C21 Investments Inc 6-K, filed Jun 30, 2023
C21 Investments Inc. (CWLXF)
About this 6-K
C21 Investments Inc filed this 6-K on June 30, 2023.
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 6-K
REPORT OF FOREIGN PRIVATE ISSUER PURSUANT TO RULE 13a-16
OR 15d-16
UNDER THE SECURITIES EXCHANGE ACT OF 1934
For the month of June, 2023
Commission File Number: 000-55982
C21 Investments Inc.
(Translation of registrant's name into English)
Suite 1900-855 West Georgia St., Vancouver, BC, V6C 3H4
(Address of principal executive offices)
Indicate by check mark whether the registrant files or will file annual reports under cover Form 20-F or Form 40-F.
[ x ] Form 20-F [ ] Form 40-F
Indicate by check mark if the registrant is submitting the Form 6-K in paper as permitted by Regulation S-T Rule 101(b)(1): [ ]
Indicate by check mark if the registrant is submitting the Form 6-K in paper as permitted by Regulation S-T Rule 101(b)(7): [ ]
SUBMITTED HEREWITH
Exhibits
| 99.1 | Q1 Interim Financial Statements for April 30, 2023 | |
| 99.2 | Q1 MD&A for April 30, 2023 | |
| 99.3 | CEO Certification | |
| 99.4 | CFO Certification | |
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.
| C21 Investments Inc. | ||
| (Registrant) | ||
| Date: June 29, 2023 | By: | /s/ Michael Kidd |
| Michael Kidd | ||
| Title: | CFO | |
|
For the three months ended April 30, 2023 and 2022 (Expressed in U.S. Dollars) |
Notice of Disclosure of Non-auditor Review of the Interim Condensed Consolidated Financial Statements for the Three Months Ended April 30, 2023 and 2022.
Pursuant to National Instrument 51-102 Continuous Disclosure Obligations, part 4, subsection 4.3(3)(a) issued by the Canadian Securities Administrators, if an auditor has not performed a review of the interim financial statements, they must be accompanied by a notice indicating that the interim financial statements have not been reviewed by an auditor.
The accompanying unaudited interim condensed consolidated financial statements of C21 Investments Inc. for the interim periods ended April 30, 2023 and 2022, have been prepared in accordance with accounting principles generally accepted in the United States of America and are the responsibility of the Company's management.
The Company's independent auditors, Marcum LLP, have not performed a review of these interim condensed consolidated financial statements.
June 29, 2023
C21 INVESTMENTS INC.
Interim Condensed Consolidated Balance Sheets
(Expressed in U.S. dollars)
| April 30, 2023 |
January 31, 2023 |
|||||
| $ | $ | |||||
| ASSETS | ||||||
| Current assets | ||||||
| Cash | 1,827,829 | 1,891,772 | ||||
| Receivables | 655,297 | 412,310 | ||||
| Inventory | 3,514,426 | 4,173,573 | ||||
| Prepaid expenses and deposits | 710,190 | 881,628 | ||||
| Assets classified as held for sale | 1,300,251 | 1,383,089 | ||||
| 8,007,993 | 8,742,372 | |||||
| Non-current assets | ||||||
| Property and equipment | 4,219,395 | 4,685,118 | ||||
| Right-of-use assets | 8,257,643 | 8,385,533 | ||||
| Intangible assets | 7,520,240 | 7,886,825 | ||||
| Goodwill | 28,541,323 | 28,541,323 | ||||
| Security deposit | 47,436 | 46,871 | ||||
| Deferred tax asset | 23,362 | 23,362 | ||||
| Total assets | 56,617,392 | 58,311,404 | ||||
| LIABILITIES | ||||||
| Current liabilities | ||||||
| Accounts payable and accrued liabilities | 2,611,635 | 2,921,426 | ||||
| Convertible promissory notes | 1,156,259 | 1,156,259 | ||||
| Promissory note payable | 1,013,333 | 2,026,667 | ||||
| Income taxes payable | 8,329,284 | 7,736,858 | ||||
| Deferred revenue | 200,062 | 94,068 | ||||
| Lease liabilities - current portion | 418,402 | 398,723 | ||||
| Liabilities classified as held for sale | 417,325 | 640,266 | ||||
| 14,146,300 | 14,974,267 | |||||
| Non-current liabilities | ||||||
| Lease liabilities | 8,439,799 | 8,554,702 | ||||
| Deposit liability | 75,000 | 175,000 | ||||
| Derivative liability | 47,872 | 239,700 | ||||
| Reclamation obligation | 51,775 | 52,659 | ||||
| Total liabilities | 22,760,746 | 23,996,328 | ||||
| Commitments and contingencies (Notes 17 and 20) | ||||||
| Subsequent event (Note 23) | ||||||
| SHAREHOLDERS' EQUITY | ||||||
| Common stock, no par value; unlimited shares authorized; 120,047,814 and 120,047,814 shares issued and outstanding as of April 30, 2023 and January 31, 2023, respectively | 105,451,299 | 105,445,792 | ||||
| Commitment to issue shares | 628,141 | 628,141 | ||||
| Accumulated other comprehensive loss | (2,280,037 | ) | (2,287,145 | ) | ||
| Deficit | (69,942,757 | ) | (69,471,712 | ) | ||
| Total shareholders' equity | 33,856,646 | 34,315,076 | ||||
| Total liabilities and shareholders' equity | 56,617,392 | 58,311,404 |
|
Approved and authorized for issue on behalf of the Board of Directors: |
|||
|
/s/ "Bruce Macdonald" |
Director |
/s/ "Michael Kidd" |
Director |
The accompanying notes are an integral part of these interim condensed consolidated financial statements.
C21 INVESTMENTS INC.
Interim Condensed Consolidated Statements of Income (Loss) and Comprehensive Income (Loss)
(Expressed in U.S. dollars, except number of shares)
| Three months ended April 30, | ||||||
| 2023 | 2022 | |||||
| $ | $ | |||||
| Revenue | 7,692,203 | 7,472,461 | ||||
| Cost of sales | 4,972,344 | 3,484,824 | ||||
| Gross profit | 2,719,859 | 3,987,637 | ||||
| Selling, general and administrative expenses | 2,164,873 | 2,292,326 | ||||
| Income from operations | 554,986 | 1,695,311 | ||||
| Loss on change in fair value of derivative liability | (392,155 | ) | - | |||
| Gain on termination of sales-type lease and disposal of licenses | 467,750 | - | ||||
| Impairment loss | (372,227 | ) | - | |||
| Interest expense | (31,254 | ) | (164,049 | ) | ||
| Other expenses (income) | (21,828 | ) | 4,146 | |||
| Net income from continuing operations before income tax expense | 205,272 | 1,535,408 | ||||
| Income tax expense | (592,426 | ) | (498,263 | ) | ||
| Net income (loss) from continuing operations after income tax expense | (387,154 | ) | 1,037,145 | |||
| Net loss from discontinued operations after income tax expense | (83,891 | ) | (730,325 | ) | ||
| Net income (loss) | (471,045 | ) | 306,820 | |||
| Other comprehensive income: | ||||||
| Cumulative translation adjustment | 7,108 | 2,820 | ||||
| Comprehensive income (loss) | (463,937 | ) | 309,640 | |||
| Basic income (loss) per share from continuing operations | (0.00 | ) | 0.01 | |||
| Diluted income (loss) per share from continuing operations | (0.00 | ) | 0.01 | |||
| Basic and diluted loss per share from discontinued operations | (0.00 | ) | (0.01 | ) | ||
| Basic income (loss) per share | (0.00 | ) | 0.00 | |||
| Diluted income (loss) per share | (0.00 | ) | 0.00 | |||
| Weighted average number of common shares outstanding - basic | 120,047,814 | 120,047,814 | ||||
| Weighted average number of common shares outstanding - diluted | 122,880,907 | 122,880,907 | ||||
The accompanying notes are an integral part of these interim condensed consolidated financial statements.
C21 INVESTMENTS INC.
Interim Condensed Consolidated Statements of Changes in Shareholders’ Equity
(Expressed in U.S. dollars, except number of shares)
| Number of shares |
Common stock |
Commitment to issue shares |
Accumulated other comprehensive loss |
Deficit | Total shareholders' equity |
|||||||||||||
| # | $ | $ | $ | $ | $ | |||||||||||||
| Balance, January 31, 2022 | 120,047,814 | 105,236,351 | 628,141 | (2,370,967 | ) | (69,764,923 | ) | 33,728,602 | ||||||||||
| Share-based compensation | - | 102,786 | - | - | - | 102,786 | ||||||||||||
| Net income and other comprehensive income for the period | - | - | - | 2,820 | 306,820 | 309,640 | ||||||||||||
| Balance, April 30, 2022 | 120,047,814 | 105,339,137 | 628,141 | (2,368,147 | ) | (69,458,103 | ) | 34,141,028 | ||||||||||
| Share-based compensation | - | 106,655 | - | - | - | 106,655 | ||||||||||||
| Net loss and other comprehensive income for the period | - | - | - | 81,002 | (13,609 | ) | 67,393 | |||||||||||
| Balance, January 31, 2023 | 120,047,814 | 105,445,792 | 628,141 | (2,287,145 | ) | (69,471,712 | ) | 34,315,076 | ||||||||||
| Share-based compensation | - | 5,507 | - | - | - | 5,507 | ||||||||||||
| Net loss and other comprehensive income for the period | - | - | - | 7,108 | (471,045 | ) | (463,937 | ) | ||||||||||
| Balance, April 30, 2023 | 120,047,814 | 105,451,299 | 628,141 | (2,280,037 | ) | (69,942,757 | ) | 33,856,646 |
The accompanying notes are an integral part of these interim condensed consolidated financial statements.
C21 INVESTMENTS INC.
Interim Condensed Consolidated Statements of Cash Flows
(Expressed in U.S. dollars)
| Three months ended April 30, | ||||||
| 2023 | 2022 | |||||
| $ | $ | |||||
| OPERATING ACTIVITIES | ||||||
| Net (loss) income from continuing operations after income tax expense | (387,154 | ) | 1,037,145 | |||
| Adjustments to reconcile net (loss) income to net cash provided by operating activities: | ||||||
| Amortization of right-of-use assets | 127,890 | 119,601 | ||||
| Deferred income tax recovery | - | (275,383 | ) | |||
| Depreciation and amortization | 347,578 | 341,286 | ||||
| Foreign exchange gain | (1,449 | ) | (5,964 | ) | ||
| Gain on termination of sales-type lease and disposal of licenses | (467,750 | ) | - | |||
| Loss on change in fair value of derivative liability | 392,155 | - | ||||
| Impairment loss | 372,227 | - | ||||
| Interest expense | 31,254 | 164,049 | ||||
| Share-based compensation | 5,507 | 102,786 | ||||
| Changes in operating assets and liabilities: | ||||||
| Receivables | (242,987 | ) | (168,280 | ) | ||
| Inventory | 781,193 | (553,895 | ) | |||
| Prepaid expenses and deposits | 171,438 | 252,536 | ||||
| Accounts payable and accrued liabilities | (528,751 | ) | (171,300 | ) | ||
| Income taxes payable | 592,426 | 773,646 | ||||
| Deferred revenue | 105,994 | - | ||||
| Lease liabilities | (95,224 | ) | (77,665 | ) | ||
| Cash provided by operating activities of continuing operations | 1,204,347 | 1,538,562 | ||||
| Cash provided by (used in) operating activities of discontinued operations | 14,794 | (33,382 | ) | |||
| INVESTING ACTIVITIES | ||||||
| Purchases of property and equipment | (41,803 | ) | (390,595 | ) | ||
| Proceeds from termination of sales-type lease and disposal of licenses | 400,000 | - | ||||
| Cash used in investing activities of continuing operations | 358,197 | (390,595 | ) | |||
| Cash provided by investing activities of discontinued operations | - | 38,383 | ||||
| FINANCING ACTIVITIES | ||||||
| Settlement of earn out shares | (575,136 | ) | - | |||
| Principal repayments on promissory note payable | (1,013,334 | ) | (1,520,000 | ) | ||
| Interest paid in cash | (39,694 | ) | (178,027 | ) | ||
| Cash used in financing activities of continuing operations | (1,628,164 | ) | (1,698,027 | ) | ||
| Cash used in financing activities of discontinued operations | (11,388 | ) | (23,986 | ) | ||
| Effect of foreign exchange on cash | (1,729 | ) | 2,820 | |||
| Decrease in cash during the period | (63,943 | ) | (566,225 | ) | ||
| Cash beginning of period | 1,891,772 | 3,067,983 | ||||
| Cash end of period | 1,827,829 | 2,501,758 | ||||
| Supplemental disclosure of cash flow information: | ||||||
| Interest paid in cash | 39,694 | 178,027 | ||||
| Income taxes paid in cash | - | - | ||||
The accompanying notes are an integral part of these interim condensed consolidated financial statements.
|
C21 INVESTMENTS INC. Notes to the Interim Condensed Consolidated Financial Statements For the three months ended April 30, 2023 and 2022 (Expressed in U.S. dollars, except as noted) |
1. NATURE OF OPERATIONS
C21 Investments Inc. (the "Company" or "C21") was incorporated January 15, 1987, under the Company Act of British Columbia. The Company is a publicly traded company with its registered office is 170-601 West Cordova Street, Vancouver, BC, V6B 1G1.
Pursuant to a change of business announced on January 29, 2018 to the Cannabis industry, the Company commenced acquiring and operating revenue-producing cannabis operations in the USA.
On June 15, 2018, the Company's common shares were delisted from the TSX Venture Exchange ("TSX-V") at the Company's request and on June 18, 2018 the Company commenced trading on the Canadian Securities Exchange ("CSE"), completed its change of business to the cannabis industry and commenced trading under the symbol CXXI. The Company registered its common shares in the United States and on May 6, 2019, its shares were cleared by the Financial Industry Regulatory Authority for trading on the OTC Markets platform under the U.S. trading symbol CXXIF. On September 28, 2020, the Company began trading on the OTCQB® Venture Market.
The Company initially operated in two segments: recreational cannabis in Oregon, USA and recreational and medical cannabis in Nevada, USA (Note 16). During the year ended January 31, 2022, the Company made the strategic decision to exit operations in Oregon. Operating results of the Oregon segment are presented as discontinued operations. The Nevada segment remains engaged in the cultivation of and manufacturing of cannabis flower products, vape products and extract products for wholesale and retail sales.
As at April 30, 2023, the Company had a working capital deficit of $6,138,307 (January 31, 2023 - $6,231,895) and an accumulated deficit of $69,942,757 (January 31, 2023 - $69,471,712). However, for the three months ended April 30, 2023, the Company generated positive operating cash flows from continuing operations.
At the federal level, however, cannabis currently remains a Schedule I controlled substance under the Federal Controlled Substances Act of 1970. Under U.S. federal law, a Schedule I drug or substance has a high potential for abuse, no accepted medical use in the United States, and a lack of accepted safety for the use of the drug under medical supervision. As such, even in those states in which marijuana is legalized under state law, the manufacture, importation, possession, use or distribution of cannabis remains illegal under U.S. federal law. This has created a dichotomy between state and federal law, whereby many states have elected to regulate and remove state-level penalties regarding a substance which is still illegal at the federal level. There remains uncertainty about the US federal government's position on cannabis with respect to cannabis-legal status. A change in its enforcement policies could impact the ability of the Company to continue as a going concern.
2. BASIS OF PREPARATION
a) Basis of presentation
These unaudited interim condensed consolidated financial statements as of and for the three months ended April 30, 2023 and 2022 ("consolidated financial statements") are prepared in accordance with accounting principles generally accepted in the United States of America ("U.S. GAAP"). These consolidated financial statements have been prepared on an accrual basis and are based on historical costs, except for certain financial instruments classified as fair value through profit or loss.
b) Functional and reporting currency
The functional currency of C21 Investments Inc. is Canadian dollars ("C$"), and the functional currency of the Company's subsidiaries is U.S. dollars. C21 has determined that the U.S. dollar ("USD") is the most relevant and appropriate reporting currency as the Company's operations are conducted in U.S. dollars and its financial results are prepared and reviewed internally by management in U.S. dollars. The consolidated financial statements are presented in U.S. dollars unless otherwise noted.
c) Basis of consolidation
The consolidated financial statements incorporate the accounts of the Company and all the entities in which the Company has a controlling voting interest and is deemed to be the primary beneficiary. All consolidated entities were under common control during the entirety of the periods for which their respective results of operations were included in the consolidated statements from the date of acquisition. All intercompany balances and transactions are eliminated upon consolidation.
|
C21 INVESTMENTS INC. Notes to the Interim Condensed Consolidated Financial Statements For the three months ended April 30, 2023 and 2022 (Expressed in U.S. dollars, except as noted) |
2. BASIS OF PREPARATION (continued)
A summary of the Company's subsidiaries included in these consolidated financial statements as at April 30, 2023 is as follows:
|
Name of subsidiary (1) |
Principal activity |
|
320204 US Holdings Corp. |
Holding Company |
|
320204 Oregon Holdings Corp. |
Holding Company |
|
320204 Nevada Holdings Corp. |
Holding Company |
|
320204 Re Holdings, LLC |
Holding Company |
|
Eco Firma Farms LLC (2) |
Cannabis producer |
|
Silver State Cultivation LLC |
Cannabis producer |
|
Silver State Relief LLC |
Cannabis retailer |
|
Swell Companies LTD (2) |
Cannabis processor, distributor |
|
Megawood Enterprises Inc. (2) |
Cannabis retailer |
|
Phantom Venture Group, LLC (2) |
Holding Company |
|
Phantom Brands, LLC (2) |
Holding Company |
|
Phantom Distribution, LLC (2) |
Cannabis distributor |
|
63353 Bend, LLC (2) |
Cannabis producer |
|
20727-4 Bend, LLC (2) |
Cannabis processor |
|
4964 BFH, LLC (2) |
Cannabis producer |
|
Workforce Concepts 21, Inc. |
Payroll and benefits services |
(1) All subsidiaries of the Company were incorporated in the USA, are wholly owned and have USD as their functional currency.
(2) Operations discontinued and results included in discontinued operations.
d) Reclassification of comparative figures
The Company has reclassified certain items on the interim condensed consolidated statements of cash flows to conform with current period presentation. A summary of the reclassifications is as follows:
|
Former classification |
Reclassified to |
Amount |
|
|
|
$ |
|
Depreciation and amortization |
Changes in inventory |
119,145 |
|
Changes in lease liabilities |
Amortization of right-of-use assets |
119,601 |
|
Changes in accounts payable and accrued liabilities |
Interest expense |
164,049 |
3. SIGNIFICANT ACCOUNTING POLICIES
The Company's significant accounting policies are fully described in Note 3 to the consolidated financial statements for the years ended January 31, 2023 and 2022. There have been no material changes to the Company's significant accounting policies.
a) Significant accounting estimates and assumptions
The preparation of the Company's consolidated financial statements in conformity with U.S. GAAP requires management to make judgments, estimates and assumptions that affect the reported amounts of assets, liabilities and contingent liabilities at the date of the financial statements and reported amounts of revenues and expenses during the reporting period. Estimates and assumptions are continuously evaluated and are based on management's experience and other factors, including expectations of future events that are believed to be reasonable under the circumstances. Actual results may differ from those estimates and judgments.
Areas requiring a significant degree of estimation and judgment relate to the determination of recoverability of goodwill, recoverability of intangible assets, fair value less costs to sell of assets classified as held for sale, estimates used in valuation and costing of inventory, impairment of long-lived assets and inventory, fair value measurements, useful lives, depreciation and amortization of property, equipment and intangible assets, the recoverability and measurement of deferred tax assets and liabilities, share-based compensation, and fair value of derivative liability.
|
C21 INVESTMENTS INC. Notes to the Interim Condensed Consolidated Financial Statements For the three months ended April 30, 2023 and 2022 (Expressed in U.S. dollars, except as noted) |
3. SIGNIFICANT ACCOUNTING POLICIES (continued)
b) Recently issued accounting pronouncements
Recent accounting pronouncements issued by the FASB, the American Institute of Certified Public Accountants ("AICPA") and the U.S. Securities and Exchange Commission ("SEC") did not or are not believed by management to have a material effect on the Company's present or future financial statements.
4. DISCONTINUED OPERATIONS
a) Sales-type lease and disposal of licenses
In January 2022, the Company entered into a lease-to-own arrangement with a lessee for certain licenses, land and equipment in Oregon, USA, representing its outdoor growing operation. The Company determined that the arrangement should be accounted for as a sales-type lease and concluded that it is not probable that all required payments will be made such that title will transfer at the end of the term. As such, in accordance with ASC 842, the land and equipment are not derecognized, and payments received are recorded as a deposit liability until such time that collectability becomes probable.
During the three months ended April 30, 2023, the Company executed a settlement agreement to terminate the lease-to-own arrangement. In the period preceding the settlement agreement date, the Company collected a cumulative $100,000 in connection with the lease-to-own arrangement and $75,000 for a separate sale of three licenses in Bend, Oregon (contingent upon State regulatory approval) to the same lessee, which were recorded as a deposit liability. Under the settlement agreement, the Company agreed to transfer certain licenses with a carrying value of $32,250, in exchange for $400,000, which was paid by the lessee. In addition, the Company retained the cumulative $100,000 lease-to-own arrangement payments made to date. As a result, the Company recognized a gain on termination of sales-type lease and disposal of licenses of $467,750. The remaining deposit liability of $75,000 (January 31, 2023 - $175,000) relates to the separate sale of licenses in Bend, Oregon, which remain pending State regulatory approval.
b) Oregon reporting unit
As a result of non-profitable operations in the Oregon reporting unit, the Company began to wind down operations in Oregon beginning in the year ended January 31, 2021. By January 31, 2022, the Company made the decision to cease all growing, manufacturing, and processing activities in Bend, Oregon. As the Oregon reporting unit comprises the assets of multiple components in distinct geographic locations, management anticipates completing the sale on a piecemeal basis. Management is engaged in an active program to seek buyers for the major classes of assets and liabilities in Oregon in order to complete a sale.
Prepaid expenses classified as held for sale primarily relate to the renewal of licenses that may be transferred in the event of a sale and prepaid insurance. During the three months ended April 30, 2023, the Company terminated all operating lease agreements in Oregon and paid a settlement payment of $151,350. As a result, security deposits with a carrying amount of $43,796 were written off and the Company recognized a loss on lease termination of $13,419.
Long-term debt comprises equipment and vehicle loans and a building mortgage. The mortgage was entered into on February 1, 2015 and matures on February 1, 2035 (20 years). The mortgage bears interest at a fixed rate of 4.5% with payments made monthly. The equipment and vehicle loans consist of three loans with maturity dates ranging from June 1, 2021 through May 15, 2023 and interest rates ranging from 5.59% to 19.9% with payments made monthly. During the three months ended April 30, 2023, other expenses included interest expense of $4,745 (2022 - $5,037) incurred on this long-term debt. During the three months ended April 30, 2023, an amount of $11,388 (2022 - 23,986) was repaid in connection with the long-term debt.
|
C21 INVESTMENTS INC. Notes to the Interim Condensed Consolidated Financial Statements For the three months ended April 30, 2023 and 2022 (Expressed in U.S. dollars, except as noted) |
4. DISCONTINUED OPERATIONS (continued)
A summary of major classes of assets and liabilities of the discontinued Oregon operation that are classified as held for sale in the interim condensed consolidated balance sheets is as follows:
| April 30, 2023 |
January 31, 2023 |
|||||
| $ | $ | |||||
| Carrying amounts of the major classes of assets included in discontinued operations: | ||||||
| Receivables | - | 15,522 | ||||
| Prepaid expenses and deposits | 17,656 | 84,972 | ||||
| Deferred tax asset | 143,078 | 143,078 | ||||
| Property and equipment | 1,139,517 | 1,139,517 | ||||
| Total assets classified as held for sale | 1,300,251 | 1,383,089 | ||||
| Carrying amounts of the major classes of liabilities included in discontinued operations: | ||||||
| Lease liabilities | - | 216,298 | ||||
| Long-term debt | 417,325 | 423,968 | ||||
| Total liabilities classified as held for sale | 417,325 | 640,266 |
A summary of the Company's net loss from discontinued operations for the three months ended April 30, 2023 and 2022 is as follows:
| 2023 | 2022 | |||||
| $ | $ | |||||
| Revenue | - | 267,684 | ||||
| Cost of sales | - | 435,656 | ||||
| Gross loss | - | (167,972 | ) | |||
| Expenses | ||||||
| Selling, general and administrative expenses | 65,727 | 122,834 | ||||
| Impairment loss | - | 47,476 | ||||
| Loss on lease termination | 13,419 | - | ||||
| Other expenses | 4,745 | 7,252 | ||||
| Net loss from discontinued operations before income tax expense | (83,891 | ) | (345,534 | ) | ||
| Income tax expense | - | (384,791 | ) | |||
| Net loss from discontinued operations after income tax expense | (83,891 | ) | (730,325 | ) |
A summary of the Company's cash flows from discontinued operations for the three months ended April 30, 2023 and 2022 is as follows:
| 2023 | 2022 | |||||
| $ | $ | |||||
| Net cash provided by (used in) operating activities of discontinued operations | 14,794 | (33,382 | ) | |||
| Net cash provided by investing activities of discontinued operations | - | 38,383 | ||||
| Net cash used in financing activities of discontinued operations | (11,388 | ) | (23,986 | ) |
|
C21 INVESTMENTS INC. Notes to the Interim Condensed Consolidated Financial Statements For the three months ended April 30, 2023 and 2022 (Expressed in U.S. dollars, except as noted) |
5. RECEIVABLES
A summary of the Company's receivables is as follows:
| April 30, 2023 |
January 31, 2023 |
|||||
| $ | $ | |||||
| Taxes receivable | 8,077 | 10,834 | ||||
| Trade receivables | 647,220 | 401,476 | ||||
| 655,297 | 412,310 |
There was no provision for expected credit losses on trade receivables as at April 30, 2023 and January 31, 2023.
6. INVENTORY
A summary of the Company's inventory is as follows:
| April 30, 2023 |
January 31, 2023 |
|||||
| $ | $ | |||||
| Finished goods | 1,944,386 | 1,556,353 | ||||
| Work in process | 1,457,387 | 2,494,455 | ||||
| Raw materials | 112,653 | 122,765 | ||||
| 3,514,426 | 4,173,573 |
7. PROPERTY AND EQUIPMENT AND RIGHT-OF-USE ASSETS
a) Property and equipment
A summary of the Company's property and equipment is as follows:
| April 30, 2023 |
January 31, 2023 |
|||||
| $ | $ | |||||
| Land | 1,330,000 | 1,330,000 | ||||
| Leasehold improvements | 1,803,219 | 1,775,896 | ||||
| Furniture and fixtures | 357,954 | 468,696 | ||||
| Computer equipment | 6,659 | 6,659 | ||||
| Machinery and equipment | 2,160,241 | 2,450,919 | ||||
| 5,658,073 | 6,032,170 | |||||
| Less: accumulated depreciation | (1,438,678 | ) | (1,347,052 | ) | ||
| 4,219,395 | 4,685,118 |
Total depreciation expense for the three months ended April 30, 2023 was $135,289 (2022 - $126,096). Of the total depreciation expense, $119,780 was allocated to inventory (2022 - $110,063). During the three months ended April 30, 2023, the Company recorded impairment of property and equipment with a cost of $395,306 and accumulated depreciation of $23,079.
b) Right-of-use assets
The Company's right-of-use assets result from its operating leases (Note 12) and consist of land and buildings used in the cultivation, processing, and warehousing of its products.
As at April 30, 2023, assets classified as held for sale contain right-of-use assets with a carrying value of $nil (January 31, 2023 - $nil).
|
C21 INVESTMENTS INC. Notes to the Interim Condensed Consolidated Financial Statements For the three months ended April 30, 2023 and 2022 (Expressed in U.S. dollars, except as noted) |
8. INTANGIBLE ASSETS AND GOODWILL
a) Intangible assets
A summary of the Company's intangible assets subject to amortization is as follows:
| April 30, 2023 |
January 31, 2023 |
|||||
| $ | $ | |||||
| Licenses | 12,102,521 | 12,167,021 | ||||
| Brands | 644,800 | 644,800 | ||||
| Customer relationships | 1,540,447 | 1,540,447 | ||||
| 14,287,768 | 14,352,268 | |||||
| Less: accumulated amortization | (6,767,528 | ) | (6,465,443 | ) | ||
| 7,520,240 | 7,886,825 |
During the three months ended April 30, 2023, the Company recognized amortization expense on intangible assets of $334,335 (2022 - $334,334). Of the total amortization expense, $2,266 was allocated to inventory (2022 - $27,676).
During the three months ended April 30, 2023, the Company disposed of three licenses in Oregon with a cost of $64,500 and accumulated amortization of $32,250 (Note 4).
b) Goodwill
As at April 30, 2023 and January 31, 2023, the Company had goodwill of $28,541,323 and $28,541,323, respectively, which was allocated to the Nevada reporting unit. There was no impairment on goodwill identified during the three months ended April 30, 2023 and 2022.
9. SECURITY DEPOSIT
Non-current assets include a security deposit with the Alberta Energy Regulator ("AER") under the AER's Liability Management programs to cover potential liabilities relating to its wells. The required security deposit with the AER is determined based on a monthly licensee management rating assessment. As at April 30, 2023, the security deposit had a balance of $47,436 (January 31, 2023 - $46,871).
10. ACCOUNTS PAYABLE AND ACCRUED LIABILITIES
A summary of the Company's accounts payable and accrued liabilities is as follows:
| April 30, 2023 |
January 31, 2023 |
|||||
| $ | $ | |||||
| Accounts payable | 1,600,003 | 1,842,089 | ||||
| Accrued liabilities | 391,220 | 450,485 | ||||
| EFF settlement accrual (Note 20) | 612,500 | 612,500 | ||||
| Interest payable | 7,912 | 16,352 | ||||
| 2,611,635 | 2,921,426 |
|
C21 INVESTMENTS INC. Notes to the Interim Condensed Consolidated Financial Statements For the three months ended April 30, 2023 and 2022 (Expressed in U.S. dollars, except as noted) |
11. PROMISSORY NOTES
Transaction costs related to the issuance of convertible promissory notes are apportioned to their respective financial liability and equity components (if applicable) in proportion to the allocation of proceeds as a reduction to the carrying amount of each component.
When valuing the financial liability component of the promissory notes, the Company used specific interest rates assuming no conversion features existed. The resulting liability component is accreted to its face value over the convertible note's term until its maturity date.
a) Convertible promissory notes
A summary of the Company's convertible promissory notes denominated in USD is as follows:
| June 13, 2018 issuance |
|||
| $ | |||
| Balance, January 31, 2022 | 1,281,442 | ||
| Payment | (41,600 | ) | |
| Interest expense | 1,600 | ||
| Effect of foreign exchange | (85,183 | ) | |
| Balance, April 30, 2023 and January 31, 2023 | 1,156,259 |
On June 13, 2018, the Company issued convertible promissory notes to the vendors that sold Eco Firma Farms, LLC ("EFF") to the Company in the aggregate principal amount of $2,000,000. The convertible promissory notes were convertible at $1.00 per share. The convertible promissory notes accrue interest at a rate of 4% per annum, compounded annually, and were fully due and payable on June 13, 2021. The Company is in an ongoing dispute with the vendors over repayment (Note 20). On issuance, the Company determined the conversion feature was a derivative liability as the convertible promissory notes were exercisable in USD while the functional currency of the Company is Canadian dollars. The conversion feature expired on June 13, 2021 and as such the fair value of the conversion feature as at April 30, 2023 was $nil (January 31, 2023 - $nil).
b) Promissory note payable
A summary of the Company's promissory note payable denominated in USD is as follows:
| $ | |||
| Balance, January 31, 2022 | 8,106,667 | ||
| Repayments | (6,080,000 | ) | |
| Balance, January 31, 2023 | 2,026,667 | ||
| Repayments | (1,013,334 | ) | |
| Balance, April 30, 2023 | 1,013,333 |
On January 1, 2019, the Company issued a promissory note to Mr. Newman, who sold Silver State to the Company in the principal amount of $30,000,000. The promissory note is payable in the following principal instalments: $3,000,000 on April 1, 2019, $6,000,000 on each of July 1, 2019, October 1, 2019, January 1, 2020, and April 1, 2020, and $3,000,000 on July 1, 2020. The promissory note accrues interest at a rate of 10% per annum. The promissory note is secured by all of the outstanding membership interests, and a security interest in all of the assets, of Silver State.
On July 1, 2019, the terms of the promissory note payable for the acquisition of Silver State were amended to call for immediate payment of $2,000,000 plus accrued interest on July 1, 2019 followed by payments of $800,000 plus accrued interest on the first of each of August, September, October, November, and December 2019.
Effective November 21, 2019 and June 25, 2020, Mr. Newman and the Company agreed to further amend the terms of the promissory note due to Mr. Newman. The December 1, 2019 principal payment of $800,000 was cancelled and the monthly principal payments thereafter were reduced to $600,000 per month. Further, the annual interest rate on the note was reduced from 10% to 9.5%. The remaining balance on the promissory note is due and payable on January 1, 2021. This modification resulted in a gain of $nil.
|
C21 INVESTMENTS INC. Notes to the Interim Condensed Consolidated Financial Statements For the three months ended April 30, 2023 and 2022 (Expressed in U.S. dollars, except as noted) |
11. PROMISSORY NOTES (continued)
On November 19, 2020, the Company announced an agreement with Mr. Newman that the remaining $15,200,000 principal outstanding on his promissory note, due to mature on January 1, 2021, was amended with lower monthly payments amortized over a 30-month period. Commencing December 1, 2020, the monthly payments are $506,667 plus interest. The interest rate at 9.5% was unchanged.
For the three months ended April 30, 2023, interest expense was $31,254 (2022 - $164,049). Interest paid during the three months ended April 30, 2023 was $39,694 (2022 - $178,027).
12. LEASE LIABILITIES
The Company's leases consist of land and buildings used in the cultivation, processing, and warehousing of its products. All leases were classified as operating leases in accordance with ASC 842.
A summary of the Company's active leases and total lease term under contract as at April 30, 2023 is as follows:
| Entity Name/Lessee | Asset | Lease term | Type | ||||||
| Silver State Cultivation LLC | Land/ Building | 12 | Operating lease | ||||||
| Silver State Relief LLC (Sparks) | Land/ Building | 12 | Operating lease | ||||||
| Silver State Relief LLC (Fernley) | Land/ Building | 12 | Operating lease |
For the three months ended April 30, 2023, the Company incurred operating lease costs in continuing operations of $350,936, (2022 - $350,936). Of this amount, $203,092 (2022 - $203,092) was allocated to inventory.
A summary of the Company's weighted average discount rate used in calculating lease liabilities and weighted average remaining lease term is as follows:
| April 30, 2023 |
January 31, 2023 |
|||||
| Weighted average discount rate | 10% | 10% | ||||
| Weighted average remaining lease term (years) | 9.60 | 9.63 |
A summary of the maturity of contractual undiscounted liabilities associated with the Company's operating leases as at April 30, 2023 is as follows:
| Year ending January 31, | $ | ||
| 2024 | 957,993 | ||
| 2025 | 1,314,551 | ||
| 2026 | 1,353,987 | ||
| 2027 | 1,394,607 | ||
| 2028 | 1,436,445 | ||
| Thereafter | 7,712,493 | ||
| Total undiscounted lease liabilities | 14,170,076 | ||
| Interest on lease liabilities | (5,311,875 | ) | |
| Total present value of minimum lease payments | 8,858,201 | ||
| Current portion of lease liability | 418,402 | ||
| Lease liabilities | 8,439,799 |
As at April 30, 2023, the Company has total undiscounted lease liabilities of $14,170,076 (January 31, 2023 - $14,488,346) pertaining to lease liabilities in continuing operations and total undiscounted lease liabilities of $nil (January 31, 2023 - $228,192) which are classified as held for sale.
|
C21 INVESTMENTS INC. Notes to the Interim Condensed Consolidated Financial Statements For the three months ended April 30, 2023 and 2022 (Expressed in U.S. dollars, except as noted) |
13. DERIVATIVE LIABILITY
A summary of the Company's derivative liability is as follows:
| Earn out shares |
|||
| $ | |||
| Balance, January 31, 2022 | 1,006,368 | ||
| Fair value adjustment on derivative liability | (742,483 | ) | |
| Effect of foreign exchange | (24,185 | ) | |
| Balance, January 31, 2023 | 239,700 | ||
| Fair value adjustment on derivative liability | 392,155 | ||
| Settlement of earn out shares | (575,136 | ) | |
| Effect of foreign exchange | (8,847 | ) | |
| Balance, April 30, 2023 | 47,872 |
Upon the May 24, 2019 acquisition of Swell Companies, the vendors can earn up to 6,000,000 'earn out' shares over a period of seven years. The conditions were based on the Company's common shares exceeding certain share prices during the period. Additionally, the 50% of the earn out shares are earned upon a change of control of the Company. The fair value of the derivative liability is derived using a Monte Carlo simulation.
In February 2023, the Company settled the obligation to issue 4,792,800 common shares by making cash payments of $575,136.
A summary of the Company's significant inputs into the Monte Carlo simulation used to determine the fair value of earn out shares is as follows:
| April 30, 2023 |
January 31, 2023 |
|||||
| Discount rate | 4.43% | 4.43% | ||||
| Expected life in years | 3.09 | 3.31 | ||||
| Expected stock volatility | 80% | 80% | ||||
| Expected volatility of foreign exchange | 6.40% | 6.40% |
14. SHARE CAPITAL
Share capital consists of one class of fully paid common shares, with no par value. The Company is authorized to issue an unlimited number of common shares. All shares are equally eligible to receive dividends and repayment of capital and represent one vote at the Company's shareholders' meetings.
A summary of the Company's share capital is as follows:
| Number of shares |
Common stock |
|||||
| # | $ | |||||
| Balance, January 31, 2022 | 120,047,814 | 105,236,351 | ||||
| Share-based compensation | - | 209,441 | ||||
| Balance, January 31, 2023 | 120,047,814 | 105,445,792 | ||||
| Share-based compensation | - | 5,507 | ||||
| Balance, April 30, 2023 | 120,047,814 | 105,451,299 |
a) Commitment to issue shares
In connection with the acquisition of EFF on June 13, 2018, the Company issued a promissory note payable to deliver 1,977,500 shares to the vendors of EFF in the amount of $1,905,635, without interest, any time after October 15, 2018. As at April 30, 2023, shares issued pursuant to this commitment total 1,184,407 shares (January 31, 2023 - 1,184,407 shares).
|
C21 INVESTMENTS INC. Notes to the Interim Condensed Consolidated Financial Statements For the three months ended April 30, 2023 and 2022 (Expressed in U.S. dollars, except as noted) |
14. SHARE CAPITAL (continued)
b) Warrants
A summary of the Company's warrant activity is as follows:
| Number of warrants |
Weighted average exercise price |
Weighted average remaining life |
|||||||
| # | C$ | Years | |||||||
| Balance, January 31, 2022 | 3,240,000 | 1.18 | 2.10 | ||||||
| Balance, January 31, 2023 | 3,240,000 | 1.18 | 1.10 | ||||||
| Balance, April 30, 2023 | 3,240,000 | 1.18 | 0.85 |
A summary of the Company's outstanding and exercisable warrants as at April 30, 2023, is as follows:
| Expiry date | Exercise price | Number of warrants outstanding |
||||
| C$ | # | |||||
| December 31, 2023 | 1.00 | 632,400 | ||||
| January 30, 2024 | 1.00 | 1,407,600 | ||||
| May 24, 2024 | 1.50 | 1,200,000 | ||||
| 3,240,000 |
As at April 30, 2023 and January 31, 2023, outstanding and exercisable warrants had intrinsic values of $nil and $nil, respectively.
c) Stock options
The Company is authorized to grant options to executive officers and directors, employees, and consultants, enabling them to acquire up to 10% of the issued and outstanding common shares of the Company. The exercise price of each option equals the market price of the Company's shares as calculated on the date of grant. The options can be granted for a maximum term of 10 years. Vesting is determined by the Board of Directors.
A summary of the Company's stock option activity is as follows:
| Number of options |
Weighted average exercise price |
Weighted average remaining life |
|||||||
| # | C$ | Years | |||||||
| Balance, January 31, 2022 | 5,615,000 | 0.84 | 1.45 | ||||||
| Granted | 600,000 | 0.70 | 3.00 | ||||||
| Expired/Forfeited | (1,405,000 | ) | 1.25 | 0.56 | |||||
| Balance, January 31, 2023 | 4,810,000 | 0.75 | 0.86 | ||||||
| Balance, April 30, 2023 | 4,810,000 | 0.75 | 0.62 |
A summary of the Company's stock options outstanding and exercisable as at April 30, 2023, is as follows:
| Expiry date | Exercise price | Number of options outstanding |
Number of options exercisable |
||||||
| C$ | # | # | |||||||
| August 17, 2023 | 0.70 | 3,560,000 | 3,560,000 | ||||||
| January 28, 2024 | 1.50 | 150,000 | 150,000 | ||||||
| October 9, 2024 | 1.00 | 500,000 | 500,000 | ||||||
| February 10, 2025 | 0.70 | 600,000 | 399,999 | ||||||
| 4,810,000 | 4,609,999 |
|
C21 INVESTMENTS INC. Notes to the Interim Condensed Consolidated Financial Statements For the three months ended April 30, 2023 and 2022 (Expressed in U.S. dollars, except as noted) |
14. SHARE CAPITAL (continued)
As at April 30, 2023 and January 31, 2023, outstanding and exercisable stock options had intrinsic values of $nil and $nil, respectively.
During the three months ended April 30, 2023, the Company recorded a share-based compensation of $5,507 (2022 - $102,786).
A summary of the Company's assumptions used in the Black-Scholes option pricing model for stock options granted during the three months ended April 30, 2023 and 2022 is as follows:
| 2023 | 2022 | |||||
| Stock price | - | C$0.61 | ||||
| Exercise price | - | C$0.70 | ||||
| Risk-free rate | - | 1.60% | ||||
| Expected life of options | - | 3 years | ||||
| Annualized volatility | - | 80% | ||||
| Dividend rate | - | 0% |
The Company has computed the fair value of options granted using the Black-Scholes option pricing model. The expected term used for options issued to non-employees is the contractual life and the expected term used for options issued to employees and directors is the estimated period of time that options granted are expected to be outstanding. The Company utilizes the "simplified" method to develop an estimate of the expected term of "plain vanilla" employee option grants. The Company is utilizing an expected volatility figure based on a review of the historical volatilities, over a period of time, equivalent to the expected life of the instrument being valued, of similarly positioned public companies within its industry. The risk-free interest rate was determined from the implied yields from U.S. Treasury zero-coupon bonds with a remaining term consistent with the expected term of the instrument being valued.
15. SELLING, GENERAL AND ADMINISTRATIVE EXPENSES
A summary of the Company's selling, general and administration expenses for the three months ended April 30, 2023 and 2022 is as follows:
| 2023 | 2022 | |||||
| $ | $ | |||||
| Accounting and legal | 96,603 | 93,194 | ||||
| Depreciation and amortization | 347,578 | 341,286 | ||||
| License fees, taxes and insurance | 395,856 | 413,484 | ||||
| Office facilities and administrative | 64,624 | 101,707 | ||||
| Operating lease costs | 147,844 | 147,844 | ||||
| Other expenses | 224,831 | 162,618 | ||||
| Professional fees and consulting | 113,985 | 168,947 | ||||
| Salaries and wages | 714,522 | 720,244 | ||||
| Sales, marketing, and promotion | 17,121 | 21,901 | ||||
| Share-based compensation | 5,507 | 102,786 | ||||
| Shareholder communications | 3,772 | 3,971 | ||||
| Travel and entertainment | 32,630 | 14,344 | ||||
| 2,164,873 | 2,292,326 |
16. SEGMENTED INFORMATION
The Company defines its major geographic operating segments as Oregon and Nevada. Due to the jurisdictional cannabis compliance issues ever-present in the industry, each state operation is by nature operationally segmented.
Key decision makers primarily review revenue, cost of sales expense, and gross margin as the primary indicators of segment performance. As the Company continues to expand via acquisition, the segmented information will expand based on management's agreed upon allocation of costs beyond gross margin.
|
C21 INVESTMENTS INC. Notes to the Interim Condensed Consolidated Financial Statements For the three months ended April 30, 2023 and 2022 (Expressed in U.S. dollars, except as noted) |
16. SEGMENTED INFORMATION (continued)
A summary of the Company's segmented operational activity and balances for the three months ended April 30, 2023 is as follows:
| Discontinued operations (Oregon) |
Nevada | Corporate | Consolidated | |||||||||
| $ | $ | $ | $ | |||||||||
| Total revenue | - | 7,692,203 | - | 7,692,203 | ||||||||
| Gross profit | - | 2,719,859 | - | 2,719,859 | ||||||||
| Operating income (expenses): | ||||||||||||
| General and administration | (62,266 | ) | (1,128,646 | ) | (518,177 | ) | (1,709,089 | ) | ||||
| Sales, marketing, and promotion | - | (17,121 | ) | - | (17,121 | ) | ||||||
| Operating lease cost | (3,461 | ) | (147,844 | ) | - | (151,305 | ) | |||||
| Depreciation and amortization | - | (323,858 | ) | (23,720 | ) | (347,578 | ) | |||||
| Share-based compensation | - | - | (5,507 | ) | (5,507 | ) | ||||||
| Impairment loss | - | (372,227 | ) | - | (372,227 | ) | ||||||
| Gain on termination of sales-type lease and disposal of licenses | - | - | 467,750 | 467,750 | ||||||||
| Loss on lease termination | (13,419 | ) | - | - | (13,419 | ) | ||||||
| Interest expense and others | (4,745 | ) | (21,367 | ) | (423,870 | ) | (449,982 | ) | ||||
| Net income (loss) before income tax expense | (83,891 | ) | 708,796 | (503,524 | ) | 121,381 |
A summary of the Company's segmented operational activity and balances for the three months ended April 30, 2022 is as follows:
| Discontinued operation (Oregon) |
Nevada | Corporate | Consolidated | |||||||||
| $ | $ | $ | $ | |||||||||
| Total revenue | 267,684 | 7,472,461 | - | 7,740,145 | ||||||||
| Gross profit (loss) | (167,972 | ) | 3,987,637 | - | 3,819,665 | |||||||
| Operating expenses: | ||||||||||||
| General and administration | (117,895 | ) | (1,073,840 | ) | (604,669 | ) | (1,796,404 | ) | ||||
| Sales, marketing, and promotion | (1,938 | ) | (21,901 | ) | - | (23,839 | ) | |||||
| Operating lease cost | - | (147,844 | ) | - | (147,844 | ) | ||||||
| Depreciation and amortization | (3,000 | ) | (318,257 | ) | (23,029 | ) | (344,286 | ) | ||||
| Share-based compensation | - | - | (102,786 | ) | (102,786 | ) | ||||||
| Impairment loss | (55,625 | ) | - | - | (55,625 | ) | ||||||
| Interest expense and others | 896 | 3,304 | (163,207 | ) | (159,007 | ) | ||||||
| Net income (loss) before income tax expense | (345,534 | ) | 2,429,099 | (893,691 | ) | 1,189,874 |
Entity-wide disclosures
All revenue for the three months ended April 30, 2023 and 2022 was earned in the United States.
For the three months ended April 30, 2023 and 2022, no customer represented more than 10% of the Company's net revenue. As at April 30, 2023 and January 31, 2023, no customer represented more than 10% of the Company's receivables.
A summary of the Company's the long-lived tangible assets disaggregation by geographic area is as follows:
| April 30, 2023 |
January 31, 2023 |
|||||
| $ | $ | |||||
| Nevada | 11,147,038 | 11,321,662 | ||||
| Discontinued operations (Oregon) | 1,330,000 | 1,748,286 | ||||
| Other | - | 703 | ||||
| 12,477,038 | 13,070,651 |
|
C21 INVESTMENTS INC. Notes to the Interim Condensed Consolidated Financial Statements For the three months ended April 30, 2023 and 2022 (Expressed in U.S. dollars, except as noted) |
17. COMMITMENTS
The Company and its subsidiaries are committed under lease agreements with third parties and related parties, for land, office space, and equipment in Nevada and Oregon. A summary of the Company's future minimum payments as at April 30, 2023 is as follows:
| Year ending January 31, | Third parties |
Related parties |
Total | ||||||
| $ | $ | $ | |||||||
| 2024 | 34,163 | 957,993 | 992,156 | ||||||
| 2025 | 45,551 | 1,314,551 | 1,360,102 | ||||||
| 2026 | 45,551 | 1,353,987 | 1,399,538 | ||||||
| 2027 | 45,551 | 1,394,607 | 1,440,158 | ||||||
| 2028 | 45,551 | 1,436,445 | 1,481,996 | ||||||
| Thereafter | 322,651 | 7,712,493 | 8,035,144 | ||||||
| 539,018 | 14,170,076 | 14,709,094 |
18. RELATED PARTY TRANSACTIONS
A summary of the Company's related balances included in accounts payable and accrued liabilities, and promissory note payable is as follows:
| April 30, 2023 |
January 31, 2023 |
|||||
| $ | $ | |||||
| Due to the President and CEO | 1,021,246 | 2,043,019 | ||||
| Lease liabilities due to a company controlled by the CEO | 8,858,201 | 8,953,425 | ||||
| Due to the CFO of the Company | 274 | 692 | ||||
| 9,879,721 | 10,997,136 |
Due to the President and CEO consists of promissory note principal and interest and reimbursable expenses incurred in the normal course of business.
A summary of the Company's transactions with related parties including key management personnel for the three months ended April 30, 2023 and 2022 is as follows:
| 2023 | 2022 | |||||
| $ | $ | |||||
| Consulting fees paid to a director | 20,000 | 20,000 | ||||
| Amounts paid to CEO or companies controlled by CEO for leases | 318,270 | 309,000 | ||||
| Amounts paid to CEO or companies controlled by CEO for repayments of promissory note | 1,053,028 | 1,698,027 | ||||
| Amounts paid to CEO or companies controlled by CEO for remuneration | 53,846 | 53,846 | ||||
| Salary paid to directors and officers | 104,573 | 104,156 | ||||
| Share-based compensation | 5,517 | 14,364 | ||||
| 1,555,234 | 2,199,393 |
|
C21 INVESTMENTS INC. Notes to the Interim Condensed Consolidated Financial Statements For the three months ended April 30, 2023 and 2022 (Expressed in U.S. dollars, except as noted) |
19. EARNINGS PER SHARE
A summary of the Company's calculation of basic and diluted earnings per share for the three months ended April 30, 2023 and 2022 is as follows:
| 2023 | 2022 | |||||
| Net income (loss) from continuing operations after income taxes | $ | (387,154 | ) | $ | 1,037,145 | |
| Net loss from discontinued operations after income taxes | $ | (83,891 | ) | $ | (730,325 | ) |
| Net income (loss) | $ | (471,045 | ) | $ | 306,820 | |
| Weighted average number of common shares outstanding | 120,047,814 | 120,047,814 | ||||
| Dilutive effect of warrants and stock options outstanding | 2,833,093 | 2,833,093 | ||||
| Diluted weighted average number of common shares outstanding | 122,880,907 | 122,880,907 | ||||
| Basic income (loss) per share, continuing operations | $ | (0.00 | ) | $ | 0.01 | |
| Diluted income (loss) per share, continuing operations | $ | (0.00 | ) | $ | 0.01 | |
| Basic loss per share, discontinued operations | $ | (0.00 | ) | $ | (0.01 | ) |
| Diluted loss per share, discontinued operations | $ | (0.00 | ) | $ | (0.01 | ) |
| Basic income (loss) per share | $ | (0.00 | ) | $ | 0.00 | |
| Diluted income (loss) per share | $ | (0.00 | ) | $ | 0.00 |
The computation of diluted earnings per share excludes the effect of the potential exercise of warrants and stock options when the average market price of the common stock is lower than the exercise price of the respective warrant or stock option and when inclusion of these amounts would be anti-dilutive. For the three months ended April 30, 2023 and 2022, the number of warrants excluded from the computation was 1,200,000 and 1,200,000, respectively. For the three months ended April 30, 2023 and 2022, the number of stock options excluded from the computation was 4,609,999 and 4,003,331, respectively. In addition, for the three months ended April 30, 2023 and 2022, the computation of diluted earnings per share excludes the potential issuance of 1,207,200 remaining earn out shares (Note 13) as the market price of the common shares has not been high enough to trigger an earn out event.
20. CONTINGENCIES
From time to time, the Company is involved in various litigation matters arising in the ordinary course of its business. Management is of the opinion that disposition of any current matter will not have a material adverse impact on the Company's financial position, results of operations, or the ability to carry on any of its business activities.
a) Legal proceedings
Oregon Action: A complaint was filed in the Oregon State Circuit Court for Clackamas County, on April 29, 2019, by two current owners of Proudest Monkey Holdings, LLC (the former sole member of EFF) (the "Plaintiffs"), alleging contract, employment, and statutory claims, alleging $612,500 in damages (as amended), against the Company, its wholly-owned subsidiaries 320204 US Holdings Corp, EFF, Swell Companies Limited, and Phantom Brands LLC, in addition to three directors, two officers, and one former employee (the "Oregon Action"). The Company and the other defendants wholly denied the allegations and claims made in the lawsuit and is defending the lawsuit. On June 21, 2019, the Company filed Oregon Rule of Civil Procedure ("ORCP") 21 motions to dismiss all of the Plaintiffs' claims against it, its wholly owned subsidiaries, and other defendants. On December 30, 2019, plaintiffs filed an amended complaint dismissing the Company (and some of its directors and subsidiaries) from the case and reducing the amount in controversy in the Oregon Action. On May 6, 2020, the court granted the Company's ORCP 21 motions in its entirety to dismiss all of Plaintiffs' claims against the remaining defendants. The judgment of dismissal was entered by the Clackamas County court on or about October 14, 2020.
On October 22, 2020, the Company submitted a petition to recover the costs and attorney fees incurred by the Company as the prevailing party in the Oregon Action. On January 20, 2021, the Court ruled in the Company's favor, awarding the Company and its subsidiaries $68,195 in attorney's fees, $1,252 in costs, and a statutory prevailing party fee of $640, through a supplemental judgment, entered on February 2, 2021. The judgment in favor of the Company remains unpaid and continues to collect interest at the statutory rate of 9% per annum.
|
C21 INVESTMENTS INC. Notes to the Interim Condensed Consolidated Financial Statements For the three months ended April 30, 2023 and 2022 (Expressed in U.S. dollars, except as noted) |
20. CONTINGENCIES (continued)
On November 12, 2020, the plaintiffs appealed the order dismissing the claims alleged in their amended complaint. On March 2, 2021, the plaintiffs amended their appeal to appeal the award of attorney fees and costs.
On October 26, 2022, the Court of Appeals issued its decision, reversing the general and supplemental judgments in favor of the Company and remanding the case to the trial court for further proceedings. The Company filed a petition for reconsideration of the Court of Appeals decision on December 7, 2022, which was denied.
On April 19, 2023, the Company filed a petition for review in the Oregon Supreme Court. The petition for review is pending. The Company cannot predict if the Oregon Supreme Court will grant certiorari to hear the appeal, and if so, the likely resolution of the appeal.
British Columbia Action: On or about September 13, 2019, the Company delivered a notice to the above-mentioned Plaintiffs of alleged breach and default under the EFF purchase and sale agreement, due to alleged unlawful, intentional acts and material misrepresentations by the Plaintiffs before and after the completion of the purchase. As a result of such breach, the Company denied the Plaintiffs' tender of their share payment notes in connection with the agreement. On or about October 14, 2019, Proudest Monkey Holdings, LLC and one of its current owners, sued the Company in the Supreme Court of British Columbia to compel the issuance and delivery of the subject shares, including interests and costs (the "British Columbia Action").
On November 8, 2019, the Company responded and counterclaimed for general, special and punitive damages, including interest and costs, related to breach of contract, repudiation of contract, breach of indemnity and fraudulent and negligent misrepresentation by the Plaintiffs. The Plaintiffs filed a response to the Company's counterclaims on or about June 5, 2020, and the parties stipulated to a form of amended pleading which included the joinder of additional parties, an owner of Proudest Monkey Holdings, LLC and EFF, and additional contract and equitable claims and damages, partially duplicative to those alleged by the Plaintiffs in the Oregon Action (breach of contract, indemnity, unjust enrichment and wrongful termination claims). Plaintiffs allege $2,774,176.05 in damages (as amended), plus unquantified additional damages, interest and costs, of which amounts are partially duplicative of the Oregon Action. This action remains in the discovery stage, and the trial date is scheduled for February 2024. It is too early to predict the resolution of the claims and counterclaims.
Settled and Dismissed Action: On or about May 30, 2019, Wallace Hill Partners Ltd. ("Wallace Hill") filed a civil claim in the Supreme Court of British Columbia alleging breach of contract and entitlement to 1,800,000 Common Shares of the Company, fully vested by March 1, 2019, and damages due to the lost opportunity to sell those shares after such date for a profit. On June 23, 2019, the Company circulated a letter to Wallace Hill terminating the agreement and accepting Wallace Hill's repudiation of the agreement based on Wallace Hill's previously published defamatory comments and termination of the agreement. On June 23, 2019, the Company filed its response to the civil claim denying all claims and filed counterclaims alleging breach of contract, a declaratory judgment of termination of the agreement, defamation and an injunction from further defamatory comments.
On March 23, 2022, the Company and Wallace Hill entered into a mutual release agreement, pursuant to which, among other things, all parties agreed to dismiss their respective claims and to release one another from any further causes of action in connection with the subject matter of the original claims. On April 23, 2022, the parties filed a Notice of Discontinuance in the Supreme Court of British Columbia formally dismissing the civil action.
21. INCOME TAXES
The following table summarizes the Company's income tax expense and effective tax rate for the three months ended April 30, 2023 and 2022:
A summary of the components of the Company's income taxes payable is as follows:
| April 30, 2023 |
April 30, 2022 |
|||||
| Net income from continuing operations before income taxes | $ | 205,272 | $ | 1,535,408 | ||
| Income tax expense | $ | 592,426 | $ | 498,263 | ||
| Effective tax rate | 289% | 32% |
The Company is subject to income taxes in the United States and Canada. The Company has computed its provision for income taxes based on the actual effective tax rate for the quarter as management believes this is the best estimate for the annual effective tax rate. Significant judgment is required in evaluating the Company's uncertain tax position and determining the provision for income taxes.
|
C21 INVESTMENTS INC. Notes to the Interim Condensed Consolidated Financial Statements For the three months ended April 30, 2023 and 2022 (Expressed in U.S. dollars, except as noted) |
22. FINANCIAL INSTRUMENTS
A summary of the Company's financial instruments and their classifications as at April 30, 2023 and January 31, 2023 is as follows:
| Fair value measurements at April 30, 2023 using: | Level 1 | Level 2 | Level 3 | Total | ||||||||
| $ | $ | $ | $ | |||||||||
| Financial liabilities: | ||||||||||||
| Earn out shares (Note 13) | - | - | 47,872 | 47,872 |
| Fair value measurements at January 31, 2023 using: | Level 1 | Level 2 | Level 3 | Total | ||||||||
| $ | $ | $ | $ | |||||||||
| Financial liabilities: | ||||||||||||
| Earn out shares (Note 13) | - | - | 239,700 | 239,700 |
The fair value of the derivative liability associated with the earn out shares was derived using a Monte Carlo simulation using non-observable inputs, and therefore represents a Level 3 measurement.
23. SUBSEQUENT EVENT
On June 1, 2023, the Company completed all payments totaling $1,013,333 on the promissory note payable (Note 11(b)) owing to Sonny Newman, the Company's President and CEO. In connection with the repayment, the security against the Company's assets held in Silver State Cultivation LLC and Silver State Relief LLC has been fully discharged.
|
For the three months ended April 30, 2023 (Expressed in U.S. Dollars) |
GENERAL
C21 Investments Inc. (the "Company", "C21", "we", "us" and "our") was incorporated in the Province of British Columbia under the Company Act (British Columbia) on January 15, 1987 as Empire Creek Mines Inc. On May 11, 1987, the Company changed its name to Curlew Lake Resources Inc. Effective November 24, 2017, the Company changed its name to C21 Investments Inc. On June 15, 2018, the Company's common shares (the "Common Shares") were delisted from the TSX Venture Exchange and on June 18, 2018, the Common Shares commenced trading on the Canadian Securities Exchange ("CSE") under the symbol CXXI. The Company registered its Common Shares in the United States ("U.S.") and on May 6, 2019, its Common Shares were cleared by the Financial Industry Regulatory Authority for trading on the OTC Markets platform under the U.S. trading symbol CXXIF. On August 23, 2019 the Company announced it had been approved for trading on the OTCQB Venture Market, and on September 28, 2020 the Company upgraded to trading on the OTCQX Best Market.
The Company's unaudited interim condensed consolidated financial statements for the three months ended April 30, 2022 were authorized for issuance on June 29, 2023 by the Board.
Additional information related to the Company is available for viewing on SEDAR at www.sedar.com or the Company website at www.cxxi.ca.
DESCRIPTION OF BUSINESS
The Company is a vertically integrated cannabis company that cultivates, processes, distributes and sells quality cannabis and hemp-derived consumer products in Nevada, U.S.A. The Company is focused on value creation through the disciplined acquisition and integration of core retail, manufacturing, and distribution assets in strategic markets, leveraging industry-leading retail revenues together with high-growth potential and multi-market branded consumer packaged goods ("CPG").
The Company focuses on scalable opportunities in key markets that take advantage of its core competencies, including: (i) retail operational excellence and expanding its retail footprint through value-add acquisitions in existing markets, and (ii) branded CPG expansion through both captive retail and wholesale channels. The Company focuses on acquiring businesses that provide immediate contribution to overall profitability, or have a path to profitability within twelve months, where it can leverage existing assets, brands, and domain expertise.
The Company currently holds licenses in Nevada spanning the entire cannabis supply chain. With the winding down and sale of its Oregon licenses and operations, the Company presents its Oregon operations as 'held for sale' on the Balance Sheet and as 'discontinued operations' in the Income Statement.
The Company's management team has significant professional experience, including deep experience both within the cannabis industry and other fast-paced growth industries like technology and venture capital. Management also includes experts from more traditional industries like forestry, manufacturing, real estate, and capital markets.
Strategic Focus and Growth
Our operation in Reno, Nevada under the Silver State Relief brand continues its strong financial performance generating healthy cash flow and satisfied customers. Building around this strong core we have accomplished much since the beginning of the Company's fiscal year 2024:
- On June 1, 2023, the Company paid the final instalment on the $30 million secured promissory note owing to the Company's President and Chief Executive Officer (the "Newman Note"). The Company had been repaying this note at $0.5 million per month ($6.1 million per year).
- With the repayment of the Newman Note, the debt secured against the Company's assets held in Nevada has been fully discharged and the security and pledge agreements in connection with the debt were terminated.
- The repayment of the Newman Note enables the Company to pursue its strategic growth plans.
- On March 9, 2023, the Company executed a settlement agreement to terminate the lease-to-own arrangement for certain licenses, land and equipment in Southern Oregon. The third-party lessee failed to make the minimum payments under the arrangement and the Company exercised its right to terminate the relationship. As part of the settlement agreement, the third-party lessee paid $500,000 as consideration for two Oregon Liquor and Cannabis Commission ("OLCC") recreational cannabis production licenses. The Company retains the land, building and equipment, which are being listed for sale.
- On February 13, 2023, the Company announced it had negotiated the cancellation of most of the earn out share obligations pursuant to the Swell Purchase agreement. The Company entered into agreements with certain Swell vendors to extinguish the Company's obligation to issue 4,792,800 common shares in exchange for a one-time payment of $575,136, leaving only 1,207,200 Swell earn out shares remaining.
The Company's strategic Initiatives over the next 12 months include: (i) extending our Nevada retail footprint where we have a proven track record of success and (ii) continuing our disciplined approach to growth and financing.
As the Company has discontinued its Oregon operations, the discussion in this MD&A focusses primarily on the Company's Nevada operations.
NEVADA
The Company acquired Silver State Relief and Silver State Cultivation ("Silver State") on January 1, 2019. The Nevada business operates in Sparks and Fernley, Nevada.
Cultivation, Processing and Wholesale
Through Silver State in Nevada, the Company operates its indoor cultivation and processing out of a 104,000 square foot facility now with 37,000 square feet of cultivation and 1,200 square feet dedicated to volatile extraction. Silver State completed a $3 million expansion of its grow facility in April 2022, more than doubling capacity to 11,500 pounds of biomass with 8,100 pounds of flower and 3,300 pounds of trim annually. An additional 30,000 sq ft of cultivation can be built out on future expansion of Nevada retail footprint, which should produce an additional 6,000 pounds per annum of high-quality flower.
The Company's extraction processing supports branded CPG in both captive retail and wholesale channels. Silver State manufactures Hood Oil cartridges, Phantom Farms pre-rolls, and flower strains, together with the Silver State branded products which include Flower, pre-rolls, and concentrates. These in-house brands make up over 60% of sales in the dispensaries. With the increased production available, wholesale sales amounted to $2.2 million during the year ended January 31, 2023 ($0.6 million in prior year).
Retail
The Company operates two dispensaries, an 8,000-square foot retail dispensary, located in Sparks, Nevada, and a 6,000-square foot dispensary located in Fernley, Nevada collectively servicing a total of more than 125,000 recreational and medical cannabis customers per quarter, with over 700 SKUs in each store. The Nevada industry has seen sales slow from the peak in March/April 2021. This is consistent with sales trends across other states. Silver State had total retail sales of $26.8 million during the year ended January 31, 2023 as compared to $32.4 million in the prior year.
INTERIM MD&A - QUARTERLY HIGHLIGHTS
Operations
| LAST EIGHT QUARTERS | (000's unless noted) | |||||||||||||||||||||||
| For the 3 months ended | 30-Apr-23 | 31-Jan-23 | 31-Oct-22 | 31-Jul-22 | 30-Apr-22 | 31-Jan-22 | 31-Oct-21 | 31-Jul-21 | ||||||||||||||||
| Inventory | 3,514 | 4,174 | 5,549 | 5,415 | 4,728 | 4,054 | 3,411 | 2,980 | ||||||||||||||||
| Revenues | 7,692 | 7,033 | 7,207 | 7,175 | 7,472 | 7,655 | 7,938 | 8,593 | ||||||||||||||||
| Income (loss) from continuing operations before taxes & FV gain/loss derivative |
597 | (718 | ) | 1,264 | 1,368 | 1,535 | 1,515 | 1,876 | 2,474 | |||||||||||||||
| Adjusted EBITDA | 1,561 | 937 | 1,906 | 2,211 | 2,392 | 2,318 | 2,915 | 3,492 | ||||||||||||||||
| Income (loss) from continuing operations | (387 | ) | (1,405 | ) | 237 | 1,512 | 1,037 | (12 | ) | 3,097 | 4,210 | |||||||||||||
| *per common share, basic & diluted | (0.00 | ) | (0.01 | ) | 0.00 | 0.01 | 0.01 | 0.00 | 0.03 | 0.04 | ||||||||||||||
| Profit (loss) attributable to owners | (471 | ) | (2,119 | ) | 249 | 1,857 | 307 | (1,993 | ) | 2,838 | 4,062 | |||||||||||||
| *per common share basic & diluted | (0.00 | ) | (0.02 | ) | 0.00 | 0.02 | 0.00 | (0.02 | ) | 0.02 | 0.03 | |||||||||||||
With the completion of the expansion of our grow operation in early 2022, our cultivation operations began producing more flower than our stores sell. Since the peak in the cannabis markets during the COVID-19 pandemic, we have seen weakening demand and increased supply in the cannabis markets, especially in wholesale markets, followed by falling prices. This caused our inventories (see table above) to spike in calendar year 2022 to a peak of $5.5 million at Oct 31, 2022. We started a strategic shutdown of cultivation rooms on a rotating basis late in the quarter ending Oct 31, 2022, and performed maintenance on rooms as needed. Due to various inefficiencies caused by the shutdown we also experienced lower flower yields. In the quarter ending Jan 31, 2023, one large cultivator ceased operations which has spurred a recovery in both price and volume in our wholesale business. Inventory levels have returned to normal levels and harvest operations and yields returned to normal in April 2023.
Income taxes are very high in the cannabis industry due to the restrictions of Section 280E of the tax code and the fair value gain or loss on derivative liability is a large non-cash item on the income statement. Therefore, the measure of income from continuing operations before these two items, in the quarterly table above, is a useful measure.
Adjusted EBITDA has fallen over the past eight quarters together with the fall in revenues discussed above and the fall in gross profit which is discussed below. See Non-GAAP measures below.
Summary derived from the Company's consolidated financial statements:
| PROFIT AND LOSS | Q1 | Q4 | Q3 | Q2 | Q1 | |||||||||||
| 30-Apr-23 | 31-Jan-23 | 31-Oct-22 | 31-Jul-22 | 30-Apr-22 | ||||||||||||
| Revenues- Retail | $ | 6,197,855 | 6,248,051 | 6,733,103 | 6,831,979 | 6,940,607 | ||||||||||
| Wholesale | 1,494,348 | 785,001 | 474,301 | 343,514 | 531,854 | |||||||||||
| Revenue | $ | 7,692,203 | 7,033,052 | 7,207,404 | 7,175,493 | 7,472,461 | ||||||||||
| Inventory expensed to cost of sales | 4,972,344 | 5,383,213 | 3,303,066 | 3,316,161 | 3,484,824 | |||||||||||
| Gross profit | 2,719,859 | 1,649,839 | 3,904,338 | 3,859,332 | 3,987,637 | |||||||||||
| 35.4% | 23.5% | 54.2% | 53.8% | 53.4% | ||||||||||||
| Expenses | ||||||||||||||||
| General and administration | 1,646,823 | 1,761,521 | 1,980,999 | 1,775,373 | 1,678,509 | |||||||||||
| Sales, marketing, and promotion | 17,121 | 18,208 | 26,366 | 17,197 | 21,901 | |||||||||||
| Operating lease cost | 147,844 | 147,843 | 147,844 | 147,844 | 147,844 | |||||||||||
| Depreciation and amortization | 347,578 | 340,664 | 341,782 | 341,286 | 341,286 | |||||||||||
| Share based compensation | 5,507 | 20,803 | 31,788 | 54,064 | 102,786 | |||||||||||
| Total expenses | 2,164,873 | 2,289,039 | 2,528,779 | 2,335,764 | 2,292,326 | |||||||||||
| Income (loss) from operations | 554,986 | (639,200 | ) | 1,375,559 | 1,523,568 | 1,695,311 | ||||||||||
| Other items | ||||||||||||||||
| Interest expense | (31,254 | ) | (60,530 | ) | (98,657 | ) | (133,455 | ) | (164,049 | ) | ||||||
| Other Income (loss) | 73,695 | (18,723 | ) | (13,173 | ) | (21,972 | ) | 4,146 | ||||||||
| Change in fair value of derivative liabilities | (392,155 | ) | (14,830 | ) | 127,813 | 629,500 | - | |||||||||
| Income (loss) before before taxes | 205,272 | (733,283 | ) | 1,391,542 | 1,997,641 | 1,535,408 | ||||||||||
| Income tax expense | (592,426 | ) | (672,164 | ) | (1,154,189 | ) | (485,152 | ) | (498,263 | ) | ||||||
| Income from continuing operations | (387,154 | ) | (1,405,447 | ) | 237,353 | 1,512,489 | 1,037,145 | |||||||||
| Income (loss) from discontinued operations | (83,891 | ) | (713,712 | ) | 11,154 | 344,554 | (730,325 | ) | ||||||||
| Net income (loss) | (471,045 | ) | (2,119,159 | ) | 248,507 | 1,857,043 | 306,820 |
"Revenue" includes retail revenues from our two stores and wholesale revenue from our cultivation operations. First Quarter 2024 ("Q1") total revenues increased to $7.7 million a 3% increase over prior year Q1 and increased by 9% sequentially from Q4 ending Jan 31, 2023. Wholesale revenues in Q1 increased to $1.5 million, versus prior year Q1 -$0.6 million, and increased sequentially over Q4 ending Jan 31, 2023 - $0.8 million. Retail revenues in Q1 decreased to $6.2 million versus prior year Q1- $6.9 million, and sequentially Jan 31, 2023 - $6.2 million.
"Cost of Sales" includes the costs directly attributable to cultivating and processing cannabis plus the cost of product purchases from third parties, for sale in our stores. With the expansion of our cultivation facility our cost of production has come down due to economies of scale. We use an average costing model which captures and averages costs over several quarters.
"Gross profit" Sequentially in the past two quarters gross profit % has fallen to 35.4% (Q1 ending April 30, 2023) and 23.5% (Q4 ending Jan 31, 2023). This is due to several factors, including the strategic shutdown of the cultivation operations as discussed on the previous page, retail price discounting that started in December 2023, and our decision to begin awarding loyalty points to our recreational customers, all eroding margins. Our strategic shutdown of the cultivation operations ended in March 2023 and harvest production and yields returned to normal in April 2023. This will cause the gross profit to improve further in the next quarter ending July 31, 2023.
"Income from operations" for Q1 is at $0.6 million, up from ($0.6) million sequentially in Q4 and down 67% versus prior year Q1 of $1.7 million. This result is mainly due to a fall in Gross Profit as discussed above in "Gross Profit" and also discussed above in Operations.
Expenses
"General and administration" includes all overhead costs that have not otherwise been allocated to cost of sales. These include salaries and wages, professional fees including legal and accounting, insurance and some local taxes. Q1 costs of $1.6 million was $31,685 lower than the prior year Q1.
"Operating lease cost" is the cost of leases not included in cost of sales and was $147,844 for Q1 versus $147,844 in prior year Q1.
"Depreciation and amortization" include provisions for fixed assets and intangibles not included in cost of sales. The total depreciation and amortization in Q1 was $0.35 million versus $0.34 million in prior year Q1.
"Share based compensation" is a non-cash item and reflects the issuance of stock options to employees, officers, and directors.
Other Items
"Interest expense" in Q1 was $31,254 versus $164,049 in the prior year Q1 due to repayment of interest-bearing debt.
"Change in fair value of derivative liabilities" is a periodic revaluation of the earn out shares outstanding to vendors of businesses purchased by the Company. These earn-out shares are revalued using a Monte Carlo simulation. The fair value of this liability will increase with an increase in the stock price of the Company and vice versa. The change in fair value must be recorded through the Company's profit or loss statement. As a result, a share price increase period-over-period will result in a reduction in net income and vice versa. In February and March 2023, the Company entered into cancelation agreements with the majority of the Swell Vendors who had rights to Swell Earn-Out shares, canceling those rights for a one-time cash payment. Of the 6.0 million original Swell Earn-Out shares 1.2 million remain outstanding. Of the original 10.5 million of earn out shares to both Phantom and Swell, 1.2 million remain.
"Provision for income taxes" in Q1 of $0.6 million is up vs prior Q1 due to deferred tax adjustments in prior year.
"Other comprehensive income (loss)," specifically the cumulative translation adjustment, comes about in GAAP when translating the balances between the parent company (investments made in C$) and the US subsidiaries (US$). These foreign exchange gains or losses at each reporting date result from the translation of C$ amounts to US$ (which is our reporting currency).
"Net income (loss) from discontinued operations" the Company has classified all of its Oregon operations to 'discontinued operations'. The revenues and expenses pertaining to the Oregon operations are shown in this line item. We have had no active business in Oregon since early 2022. The effect of this treatment is to lower our revenues (Q1 -$nil, prior year Q1-$267,684) and increase our gross profit (Q1-$nil, prior year Q1-$118,355) and increase our income from operations and net income (Q1-$83,891, prior year Q1- $730,325). There is no effect of discontinuing the Oregon operations on our Nevada operations as the cannabis business in each state is unique and separate, which is due to the regulation of the cannabis industry. Effective March 27, 2023, the Company reached a settlement with its central Oregon landlord with respect to its three remaining leases in Oregon, including an early termination of such leases, in exchange for an abatement of one month of the Company's rent applied to each respective lease. This is recorded in the year end FY2023 accounts. The Company maintains fee simple ownership of real property in central and southern Oregon, which are listed for sale.
Non-GAAP Financial Measures
"Adjusted EBITDA" is supplemental, non-GAAP financial measures. The Company defines EBITDA as earnings before depreciation and amortization, depreciation and interest in cost of sales, income taxes, and interest. Additionally, the Company's Adjusted EBITDA presented above excludes accretion, loss from discontinued operations, one-time transaction costs and all other non-cash items. The Company has presented "Adjusted EBITDA" because its management believes it is a useful measure for investors when assessing and considering the Company's continuing operations and prospects for the future. Furthermore, "Adjusted EBITDA" is a commonly used measurement in the financial community when evaluating the market value of similar companies. "Adjusted EBITDA" is not a measure of performance calculated in accordance with GAAP, and these metrics should not be considered in isolation of, or as a substitute for, the measurement of the Company's performance prepared in accordance with GAAP. "Adjusted EBITDA," as calculated and reconciled in the table above, may not be comparable to similarly titled measurements used by other issuers and is not necessarily a measure of the Company's ability to fund its cash needs. Figures have been restated to match current presentation.
| ADJUSTED EBITDA - Quarters ending | |||||||||||||||
| 30-Apr-23 | 31-Jan-23 | 31-Oct-22 | 31-Jul-22 | 30-Apr-22 | |||||||||||
| Net income (loss) | (471,045 | ) | (2,119,159 | ) | 248,507 | 1,857,043 | 306,820 | ||||||||
| Interest & accretion | 31,254 | 60,530 | 98,657 | 133,455 | 164,049 | ||||||||||
| Provision for taxes | 592,426 | 672,164 | 1,154,189 | 485,152 | 498,263 | ||||||||||
| Depreciation and amortization | 347,578 | 340,664 | 341,782 | 341,286 | 341,286 | ||||||||||
| Depreciation and interest in COS | 203,092 | 203,091 | 203,093 | 203,091 | 203,092 | ||||||||||
| EBITDA | 703,305 | (842,710 | ) | 2,046,228 | 3,020,027 | 1,513,510 | |||||||||
| Change in FV of derivative liability | 392,155 | 14,830 | (127,813 | ) | (629,500 | ) | - | ||||||||
| Share based compensation | 5,507 | 20,803 | 31,788 | 54,064 | 102,786 | ||||||||||
| Loss (gain) discontinued operations | 83,891 | 713,712 | (11,154 | ) | (344,554 | ) | 730,325 | ||||||||
| One-time special project costs | - | 206,459 | 89,331 | 50,000 | |||||||||||
| Production curtailment, inventory adjustments | 450,000 | 1,012,000 | (253,000 | ) | - | - | |||||||||
| Other gain/loss | (73,695 | ) | 18,723 | 13,173 | 21,972 | (4,146 | ) | ||||||||
| Adjusted EBITDA | 1,561,163 | 937,358 | 1,905,681 | 2,211,340 | 2,392,475 |
"Free Cash Flow" is defined as Cash Provided by Operating Activities from Continuing Operations in a period minus capital expenditures. Management believes that Free Cash Flow, which measures our ability to generate cash from our continuing business operations, is an important financial measure for use in evaluating the Company's financial performance. Free Cash Flow should be considered in addition to, rather than as a substitute for, consolidated net income as a measure of our performance and net cash provided by operating activities as a measure of our liquidity.
The following table summarizes free cash flow of the Company over the past five quarters:
| FREE CASH FLOW | |||||||||||||||
| For the 3 months ended | 30-Apr-23 | 31-Jan-23 | 31-Oct-22 | 31-Jul-22 | 30-Apr-22 | ||||||||||
| Cash provided by operating activities of continuing operations | 1,204,347 | 1,215,735 | 1,443,585 | 1,773,385 | 1,538,562 | ||||||||||
| Purchases of property and equipment | (41,803 | ) | (9,071 | ) | (11,095 | ) | (31,524 | ) | (390,595 | ) | |||||
| 1,162,544 | 1,206,664 | 1,432,490 | 1,741,861 | 1,147,967 |
RELATED PARTY TRANSACTIONS
A summary of the Company's related balances included in accounts payable, accrued liabilities, and promissory note payable is as follows:
| April 30, 2023 |
January 31, 2023 |
|||||
| $ | $ | |||||
| Due to the President and CEO | 1,021,246 | 2,043,019 | ||||
| Lease liabilities due to a company controlled by the CEO | 8,858,201 | 8,953,425 | ||||
| Due to the CFO of the Company | 274 | 692 | ||||
| 9,879,721 | 10,997,136 |
"Due to the President and CEO" consists of the Newman Note principal and interest and reimbursable expenses incurred in the normal course of business. The Newman Note, issued to the President and CEO when the Company purchased Silver State in 2019, the Newman Note was fully repaid on June 1, 2023. A balance on the Newman Note of $1,013,333 is included in the Due to the President and CEO above.
A summary of the Company's transactions with related parties including key management personnel for the years ended April 30, 2023, and 2022 is as follows:
| 2023 | 2022 | |||||
| $ | $ | |||||
| Consulting fees paid to a director | 20,000 | 20,000 | ||||
| Amounts paid to CEO or companies controlled by CEO for leases | 318,270 | 309,000 | ||||
| Amounts paid to CEO or companies controlled by CEO for repayments of promissory note | 1,053,028 | 1,698,027 | ||||
| Amounts paid to CEO or companies controlled by CEO for remuneration | 53,846 | 53,846 | ||||
| Salary paid to directors and officers | 104,573 | 104,156 | ||||
| Share based compensation including warrants and stock options for directors and officers | 5,517 | 14,364 | ||||
| 1,555,234 | 2,199,393 |
Amounts paid to CEO or companies controlled by CEO consists of salary, lease payments, and Newman Note principal and interest. The CEO owns all three buildings which Silver State operates from and a lease on each building was assumed by the Company upon the purchase of Silver State. The Newman Note was issued when the Company purchased Silver State in 2019 and the Newman Note was fully repaid and satisfied, and security and pledge agreements terminated, on June 1, 2023.
CONTRACTUAL OBLIGATIONS
The following table includes the Company's obligations to make future payments for each of the next five years that represent contracts and other commitments that are known and committed:
| CONTRACTUAL OBLIGATIONS | ||||||||||||||||||
| Carrying amount |
Contractual cash flows |
Under 1 year | 1-3 years | 3-5 years | More than 5 years |
|||||||||||||
| As at April 30, 2023 | ||||||||||||||||||
| Trade and other payables | $ | 2,611,635 | $ | 2,611,635 | $ | 2,611,635 | $ | - | $ | - | $ | - | ||||||
| Finance lease payments (1) | 8,858,201 | 14,170,077 | 1,285,811 | 2,688,502 | 2,852,232 | 7,343,532 | ||||||||||||
| Convertible debt (2) | 1,156,259 | 1,156,259 | 1,156,259 | - | - | - | ||||||||||||
| Notes and other borrowings (3) | 1,430,658 | 1,552,351 | 1,058,884 | 91,102 | 91,102 | 311,263 | ||||||||||||
| Total | $ | 14,056,753 | $ | 19,490,322 | $ | 6,112,589 | $ | 2,779,604 | $ | 2,943,334 | $ | 7,654,795 | ||||||
(1) Amounts in the table reflect minimum payments due for the Company's leased facilities and certain leased equipment under various lease agreements and purchase agreements.
(2) Amounts in the table reflect the contractually required principal payments payable under various convertible note and convertible debenture agreements. These relate to the Oregon Action in the section Legal Proceedings below.
(3) Amounts in the table reflect the contractually required principal payments payable under the Newman Note, and miscellaneous debt.
COVID-19 GLOBAL PANDEMIC
On March 11, 2020, the World Health Organization ("WHO") declared the novel coronavirus contagious disease outbreak and related adverse public health developments ("COVID-19") a global pandemic and recommended containment and mitigation measures worldwide. While the WHO has declared an end to the COVID-19 pandemic on or about May 5, 2023, the lasting impacts of the pandemic and its impact on the economic environment is uncertain. The public health crisis caused by COVID-19 and the actions taken and continuing to be taken by governments, businesses and the public have adversely affected, and may continue to adversely affect, our business, financial condition, and results of operations.
While the United States and other jurisdictions have relaxed restrictions implemented in response to the COVID-19 pandemic, the potential for new and more-transmissible variants, the situation remains dynamic and subject to rapid and possibly material changes.
The Company takes all reasonable steps to ensure staff are appropriately informed and trained to promote a culture of health, safety, and continuous improvement. Wherever possible, the Company will continue to adopt generally accepted health and safety best practices from non-cannabis-related industries and follows all health and safety guidelines issued by the United States Centers for Disease Control and all orders from relevant provincial, state and local jurisdictions and authorities.
ADDITIONAL INFORMATION
LEGAL PROCEEDINGS
For a summary of the current legal proceedings, please refer to the Company's MD&A for the years ended January 31, 2023, and 2022 for detailed disclosure in this regard.
OFF-BALANCE SHEET ARRANGEMENTS
As of the date of this MD&A, the Company has not entered into any off-balance sheet arrangements.
SHARE CAPITAL
The Company is authorized to issue an unlimited number of Common Shares.
As of April 30, 2023, there were:
- 120,047,814 Common Shares issued and outstanding;
- 4,810,000 options outstanding to purchase Common Shares, of which 4,609,999 options had vested;
- 3,240,000 warrants outstanding to purchase Common Shares; and
- no restricted share units ("RSUs") outstanding to purchase Common Shares.
- 793,093 acquisition shares to EFF vendors, yet to be issued. See 'Legal Proceedings' later in this MD&A.
As of June 29, 2023 (the date of this MD&A) the Company had the following securities outstanding:
| Type of Security | Number outstanding |
| Common Shares | 120,047,814 |
| Stock Options | 4,810,000 |
| Warrants | 3,240,000 |
| Acquisition shares | 793,093 |
| 128,890,907 |
MANAGEMENT'S RESPONSIBILITY FOR FINANCIAL INFORMATION
The Company's financial statements and the other financial information included in this MD&A are the responsibility of the Company's management and have been examined and approved by the Board. The accompanying audited financial statements are prepared by management in accordance with GAAP, and include certain amounts based on management's best estimates using careful judgment. The selection of accounting principles and methods is management's responsibility.
Management recognizes its responsibility for conducting the Company's affairs in a manner that complies with the requirements of applicable laws and established financial standards and principles and maintains proper standards of conduct in its activities. The Board supervises the financial statements and other financial information through its audit committee, which is comprised of a majority of non-management directors.
The audit committee's role is to examine the financial statements and recommend that the Board approve them, to examine the internal control and information protection systems, and all other matters relating to the Company's accounting and finances. To do so, the Audit Committee meets annually with the external auditors, with or without the Company's management, to review their respective audit plans and discuss the results of their examination. The Audit Committee is responsible for recommending the appointment of the external auditors or the renewal of their engagement.
ACCOUNTING POLICIES AND ESTIMATES
FINANCIAL RISK MANAGEMENT
The Board approves and monitors the risk management processes of the Company, inclusive of documented investment policies, counterparty limits, and controlling and reporting structures. The type of risk exposure and the way in which such exposure is managed is provided as follows:
CREDIT RISK
Credit risk is the risk that one party to a financial instrument will fail to discharge an obligation and cause the other party to incur a financial loss. The Company's primary exposure to credit risk is on its cash held in bank accounts. The Company's cash is deposited in bank accounts held with a major bank in Canada, a credit union in Washington, Nevada and Colorado.
LIQUIDITY RISK
Liquidity risk is the risk that the Company will not be able to meet its obligations as they become due. The Company manages its liquidity risk by forecasting cash flows from operations and anticipating any investing and financing activities. Management of the Company and the Board are actively involved in the review, planning and approval of significant expenditures and commitments.
The Company's consolidated financial statements for three months ended April 30, 2023 have been prepared on a going concern basis, which assumes that the Company will be able to continue its operations and realize its assets and discharge its liabilities in the normal course of business for the foreseeable future.
At April 30, 2023, the Company had cash of $1,827,829, a working capital deficit of $6,138,307.
The Company has generated significant positive cash flow for the three months ended April 30, 2023, and the fiscal year ended January 31, 2023. The Statement of Cash Flows for the three months ended April 30, 2023, shows cash provided by continuing operations of $1.2 million ($6.0 million - year ended January 31, 2023)
The promissory note owing to the President and CEO was fully repaid as of June 1, 2023, for which the monthly payments were $0.5 million plus interest. Other than lease liabilities, our largest liability at April 30, 2023, was income taxes payable of $8.3 million. The Company does not have any significant capital expenditure plans in the next 12 months and our commitments in Oregon have been minimized. While operations' cash flow has slowed as our markets in general have slowed, we expect to continue to generate positive operations cash flow. The repayment of the promissory note gives the Company flexibility to pursue its strategic growth plans.
There remains uncertainty about the U.S. federal government's position on cannabis with respect to cannabis-legal states. A change in its enforcement policies could impact the ability of the Company to continue as a going concern and have a material adverse impact on the business.
INTEREST RATE RISK
Interest rate risk is the risk that the fair value or future cash flows of a financial instrument will fluctuate because of changes in market interest rates, especially given the tightening interest rate environment since the beginning of 2022. The Company is not subject to any interest rate volatility as its long-term debt instruments and convertible notes are carried at a fixed interest rate throughout their term.
CAPITAL MANAGEMENT
The Company's objectives when managing its capital are to ensure there are enough capital resources to continue operating as a going concern and maintain the Company's ability to ensure sufficient levels of funding to support its ongoing operations and development. The purpose of these objectives is to provide continued returns and benefits to the Company's shareholders. The Company's capital structure includes items classified in debt and shareholders' equity.
The Board does not establish quantitative return on capital criteria for management, but rather relies on the expertise of the Company's management to sustain future development of the business considering changes in economic conditions and the risk characteristics of the Company's underlying asset.
The Company works with its capital advisors, CB1 Capital based in New York, to identify the best strategic options to execute our corporate growth plans, as well as increasing financial flexibility in managing our debt.
U.S. INDUSTRY BACKGROUND AND REGULATORY ENVIRONMENT
INDUSTRY BACKGROUND AND TRENDS
The emergence of the legal cannabis sector in the United States, both for medical and adult use, has been rapid as more states adopt regulations for its production and sale. Today 73% of Americans live in a state where cannabis is legal in some form and 48% of the population lives in states where it is fully legalized for adult use.
The use of cannabis and cannabis derivatives to treat or alleviate the symptoms of a wide variety of chronic conditions has been generally accepted by a majority of citizens with a growing acceptance by the medical community as well. A review of the research, published in 2015 in the Journal of the American Medical Association, found evidence that cannabis can treat pain and muscle spasms. The pain component is particularly important, because other studies have suggested that cannabis can replace patients' use of highly addictive, potentially deadly opiates - meaning cannabis legalization literally improves lives.
Polls throughout the United States consistently show overwhelming support for the legalization of medical cannabis, together with strong majority support for the full legalization of recreational adult-use cannabis. According to an October 2022 Pew Research Center survey, around nine-in-ten Americans favor some form of cannabis legalization, with roughly 10% saying cannabis should not be legal in any form. In that survey, 88% of U.S. adults support legalizing cannabis either for medical and recreational use (59%) or medical use only (30%). These views have held steady since April 2021 polling from the Pew Research Center. These are large increases in public support over the past 40 years in favor of legalized cannabis use.
Notwithstanding that 40 states and the District of Columbia have now legalized adult-use and/or medical cannabis (with 21 states and the District of Columbia allowing adult-use cannabis), cannabis remains illegal under U.S. federal law with cannabis listed as a Schedule I drug under the U.S. Federal Controlled Substances Act of 1970 ("CSA").
Currently the Company only operates in the state of Nevada. The Company may expand into other states within the United States that have legalized cannabis use either medicinally or recreationally.
FEDERAL REGULATORY ENVIRONMENT
For a complete summary of the Federal regulatory environment, please refer to the Company's MDA for the years ended January 31, 2023, and 2022, for detailed disclosure in this regard.
NEVADA REGULATORY UPDATE
For a summary of the Nevada regulatory environment, please refer to the Company's MDA for the years ended January 31, 2023, and 2022, for detailed disclosure in this regard.
RISK FACTORS
For a comprehensive list of the risk factors relating to the business and securities of the Company, please refer to the Company's MDA for the years ended January 31, 2023, and 2022 for detailed disclosure in this regard. The Company will face a few challenges and significant risks in the development of its business due to the nature of and present stage of its business. These risks and uncertainties are not the only ones facing the Company. Additional risks and uncertainties not presently known to the Company or currently deemed immaterial by the Company, may also impair the operations of or materially adversely affect the securities of the Company. If any such risks occur, the Company's shareholders could lose all or part of their investment and the business, financial condition, liquidity, results of operations and prospects of the Company could be materially adversely affected. Some of the risk factors previously disclosed are interrelated and, consequently, readers should read such risk factors in connection with one another.
The acquisition of any of the securities of the Company is speculative, involving a high degree of risk and should be undertaken only by persons whose financial resources are enough to enable them to assume such risks and who have no need for immediate liquidity in their investment. An investment in the securities of the Company should not constitute a major portion of a person's investment portfolio and should only be made by persons who can afford a total loss of their investment.
FORWARD LOOKING STATEMENTS
This MD&A includes "forward-looking information" and "forward-looking statements" within the meaning of Canadian securities laws and United States securities laws. All information, other than statements of historical facts, included in this MD&A that addresses activities, events or developments that the Company expects or anticipates will or may occur in the future is forward-looking information. Forward-looking information includes, among other things, information regarding: statements relating to the business and future activities of, and developments related to, the Company, including such things as the lasting impact of the COVID-19 pandemic with potential reductions of operating (including marketing) and capital expenses and revenues, future business strategy, competitive strengths, goals, expansion and growth of the Company's business, operations and plans, including information concerning the completion and timing of the completion of contemplated acquisitions or dispositions, expectations whether such proposed transactions will be consummated on the current terms or otherwise and contemplated timing, expectations and effects of such proposed transactions, including the potential number and location of cultivation and production facilities and dispensaries or licenses therefor to be acquired or sold and markets to be entered into or exited by the Company as a result of completing such proposed transactions, the ability of the Company to successfully achieve its business objectives as a result of completing such proposed acquisitions or dispositions, estimates of future cultivation, manufacturing and extraction capacity, expectations as to the development and distribution of the Company's brands and products, the expansion into additional U.S. and international markets, any potential future legalization of adult-use and/or medical cannabis under U.S. federal law, expectations of market size and growth in the United States and the states in which the Company operates or contemplates future operations and the effect such growth will have on the Company's financial performance, expectations for other economic, business, regulatory and/or competitive factors related to the Company or the cannabis industry generally, and other events or conditions that may occur in the future.
Readers are cautioned that forward-looking information and statements are based on reasonable assumptions, estimates, analysis and opinions of management of the Company at the time they were provided or made in light of their experience and their perception of trends, current conditions and expected developments, as well as other factors that management believes to be relevant and reasonable in the circumstances, and involve known and unknown risks, uncertainties and other factors which may cause the actual results, performance or achievements of the Company, to be materially different from any future results, performance or achievements expressed or implied by such forward-looking information and statements.
Forward-looking information and statements are not a guarantee of future performance and are based upon a number of estimates and assumptions of management at the date the statements are made including among other things assumptions about: the contemplated acquisitions and dispositions being completed on the current terms and current contemplated timeline; development costs remaining consistent with budgets; ability to manage anticipated and unanticipated costs; favorable equity and debt capital markets; the ability to raise sufficient capital to advance the business of the Company; favorable operating and economic conditions; political and regulatory stability; obtaining and maintaining all required licenses and permits; receipt of governmental approvals and permits; sustained labor stability; favorable production levels and costs related to the Company's operations; the pricing of various cannabis products; the level of demand for cannabis products; the availability of third party service providers and other inputs for the Company's operations; the Company's ability to conduct operations in a safe, efficient and effective manner; the ability of the Company to restructure and service its secured debt; the availability of securitized debt financing on terms acceptable to the Company, or at all; and the ability of the Company's operations to perform and continue in the ordinary course in light of the lasting impact of the COVID-19 pandemic. While the Company considers these assumptions to be reasonable, the assumptions are inherently subject to significant business, social, economic, political, regulatory, competitive and other risks, uncertainties, contingencies and other factors that could cause actual performance, achievements, actions, events, results or conditions to be materially different from those projected in the forward-looking information and statements. Many assumptions are based on factors and events that are not within the control of the Company and there is no assurance they will prove to be correct.
Risks, uncertainties and other factors which may cause the actual results, performance or achievements of the Company to be materially different from any future results, performance or achievements expressed or implied by such forward-looking information and statements include, among others, risks relating to U.S. regulatory landscape and enforcement related to cannabis, including governmental and environmental regulation, public opinion and perception of the cannabis industry, risks related to the ability to consummate any proposed acquisitions or dispositions on the proposed terms and the ability to obtain requisite regulatory approvals and third party consents and the satisfaction of other conditions, risks related to reliance on third party service providers, the limited operating history of the Company, risks inherent in an agricultural business, risks related to proprietary intellectual property, risks relating to financing activities, risks relating to the management of growth, increasing competition in the cannabis industry, risks associated to cannabis products manufactured for human consumption including health risks, potential product recalls, reliance on key inputs, reliance on a healthy global supply chain, suppliers and skilled labor (the availability and retention of which is subject to uncertainty), cyber-security risks, ability and constraints on marketing products, fraudulent activity by employees, contractors and consultants, risk of litigation and conflicts of interest, and the difficulty of enforcement of judgments and effecting service outside of Canada, risks related to future acquisitions or dispositions, limited research and data relating to cannabis, risks and uncertainties related to the lasting impact of the COVID-19 pandemic and the continued impact it may have on the global economy and the retail sector, particularly the cannabis retail sector in the states in which the Company operates, as well as those risk factors discussed elsewhere herein, including under "Risk Factors".
Although the Company has attempted to identify important factors that could cause actual results to differ materially, there may be other factors that cause results not to be as anticipated, estimated or intended. There can be no assurance that such forward-looking information and statements will prove to be accurate as actual results and future events could differ materially from those anticipated in such information and statements. Accordingly, readers should not place undue reliance on forward-looking information and statements. The Company may elect to update such forward-looking information and statements at a future time, it assumes no obligation for doing so except to the extent required by applicable law.
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This is an unofficial consolidation of Form 52-109FV2 Certification of Interim Filings Venture Issuer Basic Certificate reflecting amendments made effective January 1, 2011 in connection with Canada's changeover to IFRS. The amendments apply for financial periods relating to financial years beginning on or after January 1, 2011. This document is for reference purposes only and is not an official statement of the law. |
Form 52-109FV2
Certification of Interim Filings
Venture Issuer Basic Certificate
I, Sonny Newman, Chief Executive Officer of C21 Investments Inc., certify the following:
1. Review: I have reviewed the interim financial report and interim MD&A (together, the "interim filings") of C21 Investments Inc. (the "issuer") for the interim period ended April 30, 2023.
2. No misrepresentations: Based on my knowledge, having exercised reasonable diligence, the interim filings do not contain any untrue statement of a material fact or omit to state a material fact required to be stated or that is necessary to make a statement not misleading in light of the circumstances under which it was made, with respect to the period covered by the interim filings.
3. Fair presentation: Based on my knowledge, having exercised reasonable diligence, the interim financial report together with the other financial information included in the interim filings fairly present in all material respects the financial condition, financial performance and cash flows of the issuer, as of the date of and for the periods presented in the interim filings.
Date: June 29, 2023
SIGNED: "Sonny Newman"
Sonny Newman, Chief Executive Officer
NOTE TO READER
In contrast to the certificate required for non-venture issuers under National Instrument 52-109 Certification of Disclosure in Issuers' Annual and Interim Filings (NI 52-109), this Venture Issuer Basic Certificate does not include representations relating to the establishment and maintenance of disclosure controls and procedures (DC&P) and internal control over financial reporting (ICFR), as defined in NI 52-109. In particular, the certifying officers filing this certificate are not making any representations relating to the establishment and maintenance of
i) controls and other procedures designed to provide reasonable assurance that information required to be disclosed by the issuer in its annual filings, interim filings or other reports filed or submitted under securities legislation is recorded, processed, summarized and reported within the time periods specified in securities legislation; and
ii) a process to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with the issuer's GAAP.
The issuer's certifying officers are responsible for ensuring that processes are in place to provide them with sufficient knowledge to support the representations they are making in this certificate. Investors should be aware that inherent limitations on the ability of certifying officers of a venture issuer to design and implement on a cost effective basis DC&P and ICFR as defined in NI 52-109 may result in additional risks to the quality, reliability, transparency and timeliness of interim and annual filings and other reports provided under securities legislation.
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This is an unofficial consolidation of Form 52-109FV2 Certification of Interim Filings Venture Issuer Basic Certificate reflecting amendments made effective January 1, 2011 in connection with Canada's changeover to IFRS. The amendments apply for financial periods relating to financial years beginning on or after January 1, 2011. This document is for reference purposes only and is not an official statement of the law. |
Form 52-109FV2
Certification of Interim Filings
Venture Issuer Basic Certificate
I, Michael Kidd, Chief Financial Officer of C21 Investments Inc., certify the following:
1. Review: I have reviewed the interim financial report and interim MD&A (together, the "interim filings") of C21 Investments Inc. (the "issuer") for the interim period ended April 30, 2023.
2. No misrepresentations: Based on my knowledge, having exercised reasonable diligence, the interim filings do not contain any untrue statement of a material fact or omit to state a material fact required to be stated or that is necessary to make a statement not misleading in light of the circumstances under which it was made, with respect to the period covered by the interim filings.
3. Fair presentation: Based on my knowledge, having exercised reasonable diligence, the interim financial report together with the other financial information included in the interim filings fairly present in all material respects the financial condition, financial performance and cash flows of the issuer, as of the date of and for the periods presented in the interim filings.
Date: June 29, 2023
SIGNED: "Michael Kidd"
Michael Kidd, Chief Financial Officer
NOTE TO READER
In contrast to the certificate required for non-venture issuers under National Instrument 52-109 Certification of Disclosure in Issuers' Annual and Interim Filings (NI 52-109), this Venture Issuer Basic Certificate does not include representations relating to the establishment and maintenance of disclosure controls and procedures (DC&P) and internal control over financial reporting (ICFR), as defined in NI 52-109. In particular, the certifying officers filing this certificate are not making any representations relating to the establishment and maintenance of
i) controls and other procedures designed to provide reasonable assurance that information required to be disclosed by the issuer in its annual filings, interim filings or other reports filed or submitted under securities legislation is recorded, processed, summarized and reported within the time periods specified in securities legislation; and
ii) a process to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with the issuer's GAAP.
The issuer's certifying officers are responsible for ensuring that processes are in place to provide them with sufficient knowledge to support the representations they are making in this certificate. Investors should be aware that inherent limitations on the ability of certifying officers of a venture issuer to design and implement on a cost effective basis DC&P and ICFR as defined in NI 52-109 may result in additional risks to the quality, reliability, transparency and timeliness of interim and annual filings and other reports provided under securities legislation.