruptcy or liquidation, holders of our debt securities, and
lenders with respect to other borrowings we may make, would receive
distributions of our available assets prior to any distributions
being made to holders of our Common Shares. Moreover, if we issue
preferred stock, the holders of such preferred stock could be
entitled to preferences over holders of Common Shares in respect of
the payment of dividends and the payment of liquidating
distributions. Because our decision to issue debt or preferred
stock in any future offering, or borrow money from lenders, will
depend in part on market conditions and other factors beyond our
control, we cannot predict or estimate the amount, timing or nature
of any such future offerings or borrowings. Holders of our Common
Shares must bear the risk that any future offerings we conduct or
borrowings we make may adversely affect the level of return, if
any, they may be able to achieve from an investment in our Common
Shares.
General
Risk Factors
The
Company may become involved in legal proceedings from time to time,
which could adversely affect the Company.
From time to time, we may be a
party to legal and regulatory proceedings, including matters
involving governmental agencies, entities with whom it does
business and other proceedings arising in the ordinary course of
business. We will evaluate our exposure to these legal and
regulatory proceedings and establish reserves for the estimated
liabilities in accordance with generally accepted accounting
principles. Assessing and predicting the outcome of these matters
involves substantial uncertainties. Unexpected outcomes in these
legal proceedings, or changes in management’s evaluations or
predictions and accompanying changes in established reserves, could
have an adverse impact on our financial results.
Our participation in the cannabis
industry may lead to litigation, formal or informal complaints,
enforcement actions, and inquiries by third parties, other
companies and/or various governmental authorities against us.
Litigation, complaints, and enforcement actions involving us could
consume considerable amounts of financial and other corporate
resources, which could have an adverse effect on our future cash
flows, earnings, results of operations and financial
condition.
We recently
unilaterally terminated our IPO underwriting agreement with
Boustead Securities, LLC which may subject us to future litigation
or arbitration costs, and potential damages or settlement
payments.
On November 2, 2021, we provided formal written notice to
Boustead Securities, LLC (“Boustead”) that we were terminating our
underwriting agreement with them dated May 10, 2021 (the “IPO
Underwriting Agreement”), due to material breaches by Boustead of
its obligations thereunder. Pursuant to the IPO Underwriting
Agreement, the Company agreed to certain restrictions on its
ability to sell, transfer or otherwise dispose of the Company’s
common shares without the prior written consent of Boustead. The
IPO Underwriting Agreement expressly stated that such consent “may
not unreasonably be withheld”. On more than one occasion, we
believe that Boustead unreasonably withheld its consent to certain
transactions that our management and Board of Directors deemed to
be in the best interests of the Company and its shareholders.
Accordingly, we unilaterally terminated the IPO Underwriting
Agreement effective as of the date of Boustead’s breach. In
addition, while we consider the IPO Underwriting Agreement
terminated, in consultation with the underwriters of this
offering, we nonetheless offered Boustead the opportunity to
participate as an underwriter in this offering as would have
been consistent with the IPO Underwriting Agreement if still
in effect. As of the date of this prospectus, the Company’s
engagement letter with Boustead, dated September 8, 2020, as
amended, remains in effect. While no action has been threatened
against the Company, it is possible that Boustead may initiate
future legal proceedings against us. In the event that we do
not settle our disagreements with Boustead or, if we are
unsuccessful in defending against any such legal proceeding, we may
be required to make a substantial settlement payment or damages
award to Boustead, which may include costs and attorneys’ fees. In
addition, we have indemnified the underwriters of this
offering against any liability or expenses they may be
subject to or incur in connection with any potential Boustead
dispute.
The
Company’s success will depend, in part, on its ability to continue
to enhance its product and service offerings to respond to
technological and regulatory changes and emerging industry
standards and practices.
Rapidly changing markets,
technology, emerging industry and regulatory standards and frequent
introduction of new products characterize the Company’s business.
The introduction of new products embodying new technologies and
regulatory developments may render the Company’s equipment obsolete
and its products and services less competitive or less marketable.
The process of developing the Company’s products and services is
complex and requires significant continuing costs, development
efforts, third-party commitments and regulatory approvals. The
Company may not be successful in developing or effectively
commercializing such new products and services, or obtaining any
required regulatory approvals, which, together with any capital
expenditures made in the course of developing such products and
services, may have a material adverse effect on the Company’s
business, financial condition and operating results.
We
are dependent upon our management and key employees, and the loss
of any member of our management team or key employees could have a
material adverse effect on our operations.
The Company’s success is
dependent upon the ability, expertise, judgment, discretion and
good faith of its senior management and key employees. The loss of
any member of our management team or key employees could have a
material adverse effect on our business and results of operations.
While employment agreements and incentive programs are customarily
used as primary methods of retaining the services of key employees,
these agreements and incentive programs cannot assure the continued
services of such employees. Any loss of the services of such
individuals, or an inability to attract other suitably qualified
persons when needed, could have a material adverse effect on the
Company’s business, operating results or financial condition. We do
not currently maintain key-person insurance on the lives of any of
our key employees. Competition for qualified technical, sales and
marketing staff, as well as officers and directors can be intense,
and no assurance can be provided that the Company will be able to
attract or retain key employees in the future, which may adversely
affect the Company’s operations.
Our
inability to retain and acquire skilled personnel could impair our
business and operations.
The loss of any member of our
management team could have a material adverse effect on our
business and results of operations. In addition, the inability to
hire or the increased costs of hiring new personnel, including
members of executive management, could have a material adverse
effect on our business and operating results. The expansion of
marketing and sales of our products will require us to find, hire
and retain additional capable employees who can understand,
explain, market and sell our products. There is intense competition
for capable personnel in all of these areas and we may not be
successful in attracting, training, integrating, motivating, or
retaining new personnel, vendors, or subcontractors for these
required functions. New employees often require significant
training and, in many cases, take a significant amount of time
before they achieve full productivity. As a result, we may incur
significant costs to attract and retain employees, including
significant expenditures related to salaries and benefits and
compensation expenses issued in connection to equity awards, and we
may lose new employees to our competitors or other companies before
we realize the benefit of our investment in recruiting and training
them. In addition, as we move into new jurisdictions, we will need
to attract and recruit skilled employees in those new areas.
We
will need to grow the size of our organization, and we may
experience difficulties in managing any growth we may
achieve.
As our development and
commercialization plans and strategies develop, we expect to need
additional research, development, managerial, operational, sales,
marketing, financial, accounting, legal and other resources. Future
growth would impose significant added responsibilities on members
of management. In order to manage growth and changes in strategy
effectively, the Company must: (a) maintain adequate systems to
meet customer demand; (b) expand sales and marketing, distribution
capabilities, and administrative functions; (c) expand the skills
and capabilities of its current management team; and (d) attract
and retain qualified employees. Our management may not be able to
accommodate those added responsibilities, and our failure to do so
could prevent us from effectively managing future growth and
successfully growing our Company.
If
securities or industry analysts do not publish research or publish
inaccurate or unfavorable research about us, our share price and
trading volume could decline.
The trading market for our Common
Shares will depend, in part, on the research and reports that
securities or industry analysts publish about us or our operations.
We do not have any control over these analysts and their research
and reports. If one or more of the analysts who cover us downgrade
our shares or publish inaccurate or unfavorable research about our
business, our share price would likely decline. In addition,
if our operating results fail to meet the forecast of analysts, our
share price would likely decline. If one or more of these
analysts cease coverage of us or fail to publish reports on us
regularly, demand for our shares could decrease, which might cause
our share price and trading volume to decline.
After
the completion of this offering, we may be at an increased risk of
securities class action litigation.
Historically, securities class
action litigation has often been brought against a company
following a decline in the market price of its securities. If we
are listed on an exchange or quoted over-the-counter and our share
price decreases and we were to be sued, it could result in
substantial costs and a diversion of management’s attention and
resources, which could harm our business.
We
expect to incur significant ongoing costs and obligations related
to our investment in infrastructure, growth, regulatory compliance
and operations.
We expect to incur significant
ongoing costs and obligations related to our investment in
infrastructure and growth and regulatory compliance, which could
have a material adverse effect on our results of operations,
financial condition and cash flows. In addition, future changes in
regulations, more vigorous enforcement thereof or other
unanticipated events could require extensive changes to our
operations, increased compliance costs or give rise to material
liabilities, which could have a material adverse effect on our
business, results of operations and financial condition. Our
efforts to grow our business may be costlier than we expect, and we
may not be able to generate sufficient revenue to offset such
higher operating expenses. We may incur significant losses in the
future for a number of reasons, including unforeseen expenses,
difficulties, complications and delays, and other unknown
events.
There
is no assurance that the Company’s insurance coverage will be
sufficient to cover all claims to which the Company may become
subject.
Our production is, in general,
subject to different risks and hazards, including adverse weather
conditions, fires, plant diseases and pest infestations, other
natural phenomena, industrial accidents, labor disputes, changes in
the legal and regulatory framework applicable to us and
environmental contingencies.
We are in the process of
obtaining insurance coverage over our production and facilities. We
may not be able to maintain or obtain insurance of the type and
amount desired at a reasonable cost. If we were to incur
significant liability for which we were not fully insured, it could
have an adverse effect on our business, financial condition and
results of operations.
We do not currently maintain
key-person insurance on the lives of any of our key
employees.
We
may be unable to implement our business strategy, which could have
negative financial and reputational effects on our business.
The growth and expansion of our
business is heavily dependent upon the successful implementation of
our business strategy as described under the heading “Our Business.” There can be no
assurance that we will be successful in the implementation of our
business strategy. A failure to do so could have negative financial
and reputational effects on us. Future clinical research studies
may lead to conclusions that dispute or conflict with our
understanding and belief regarding the medical benefits, viability,
safety, efficacy, dosing and social acceptance of
cannabis.
The Company could be subject to a security breach that could result
in significant damage or theft of products and equipment.
Breaches of security at our facilities may occur and could
result in damage to or theft of products and equipment. A security
breach at our facilities could result in a significant loss of
inventory or work in process, expose us to liability under
applicable regulations and increase expenses relating to the
investigation of the breach and implementation of additional
preventative security measures, any of which could have an adverse
effect on our business, financial condition and results of
operations.
CAUTIONARY NOTE REGARDING FORWARD-LOOKING STATEMENTS
Various
statements contained in this prospectus, including those that
express a belief, expectation or intention, as well as those that
are not statements of historical fact, are forward-looking
statements. These forward-looking statements may include
projections and estimates concerning our possible or assumed future
results of operations, financial condition, business strategies and
plans, market opportunity, competitive position, industry
environment, and potential growth opportunities. In some
cases, you can identify forward-looking statements by terms such as
“may”, “will”, “should”, “believe”, “expect”, “could”, “intend”,
“plan”, “anticipate”, “estimate”, “continue”, “predict”, “project”,
“potential”, “target,” “goal” or other words that convey the
uncertainty of future events or outcomes. You can also
identify forward-looking statements by discussions of strategy,
plans or intentions. We have based these forward-looking
statements on our current expectations and assumptions about future
events. While our management considers these expectations and
assumptions to be reasonable, because forward-looking statements
relate to matters that have not yet occurred, they are inherently
subject to significant business, competitive, economic, regulatory
and other risks, contingencies and uncertainties, most of which are
difficult to predict and many of which are beyond our
control. These and other important factors, including, among
others, those discussed in this prospectus under the headings “Risk
Factors”, “Management’s Discussion and Analysis of Financial
Condition and Results of Operations” and “Our Business”, may cause
our actual results, performance or achievements to differ
materially from any future results, performance or achievements
expressed or implied by the forward-looking statements in this
prospectus. Some of the factors that could cause actual
results to differ materially from those expressed or implied by the
forward-looking statements in this prospectus include:
Given the
foregoing risks and uncertainties, you are cautioned not to place
undue reliance on the forward-looking statements in this
prospectus. The forward-looking statements contained in this
prospectus are not guarantees of future performance and our actual
results of operations and financial condition may differ materially
from such forward-looking statements. In addition, even if
our results of operations and financial condition are consistent
with the forward-looking statements in this prospectus, they may
not be predictive of results or developments in future
periods.
Any
forward-looking statement that we make in this prospectus speaks
only as of the date of this prospectus. Except as required by
law, we do not undertake any obligation to update or revise, or to
publicly announce any update or revision to, any of the
forward-looking statements in this prospectus, whether as a result
of new information, future events or otherwise, after the date of
this prospectus.
We estimate that we will receive
approximately $27,400,000 in net proceeds from the sale
of 10,000,000 Units offered by us in this offering (or
approximately $31,585,000 if the underwriters exercise in full
their option to purchase up to 1,500,000 additional Common
Shares and/or up to 750,000 additional Unit Warrants from
us), after deducting the underwriting discounts and
commissions and estimated offering expenses of approximately
$500,000 payable by us.
If a holder of Unit Warrants elects
to exercise the Unit Warrants issued in this offering, we may also
receive proceeds from the exercise of the Unit Warrants. We cannot
predict when or if the Unit Warrants will be exercised. It is
possible that the Unit Warrants may expire and may never be
exercised.
We intend to use the net proceeds
from this offering for capital expenditures operating capacity,
working capital and general corporate purposes. Our net
proceeds will be utilized for certain capital expenditures and
operating expenditures across all of our divisions. Our management
believes our current capital resources coupled with the net
proceeds from the offering will be adequate to continue to expand
and update the modules of the Research Technology and Processing
Center (advanced drying, extraction and isolation) required to
operate our business over the next twenty-four months and to
complete the Quipropharma laboratory customization for our short
term needs over the next twenty-four months.
Our management
will have discretion in allocating the net proceeds in accordance
with the above priorities and purposes. The amounts and
timing of our actual expenditures will depend upon numerous
factors, including the progress of our expansion and development
efforts, whether or not we enter into strategic transactions, our
general operating costs and expenditures, and the changing needs of
our businesses.
We believe
that our funds and the net proceeds from this offering will be
sufficient to continue our businesses and operations as currently
conducted through the end of 2023; however, changing circumstances
may cause us to consume capital significantly faster than we
currently anticipate.
We have never
paid dividends on our Common Shares. We currently intend to retain
all available funds and any future earnings to support operations
and to finance the growth and development of our business. As such,
we do not intend to declare or pay cash dividends on our Common
Shares in the foreseeable future. Any future determination to pay
dividends will be made at the discretion of our Board of Directors
subject to applicable laws and will depend upon, among other
factors, our earnings, operating results, financial condition and
current and anticipated cash needs. Our future ability to pay cash
dividends on our Common Shares may be limited by the terms of any
then-outstanding debt or preferred securities.
The following
table sets forth our cash and cash equivalents, debt and
capitalization as of June 30, 2021:
Our
capitalization following the closing of this offering will be
adjusted based on the actual public offering price and other terms
of this offering determined at pricing. You should read the
following table in conjunction with the sections entitled
“Use of
Proceeds”, “Selected Consolidated
Financial Information and Operating Data” and “Management’s Discussion
and Analysis of Financial Condition and Results of
Operations”, and our financial statements and the related
notes thereto included elsewhere in this prospectus.
Based on the average exchange rate of
$3,571.43, which was the foreign
exchange rate on June 30, 2021, as reported by the Bank of Canada,
and as used in our unaudited consolidated financial statements as
of and for the six months ended June 30, 2021 and included
elsewhere in this prospectus.
Purchasers of
the Units in this offering will experience immediate and
substantial dilution to the extent of the difference between the
public offering price per Common Share paid by the purchasers of
the Units in this offering and the pro forma, as adjusted net
tangible book value per Common Share immediately after, and giving
effect to, this offering. Dilution results from the fact that
the public offering price per Common Share in this offering is
substantially in excess of the net tangible book value per Common
Share attributable to our existing shareholders for our presently
outstanding Common Shares.
Our historical
net tangible book value per Common Share is determined by dividing
our net tangible book value, which is the book value of our total
tangible assets less the book value of our total liabilities, by
the number of outstanding Common Shares. As of June 30, 2021,
the historical net tangible book value of our Common Shares was
$22,977,000 or $0.55 per Common Share (post-split).
After giving
effect to the (i) sale by us of 10,000,000 Units in this
offering at the public offering price of $3.00 per Unit, and
(ii) receipt by us of the net proceeds of this offering, after
deduction of the underwriting discounts and commissions and the
estimated offering expenses payable by us, our pro forma, as
adjusted net tangible book value as of June 30, 2021 would have
been $50,377,000 or $0.97 per Common Share. The
difference between the public offering price per Common Share and
the pro forma, net tangible book value per Common Share represents
an immediate increase in net tangible book value of $0.42 per
Common Share to our existing shareholders, and an immediate
dilution in net tangible book value of $2.03 per Common Share to
purchasers of Common Shares in this offering.
The following
table illustrates, on a post-split basis, this dilution to
purchasers in this offering on a per Common Share basis:
The table and
information above assume no exercise by the underwriters of their
option to purchase additional Common Shares and/or Unit Warrants in
this offering. If the underwriters exercise in full their
option to purchase up to 1,500,000 additional Common Shares
and/or up to 750,000 additional Unit Warrants from us,
the pro forma, as adjusted net tangible book value per Common Share
immediately after this offering would be $1.02 per Common Share,
and the dilution in pro forma, as adjusted net tangible book value
per Common Share to purchasers in this offering would be $1.98 per
Common Share, in each case at a public offering price of
$3.00 per Common Share, and after deducting the underwriting
discounts and commissions and estimated offering expenses payable
by us.
SELECTED CONSOLIDATED FINANCIAL INFORMATION AND OPERATING
DATA
The following
tables set forth our selected consolidated financial information
and operating data as of the year ended December 31, 2020 and for
the period of incorporation March 13, 2019 through December 31,
2019. You should read the following selected consolidated
financial information and operating data in conjunction with the
Company’s audited financial statements, and it is qualified in its
entirety by reference to, our audited consolidated financial
statements and the related notes thereto and the sections entitled
“Capitalization” and
“Management’s
Discussion and Analysis of Financial Condition and Results of
Operations,” each of which are included elsewhere in this
prospectus.
Our selected
consolidated statement of income information and operating data for
the year ended December 31, 2020, and our related selected
consolidated balance sheet information as of December 31, 2020 have
been derived from our audited consolidated financial statements for
the year ended December 31, 2020 and for the period from
incorporation March 13, 2019 through December 31, 2019 prepared in
accordance with International Financial Reporting Standards (IFRS)
as issued by the International Accounting Standards Board (IASB),
which are included elsewhere in this prospectus. The selected
historical consolidated financial data as of June 30, 2021 and for
the six months ended June 30, 2021 and 2020 has been derived from
our unaudited interim consolidated financial statements, which are
included elsewhere in this prospectus. The unaudited interim
consolidated financial statements reflect, in the opinion of
management, all adjustments of a normal, recurring nature that are
necessary for a fair presentation of the results of the unaudited
interim periods.
Our historical
results for the periods presented below are not necessarily
indicative of the results to be expected for any future
periods.
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 the sections of this
prospectus entitled “Selected
Consolidated Financial Information and Operating Data” and
“Business”, and our
consolidated financial statements and related notes thereto,
included elsewhere in this prospectus. In addition to historical
financial information, the following discussion contains
forward-looking statements that reflect our current plans,
expectations, estimates and beliefs. Our actual results could
differ materially from those discussed in the forward-looking
statements. Factors that could cause or contribute to these
differences include those discussed below and elsewhere in this
prospectus, particularly in the sections entitled “Risk Factors” and “Cautionary Note Regarding Forward-Looking
Statements.”
Overview
We cultivate and process natural,
medicinal-grade cannabis oil and high-quality cannabis derived
medical and wellbeing products and supply these premium products to
large channel distributors, including pharmacies, medical clinics,
and cosmetic companies. We are an early-stage private
company headquartered in Canada. Our agricultural and
processing operations are in Colombia. We just began to
generate revenues in August 2020 through our Flora Beauty LLC
subsidiary, in October 2020 through our Hemp Textiles subsidiaries,
and in December 2020 following acquisitions of our Cronomed,
Breeze, and Kasa subsidiaries. Our acquisitions have
generated revenues as stand-alone entities: Cronomed since
March 2005; Breeze since January 2013; and Kasa since July
2013.
Flora has begun commercial
cannabis harvesting in Q3 of 2021 with high CBD strains being the
first crop. High THC strains were licensed through the required
agricultural study with the Colombian regulators and should
be available in October 2021. Flora has constructed
sufficient processing infrastructure to complete the
harvesting and drying of the commercial material. We will not
have the ability to extract and test Cannabinoid oil (THC and CBD)
in material amounts until our Research Technology and
Processing Center has been completed, which we expect will become
operational in late 2021. The production facility is intended to
dry, trim and store our products on a large commercial scale, to
produce oil extracts, to access needed facilities and labor and to
achieve large channel distribution of our products.
Effective October 15, 2019, we
acquired 90% of our Colombian subsidiary, Cosechemos, which is
licensed in Colombia to cultivate, produce and distribute CBD
medical cannabis for use in Colombia and for international
export. We have one property under lease, the Cosechemos
Farm, in Giron, Santander, Colombia, which is a 361-hectare
property. We also have the option to lease the Palagu Farms,
in Puerto Boyaca, Colombia. Our main Colombian operations are
currently in Giron, Colombia. Our Palagua Farms comprise two
contiguous farms for a total of 2,132 hectares.
We are currently in discussions
with distributors for the distribution of our products from
Cosechemos. Such discussions are preliminary in nature as we
focus on building a commercial cultivation at the Cosehemos
farm. We will require adequate funding from this offering to
fulfill these business objectives and enter into definitive
agreements with distributors.
On July 16, 2019, we signed a
share purchase agreement with Guillermo Andres Ramirez Martinez,
Guillermo Ramirez Cabrales and Oscar Mauricio Franco Ulloa, who we
refer to as the Cosechemos Vendors, to purchase 90% of Cosechemos.
Pursuant to the share purchase agreement, we acquired 4,500 shares
of Cosechemos. As consideration for the Cosechemos shares, we paid
$80,000 to the Cosechemos Vendors, and granted the Cosechemos
Vendors a 10% non-dilutive, free carried interest in Cosechemos,
which we refer to as the Free Carry. The Free Carry will terminate
upon our investing an aggregate of $25,000,000 in
Cosechemos.
On October 2, 2019, we signed a
shareholders’ agreement with the Cosechemos Vendors and Cosechemos,
the legal and beneficial owner of 100% interest of non-psychoactive
cannabis license in Colombia. Pursuant to our shareholders
agreement with the Cosechemos Vendors and Cosechemos, we are
required to fund the operations of Cosechemos and the Cosechemos
Vendors’ equity interest in Cosechemos cannot be diluted by such
funding during the time that the Free Carry is in effect. Upon the
termination of the Free Carry, the Cosechemos Vendors will be
required, if needed by Cosechemos, to fund the operations of
Cosechemos on a pro rata basis or risk having their equity interest
in Cosechemos be diluted. Pursuant to the purchase agreement, we
are required to pay the Cosechemos Vendors, as a one-time payment,
$750,000 within 60 days of Cosechemos earning a net income of
$10,000,000.
Pursuant to a lease agreement,
dated May 2, 2018, between C.I. Gramaluz S.C.A. and Cosechemos,
Cosechemos has leased the Cosechemos farm, which is a 361 hectare
property in Giron, Santander, Colombia. Effective September 1,
2019, Cosechemos shall pay a monthly fee of approximately $2,900
(COP10,000,000). On March 1, 2020, the monthly fee was increased to
approximately $5,800 (COP20,000,000). Cosechemos has a right to
purchase the Cosechemos Farm at a price to be determined by an
arm’s length third party appraiser from the real estate association
of Bogota, Colombia.
Pursuant to an option to lease
agreement, dated December 27, 2018, between Waldshut C.V. and
Cosechemos, Cosechemos has the option to lease the Palagua Farm
I. Pursuant to an option to lease agreement dated, December
27, 2018, between Vicalvaro C.V. and Cosechemos, Cosechemos has the
option to lease the Palagua Farm II. The Palagua Farm I is a 700
hectare property in Palagua, Boyaca, Colombia. The Palagua Farm II
is a 1,432 hectare property in Palagua, Boyaca, Colombia. The
Palagua Farm I and Palagua Farm II, which, together, we refer to as
the Palagua Farms, are contiguous to each other. The Palagua Farms
are approximately 300 kilometers from the Cosechemos Farm.
Pursuant to the option to lease agreements for the Palagua Farms,
Cosechemos will pay approximately $28.13 (COP$95,879) per month for
each hectare of the Palagua Farms being used to cultivate cannabis
by Cosechemos.
On December 29, 2020, we acquired
90% of Kasa Wholefoods Company SAS Colombia (“Kasa”), pursuant to a
share purchase agreement (the “Kasa Purchase Agreement”) with
Santiago Mora Bahamon, Laura Londono Tapia, Pablo Silva and Stefan
Lauer, who we refer to as the Kasa Vendors. Pursuant to Kasa
Purchase Agreement, we acquired 18,000 shares of Kasa (the “Kasa
Shares”). As consideration for the Kasa Shares, we agreed to
pay $148,300 in cash to the Kasa Vendors in the percentages set
forth in the Kasa Purchase Agreement and to discharge the
liabilities of the Kasa Vendors in the amount of $87,300, for
aggregate consideration of $235,600.
On December 29, 2020, we acquired
90% of Breeze Laboratory SAS (“Breeze”), pursuant to, pursuant to a
share purchase agreement (the “Breeze Purchase Agreement”) with
Ángel Miguel Ramírez, Roberto Barreto and Sandra Milena Barreto
Garzón, who we refer to as the Breeze Vendors. Pursuant to
the Breeze Purchase Agreement, we acquired 46,800 shares of Breeze
(the “Breeze Shares”). As consideration for the Breeze
Shares, we agreed to pay $147,300 in cash to the Breeze Vendors in
the percentages set forth in the Breeze Purchase Agreement and to
discharge the liabilities of the Breeze Vendors in the amount of
$58,900 for aggregate consideration of $206,200. Pursuant to the
Breeze Purchase Agreement, in the event that we elect to merge
Breeze and Cronomed, we are required to issue that number of shares
of the combined entity to the Breeze Vendors such that collectively
the Breeze Vendors would own a 5% equity interest in the combined
entity. In the event that we elect not to merge Breeze and
Cronomed and instead sell such shares to an arm’s length third
party, at the Breeze Vendors’ sole option, we have agreed to (a)
pay to the Breeze Vendors COP$700 million (approximately
USD$199,829); (b) pay to the Breeze Vendors 5% of the proceeds from
the sale of such shares to the third party; or (c) transfer 10% of
such shares to the Breeze Vendors with 8 business days’ notice of
any such decision.
On December 18, 2020, we acquired
100% of Grupo Farmaceutico Cronomed SAS (“Cronomed”), pursuant to a
share purchase agreement (the “Cronomed Purchase Agreement”) with
Luis Gerardo Tovar Osorio, Lucelida Castañeda de Corredor,
Inversiones Multicentro S.A.S., Adriana Elizabeth Pérez Medina,
Angie Zulanny Jiménez Castellanos, Diego Fernando Ramírez Pardo,
Orladis Acero de Ospina, Mary Luz Gonzales Cortés, Olga Lucia Ruge
León, Pharmades S.A.S., María Yolima Pedraza Moreno, Diana Patricia
Elizalde Arias, Jair Fernely Osuna López and Inversiones
Montearroyo Asociados S.A.S., who we refer to as the Cronomed
Vendors. Pursuant to the Cronomed Purchase Agreement, we
acquired 134 shares of Cronomed. As consideration for the Cronomed
Shares, we agreed to pay COP$3,468,631,200 (approximately
USD$992,000) to the Cronomed Vendors in the percentages set forth
in the Cronomed Purchase Agreement. Cronomed has subsequently
changed its name to Flora Labs S.A.S.
On December 29, 2020, we were
assigned (i) a 10% membership interest in Flora Beauty LLC (5%
owned by Andrés Restrepo and 5% owned by Luis Merchan); (ii) a 10%
membership interest in Hemp Textiles & Co LLC owned by Luis
Merchan; and (iii) a 20% membership interest in Hemp Textiles SAS
(5% owned by Santiago Mora Bahamón, 5% owned by Luis Merchan and
10% owned by Nicolás Vásquez). As consideration for the assignment
of such membership interests, we granted 190,000 shares of our
Common Shares (on pre-split basis), and 63,333 shares of our Common
Shares (on a post-split basis) to Mr. Restrepo; 190,000 shares of
our Common Shares (on pre-split basis), and 63,333 shares of our
Common Shares (on a post-split basis) to Mr. Vazquez; 95,000 shares
of our Common Shares (on a pre-split basis), and 31,667 shares of
our Common Shares (on a post-split basis) to Mr. Bahamón; and paid
$300 to Mr. Merchan, who was appointed as the President and Chief
Executive Officer by our Board on December 16, 2020.
Recent
Developments
Reverse Split
and Consolidation
On March 8, 2021, our board of
directors and stockholders approved a prospective reverse split and
consolidation of our common shares in a range of 1 for 2 and 7,
which consolidation was effected April 30, 2021 in a reverse split
ratio of 1-for-3. The reverse split and consolidation
combines each three outstanding common shares into one common share
and adjusts the conversion prices of our convertible securities. No
fractional shares are expected to be issued in connection with the
reverse split and consolidation, and any fractional shares
resulting from the reverse split and consolidation are rounded down
to the nearest whole share. All references to common shares,
options to purchase common shares, restricted stock, share data,
per share data and related information will be retroactively
adjusted, where applicable, in this prospectus to reflect the
reverse split and consolidation of our common shares as if it had
occurred at the beginning of the earliest period presented.
Reference to “post-split” below are references to the number of our
common shares after giving effect to this split.
Completed Acquisitions
Effective December 29, 2020, we
acquired (i) a 90% equity interest in Kasa pursuant to the Kasa
Purchase Agreement; (ii) a 90% equity interest in Breeze pursuant
to the Breeze Purchase Agreement; and effective December 18, 2020
we acquired a 100% equity interest in Cronomed pursuant to the
Cronomed Purchase Agreement.
On January 12, 2021, the Company
acquired certain assets from Laboratorios Quipropharma SAS
(“Quipropharma”), The purchase price is COP$1,200,000,000
($350,000) which has been fully paid The Company also entered
into an agreement with Quipropharma to purchase certain real estate
assets for at total of COP$3,940,000,000 ($1,143,000). Subsequent
to year end the Company advanced COP$1,300,000,000 ($377,000)
related to the real estate acquisition.
Assignment of Interests
On December 29, 2020, we were
assigned (i) a 10% membership interest in Flora Beauty LLC (5%
owned by Andrés Restrepo and 5% owned by Luis Merchan); (ii) a 10%
membership interest in Hemp Textiles & Co LLC owned by Luis
Merchan; and (iii) a 20% membership interest in Hemp Textiles SAS
(5% owned by Santiago Mora Bahamón, 5% owned by Luis Merchan and
10% owned by Nicolás Vásquez). As consideration for the assignment
of such membership interests, we granted 190,000 shares of our
Common Shares (on pre-split basis), and 63,333 shares of our Common
Shares (on a post-split basis) to Mr. Restrepo; 190,000 shares of
our Common Shares (on pre-split basis), and 63,333 shares of our
Common Shares (on a post-split basis) to Mr. Vazquez; 95,000 shares
of our Common Shares (on a pre-split basis), and 31,667 shares of
our Common Shares (on a post-split basis) to Mr. Bahamón; and paid
$300 to Mr. Merchan, who was appointed as the President and Chief
Executive Officer by our Board on December 16, 2020.
Koch &
Gsell Letter of intent
On June 24, 2021, Flora signed a
letter of intent to acquire 100% the outstanding equity interests
of Koch & Gsell for consideration of CHF 20 million (Swiss
Francs), or approximately US$22.2M, to be satisfied by the issuance
of Flora common shares and repayment of Koch & Gsell
outstanding debt. Koch & Gsell (K&G) is a Swiss brand and
manufacturing company founded in 2015, that launched a new,
innovative tobacco-and-hemp cigarette. In summer 2019, K&G
further launched an industrially manufactured pre-roll cigarette
containing pure hemp and has taken steps to protect the method they
use to manufacture their hemp products.
Under the Heimat brand, Koch
& Gsell has become one of the leading brands in the Swiss
market for industrially manufactured hemp cigarettes and
manufactures and distributes a range of hemp products that contain
less than 1% THC, including pure hemp and blended hemp and tobacco
cigarettes, as well as bulk flower and teas in over 2,500 stores
across Switzerland.
As part of the potential
transaction, Flora anticipates acquiring all of Koch & Gsell’s
hemp, blended hemp and tobacco cigarette manufacturing technology.
The proprietary cigarette manufacturing technology can produce over
40,000 packs of 20 cigarettes per day. The technology is patented
in over 80 jurisdictions throughout the world, where Flora
anticipates bringing this technology into new markets to produce
hemp, cannabis, or blended cigarette products, utilizing Flora’s
high-quality, low-cost cannabis input. As of June 30, 2021,
we had provided Koch and Gsell with a $275,000 loan to provide them
with additional working capital. The loan is secured and
bears interest at LIBOR plus 1%.
The closing of the transaction is
subject to customary closing conditions, including due diligence to
the satisfaction of both parties and the entering into of
definitive agreements.
Acquisition of Vessel Brand Inc.
On November 12, 2021, we
acquired 100% of the capital stock of Vessel Brand Inc.
(“Vessel”), a developer and retailer of high-end cannabis consumer
technology, such as vape pens and associated accessories throughout
the United States and internationally. Headquartered in Carlsbad,
California, Vessel distributes its premium hardware and accessories
throughout the United States and internationally and has numerous
high-margin products in its development pipeline to drive
incremental revenue and market share growth in new and existing
categories.
The acquisition by Flora of
Vessel is expected to be a substantive addition to the Flora brand
portfolio as a rapidly growing company. Further, we expect to
leverage Vessel’s in-house design, sales, and marketing expertise
to conduct an evaluation of Flora’s existing global brand and
product portfolio. As part of this process, the Vessel team will
develop a strategic plan to maximize consumer experience and
resonance, increase market share and positioning, and reengineer
the Flora brand portfolio, while staying true to its values, to
make every consumer experience more expressive and
personal.
Pursuant to a certain merger
agreement between Flora, Vessel and certain related third parties,
dated October 27, 2021 (the “Merger Agreement”), at the
closing of the transaction (the “Closing”), Vessel was merged
into a wholly owned subsidiary of Flora, and Flora acquired
100% of the equity interests of Vessel for consideration consisting
of $8.0 million in cash and 4,557,318 privately issued Flora common
shares. Certain shareholders of Vessel that
received in excess of a majority of the Flora common
shares issued as part of the transaction consideration,
entered into lock-up agreements restricting the transfer of
such common shares for a period of six (6) months from the
Closing.
Hoshi
Investment
On August 24,
2021, we closed our previously announced €2 million investment in
Hoshi International Inc. (“Hoshi”) while also increasing our
fully-diluted investment in Hoshi through a securities swap with
Hoshi. Hoshi is a
European focused, fully integrated medical cannabis company led by
a team of renowned cannabis entrepreneurs. Hoshi is focused on
developing and operationalizing assets across the global cannabis
industry with an emphasis on cultivating, manufacturing, and
distributing cannabis products throughout the EU. Hoshi is uniquely
positioned to become a leading provider of cannabis and derivative
products for the emerging European market. In connection with the
securities swap, we received 2,000,000 warrants from Hoshi
management to acquire 2,000,000 common shares of Hoshi in exchange
for 225,000 Flora common shares. This exchange is expected to
strengthen the long-term strategic alignment between Hoshi
management and us as well as increase Flora’s stake in Hoshi. As a
component of the securities swap, the common shares Hoshi
management received are subject to a lock-up period of
the lesser of nine months or the listing of Hoshi’s shares on
a stock exchange.
In addition, we signed a binding
memorandum of agreement with Hoshi underlying the investment
pursuant to which Hoshi shall:
Kalaya Joint Venture
On July 26, 2021, we signed a non-binding letter of intent with
Avaria Inc. (“Avaria”) to form a joint venture (the “Kalaya JV”)
for the purposes of importing and distributing Avaria’s award
winning “Kalaya” pain cream products across Flora’s network in
Central and Latin America with the option to distribute to other
countries around the world. Privately owned and operated since 1995
by experienced medical professionals, Avaria Inc, doing business as
Avaria Health & Beauty Corp., has over 20 years of experience
in the formulation, manufacturing and sale of topical creams, oils,
emulsions, liquids, lotions, gels and salves. Avaria Health &
Beauty Corp. brands enjoy distribution at all levels of retail and
online, domestically, as well as in select international
markets.
Upon entering into the Kalaya JV, we expect to manage the
registration, sales, and distribution of KaLaya products in
Colombia, Mexico, and other LATAM countries, while Avaria is
expected to supply finished product to the Kalaya JV. The profits
from the sale of KaLaya products under the Kalaya JV will be
divided equally between Flora and Avaria.Further, we will work to
produce KaLaya’s CBD-infused products using cannabis from our
cultivation facility. These products are expected to be distributed
across LATAM using our established distribution channels, with the
aim of exporting to the U.S. market, where Avaria is currently
launching the KaLaya brand. Avaria does not currently hold a
license in Canada to produce cannabis derived versions of its
products at a commercial scale.
The Kalaya JV is
subject to customary
conditions including each of Flora and Avaria being satisfied with
their due diligence reviews and the parties entering into a
definitive agreement.
Lamborghini License Agreement
On November
9, 2021, we entered into an exclusive license agreement with Tonino
Lamborghini S.P.A. ("TL") for the manufacturing, promotion and
distribution of Tonino Lamborghini branded beverages using
Cannabidiol ("CBD") and Cannabigerol ("CBG") for North America and
Colombia. The initial products for launch in 2022 will include cold
coffee drinks, vitamin waters and fresh juices. Flora also retains
the right of first refusal ("ROFR") on any or all additional Tonino
Lamborghini products containing cannabinoids for the territory
which may include, but are not limited to; beverages, edibles,
wellness or other ingestibles and for the expansion or addition of
new geographic regions or territories. The Flora/TL beverages will
be all marketed with high-end positioning among
competing fast-moving consumer goods of similar product quality.
The agreement is based on an initial three year term with a
projected five million units (individual beverages) sold within
that period. Flora, may at its option, cancel the agreement after
one year with no penalty or additional charges. The license
agreement includes a minimum guaranteed royalty ("MGR") of $250,000
USD in year one of the agreement that increases with the scope and
size of the projected sales in each subsequent year.
Results of
Operations
Six
month period ended June 30, 2021 for the Company as compared with
the six month period ended June 30, 2020.
The following table sets forth
key components of our results of operations for the six month
period ended June 30, 2021 for the Company as compared with the six
month period ended June 30, 2020.
Revenue
To date, we have generated
minimal revenues from our planned operations. We generated $2.1
million in revenues for the six months ended June 30, 2021 compared
to no in revenues for the same period in the prior year. We have a
very limited operating history upon which to base an evaluation of
our business and prospects. Our short operating history may hinder
our ability to successfully meet our objectives and makes it
difficult for potential investors to evaluate our business or
prospective operations.
Net
Loss
For the six months ended June 30,
2021, we reported a net loss of $5.14 million, or $0.13 per share,
compared to $2.60 million, or $0.09 per share, in net losses for
the same period in the prior year. We had a working capital of
$18.24 million as at June 30, 2021 compared to $14.89 million as of
June 30, 2020.
Research and
Development Expenses
Our research and development
expenses were approximately $85,000 for the six months ended June
30, 2021 compared to approximately $53,000 for the same period in
the prior year. Research and development expenses to date
consist primarily of contract research fees, manufacturing,
consultant fees, and study related costs related to cultivation of
cannabis in Colombia. We provided funding to Cosechemos for the
research and development of producing medicinal CBD oil.
Consulting
and Management Fees
We recorded consulting and
management fees of $2.26 million for the six months ended June 30,
2021 compared to $0.82 million for the same period in the prior
year.
Professional
Fees
We recorded professional fees of
$0.77 million for the six months ended June 30, 2021 compared to
$0.22 million for the same period in the prior year. Most of the
fees relate to legal and audit fees to prepare the materials
related to our initial public offering on Form F-1.
General and
Administrative and Travel Expenses
General and administrative
expenses were $2.66 million for the six months ended June 30, 2021
compared to $0.72 million for the same period in the prior year.
These expenses were mostly attributable to expenses incurred in
connection with the Company’s initial public offering and our
support of the Company’s operations in Columbia
.
Year
Ended December 31, 2020 for the Company as compared with the period
from March 13, 2019 (inception) to December 31, 2019
The following table sets forth
key components of our results of operations for the year ended
December 31, 2020 for the Company as compared with the period from
March 13, 2019 (inception) to December 31, 2019.
Revenue
To date, we have generated
minimal revenues from our planned operations. We generated $106,000
in revenues for the year ended December 31, 2020. We have a very
limited operating history upon which to base an evaluation of our
business and prospects. Our short operating history may hinder our
ability to successfully meet our objectives and makes it difficult
for potential investors to evaluate our business or prospective
operations.
Net
Loss
For the year ended December 31,
2020, we reported a net loss of $14,334,363 (for the period from
March 13, 2019 (inception) to December 31, 2019 - $2,844,111) or
$0.16 per share (for the period from March 13, 2019 (inception) to
December 31, 2019 - $0.06 per share). We had a working capital of
$14,888,184 as at December 31, 2020 (2019 – working capital deficit
of $1,770,818).
On March 15, 2019, we granted
7,000,000 founder warrants (2,333,333 founder warrants on a
post-split basis) to executive officers and directors with an
exercise price of $0.05 per Common Share. The fair market value of
the warrants was estimated to be $21,154 using the Black Scholes
option pricing model. On June 28, 2019, we also granted 7,000,000
options (2,333,333 options on a post-split basis) to directors,
officers and consultants of the Company with an exercise price of
$0.05 per Common Share. The options vested immediately. The fair
market value of the options was estimated to be $85,870 using the
Black Scholes option pricing model.
We have and expect to continue to
report negative earnings until our cannabis development program
finds and develops producing assets. We will continue to utilize
proceeds from financing and equity issuances to fund our cannabis
program and general and administrative operating costs.
Goodwill Impairment
Goodwill impairment was $1,816,000 for the year ended December
31, 2020 (2019 – nil), which was related to the goodwill acquired
on the Kasa, Breeze and Cronomed acquisitions.
Research and
Development Expenses
Our research and development
expenses were $78,480 for the year ended December 31, 2020 (for the
period from March 13, 2019 (inception) to December 31, 2019 -
$21,040). Research and development expenses to date consist
primarily of contract research fees, manufacturing, consultant
fees, and study related costs related to cultivation of cannabis in
Colombia.
We provided funding to Cosechemos
for the research and development of producing medicinal CBD
oil.
Consulting
and Management Fees
We recorded consulting and
management fees of $4,752,368 for the year ended December 31, 2020
(for the period from March 13, 2019 (inception) to December 31,
2019 - $2,000,508). On December 22, 2020, the Company issued
4,000,000 (1,333,333 Common Shares on a post-split basis) common
shares to the Chief Executive Officer of the Company, valued at
$2,560,000 based on the estimated current stock price of $0.64 per
common share. On June 27, 2019, we granted bonuses of
$1,400,000 to our consultants, directors and officers. The bonuses
were settled by the issuance of 70,000,000 Common Shares
(23,333,333 Common Shares on a post-split basis) at a price of
$0.02 per share for a value of $1,400,000 based on the value of
services agreed upon by us and our consultants, directors,
officers. Of the 70,000,000 Common Shares (23,333,333 Common Shares
on a post-split basis) issued, a total of 14,950,000 Common Shares
(4,983,333 Common Shares on a post-split basis) with a value of
$299,000 were granted to our directors and officers.
Professional
Fees
We recorded professional fees of
$794,240 for the year ended December 31, 2020 (for the period from
March 13, 2019 (inception) to December 31, 2019 - $182,900). Most
of the fees relate to legal and audit fees to prepare the
Regulation A+ Tier 2 materials related to the Regulation A Offering
(defined below).
General and
Administrative and Travel Expenses
General and administrative
expenses of $1,400,280 for the year ended December 31, 2020 (for
the period from March 13, 2019 (inception) to December 31, 2019 -
$175,296) were related to filing fees for the Regulation A+ Tier 2
materials for the Regulation A Offering, rent and promotion costs.
We recorded $427,742 for the year ended December 31, 2020 (for the
period from March 13, 2019 (inception) to December 31, 2019 -
$305,874) in travel expenses for various trips related to the
subsidiaries and the Company’s promotion.
Liquidity and
Capital Resources
The following table sets forth
the major components of our statements and consolidated statements
of cash flows for the periods presented.
At June 30, 2021 and at December
31, 2020, we had working capital of $18.24 million and $14.89
million, respectively. Our primary cash flow needs are for
the development of our cannabis activities, administrative expenses
and for general working capital.
At present, we have not had any
production and consequently no revenue generating assets or
operations. Our continued existence is dependent on our ability to
obtain necessary financing to complete the development of our
cannabis operations and/or other potential projects and attain
future profitable production. At present, we have no established
sources of income and the success of our growth and development
programs will be contingent upon our ability to raise sufficient
equity financing on favorable terms. We do not expect to generate
any internal cash flows to finance the development costs in the
foreseeable future.
Initial
Public Offering
We raised $16,667,000 in our
initial public offering in May 2021 by issuing 3,33,333 Common
Shares at an initial public offering price of $5.00 per
share.
Regulation A
Offering
We raised $29,997,195 under an
offering of units under Tier 2 of Regulation A under Section 3(b)
of the Securities Act of 1933, as amended, that closed upon the
sale of the maximum units in December 2020 (the “Regulation A
Offering”). Each Unit is comprised of one Common Share and
one-half of one Common Share purchase warrant to purchase one
additional Common Share at an exercise price of $1.00 per whole
warrant share ($3.00 on a post-split basis), subject to certain
adjustments, over an 18-month exercise period following the date of
issuance of the warrant. The Units were offered at a purchase price
of $0.75 ($2.25 on a post-split basis) per Unit.
Quiprofarma
Advance
As at June 30, 2021, the Company
had provided an advance of $78,000 to Laboratorios Quiprofarma
S.A.S. (“Quiprofarma”). The purpose of making this advance
was for a prepayment of the purchase price on the asset acquisition
that was closed subsequent to December 31, 2020. See Note
24.
QuestCap
Loan
On August 6, 2019, we entered
into a loan agreement with QuestCap Inc. (formerly Copper One
Inc.), as amended on September 12, 2019, for a loan to us of up to
$500,000 of which $497,514 of principal was drawn down by us in
borrowings prior to repayment (December 31, 2019 - $497,514). The
loan is a United States dollar loan which bears interest at 10%
annually, is unsecured, and is payable on demand. As at December
31, 2019, the interest payable on the loan was $15,784. Stan
Bharti, our former Chairman and Deborah Battiston, our
former
Chief Financial Officer also served in those roles at
QuestCap Inc. These funds were sent to provide support to
Cosechemos and to provide working capital for our Company. On
January 31, 2020, the loan was repaid in the amount of $521,341;
$497,514 to principal and $23,827 to interest.
Sulliden
Mining Capital Loan
On November 6, 2019 we entered
into a loan agreement with Sulliden Mining Capital Inc. for a loan
to us of up to $525,000 of which $501,941 of principal was drawn
down by us in borrowings prior to repayment (December 31, 2019 -
$495,613). The loan is a United States dollar loan which bears
interest at 12% annually, is unsecured, and was due on March 31,
2020. As at December 31, 2019, the interest payable on the loan was
$3,681. Stan Bharti, our former Chairman and Deborah Battiston, our
former Chief Financial Officer, served as Interim Chief
Executive Officer and former Chief Financial Officer, respectively
of Sulliden Mining. These funds were sent to provide support to
Cosechemos and to provide working capital for the Company. On
January 31, 2020, the loan was repaid in the amount of $510,557;
$501,941 to principal and $8,616 to interest.
Q Gold
Resources Loan
On June 18, 2019, we entered into
a loan agreement in favor of Q Gold Resources Ltd. for an amount of
$16,667. The loan bears interest at 10% annually, is unsecured, and
is payable on demand. As at December 31, 2019, the interest payable
on the loan was $895. Deborah Battiston is the former Chief
Financial Officer and Fred Leigh is a former director of the
Company. Deborah Battiston is the Chief Financial Officer and Fred
Leigh is the former Chief Executive Officer and a former director
of Q Gold. These funds were sent to provide support to Cosechemos
and to provide working capital for the Company. On March 6, 2020,
the loan was repaid in the amount of $17,637; $16,667 to principal
and $970 to interest.
Kasa
Loan
On January 1, 2020, a loan was
oustanding to Kasa Wholefoods Company S.A.S, or Kasa. The
loan accrues interest with an annual interest rate of 5%, is
unsecured, and is payable on demand. As at June 30, 2020, we
have a loan receivable of $218,324 (December 31, 2019 - $91,087) of
which $216,000 (December 31, 2019 - $91,000) is principal and
$2,324 (December 31, 2019 - $87) is interest. The purpose for
the loan was to provide working capital prior to the completion of
the acquisition.
Newdene
Loan
On February 12, 2020, we made a loan of
$1,000,000 to Newdene Gold Inc., or Newdene. The loan accrues
interest with an annual interest rate of 6% and is payable six
months following the closing date of February 12, 2020. The
loan is secured by a securities pledge agreement in favor of our
Company creating a security interest of 2,000,000 Common
Shares (666,667 Common
Shares on a post-split basis). On November 23, 2020, the loan
of $1,000,000 plus interest of $47,000 was repaid in
full.
Consultancies
Loan
On April 17, 2020, we made a loan
of CAD$100,000 ($70,811) to Consultancies and Consultancies of
Latam by GM LLC, or Consultancies. The loan accrues interest
with an annual interest rate of 5% and is payable sixty days
following the closing date of April 17, 2020. The loan to
Consultancies and Consultancies of Latam by GM LLC of CAD$100,000
($70,811) plus interest of $2,000 has been repaid in full via
services provided.
We do not pay dividends and,
other than the debt discussed above, had no long-term debt or bank
facilities, other than our lease liability.
Plan of
Operations
As noted above, the continuation
of our current plan of operations requires us to raise significant
additional capital. If we are successful in raising capital through
the sale of Common Shares offered for sale in this offering, we
believe that we will have sufficient cash resources to fund our
plan of operations through the end of 2023. If we are unable to do
so, we may have to curtail and possibly cease some operations. We
intend to use the net proceeds from the offering for operating
capacity, working capital and general corporate purposes.
During 2019 and 2020, we operated
a 2-hectare Pilot Program at the Cosechemos Farm. Pursuant to
the Pilot Program, we have constructed one nursery and propagation
center (an aggregate of 1,000 square meters) at the Cosechemos Farm
where we planted 7,800 seedlings of non-psychoactive
cannabis. We harvested and processed the non-psychoactive
cannabis from the Pilot Program resulting in a defined budget for
dry flower productivity per plant and stabilization of certain
genetic strains for our planned commercial cannabis
production. The Pilot Program assisted management in
establishing what management believes is a viable agronomic
management plan for cultivation in the Colombian geographic,
organic and outdoor conditions.
We continually evaluate our plan
of operations to determine the manner in which we can most
effectively utilize our limited cash resources. The timing of
completion of any aspect of our plan of operations is highly
dependent upon the availability of cash to implement that aspect of
the plan and other factors beyond our control. There is no
assurance that we will successfully obtain the required capital or
revenues, or, if obtained, that the amounts will be sufficient to
fund our ongoing operations.
Critical
Accounting Policies
Our financial statements were
prepared in accordance with International Financial Reporting
Standards (“IFRS”), as issued by the International Accounting
Standards Board (“IASB”) and interpretations of the International
Financial Reporting Interpretations Committee (“IFRIC”). The
preparation of interim financial statements in accordance with
International Accounting Standards (“IAS”) 34, Interim Financial
Reporting, requires the use of certain critical accounting
estimates. It also requires management to exercise judgement in
applying our accounting policies.
Recent
Accounting Pronouncements
Accounting
pronouncements not yet adopted
Certain new standards,
interpretations, amendments and improvements to existing standards
were issued by the IASB or IFRIC that are mandatory for accounting
periods beginning on or after January 1, 2019 or later periods. The
following have not yet been adopted and are being evaluated to
determine their impact on the Company.
For acquisitions that do not meet
the definition of a business under IFRS 3, the Company follows
International Accounting Standard (“IAS”) 37 and IAS 38 guidelines
for asset acquisition, where the consideration paid is allocated to
assets acquired based on fair values on the acquisition date and
transactions costs are capitalized and allocated to the assets
acquired.
Trend
Information
Because we are still in the
start-up phase and have only recently commenced operations, we are
unable to identify any recent trends in revenue or expenses. Thus,
we are unable to identify any known trends, uncertainties, demands,
commitments or events involving our business that are reasonably
likely to have a material effect on our revenues, income from
operations, profitability, liquidity or capital resources, or that
would cause the reported financial information in this offering to
not be indicative of future operating results or financial
condition.
Restatement
Disclosure
In December 2020, we engaged
Davidson & Company LLP, Chartered Accountants (“Davidson”) as
our new PCAOB registered accounting firm to audit our financial
statements. As part of a re-audit conducted by Davidson of our
financial statements for the period March 13, 2019 (inception), to
December 31, 2019, under PCAOB auditing standards, we have included
disclosures in the audited financial statements related to changes
in expenditures that were not appropriately recorded and founders'
warrants that were revalued. For our unaudited financial
statements for the interim period ended June 30, 2020, we have
revised the unaudited financial statements to include the above
disclosures in addition to changes to foreign currency translation
of intangible assets and net assets and net losses impacted by the
consolidation of Flora Beauty LLC.
Our audit committee and Board
have concluded that the restatements are quantitatively and
qualitatively immaterial, that the weakness in our recording has
been remedied through our hiring of additional accounting personnel
in Canada and Colombia and that all previously issued financial
statements may be relied upon.
Off Balance
Sheet Arrangements
We did not have, during the
periods presented, and we do not currently have, any off-balance
sheet arrangements.
Capital
Expenditures
We do not have any contractual
obligations for ongoing capital expenditures at this time.
Contractual
Obligations, Commitments and Contingencies
The following table sets forth
the amount of our contractual obligations as of June 30,
2021.
Certain conditions may exist as
of the date the financial statements are issued, which may result
in a loss to us, but which will only be resolved when one or more
future events occur or fail to occur. Our management, in
consultation with its legal counsel as appropriate, assesses such
contingent liabilities, and such assessment inherently involves an
exercise of judgment. In assessing loss contingencies related to
legal proceedings that are pending against us or unasserted claims
that may result in such proceedings, we, in consultation with legal
counsel, evaluate the perceived merits of any legal proceedings or
unasserted claims, as well as the perceived merits of the amount of
relief sought or expected to be sought therein. If the assessment
of a contingency indicates it is probable that a material loss has
been incurred and the amount of the liability can be estimated,
then the estimated liability would be accrued in our financial
statements. If the assessment indicates a potentially material loss
contingency is not probable, but is reasonably possible, or is
probable, but cannot be estimated, then the nature of the
contingent liability, together with an estimate of the range of
possible loss, if determinable and material, would be disclosed.
Loss contingencies considered remote are generally not disclosed
unless they involve guarantees, in which case the guarantees would
be disclosed. We are not aware of any matters which result in a
loss contingency.
Emerging
Growth Company Status
We are an “emerging growth
company”, as defined in Section 2(a) of the Securities Act, as
modified by the JOBS Act. As such, we are eligible to take
advantage of specified reduced reporting and other requirements
that are otherwise applicable generally to SEC reporting companies
that are not emerging growth companies. For so long as we
remain an emerging growth company, we will not be required to,
among other things:
We will remain an emerging growth
company until the earlier of (i) the last day of the fiscal
year following the fifth anniversary of our initial public
offering, (ii) the last day of the fiscal year during which we
have total annual gross revenue of at least $1.07 billion,
(iii) the date on which we are deemed to be a “large
accelerated filer” under the Exchange Act, which means the market
value of our Common Shares that are held by non-affiliates exceeds
$700.0 million as of the last business day of our most
recently completed second fiscal quarter, and (iv) the date on
which we have issued more than $1.0 billion in non-convertible
debt during the prior three-year period.
In this prospectus, we have taken
advantage of certain of the reduced reporting requirements as a
result of being an emerging growth company and a foreign
private issuer. Accordingly, the information that we provide
in this prospectus may be different than the information you may
receive from other public companies in which you hold equity
interests. If some investors find our securities less
attractive as a result, there may be a less active trading market
for our securities and the prices of our securities may be more
volatile.
HISTORY
AND CORPORATE STRUCTURE
History
Our Company, Flora Growth Corp.,
was incorporated on March 13, 2019 in the Province of
Ontario. We are an early-stage private company headquartered
in Canada focused on becoming a global leader in producing natural,
medicinal-grade cannabis oil and high quality cannabis derived
medical and wellbeing products for sale around the world.
Our agricultural and processing
operations are in Colombia. We are an emerging growth company
just beginning to generate revenues and will require adequate
funding from financing efforts to plant, grow and harvest our
products on a commercial scale, to produce oil extracts and medical
and wellbeing products, to access needed facilities and labor and
to achieve large channel distribution of our products.
Our principal place of business
and mailing address is Flora Growth Corp., 198 Davenport Road,
Toronto, Ontario M5R 1J2, and our telephone number is +1 (416)
861-2267. Our Colombian-based offices are located at Calle
93B # 13-50, Oficina 101, Edificio Hernandez, Bogotá, Colombia and
Carrera 25 # 29 - 87 Local 17 A, Giron, Santander, Colombia.
Our website address is www.floragrowth.ca. The information
contained therein or accessible thereby shall not be deemed to be
incorporated into this prospectus.
As of the date of this
prospectus, we have the following operating segments:
See “Our
Business.”
Our
Acquisitions
Cosechemos YA SAS (“Cosechemos”)
became our 90%-owned subsidiary effective October 15, 2019 pursuant
to a share purchase agreement (the “Cosechemos Share Purchase
Agreement”) between the Company, Guillermo Andres Ramirez Martinez,
Guillermo Ramirez Cabrales and Oscar Mauricio Franco Ulloa
(collectively, the “Cosechemos Vendors”). Pursuant to the
Cosechemos Share Purchase Agreement, we acquired 4,500 shares of
Cosechemos. As consideration for the Cosechemos shares, we (i) paid
$80,000 to the Cosechemos Vendors, and (ii) granted the Cosechemos
Vendors a 10% non-dilutive, free carried interest in Cosechemos
(the “Free Carry”). Pursuant to the shareholders agreement between
the Cosechemos Vendors and us (the “Shareholders Agreement”), we
are funding the operations of Cosechemos and the Cosechemos
Vendors’ equity interest in Cosechemos cannot be diluted by such
funding during the time that the Free Carry is in effect. The Free
Carry will automatically terminate upon such time as we invest an
aggregate of $25 million into Cosechemos. Upon the
termination of the Free Carry, the Cosechemos Vendors will be
required, if needed by Cosechemos, to fund the operations of
Cosechemos on a pro rata basis or risk having their equity interest
in Cosechemos be diluted. Additionally, we are required to
pay the Cosechemos Vendors, as a one-time payment, $750,000 within
60 days of Cosechemos earning a net income of $10 million.
We created Flora Beauty LLC
(“Flora Beauty”) in partnership with Paulina Vega, a former Miss
Universe (2014) and Miss Colombia (2013), as well as a television
personality and model. Flora Beauty is a private company
headquartered in the United States and incorporated on January 14,
2020 under the laws of the State of Colorado.
On March 3, 2020, we incorporated
Flora Growth Corp. Sucursal Colombia (“Flora Growth Sucursal”)
under the laws of Colombia.
On August 17, 2020, we
incorporated Hemp Textiles & Co LLC (“Hemp Textiles”) under the
laws of the State of Florida. On June 25, 2020, we
incorporated Hemp Textiles & Co SAS (“Hemp Textiles SAS”) under
the laws of Colombia.
On December 29, 2020, we signed a
share purchase agreement (the “Kasa Purchase Agreement”) with
Santiago Mora Bahamon, Laura Londono Tapia, Pablo Silva and Stefan
Lauer, who we refer to as the Kasa Vendors, to purchase 90% of Kasa
Wholefoods Company SAS Colombia (“Kasa”). Pursuant to Kasa
Purchase Agreement, we acquired 18,000 shares of Kasa (the “Kasa
Shares”). As consideration for the Kasa Shares, we agreed to
pay $148,300 to the Kasa Vendors in the percentages set forth in
the Kasa Purchase Agreement and discharged the liabilities of the
Kasa Vendors in the amount of $87,300, for aggregate consideration
of $235,600.
On December 29, 2020, we signed a
share purchase agreement (the “Breeze Purchase Agreement”) with
Ángel Miguel Ramírez, Roberto Barreto and Sandra Milena Barreto
Garzón, who we refer to as the Breeze Vendors, to purchase 90% of
Breeze Laboratory SAS (“Breeze”). Pursuant to the Breeze
Purchase Agreement, we acquired 46,800 shares of Breeze (the
“Breeze Shares”). As consideration for the Breeze Shares, we
agreed to pay $147,300 to the Breeze Vendors in the percentages set
forth in the Breeze Purchase Agreement and discharged the
liabilities of the Breeze Vendors in the amount of $58,900, for
aggregate consideration of $206,200. Pursuant to the Breeze
Purchase Agreement, in the event that we elect to merge Breeze and
Cronomed, we are required to issue that number of shares of the
combined entity to the Breeze Vendors such that collectively the
Breeze Vendors would own a 5% equity interest in the combined
entity. In the event that we elect not to merge Breeze and
Cronomed and instead sell such shares to an arm’s length third
party, at the Breeze Vendors’ sole option, we have agreed to (a)
pay to the Breeze Vendors COP$700 million (approximately
USD$199,829); (b) pay to the Breeze Vendors 5% of the proceeds from
the sale of such shares to the third party; or (c) transfer 10% of
such shares to the Breeze Vendors with 8 business days’ notice of
any such decision.
On December 18, 2020, we signed a
share purchase agreement (the “Cronomed Purchase Agreement”) with
Luis Gerardo Tovar Osorio, Lucelida Castañeda de Corredor,
Inversiones Multicentro S.A.S., Adriana Elizabeth Pérez Medina,
Angie Zulanny Jiménez Castellanos, Diego Fernando Ramírez Pardo,
Orladis Acero de Ospina, Mary Luz Gonzales Cortés, Olga Lucia Ruge
León, Pharmades S.A.S., María Yolima Pedraza Moreno, Diana Patricia
Elizalde Arias, Jair Fernely Osuna López and Inversiones
Montearroyo Asociados S.A.S., who we refer to as the Cronomed
Vendors, to purchase 100% of Cronomed. Pursuant to the
Cronomed Purchase Agreement, we acquired 134 shares of Cronomed. As
consideration for the Cronomed Shares, we agreed to pay
COP$3,468,631,200 (approximately USD$992,000) to the Cronomed
Vendors in the percentages set forth in the Cronomed Purchase
Agreement.
On December 29, 2020, we were
assigned (i) a 10% membership interest in Flora Beauty LLC (“Flora
Beauty”) (5% owned by Andrés Restrepo and 5% owned by Luis
Merchan); (ii) a 10% membership interest in Hemp Textiles & Co
LLC (“Hemp Textiles”) owned by Luis Merchan; and (iii) a 20%
membership interest in Hemp Textiles SAS (5% owned by Santiago Mora
Bahamón, 5% owned by Luis Merchan and 10% owned by Nicolás
Vásquez). As consideration for the assignment of such membership
interests, we granted 190,000 shares of our Common Shares (63,333
Common Shares on a post-split basis) to Mr. Restrepo; 190,000
shares of our Common Shares (63,333 Common Shares on a post-split
basis) to Mr. Vazquez; 95,000 shares of our Common Shares (31,667
Common Shares on a post-split basis) to Mr. Bahamón; and paid $300
to Mr. Merchan, who was appointed as the President and Chief
Executive Officer by our Board on December 16, 2020.
To date, we have financed our
operations and growth though short-term loans and a Regulation A,
Tier 2 offering of units qualified with the SEC in December 2019
and completed its Regulation A maximum sale of securities in
December 2020 and our initial public offering in May 2021.
Effective January 12, 2021, we
acquired Quipropharma Lab, an asset comprised of a modern
Colombia-based manufacturing facility that holds GMP certifications
and can produce CBD containing products, pursuant to the
Quipropharma Asset Purchase Agreement.
Corporate Structure
The following diagram illustrates our pro forma corporate structure
as of the date of this prospectus.
Each of our subsidiaries are discussed below.
Cosechemos
Cosechemos is our 90% owned
subsidiary, was incorporated on May 3, 2016 under the laws of
Colombia and has its registered office address located at Carrera
25 # 29 - 87 Local 17 A, Giron, Santander, Colombia. Cosechemos
operates its business of cultivation and processing natural
cannabis into standardized, medicinal-grade oil extracts and
related products.
Flora
Beauty
Flora Beauty is our 87% owned
subsidiary and was incorporated on January 14, 2020 under the laws
of the State of Colorado. Business operations and branch
office are located in Colombia. Flora Beauty’s registered office
and head office are located at 26 W Dry Creek Circle Ste 600,
Littleton, CO, 80601. Flora Beauty’s principal executive
office is located at Calle 93B #13-50 Bogotá, Colombia.
Ms. Vega, as the sole member of
Ludic Investments LLC, a limited liability company organized under
the laws of the State of Florida, is a founding partner of Flora
Beauty. Ms. Vega has a 13% membership interest in Flora Beauty. Ms.
Vega contributes her knowledge and professional experience in all
aspects of the operations of Flora Beauty, including having
decision making authority and participating in critical stages of
different projects, positioning the Flora Beauty brands and
products, approving internal and external communications,
supporting the creation of advertising campaigns and content, and
representing Flora Beauty in public events.
Flora Beauty has a 100% owned
subsidiary, Flora Beauty LLC Sucursal Colombia (“Flora Beauty
Sucursal”), incorporated on June 24, 2020, under the laws of
Colombia and has its registered office address located at Call 93B
#13-50 Bogotá, Colombia. Flora Beauty Sucursal provides Flora
Beauty with operational support in Colombia, allowing Flora Beauty
to interact with Colombian regulatory authorities such as the
Instituto Nacional de Vigilancia de Medicamentos y Alimentos
(“INVIMA”).
Breeze
Breeze, our 90% owned subsidiary,
has its registered office address located at Calle 53 BIS Sur # 80
– 57, Bogotá, Colombia. Breeze focuses on the design,
development and manufacturing of dermo-cosmetic products to respond
to the needs of consumers, health specialists, patients and
therapists. Breeze also manufactures magistral formulations in
Colombia, which are custom formulations prescribed by physicians
according to the individual needs and symptoms of patients and
prepared as prescribed by a certified pharmaceutical establishment
using cannabis derivatives.
Flora
Growth Sucursal
Flora Growth Sucursal is our
wholly-owned subsidiary, was incorporated on March 3, 2020 under
the laws of Colombia and has its registered office address located
at Calle 93 B # 13-50, Oficina 101, Edificio Hernandez, Bogotá,
Colombia. Flora Growth Sucursal is an administrative company
that services all of our subsidiaries in Colombia. Flora
Growth Sucursal has no operations other than providing
administrative services to our subsidiaries.
Cronomed
Cronomed, our wholly-owned
subsidiary, was incorporated on March 16, 2005 in Bogotá, Colombia.
Cronomed’s business operations are in Colombia and its registered
office address is located at Carrera 72 M Bis N# 37B-24 Sur
Carvajal in Bogota, Colombia. Cronomed is focused on the
commercialization and distribution of pharmaceutical and
over-the-counter products, including dietary supplements,
phytotherapeutic and nutraceutical products, supplements and
related products to large channel distributors, including
pharmacies, medical clinics, and cosmetic companies.
Cronomed’s 100% owned subsidiary,
Labcofarm Laboratorios S.A.S. (“Labcofarm”) was incorporated on
November 20, 2012 under the laws of Colombia. Labcofarm’s
operations include importing raw materials and other products
needed for the production of its products. Cronomed has
subsequently changed its name to Flora Labs S.A.S.
Hemp
Textiles
Hemp Textiles, our wholly-owned
subsidiary, was incorporated on August 17, 2020 under the laws of
the State of Florida and has its registered office address located
at 2937 S.W. 27th
Avenue # 104, Coconut Grove, FL 33133. Hemp Textiles was
formed to create and sell hemp-based clothing and textiles.
Hemp
Textiles SAS
Hemp Textiles SAS, our
wholly-owned subsidiary, was incorporated on June 25, 2020 under
the laws of Colombia, and has its registered office address located
at Calle 93 B # 13-50, Oficina 101, Edificio Hernandez, Bogotá,
Colombia. Hemp Textiles SAS provides wholesale distribution
in Colombia and the United States for Hemp Fortex Industries Ltd.,
a fully vertically integrated global hemp textile producer.
Prospect sectors to supply these textiles include: hospitality,
medical, military and apparel sectors, among others with interest
in the antibacterial and highly resistant properties of hemp.
Kasa
Kasa, our 90% owned subsidiary,
has its registered office address located at Calle 93 B # 13-50
Oficina 101, Bogotá, Colombia. Kasa’s business operations are
primarily in Colombia. Kasa is a private company headquartered in
Colombia with a focus on designing, producing and supplying
natural, no additive-added, no sugar-added juices, chocolate and
chocolate related products to large channel distributors, including
wholesale distributors, pharmacies, supermarkets and online
distributors.
Kasa’s 100% owned subsidiary,
Kasa Wholefoods, was incorporated on April 1, 2020 under the laws
of Florida.
Our
Mission
Our mission is to leverage
natural, cost-effective cultivation practices to supply cannabis
derivatives to a diverse global market of cosmetics, hemp textiles,
food, beverages and other products where cannabis or hemp can be
utilized. As the operator of a large outdoor cultivation facility,
Flora strives to market higher-quality premium wholesale cannabis
products at below market prices. By prioritizing natural
ingredients and value-chain sustainability across its portfolio,
Flora creates premium products that help consumers restore and
thrive.
Our
Company
Flora cultivates and processes
natural, medicinal-grade cannabis and high-quality cannabis
derivatives for medical and wellbeing products. Flora’s primary
supply channels include premium products to large channel
distributors, including pharmacies, medical clinics, grocery,
convenience and cosmetic companies, direct to consumer delivery,
and wholesale business to business (“B2B”) cannabis flower and
derivatives. With over 300 products and several brands in market,
Flora utilizes its array of assets including outdoor cultivation,
an INVIMA GMP processing facility and in-house branding and
distribution partners around the world, and strives to deploy a
vertically integrated structure in product classes or geographies
that allow it. With cultivation operations based in Colombia, Flora
is committed to becoming a competitive producer of low-cost,
natural, medicinal-grade cannabis oils and extracts including both
high potency THC and CBD.
Designed from the onset for
global growth and expansion, we began to generate revenues in
August 2020 through Flora Beauty LLC and the Hemp Textiles
subsidiaries. In December 2020, Flora significantly expanded
revenue with the acquisition of Cronomed, Flora Lab, and Kasa
subsidiaries allowing for expanded distribution. Flora has a fully
licensed 247 acre farm near Bucaramanga, Colombia producing several
government approved high CBD and THC cultivars for integration and
sales with a state of the art extraction and processing facility in
construction with full operations expected in the fourth quarter
2021 and expects EU GMP licensing in 2022.
Our Brands and
Products
Flora has developed a series of
in-house brands and completed accretive acquisitions to capitalize
on consumer and competitive trends with initial operations focused
on Colombia and Latin America. These divisions primarily fit within
the global health and wellness space, where we estimate revenue
growth can be accelerated with new product offerings derived from
cannabinoids including CBD . See “Risks Related to our
Business and Industry”.
Our core products are inclusive
of the following:
Our acquisitions have generated
revenues as stand-alone entities prior to the December 2020
consolidation: Cronomed since March 2005; Flora Lab since
January 2013; and Kasa since July 2013.
Medicinal-Grade Cannabis, Cannabis Oil Extracts and Related
Products
Through our 90% owned subsidiary,
Cosechemos, we are focused on cultivating, processing and supplying
natural, medicinal-grade cannabis flower, cannabis oil extracts and
related products to large channel distributors, including
pharmacies, medical clinics, and cosmetic companies, in legal
markets around the world.
Our cultivation operations are
currently in Colombia at the Cosechemos Farm, which includes a
361-hectare property,
with the ability to expand if required. See “Business—Property, Plant
and Equipment.”
Flora currently has 12 cultivars
under evaluation with the ICA and has eight strains currently
approved by the commercial use. Flora intends to fully develop
final products consistent with medicinal cannabis industry
standards and pharmaceutical procedures (including construction of
an EU-GMP compliant facility at Cosechemos). Our products will
include a variety of THC and CBD compositions designed to treat
specific medical conditions as well as identifying cultivars with
high amounts of rare cannabinoids including CBN, CBG and others.
Flora is authorized to grow non-psychoactive cannabis (less
than 1% THC) and psychoactive cannabis license (higher than 1% THC)
as of March 2021 from Colombian regulators. See “Business—Regulatory
Environment.”
Flora employs a hybrid
business-to-business (“B2B”) and business-to-consumer (“B2C”) sales
and distribution model for its products. Targeted B2B customers
will primarily consist of finished goods manufacturers, research
organizations and pharmaceutical companies.
B2C channel sales provide
products either direct to consumers (only non-psychoactive) or
through both channel distributors including medical clinics,
pharmacies, and white label manufacturers of cosmetic products.
Flora works with healthcare professionals (clinics and doctors’
offices) that formulate and believe in cannabis therapies to
provide high quality formulations in jurisdictions where THC or CBD
are allowed. New information technologies, blockchain and supply
chain provenance will be a key part of Flora’s strategy in order to
educate the market on formulation trends and the consumption of
cannabis products. Along with technology, Flora will participate
and work with researchers and scientists to provide data and to
educate the medical industry in areas where Flora believes cannabis
will have an impact (including neurologists, psychiatrists,
rheumatologists, oncologists, etc.). Flora’s intent is to create
the necessary confidence in cannabis medications for patients
exploring the possibility of receiving cannabis therapies as a
complement to traditional therapies.
Skincare and Beauty Products
Through our 87% owned subsidiary,
Flora Beauty, Flora manufactures and sells skincare and beauty
products made with innovative ingredients such as CBD oil extract,
hemp seeds for exfoliators and other natural ingredients through
Flora Beauty’s two brands, Mind
Naturals and Ô. Flora Beauty sources CBD,
cosmetic ingredients and packaging components from a global supply
chain for manufacturing and packaging its Mind Naturals and Ô products. Upon Cosechemos
obtaining regulatory approval to commercially extract cannabis,
Flora Beauty will use CBD derivatives from Cosechemos to
manufacture its products.
Flora Beauty entered the United
States skincare market with sales commencing in September 2020 with
its first brand, Mind
Naturals, while developing its second brand, Ô, in November 2020. The
Mind Naturals and
Ô inaugural lines
exemplify a socially conscious approach to the industry by creating
products that are paraben and phthalate free, vegan, and absent any
ingredients that utilize animal-testing. Marketing efforts
for such brands will include a cohesive marketing strategy to
attract and retain consumer loyalty for its brands, including
websites for Mind Naturals
(www.mindskincare.com) and Ô (www.lifeinô.com).
Mind
Naturals
The Mind Naturals skincare brand is
formulated with CDB oil as its key ingredient, alongside other
natural ingredients, some of which are endemic to Colombia.
Currently, there are six products under the Mind Naturals brand:
Ô
Ô (pronounced awe), is a brand
inspired by the amazing moments of life, the beauty of the world,
its biodiversity, and the beauty that everyone can find in
themselves. The difference in ingredients in the Mind Naturals products and
Ô products is the
concentration of the active ingredients, such as the CBD and the
delivery methods. Ô’s initial portfolio of products is similar to
Mind Naturals and includes a cleanser, eye cream, moisturizer and a
nourishing mask:
Dermo-Cosmetic Products
Flora Labs focuses on the design
and development of dermo-cosmetic products to respond to the needs
of consumers, health specialists, patients and therapists. Flora
Lab also manufactures custom formulas and premium personal care
products for B2C clients made at its Instituto Nacional de
Vigilancia de Medicamentos y Alimentos (“INVIMA”) and FDA
registered laboratory and provides Flora Lab offers white label
servies to clients providing access to its technical team of
chemists, specialists and its INVIMA and FDA registered laboratory.
This partnership ensures that clients are part of the product
development process.
Custom formulas may range in
complexity from a single ingredient product to a product featuring
multiple ingredients. The custom formulation process includes the
modification of an existing product or the development of an entire
new product to target a specific concern. Flora Lab currently
provides a variety of custom products for established customers and
is involved in every phase of product development.
Flora Lab’s portfolio of products
and services include the following business lines and brands:
140 Miles: Developed to support high
performance athletes, particularly cyclists who require rapid
recovery and sustained energy levels before, during and after
training. Its CBD (cannabidiol) infused formula has been blended
with natural ingredients to form the perfect sustenance.
Munzhi Naturals: Designed to
complement an intrinsic wellbeing, Munzhi has been inspired by the
forest to find provide balance for the body and mind.
95% of Flora Lab’s suppliers are
local suppliers, which offer national and foreign origin raw
materials and have 80% immediate availability (maximum time
of eight days). The other 20% of raw materials are managed
with a delivery time between 30-90 days depending on the material.
Flora Lab utilizes high quality materials that are certified
internationally by ECOCERT and Cosmos, among others.
Flora Lab is also a strategic
partner for the companies within the Flora group. Flora Lab
manufactures all the products in the Flora Beauty brand portfolio
as well as the entire Almost
Virgin brand portfolio from Kasa. See “Business—Food and Beverage
Products.” In the fourth quarter of 2021, Flora Lab will
begin the manufacturing process for all of Cronomed’s beauty
products. Upon Cosechemos obtaining regulatory approval to
commercially cultivate cannabis, Flora Lab will utilize CBD oil
from its cultivation in Cosechemos to manufacture CBD infused
products, which will lead to increased margins and a vertically
integrated supply chain for many of Flora Lab’s products.
Pharmaceutical Products
The Flora Lab brand, Cronomed,
employs a business-to-business (“B2B”) model, selling its products
to wholesalers, pharmacies and retailers. Cronomed is focused on
the commercialization and distribution of pharmaceutical and
over-the-counter products, including dietary supplements,
phytotherapeutic and nutraceutical products, supplements and
related products to large channel distributors, including
pharmacies, medical clinics, and cosmetic companies.
Currently, the Cronomed brand
consists of 56 different products. Flora Lab through the Cronomed
brand is developing 13 additional products focused on the
over-the-counter medicinal market. These new products include five
antibiotics
(Amoxaciline-Dicloxaciline-Clindamicine-Cefalexine-Clotrimazol),
three gastrointestinal (Simeticone-Aginato-Esomeprazol), one
analgesic (Meloxicam), one antiparasitic (Nitazoxanide), one
antihistamine (Desolaratadine), one mucolytic (Acetylcysteine) and
one erectile dysfunction (Tadalafil).
Cronomed uses third-party
white-label producers (including international suppliers Athena
from France and Nyells from the United States, and domestic
suppliers such as Coaspharma, Colompack, Syntofarma, Vital Hands,
Nutripharma, among others) to manufacture its products under its
various brands and has strong relationships with such producers and
suppliers of raw materials. Currently, Cronomed uses 16
different producers to produce its 56 products in Colombia. In
addition, Cronomed acquires the majority of its raw materials in
Colombia. All the active pharmaceutical ingredients (API) are
supplied by international companies from various countries
including the United States, China and Germany.
Loungewear and Textiles
Through our wholly-owned
subsidiary, Hemp Textiles, we have develop, manufacture and sell
hemp-based products on a hybrid B2B and B2C model. Hemp Textiles
products are currently manufactured in Colombia using hemp from
Turkey and China with that expectation that it will utilize local
fibers, when available. Hemp Textiles will use hemp from the
Cosechemos Farm for its future products. In June 2020, Hemp
Textiles launched its inaugural loungewear brand, Stardog Loungewear (“Stardog”), and a
new business line consisting of the commercialization of hemp
textiles launched in the first quarter of 2021.
Under the Stardog brand, Hemp
Textiles launched its inaugural set of products, including copper
infused hemp facemasks, jogger pants, house shoes, crew neck
sweaters, hoodies, t-shirts, henley shirts, robes and shorts. Such
products are sold directly to consumers via the website
www.stardogloungewear.com, with a select product set to become
available on Macys.com in the fourth quarter of 2021. Although most
of the Stardog Loungewear
sales are expected to take place in the United States, Hemp
Textiles is able to distribute its products worldwide and currently
operates two retail stores located in Colombia. Hemp Textiles
incorporates a pre-order business model in which it only produces
what it has sold previously to limit inventory and associated
costs. Hemp Textile’s main marketing efforts are focused on
digital strategies working with social media influencers, digital
advertising, public relation firms, paid media and email
marketing. Facebook, Twitter, Instagram and targeted
advertisements will be the main source of traffic to the
Stardog Loungewear
website.
According to the U.S. Department
of Agriculture’s February 2020 Economic Viability of Industrial Hemp in the
United States: A Review of State Pilot Programs, hemp
fabrics are mostly found in China due to the lack of stringent
cannabis restrictions. In addition, prices have remained stable
among the biggest suppliers. Hemp can grow every 4 months
even with a shortage of water, so it can adapt to a variety of
conditions. Gradually, the Hemp Textiles business will be
vertically integrated, as Cosechemos is testing and developing a
variety of hemp cultivars that fully adapt to the environmental
conditions at the Cosechemos Farm. Producing our own fabrics
in-house would increase operational margins significantly, as it is
our biggest cost center.
We are also focused on the
production of a line of textiles servicing the hospitality, medical
and clothing industries on a B2B basis. Hemp Textiles SAS has
agreed to wholesale distribution in Colombia and the United States
for Hemp with Fortex Industries Ltd., a fully vertically integrated
global hemp textile producer. Sectors that we expect to
supply these textiles include: hospitality, medical, military and
apparel sectors, among others with an interest in the
anti-bacterial and highly resistant properties of hemp.
Food
and Beverage Products
Our 90% owned subsidiary, Kasa
Wholefoods (“Kasa”), designs, produces, and supplies natural, no
additive-added, no sugar-added juices, chocolates and confectionary
related products to large channel distributors, including wholesale
distributors, pharmacies, supermarkets and online distributors.
Kasa is also the innovation driver for product development in the
food division including products currently being sold to Tropi as
of July 2021. Throughout 2020, Kasa has focused its research and
development efforts on a water soluble cannabinoid solution to
infuse cannabinoids into its products.
Kasa wholly owns the Mambe brand of products, which
includes juices, exotic fruits coated with chocolate, chocolate
bars (with non-GMO and Kosher certifications) as well as dried
fruits and pulp from Amazonian fruits. Mambe products are made using organic
and sustainable methods.
Kasa’s juice co-packer operations
are in Rionegro, Antioquia, Colombia, where Kasa produces its
inventory for its business, from fruits and pulps to the RTD 250ml
Juices. Kasa’s chocolate and botanicals co-packers are based in
Bogotá, Colombia, strategically in the center of the country to
attend domestic and international distribution.
Kasa’s main chocolate co-packer
is Casa Luker S.A, with over 110 years in the chocolate business,
and Kasa’s juice co-packer is Hotfill S.A.S, who runs one of the
biggest production (RTD) facilities in the region. Kasa’s two main
clients in Colombia are Jeronimo Martins, with stores and discount
supermarkets, and BBI Colombia S.A.S, with TOSTAO coffeeshops. Kasa
currently has over 1,000 points of sale in Colombia, not including
Tropi. The location of its facilities offers Kasa the opportunity
to distribute high quality, healthy beverages to the entire country
and both ports in the Caribbean and Pacific.
Raw materials comprise mainly
glass, fruits and aluminum. The aluminum for lids and glass for the
250ml bottles comes directly from Peldar O-I (Owen Illinois)
producing glass in Colombia and importing lids from Mexico.
Harvest seasons drops prices of fruit significantly, but Kasa’s
current negotiations have a fixed price for the whole year
supply.
In July 2021, Kasa Wholefoods Company S.A.S.
(“Kasa”) signed an initial one-year sales agreement with
Importaciones y Asesorias Tropi S.A.S. (“Tropi”). Flora expects
this agreement has the potential to generate up to US$10 million
based on today’s exchange and market rates to deliver premium and
sustainable canned products, including products that target the
health benefits of hemp seed oil.
Kasa intends on leveraging this
initial sales agreement with Colombia’s largest CPG distributor to
generate additional sales of its entire product portfolio. On
August 10, 2021, Kasa fulfilled its first order of Tropi valued at
US$1.1M. Tropi has a presence in more than 900 of the 1,122
municipalities across the nation, with more than 40,000 clients and
retail distribution points, spanning 130,000 points of distribution
across 38 cities in Colombia.
In addition, Kasa has developed a
unique blend of organic botanical sexual wellness products designed
to promote sexual arousal and help people enjoy the most of their
sexual experience under the Almost Virgin brand for the Colombian
and North American markets. These product lines are developed
and ready for international distribution.
To market its products, Kasa is
focusing on digital strategies, such as working with influencers,
digital advertising, public relations, social media, paid search
and email marketing to widen reach of its products and brands
through wholesale, retail and e-commerce.
Potential Acquisitions and Strategic Partnerships
Please refer to “Summary—Recent
Developments” for a summary of potential acquisitions and
strategic partnerships that Flora is currently pursuing.
The Global
Cannabis Industry
Expanding Cannabis Market
The global cannabis market is
growing at approximately a 28% compounded annual growth rate (CAGR)
and projected to reach approximately $120B by 2027 globally.
Flora’s initial focus is on selling products in Colombia, the
United States (CBD only), the European Union (“EU”), Australia and
Mexico in the short term, with expansion to other Latin American
countries and Canada , subject to regulatory conditions and import
requirements in such countries. Consumer products, cosmetics and
food and beverage products with a shifting focus away from dried
flower and onto derivatives (extractions, oils, isolates and
finished products) presents the biggest opportunity in the cannabis
market globally. Flora believes that the cannabis market presents a
natural and underutilized opportunity to diversify revenue streams
across business and consumer segments including wholesale,
wellness, beauty, apparel, technology, and food and
beverages.
The rapid growth of the global
cannabis market is attributed by many to be the result of the
positive legislative developments around the globe and increasing
recognition for its use in medicinal and wellness
application.
Colombia
Cosechemos was strategically
selected as Flora’s flagship cultivation site due to the
exceptional growing conditions that are expected to yield low-cost,
premium-quality cannabis. The Colombian market offers a
cultivation environment that we believe yields exceptional growing
conditions including natural spring water, 12.5 hours of natural
daylight, consistent weather and humidity ideal for cannabis. .
Colombia is also one of the world’s top cut flower producing
regions. The skills of its many experienced horticultural workers
are quickly transferable from flowers to cannabis. Additionally,
the cost of agricultural labor in Colombia is less than a
quarter of U.S. labor even with fair labor standards now in
place throughout the industry to ensure safe and respectful working
environments and fair wages.
Serving Colombian local markets and certain countries in Latin
America that have legalized medicinal cannabis and allow for the
importation of CBD-based products, addresses the medicinal cannabis
needs of prospective Colombian patients with conditions potentially
suitable for treatment with medical cannabis.
Beyond Colombia-based cultivation
yields and exceptional growing economics, the broader Colombian
investment environment is equally favorable to Flora.
Colombia is the third largest economy and population (45.5 million)
in Latin America; over the last 10 years, the Colombian economy
grew more than the average growth for Latin America and the
Caribbean.
In addition to serving as an
attractive business environment, Colombia is a reliable
partner. Colombia is considered the closest political and
commercial ally of the United States in Latin America.
Moreover, Colombia has one of the most productive and
highest-skilled manual labor forces available in South
America. Colombia is also a member of the OECD, a sign of
what we believe to be economic stability, transparency and
government discipline.
Colombia has more than 18 trade
agreements worldwide, including with the United States, Canada, and
the European Union, and is a founding member of the Pacific
Alliance Regional trade block. This gives Colombian-based
companies preferential access to more than 65 countries. In
addition, Colombia’s geographic access to global markets and
well-developed infrastructure result in reduced costs and delivery
times according to United Nations, JP Morgan, World Bank. Signed on
November 21, 2008, the Canada-Colombia Free Trade Agreement (FTA)
was the third FTA signed by Canada in 2008 and was Canada’s sixth
FTA with a country in the Americas.
Rest of the
World
While Colombia represents the
largest near-term opportunities with respect to the CBD market,
many other countries around the world are also legalizing medicinal
cannabis at a rapid pace. Australia, Argentina, Brazil,
Chile, New Zealand and South Africa are among countries that have
legalized medical cannabis for certain accepted uses.
Medicinal Cannabis Market
Flora Growth currently serves the
domestic Colombian market and certain countries in Latin America
that have legalized medicinal cannabis and allow for the
importation of CBD-based products. The CBD dominant cannabis
products will mainly be focused on addressing the medicinal
cannabis needs of prospective Colombian patients with conditions
potentially suitable for treatment with medical cannabis. Such
conditions include anxiety, insomnia, anorexia, chronic pain,
epilepsy, chemotherapy-induced nausea and vomiting, post-traumatic
stress disorder (PTSD), Parkinson’s disease, Tourette syndrome,
irritable bowel syndrome (IBS) and spasticity associated with
multiple sclerosis (MS) and spinal cord injury (SCI)1.
Prohibition Partners estimates a
need for medical cannabis production in Colombia to treat pain and
pain symptoms of 4.5 million patients domestically in addition to
noting that 60 million patients in Latin America suffer from
conditions such as cancer, multiple sclerosis and epilepsy. In
Colombia alone, it is estimated that more than 2.2 million people
suffer with chronic pain, some 475,000 suffer post-traumatic stress
disorder and another 520,000 have insomnia.
The market for medicinal cannabis
in Colombia is evolving with limited supply and few
authorized producers of THC dominant cannabis. There are
comparatively more producers of CBD dominant cannabis as production
of CBD cannabis is not subject to the quota system in Colombia.
Although competition in the market is growing, management believes
that we are competitively positioned to capitalize on its early
mover status and satisfy a significant portion of the market’s
demand for medicinal cannabis.
The global cannabis industry is
experiencing significant change as governments embrace regulatory
reform, liberalizing the production and consumption of cannabis. It
is possible that foreign corporations may enter the Colombian
market as a result of Colombia’s regulatory regime, creating the
prospect of Colombia becoming a hub for future industry
development. In addition, we may face new competition with other
licensed cannabis producers offering similar products to our
products.
The possibility that Colombia may
legalize non-medicinal THC cannabis use following the example of
countries such as Uruguay and Canada, which have both recently
legalized adult-use recreational cannabis nationally, could be
a key factor for the Company’s future growth prospects. Flora
will continue to proactively monitor Colombia’s legal cannabis
environment and plan accordingly for any potential changes to the
country’s legal cannabis framework.
Skincare and Beauty Market and the Cosmetics Sector
Part of Flora’s objectives are to
conquer the CBD beauty and wellness markets in the Colombia, North
America and Europe, provide visibility to the quality of the
products that are grown and developed in Colombia, and create
skincare and beauty products that promote well-being and are part
of the beauty routine of the more conscious women. By leveraging
expertise from industry and business leaders and preserve the
traditions of Colombian culture to ensure we develop skincare and
beauty products that match the needs of today’s consumers.
The focus is on selling the Flora
Beauty skincare products in the United States and Colombia in the
short term, with expansion to other Latin American countries,
Canada and Europe, subject to regulatory conditions in such
countries. Presently, each of the United States and Canada
allows for the commercial production and distribution of skincare
products containing CBD. Flora Beauty’s products are already
being sold in Colombia at S.A.C. I. Falabella (“Falabella”) and
online at www.mindskincare.com and www.lifeinô.com. Falabella has retail stores in
large South American countries such as Mexico, Chile, Peru,
Argentina and Colombia and is considered the largest and most
valuable retail company in Latin America.
According to Prohibition
Partners, a leading market intelligence firm on the global cannabis
industry, the beauty industry worldwide generated $524 billion in
revenue in 2019 and is projected to grow to over $800 billion by
2023, making it one of the fastest growing segments in retail. At
the center of it is the United States, which represents $20 billion
in sales and leads the world in trends and brand adoption.
The global CBD skincare market was valued at $710 million in 2018
with projected sales of $959 million by 2024. The sector is likely
to continue to gain credibility with more launches from major
players in the coming years, and, as a result, CBD skincare could
account for around 10% of global skincare sales by 2024.
The cosmetics sector is a growing
market in Colombia and in the world. The director of the Chamber of
the Pharmaceutical and Toiletries Industry of the National
Association of Business of Colombia (ANDI) reported that in 2019
the cosmetics industry represented sales of more than $3.57 billion
in Colombia. Flora Lab anticipates competing with other
manufacturers of dermo-cosmetic products in Colombia as it moves
forward with the execution of its international business
plan.
Pharmaceutical Market and Health Sector
According to the data reported to
the Drug Price Information System, pharmaceutical sales have shown
sustained growth in recent years, although in 2019 it grew at the
lowest rate since 2015. In turn, the units sold rose from
1.06 billion in 2018 to 1.08 billion in 2019, showing a 2%
increase. In 2020, drug makers raised prices on more than 860
drugs by around 5%, on average, according to 3 Axis. Drug price
increases have slowed substantially since 2015, both in terms of
the size of the hikes and the number of drugs affected. Drug
increases come at a time where increased pharmaceutical engineering
has moved to fight COVID-19, with many companies exploring CBD as a
drug to combat COVID-19.
The health sector in Colombia
offers various business opportunities in vaccine and
biotechnological drug production centers, as well as in the medical
cannabis market. Within Flora Lab’s Cronomed product
division’s research and development teams are exploring how
Cronomed’s product line can incorporate CBD-oil to improve the
effectiveness of its products and develop new products using CBD as
an active ingredient. We believe that Colombia has become a
benchmark in this industry as, to our knowledge, one of the first
countries to structure a regulatory framework for the safe and
informed access to the medical and scientific use of the plant and
its derivatives. Furthermore, the chemical sector in Colombia has
adopted several international regulations, such as the Good
Laboratory Practices (GLP) and the Globally Harmonized System
(GHS). In addition, Colombia has implemented its own control
system for substances that could be used for illegal purposes, and
it is currently implementing environmental protection systems such
as the Pollutant Release and Transfer Registry (PRTR).
Despite Colombia’s struggle with
counterfeit medicines and restrictive pharmaceutical pricing
environment, the country’s large and burgeoning population and
recent legislative commitments to improving healthcare access will
continue to offer growth opportunities to drug-makers. Flora
anticipates competing with other manufacturers and distributers of
over-the-counter pharmaceutical products in Colombia, the United
States and Canada as it moves forward with the execution of its
international business plan. Flora Lab’s operations and ability to
compete internationally have benefited from joining due to vertical
integration synergies and access to our management team, board of
directors and advisors as well as capital to grow its
business.
Loungewear and Textiles Market
According to Global Newswire, the
global sleepwear and loungewear market are poised to grow by $19.5
billion during 2020-2024, progressing at a CAGR of 9%.
Moreover, according to Bloomberg, the loungewear market is expected
to reach $47.8 billion by 2025, making it a very interesting market
to focus on. While apparel sells were down in 2020 by 52%,
loungewear sales grew by 22.5%, representing a compound gap of
77.5% according to Forbes. This contrast has made many players turn
their eyes to the loungewear subcategories, such as activewear,
sleepwear and home comfort wear. Some companies in the sector, such
as Alo Yoga, had 40 million in sales on cyber Monday alone.
Lululemon is expected to hit a $50 billion market cap this year and
was listed by the Financial Times as one of the companies that has
had the biggest growth during the COVID-19 pandemic.
While this indicates a strong
interest for loungewear products by consumers, it also indicates
the level of competition that there already is. The clothing and
loungewear in Colombia and the United States is highly competitive
with a few companies sharing a large share of the market, however,
we believe that there is a need in the marketplace for hemp-based
products specifically.
In addition, our loungewear and
textiles business have a degree of seasonality due to the fact that
the fabrics are warm and are designed to be loungewear. To
mitigate any seasonal risk, Hemp Textiles is designing a summer
collection to be suitable for warmer seasons. Nonetheless, in
the retail sector, the e-commerce second semester is typically
stronger than the first semester, in part, due to increased
consumer buying during the holiday season.
Food
and Beverages Market
Kasa’s principal market over the
last three years for its Mambe juices has been in Colombia,
primarily in supermarkets, discount retailers, coffee shops,
restaurants and airports in Bogotá, Colombia, including well-known
Colombian retailers Tostao, Jumbo, Ara, Xue and Sipote Burrito.
Kasa’s products are not subject to strong seasonality concerns in
Colombia.
Kasa intends to expand its
operation and business over the entire Colombia domestic territory
over the next three years and export its portfolio of products to
the United States and Canada. The Almost Virgin brand and Mambe chocolates and juices became
available, without any cannabinoids, in the United States and
Canada during the first quarter of 2021. Kasa intends to
distribute its juices, chocolates and botanicals with CBD, CBN and
CBG in the North American market in 2021, subject to approval from
the U.S Federal Food and Drug Administration. Moreover, Kasa has
already exported initial stock to Montreal and Miami to distribute
with its e-commerce platform the Almost Virgin Sexual wellness product
lines.
In addition, Kasa is aiming to
penetrate the Canadian market with its chocolates, initially
targeting Toronto, Ottawa and Montreal, with its first buyer being
Expod Services de Exportation (based in Montreal). According to
Statista, Canada’s revenue in the confectionery segment amounts to
$9.44 million in 2020. The market is expected to grow annually by
1.8% (CAGR 2020-2025). In global comparison, most revenue is
generated in the United States ($176.01 million in 2020). The
average per capita consumption stands at 24.9 kg in 2020.
With respect to the juice market,
Kasa aims to penetrate the Canadian market and later into the
United States in 2021. According to Statista, global soft
drink revenue amounted to a volume of $667.38 million in 2020. In
global comparison, most revenue is generated in the United States
($280.51 million in 2020).
Kasa’s erotic botanicals also
have very interesting market opportunities in Canada and in the
United States. According to Statista, revenue in the beauty and
personal care market amounts to $77.99 million in 2020. The market
is expected to grow annually by 4.3% (CAGR 2020-2025). The personal
care market experienced a market volume of $36.67 million in 2020.
In global comparison, most revenue is generated in the United
States ($77.99 million in 2020).
Our
Competitive Strengths
The market for medicinal cannabis
in Colombia is characterized by a structural shortage of supply,
with few authorized producers of tetrahydrocannabinol, or THC,
dominant cannabis. There are comparatively more producers of CBD
dominant cannabis as production of Cannabidiol, or CBD, cannabis is
not subject to the quota system in Colombia, which is a system
established by the Colombian government to limit the production
volume of cannabis plants and derivatives. Although competition in
the Colombian market is growing, Flora believes that it is
competitively positioned to capitalize as an early mover and to
satisfy a significant portion of the market’s demand for medicinal
cannabis. Flora also sees a lack of Colombian extractors striving
for EU GMP certification to allow for global distribution of
finished isolates and distillates.
Due to the competitive and
dynamic nature of the emerging cannabis products market and rapid
changes in the regulatory environment, Flora does recognize the
need to remain flexible, so it can react to opportunities and risks
as they develop. Management will continue to re-evaluate and
re-prioritize strategies to respond to these developments. We are
actively fostering a culture of continued agility and exploration
since the ability to pivot depending on market dynamics will
deliver competitive advantage.
Flora’s experienced management team provides a competitive
advantage in the emerging cannabis industry.
Management expects that its
experience and fundamental understanding of Colombia’s regulatory
framework, the agricultural and scientific processes necessary to
develop high quality and consistent medicinal cannabis products
provides the Company with a competitive advantage in the emerging
cannabis industry.
The
Colombian cultivation advantage for the operation of our
business.
Outdoor cannabis cultivation in
Colombia with environmental conditions that allow us to have 5 crop
cycles (harvests) per year, compared to 1-2 in other outdoor
growing countries. This allows Flora to grow cannabis with a
larger output per square foot. Further, according to Bloomberg, the
strength of the US dollar is projected to provide us with a cost
advantage over our competitors, due to each dollar going further in
Colombia as compared to other countries (1 USD = 3,800 Colombian
pesos). In addition, according to Digital Logistics Capacity
Assessments, Colombia has a workforce highly-skilled in agriculture
at only 1/10th
of the cost compared to the United States.
The competitive advantages that
Flora holds in Colombia and the International markets that have
contributed early success are:
Colombia
United States
Production of natural cannabis and derivative products to
capitalize on rapidly growing consumer segments.
Natural and sustainable products
across food and beverage, cosmetics, and medicinal markets are
projected to grow rapidly as consumers prioritize healthy and
sustainable products that are good for themselves, their family,
and their environment.
Integrated structure of synergy within growing operations.
The acquisition of Breeze and
subsequent formation of the Flora Lab division provides turn key
solutions for skincare professionals and innovated by modifying a
business model that already existed but has not been adapted to the
needs of consumers. Flora Lab adopted efficient manufacturing
practices and logistics to meet the doctor’s expectation in terms
of image, product functionality, profitability, minimum quantities
to manufacture and delivery times. 80% of clients are new companies
that cannot find an option in the market to manufacture high
quality cosmetic and dermo cosmetic products. Flora Lab supports
the product design process through specialized technical
assistance. Flora Lab’s
commercial success has been founded in the synergy between its
technical and commercial teams. Technical experts and chemists
oversee the client development portfolio. This approach allows
prospective clients access to product experts that help solve for
specific needs. The team provides firsthand knowledge and support.
This approach has been extremely successful, and the company has
been able to build over a 300+ client portfolio.
Growth
Strategies
Flora’s goal is to become a
market leader in the in the cultivation and processing of natural,
medicinal-grade cannabis and high quality cannabis derived
medical and wellbeing products for large channel distributors,
including pharmacies, medical clinics, and cosmetic companies, by
expanding our production capacity, creating sustainable and natural
products, expanding our geographic footprint, continuing to explore
strategic partnerships and pursuing accretive acquisitions to
supplement our organic growth. These key growth strategies
are set forth below.
Expanding production capacity.
In the near term, our primary
strategy is to expand our production capacity and related
infrastructure to meet existing demand.
Following the successful
cultivation of 100 hectares at the Cosechemos Farm, and subject to
demand, Flora may intend to expand operations by cultivating
non-psychoactive cannabis at the adjacent farmland or through
acquisition of other licensed cannabis producing assets.
Creating Sustainable and Natural Products.
Flora sees sustainable innovation
as key to achieving production objectives, and the main driver to
our product development approach. All Flora Beauty packaging is
designed to be sustainable (for example, utilizing sugar cane
tubing) to help reduce the environmental impact and support
sustainability goals. The Flora Beauty team are also in the process
of achieving Environmental Working Group (“EWG”) certification for
the two Flora Beauty lines. EWG is a non-profit, non-partisan
organization dedicated to protecting human health and the
environment.
Through this strategy of
sustainable and natural product development and packaging, Flora is
committed to manufacturing products that are respectful to the
environment and based on the 4Rs of resources management: Recycle,
Reduce, Replace and Reuse. Flora believes that sustainable
innovation is key to achieve our goal, and the main driver to our
product development approach, which includes creative design,
researching new materials, and increasing awareness about the
lifecycle of our packaging solutions.
Flora Beauty is committed to the
development of products that are natural and sustainable with
ingredients all based in nature and investing in high-quality
packaging with renewable, biodegradable, and recycled materials,
that minimize carbon footprint.
Regulatory
Environment
Flora’s Colombian operations
require receipt of all governmental approvals, licenses and
permits. A summary of such governmental approvals, licenses
and permits are set forth below. Also see “Business—Our Intellectual
Property Portfolio.”
Cosechemos Operations and Cultivation Licenses
Import and
Export Licenses
Cosechemos will be required to
comply with the importation laws, rules and regulations of each
country in which it looks to export its products to.
Cosechemos will need to obtain the ICA (Colombian Institute of
Agriculture) Permit, which is expected in the third quarter of 2021
and quota for export of psychoactive cannabis. Other than approval
from the ICA to register CBD cultivars with the national cultivar
registry, Cosechemos does not need any other licenses or
permissions to commercially cultivate and export CBD-based products
or derivatives from non-psychoactive cannabis outside of
Colombia.
Presently, Argentina, Mexico
Chile, Ecuador, Uruguay, and Peru allow for the importation of
CBD-based products. Discussions with potential partners and
customers are ongoing in these jurisdictions, and Flora will look
to export to these countries during the 2022,
Fuente Semillera License
Up until December 31, 2018, under
article 2.8.11.11.1 of Decree 631 of 2018, licensed cannabis
producers had the right to register before the Colombian
Agricultural Institute (“ICA”) the genetics of any cannabis strain
found in Colombia without having to declare or specify its origin.
This right, known as “Fuente
semillera”, works a mechanism to legalize the sources of
cannabis genetics already existing in Colombia, by allowing
licensees to initiate the formal proceedings before the ICA,
required to register such genetics in the Colombian National Plants
Registry or “Registro Nacional de
Cultivares.” In this sense, each strain registered as
Fuente semillera belongs
to each licensee, giving it the right to grow its own strands of
cannabis as opposed to having to purchase registered strands from
other licensed producers. As of December 31, 2018, Cosechemos
registered 12 varieties as its own Fuente semillera. This
registration enables Cosechemos to grow its own strands of cannabis
as opposed to having to purchase registered strands from other
licensed producers.
Psychoactive
Cannabis Cultivation License
On August 22, 2019, Cosechemos
applied to the Ministry of Justice for a psychoactive cannabis
license (the “Psychoactive Cannabis License”), which authorizes the
cultivation of psychoactive cannabis plants for (i) seeds and
cuttings production; (ii) grain production; (iii) the manufacture
of derivatives; and (iv) scientific research purposes. Besides
cultivation, licensees also have an authorization to store,
commercialize, distribute and transport psychoactive cannabis
plants, as well as dried cannabis flower. Cosechemos obtained
this license on March 1, 2021.
Cannabis
Manufacturing License
On August 14, 2019, Cosechemos
applied to the Ministry of Health and Social Protection (the
“Ministry of Health”) for its cannabis manufacturing license.
Cosechemos has received the cannabis manufacturing license as of
November 9, 2020.
ICA
Permit
Currently, Cosechemos has 12
varieties of medicinal cannabis registered with the ICA and has the
registration as a producer of selected seeds granted by the ICA.
Upon receiving the ICA Permit (eight currently approved),
Cosechemos will commence with commercial cultivation
Commercial planting has commenced
and completed the planting of 5 hectares of non-psychoactive
cannabis at the Cosechemos Farm (the “Stage 1 Grow”).
Following the successful completion of the Stage 1 Grow in the
second quarter of 2021, Cosechemos has expanded operations by
propagating material for an additional 50 acres of non-psychoactive
cannabis.
Non-Psychoactive Cannabis
License
Cosechemos applied for a
non-psychoactive cannabis license (the “Non-Psychoactive Cannabis
License”) on September 6, 2019 and the Ministry of Justice granted
it on May 15, 2019, through Resolution N° 484. The Non-Psychoactive
Cultivation License grants Cosechemos the right to cultivate
non-psychoactive cannabis plants for: (a) grain and seeds
production; (b) manufacturing of derivatives; and (c) industrial
production. The Cannabis Non-Psychoactive Cultivation License does
not require a quota. The license is valid up to 5 years and can be
renewed for additional 5-year terms. The Colombian government
maintains the right to monitor the activities performed by the
corresponding licensee.
Because the Non-Psychoactive
Cannabis License allows Flora to produce and distribute CBD
dominant cannabis oils and derivative products, this provides a
strong base for our operations as the recently established
medicinal cannabis market in Colombia develops and matures, and
opportunities in Colombia’s low THC non-psychoactive cannabis
over-the-counter markets arise. In Colombia, there are
approximately 500 companies with a Non-Psychoactive Cannabis
Cultivation License.
It is important to note that, in
compliance with its international obligations, Colombia establishes
an annual limit for the production volume of cannabis plants and
derivatives, which is monitored by the International Narcotics
Control Board. Based on this limit, the Colombian government
established a quota system, in order to control the amount of
psychoactive cannabis production per license. This means that for
the Psychoactive Cannabis License, licensees must first apply for a
specific crop or manufacturing quota, before beginning production.
Such restriction is not applicable to non-psychoactive cannabis
production, and therefore not applicable to the Non-Psychoactive
Cannabis License. The current operations of Cosechemos do not
require a Cannabis Seeds Possession License, Psychoactive Cannabis
License or a Cannabis Derivatives Manufacturing License.
Compliance and Registrations for our Skincare and Beauty
Products
Flora Beauty manufactures
products under strict international standards. Pursuant to
Colombian law, Flora Beauty is permitted to manufacture, sell and
export beauty and cosmetics products made from CBD and other
natural ingredients. In addition, all of Flora Beauty’s
products are compliant with FDA regulations and manufactured in an
FDA registered lab.
All of Flora Beauty’s
Mind Naturals products are
registered with INVIMA, Colombia’s food and drug regulatory agency.
Currently, Flora Beauty has four licenses from INVIMA for its
products. We have also obtained all the approvals for the O brand
products from INVIMA. Moreover, we are in the process of achieving
certification for the two Flora Beauty lines from the EWG.
Operating License and Registrations for Dermo-Cosmetic
Products
In 2012, Flora Lab focused its
efforts on the construction of its production facility and received
an operating license from INVIMA in November 2012. This operating
license allowed Flora Lab to start the production of cosmetic
products in November 2012. Such license is still valid to
date. In 2013, the manufacturing and commercialization of its
own brand products and third-party products began. Additionally,
each product requires an individual registration called NSO
(obligatory sanitary notification). Flora Lab currently has 22 NSO
and 55 NSO from third parties for which it provides bottling and
packaging services.
Flora Lab is currently
negotiating the acquisition of a GMP-C certified laboratory to
increase its production capacity and to be able to service
international markets in the future.
In addition, Flora Lab intends to
develop a new area at its current laboratory, or a new laboratory,
if purchased, for drug compounding to obtain a BPE cannabis
certification. This certification stands for sterile compounded
drugs and non-sterile compounded drugs (topical, oral, among
others). Flora Lab would be one of the first companies in Colombia
with a BPE cannabis certification to prepare cannabis compounded
drugs. This BPE cannabis certification would allow Flora Lab to
develop and commercialize cannabis medicines in different
pharmaceutical forms, such as drops, ointments, capsules, and
suppositories. These products are already in development and will
begin distribution as soon as the BPE cannabis certification is
attained. Flora Lab intends to apply for the BPE cannabis
certification second quarter of 2021.
Licenses for our Pharmaceutical Products
Cronomed’s portfolio of products
includes thirty one registered brands that position the company and
its brands with the Colombian consumer. From August
2005 to December 2020, Cronomed has applied to the INVIMA for
licenses for distribution and commercialization of Cronomed’s
products. Currently, Cronomed has obtained 41 licenses for its 56
products.
Taking into account the
regulatory entity’s current regulations, pharmaceutical companies
may have one license for several associated brands; for instance, a
food license may be associated with several brands and products. As
a result, for example, the Cronosure brand has one license for two
products (Cronosure Polvo Vainilla and Cronosure Polvo
Fresa).
Sanitary Registers for our Food and Beverages Products
Kasa holds four sanitary
registers of INVIMA for the production and export of its juices and
botanicals, permitting eighteen recipes of juices and three natural
erotic oils for distribution.
Property,
Plants and Equipment
Cultivation Operations
Current cultivation operations
are in Colombia at: (i) the Cosechemos Farm, a
361-hectare property.
Cosechemos
Farm
The Cosechemos Farm is in Giron,
Santander, Colombia. Giron has a tropical rainforest climate
throughout the year with virtually no variation and consistently
receives 12 hours of daylight, year-round, with very little
variability, which is important for cannabis cultivation. In
addition, rainfall is abundant in Giron, which is ideal for
controlling humidity and moisture levels within open-air
greenhouses. Giron’s location and infrastructure are further
well-suited to supply international markets as it is 10 kilometers
from Palonegro International Airport.
The Cosechemos Farm hosts
Cosechemo’s Nursery and Propagation Center, storage warehouse,
technical and administrative offices, employee quarters,
fertilization booth, a water reservoir and the Research Technology
and Processing Center.
Cosechemos leases the Cosechemos
Farm pursuant to a lease agreement (the “Cosechemos Lease”), dated
May 2, 2018, as amended, with C.I. Gramaluz S.C.A. The term
of the Cosechemos Lease is six years and automatically renews for
successive six-year terms. Effective March 1, 2020, Cosechemos pays
approximately $5,800 (COP20,000,000) a month to lease the
Cosechemos Farm. Pursuant to the Cosechemos Lease, Cosechemos
has a right to purchase the Cosechemos Farm at a price to be
determined by an arm’s length third party appraiser from the real
estate association of Bogotá, Colombia.
Cosechemos Farm includes: (i)
area for breeding; (ii) warehouse for hosing of equipment; (iii) a
technical and administrative office; (iv) housing for the technical
team; (v) a fertilization center; (vi) a deep well; (vii) a water
reservoir; and (viii) a research and processing center.
Flora constructed a helicopter
pad that allows individuals or supplies to be moved to and from
Cosechemos Farm. It takes approximately five minutes to fly by
helicopter between Cosechemos Farm and Palonegro
International Airport (IATA: BGA, ICAO: SKBG) located 7
kilometres (4.3 mi) west of Bucaramanga.
Research Technology and Processing Center
Flora has initiated the design and construction, during the
first quarter of 2021, of a Research Technology and Processing
Center, which includes an ethanol biomass extraction filtration and
recovery system, in an area of approximately 12,500 square feet.
The Research Technology and Processing Center will have facilities
to: (i) dry flowers naturally and use drying machines; (ii) a
grinding or milling area; (iii) extraction areas; and (iv) a
phytocannabinoid quality control laboratory, a soil laboratory, a
phytopathology laboratory and a beneficial microorganism
multiplication laboratory. Once completed, and to export to certain
medical cannabis markets (European Union, Israel) it must be
certified to ensure it meets EU-GMP standards. Upon completion
(November 2021) of the construction of the Cosechemos Research
Technology and Processing Center, cannabis will be produced in
accordance with Good Agriculture and Collection Practice (GACP)
Standards with EU-GMP expected in 2022.
The 12,500 square foot Research
Technology and Processing Center is designed to be able to process
Cosechemos’ cultivation of 50 ha. The center is being designed to
be able to scale up to process Cosechemos’ cultivation of up to
100ha. To process 100 ha. of cultivation, the center must be
expanded to be approximately 47,900 square feet. Flora intends to
increase the size of our facility “module by module” over time as
the size of the market for our products increases.
Breeding – Flora
has built a two hectare area for the implementation of the genetic
improvement program and the obtaining of propagation material
(seed, cuttings, in vitro plants), including a greenhouse of 1,520
square meters, open field area (area of crosses and evaluation of
genetic material), reproduction laboratories and tissue culture,
which is estimated to be completed in the fourth quarter of
2021.
Propagation Center
– Flora has completed a 1,512 square meter greenhouse which
has the capacity to produce 23,000 root cuttings weekly. Flora
intends to build another 1,512 square meters of greenhouses early
to mid-2022 capable of supplying 23,000 rooted cuttings per week
from 3,000 mother-plants. The estimated number required to support
a planned 100-hectare cultivation and harvesting operation at the
Cosechemos Farm is 46,000 plants per week (23,000 in each
greenhouse).
The primary function of the
propagation center is to develop and propagate a steady stream of
genetically identically cuttings (clones) that will supply our
cultivation lots, where they will grow into flowering plants that
eventually yield the harvested cannabis flower that is sent for
processing into standardized, medicinal-grade oil extracts at our
planned state-of-the-art oil processing center.
Warehouse – Flora
constructed a 150 square meter warehouse
for the housing and storage of all equipment required at the
Cosechemos Farm during the third quarter of 2021.
Technical and
administrative office – Flora intends to construct a 1,600
square meter office for our technical and administrative team
during the first half of 2022.
Housing for Technical Team
– Flora has constructed a 100 square meter residential
quarters to host its technical team during the second quarter of
2021. Four members of the technical team will reside at the
Cosechemos Farm to ensure that its crops have constant
surveillance.
Fertilization Center
– Flora has constructed three fertilization centers, each
approximately 100 square meters which contain all of the
fertilization infrastructure and equipment needed for the
Cosechemos Farm, including pumping system, filters and automation
tanks.
Each station will be built for 25
hectares of cultivation, starting the first one in the second half
of 2021, the second in the first half of 2022 and the third in the
fourth quarter of 2022.
Deep well – Flora
built a 100 meter deep well during the second quarter of 2021, as
an additional source of water to be stored in the water reservoir
(see below).
Water Reservoir –
Flora intends to construct a 1-hectare water reservoir which shall
have a capacity of approximately 30,000 m3 of
water. The water reservoir will be filled with water from the
underground water aquifer and the deep well during the fourth
quarter of 2021, once we have the deep well running.
Flora
Lab Operations
Flora Lab’s operations are
centralized in Bogotá, Colombia and houses all of its raw materials
and finished products at its 300 square meters warehouse in Bogotá,
Colombia. Flora has an administrative office adjacent to its
warehouse. Other than the warehouse, Flora leases the
warehouse and the administrative office from the Inversiones
Montearroyo Asociados S.A.S. (“Inversiones”).
Cronomed (Flora Lab) entered into
a lease agreement (the “Cronomed Lease”) with Inversiones on April
24, 2019. Pursuant to the Cronomed Lease, Inversiones has
agreed to lease Cronomed an industrial storage facility for a term
of five years, beginning on October 1, 2019 and ending October 1,
2024, for a monthly rent of COP$10,500. The storage facility
consists of two parcels, totaling the surface of 700 square
meters. Cronomed is granted an option to purchase in the
Cronomed Lease.
Flora
Lab Laboratory
Flora Lab Laboratory does the
manufacturing and packaging of Flora Beauty’s products for
distribution in Colombia and the United States, pursuant to a
Residential House Lease Agreement dated January 26, 2021 entered
into with Luz Elvira Garzon (the “Flora Lab Lease”). The term
of the Flora Lab lease is one year, subject to renewals as set
forth therein, for a monthly rent of COP$1,500,000. Due to the
growth of the business, Flora Lab is currently negotiating the
acquisition of a GMP-C certified laboratory to increase its
production capacity and to be able to service international markets
in the future.
Hemp
Textiles Store
Hemp Textiles opened its first
brick and mortar retail store to sell its Stardog Loungewear products in Bogotá,
Colombia in December 2020, pursuant to a Commercial Lease Agreement
(the “Hemp Textiles Lease”) with Piedad Franco Crespo. The
term of the Hemp Textiles Lease is two months, subject to renewals
as set forth therein, for a monthly rent of COP$6,500,000.
“Parque la Colina”, the selected location, is one of the highest
traffic and retail sales generator in Colombia, owned by “Parque
Arauco”, a continental leader in the malls sector.
Our
Intellectual Property Portfolio
We rely on a combination of
trademark, patent, copyright and trade secret protection laws in
Colombia and other jurisdictions to protect our intellectual
property and our brands. We have applied for, and we have received
approvals from INVIMA, for our beauty and skincare, pharmaceutical,
loungewear, and food and beverage products. See “Regulation of our
Industry.” The following tables summarize such approvals and
certificates.
FLORA GROWTH CORP.
FLORA BEAUTY LLC
BREEZE LABORATORY SAS
FLORA LAB SAS
CRONODOL MAX
|
|
Superintendency of Industry and Commerce
|
398866 of 2010 on Nice Class 5 (Pharmaceutical Products)
|
Colombia
|
March 07, 2024
|
CRONODOL MAX
|
|
Superintendency of Industry and Commerce
|
681038 of 2021 on Nice Class 5 (Pharmaceutical Products)
|
Colombia
|
May 10,2031
|
CRONODOL FORTE
|
|
Superintendency of Industry and Commerce
|
488961 of 2014 on Nice Class 5 (Pharmaceutical Products)
|
Colombia
|
March 24, 2030
|
CRONOGRYP ULTRA
|
|
Superintendency of Industry and Commerce
|
681037 on Nice Class 5 (Pharmaceutical Products)
|
Colombia
|
March 19, 2030
|
CRONOSURE
|
|
Superintendency of Industry and Commerce
|
402780 of 2010 on Nice Class 5 (Pharmaceutical Products)
|
Colombia
|
May 25, 2030
|
CRONOTREX
|
|
Superintendency of Industry and Commerce
|
411173 of 2010 on Nice Class 5 (Pharmaceutical Products)
|
Colombia
|
September 28, 2030
|
CRONOZIT
|
|
Superintendency of Industry and Commerce
|
411174 of 2010 on Nice Class 5 (Pharmaceutical Products)
|
Colombia
|
September 28, 2030
|
CROSIMPAR
|
|
Superintendency of Industry and Commerce
|
411175 of 2010 on Nice Class 5 (Pharmaceutical Products)
|
Colombia
|
September 28, 2030
|
DEXIFEM
|
|
Superintendency of Industry and Commerce
|
599383 of 2018 on Nice Class 5 (Pharmaceutical Products)
|
Colombia
|
July 31, 2028
|
DUOMELOC
|
|
Superintendency of Industry and Commerce
|
592108 of 2018 on Nice Class 5 (Pharmaceutical Products)
|
Colombia
|
April 23, 2028
|
DUOPLUS
|
|
Superintendency of Industry and Commerce
|
592107 of 2018 on Nice Class 5 (Pharmaceutical Products)
|
Colombia
|
April 23, 2028
|
ENDOVIT
|
|
Superintendency of Industry and Commerce
|
595743 of 2014 on Nice Class 5 (Pharmaceutical Products)
|
Colombia
|
March 31, 2024
|
ENERBIOVIT
|
|
Superintendency of Industry and Commerce
|
490055 of 2014 on Nice Class 5 (Pharmaceutical Products)
|
Colombia
|
June 22, 2027
|
FERROMINERAL
|
|
Superintendency of Industry and Commerce
|
589837 of 2018 on Nice Class 5 (dietary supplements)
|
Colombia
|
April 3, 2028
|
FILOX36
|
|
Superintendency of Industry and Commerce
|
594262 of 2018 on Nice Class 5 (Pharmaceutical Products)
|
Colombia
|
June 22, 2027
|
FLAXERD
|
|
Superintendency of Industry and Commerce
|
594262 of 2018 on Nice Class 5 (Pharmaceutical Products)
|
Colombia
|
July 31, 2023
|
|
Application
Date
|
Approved
By
|
Certificate
Number
|
Country
|
Validity Period
(with an Option to Renew)
|
FLUMIEL
|
|
Superintendency of Industry and Commerce
|
411562 of 2010 on Nice Class 5 (Pharmaceutical Products)
|
Colombia
|
September 29,
|
FYBERCRON
|
|
Superintendency of Industry and Commerce
|
648911 of 2020 on Nice Class 5 (Pharmaceutical Products)
|
Colombia
|
May 22, 2030
|
GYNECOMB
|
|
Superintendency of Industry and Commerce
|
592105 of 2018 on Nice Class 5 (antifungal cream)
|
Colombia
|
April 23, 2028
|
GASTROBUTINO
|
|
Superintendency of Industry and Commerce
|
569608 of 2017 on Nice Class 5 (digestives for pharmaceutical
use)
|
Colombia
|
June 8, 2027
|
HYPERXET
|
|
Superintendency of Industry and Commerce
|
463683 of 2012 on Nice Class 5 (Pharmaceutical products)
|
Colombia
|
November 29, 2022
|
HYDRACRON
|
|
Superintendency of Industry and Commerce
|
494089 of 2014 on Nice Class 5 (Pharmaceutical Products)
|
Colombia
|
May 28, 2024
|
IMPROTOP
|
|
Superintendency of Industry and Commerce
|
477148 of 2013 on Nice Class 5 (Pharmaceutical Products)
|
Colombia
|
August 14, 2023
|
INFEMOX
|
|
Superintendency of Industry and Commerce
|
477148 of 2013 on Nice Class 5 (Pharmaceutical Products)
|
Colombia
|
August 14, 2023
|
INFLAGEL
|
|
Superintendency of Industry and Commerce
|
486607 of 2012 on Nice Class 5 (Pharmaceutical Products)
|
Colombia
|
November 28, 2022
|
INFLEDOL
|
|
Superintendency of Industry and Commerce
|
498918 of 2014 on Nice Class 5 (Pharmaceutical Products)
|
Colombia
|
August 11, 2024
|
LESFLIS
|
|
Superintendency of Industry and Commerce
|
546101 of 2018 on Nice Class 5 (Pharmaceutical Products)
|
Colombia
|
December 14, 2026
|
MAXERIL
|
|
Superintendency of Industry and Commerce
|
494916 of 2014 on Nice Class 5 (Pharmaceutical Products)
|
Colombia
|
June 10, 2024
|
METROFUROX
|
|
Superintendency of Industry and Commerce
|
598965 of 2018 on Nice Class 5 (medicine)
|
Colombia
|
July 25, 2028
|
MUCOCISTEIN
|
|
Superintendency of Industry and Commerce
|
54921 of 2018 on Nice Class 5 (Pharmaceutical Products)
|
Colombia
|
August 01, 2028
|
MUCOTAPP
|
|
Superintendency of Industry and Commerce
|
59595 of 2018 on Nice Class 5 (Pharmaceutical Products)
|
Colombia
|
August 17, 2028
|
NASORYL
|
|
Superintendency of Industry and Commerce
|
494091 of 2014 on Nice Class 5 (Pharmaceutical Products)
|
Colombia
|
May 28, 2024
|
NATURE’S FOOD
|
|
Superintendency of Industry and Commerce
|
467870 of 2013 on Nice Class 35 (business services)
|
|
|
OTOMYC
|
|
Superintendency of Industry and Commerce
|
492450 of 2014 on Nice Class 5 (Pharmaceutical Products)
|
Colombia
|
April 30, 2014
|
SILDECRON
|
|
Superintendency of Industry and Commerce
|
598583 of 2014 on Nice Class 5 (Pharmaceutical Products)
|
Colombia
|
June 27, 2024
|
SOLKREM ULTRA
|
|
Superintendency of Industry and Commerce
|
464794 of 2012 on Nice Class 5 (Pharmaceutical Products)
|
Colombia
|
November 21, 2022
|
URIFLOX
|
|
Superintendency of Industry and Commerce
|
631481 of 2019 on Nice Class 5 (Pharmaceutical Products)
|
Colombia
|
October 26, 2029
|
TRICASP CHAMPU
|
|
Superintendency of Industry and Commerce
|
592105 of 2018 on Nice Class 5 (medical shampoos)
|
Colombia
|
April 23, 2028
|
TOXEDRA
|
|
Superintendency of Industry and Commerce
|
407903 of 2010 on Nice Class 5 (Pharmaceutical Products)
|
Colombia
|
August 11, 2030
|
|
|
|
|
|
|
FLORA LAB
HEMP TEXTILES & CO
SAS
KASA WHOLEFOODS COMPANY
SAS
Employees
As of June 30, 2021, we had a total of 192 full time employees
in Columbia and 20 consultants in North America.
REGULATION
OF OUR INDUSTRY
Regulatory
Framework in the United States
Packaging, Labeling and Advertising
The processing, formulation,
manufacturing, packaging, labeling, advertising and distribution of
our products are subject to federal laws and regulation by one or
more federal agencies, including the FDA, the FTC, HHS, the USDA
and the United States Environmental Protection Agency (the “EPA”).
These activities are also regulated by various state, local and
international laws and agencies of the states and localities in
which our products are sold. Regulations may prevent or delay the
introduction, or require the reformulation, of our products, which
could result in lost sales and increased costs to the Company. A
regulatory agency may not accept the evidence of safety for any new
ingredients that we may want to market, or may determine that a
particular product or product ingredient presents an unacceptable
health risk. Regulatory agencies may also determine that a
particular statement of nutritional support on our products, or a
statement that we want to use on our products, is an unacceptable
drug claim or an unauthorized version of a food “health claim,” or
that particular claims are not adequately supported by available
scientific evidence. Any such regulatory determination could
prevent us from marketing particular products or using certain
statements on those products, which could adversely affect our
sales and results of operations.
Developments in the laws and
regulations governing our products may result in a more stringent
regulatory landscape, which could require reformulation of certain
products to meet new standards, recalls or discontinuance of
certain products that we are unable to reformulate, additional
record-keeping requirements, increased documentation of the
properties of certain products, additional or different labeling
requirements, additional scientific substantiation requirements,
and other requirements or restrictions. Such developments could
increase our costs significantly, which could have a material
adverse effect on our business, financial condition and results of
operations.
Cannabis for Medical Purposes
The United States healthcare
industry is heavily regulated and closely scrutinized by federal,
state and local governments. Comprehensive statutes and regulations
govern the manner in which we will provide and bill for telehealth
services, our contractual relationships with our providers, vendors
and clients, our marketing activities, and other aspects of our
planned operations. Of particular importance are:
Failure to comply with these laws
and other laws can result in civil and criminal penalties such as
fines, damages, overpayment, recoupment, imprisonment, loss of
enrollment status and exclusion from the Medicare and Medicaid
programs. The risk of our being found in violation of these laws
and regulations is increased by the fact that many of them have not
been fully interpreted by the regulatory authorities or the courts,
and their provisions are sometimes open to a variety of
interpretations. Our failure to accurately anticipate the
application of these laws and regulations to our business or any
other failure to comply with applicable regulatory requirements
could impose liability on us and negatively affect our business.
Any action against us for violation of these laws or regulations
could cause us to incur significant legal expenses, divert our
management’s attention from business operations, and result in
adverse publicity.
The laws, regulations and
standards governing the provision of healthcare services may change
significantly in the future. We cannot assure you that any new or
changed healthcare laws, regulations or standards will not
materially adversely affect our planned telehealth services
business.
Regulatory
Framework in Colombia
Our cultivation operations are in
Colombia and are carried out through Cosechemos. As a cultivator of
non-psychoactive, psychoactive cannabis and manufacturer of
cannabis derivatives, the Company is substantially dependent on the
licenses for cultivation, production and other regulatory
activities granted to Cosechemos.
Over the past 50 years, Colombia
has developed comprehensive regulation that took a hardline
approach to narcotics and trafficking in response to the growing
influence of international treaties and the efforts of governments
to coordinate their drug policies. In the mid-1990s, Colombia
decriminalized the personal possession and consumption of cannabis
under Constitutional Court Ruling C-221 of 1994. While this
represented a shift in approach by Colombian lawmakers, a
constitutional amendment through Legislative Act 02 of 2009
reversed the effects of Ruling C-221 of 1994 and reinstated the
prohibition on personal possession and consumption of narcotic or
psychotropic substances, even on a personal dose basis, unless
supported by a medical prescription.
Despite the constitutional
amendment in 2009, Colombian cannabis legislation trended towards a
preventative and rehabilitative approach. The Constitutional Court
of Colombia, through rulings SU-642 of 1998 and C-336 of 2008,
among others, established that the right to the free development of
personality, also known as the right to autonomy and personal
identity, grants individuals the right to self-determination, the
freedom and independence to govern his/her own existence and
determine a lifestyle according to his/her own interests; provided,
that the rights of others and the constitutional order are
respected.
In January 2013, the Advisory
Commission on Drug Policy (the “Drug Policy Commission”) was
established to provide recommendations on how legislation should
treat criminal networks and citizen drug users, as well as the
quantities to be considered as suitable personal amounts. In July
2014, the Drug Policy Commission issued an initial report submitted
to the Ministry of Justice analyzing the conditions of drug use in
Colombia and proposing guidelines to update the policy.
In May 2015, the Drug Policy
Commission published its final report, which proposed a review of
the drug policy in the country and made important recommendations,
such as: (i) the creation of an agency for drug policy; (ii)
measures to help reduce the risk to consumers; (iii) to rethink the
fumigation involved with cultivation; (iv) regulation of medicinal
cannabis; (v) alternative means of measuring the success of
policies against drugs; (vi) modernize the National Statute on
Drugs and Psychoactive Substances; and (vii) to lead the global
drug policy debate.
As a result of the final report
of the Drug Policy Commission, the Colombian President
approved and sanctioned Law 1787 of 2016 to regulate the use of
cannabis for therapeutic purposes. The law marked a new direction
in the legislative approach to drugs. Law 1787 amended articles
375, 376 and 377 of the Colombian Penal Code (the "Penal Code") to
eliminate penalties against the medical and scientific use of
cannabis used under a license granted by the competent authorities.
This amendment was necessary since the Penal Code expressly
provided for a general prohibition on the cultivation, conservation
or financing of marijuana plantations among other related
activities.
The following table summarizes
the regulations applicable to the cultivation, manufacture, import,
export and use of cannabis in Colombia.
Licences
The Ministries of Health, Justice
and Agriculture issued Decree 613 of 2017 to define the licenses
that can be granted with respect to permitted activities related to
medical cannabis that include:(i)the production of cannabis
derivatives; ii) use of seeds for sowing; (iii) the planting of
psychoactive cannabis plants; and (iv) plant non-psychoactive
cannabis plants.
Apart from a psychoactive
cannabis license, Cosechemos has obtained licenses in each of
the above categories, necessary to carry out its operations.
Licences are not transferable, interchangeable or assignable and
are valid for five years and may be renewed for additional periods
of five years upon request. Each of the licenses is up-to-date and
has not expired. None of the Licenses is subject to current,
pending or committed regulatory action.
Magistral Preparations
We intend to produce a category
of products known as cannabis extemporaneous (magistral)
preparation, , previously regulated by Decree 613 of 2017 and now
by Decree 811 of 2021 and Decree 2200 of 2005. Extemporaneous
(magistral) preparations are personalized prescription products
that do not require a sanitary license for the product but rather
for the establishment that produces the product. As they are not
mass market products, but exclusively for a patient, these
must be prepared by a licensee in an establishment that complies
with the standards of Good Manufacturing Practices (BPE). For the
sale and distribution of these medicines in Colombia, it is
necessary to comply with the Guidelines for GMP certification for
Extemporaneous (Magistral) Preparations with Cannabis issued on
October 25, 2019 by INVIMA. We are required to operate, or have an
agreement with, a laboratory that is certified according to GMP for
extemporaneous (magistral) preparations with cannabis.
Strains registration
Cosechemos has varieties of
cannabis in various stages of the registration process. Each
strain, whether high or low in THC, must undergo an agronomic
evaluation by the agricultural health entity -
Colombian Agricultural Institute (ICA). In
order for strains to be included in the National Cultivar Registry,
the following steps must be completed:(i) Genetic Stabilization;
(ii) Agronomic Test; (iii) Phase 1 strain registry (legal document
that allows the license to enter a strain in the registry); and
(iv) Strain registration phase 2 (registration that allows the
licensee to market any cannabis product derived from the specific
strain in the registry). The harvest is also in the process of
agronomic evaluation of additional strains. Based on the yields of
each strain, as determined by agronomic testing, "COSECHEMOS YA"
may decide to register fewer strains than available. The decision
to complete the registration process of a strain will depend on
several factors, from biomass yields, cannabinoid profile, average
cannabinoid content, resistance to pests among others as determined
by agronomic tests, and the intended uses by the company.
Cosmetic Regulations
The Company's business also
includes the manufacture and marketing of cosmetics, including some
with Cannabidiol (CBD) in Colombia. Cosmetic products in Colombia
are regulated by regulations issued by the Andean Community of
Nations.
The relevant regulations in
health regulatory matters for Cosmetic Products are the
following:
In Colombia, cosmetics must
undergo a registration process called Mandatory Sanitary
Notification (NSO), which is supervised by INVIMA, prior to
marketing. Applicable regulations establish requirements related to
labeling, manufacturing facilities, and product composition. The
general Colombian regulatory framework on specific cannabis issues
limits the manufacture of products with cannabis derivatives with a
maximum of 1% THC (psychoactive component) but that the product
must demonstrate and comply with the respective international
regulations with contents below 03% or 0.2% THC.
Ingredients in the list of
accepted ingredients of the Personal Care Products Council (PCPC)
in the United States of America, Cosmetic ingredient database
CosIng in the European Commission database for information on
cosmetic substances and Cosmetic products marketed in the Andean
Subregion must comply with the international lists of ingredients
below that may or may not be incorporated into cosmetic products
and their corresponding functions and restrictions or conditions of
use.
Our Executive Officers and
Directors
The following
table sets forth the names, ages and positions of our executive
officers and members of our Board of Directors as of the date of
this prospectus. The business address of all of persons
identified below is 198 Davenport Road, Toronto, Ontario M5R 1J2
Canada.
Biographical
Information
The following is a summary of
certain biographical information concerning our executive officers
and directors.
Luis Merchan, President,
Chief Executive Officer and Director: Mr. Merchan is a proven executive
with over 10 years of experience in enterprise sales management
from industry-leading consumer package goods companies. Mr.
Merchan has a background in corporate strategy, merchandising,
expense management, and customer experience. Mr. Merchan has
served as the President – Consumer Good (which was subsumed by the
President and Chief Executive Officer roles) and Director of the
Company since July 2020. From January 2020 to July 2020, Mr.
Merchan served as Vice President of Workforce Strategy and
Operations for Macy’s Inc. (“Macy’s”), where he managed the
enterprise’s profit and loss expense line for its 540-store
portfolio. Throughout Mr. Merchan’s 10-year tenure at Macy’s,
Mr. Merchan led various sales and marketing initiatives, including
the B2B corporate sales team that was responsible for $160 million
in annual revenue and 15% year over year growth. Prior to Mr.
Merchan’s most recent role, Mr. Merchan held various
executive-level roles at Macy’s. From January 2019 to December
2019, Mr. Merchan served as VP of Customer Experience and Selling
Support Services. From January 2017 to January 2019, Mr. Merchan
served as Group VP National Merchandising and Sales – Beauty. From
June 2013 to December 2016, Mr. Merchan served as VP Regional
Merchandise Execution. Mr. Merchan obtained his Bachelor of
Industrial Engineering from Pontifical Xaverian University in
Bogota, Colombia and his MBA from McNeese State University.
Mr. Merchan also holds a Graduate Certificate in Marketing
Management from Harvard University.
Lee Leiderman, Chief
Financial Officer: Mr. Leiderman started his career at
PricewaterhouseCoopers and held
several corporate positions within Philip Morris
International, Caterpillar and RR Donnelley, gaining substantial
financial management experience for U.S.-listed public
companies. From April 2016 to May 2019,
Mr. Leiderman served as the Chief Accounting Officer
at OSI Group, and from May 2020 to June 2021, he served as the
CFO of Nurture Life Inc. He has an extensive background with over
25 years of experience, which includes public and
private companies, mergers and acquisitions, transfer
pricing, and investment analysis. Mr. Leiderman also
has broad experience with fast-paced growth companies and
infrastructure creation, having managed the financial teams for
many successful international and domestic companies. Mr.
Leiderman is a CPA with a BA in Accounting and
International Business from Susquehanna
University.
Jason Warnock, Chief
Revenue Officer: Mr. Warnock is an accomplished global sales
leader and executive, bringing more than 20 years of experience
driving revenue growth and go-to-market strategy for high-profile,
Fortune 500 brands. Mr. Warnock has spent the last 15 years in the
cannabis, competitive advertising, communications, and emerging
technology fields where his work focused on building companies and
brands from the ground up, working on strategic mergers and
acquisitions, and creating sustainable, resonant financing and
marketing campaigns. Prior to joining Flora, Mr. Warnock was the
Chief Executive Officer (CEO) of TheraCann Internatioal Benchmark
Corporation a global logistics, technology and cannabis management
software company from March 2017 to September 2019. Before
TheraCann, he was the CEO of Post+Beam from June 2007 to December
2016, an international communications, innovation and marketing
firm. Mr. Warnock has been a leader in sustainable practices and
design from his earlier work as a Director with the architectural
division of Hunter Douglas (January 2002 – June 2007) where he also
chaired the Education and Events committee, Special Programs
working group and Education Steering committee for the United
States Green Building Council (USGBC). He is experienced in
delivering consistent and sustainable business results for numerous
consumer packaged goods (“CPG”) companies, developing
high-performing teams and effective marketing communications.
James Williams, VP
Corporate Development: Mr. Williams is a corporate finance
and business development specialist who has spent the previous
three years focused on driving corporate M&A and revenue
opportunities within the regulated cannabis eco-system. Most
recently, Mr. Williams was the Founder of Cannabis Manufacturers
Guild in January 2020, a business solutions trade association for
the cannabis space and has built an extensive network in the global
cannabis industry. Prior to that, he worked with WeedMD Rx as
Director of Capital Markets and Business Development focusing on
capital raising and M&A analysis from April 2019 to January
2020. Before entering the corporate cannabis space, Mr. Williams
specialized in cannabis securities at Laurentian Bank and has
worked in investment banking for 10 years including time at
Barclays Securities (July 2011 - August 2014) and UBS Investment
Bank (September 2014 - November 2016). Mr. Williams graduated with
a BBA from Wilfrid Laurier University, with a Minor in Economics in
August 2011. In 2013, Mr. Williams completed his Certified Market
Technician certification to become a CMT.
Javier Franco, VP
Agriculture: Mr.
Franco is a master horticulturist with over 25 years of experience
in the design, implementation and management of cultivation and
propagation facilities for flowering plants in Latin America,
mainly Colombia and Ecuador. Mr. Franco speaks English and Spanish
fluently and obtained his agricultural studies at Zamorano
University in Honduras and later an International Exchange Program
at Ohio State University. Mr. Franco has managed technical,
commercial and research groups in flower, fruit and vegetable
markets in Latin America, and has participated in the commercial
development of new technologies applied in agro-industry.
From 2015 to present, Mr. Franco has been the director of
agriculture for Tecnoviv SAS in Colombia.
Damian Lopez, VP Strategy
& Legal: Mr. Lopez has over 10 years of experience
working in the Latin American market, including corporate finance,
mergers and acquisitions and go-public transactions. In
addition, Mr. Lopez is a corporate securities lawyer who has worked
with various Canadian and US publicly listed companies in the
technology, resources and cannabis industries. Mr. Lopez served as
the President, Chief Executive Officer and Director of the Company
from March 2019 to December 2020. From May 2016 to January 2019,
Mr. Lopez served as the President, Chief Executive Officer, and
Director of Valencia Ventures Inc., a Canadian resource
company. Since August 2015 to the present, Mr. Lopez is legal
counsel and corporate secretary of a number of Canadian public
companies. From September 2011 to July 2015, Mr. Lopez was a
Corporate Associate at Stikeman Elliott LLP, a law firm
specializing in corporate and securities law. Mr. Lopez is fluent
in English and Spanish and obtained a Juris Doctor from Osgoode
Hall Law School and a Bachelor of Commerce & Finance from the
University of Toronto.
Matthew Cohen, VP U.S.
Legal and Business Affairs: Mr. Cohen is a corporate
and securities lawyer with over 25 years’ experience representing
both public and private companies throughout all phases of their
corporate life cycle. From October 2018 to January 2020, Mr.
Cohen served as General Counsel, and from March 2018 to October
2018 he served as Corporate Counsel to Playa Hotels & Resorts,
NV (Nasdaq: PLYA), the owner and operator of all-inclusive hotels
throughout Mexico and the Caribbean. Between August 2014 and
August 2017, he served as General Counsel for the following
companies: Ominto Inc., engaged in the online, cash-back business;
Harbor Village, Inc., a privately-owned substance abuse treatment
provider; and Stratex Oil & Gas, Inc., an oil and natural
gas exploration and production company. From 2012 through 2014,
Mr. Cohen was a Shareholder in the law firm of Buchanan
Ingersoll & Rooney PC. From 2008 through 2012, he was a
Partner in the law firm of Thompson & Knight LLP and from
2001 through March 2008, he served as a Partner of Eaton &
Van Winkle, LLP. Mr. Cohen graduated from Emory University
with a Bachelor of Arts and earned his Juris Doctor from Brooklyn
Law School.
Dr. Bernard Wilson,
Chairman: Dr.
Wilson is a senior financial professional since July 1975. He is
the former Vice-Chairman of PriceWaterhouseCoopers LLP (June 2002 –
June 31, 2005) and Chairman of the Founders Board of the Institute
of Corporate Directors (January 2002 – December 2005). Mr. Wilson
has served as Chairman of the Canadian Chamber of Commerce (January
1991 – December 1991); Chairman of the International Chamber of
Commerce – Canada (January 1991 – December 1991); and Member of the
Canada/US Trade Committee (January 1988 – December 1991). Mr.
Wilson is currently a director of a number of other public Canadian
companies. Drawing on his experience as Chairman of the Founders
Board of Institute of Corporate Directors, as Lead Director, Mr.
Wilson will work with the Company’s Board of Directors and its
various standing committees to ensure effective corporate
governance practices and to enhance and protect the independence of
the Board.
Dr. Beverley Richardson,
Director: Dr.
Richardson is a renowned psychotherapeutic practitioner whose
collaborative efforts and clinical influence are reflected in some
of the most compelling and effective addiction and behavioral
health programs in North America, which include: Sierra Tucson
(Arizona), the Meadows (Arizona) and Betty Ford Center
(California). She has a Doctorate Degree in Psychology and is a
B.C. Registered Clinical Counsellor, Internationally Certified
Eating Disorders Specialist, and EMDR Level II Trauma Therapist.
Dr. Richardson has integrated her extensive experience in health
and wellness with her entrepreneurial spirit to form her
nutraceutical and bioscience research and development
enterprises.
From each of September 2020,
March 2013, and October 2009 to the date hereof, Dr. Richardson
respectively served as: (i) the Vice President of International
Business at Phytorigins Botanicals Ltd., a Canadian biotech
company, (ii) the Vice President of Science (Research and
Development) at Phytology Nutraceuticals Ltd., a Canadian company
focused on the manufacturing and sales of plant based medicines and
psychoactive therapeutics, (iii) the managing director of Peyto
Enterprises Ltd., a British Columbia company that Dr. Richardson
founded operating in the lifestyle industry, and (iv) the managing
director of Legacies Advisory Group Inc., a British Columbia
consultant agency that Dr. Richardson founded which provides
expertise in the planning, development and execution of addiction,
behavioural health and wellness programs. Dr. Richardson obtained
her Bachelor of Science from the University of Toronto, Master of
Science from the University of Pennsylvania, and Doctor of
Psychology from California Southern University, graduating
magna cum laude.
Juan Carlos Gomez Roa,
Director: Mr.
Gomez has more than 20 years of experience working in Latin America
in the gaming and entertainment industry. Mr. Gomez has been
the Chief Executive Officer of Winner Group CIRSA since January
2000 and participated in the acquisition of Winner Group CIRSA by
the Blackstone Group in April 2018. He has a Bachelors Degree
in Psychology from St. Thomas University in Colombia. Mr. Gomez is
a director of several private companies in Colombia.
Dr. Annabelle
Manalo-Morgan, Director: Dr. Annabelle is a scientist,
educator, author, mother of five, and a respected key opinion
leader. She is a cell and developmental biologist
from Vanderbilt University in Nashville,
Tennessee, with a background in neuroscience
from Georgetown University. She earned her PhD in Cell and
Developmental Biology with a focus in Cardio-Oncology and has since
become a philanthropist and entrepreneur focused on pharmaceutical
innovation and clinical trial research in medical cannabis.
Currently, Dr. Manalo-Morgan has been the founder and Chief
Scientific Officer at Masaya Medical, Inc. since 2019 and has
served as the lead scientist at Medolife Rx since 2018.
Marc Mastronardi,
Director: Mr.
Mastronardi has been the Chief Stores Officer of Macy’s since
February 2020. Prior to his current role, Mastronardi has
held multiple roles at Macy’s since March 2014, including Macy’s
Senior Vice President of Store Operations and Customer Experience,
where he was responsible for enterprise-wide store operations,
sales and customer service. Mastronardi has also led multiple
functions within the organization responsible for the creation and
expansion of new business concepts, leased partnerships and
diverse, owner-led businesses. Mastronardi currently serves on the
board of Delivering Good, NYC, the executive committee of the
Fashion Scholarship Fund, and is the executive sponsor of the
Macy’s Working Families Employee Resource Group.
Involvement in
Certain Legal Proceedings
To our knowledge, none of our
current directors or executive officers have, during the past ten
years:
We are not currently a party to
any legal proceedings, the adverse outcome of which, individually
or in the aggregate, we believe will have a material adverse effect
on our business, financial condition or operating results.
Composition of
our Board of Directors
Our business and affairs are
managed under the direction of our Board of Directors. Our Board of
Directors is currently comprised of six directors. When considering
whether directors have the experience, qualifications, attributes
or skills, taken as a whole, to enable our Board of Directors to
effectively satisfy its oversight responsibilities in light of our
business and structure, the Board of Directors focuses primarily on
each person’s background and experience as reflected in the
information discussed in the directors’ respective biographies set
forth above. We believe that our directors provide an appropriate
mix of experience and skills relevant to the size and nature of our
business.
Corporate
Governance Practices
We are a “foreign private issuer”
under the federal securities laws of the United States and the
NASDAQ listing standards. Under the federal securities laws of the
United States, foreign private issuers are subject to different
disclosure requirements than U.S.-domiciled registrants. We intend
to take all actions necessary for us to maintain compliance as a
foreign private issuer under the applicable corporate governance
requirements of the Sarbanes-Oxley Act, the rules adopted by the
SEC and the NASDAQ listing standards.
Under the SEC rules and the
NASDAQ listing standards, a foreign private issuer is subject to
less stringent corporate governance requirements. Subject to
certain exceptions, the SEC and the NASDAQ permit a foreign private
issuer to follow its home country practice in lieu of their
respective rules and listing standards. Following our home country
governance practices, as opposed to the requirements that would
otherwise apply to a company listed on NASDAQ, may provide less
protection than is accorded to investors under the NASDAQ Rules
applicable to U.S. domestic issuers.
The Canadian securities
regulatory authorities have issued corporate governance guidelines
pursuant to National Policy 58-201—Corporate Governance Guidelines (the
“Corporate Governance
Guidelines”), together with certain related disclosure
requirements pursuant to National Instrument 58-101—Disclosure of Corporate Governance
Practices. The Corporate Governance Guidelines are
recommended as “best practices” for issuers to follow. We recognize
that good corporate governance plays an important role in our
overall success and in enhancing shareholder value and,
accordingly, we have adopted, or in connection with the closing of
this offering will adopt, certain corporate governance policies and
practices which reflect our consideration of the recommended
Corporate Governance Guidelines.
In particular, as a foreign
private issuer, in accordance with and pursuant to the authority
contained in NASDAQ Listing Rule 5615(a)(3), we follow
certain Canadian law and corporate practice in lieu of certain
corporate governance provisions set out under the NASDAQ
Rule 5600 Series, the requirement in Listing
Rule 5250(b)(3) to disclose third party director and nominee
compensation, and the requirement in Listing Rule 5250(d) to
distribute annual and interim reports. Of particular note, the
following rules under the NASDAQ Listing Rule 5600 Series
differ from Canadian law requirements:
Board
Leadership Structure and Risk Oversight
The Board oversees our business
and considers the risks associated with our business strategy and
decisions. The Board currently implements its risk oversight
function as a whole. Each of the Board committees will also provide
risk oversight in respect of its respective areas of concentration
and reports material risks to the Board for further
consideration.
Term of
Office
Each of our officers holds office
until his or her successor is elected and qualified. Directors are
appointed to serve for one year until the meeting of the Board
following the annual meeting of shareholders and until their
successors have been elected and qualified.
Family
Relationships
There are no familial
relationships among any of our directors or officers.
Board
Committees
Audit
Committee
Our audit committee is responsible for, among other things: