C21 Investments Inc 20-F for FY2026
C21 Investments Inc. (CWLXF)
About this 20-F
C21 Investments Inc filed this 20-F on June 12, 2026, covering the fiscal year ended March 31, 2026 (FY2026).
Headline figures
Fiscal year ended March 31, 2026, as reported in this filing, compared with the same period a year earlier where the filing states it.
- Revenue
- $32.61M
- up 8.3% from $30.12M a year earlier
- Net loss
- $3.24M
- compared with a net loss of $3.97M a year earlier
- Diluted EPS
- -$0.03
- compared with -$0.03 a year earlier
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM
| REGISTRATION STATEMENT PURSUANT TO SECTION 12(b) OR (g) OF THE SECURITIES EXCHANGE ACT OF 1934 | ||
| OR | ||
| ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 | ||
| For fiscal year ended |
||
| OR | ||
| TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 | ||
| For the transition period from ____ to ______ | ||
| OR | ||
| SHELL COMPANY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 | ||
| Date of event requiring this shell company report: | ||
| Commission file number |
(Exact name of Registrant as specified in its charter)
British Columbia,
(Jurisdiction of incorporation or organization)
(Address of principal executive offices)
C21 Investments Inc.
Tel:
(Name, Telephone, E-mail and/or Facsimile number and Address of Company Contact Person)
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Securities registered pursuant to Section 12(b) of the Act: Not applicable.
Securities registered pursuant to Section 12(g) of the Act:
Securities for which there is a reporting obligation pursuant to Section 15(d) of the Act: None
Indicate the number of outstanding shares of each of the issuer's classes of capital or common stock as of the close of the period covered by the annual report: As at March 31, 2026,
Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act.
Yes ☐
If this report is an annual or transition report, indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934. Yes ☐
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.
Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files.
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or an emerging growth company. See definition of "large accelerated filer, "accelerated filer," and "emerging growth company" in Rule 12b-2 of the Exchange Act.
|
Large accelerated filer ☐ |
Accelerated filer ☐ |
|
Emerging growth company |
If an emerging growth company that prepares its financial statements in accordance with U.S. GAAP, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards† provided pursuant to Section 13(a) of the Exchange Act.
| † | The term "new or revised financial accounting standard" refers to any update issued by the Financial Accounting Standards Board to its Accounting Standards Codification after April 5, 2012. |
Indicate by check mark whether the registrant has filed a report on and attestation to its management's assessment of the effectiveness of its internal control over financial reporting under Section 404(b) of the Sarbanes-Oxley Act (15 U.S.C. 7262(b)) by the registered public accounting firm that prepared or issued its audit report.
If securities are registered pursuant to Section 12(b) of the Act, indicate by check mark whether the financial statements of the registrant included in the filing reflect the correction of an error to previously issued financial statements.
Indicate by check mark whether any of those error corrections are restatements that required a recovery analysis of incentive-based compensation received by any of the registrant's executive officers during the relevant recovery period pursuant to §240.10D-1(b). [ ]
Indicate by check mark which basis of accounting the registrant has used to prepare the financial statements included in this filing:
| International Financial Reporting Standards as issued ☐ Other ☐ by the International Accounting Standards Board |
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If "Other" has been checked in response to the previous question, indicate by check mark which financial statement item the registrant has elected to follow:
Item 17 ☐ Item 18 ☐
If this is an annual report, indicate by check mark whether the Registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ☐ No
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INTRODUCTION
In this annual report on Form 20-F, which we refer to as the "Annual Report", except as otherwise indicated or as the context otherwise requires, the "Company", "we", "our" or "us" or "C21" refers to C21 Investments Inc. The Company is a "foreign private issuer" as defined in Rule 3b-4 under the United States Securities and Exchange Act of 1934, as amended (the "Exchange Act") and Rule 405 under the United States Securities Act of 1933, as amended (the "Securities Act"). Equity securities of the Company are accordingly exempt from Sections 14(a), 14(b), 14(c), 14(f) and 16 of the Exchange Act pursuant to Rule 3a12-3 thereunder.
CURRENCY
Unless otherwise indicated, all dollar amounts in this Annual Report are in United States dollars. The exchange rate of Canadian dollars into United States dollars, on March 31, 2026 based upon the daily exchange rate as quoted by the Bank of Canada was U.S.$1.00 = Cdn.$1.3939.
CAUTIONARY NOTE REGARDING FORWARD-LOOKING STATEMENTS
This Annual Report includes "forward-looking information" and "forward-looking statements" within the meaning of Canadian securities laws and United States ("U.S.") securities laws (collectively, "forward-looking statements"). All forward-looking statements, other than statements of historical facts, included in this Annual Report that addresses activities, events or developments that the Company expects or anticipates will or may occur in the future is forward-looking statements. Forward-looking statements includes, among other things, information regarding: statements relating to the business and future activities of, and developments related to, the Company, 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 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 statements.
Forward-looking statements is 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. 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 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.
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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 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, 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 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 statements.
The Company may elect to update such forward-looking statements at a future time, it assumes no obligation for doing so except to the extent required by applicable law.
The forward-looking statements or information contained in this Annual Report are made as of the date of this filing.
PART I.
Item 1. Identity of Directors, Senior Management and Advisers
Not Applicable.
Item 2. Offer Statistics and Expected Timetable
Not Applicable.
Item 3. Key Information
A. [Reserved]
B. Capitalization and Indebtedness
Not Applicable.
C. Reasons for the Offer and Use of Proceeds
Not Applicable.
D. Risk Factors
The following are certain factors relating to the business and securities of the Company. The Company will face a number of 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 described herein are interrelated and, consequently, readers should treat such risk factors as a whole.
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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.
Risks Related to the Cannabis Industry
While certain U.S. states have enacted medical and/or adult-use cannabis legislation, cannabis continues to be illegal under U.S. federal law, which may subject us to regulatory or legal enforcement, litigation, increased costs and reputational harm.
Ninety-four percent (94%) of the U.S. states have enacted legislation to regulate the sale and use of cannabis on either a medical or adult- use level. However, notwithstanding the permissive regulatory environment of cannabis at the state level, cannabis continues to be categorized as a controlled substance under the U.S. Controlled Substances Act of 1970 ("CSA"), and as such, activities within the cannabis industry are illegal under U.S. federal law. It is also illegal to aid or abet such activities or to conspire to attempt to engage in such activities. Financing businesses in the cannabis industry may be deemed aiding and abetting an illegal activity under federal law. If such an action were brought, we may be forced to cease operations and our investors could lose their entire investment. Such an action would have a material negative effect on our business and operations.
Individual U.S. state laws do not always conform to U.S. federal regulatory standards, or to other U.S. state laws. A number of states have decriminalized marijuana to varying degrees, other states have created exemptions specifically for medical cannabis, and several have both decriminalized and/or created medical marijuana exemptions. Several states have also legalized the recreational use of cannabis. Variations exist among states that have legalized, decriminalized or created medical marijuana exemptions. For example, Oregon and Colorado have limits on the number of marijuana plants that can be home grown. In most states, the cultivation of marijuana for personal use continues to be prohibited except for those states that allow small-scale cultivation by the individual in possession of a medical marijuana license or that person's caregiver. Even in those states in which the use and commercialization of marijuana has been legalized, its use remains a violation of U.S. federal law.
The Company is currently aware of 47 states of the United States, the District of Columbia, and four out of five U.S. territories, that have laws and/or regulations that recognize, in one form or another, legitimate medical uses for cannabis and consumer use of cannabis in connection with medical treatment. Additionally, the sale and adult-use of recreational cannabis is legal in 24 U.S. states and the District of Columbia, including: Alaska, Arizona, California, Colorado, Connecticut, Delaware, Illinois, Maine, Maryland, Massachusetts, Michigan, Minnesota, Missouri, Montana, Nevada, New Jersey, New Mexico, New York, Ohio, Oregon, Rhode Island, Vermont, Virginia, and Washington. At the federal level, however, adult-use cannabis currently remains a Schedule I controlled substance under the CSA while state-legal medical marijuana and drugs containing marijuana which have been approved by the Food and Drug Administration ("FDA") have recently been rescheduled to Schedule III. 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. Schedule III drugs have currently accepted medical use in treatment in the United States and abuse of the drug may lead to moderate or low physical dependence or high psychological dependence, 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. Even with the rescheduling of state-medical marijuana and FDA approved drugs, if those substances are not manufactured, possessed, and distributed pursuant to the CSA, these activities remain illegal.
Although the Company's activities are in compliance with applicable state and local law, strict compliance with state and local laws with respect to cannabis may neither absolve the Company of liability under U.S. federal law, nor may it provide a defense to any federal proceeding which may be brought against the Company. Any such proceedings brought against the Company may adversely affect the Company's operations and financial performance.
The Company could face a number of operational risks and may not be adequately insured for such risks.
The Company will be affected by a number of operational risks and may not be adequately insured for certain risks, including: labor disputes, catastrophic accidents, fires, blockades or other acts of social activism, changes in the regulatory environment, impact of non-compliance with laws or regulations, natural phenomena, such as inclement weather conditions, floods, earthquakes and ground movements. There is no assurance that the foregoing risks and hazards will not result in damage to, or destruction of, the Company's properties, grow facilities and extraction facilities, personal injury or death, environmental damage, adverse impacts on the Company's operations, costs, monetary losses, potential legal liability and adverse governmental action, any of which could have an adverse impact on the Company's future cash flows, earnings and financial condition.
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Proceeds from the Company's financings could be considered proceeds of crime which may restrict the Company's ability to pay dividends or effect other distributions to its shareholders.
Currently, the Company engages in the manufacture, distribution, possession and sale of cannabis in the U.S. medical and adult-use cannabis markets, and therefore the enforcement of U.S. federal laws is a significant risk to the Company. Unless and until the U.S. Congress amends the CSA (or the Drug Enforcement Agency ("DEA") reschedules all forms of cannabis and establishes a pathway for state-legal cannabis operators to comply with the CSA or de-schedules cannabis), there is a risk that U.S. federal authorities, including the United States Attorney's Office for the District of Nevada, may enforce current federal law, and the Company may be deemed to be possessing, manufacturing, and trafficking marijuana in violation of U.S. federal law. Such activities also may serve as the basis for the prosecution of other crimes, such as those prohibited by the money laundering statutes, the unlicensed money transmitter statute, and the U.S. Currency and Foreign Transactions Reporting Act of 1970 ("Bank Secrecy Act"). Additionally, the Company may be deemed to be facilitating the sale or distribution of drug paraphernalia in violation of U.S. federal law with respect to the Company's current or proposed business operations. As to the timing or scope of any such potential amendments to the CSA, there can be no assurances to when or if any potential amendments will be enacted. Active enforcement of the current federal statutory laws and regulatory rules regarding cannabis may thus directly and/or indirectly and adversely affect the Company's future operations, cash flows, earnings, and financial condition.
The Company could face (i) seizure of its cash and other assets used to support or derived from its cannabis subsidiaries; and (ii) the arrest of its employees, directors, officers, managers and investors, who could face charges of ancillary criminal violations of the CSA for aiding and abetting and conspiring to violate the CSA by virtue of providing financial support to state-licensed or permitted cultivators, processors, distributors, and/or retailers of cannabis. Additionally, as affirmed by U.S. Customs and Border Protection, employees, directors, officers, managers and investors of the Company who are not U.S. citizens face the risk of being barred from entry into the United States for life.
Management may not be able to predict all new emerging risks or how such risks may impact actual results of the Company in the highly regulated, highly competitive and rapidly evolving U.S. cannabis industry.
As a result of the conflicting views between individual state governments and the U.S. federal government regarding cannabis, investments in U.S. cannabis businesses are subject to inconsistent legislation and regulation. The response to this inconsistency was addressed in August 2013 when then U.S. Deputy Attorney General, James Cole, authorized the Cole Memo (as defined herein) addressed to all United States Attorneys acknowledging that, notwithstanding the designation of cannabis as a controlled substance at the federal level in the U.S., several U.S. states have enacted laws relating to cannabis for medical purposes. The Cole Memo outlined certain priorities for the U.S. Department of Justice ("DOJ") relating to the prosecution of cannabis offenses. In particular, the Cole Memo noted that in jurisdictions that have enacted laws legalizing cannabis in some form, and that have also implemented strong and effective regulatory and enforcement systems to control the cultivation, distribution, sale and possession of cannabis, that conduct in compliance with those laws and regulations is less likely to be a priority at the federal level.
On January 4, 2018, Jeff Sessions, the U.S. Attorney General at the time, issued the Sessions Memo (as defined herein) to all United States Attorneys, which rescinded the Cole Memo in its entirety. The Sessions Memo provided that in deciding which marijuana activities to prosecute under U.S. federal laws, prosecutors should follow the same well-established principles that govern all U.S. federal prosecutions. Following the release of the Sessions Memo, the fate of state-legal cannabis is uncertain, and the risk of prosecution varies from state to state based on the posture, priorities and resources of each United States Attorney's Office for each applicable state.
Although the Cole Memo was rescinded, one legislative safeguard for the medical cannabis industry, appended to federal appropriations legislation, remains in place. Currently referred to as the "Rohrabacher-Blumenauer Amendment", this so-called "rider" provision has been appended to the Consolidated Appropriations Acts every year since fiscal year 2015. Under the terms of the Rohrabacher-Blumenauer rider, the federal government is prohibited from using congressionally appropriated funds to enforce federal cannabis laws against regulated medical cannabis actors operating in compliance with state and local law. There can be no assurances that the Rohrabacher-Blumenauer Amendment will be included in future appropriations bills to prevent the federal government from using congressionally appropriated funds to enforce federal cannabis laws against regulated medical cannabis actors operating in compliance with state and local law.
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In October of 2022, the Biden Administration announced its intention to review the regulation of cannabis under the CSA by directing the Secretary of Health and Human Services and the Attorney General to initiate the administrative process to expeditiously review marijuana's Schedule I status. On August 29, 2023, HHS delivered a recommendation to move cannabis from Schedule I to Schedule III to the DEA.
On May 21, 2024, the DEA published a proposed rule in the Federal register by which it proposed to transfer marijuana from Schedule I of the Controlled Substances Act to Schedule III. The DEA stated that the re-scheduling would be "consistent with the view of the Department of Health and Human Services that marijuana has a currently accepted medical use as well as HHS's views about marijuana's abuse potential and level of physical or psychological dependence." The DEA further stated that "if the transfer to Schedule III is finalized, the regulatory controls applicable to Schedule III controlled substances would apply, as appropriate, along with existing marijuana-specific requirements and any additional controls that might be implemented, including those that might be implemented to meet U.S. treaty obligations. If marijuana is transferred to Schedule III, the manufacture, distribution, dispensing, and possession of marijuana would remain subject to the applicable criminal prohibitions of the Controlled Substances Act. Any drugs containing a substance within the Controlled Substances Act's definition of 'marijuana' would also remain subject to the applicable prohibitions in the Federal Food, Drug, and Cosmetic Act."
On August 29, 2024, the DEA announced in the Federal Register that it would be holding a hearing on December 2, 2024, to address procedural and scheduling matters. Merits-based hearings were set to begin on January 1, 2025, with testimony from government witnesses, but these hearings were stayed indefinitely and later terminated. Meanwhile, federal litigation alleging impropriety by DEA in connection with the rescheduling remains pending. On December 18, 2025, President Trump signed an executive order directing U.S. Attorney General Pam Bondi to complete the rescheduling process in an "expeditious manner."
On April 23, 2026, the DOJ announced that it placed FDA-approved marijuana products and products containing medical marijuana subject to a qualifying state-issued license in Schedule III and announced that the DEA would be withdrawing the prior notice of hearing and terminating those proceedings. The DEA will hold new administrative hearings beginning on June 29, 2026.
On April 28, 2026, the DEA issued rules in the Federal Register rescheduling FDA-approved marijuana products and products containing medical marijuana from a state medical marijuana license from Schedule I to Schedule III of the CSA ("Rescheduling Rule"). The Rescheduling Rule also created an expedited process for state medical marijuana licensees to register with the DEA enabling these entities holding state medical marijuana licenses to engage in the manufacture, distribution, and/or dispensing of marijuana for medical purposes under federal law. The Rescheduling Rule did not appear to address or amend the legality of adult-use marijuana which are subject to the new administrative hearings beginning on June 29, 2026.
Given the conflict of laws and regulations, there is no certainty as to how the DOJ, Federal Bureau of Investigation and other government agencies will handle cannabis matters in the future. There can be no assurance that the Trump Administration would not change the current enforcement policies, priorities and resources and choose to enforce the subject federal laws. The Company regularly monitors ongoing developments in this regard.
Violations of any laws and regulations could result in significant fines, penalties, administrative sanctions, forfeiture, convictions or settlements arising from civil proceedings conducted by either the federal government or private citizens, or criminal charges, including, but not limited to, disgorgement of profits, cessation of business activities or divestiture. This could have a material adverse effect on the Company, including its reputation and ability to conduct business, its title (directly or indirectly) to cannabis licenses in the United States, the listing of its securities on various stock exchanges, its financial position, its operating results, and profitability or liquidity or the market price of its publicly traded shares. In addition, it is difficult for the Company to estimate the time or resources that would be needed for the investigation of any such matters or the final resolution of such matters because, in part, the time and resources that may be needed are dependent on the nature and extent of any information requested and degree of enforcement by the applicable authorities involved, and such time or resources could be substantial.
As a company listed on the Canadian Securities Exchange (the "CSE"), the Company accesses the Canadian capital markets on a public and private basis, and any capital raised may be utilized for the ongoing operations of its U.S. holdings that operate in the U.S. cannabis industry. There is no assurance that the Company will be successful, in whole or in part, in raising funds, particularly if the U.S. federal authorities change their position toward enforcing the CSA. Further, access to funding from residents, citizens, venture capital, private equity and banks in the United States may be limited due to their unwillingness to be associated with activities that violate U.S. federal laws. Notwithstanding the above, the SAFE Banking Act (as defined herein) would be a positive development for the industry and access to more affordable banking and lending.
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Changes to current laws and regulation may impose substantial costs on the Company.
Local, state and federal cannabis laws and regulations in the United States are broad in scope and subject to evolving interpretations, which could require the Company to incur substantial costs associated with compliance or alter certain aspects of its business plan. In addition, violations of these laws, or allegations of such violations, could disrupt certain aspects of the Company's business plan and result in a material adverse effect on certain aspects of the Company's planned operations. Furthermore, it is possible that regulations may be enacted in the future that will be directly applicable to certain aspects of the Company's cannabis business. The Company cannot predict the nature of any future laws, rules, regulations, resolutions, declarations, policy positions, interpretations or applications, nor can it determine what affect additional governmental regulations or administrative policies and procedures, when and if promulgated, could have on the Company's business.
Further, there is no guarantee that state laws legalizing and regulating the sale and use of cannabis will not be repealed or overturned, or that local governmental authorities will not limit the applicability of state laws within their respective jurisdictions. If the federal government begins to enforce federal laws relating to cannabis in states where the sale and use of cannabis is currently legal, or if existing applicable state laws are repealed or curtailed, the Company's business, results of operations, financial condition and prospects would be materially adversely affected.
The Company is aware that multiple states are considering special taxes or fees on businesses in the marijuana industry. It is a potential yet unknown risk at this time that other states are in the process of reviewing such additional fees and taxation. This could have a material adverse effect on the Company's business, results of operations, financial condition and prospects.
Beginning in September 2019, the United States media began reporting on potential vape related illnesses and death based on conditions resembling pneumonia, that consumers of flavored nicotine and flavored THC vaping products were experiencing. Vaping product sales are a material source of revenue for the Company. Although there has been no conclusive medical or scientific determination as to the cause of the subject conditions, management believes that the Company's products do not contain any of the components or chemicals, including but not limited to vitamin E acetate, which were implicated as possible sources of the condition, and which were identified by the CDC based on laboratory findings released on November 8, 2019. Out of an abundance of caution, governors of certain US states took precautionary, short-term actions until a more conclusive link between vaping products and the condition is determined; as mentioned in previous reports, Oregon was one of those states until the State was forced to lift its ban by court order on January 16, 2020.
The cannabis industry is subject to extensive controls and regulations, which may significantly affect the financial condition of market participants, including the Company.
The Company operates in a new industry which is highly regulated, highly competitive and evolving rapidly. As such, new risks may emerge, and management may not be able to predict all such risks. The Company incurs ongoing costs and obligations related to regulatory compliance. Failure to comply with regulations may result in additional costs for corrective measures, penalties or in restrictions of operations. In addition, changes in regulations, more vigorous enforcement thereof or other unanticipated events could require extensive changes to operations, increased compliance costs or give rise to material liabilities, which could have a material adverse effect on the business, results of operations and financial condition of the Company.
Further, the Company may be subject to a variety of claims and lawsuits. Adverse outcomes in some or all of these claims may result in significant monetary damages or injunctive relief that could adversely affect its ability to conduct its business.
Litigation and other claims are subject to inherent uncertainties and management's view of these matters may change in the future. A material adverse impact on the Company's financial statements could also occur for the period in which the effect of an unfavorable outcome becomes probable and reasonably estimable.
The cannabis industry is subject to extensive controls and regulations, which may significantly affect the financial condition of market participants. The marketability of any product may be affected by numerous factors that are beyond the control of the Company and which cannot be predicted, such as changes to government regulations, including those relating to taxes and other government levies which may be imposed. Changes in government levies, including taxes, could reduce the Company's earnings on investments and could make future capital investments or the Company's operations uneconomic.
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The cannabis industry is also subject to numerous legal challenges, which may significantly affect the financial condition of market participants in the industry, such as the Company, which cannot be readily predicted.
Regulatory scrutiny of the Company's industry may negatively impact its ability to raise additional capital.
The Company's business activities rely on newly established and/or developing laws and regulations. These laws and regulations are rapidly evolving and subject to change with minimal notice. Regulatory changes may adversely affect the Company's profitability or cause it to cease operations entirely. The cannabis industry may come under the scrutiny or further scrutiny by the U.S. Food and Drug Administration, U.S. Securities and Exchange Commission (the "SEC"), the DOJ, the Financial Industry Regulatory Authority or other federal, applicable state or nongovernmental regulatory authorities or self-regulatory organizations that supervise or regulate the production, distribution, sale or use of cannabis for medical or nonmedical purposes in the United States.
It is impossible to determine the extent of the impact of any new laws, regulations or initiatives that may be proposed, or whether any proposals will become law. The regulatory uncertainty surrounding the Company's industry may adversely affect the business and operations of the Company, including without limitation, the costs to remain compliant with applicable laws and the impairment of its ability to raise additional capital, which could reduce, delay or eliminate any return on investment in the Company.
The Company's operations in the U.S. are subject to applicable anti-money laundering laws and regulations.
The Company is subject to a variety of laws and regulations domestically and in the United States that involve money laundering, financial record keeping and proceeds of crime, including the Bank Secrecy Act, as amended by Title III of the Uniting and Strengthening America by Providing Appropriate Tools Required to Intercept and Obstruct Terrorism Act of 2001, the Proceeds of Crime (Money Laundering) and Terrorist Financing Act (Canada), as amended and the rules and regulations thereunder, and any related or similar rules, regulations or guidelines, issued, administered or enforced by governmental authorities in the United States and Canada.
In the event that any of the Company's operations, or any proceeds thereof, any dividends or distributions therefrom, or any profits or revenues accruing from such operations in the United States were found to be in violation of money laundering legislation or otherwise, such transactions may be viewed as proceeds of crime under one or more of the statutes noted above or any other applicable legislation. This could restrict or otherwise jeopardize the ability of the Company to declare or pay dividends, effect other distributions or subsequently repatriate such funds back to Canada. Furthermore, while there are no current intentions to declare or pay dividends on C21's common shares in the foreseeable future, in the event that a determination was made that the Company's proceeds from operations (or any future operations or investments in the United States) could reasonably be shown to constitute proceeds of crime, the Company may decide or be required to suspend declaring or paying dividends without advance notice and for an indefinite period of time.
The Company's operations and any proceeds thereof may be considered proceeds of crime since cannabis remains illegal federally in the United States. This restricts the ability of the Company to declare or pay dividends, effect other distributions or subsequently repatriate such funds back to Canada. Furthermore, while the Company has no current intention to declare or pay dividends on its shares in the foreseeable future, the Company may decide or be required to suspend declaring or paying dividends without advance notice and for an indefinite period of time in response to factors outside of the Company's control.
The Company may have difficulty accessing the services of banks and processing credit card payments in the future, which may make it difficult to operate. To mitigate this risk, the Company has maintained banking relations with three banks and credit unions in states where cannabis has been legalized at the state level, including Partners Colorado Credit Union (Colorado), FFB-First Fresno Bank(California) and Greater Nevada Credit Union (Nevada). Through these banks and credit unions, the Company is able to access banking services to support its Nevada cannabis operations.
Losing access to traditional banking, or bank-specific liquidity risks, could have a significant effect on our ability to operate, conclude financings and achieve returns.
Since the use of cannabis is illegal under U.S. federal law, there is a strong argument that banks cannot accept for deposit funds from businesses involved with the cannabis industry. Consequently, businesses involved in the cannabis industry often have difficulty finding a bank willing to accept their business. The inability to open or maintain traditional bank accounts may make it difficult to operate the Company's cannabis business. To mitigate this risk, the Company has maintained banking relations with three private credit unions in states where cannabis has been legalized at the state level, including Partners Colorado Credit Union (Colorado), Salal (Washington State) and Greater Nevada Credit Union (Nevada). Through these private credit union banks, the Company can access comprehensive banking services including cash management checking accounts, ACH transfer processing, cash pick-up and delivery services, debit card and credit card processing, online banking, and processing of bank wires and transfers.
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The recent closures of Silicon Valley Bank, Signature Bank and First Republic Bank and their placement into receivership with the Federal Deposit Insurance Corporation ("FDIC") have identified bank-specific liquidity risks and concerns. Although the Department of the Treasury, the Federal Reserve, and the FDIC jointly released a statement that depositors at Silicon Valley Band Bank and Signature Bank would have access to their funds, even deposit amounts that exceed FDIC deposit insurance limits, future adverse developments with respect to specific financial institutions or the broader financial services industry may lead to market-wide liquidity shortages.
The February 2014 U.S. Department of the Treasury Financial Crimes Enforcement Network ("FinCEN") Guidance (as defined herein), sets forth certain circumstances whereby it is permissible for banks to provide services to cannabis-related businesses without risking prosecution for violation of federal money laundering laws. However, as discussed above, most banks and other financial institutions do not feel comfortable providing banking services to cannabis-related businesses, or relying on the FinCEN Guidance which could be revoked at any time by the Trump Administration. In addition to the foregoing, banks may refuse to process debit card payments and credit card companies generally refuse to process credit card payments for cannabis-related businesses.
Accordingly, the Company may have limited or no access to banking or other financial services in the U.S. in the future and may have to operate the Company's U.S. business on a cash-only basis. In addition, federal money laundering statutes and Bank Secrecy Act regulations discourage financial institutions from working with any organization that sells a controlled substance, regardless of whether the state it resides in permits cannabis sales. While the United States House of Representatives has passed the SAFE Banking Act, which would permit commercial banks to offer services to cannabis companies that are in compliance with state law, it remains under consideration by the Senate, and if Congress fails to pass the SAFE Banking Act, the Company's inability, or limitations on the Company's ability, to open or maintain bank accounts, obtain other banking services and/or accept credit card and debit card payments, may make it difficult for the Company to operate and conduct its business as planned or to operate efficiently. The prospects of the SAFE Banking Act, or some permutation thereof, becoming law is uncertain as of the date of this Annual Report.
The Company's operations in the United States may be subject to heightened scrutiny.
The Company's existing operations in the United States cannabis market, and any future interests, may become the subject of heightened scrutiny by regulators, stock exchanges, clearing agencies or other authorities in Canada. As a result, the Company may be subject to significant direct and indirect interaction with public officials. There can be no assurance that this heightened scrutiny will not in turn lead to the imposition of certain restrictions on the Company's ability to invest in the United States or any other jurisdiction.
Given the heightened risk profile associated with cannabis in the United States, it was previously reported by certain publications in Canada that the Canadian Depository for Securities Limited may implement policies that would see its subsidiary, CDS Clearing and Depository Services Inc. ("CDS"), refuse to settle trades for cannabis issuers that have investments in the United States. The TMX Group, the owner and operator of CDS, subsequently issued a statement on August 17, 2017, reaffirming that there is no CDS ban on the clearing of securities of issuers with cannabis-related activities in the United States, despite media reports to the contrary, and that the TMX Group was working with regulators to arrive at a solution that will clarify this matter, which would be communicated at a later time.
On February 8, 2018, following discussions with the Canadian Securities Administrators and recognized Canadian securities exchanges, the TMX Group announced the signing of a Memorandum of Understanding (the "TMX MOU") with Aequitas NEO Exchange Inc., the CSE, the Toronto Stock Exchange and the TSX Venture Exchange (the "TSXV"). The TMX MOU outlines the parties' understanding of Canada's regulatory framework applicable to the rules, procedures and regulatory oversight of the exchanges and CDS as it relates to issuers with cannabis-related activities in the United States.
The TMX MOU confirms, with respect to the clearing of listed securities, that CDS relies on the exchanges to review the conduct of listed issuers. As a result, there is no CDS ban on the clearing of securities of issuers with cannabis-related activities in the United States. However, there can be no guarantee that this approach to regulation will continue in the future. If such a ban were to be implemented, it would have a material adverse effect on the ability of holders of common shares to make and settle trades. In particular, the common shares would become highly illiquid and until an alternative was implemented investors would have no ability to affect a trade of common shares through the facilities of a stock exchange.
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Unfavorable publicity or consumer perception of cannabis may have an adverse effect on the demand for our products.
The Company believes the adult-use and medical cannabis industries are highly dependent upon consumer perception regarding the safety, efficacy and quality of the cannabis produced. Consumer perception can be significantly influenced by scientific research or findings, regulatory investigations, litigation, media attention and other publicity regarding the consumption of cannabis products. There can be no assurance that future scientific research or findings, regulatory investigations, litigation, media attention or other publicity will be favorable to the cannabis market or any particular product, or consistent with earlier publicity. Future research reports, findings, regulatory investigations, litigation, media attention or other publicity that are perceived as less favorable than, or that question, earlier research reports, findings or other publicity could have a material adverse effect on the demand for adult-use or medical cannabis and on the business, results of operations, financial condition, cash flows or prospects of the Company. Further, adverse publicity reports or other media attention regarding the safety, efficacy and quality of cannabis in general, or associating the consumption of adult-use and medical cannabis with illness or other negative effects or events, could have such a material adverse effect. There is no assurance that such adverse publicity reports, findings or other media attention will not arise.
Public opinion may result in a significant influence over the regulation of the cannabis industry in Canada, the United States or elsewhere. A negative shift in the public's perception of cannabis in the United States, or any other applicable jurisdiction could affect future legislation or regulation. Among other things, such a shift could cause state jurisdictions to abandon initiatives or proposals to legalize medical cannabis, thereby limiting the number of new state jurisdictions into which the Company could expand. Any limits on future expansion may have a material adverse effect on the Company's business, financial condition, and results of operations.
State and local laws and regulations may heavily regulate brands and forms of cannabis products and there is no guarantee that the Company's current and proposed brands and products will remain or be approved for sale and distribution in any state.
States generally only allow the manufacture, sale and distribution of cannabis products that are grown in that state and may require advance notice of such products. Certain states and local jurisdictions have promulgated certain requirements for approved cannabis products based on the form of the product and the concentration of the various cannabinoids in the product. While the Company will continue to follow the guidelines and regulations of each applicable state and local jurisdiction in preparing products for sale and distribution, there is no guarantee that such future products will be approved to the extent necessary. For the products that are approved, there is a risk that any state or local jurisdiction may revoke its approval for such products based on changes in laws or regulations or based on its discretion or otherwise.
The business premises of the Company are a target for theft, which may have an adverse impact on its financial condition and results of operations.
The business premises of the Company are a target for theft. While the Company has implemented security measures and continues to monitor and improve its security measures, its cultivation, processing, distribution and dispensary facilities could be subject to break-ins, robberies and other breaches in security. If there was a breach in security and the Company fell victim to a robbery or theft, the loss of cannabis plants, cannabis oils, cannabis flowers, cannabis products, cultivation and processing equipment, and cash could have a material adverse impact on the business, financials condition, results of operation and property of the Company.
The Company has historically relied on access to both public and private capital in order to support its continuing operations, and the Company expects to continue to rely on the capital markets to finance its business.
Although such business carries a higher degree of risk, and despite the legal standing of cannabis businesses pursuant to U.S. federal laws, Canadian based issuers involved in the U.S. state-legal cannabis industry have been successful in raising substantial amounts of private and public financing. However, there is no assurance the Company will be successful, in whole or in part, in raising funds in the future, particularly if the U.S. federal authorities change their position toward enforcing the CSA. Further, access to funding from U.S. residents may be limited due to their unwillingness to be associated with activities which violate U.S. federal laws.
As consumer perceptions of cannabis evolve, the Company may face unfavorable publicity or consumer perception.
The state-legal cannabis industry in the U.S. is at an early stage of its development. Cannabis has been, and will continue to be, a controlled substance for the foreseeable future. Consumer perceptions regarding legality, morality, consumption, safety, efficacy and quality of cannabis are mixed and evolving. Consumer perception can be significantly influenced by scientific research or findings, regulatory investigations, litigation, media attention and other publicity regarding the consumption of cannabis products. There can be no assurance that future scientific research, findings, regulatory proceedings, litigation, media attention or other research findings or publicity will be favorable to the cannabis market or any particular product, or consistent with earlier publicity. Future research reports, findings, regulatory proceedings, litigation, media attention or other publicity that are perceived as less favorable than, or that question, earlier research reports, findings or publicity could have a material adverse effect on the demand for cannabis and on the business, results of operations, financial condition and cash flows of the Company. Further, adverse publicity reports or other media attention regarding cannabis in general or associating the consumption of cannabis with illness or other negative effects or events, could have such a material adverse effect. Public opinion and support for medical and adult-use cannabis use has traditionally been inconsistent and varies from jurisdiction to jurisdiction. While public opinion and support appears to be rising for legalizing medical and adult-use cannabis, it remains a controversial issue subject to differing opinions surrounding the nature of legalization (for example, support for legalization of medical versus recreational cannabis). The Company's ability to maintain and increase market acceptance of its company and products may require substantial expenditures on investor relations, strategic relationships and marketing initiatives. There can be no assurance that such initiatives will be successful, and their failure may have an adverse effect on the Company.
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Product liability claims or regulatory actions against the Company could result in increased costs, could adversely affect the Company's reputation with its clients and consumers generally, and could have a material adverse effect on the business.
As a manufacturer and distributor of products designed to be ingested by humans, the Company faces an inherent risk of exposure to product liability claims, regulatory action and litigation if its products are alleged to have caused significant loss or injury. This is particularly true in light of the United States media news, beginning in September 2019, regarding potential vaporizer (vape) related illnesses and deaths. The Company closely monitors the news reports on this topic, including results from the investigations being conducted by the CDC, and put out a statement over its social media feed on September 11, 2019 confirming its commitment to consumer safety, discussing the rigorous quality control and testing of its products, and explaining that none of its vape products are manufactured with vitamin E acetate, or any other additives, thickeners or agents. The Company further disclosed its complete ingredient list for all of its vape products. In addition, the manufacture and sale of marijuana involves the risk of injury to consumers due to tampering by unauthorized third parties or product contamination. Previously unknown adverse reactions resulting from human consumption of marijuana alone or in combination with other medications or substances could occur. As a manufacturer, distributor and retailer of adult-use and medical marijuana, or in its role as an investor in or service provider to an entity that is a manufacturer, distributor and/or retailer of adult-use or medical marijuana, the Company may be subject to various product liability claims, including, among others, that the marijuana product caused injury or illness, include inadequate instructions for use or include inadequate warnings concerning possible side effects or interactions with other substances. A product liability claim or regulatory action against the Company could result in increased costs, could adversely affect the Company's reputation with its clients and consumers generally, and could have a material adverse effect on the business, results of operations, financial condition or prospects of the Company. There can be no assurances that the Company will be able to maintain product liability insurance on acceptable terms or with adequate coverage against potential liabilities. Such insurance is expensive and may not be available in the future on acceptable terms, or at all. The inability to maintain sufficient insurance coverage on reasonable terms or to otherwise protect against potential product liability claims could prevent or inhibit the commercialization of the Company's potential products or otherwise have a material adverse effect on the business, results of operations, financial condition or prospects of the Company.
As the cannabis industry is nascent, expectations regarding the development of the market may not be accurate and may change.
Due to the early stage of the state-legal cannabis industry, forecasts regarding the size of the industry and the sales of products are inherently subject to significant unreliability. A failure in the demand for products to materialize as a result of competition, technological change or other factors could have a material adverse effect on the business, results of operations and financial condition of the Company.
The cultivation, extraction and processing of cannabis and derivative products is dependent on a number of key inputs and their related costs which relies on a health supply chain.
Any significant interruption or negative change in the availability or economics of the supply chain for key inputs could materially impact the business, financial condition and operating results of an operator. Some of these inputs may only be available from a single supplier or a limited group of suppliers. If a single source supplier were to go out of business, an operator might be unable to find a replacement for such source in a timely manner or at all. Any inability to secure required supplies and services or to do so on appropriate terms could have a materially adverse impact on the business, financial condition and operating results of an operator, and consequently, the Company. Given the recent, systemic issues with the global supply chain, there is an increased risk of interruption or negative change in the availability of key inputs the Company relies upon which could materially adversely impact the Company in the current supply chain environment and into the foreseeable future.
15
Operational and General Business Risks
The Company may pursue strategic acquisitions in the future, which may be unsuccessful or result in other costs to the Company.
As part of the Company's overall business strategy, the Company may pursue select strategic acquisitions which would provide additional product offerings, vertical integrations, additional industry expertise, and a stronger industry presence in both existing and new jurisdictions. Future acquisitions may expose the Company to potential risks, including risks associated with (a) the integration of new operations, services and personnel; (b) unforeseen or hidden liabilities; (c) the diversion of resources from the Company's existing business and technology; (d) potential inability to generate sufficient revenue to offset new costs; (e) the expenses of acquisition; or (f) the potential loss of or harm to relationships with both employees and existing users resulting from its integration of new business. In addition, any proposed acquisitions may be subject to regulatory approval.
While the Company intends to conduct reasonable due diligence in connection with such strategic acquisitions, there are risks inherent in any acquisition. Specifically, there could be unknown or undisclosed risks or liabilities of such entities or assets for which the Company is not sufficiently indemnified. Any such unknown or undisclosed risks or liabilities could materially and adversely affect the Company's financial performance and results of operations. The Company could encounter additional transaction and integration-related costs or other factors such as the failure to realize all of the benefits from the acquisition. All of these factors could cause dilution to the Company's revenue per share or decrease or delay the anticipated accretive effect of the acquisition and cause a decrease in the market price of C21's common shares.
The Company (and the third parties with whom it works) is subject to stringent and evolving U.S. and foreign laws, regulations, rules, contractual obligations, policies and other obligations related to data privacy and security. Its actual or perceived failure (or that of the third parties with whom it works) to comply with such obligations could lead to regulatory investigations or actions; litigation; fines and penalties; disruptions of business operations; reputational harm; loss of revenue or profits; and other adverse business consequences.
The Company's employees and personnel may use generative artificial intelligence ("AI") technologies to assist with their work, and the disclosure and use of personal data in generative AI technologies is subject to various privacy laws and other privacy obligations. Governments have passed and are likely to pass additional laws regulating generative AI. The Company's use of this technology could result in additional compliance costs, regulatory investigations and actions, and lawsuits. If the Company are unable to use generative AI, this could make its business less efficient and result in competitive disadvantages.
Obligations related to data privacy and security (and consumer's data privacy expectations) are quickly changing, becoming increasingly stringent, and creating uncertainty. Additionally, these obligations may be subject to differing applications and interpretations, which may be inconsistent or conflict among jurisdictions. Preparing for and complying with these obligations requires the Company to devote significant resources and may necessitate changes to its services, information technologies, systems, and practices and to those of any third parties with whom it works.
The Company may at times fail, or be perceived to have failed, in its efforts to comply with its data privacy and security obligations. Moreover, despite its efforts, the Company's personnel or third parties with whom it works may fail to comply with such obligations, which could negatively impact its business operations. If the Company or the third parties with whom it works fail, or are perceived to have failed, to address or comply with applicable data privacy and security obligations, it could face significant consequences, including but not limited to: government enforcement actions (e.g., investigations, fines, penalties, audits, inspections, and similar); litigation (including class-action claims); additional reporting requirements and/or oversight; bans on processing personal data; and orders to destroy or not use personal data. In particular, plaintiffs have become increasingly more active in bringing privacy-related claims against companies, including class claims and mass arbitration demands. Some of these claims allow for the recovery of statutory damages on a per violation basis, and, if viable, carry the potential for monumental statutory damages, depending on the volume of data and the number of violations.
16
Any of these events could have a material adverse effect on the Company's reputation, business, or financial condition, including but not limited to: loss of customers; inability to process personal data or to operate in certain jurisdictions; limited ability to develop or commercialize its products; expenditure of time and resources to defend any claim or inquiry; adverse publicity; or substantial changes to its business model or operations.
Changes to U.S. or other countries' trade policies and tariff and import/export regulations or our failure to comply with such regulations may have an adverse effect on our business, financial condition, and results of operations.
Changes in import and export policies, including trade restrictions, new or increased tariffs or quotas, embargoes, sanctions and countersanctions, safeguards or customs restrictions by the U.S. and/or other foreign governments, and/or general uncertainty about potential changes in such policies, could require us to change the way we conduct business and/or adversely affect our financial condition, results of operations, reputation, and our relationships with customers, vendors, and employees in the short- or long-term.
The U.S. government announced tariffs on product imports from certain countries and subsequently announced a 90-day suspension of such tariffs other than with respect to China. Thereafter, on May 12, 2025, the U.S. and China announced that the countries have agreed to a reduction in the previously imposed tariffs for a 90-day period. The current environment is dynamic and uncertain, as the U.S. President has imposed, modified and paused tariffs, and granted exemptions from tariffs, on different countries and products multiple times since taking office in January 2025. These actions have resulted in reciprocal tariffs or other countermeasures from other countries, and may result in further retaliatory measures on U.S. goods. If implemented and maintained, these tariffs and the potential escalation of trade disputes could pose a risk to our business that could affect our revenue and our expenses as certain of our inputs are manufactured in Asia. Our domestic suppliers may incur tariffs leading to increased prices. We are closely monitoring this evolving situation and evaluating our responses, which may include shifts in sourcing strategies, price adjustments, or other cost-mitigation measures. However, there can be no assurance that we will be able to fully mitigate the financial and competitive impacts of such tariffs or trade restrictions. In addition, changing U.S. tariff and trade policies could cause higher inflation, higher interest rates and slower economic growth or recession in the U.S., which could adversely affect demand for our products and services. At this time, the overall impact on our business related to these tariffs and trade policies remains uncertain and depends on multiple factors, including the duration and potential expansion of current tariffs, future changes to tariff rates, scope, or enforcement, retaliatory measures by impacted exporting countries, inflationary effects and broader macroeconomic responses, changes to consumer purchasing behavior, and the effectiveness of our responses in managing these challenges. Further, actions we take to adapt to new tariffs or trade restrictions may increase risk or may cause us to modify our operations, which could be time-consuming and expensive; impact pricing, which could impact our sales, profitability, and our reputation; or cause us to forgo business opportunities.
The Company may face litigation, formal or informal complaints, enforcement actions, and inquiries by various federal, state, or local governmental authorities.
The Company's participation in the cannabis industry may lead to litigation, formal or informal complaints, enforcement actions, and inquiries by various federal, state, or local governmental authorities against the Company. Litigation, complaints and enforcement actions involving the Company could consume considerable amounts of financial and other corporate resources, which could have an adverse effect on the Company's future cash flows, earnings, results of operations and financial condition.
Should any litigation in which the Company is or becomes involved be determined against the Company, such a decision could adversely affect the Company's ability to continue operating and the market price for its common shares. Even if the Company wins current or future litigation, such litigation can redirect significant resources.
The Company has identified material weaknesses in our internal control over financial reporting, and if we are unable to achieve and maintain effective internal control over financial reporting or effective disclosure controls, we may be at risk to accurately report financial results or detect fraud, which could have a material adverse effect on our business.
As directed by Section 404 of the Sarbanes-Oxley Act of 2002, the SEC adopted rules requiring an annual assessment by management of the effectiveness of a public company's internal controls over financial reporting and an attestation report by the Company's independent auditors addressing this assessment, if applicable. As discussed in Item 15 "Controls and Procedures" based on a review of our internal controls over financial reporting, management concluded that our internal controls over financial reporting was not effective due to the existence of material weaknesses related to inadequate segregation of duties in certain financial reporting processes, lack of evidence and review of certain internal controls processes, and partly due to the Company's small size insufficient personnel with an appropriate level of technical accounting knowledge and experience relative to the Company's complexity and financial accounting and reporting requirements resulting in certain errors within the Company's consolidated financial statements in accordance with US GAAP. A material weakness is defined as a deficiency, or a combination of deficiencies, in internal control over financial reporting, such that there is a reasonable possibility that a material misstatement of a company's annual or interim financial statements will not be prevented or detected on a timely basis by the Company's internal controls. Management intends on expanding the scope of services with the Company's independent outside accounting consultants in order to remediate this weakness, among other measures. For additional information, see Item 15 "Controls and Procedures."
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We cannot assure you that we will be able to remediate our existing material weaknesses in a timely manner, if at all, or that in the future additional material weaknesses will not exist, reoccur or otherwise be discovered, a risk that is significantly increased in light of the complexity of our business. If our efforts to remediate this material weakness, as described in Item 15 "Controls and Procedures", is not successful or if other deficiencies occur, our ability to accurately and timely report our financial position, results of operations, cash flows or key operating metrics could be impaired, which could result in late filings of our annual or interim reports under the Exchange Act, restatements of our consolidated financial statements or other corrective disclosures. Our failure to satisfy the requirements of Section 404 of the Sarbanes-Oxley Act of 2002 on an ongoing, timely basis could result in the loss of investor confidence in the reliability of its financial statements, which in turn could harm our business and negatively impact the trading price of the common shares. In addition, future changes in our accounting, financial reporting, and regulatory environment may create new areas of risk exposure. Failure to modify our existing control environment accordingly may impair our controls over financial reporting and cause our investors to lose confidence in the reliability of our financial reporting, which may adversely affect our share price, suspension of trading or removal of our common shares from the OTCQX International Market, or other material adverse effects on our business, reputation, results of operations, financial condition or liquidity. Furthermore, if we continue to have this existing material weakness, other material weaknesses or significant deficiencies in the future, it could create a perception that our financial results do not fairly state our financial condition or results of operations. Any of the foregoing could have an adverse effect on the value of our shares.
The Company's operations are subject to environmental regulation in the various jurisdictions in which it operates, which may adversely affect the Company's operations.
The Company's operations are subject to environmental regulation in the various jurisdictions in which it operates. These regulations mandate, among other things, the maintenance of air and water quality standards and land reclamation. They also set forth limitations on the generation, transportation, storage and disposal of solid and hazardous waste. Environmental legislation is evolving in a manner which will require stricter standards and enforcement, increased fines and penalties for non-compliance, more stringent environmental assessments of proposed projects and a heightened degree of responsibility for companies and their officers, directors (or the equivalent thereof) and employees. There is no assurance that future changes in environmental regulation, if any, will not adversely affect the Company's operations.
The Company is dependent on governmental approvals, licenses and permits to operate, and failure to obtain or maintain such approvals, licenses and permits may adversely affect the Company's operations.
Government approvals and permits are currently, and may in the future, be required in connection with the Company's operations or future operations. To the extent such approvals are required and not obtained or maintained, the Company may be curtailed or prohibited from its current or proposed production, manufacturing, processing, distribution or sale of cannabis or from proceeding with the development of its operations as currently proposed.
Failure to comply with applicable laws, regulations and permitting requirements may result in enforcement actions thereunder, including orders issued by regulatory or judicial authorities causing operations to cease or be curtailed, and may include corrective measures requiring capital expenditures, installation of additional equipment, or remedial actions. The Company may be required to compensate those suffering loss or damage by reason of its operations and may have civil or criminal fines or penalties imposed for violations of applicable laws or regulations.
Amendments to current laws, regulations and permits governing the production or manufacturing of cannabis, or more stringent implementation thereof, could have a material adverse impact on the Company and cause increases in expenses, capital expenditures or production or manufacturing costs or reduction in levels of production or manufacturing or require abandonment or delays in development.
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Further, the Company may not be able to obtain or maintain the necessary licenses, permits, authorizations or accreditations, or may only be able to do so at great cost, to operate its marijuana business. In addition, the Company may not be able to comply fully with the wide variety of laws and regulations applicable to the marijuana industry. Failure to comply with or to obtain the necessary licenses, permits, authorizations or accreditations could result in restrictions on the Company's ability to operate the marijuana business, which could have a material adverse effect on the Company's business. Further, should any state in which the Company considers a license important not grant, extend or renew such license or should it renew such license on different terms or decide to grant more than the anticipated number of licenses, the business, financial condition and results of operations of the Company could be materially adversely affected.
The Company's limited operating history makes evaluating its business and prospects difficult.
The Company has a limited operating history on which to base an evaluation of its business, financial performance and prospects. As such, the Company's business and prospects must be considered in light of the risks, expenses and difficulties frequently encountered by companies in the early stage of development. As the Company is in an early stage and is introducing new products, the Company's revenues may be materially affected by the decisions, including timing decisions, of a relatively consolidated customer base. The Company has had limited experience in addressing the risks, expenses and difficulties frequently encountered by companies in their early stage of development, particularly companies in new and rapidly evolving industries such as the cannabis industry. There can be no assurance that the Company will be successful in addressing these risks, and the failure to do so in any one area could have a material adverse effect on the Company's business, prospects, financial condition and results of operations.
The Company is dependent upon existing management, its key research and development personnel and its growing and extraction personnel, and its business may be severely disrupted if it loses their service.
The Company's future success depends substantially on the continued services of its executive officers, its key research and development personnel and its key growing and extraction personnel. If one or more of its executive officers or key personnel were unable or unwilling to continue in their present positions, the Company might not be able to replace them easily or at all. In addition, if any of its executive officers or key employees joins a competitor or forms a competing company, the Company may lose know-how, key professionals and staff members. These executive officers and key employees could compete with and take customers away.
The Company will need to hire additional personnel in order to grow its business.
As the Company grows, it will need to hire additional human resources to continue to develop the business. However, experienced talent is difficult to source, and there can be no assurance that the appropriate individuals will be available or affordable to the Company. Without adequate personnel and expertise, the growth of the Company's business may suffer.
The Company may be exposed to infringement or misappropriation claims by third parties, which, if determined adversely to the Company, could subject the Company to significant liabilities and other costs.
The Company's success may likely depend on its ability to use and develop new extraction technologies, recipes, know-how and new strains of marijuana without infringing the intellectual property rights of third parties. The Company cannot assure that third parties will not assert intellectual property claims against it. The Company is subject to additional risks if entities licensing to its intellectual property do not have adequate rights in any such licensed materials. If third parties assert copyright or patent infringement or violation of other intellectual property rights against the Company, it will be required to defend itself in litigation or administrative proceedings, which can be both costly and time consuming and may significantly divert the efforts and resources of management personnel. An adverse determination in any such litigation or proceedings to which the Company may become a party could subject it to significant liability to third parties, require it to seek licenses from third parties, to pay ongoing royalties or subject the Company to injunctions prohibiting the development and operation of its applications.
The Company may need to incur significant expenses to enforce its proprietary rights, and if the Company is unable to protect such rights, its competitive position could be harmed.
The Company regards proprietary methods and processes, domain names, trade names, trade secrets, recipes and other intellectual property as critical to its success. The Company's ability to protect its proprietary rights is critical for the success of its business and its overall financial performance. The Company has taken certain measures to protect its intellectual property rights. However, the Company cannot assure that such measures will be sufficient to protect its proprietary information and intellectual property. Policing unauthorized use of proprietary information and intellectual property is difficult and expensive. Any steps the Company has taken to prevent misappropriation of its proprietary technology may be inadequate. The validity, enforceability and scope of protection of intellectual property in the marijuana industry is uncertain and still evolving. In particular, the laws and enforcement procedures in some developing countries are uncertain and may not protect intellectual property rights in this area to the same extent as do the laws and enforcement procedures in Canada, the United States and other developed countries.
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The Company may face increased competition in the marketplace for cannabis.
There can be no assurance that significant competition will not enter the marketplace and offer some number of similar products and services or take a similar approach. An increase in the number of companies competing in this industry could limit the ability of the Company to expand its operations. Current and new competitors may be better capitalized, have a longer operating history, have more expertise and be able to develop higher quality equipment or products, at the same or a lower cost. The Company cannot provide assurances that it will be able to compete successfully against current and future competitors. Such competition could have a material adverse effect on the growth potential of the Company's business by effectively dividing the existing market for its products. In addition, despite Canadian federal and U.S. state-level legislation of marijuana, illicit or "black market" operations remain abundant and present substantial competition to the Company. In particular, illicit operations, despite being largely clandestine, are not required to comply with the extensive regulations that the Company must comply with to conduct business and, accordingly, may have significantly lower costs of operations.
There is no assurance of the Company's profitability.
The Company cannot give assurances that it will not incur losses in the future. The limited operating history makes it difficult to predict future operating results. The Company is subject to the risks inherent in the operation of a new business enterprise in an emerging and uncertain business sector, and there can be no assurance that the Company will be able to successfully address these risks.
The success of the Company will be dependent on its ability to manage growth.
The Company may experience a period of significant growth in the number of personnel that will place a strain upon its management systems and resources. Its future will depend in part on the ability of its officers and other key employees to implement and improve financial management controls, reporting systems and procedures on a timely basis and to expand, train, motivate and manage the workforce. The Company's current and planned personnel, systems, procedures and controls may be inadequate to support its future operations.
The Company's operations are impacted by general economic trends.
Any worldwide economic slowdown and tightening of credit in the financial markets may impact the business of the Company's customers, which could have an adverse effect on the Company's business, financial condition, or results of operations. Adverse changes in general economic or political conditions in the United States and elsewhere could adversely affect the Company's business, financial condition, results of operations and property.
The Company faces significant costs in order to gain and increase market acceptance of its products.
The Company's ability to gain and increase market acceptance of its products depends on its ability to educate the public on the benefits of its marijuana products. It also requires the Company to establish and maintain its brand name and reputation. In order to do so, substantial expenditures on product development, strategic relationships and marketing initiatives may be required. There can be no assurance that these initiatives will be successful, and their failure may have an adverse effect on the Company's operations.
The Company may not have adequate insurance coverage, which may adversely impact the Company's business, results of operations and profitability.
The Company requires insurance coverage for a number of risks, including business interruption, environmental matters and contamination, product liability, personal injury and property damage. Although the Company believes that the events and amounts of liability covered by its insurance policies will be reasonable, considering the risks relevant to its business, and the fact that agreements with users contain limitations of liability, there can be no assurance that such coverage will be available or sufficient to cover claims to which the Company may become subject. If insurance coverage is unavailable or insufficient to cover any such claims, the Company's financial resources, results of operations and prospects could be adversely affected. Further, because the Company is engaged in the cannabis industry, there may be additional difficulties and complexities associated with such insurance coverage that could cause the Company to suffer uninsured losses, which could adversely impact the Company's business, results of operations and profitability.
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The Company faces risks related to tax credits and deductions.
Currently, U.S. state licensed adult-use cannabis businesses are assessed at a comparatively high effective U.S. federal income tax rate due to Section 280E of the Internal Revenue Code of 1986, as amended (the "Code"), which prohibits businesses associated with trafficking in Schedule I and II substance from deducting certain expenses. The IRS has invoked Section 280E of the Code in tax audits against various cannabis businesses in the United States that are permitted under applicable U.S. state laws. Although the IRS issued a clarification allowing the deduction of certain expenses, the scope of such items is interpreted very narrowly, and the bulk of operating costs and general administrative costs are not permitted to be deducted. In addition, on June 28, 2024, the IRS published a press release reminding taxpayers that cannabis remains a Schedule I controlled substance until a final rule is published that reschedules cannabis and, therefore, cannabis is still subject to the limitations of Section 280E of the Code, and stating that taxpayers that have filed amended returns seeking a refund of taxes paid related to Section 280E of the Code are not entitled to a refund or payment and that the IRS is taking steps to address these claims. While there are currently several pending cases before various U.S. administrative and federal courts challenging these restrictions, there is no guarantee that these courts will issue an interpretation of Section 280E of the Code favourable to cannabis businesses. Given these facts, the impact of any such challenges cannot be reliably estimated; however, it may be significant to the financial condition and/or the overall operations of the Company.
The Company has taken the position that it does not owe taxes attributable to the application of Section 280E of the Code, including the planned refiling of amended U.S. federal income tax returns in the next few months. The refiling of tax returns will be for the years ended January 31, 2022, January 31, 2023, January 31, 2024, and March 31, 2024, based on legal interpretations that challenge its tax liability under Section 280E of the Code. Because the Company's tax positions could be (and, as discussed below, has been) challenged by the IRS and other taxing authorities and the Company may not be wholly successful in defending its tax positions, the Company records reserves for unrecognized tax benefits based on its assessment of the probability of successfully sustaining its tax filing positions. Management exercises significant judgment when assessing the probability of successfully sustaining the Company's tax filing positions, and in determining whether a contingent tax liability should be recorded and, if so, estimating the amount.
The Company may be at risk of increased scrutiny from the IRS on past and future tax filings and, in the normal course of business, the Company receives notices, from time to time, from various local, state, and federal tax agencies. If the IRS makes a determination that the Company is not in compliance with Section 280E of the Code, the Company may be required to pay any difference in the amounts owed, in addition to penalties and interest, which could equal or exceed the amounts reserved by the Company, exceed the amount of cash on hand and materially impact the Company's financial condition or results of operations.
The Rescheduling Rule has moved FDA approved drugs containing cannabis and state-licensed medical cannabis to Schedule III making 280E inapplicable to these forms of marijuana. Unless and until adult-use marijuana is rescheduled, 280E continues to apply to that form of marijuana. On April 23, 2026, the IRS announced that it will issuing guidance in light of Rescheduling. It is currently unclear how Rescheduling will impact Company's operations.
Results of future clinical research may negatively impact demand for the Company's products.
Research in Canada, the U.S. and internationally regarding the medical benefits, viability, safety, efficacy, dosing and social acceptance of cannabis or isolated cannabinoids (such CBD and THC) remains in early stages. There have been relatively few clinical trials on the benefits of cannabis or isolated cannabinoids (such as CBD and THC). Although the Company believes that the articles, reports and studies to date support its beliefs regarding the medical benefits, viability, safety, efficacy, dosing and social acceptance of cannabis, future research and clinical trials may prove such statements to be incorrect, or could raise concerns regarding, and perceptions relating to, cannabis. Given these risks, uncertainties and assumptions, investors should not place undue reliance on such articles, reports and studies. Future research studies and clinical trials may draw opposing conclusions to those stated herein or reach negative conclusions regarding the medical benefits, viability, safety, efficacy, dosing, social acceptance or other facts and perceptions related to cannabis, which could have a material adverse effect on the demand for the Company's products with the potential to lead to a material adverse effect on the Company's business, financial condition, results of operations or prospects.
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The Company faces risks inherent in an agricultural business, including adverse weather conditions and rising energy costs.
Adult-use and medical marijuana are agricultural products. There are risks inherent in the agricultural business, such as insects, plant diseases and similar agricultural risks. Although the products are usually grown indoors under climate-controlled conditions, with conditions monitored, there can be no assurance that natural elements will not have a material adverse effect on the production of the Company's products. The occurrence of severe adverse weather conditions, especially droughts, fires, storms or floods is unpredictable and may have a potentially devastating impact on agricultural production and may otherwise adversely affect the supply of cannabis. Adverse weather conditions may be exacerbated by the effects of climate change and may result in the introduction and increased frequency of pests and diseases. The effects of severe adverse weather conditions may reduce the Company's yields or require the Company to increase its level of investment to maintain yields. Additionally, higher than average temperatures and rainfall can contribute to an increased presence of insects and pests, which could negatively affect cannabis crops. Future droughts might reduce the yield and quality of the Company's cannabis production, which could materially and adversely affect the Company's business, financial condition and results of operations.
Adult-use and medical marijuana growing operations consume considerable energy, making the Company potentially vulnerable to rising energy costs. Rising or volatile energy costs may adversely impact the business, results of operations, financial condition or prospects of the Company.
The Company relies on third-party contractors to maintain its information technology systems.
We rely on information technology ("IT") systems and networks in our operations which are provided and maintained by third-party contractors. The availability, capacity, reliability and security of these IT systems could be subject to network disruptions caused by a variety of malicious sources, including computer viruses, security breaches, cyber-attacks and theft, as well as network and/or hardware disruptions resulting from unexpected failures such as human error, software or hardware defects, natural disasters, fire, flood or power loss. Our operations also depend on the timely maintenance, upgrade and replacement of networks, equipment, IT systems and software, as well as pre-emptive expenses to mitigate the risks of failures.
The ability of the IT function to support our business in the event of any such failure and the ability to recover key systems from unexpected interruptions cannot be fully tested. There is a risk that if such an event were to occur, our response may not be adequate to immediately address all of the potential repercussions of the incident. In the event of a disaster affecting our head office, key systems may be unavailable for a number of days, leading to inability to perform some business processes in a timely manner. The failure of our IT systems or a component thereof could, depending on their nature, materially impact our financial condition, results of operations, reputation and share price.
Unauthorized access to our IT systems as a result of cyber-attacks could lead to exposure, corruption or loss of confidential information, and disruption to our communications, operations, business activities or our competitive position. Further, disruption of critical IT services, or breaches of information security, could expose us to financial losses and regulatory or legal action. Our risk and exposure to these matters cannot be fully mitigated because of, among other things, the evolving nature of these threats. As a result, cyber- security and the continued development and enhancement of controls, processes and practices designed to protect systems, computers, software, data and networks from attack, damage or unauthorized access remain a priority.
We apply technical and process controls in line with industry-accepted standards to protect information, assets and systems. Although these measures are robust, they cannot possibly prevent all types of cyber-threat. There is no assurance that we will not suffer losses associated with cyber-security breaches in the future, and we may be required to expend significant additional resources to investigate, mitigate and remediate any potential vulnerabilities. As cyber-threats continue to evolve, we may be required to expend additional resources to continue to modify or enhance protective measures or to investigate and remediate any security vulnerabilities.
The size of the Company's target market is difficult to quantify, and investors will be reliant on their own estimates on the accuracy of market data.
Because the cannabis industry is in an early stage with uncertain boundaries, there is a lack of information about comparable companies available for potential investors to review in deciding about whether to invest in the Company and, few, if any, established companies whose business model the Company can follow or upon whose success the Company can build. Accordingly, investors will have to rely on their own estimates in deciding about whether to invest in the Company. There can be no assurance that the Company's estimates are accurate or that the market size is sufficiently large for its business to
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The Company is a British Columbia corporation governed by the Business Corporations Act (British Columbia) ("BCBCA") and, as such, our corporate structure, the rights and obligations of shareholders and our corporate bodies may be different from the United States or those of the home countries of international investors.
Substantially all of the Company's assets are located outside of Canada, and certain of its directors are resident outside of Canada, and their assets are outside of Canada. Serving process on those directors may prove to be difficult or excessively time consuming. Non-Canadian residents may find it more difficult and costlier to exercise shareholder rights. Additionally, it may be difficult to enforce a judgment obtained in Canada against the Company, its subsidiaries and any directors and officers residing outside of Canada.
The success of the Company may depend, in part, on the ability of an operator to maintain and enhance trade secret protection over its various existing and potential proprietary techniques and processes, or trademark and branding developed by it.
Each operator may also be vulnerable to competitors who develop competing technology, whether independently or as a result of acquiring access to the proprietary products and trade secrets of the operator. In addition, effective future patent, copyright and trade secret protection may be unavailable or limited in certain foreign countries and may be unenforceable under the laws of certain jurisdictions.
The Company may experience difficulty implementing its business strategy.
The growth and expansion of the Company is heavily dependent upon the successful implementation of its business strategy. There can be no assurance that the Company will be successful in the implementation of its business strategy.
Conflicts of interest involving the Company's directors and officers may arise and may be resolved in a manner that is unfavorable to the Company.
Certain of the Company's directors and officers are, and may continue to be, involved in other business ventures through their direct and indirect participation in corporations, partnerships, joint ventures, etc. that may become potential competitors of the technologies, products and services the Company intends to provide. Situations may arise in connection with potential acquisitions or opportunities where the other interests of these directors and officers may conflict with or diverge from the Company's interests. In accordance with applicable corporate law, directors who have a material interest in or who is a party to a material contract or a proposed material contract with the Company are required, subject to certain exceptions, to disclose that interest and generally abstain from voting on any resolution to approve the contract. In addition, the directors and officers of the Company are required to act honestly and in good faith with a view to the Company's best interests. However, in conflict-of-interest situations, the Company's directors and officers may owe the same duty to another company and will need to balance their competing interests with their duties to the Company. Circumstances (including with respect to future corporate opportunities) may arise that may be resolved in a manner that is unfavorable to the Company.
Prolonged periods of inflation could increase costs, have an adverse effect on general economic conditions and impact consumer spending, which could impact our profitability and have a material adverse effect on our business and results of operations.
Inflation has risen on a global basis and countries around the world are experiencing historically high levels of inflation. If the inflation rate continues to increase, it can also push up the costs of labor and other expenses. There is no assurance that our revenues will increase at the same rate to maintain the same level of profitability. Inflation and government efforts to combat inflation, such as raising the benchmark interest rate, could increase market volatility and have an adverse effect on the financial market and general economic conditions. Such adverse conditions could negatively impact demand for our products, which could adversely affect our profitability, results of operations and cash flow.
Currency fluctuations may have a material adverse effect on the Company's business, financial condition and operating results.
Due to the Company's present operations in the United States, and its intention to continue future operations outside Canada, the Company is expected to be exposed to significant currency fluctuations. All or substantially all of the Company's revenue will be earned in U.S. dollars, but operating expenses are incurred in both U.S. and Canadian dollars. The Company does not have currency hedging arrangements in place, and there is no expectation that the Company will put any currency hedging arrangements in place in the future. Fluctuations in the exchange rate between the U.S. dollar and Canadian dollar may have a material adverse effect on the Company's business, financial condition and operating results. The Company may, in the future, establish a program to hedge a portion of its foreign currency exposure with the objective of minimizing the impact of adverse foreign currency exchange movements. However, even if the Company develops a hedging program, there can be no assurance that it will effectively mitigate currency risks.
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Risks Associated With The Securities Of The Company
The Company may require additional financing, which may not be available, or may be too expensive.
The continued development of the Company may require additional financing. There is no guarantee that the Company will be able to achieve its business objectives. The Company intends to fund its business objectives by way of additional offerings of equity and/or debt financing. The failure to raise or procure such additional funds, or failure to raise or procure such additional funds at an affordable interest rate in an increasingly higher interest rate environment, could result in the delay or indefinite postponement of current business objectives. There can be no assurance that additional capital or other types of financing will be available if needed or that, if available, will be on terms acceptable to the Company. If additional funds are raised by offering equity securities or convertible debt, existing shareholders could suffer significant dilution. Any debt financing secured in the future could involve the granting of security against assets of the Company and also contain restrictive covenants relating to capital raising activities and other financial and operational matters, which may make it more difficult for the Company to obtain additional capital and to pursue business opportunities, including potential acquisitions.
Investors in the Common Shares may experience dilution from future financings.
The Company may issue additional securities in the future, which may dilute a shareholder's holdings in the Company. The Company's articles permit the issuance of an unlimited number of common shares, and the Company's shareholders will have no pre-emptive rights in connection with such further issuances. C21's Board of Directors ("Board") has discretion to determine the price and the terms of further issuances. Moreover, additional common shares will be issued by the Company on the exercise, conversion or redemption of certain outstanding securities of the Company in accordance with their terms. The Company may also issue common shares to finance future acquisitions. The Company cannot predict the size of future issuances of common shares or the effect that future issuances and sales of common shares or other securities will have on the market price of its common shares. Issuances of a substantial number of additional common shares, or the perception that such issuances could occur, may adversely affect prevailing market prices for the common shares. With any additional issuance of common shares, investors will suffer dilution and the Company may experience dilution in its revenue per share.
Company indebtedness could have a number of adverse impacts on the Company, including reducing the availability of cash flows to fund working capital and capital expenses.
Any indebtedness of the Company could have significant consequences on the Company, including: increase the Company's vulnerability to general adverse economic and industry conditions; require the Company to dedicate a substantial portion of its cash flow from operations to making interest and principal payments on its indebtedness, reducing the availability of the Company's cash flow to fund capital expenditures, working capital and other general corporate purposes; limit the Company's flexibility in planning for, or reacting to, changes in the business and the industry in which it operates; place the Company at a competitive disadvantage compared to its competitors that have greater financial resources; and limit the Company's ability to complete fundamental corporate changes or transactions or to declare or pay dividends.
There is a limited market for resale of the Company's common shares.
Notwithstanding that the Company's common shares are listed on the CSE, there can be no assurance that an active and liquid market for such securities will develop or be maintained and securityholders may find it difficult to resell any securities of the Company.
There can be no assurance that the publicly traded price of the Company's common shares will be high enough to create a positive return for investors. Further, there can be no assurance that the common shares will be sufficiently liquid so as to permit investors to sell their position in the Company without adversely affecting the stock price. In such an event, the probability of resale of the common shares would be diminished.
As well, the continued operations of the Company will be dependent upon its ability to procure additional financing in the short term and to generate operating revenues in the longer term. There can be no assurance that any such financing can be obtained or that revenues can be generated. If the Company is unable to obtain such additional financing or generate such revenues, investors may be unable to sell their common shares and any investment in the Company may be lost.
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The price of the Common Shares has been and may continue to be volatile.
The market price of C21's common shares cannot be predicted and has been and may be volatile and subject to wide fluctuations in response to numerous factors, many of which are beyond the Company's control. This volatility may affect the ability of shareholders or holders of other securities to sell their securities at an advantageous price. Market price fluctuations in the securities may be due to the Company's operating results failing to meet expectations of securities analysts or investors in any period, downward revision in securities analysts' estimates, adverse changes in general market conditions or competitive, regulatory or economic trends, adverse changes in the economic performance or market valuations of companies in the industry in which the Company operates, acquisitions, dispositions, strategic partnerships, joint ventures, capital commitments or other material public announcements by the Company or its competitors or government and regulatory authorities, operating and share price performance of the companies that investors deem comparable to the Company, addition or departure of the Company's executive officers and other key personnel, along with a variety of additional factors. These broad market fluctuations may adversely affect the market price of the Company's securities.
Financial markets have at times historically experienced significant price and volume fluctuations that have particularly affected the market prices of equity and convertible securities of companies and that have often been unrelated to the operating performance, underlying asset values or prospects of such companies. Accordingly, the market price of C21's common shares and other securities may decline even if the Company's operating results, underlying asset values or prospects have not changed. Additionally, these factors, as well as other related factors, may cause decreases in asset values that are deemed to be other than temporary, which may result in impairment losses. There can be no assurance that continuing fluctuations in price and volume will not occur. If such increased levels of volatility and market turmoil continue or arise, the Company's operations may be adversely impacted, and the trading price of the common shares and other securities may be materially adversely affected.
Maintaining a public listing is costly and will add to the Company's legal and financial compliance costs.
As a public company, there are costs associated with legal, accounting and other expenses related to regulatory compliance. Securities legislation and the rules and policies of the CSE require listed companies to, among other things, adopt corporate governance and related practices, and to continuously prepare and disclose material information, all of which add to a company's legal and financial compliance costs. The Company may also elect to devote greater resources than it otherwise would have on communication and other activities typically considered important by publicly traded companies.
The Company has not paid dividends and does not anticipate paying dividends for the foreseeable future.
The Company has not paid dividends to shareholders in the past and does not anticipate paying dividends in the foreseeable future. The Company expects to retain its earnings to finance growth, and where appropriate, to pay down debt.
The Company is a Foreign Private Issuer under U.S. Securities Laws.
The Company is a "foreign private issuer", under applicable U.S. federal securities laws, and is, therefore, not subject to the same requirements that are imposed upon U.S. domestic issuers by the United States Securities and Exchange Commission (the "SEC"). Under the Exchange Act, the Company is subject to reporting obligations that, in certain respects, are less detailed and less frequent than those of U.S. domestic reporting companies. As a result, the Company does not file the same reports that a U.S. domestic issuer would file with the SEC, although the Company is required to file with or furnish to the SEC the continuous disclosure documents that it is required to file in Canada under Canadian securities laws. In addition, the Company's officers, directors, and principal shareholders are exempt from the reporting and short-swing profit recovery provisions of Section 16 of the Exchange Act. Therefore, the Company's shareholders may not know on as timely a basis when the Company's officers, directors and principal shareholders purchase or sell Common Shares, as the reporting periods under the corresponding Canadian insider reporting requirements are longer.
As a foreign private issuer, the Company is exempt from the rules and regulations under the Exchange Act related to the furnishing and content of proxy statements. The Company is also exempt from Regulation FD, which prohibits issuers from making selective disclosures of material non-public information. While the Company complies with the corresponding requirements relating to proxy statements and disclosure of material non-public information under Canadian securities laws, these requirements differ from those under the Exchange Act and Regulation FD and shareholders should not expect to receive the same information at the same time as such information is provided by U.S. domestic companies. In addition, the Company may not be required under the Exchange Act to file annual and quarterly reports with the SEC as promptly as U.S. domestic companies whose securities are registered under the Exchange Act.
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The Company could lose Foreign Private Issuer status, which would alter its reporting requirements.
The Company may in the future lose its foreign private issuer status if a majority of its common shares are held in the U.S. and if the Company fails to meet the additional requirements necessary to avoid loss of its foreign private issuer status. The regulatory and compliance costs under U.S. federal securities laws as a U.S. domestic issuer may be significantly more than the costs incurred as a Canadian foreign private issuer using the standard foreign form or as Canadian foreign private issuer eligible to use the multi-jurisdictional disclosure system adopted by the securities regulatory authorities in United States and Canada ("MJDS"). If the Company is not a foreign private issuer, it would not be eligible to use the MJDS or other foreign issuer forms and would be required to file periodic and current reports and registration statements on U.S. domestic issuer forms with the SEC, which are more detailed and extensive than the forms available to a foreign private issuer.
The Company is an emerging growth company and relies on exemptions from certain disclosure requirements which may make its common shares less attractive to investors.
The Company is an "emerging growth company" as defined in section 3(a) of the Exchange Act (as amended by the JOBS Act, enacted on April 5, 2012), and the Company will continue to qualify as an emerging growth company until the earliest to occur of: (a) the last day of the fiscal year during which the Company has total annual gross revenues of US$1,235,000,000 (as such amount is indexed for inflation every five years by the SEC) or more; (b) the last day of the fiscal year of the Company following the fifth anniversary of the date of the first sale of common equity securities of the Company pursuant to an effective registration statement under the Securities Act, as amended; (c) the date on which the Company has, during the previous three year period, issued more than US$1,235,000,000 in non-convertible debt; and (d) the date on which the Company is deemed to be a "large accelerated filer", as defined in Rule 12b-2 under the Exchange Act. The Company will qualify as a large accelerated filer (and would cease to be an emerging growth company) at such time when on the last business day of its second fiscal quarter of such year the aggregate worldwide market value of its common equity held by non-affiliates will be US$700,000,000 or more.
For so long as the Company remains an emerging growth company, it is permitted to and intends to rely upon exemptions from certain disclosure requirements that are applicable to other public companies that are not emerging growth companies. These exemptions include not being required to comply with the auditor attestation requirements of Section 404 of the Sarbanes-Oxley Act. The Company cannot predict whether investors will find its common shares less attractive because the Company relies upon certain of these exemptions. If some investors find the Common Shares less attractive as a result, there may be a less active trading market for the Common Shares and the Common Share price may be more volatile. On the other hand, if the Company no longer qualifies as an emerging growth company, the Company would be required to divert additional management time and attention from the Company's development and other business activities and incur increased legal and financial costs to comply with the additional associated reporting requirements, which could negatively impact the Company's business, financial condition and results of operations.
Item 4. Information on the Company
A. History and Development of the Company
History
The Company 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 common shares of the Company were delisted from the TSXV and on June 18, 2018, the common shares of the Company commenced trading on the CSE under the symbol "CXXI". The Company registered its common shares in the United States and on May 6, 2019, its common shares were cleared by FINRA 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 commenced trading on the OTCQX Best Market.
The Company's corporate office and principal place of business is 19th Floor, 885 West Georgia Street, Vancouver, British Columbia, Canada V6C 3H4. The Company's telephone number is +1 833-289-2994 and its corporate website is www.cxxi.ca. The information contained on its website is not incorporated by reference into this Annual Report. The SEC maintains a website at www.sec.gov that contains reports, proxy and information statements and other information regarding registrants that make electronic filings with the SEC using its EDGAR system.
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Development
Since the Company changed its focus to the cannabis market on January 29, 2018, the Company has aggressively grown its business, based primarily on its acquisition and optimization of assets in Nevada in 2019. The Company funded its acquisitions through private placement financings and convertible debentures.
Strategic Initiatives
The Company's strategic initiatives over the next 12 months include extending our Nevada retail footprint where we have a proven track record of success, continuing our disciplined approach to growth and financing, and internally producing product to expand our Nevada retail footprint.
On June 7, 2024 the Company completed the acquisition of an operational retail cannabis store and license for a purchase price of $3.5 million dollars. This was financed from cash on hand and a private placement financing completed in May 2024.
Completed Acquisitions - Nevada
Nevada
Silver State Cultivation LLC and Silver State Relief LLC - Nevada, USA
On January 15, 2019, the Company completed the acquisition of 100% of the membership interests of both Silver State Relief LLC and Silver State Cultivation LLC (collectively "Silver State"), which are Nevada limited liability companies. The acquisition was made effective January 1, 2019. Silver State operates indoor cannabis cultivation and processing in a licensed facility in Sparks, Nevada, and owns three retail licenses that operate cannabis dispensaries in Sparks, Reno and Fernley, Nevada.
In consideration for 100% of the membership interests of Silver State, the Company paid total consideration of $49,105,048, which included a secured promissory note to the vendor, Sonny Newman, for $30,000,000 (the "Newman Note"). Mr. Newman was subsequently engaged by the Company to act as its President and Chief Executive Officer.
Acquisition of New Dispensary from Deep Roots Harvest Inc. ("Deep Roots")
On June 7, 2024, the Company closed the acquisition of all the assets of a 6,500 square-foot, purpose-built, operational retail cannabis dispensary located in Reno, Nevada from Deep Roots. This acquisition will allow C21 to expand its retail footprint in Nevada, a pivotable step in its growth strategy. This store is being integrated and rebranded under the Silver State Relief banner. The purchase price paid by Silver State Relief to Deep Roots was $3,500,000 in cash. The new Reno dispensary rebranded "Silver State", was opened for business on June 26, 2024.
Promissory Note to Sonny Newman
Effective November 21, 2019, Mr. Newman and the Company agreed to amend the terms of the Newman Note, with a remaining principal balance of $21,800,000. The December 1, 2019, principal payment of $800,000 was cancelled and the principal monthly 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 note was then due and payable on July 1, 2020.
Effective June 25, 2020, Mr. Newman and the Company agreed to further amend the terms of the Newman Note, with the remaining principal balance of $18,200,000. The maturity date of the Note was extended from July 1, 2020, to January 1, 2021, and all other terms of the Newman Note remained the same, including the monthly payment obligations of principal and interest.
Effective November 19, 2020, Mr. Newman and the Company agreed to further amend the terms of the Newman Note, with the remaining balance of $15,200,000. The remaining balance of the Note was termed out 30 months to May 1, 2023, and the monthly payments reduced to $506,666 per month; all other terms of the Newman Note remained the same. As at January 31, 2023, the outstanding balance of the Newman Note was $2,026,667, and is $nil as of the date of this Annual Report.
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Effective February 6, 2023, Mr. Newman and the Company agreed to defer payment of the principal portion of the March 1, 2023, payment on the Newman Note to facilitate the cash payment on settlement with the Swell vendors. The payment was deferred to June 1, 2023. The Newman Note was fully repaid on June 1, 2023.
Silver State Buildings
The Silver State Relief dispensary in Sparks, Nevada was the first dispensary in Nevada and opened in July 2015 selling medical cannabis. In July 2017, the sale of recreational cannabis commenced, and in January 2019 a second dispensary location was opened in Fernley, Nevada.
The Silver State businesses operate in four buildings in Northern Nevada. A cultivation/production warehouse and a dispensary are both located in Sparks, Nevada. The other two are dispensaries, the first is a dispensary located in Fernley, Nevada, which opened on January 15, 2019, and the second is the new dispensary located in South Reno, Nevada. The Company has the option, exercisable during the term of its leases, to acquire three of the real estate assets of Silver State including: the land and 158,000 square-foot building ("Stanford Way") located in Sparks, Nevada that houses its cultivation and extraction facility; the land and 8.000 square foot retail dispensary building ("Greg Street") located in Sparks, Nevada, currently servicing more than 26,000 customers per month; and the 6,000 square foot dispensary and land located in Fernley, Nevada ("Fernley"), currently servicing more than 18,000 customers per month. The option price for Stanford Way is $12,700,000, payable in cash or common shares of the Company at $3.50 per common share, at the election of the landlord. The option price for Greg Street is $3,300,000, payable in cash. The option price for Fernley, extended on June 30, 2020, along with the lease term, to July 31, 2023, is $2,228,000, payable in cash.
On November 19, 2020, the Company and the landlord agreed that the purchase options for the Greg Street and Fernley dispensaries would be extinguished. The leases on each of the 3 properties were extended to December 31, 2027, with a 5-year renewal option.
On February 28, 2023, the Company and the landlord agreed new lease agreements for the Greg Street and Fernley dispensaries. The leases have a 7-year term with options for up to three renewal terms of 7-years each.
As part of the acquisition of the South Reno dispensary license on June 7, 2024, the Company signed a 10-year lease which runs to June 30, 2034, with options for two periods of seven years. The 6,500 square foot dispensary is located in South Reno, Nevada and currently services more than 13,000 customer a month.
Today there are 19 grow rooms at the Silver State cultivation/production warehouse producing approximately 8,100 pounds of flower and 3,300 pounds of trim. Most of this production is sold through the three Silver State dispensaries. Excess production is sold into the wholesale market.
Completed Financings
On May 6, 2024, the Company closed a private placement of C$4 million from the issuance of convertible debentures units. The proceeds were used to fund the acquisition of the new South Reno dispensary. The convertible debenture units are comprised of a "Convertible Debenture" convertible into common shares at C$0.45, and a "Warrant" entitling the holder to exercise into common shares at C$0.55. The Convertible Debentures are governed by a trust indenture dated May 6, 2024, entered into between the Company and Alliance Trust Company ("Alliance"), as trustee, registrar and transfer agent in connection with the Convertible Debentures. The maximum shares issuable from the Convertible Debenture is 8,888,889 common shares, and from the Warrant, 4,000,000 common shares. The outstanding principal amount owing under the Convertible Debenture will accrue interest from the issue date at 12% per annum payable quarterly in cash. Repayment of the Convertible Debenture will be made in 25 equal monthly installments beginning on the last day of the 6th month from issuance. The Convertible Debenture matures 30 months after issuance.
Completed Acquisitions and Dispositions - Oregon
Megawood Enterprises Inc - Oregon, USA (Sold)
On January 23, 2019, the Company completed the acquisition of 100% of the common shares of Megawood Enterprises Inc ("Pure Green"), an Oregon corporation, which includes its retail location at 3738 Sandy Blvd. NE, Portland, OR. In consideration for 100% of the common shares of Pure Green, the Company paid total consideration of $794,888.
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On January 7, 2021, the Company entered into the Oregon Agreement (as defined herein), pursuant to which, among other things, involved the sale of the Pure Green assets, and the assumption by the buyer of the lease at the Pure Green facility. Subsequent to the sale of the Pure Green assets, Pure Green was dissolved and is no longer in operation. See "Sale of Non-Core Oregon Assets" below.
Phantom Venture Group, LLC and Phantom Brands, LLC - Oregon, USA (Non-operational/Sold)
On February 4, 2019, the Company completed its acquisition of 100% of the membership interests of Phantom (as defined below), which encompasses the following limited liability companies: Phantom Venture Group, LLC, Phantom Distribution, LLC, 63353 Bend, LLC, 20727‐4 Bend, LLC, 4964 BFH, LLC, and Phantom Brands, LLC (collectively "Phantom"). Phantom operates two outdoor cannabis cultivation facilities totaling 80,000 square feet in Southern Oregon. Phantom also operates a 5,600 square foot facility which includes a wholesale distribution warehouse and an extraction laboratory and a 7,700 square foot state-of-the-art indoor grow facility in Central Oregon.
In consideration for 100% of the membership interests of Phantom, the Company paid total consideration of $10,539,260 as follows:
(i) cash deposits on closing of $3,200,000
(ii) a promissory note for $290,000;
(iii) issuance of 2,670,000 common shares of the Company valued at C$1.23/common share;
(iv) issuance of 1,700,000 share purchase warrants of C21, each warrant exercisable for one common share at a price of C$1.50 per common share; and,
(v) issuance of earnout shares of up to a maximum of 4,500,000 common shares of C21 (the "Phantom Earn-Out Shares"), to be issued over a period of seven years, contingent upon the achievement of certain stock price targets of C21 or change of control of C21 at certain stock price valuation targets (50% of the Phantom Earn-Out Shares issuable upon change of control of the Company at a valuation of C$3.00 per C21 common share or more; 100% of the Phantom Earn-Out Shares issuable upon change of control of the Company at a valuation of at least C$5.00 per C21 common share).
On January 19, 2022, the Company entered in the Southern Oregon Agreement (as defined herein), pursuant to which, among other things, involved the sale of the two Phantom outdoor cannabis cultivation facilities in Southern Oregon. On March 9, 2023, the Company executed a settlement agreement to terminate the Southern Oregon Agreement. The lessee failed to make the minimum payments under the agreement and the Company exercised its right to terminate the Agreement. The lessee paid $500,000 as consideration for the two cannabis licenses in Southern Oregon. The land and equipment in Southern Oregon will be listed for sale.
On April 28, 2022, the Company entered into the Central Oregon Agreement (as defined herein), pursuant to which, among other things, the Company sold three (3) Bend, Oregon cannabis licenses. The Company had remaining lease payment obligations in connection with the Phantom Tier I indoor cultivation facility, the processing facility and the wholesale distribution facility in Central Oregon until January 2024, but on March 27, 2023, the Company executed a lease surrender agreement with the subject landlord and paid out the remaining term of the three Phantom leases which had term to January 2024, in exchange for the equivalent of one month's abated rent on each of the three leases.
Phantom is no longer in operation; however, the Company has retained the Phantom Farms and Hood Oil brands, and will be listing the Southern Oregon real and personal property assets for sale. See "Sale of Non-Core Oregon Assets" below.
Swell Companies Limited - Oregon, USA (Sold)
On May 24, 2019, the Company completed its acquisition of 100% of the common shares of Swell Companies Limited ("Swell"), an Oregon corporation. Swell is a processor and wholesaler of THC and CBD products.
In consideration for 100% of the common shares of Swell, the Company paid or agreed to pay total consideration of $18,812,683 as follows:
(i) cash deposits on closing of $5,050,000;
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(ii) liabilities assumed of $1,070,907;
(iii) $1,000,000 in the form of a 2-year convertible note at 10% interest, upon close;
(iv) 1,266,667 common shares of C21 on closing;
(v) 1,200,000 warrants to purchase common shares of C21 with an exercise price of C$1.50 per common share;
(vi) 456,862 common shares issuable on November 24, 2020;
(vii) 2,450,000 common shares issuable on May 24, 2021. Upon the vendors' election, up to $5 million in cash to be received 24 months from the closing date if the average closing price of the Company's shares over the 15 trading days immediately preceding the payment date is less than C$3.75 per share. If the vendors elect to take cash, common shares issuable would be reduced to 783,333; and,
(viii) issuance of up to a maximum of 6,000,000 earn out common shares (the "Swell Earn-Out Shares"), to be issued over a period of seven years, contingent upon the achievement of certain stock price targets of C21, and 50% of the Swell Earn-Out Shares issuable upon change of control of C21 and 100% of the Swell Earn-Out Shares issuable upon change of control of C21 at a C21 valuation of at least C$5.00 per C21 common share.
On February 13, 2023, the Company announced the cancellation of most of the Swell Earn-Out Shares. 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 cash payment of $575,136.
As of the date of this Annual Report the outstanding balance of Swell Earn-Out Shares is zero.
Eco Firma Farms LLC - Oregon, USA (Non-Operational)
On June 13, 2018, the Company completed the acquisition of 100% of the membership interests of Eco Firma Farms LLC ("EFF"), an Oregon limited liability company (former subsidiary of Proudest Monkey Holdings LLC), which owned and operated a 22,000 square-foot cannabis production facility, and related assets, in Oregon. On June 28, 2018, and July 6, 2018, the Company announced certain post-closing adjustments with respect to the acquisition of EFF. In consideration for 100% of the membership interests of EFF, the Company paid total consideration of $7,849,684.
The vendors of Eco Firma Farms LLC can also earn up to 3,948,750 (was 6,500,000, see below December 28, 2018 restructuring) common shares of C21, at a deemed issue price of $1.00 per common share, over a maximum seven-year period, if the EBITDA earned by the Company in relation to EFF satisfies certain agreed upon amounts (the "EFF Earn Out"). Management has determined that the EFF Earn-Out has no value.
On December 28, 2018, the Company restructured certain real estate rights connected with its EFF operations. Under the restructured arrangement, for a $3,800,000 purchase price, the Company formally acquired the real estate assets housing EFF's cultivation operations under a vendor finance arrangement that converted rental payments into mortgage interest payments. As part of the restructuring, two of the vendors of EFF agreed, among other things, to assign the rights to their 39.25% share of the EFF Earn-Out to a wholly owned subsidiary of the Company.
On May 10, 2019, the Company issued 3,983,886 common shares (the common shares were issued subject to escrow release in four consecutive monthly installments of 25% each commencing on September 14, 2019), at a deemed price of $0.825 per common share, to settle the $3,800,000 purchase price for the real property used in EFF's operations, in addition to assuming the $513,294 balance under the first mortgage for the property.
Cultivation activities at the EFF facility were temporarily shuttered in October 2019. The EFF facility was under third-party management pursuant to a management agreement dated June 15, 2020, whereby the management company has assumed all costs at the facility including real property taxes and costs. On March 8, 2022, the Company terminated the management agreement. The EFF land and building has been sold during the year ended March 31, 2025.
Sale of Non-Core Oregon Assets
On January 7, 2021, the Company announced entering into a definitive agreement (the "Oregon Agreement") for the sale of select non-core assets in Oregon, currently under third-party management agreements for $1.3 million. These assets included the Company's Portland licenses and BHO processing equipment and the Dab Society brand, including an assumption by the buyer of the respective leases at the Swell and the Pure Green facilities. The parties received Oregon Liquor Control Commission ("OLCC") approval to the transfer of the licenses and effective April 23, 2021, the funds were received, and the sale was closed.
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On January 19, 2022, the Company announced entering into a definitive agreement (the "Southern Oregon Agreement") for the sale of select assets, including its real property located in Southern Oregon and associated outdoor production licenses and equipment, for $2.0 million. The Company has received a $100,000 cash down payment with an additional $400,000 to be paid upon the buyer's receipt of the OLCC approval of the license transfer and closing. The Company will receive interest-only monthly installments starting in July 2022 at an annual interest rate of 8%, including annual principal payments of $100,000, on a $1.5 million secured promissory note maturing on the fifth (5th) anniversary of the agreement.
On April 28, 2022, the Company entering into a definitive agreement (the "Central Oregon Agreement") for the sale of select assets, including its indoor production license, wholesale license and processing license located in Bend, Oregon, and certain nominal equipment, for $87,500. The Company has received full payment under the Central Oregon Agreement and the licenses are in the process of being transferred.
On March 9, 2023, the Company executed a settlement agreement to terminate the Southern Oregon Agreement. The lessee failed to make the minimum payments under the agreement and the Company exercised its right to terminate the Agreement. The lessee paid $500,000 as consideration for the two production licenses in Southern Oregon. The land and equipment in Southern Oregon was sold during the year ended March 31, 2025.
B. Business Overview
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.
The Company is operated by a management team that has significant professional experience, including deep experience both within the cannabis industry and other fast-paced growth industries like technology, healthcare, and venture capital. The Company's management team also includes experts from more traditional industries like forestry, manufacturing, real estate, and capital markets.
Cultivation and Processing
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 37% of sales in the dispensaries. With the addition of our third dispensary, wholesale sales fell to $1.3 million during the year ended March 31, 2026 ($1.5 million March 31, 2025).
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Retail
The Company operates three dispensaries with the acquisition of the third store completed on June 7, 2024. 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 175,000 recreational and medical cannabis customers per quarter, with over 700 SKUs in each store.
The new dispensary in Reno is a 6,500 square foot, purpose-built, operational retail cannabis dispensary. With the dispensary's desirable location in a high traffic, flourishing area of South Reno, we have seen strong revenue growth from this acquisition, along with the added benefit of allowing us to expand the portion of our cultivation capacity sell through.
Silver State had total retail sales of $31.3 million during the year ended March 31, 2026 as compared to $28.7 million in the year ended March 31, 2025.
Branding and Marketing
The Company utilizes consistent branding and messaging across its retail and wholesale channels under Phantom Farms, Hood Oil, and Silver State Relief. The Company currently sells over 700 distinct SKUs, including the following product categories: CO2 vaporizer pens, live resin vaporizer pens, distillate vaporizer pens, live resin extract, cured resin extract, bulk flower, packaged flower, pre-rolls, CBD cured resin vaporizer pens, CBD CO2 vaporizer pens, and CBD cured resin extracts.
Banking and Processing
In Nevada, the Company deposits funds from its operations into its bank accounts held at FFB-First Fresno Bank, Greater Nevada Credit Union and at Partner Colorado Credit Union through Safe Harbor Private Banking services. The Company is fully transparent with its banking partners regarding the nature of its business.
Product Selection and Offerings
Product selection decisions are currently made by the Company's buyers, who negotiate with potential vendors across all product categories including packaged and wholesale flower, vaporizer pens, cured extracts, edibles and pre-rolls. The Company bases its product selection decisions on product quality, margin potential, and scalability.
The Company's branded CPG and flower-based products are sold primarily through captive retail and wholesale channels in Nevada. The Company's retail locations in Nevada also offer third party branded CPG and flower-based products including a wide variety of THC and CBD based products, including vaporizer pens, cured resin extracts, bulk flower, packaged flower, pre-rolls, edibles, tinctures, and topicals.
Product Pricing
The Company's wholesale and retail pricing strategies are regularly adjusted in accordance with individual market dynamics. Generally speaking, when pricing adjustments are made within a given market, such adjustments are applied, and held consistently, across all business lines and channel partners.
The state of Nevada does not regulate pricing and licensed dispensing organizations within the state may also set their own prices for cannabis and cannabis products. However, products sold at dispensaries in Nevada are subject to a 10% cannabis excise and sales tax.
In-Store Pickup, Drive-thru window and Delivery
The Company's Nevada retail locations offer in-store pickup and delivery utilizing the leading third-party service providers, a leading cannabis sales and fulfillment web-based application. The Company added a Drive-thru window at our Sparks dispensary in the year end January 31, 2024. The Company actively monitors the continued growth of a number of cannabis web-based sales and fulfillment platforms and is well poised to utilize strategic third-party service providers.
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Inventory Management
The Company has comprehensive inventory management procedures, which are compliant with all applicable state and local laws, regulations, ordinances, and other requirements. These procedures ensure strict controls over the Company's cannabis flower and CPG inventory from its production, processing and distribution licensees through to ultimate sale to end consumers (or rare cases disposal as cannabis waste). Such inventory management procedures also include strong quality control and quality assurance measures to prevent in-process contamination and maintain the safety and quality of the products. The Company is committed to supplying safe, consistent, and high-quality cannabis flower and CPG products at a value-oriented price.
Research and Development
Through its research and development activities, the Company expects to create proprietary genetics, processes, technologies, and products from its existing Nevada operations, as well as from future expansion in new markets. The Company may license these genetics, processes, technologies, and products as part of its future business. The Company may also seek appropriate federal patent, trademark, copyright, and other customary intellectual property protections when the same become available and/or are appropriate.
Competition
Across a modified and strategic cannabis value chain, the Company expects to continue to vigorously compete with other licensees in Nevada. Nevada is a "limited" license state, as such the broader market dynamics can be more favorable than states with unlimited licenses. Some of the Company's direct competitors continue to be small-scale local operators, but market rationalization through consolidation continues. Of note is the increased participation of multi-state operators with national growth aspirations in the Nevada marketplaces. As more U.S. jurisdictions pass state legislation allowing the recreational use and sale of cannabis, the Company is assured an increased level of competition in U.S. markets. These increasingly competitive U.S. markets may adversely affect the financial condition and operations of the Company.
Employees
The Company's employees are highly talented individuals who have educational achievements ranging from Ph.D., Masters, and undergraduate degrees in a wide range of disciplines, as well as staff who have been trained on the job to uphold the highest standards as set by the Company. The Company hires and promotes individuals who are best qualified for each position, priding itself on using a process that identifies people who are trainable, cooperative and share the Company's core values.
The Company takes all reasonable steps to ensure staff are appropriately informed and trained to ensure 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 ("CDC") and all orders from relevant provincial, state and local jurisdictions and authorities.
Intellectual Property
The Company has developed numerous proprietary genetics, processes, technologies and products. These assets include genetics, ERP and other software applications, cultivation and extraction technologies, as well as consumer brands. Whenever available and appropriate, the Company undertakes reasonable intellectual property protections to secure these assets.
To date, absent the availability of customary federal patent, trademark, and copyright protections for cannabis applications, the Company has relied on non-disclosure/confidentiality arrangements, common law trade secrets, and state-based trademark protections. The Company actively monitors and responds to all potentially material intellectual property infringements and maintains strict standards and controls regarding the use and dissemination of its intellectual property.
Government Regulations
Please see Item 5.D. "United States Regulatory Environment", for a discussion of the material effects of government regulations on the Company's business.
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In addition, the Company owns three (3) website domains including: www.cxxi.ca, www.phantom-farms.com, and www.silverstaterelief.com, along with numerous social media accounts across all major platforms.
C. Organizational Structure
The Company conducts its business as the parent company to the following six (6) significant subsidiaries in the United States:
| Country of | Percentage | Functional | ||
| Name of Subsidiary | Incorporation | Ownership | Currency | Principal Activity |
| 320204 US Holdings | USA | 100% | USD | Holding Company |
| 320204 Oregon Holdings Corp | USA | 100% | USD | Holding Company |
| 320204 Nevada Holdings Corp | USA | 100% | USD | Holding Company |
| Silver State Cultivation LLC | USA | 100% | USD | Cannabis producer |
| Silver State Relief LLC | USA | 100% | USD | Cannabis retailer |
| Workforce Concepts 21, Inc | USA | 100% | USD | Payroll and benefits services |
D. Property, Plants and Equipment
Our executive offices are located at 19th Floor, 885 West Georgia Street, Vancouver, BC, V6C 3H4.
Our Sparks, Nevada production and processing facility is located at 250 S Stanford Way, Sparks, NV 89431. This facility is a total of 104,000 square feet, with 37,000 square feet utilized for cultivation of cannabis flower, and 1,200 square feet utilized for extraction and processing of cannabis products.
Our Sparks, Nevada dispensary is located at 175 E Greg Street, Sparks, NV 89431. This retail building is 8,000 square feet primarily selling the Company's cannabis flower and products and third-party cannabis products.
Our Fernley, Nevada dispensary is located at 1301 Financial Way, Fernley, NV 89408. This retail building is 6,000 square feet, primarily selling the Company's cannabis flower and products and third-party cannabis products.
Our Reno, Nevada dispensary is located at 12240 Old Virginia Road, Reno, NV 89521. This retail building is 6,500 square feet, primarily selling the Company's cannabis flower and products and third-party cannabis products.
Our Canby, Oregon facility located at 24700 S Mulino Road, Canby, OR 97013 has been sold during the year ended March 31, 2025.
Item 4A. Unresolved Staff Comments
Not applicable.
Item 5. Operating and Financial Review and Prospects
A. Operating Results
The Company previously presented its financial statements in conformity with the International Financial Reporting Standards, as issued by the International Accounting Standards Board ("IFRS"). Beginning for the fiscal year ended January 31, 2022, the Company changed the accounting principles governing the presentation of its consolidated financial statements to the U.S. generally accepted accounting principles ("U.S. GAAP").
Financial statements included in this Annual Report for the fiscal year ended March 31, 2026, March 31, 2025 and two months ended March 31, 2024, were prepared in conformity with U.S. GAAP.
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Financial Information for three years to FY 2026 in accordance with U.S. GAAP
The following table presents selected financial information for the year ended March 31, 2026, March 31, 2025 and two months ended March 31, 2024.
| Two months | ||||||||||
| C21 Investments Inc., PROFIT AND LOSS | Year ended | Year ended | ended | |||||||
| 31-Mar-26 | 31-Mar-25 | 31-Mar-24 | ||||||||
| Revenue | 32,614,513 | 30,117,880 | 4,464,950 | |||||||
| Inventory expensed to cost of sales | 19,009,393 | 17,558,940 | 2,688,650 | |||||||
| Gross profit | 13,605,120 | 12,558,940 | 1,776,300 | |||||||
| Gross Margin% | 41.7% | 41.7% | 39.8% | |||||||
| Expenses | ||||||||||
| General and administration | 8,234,388 | 7,728,838 | 1,151,305 | |||||||
| Sales, marketing, and promotion | 241,063 | 207,634 | 21,581 | |||||||
| Operating lease cost | 834,421 | 785,241 | 106,283 | |||||||
| Depreciation and amortization | 1,780,182 | 1,706,012 | 207,225 | |||||||
| Share based compensation | 236,779 | 849,559 | - | |||||||
| Total expenses | 11,326,833 | 11,277,284 | 1,486,394 | |||||||
| Income from operations | 2,278,287 | 1,281,656 | 289,906 | |||||||
| Income from operations% | 7.0% | 4.3% | 6.5% | |||||||
| Other items | ||||||||||
| Interest expense | (187,241 | ) | (293,675 | ) | - | |||||
| Accretion expense | (372,018 | ) | (509,871 | ) | - | |||||
| Other Income (loss) | (369,398 | ) | (135,446 | ) | 9,209 | |||||
| Gain on change in fair value of derivative liabilities | 29,160 | 52,257 | 22,189 | |||||||
| Net income (loss) from continuing operations before income taxes | 1,378,790 | 394,921 | 321,304 | |||||||
| Income tax expense | (4,614,428 | ) | (4,151,650 | ) | (372,743 | ) | ||||
| Net income (loss) from continuing operations after income taxes | (3,235,638 | ) | (3,756,729 | ) | (51,439 | ) | ||||
| Net loss from discontinued operations | (8,080 | ) | (212,813 | ) | (22,965 | ) | ||||
| Net income (loss) | (3,243,718 | ) | (3,969,542 | ) | (74,404 | ) | ||||
| Income (loss) from continuing operations per share, basic and diluted | (0.03 | ) | (0.03 | ) | (0.00 | ) | ||||
| Basic and diluted income (loss) per share | (0.03 | ) | (0.03 | ) | (0.00 | ) | ||||
| Distributions or cash dividends | n/a | n/a | n/a | |||||||
| Weighted average number of shares outstanding - basic | 117,910,795 | 119,794,951 | 120,047,814 | |||||||
| Weighted average number of shares outstanding - diluted | 118,466,588 | 120,588,044 | 122,880,907 |
All the current and comparative figures are in U.S. GAAP.
"Revenue" includes retail revenues from our three stores and wholesale revenue from our cultivation operations. Financial Year ("FY") and the year ended March 31, 2026 ("FY2026") and the year ended March 31, 2025 ("FY2025") are defined here. FY 2026 revenues increased versus FY 2025 by 8.3% to $32.6 million. This increase is mainly due to a full year of operations in our third store. State of Nevada sales were down 10.0% over the comparative period.
"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.
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"Gross profit" increased by $1.05 million in FY 2026 to $13.61 million (41.7% of Revenue) versus FY 2025 of $12.56 million (41.7% of Revenue), mainly due to economies of scale with the added third store.
"Income from operations" Income from operations for FY 2026 increased to $2.3 million, up 78% versus FY 2025 of $1.3 million. This result is due to increased gross profit of $1.0 million, a decrease in share-based compensation expense (a non-cash expense) of $0.6 million, offset by small increases in other expenses.
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. FY 2026 costs were $8,234,388 versus $7,728,838 (FY2025), an increase of $505,550 (6.5%) due to increased salaries, wages and professional fees.
"Operating lease cost" is the cost of our facility leases not included in cost of sales and were $834,421 in FY 2026 versus $785,241 in FY 2025. The increase is due to the addition of our third store.
"Depreciation and amortization" include provisions for fixed assets and intangibles not included in cost of sales. The total depreciation and amortization in FY2026 was $1,780,182 versus $1,706,012 in FY 2025.
"Share based compensation" is a non-cash item and reflects the issuance of stock options to employees, officers, and directors. The decrease of $612,780 in FY 2026 is due to no issuance of stock options in FY2026.
Other Items
"Interest expense" in FY2026 decreased to $187,241 versus $293,675 in FY 2025 due to repayment of the 12% convertible debentures during the year.
"Accretion expense" in FY2026 decreased to $372,018 versus $509,871 in FY2025 due to repayment of the 12% convertible debentures during the year.
"Other income (loss)" in FY2026 is a loss of $369,398 versus a loss of $135,446 in FY 2025. This is due mainly to the settlement of the Eco Firma Farms litigation.
"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 as at year end March 31, 2026. Of the original 10.5 million of earn out shares to both Phantom and Swell, 1.2 million remain. As of March 31, 2026, the fair value of the remaining shares making up the derivative liability have been written down to zero.
The Swell Earn-Out shares expired May 24, 2026.
"Provision for income taxes" for FY 2026 of $4,614,428 is up from $4,151,650 in FY2025. The Company had more taxable income in the current year as well as interest and penalties relating to prior years.
"Other comprehensive income (loss)" specifically the cumulative translation adjustment, comes about in GAAP when translating the balances between the parent company (recorded in C$) 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. There is no effect of this treatment on our revenues (FY2026 -$nil, FY2025-$nil) and our gross profit (FY2026-$nil, FY2025-$nil) and an increase to our income from operations and net income of (FY 2026-$8,080, FY2025-$212,813). 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. Our remaining two properties in Oregon were both sold to third parties in FY 2025.
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Fourth Quarter
| LAST EIGHT QUARTERS, except as noted | (000's unless noted) | |||||||||||||||||||||||
| 31-Mar-26 | 31-Dec-25 | 30-Sep-25 | 30-Jun-25 | 31-Mar-25 | 31-Dec-24 | 30-Sep-24 | 30-Jun-24 | |||||||||||||||||
| Inventory | 4,591 | 4,257 | 4,767 | 4,163 | 4,051 | 3,885 | 3,975 | 3,300 | ||||||||||||||||
| Revenues | 7,450 | 8,141 | 8,470 | 8,553 | 8,106 | 7,908 | 7,509 | 6,596 | ||||||||||||||||
| Income (loss) from operations, adding back share based compensation | 531 | 404 | 1,279 | 301 | 974 | 1,122 | 454 | (418 | ) | |||||||||||||||
| Adjusted EBITDA | 1,181 | 1,051 | 2,216 | 1,069 | 1,692 | 1,568 | 1,295 | 311 | ||||||||||||||||
| Income (loss) from continuing operations | (1,388 | ) | (609 | ) | (482 | ) | (757 | ) | (1,530 | ) | (81 | ) | (759 | ) | (1,386 | ) | ||||||||
| *per common share, basic & diluted | (0.01 | ) | (0.01 | ) | (0.01 | ) | (0.01 | ) | (0.01 | ) | (0.00 | ) | (0.01 | ) | (0.01 | ) | ||||||||
| Profit (loss) attributable to owners | (1,377 | ) | (624 | ) | (448 | ) | (842 | ) | (1,563 | ) | (1 | ) | (845 | ) | (1,412 | ) | ||||||||
| *per common share basic & diluted | (0.01 | ) | (0.01 | ) | (0.00 | ) | (0.01 | ) | (0.01 | ) | (0.00 | ) | (0.01 | ) | (0.01 | ) | ||||||||
Revenues continued to grow in the last 12 months with the opening of our third store in South Reno on June 26, 2024. Inventory balance at March 31, 2026, increased by $1.3 million since June 30, 2024 due mainly to the opening of our third store. Adjusted EBITDA for quarter-ended March 31, 2026, was up slightly from the quarter-ended December 31, 2025. See non-GAAP financial measures below.
Federal corporate income taxes are very high in the cannabis industry due to the restrictions of Section 280E of the U.S Internal Revenue Code. Share-based compensation is a non-cash expense. Therefore, the measure of income from operations (before taxes), adding back share-based compensation is a useful measure.
Adjusted EBITDA for the full year ended March 31, 2026 (FY 2026) is $5.52 million, an increase of $650,461 from FY 2025 of $4.87 million. See explanation of non-GAAP financial measures below.
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 the current presentation.
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| Adjusted EBITDA | |||||||||
| Year ended | Year ended | 2 months ended | |||||||
| March 31, 2026 | March 31, 2025 | March 31, 2024 | |||||||
| Net Income (loss) | $ | (3,243,718 | ) | $ | (3,969,542 | ) | $ | (74,404 | ) |
| Interest, accretion expenses, net | 559,259 | 803,546 | - | ||||||
| Provision for income taxes | 4,614,428 | 4,151,650 | 372,743 | ||||||
| Depreciation and amortization | 1,780,182 | 1,706,012 | 207,225 | ||||||
| Depreciation and interest in cost of sales | 812,368 | 812,366 | 135,395 | ||||||
| EBITDA | 4,522,519 | 3,504,032 | 640,959 | ||||||
| Change in fair value of derivative liabilities | (29,160 | ) | (52,257 | ) | (22,189 | ) | |||
| Share based compensation | 236,779 | 849,559 | - | ||||||
| Loss from discontinued operations | 8,080 | 212,813 | 22,965 | ||||||
| One-time special project costs | 408,681 | 187,543 | - | ||||||
| Production curtailment, inventory adjustments | - | 28,700 | - | ||||||
| Other gain/loss | 369,398 | 135,446 | (9,209 | ) | |||||
| Adjusted EBITDA | $ | 5,516,297 | $ | 4,865,836 | $ | 632,526 |
Selected Annual Information
The following table summarizes selected information for the most recent three fiscal year ends.
| Selected Balance Sheet (000's) | as at: | |||||||||
| 31-Mar-26 | 31-Mar-25 | 31-Mar-24 | ||||||||
| Assets | ||||||||||
| Cash and other | 3,716 | 3,453 | 5,272 | |||||||
| Inventory | 4,591 | 4,051 | 2,866 | |||||||
| current | 8,307 | 7,504 | 8,138 | |||||||
| Property and equipment | 2,299 | 2,666 | 3,391 | |||||||
| Goodwill, Intangibles, Right of use | 43,813 | 46,830 | 43,697 | |||||||
| Total assets | 54,419 | 57,000 | 55,226 | |||||||
| Liabilities | ||||||||||
| Accounts payable | 1,861 | 2,148 | 2,593 | |||||||
| Convertible debentures and other | 1,932 | 2,134 | 1,156 | |||||||
| Income taxes payable | 1,655 | 2,834 | 10,230 | |||||||
| Deferred tax , other | 939 | 841 | 1,067 | |||||||
| current | 6,387 | 7,957 | 15,047 | |||||||
| Lease liabilities | 9,136 | 9,771 | 9,120 | |||||||
| Uncertain tax position | 13,362 | 9,823 | - | |||||||
| Convertible debentures | - | 710 | - | |||||||
| Other | 100 | 63 | 85 | |||||||
| Non-current financial liabilities | 22,598 | 20,367 | 9,205 | |||||||
| Equity | 25,434 | 28,676 | 30,973 | |||||||
| Total liabilities and equity | 54,419 | 57,000 | 55,226 | |||||||
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"Total Assets" decreased in the past year due to amortization of fixed assets offset by the increase in inventory. Inventory has increased in the past couple of years due to the addition of our third dispensary in June 2024 for consideration of $3.5 million. This acquisition reduced our cash balance, increased inventory to stock the new store, and increased intangibles.
"Current liabilities" has decreased mainly due to the change in our position on the 280E income taxes. This change in position has moved much of the income tax payable balance to long term included in Uncertain tax position. The convertible debenture balance increased with the issuance of 12% convertible debentures to assist in funding the acquisition of the third dispensary. Reduction of current income taxes is due to making cash payment of income taxes during the year of $2.4 million (FY March 31, 2025 - $1.5 million).
"Non-current financial liabilities" has increased in the past couple of years with the change in our position on 280E income taxes. Uncertain tax position is $13.4 million versus nil two years ago.
B. Liquidity and Capital Resources
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 year ended March 31, 2026, 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 March 31, 2026, the Company had cash of $2,234,306, a working capital surplus of $1,920,024 which we believe, but can provide no guarantee, will be sufficient to meet our anticipated operating expenses and capital expenditures requirements through at least the next 12 months. The Company has generated significant positive cash flow for the year ended March 31, 2026, and the fiscal year ended March 31, 2025. The Statement of Cash Flows for the year ended March 31, 2026, shows cash provided by continuing operations of $1.4 million ($1.4 million - year ended March 31, 2025).
The Company closed on the purchase of the South Reno Dispensary on June 7, 2024, which was paid for from cash on hand and the May 2024 Private Placement.
The Company acquired, for $3.5 million, a third retail dispensary as of June 7, 2024. This store located in South Reno, Nevada opened for business on June 26, 2024. The acquisition was paid for with cash on hand generated by the Company and a C$4.0 million financing completed in May 2024. The Company is repaying C$160,000 per month plus interest on this debt. The Company is also making periodic payments against its corporate income tax payable.
The Company does not have any other significant capital expenditure plans in the next 12 months. While operations' cash flow has slowed as our local markets in general have slowed, we expect to continue to generate positive operations cash flow, and the addition of the third dispensary has improved our cash flow.
Additionally, as at March 31, 2026, the Company had current income tax payable of $1,654,854, and an uncertain tax position of $13,362,009. See income tax discussion below. To manage liquidity risk, the Company endeavors to ensure it has sufficient cash resources to meet its financial obligations. The Company's ability to service its debt depends on sustaining the profitability of its operations and obtaining sufficient financing on acceptable terms.
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.
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The following table is a summary of C21's balance sheet exposure to U.S. cannabis-related activities as of March 31, 2026:
| 2026 | |||||||||
| Subsidiaries | Investments | Total | |||||||
| Current Assets | $ | 7,988,396 | $ | - | $ | 7,988,396 | |||
| Non-current Assets | 46,112,101 | - | 46,112,101 | ||||||
| Total Assets | $ | 54,100,497 | $ | - | $ | 54,100,497 | |||
| Current Liabilities | $ | 6,819,019 | $ | - | $ | 6,819,019 | |||
| Non-Current liabilities | 20,010,954 | - | 20,010,954 | ||||||
| Total Liabilities | $ | 26,829,973 | $ | - | $ | 26,829,973 | |||
The following represents the portion of certain assets on C21's consolidated balance sheet that pertain to U.S. Cannabis activity as of March 31, 2026:
- Inventory: 100%
- Property plant & equipment: 100%
- Intangible assets and goodwill: 100%
- Notes receivable and deposits: 84%
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 Company manages its capital structure and makes adjustments to it in light of economic conditions and financial needs. The Company, upon approval from its Board, will balance its overall capital structure through new share issues or by undertaking other activities as deemed appropriate under the specific circumstances.
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 assets.
The Company works with its capital advisors CB1 Capital Advisors, LLC ("CB1"), organized in Delaware and 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.
The continued development of the Company may require additional financing. There is no guarantee that the Company will be able to achieve its business objectives. The Company intends to fund its business objectives by way of additional offerings of equity and/or debt financing. The failure to raise or procure such additional funds could result in the delay or indefinite postponement of current business objectives. There can be no assurance that additional capital or other types of financing will be available if needed or that, if available, will be on terms acceptable to the Company, especially in the current higher interest rate environment. If additional funds are raised by offering equity securities or convertible debt, existing shareholders could suffer significant dilution. Any debt financing secured in the future could involve the granting of security against assets of the Company and also contain restrictive covenants relating to capital raising activities and other financial and operational matters, which may make it more difficult for the Company to obtain additional capital and to pursue business opportunities, including potential acquisitions.
For further information, see Management's Discussion and Analysis, attached hereto as Exhibit 15.1, and incorporated by reference herein.
C. Research and Development, Patents and Licenses, etc.
Through its research and development activities, the Company expects to create proprietary genetics, processes, technologies, and products from its existing Nevada operations, as well as from future expansion in new markets. The Company may license these genetics, processes, technologies, and products as part of its future business. The Company may also seek appropriate federal patent, trademark, copyright, and other customary intellectual property protections when the same become available and/or are appropriate.
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D. Trend Information
United States 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 an estimated 79% of Americans live in a state where cannabis is legal in some form and 54% 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 a January 2026 Pew Research Center survey, around nine-in-ten Americans favor some form of cannabis legalization, with only 11% saying cannabis should not be legal in any form. In that survey, 89% of U.S. adults support legalizing cannabis either for medical and recreational use (55%) or medical use only (33%). These are large increases in public support over the past 40 years in favor of legalized cannabis use.
Notwithstanding that 42 states and the District of Columbia have now legalized adult-use and/or medical cannabis, state-legal cannabis remains illegal under U.S. federal law as such operations are not completely compliant with the 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.
United States Regulatory Environment
Under U.S. federal law, adult-use marijuana is currently a Schedule I drug while FDA-approved marijuana and state-legal medical marijuana are Schedule III. The CSA has five different tiers or schedules. A Schedule I drug means the DEA considers it to have a high potential for abuse, no accepted medical treatment, and lack of accepted safety for the use of it even under medical supervision. Other Schedule I drugs are heroin, LSD and ecstasy. Schedule III drugs have currently accepted medical use in treatment in the United States and abuse of the drug may lead to moderate or low physical dependence or high psychological dependence. The Company believes the CSA categorization of adult-use marijuana as a Schedule I drug is not reflective of the medicinal properties of marijuana or the public perception thereof, and numerous studies show cannabis is not able to be abused in the same way as other Schedule I drugs, has medicinal properties, and can be safely administered. Additionally, while some studies show cannabis is less harmful than alcohol, alcohol is not classified under the CSA.
Forty-two (42) states and the District of Columbia have now legalized adult-use and/or medical marijuana. The federal government sought to provide guidance to enforcement agencies and banking institutions with the introduction of the U.S. Department of Justice Memorandum drafted by former Deputy Attorney General James Michael Cole in 2013 (the "Cole Memo") and FinCEN guidance in 2014.
The Cole Memo offered guidance to federal enforcement agencies as to how to prioritize civil enforcement, criminal investigations and prosecutions regarding marijuana in all states. The memo put forth eight prosecution priorities:
- preventing the distribution of marijuana to minors;
- preventing revenue from the sale of marijuana from going to criminal enterprises, gangs and cartels;
- preventing the diversion of marijuana from states where it is legal under state law in some form to other states;
- preventing the state-authorized marijuana activity from being used as a cover or pretext for the trafficking of other illegal drugs or other illegal activity;
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- preventing the violence and the use of firearms in the cultivation and distribution of marijuana;
- preventing the drugged driving and the exacerbation of other adverse public health consequences associated with marijuana use;
- preventing the growing of marijuana on public lands and the attendant public safety and environmental dangers posed by marijuana production on public lands; and,
- preventing marijuana possession or use on federal property.
In January 2018, the then United States Attorney General, Jeff Sessions, by way of issuance of a new U.S. Department of Justice Memorandum (the "Sessions Memo"), rescinded the Cole Memo and thereby created a vacuum of guidance for U.S. enforcement agencies and the DOJ. Rather than establish national enforcement priorities particular to marijuana-related crimes in jurisdictions where certain marijuana activity was legal under State law, the Sessions Memo instructs that "[i]n deciding which marijuana activities to prosecute... with the [DOJ's] finite resources, prosecutors should follow the well-established principles that govern all federal prosecutions." Namely, these include the seriousness of the offense, history of criminal activity, deterrent effect of prosecution, the interests of victims, and other principles.
Former United States Attorney General Sessions resigned on November 7, 2018, and was replaced by William Barr on February 14, 2019. On December 14, 2020, former President Trump announced that Mr. Barr would be resigning from his post as Attorney General, effective December 23, 2020. Merrick Garland, President Biden's nominee to succeed Mr. Barr, was sworn in as the current United States Attorney General on March 11, 2021. During his campaign, President Biden stated a policy goal to decriminalize possession of cannabis at the federal level, but he has not publicly supported the full legalization of cannabis. In response to questions posed by Senator Cory Booker, Merrick Garland stated during February 2021 congressional testimony that he would reinstitute a version of the Cole Memo. He reiterated the statement that the Justice Department under his leadership would not pursue cases against Americans "complying with the laws in states that have legalized and are effectively regulating marijuana", in written responses to the Senate Judiciary Committee provided around March 1. President Donald J. Trump was sworn in as the 47th United States President on January 20, 2025, nominating Pamela Bondi to serve as Attorney General in his administration. Bondi served as the Attorney General from February 4, 2025 until April 2, 2026. Todd Blanche is currently the Acting Attorney General. It is not yet known whether the DOJ under President Trump will re-adopt the Cole Memorandum or announce a substantive cannabis enforcement policy in addition or in relation to the Rescheduling Rule.
Due to the CSA categorization of marijuana, U.S. federal law makes it illegal for financial institutions that depend on the Federal Reserve's money transfer system to take any proceeds from marijuana sales as deposits. Banks and other financial institutions could be prosecuted and possibly convicted of money laundering for providing services to cannabis businesses under the Bank Secrecy Act. Under U.S. federal law, banks or other financial institutions that provide a cannabis business with a checking account, debit or credit card, small business loan, or any other service could be found guilty of money laundering or conspiracy.
While there has been no change in U.S. federal banking laws to account for the trend towards legalizing medical and recreational marijuana by U.S. states, FinCEN has issued guidance advising prosecutors of money laundering and other financial crimes not to focus their enforcement efforts on banks and other financial institutions that serve marijuana-related businesses, so long as that business is legal in their state and none of the federal enforcement priorities are being violated (such as keeping marijuana away from children and out of the hands of organized crime). The "FinCEN Guidance" also clarifies how financial institutions can provide services to marijuana-related businesses consistent with the Bank Secrecy Act obligations, including thorough customer due diligence, but makes it clear that they are doing so at their own risk.
The customer due diligence steps include:
- verifying with the appropriate state authorities whether the business is duly licensed and registered;
- reviewing the license application (and related documentation) submitted by the business for obtaining a state license to operate its marijuana-related business;
- requesting from state licensing and enforcement authorities available information about the business and related parties;
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- developing an understanding of the normal and expected activity for the business, including the types of products to be sold and the type of customers to be served (e.g., medical versus recreational customers);
- ongoing monitoring of publicly available sources for adverse information about the business and related parties;
- ongoing monitoring for suspicious activity, including for any of the red flags described in this guidance; and
- refreshing information obtained as part of customer due diligence on a periodic basis and commensurate with the risk. With respect to information regarding state licensure obtained in connection with such customer due diligence, a financial institution may reasonably rely on the accuracy of information provided by state licensing authorities, where states make such information available.
Due to the fear by financial institutions of being implicated in or prosecuted for money laundering, cannabis businesses are often forced into becoming "cash-only" businesses. As banks and other financial institutions in the U.S. are generally unwilling to risk a potential violation of federal law without guaranteed immunity from prosecution, most refuse to provide any kind of services to cannabis businesses. Despite the attempt by FinCEN to legitimize cannabis banking, in practice its guidance has not made banks much more willing to provide services to cannabis businesses. This is because, as described above, the current law does not guarantee banks immunity from prosecution, and it also requires banks and other financial institutions to undertake time-consuming and costly due diligence on each cannabis business they take on as a customer. Over the last 18 months, some banks that have been servicing cannabis businesses have been closing accounts operated by cannabis businesses and are now refusing to open accounts for new cannabis businesses for the reasons enumerated above.
The few credit unions who have agreed to work with cannabis businesses are limiting those accounts to no more than 5% of their total deposits to avoid creating a liquidity risk. Since the federal government could change the banking laws as it relates to cannabis businesses at any time and without notice, these credit unions must keep sufficient cash on hand to be able to return the full value of all deposits from cannabis businesses in a single day, while also servicing the need of their other customers. Those state-chartered banks and credit unions that do have customers in the cannabis industry charge marijuana businesses high fees to pass on the added cost of ensuring compliance with the FinCEN Guidance. Unlike the Cole Memo, however, the FinCEN Guidance from 2014 has not been rescinded.
The U.S. Treasury Department has publicly stated they were not informed of the then Attorney General Jeff Sessions' desire to rescind the Cole Memo and do not have a desire to rescind the FinCEN Guidance for financial institutions. The former Secretary of the U.S. Department of the Treasury, Stephen Mnuchin, publicly stated that he did not have a desire to rescind the FinCEN Guidance. The newly appointed Secretary of the Treasury, Janet Yellen, has not yet articulated an official Treasury Department position with regard to the FinCEN Guidance and thus as an industry best practice and consistent with its standard operating procedures, the Company adheres to all customer due diligence steps in the FinCEN Guidance.
Because the DOJ memorandums serve as discretionary agency guidance and do not constitute a force of law, cannabis related businesses have worked to continually renew the Rohrabacher-Blumenauer Amendment (originally the Rohrabacher-Farr Amendment) that has been included in federal annual spending bills since 2014. This amendment restricts the DOJ from using federals funds to prevent states with medical cannabis regulations from implementing laws that authorize the use, distribution, possession or cultivation of medical cannabis.
An additional challenge to cannabis-related businesses is that the provisions of Section 280E of the Code are being applied by the IRS to businesses operating in the adult-use cannabis industry. Section 280E of the Code prohibits cannabis businesses from deducting their ordinary and necessary business expenses, forcing them to pay higher effective federal tax rates than similar companies in other industries. The effective tax rate on a cannabis business depends on how large its ratio of non-deductible expenses is to its total revenues. Therefore, businesses in the legal cannabis industry may be less profitable than they would otherwise be. Although the Reschuling Rule makes 280E inapplicable to state-legal medical marijuana, it is unlcear how that will impact the Company's operations.
Another aspect of federal law is that it provides that cannabis and cannabis products may not be transported across state lines in the United States. As a result, all cannabis consumed in a state must be grown and produced in that same state. This dynamic could make it more difficult for the Company, in the short term, to maintain a balance between supply and demand. If excess cultivation and production capacity is created in any given state and this is not matched by increased demand in that state, then this could exert downward pressure on the retail price for the products the Company sells. If too many retail licenses are offered by state authorities in any given state, then this could result in increased competition and exert downward pressure on the retail price for the products the Company sells. On the other hand, if cultivation and production in a state fails to match growing demand then, in the short term, there could be insufficient supply of product in a state to meet demand and while the Company may be able to raise its prices there could be inadequate product availability in the short term, causing the Company's revenue in that state to fall.
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Progressive federal legislation has been both introduced in the U.S. House of Representatives ("U.S. House") and received positive votes in recent years. There have been numerous proposals but two of the most prominent are the SAFE Banking Act and the MORE Act (both defined herein).
On September 26, 2019, the U.S. House passed the Secure and Fair Enforcement Banking Act of 2019 (commonly known as the "SAFE Banking Act"), which aims to provide safe harbor and guidance to financial institutions that work with legal U.S. cannabis businesses. In the subsequent years, the SAFE Banking Act and the related SAFER Banking has been reintroduced numerous times but has not been signed into law. While Congress may introduce and consider this and other legislation in the future that may address issues that are important to the Company, there can be no assurance of the content of any proposed legislation or that any pending legislation will ever be passed.
Further, the Marijuana Opportunity Reinvestment and Expungement Act, also known as the "MORE Act", is a proposal to legalize cannabis and expunge prior cannabis related convictions. Like the SAFE Banking Act, the MORE Act has been reintroduced multiple times but has not yet been signed into law. There can be no assurance that it will be passed in its current form or at all.
The Company continues to monitor U.S. federal law and the law in all jurisdictions where it is active, with respect to (a) compliance with applicable state regulatory frameworks, and (b) potential exposure and implications arising from U.S. federal law.
On October 6, 2022, President Biden requested that the Secretary of Health and Human Services ("HHS") and the Attorney General initiate a review of cannabis scheduling pursuant to the Controlled Substances Act and federal law. Ultimately, this Rescheduling effort stalled indefinitely on January 13, 2025, the hearing was canceled by Chief Administrative Law Judge ("ALJ") John Mulrooney, and the proceedings were stayed indefinitely pending an interlocutory appeal brought by two private movants who sought to remove the DEA from its role as proponent of the proposed rescheduling through a motion which was denied. ALJ Mulrooney later retired.
However, under President Trump, the Rescheduling Rule moved forward. On April 28, 2026, the DEA issued rules in the Federal Register rescheduling FDA-approved marijuana products and products containing medical marijuana from a state medical marijuana license from Schedule I to Schedule III of the CSA. The Rescheduling Rule also created an expedited process for state medical marijuana licensees to register with the DEA enabling these entities holding state medical marijuana licenses to engage in the manufacture, distribution, and/or dispensing of marijuana for medical purposes under federal law. The Rescheduling Rule did not appear to address or amend the legality of adult-use marijuana which are subject to the new administrative hearings beginning on June 29, 2026.
It remains to be seen how the Rescheduling Rule will apply to Company as its operations are not limited to medical marijuana and it is unclear as to whether Company can or will register with DEA. The Company continues to monitor the impacts and options in light of the Rescheduling Rule.
Nevada Regulatory Environment
The following sections describe the legal and regulatory landscape in Nevada, the only state in which the Company currently operates. The Company believes that its operations are in full compliance with all applicable state laws, regulations and licensing requirements. Nonetheless, for the reasons described above and the risks further described under the heading "Risk Factors" herein, there are significant risks associated with the business of the Company. Readers are strongly encouraged to carefully read all of the risk factors contained under the heading "Risk Factors" herein.
Nevada Summary
Nevada has a medical marijuana program and passed an adult-use (21 and older) legalization through the ballot box in November 2016. In 2000, Nevada voters passed a medical marijuana initiative allowing physicians to recommend cannabis for an inclusive set of qualifying conditions, including severe pain and created a limited non-commercial medical marijuana patient/caregiver system. Senate Bill 374, which passed the legislature and was signed by the Governor in 2013, expanded this program and established a for-profit regulated medical marijuana industry.
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The Nevada Division of Public and Behavioral Health licensed medical marijuana establishments up until July 1, 2017, when the state's medical marijuana program merged with adult-use marijuana enforcement under the Nevada Department of Taxation ("NDOT"). In 2014, Nevada accepted medical marijuana business applications and a few months later the Division approved 182 cultivation licenses, 118 licenses for the production of edibles and infused products, 17 independent testing laboratories, and 55 medical marijuana dispensary licenses. The number of dispensary licenses was then increased to 66 by legislative action in 2015. The application process is merit-based, competitive, and is currently closed. Nevada residency is not required to own or invest in a Nevada medical cannabis business. In addition, vertical integration is neither required nor prohibited. Nevada's medical law includes patient reciprocity, which permits medical patients from certain other states to purchase medical marijuana from Nevada dispensaries. Nevada also allows dispensaries to deliver medical marijuana to patients.
Under Nevada's adult-use marijuana law, the NDOT licensed marijuana cultivation facilities, product manufacturing facilities, distributors, retail stores and testing facilities. After merging medical and adult-use marijuana regulation and enforcement, the single regulatory agency is now known as the Marijuana Enforcement Division of the NDOT. Until November 2018, applications to the NDOT for adult-use establishment licenses were being accepted from existing medical marijuana establishments and existing liquor distributors for the adult-use distribution license.
In February 2017, the NDOT announced plans to issue "early start" adult-use marijuana establishment licenses in the summer of 2017. These licenses, beginning on July 1, 2017, allowed marijuana establishments holding both a retail marijuana store and dispensary license to sell their existing medical marijuana inventory as either medical or adult-use marijuana, and expired 90 days after January 1, 2018 (per Sec. 24 of LCB File No. T002-17). Starting July 1, 2017, medical and adult-use marijuana have incurred a 15% excise tax on the first wholesale sale (calculated on the fair market value) and adult-use cannabis have incurred an additional 10% special retail marijuana sales tax in addition to any general state and local sales and use taxes.
On January 16, 2018, the Marijuana Enforcement Division of the NDOT issued final rules governing its adult-use marijuana program, pursuant to which up to sixty-six (66) permanent adult-use marijuana dispensary licenses will be issued. Existing adult-use marijuana licensees under the "early start" regulations must re-apply for licensure under the permanent rules in order to continue adult-use sales.
In May of 2019, Governor Steve Sisolak signed into law Senate Bill 32, that increased transparency in the licensing process by releasing certain information about license applicants, as well as methods used to issue licenses. In June 2019, Governor Sisolak approved Assembly Bill 132 making Nevada the first state to ban employers from refusing to hire job applicants who test positive for marijuana during the hiring process.
As of August 23, 2019, as a result of discrepancies discovered in the application process by the State of Nevada, a court issued a partial preliminary injunction against the State of Nevada from moving forward with the numerous holders of provisional licenses awarded under the December 5, 2018, provisional license awards. In addition to the preliminary injunction, the State of Nevada and various intervenors remain subject to ongoing litigation.
In early 2019, Nevada legislature passed Nevada Assembly Bill 533 ("AB 533"), which authorized the formation of the Cannabis Compliance Board (the "CCB") to be vested with the authority to license and regulate persons and establishments engaged in cannabis activities within Nevada. The CCB consists of an executive director and five board members appointed by the Governor Steve Sisolak. Board members must have expertise in a range of fields, including financial and accounting, law enforcement, medicine, regulatory and legal compliance, and cannabis. AB 533 also established the Cannabis Advisory Commission (the "CAC") which serves to study cannabis-related issues and make recommendations to the CCB. The CAC consists of 12-members appointed by the governor representing relevant state agencies and members of the cannabis industry and the public. Pursuant to AB 533, the CCB is mandated with studying the feasibility and safe implementation of licensing for lounges, in addition to their general authority and oversight of cannabis operations in Nevada. The CCB held its first meeting in July 2021, and regularly meets regarding public health and safety, license suspensions, and held public workshops regarding, and moved forward with licensing, cannabis consumption lounges.
Nevada Regulatory Framework
Nevada Revised Statues 678C and 678D regulate the Medical and Adult-Use of cannabis in Nevada. Nevada Administrative Code 453D provides a regulatory framework that outlines the function of the CCB Marijuana program. Subsections of this chapter outline licensing and enforcement guidelines which guide the CCB.
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Nevada Licensing Requirements
Licenses issued by CCB can be renewed annually so long as the licensee continues to demonstrate compliance with local and state law and pays the renewal fee. Dispensary/Retail store licenses have a set statutory "cap" (per NRS 453D.210 & NRS 453A.324), other license types do not. Moreover, statutory license caps can only be changed by the Nevada legislature, which meets bi-annually. Marijuana businesses in Nevada may also be governed by local ordinances, which can include caps on the number of marijuana businesses, zoning limitations, and additional screening of business owners and investors. Applicants must demonstrate (and license holders must maintain) that: (i) they are registered with the Nevada Secretary of State to do business in Nevada, (ii) they have contributed to the advancement of the State of Nevada via regular tax payments, (iii) they do not have interests in the Casino or Alcohol industries, (iv) they have the operational expertise required by the individual license type, demonstrated by submission of an operation plan, (v) they have the ability to secure the premises, resources, and personnel necessary to operate the license, (vi) they have the ability to maintain accountability of all cannabis and cannabinoid products and by-products via the state mandated "seed-to-sale" CTS to prevent diversion or unlawful access to these materials, (vii) they have the financial ability to maintain operations for the duration of the license, (viii) all owners have passed background screening, inclusive of fingerprinting, and (ix) all local land use, zoning, and planning notices have been followed in the development of the licensed site.
Nevada Security Requirements
A licensee must maintain a fully operational alarm and video monitoring system at all times. The alarm system must secure all points of ingress and egress and be equipped with motion detectors. The 24-hour video surveillance system must record at a high-resolution format approved by the CCB and have camera coverage which covers all areas of the facility without any blind spots. Video footage must be backed up for a minimum of 30 days in hard form. Cultivation and product manufacturing sites are not open to the public.
Nevada Transportation and Storage Requirements
Cannabis and cannabis goods must be stored in a lockable safe or vault at any time that employees are not on location. Any storage container that is large enough to allow an employee to walk into it must have cameras placed inside. Goods to be transported to another licensee must be fully manifested via the state mandated "seed-to-sale" CTS prior to being transported.
Nevada Department of Taxation Inspections
The CCB conducts announced and unannounced inspections of all licensed facilities to determine compliance with laws and rules. The CCB will inspect a licensee in the event of a complaint indicating that the licensee has or is actively violating existing statute. The CCB will also inspect at the time of any modification, as well as at the time of annual renewal.
Nevada Product Testing and Packaging Requirements
Both medical and adult-use marijuana and marijuana products are subject to stringent testing and packaging requirements. Before usable marijuana, concentrated marijuana, or marijuana products may be packaged for further processing or for transfer to a dispensary or retail store, an independent testing laboratory licensed by the CCB must collect samples from each homogenized lot or production run for testing. These samples are tested by the independent testing laboratory for compliance with specified limits on contaminants such as yeast and mold, heavy metals and pesticides, and microbes. Testing is also done to determine the potency of the sample. Cultivation and product manufacturing facilities are also subject to random quality assurance compliance testing at the discretion of the CCB. Generally, if a sample fails any of the tests conducted by the testing laboratory, the entire lot or production run must be destroyed.
All marijuana or marijuana products intended to be sold to consumers must be individually packaged, sealed, and labeled. Edible products must be packaged in opaque, child-resistant containers. Depending on the type of marijuana product, the CCB places limit on the amount of THC that a single package of marijuana may contain or the number of ounces of product a package may contain. All packages of marijuana or marijuana product sold to consumers must have detailed labels that include, inter alia, various warnings about the effects and risks of marijuana use; the name, license number, and contact information of the dispensary or retail store conducting the sale; the name and license number of the cultivation or product manufacturing facility that harvested or produced the marijuana or marijuana product; the potency levels of the marijuana or marijuana product; and the date the marijuana or marijuana product was harvested or produced.
In June 2025, Senate Bill 168 ("SB 168") was signed into law. SB 168 revised cannabis related product packing, granted CCB the authority to place holds on unapproved cannabis products, allowed adult-use and medical production facilities to engage in the acquisition, possession, packaing, supplying or selling of usable cannabis to adult-use retail stores or medical marijuana dispensaries, removed cannabis seeds from the definition of "usable cannabis", and authorizes cannabis cultivation facilities and cannabis production facilities to acquire, possess, deliver, transfer, supply or sell seeds of a plant, branded merchandise and supplies related to cannabis to persons located within and outside Nevada. Additionally, SB 168, prohibits packaging and laebling requirements from requiring: (1) a package of cannabis or cannabis products which is sold at wholesale to contain any label or tag other than a label or tag necessary for the functionality of any computer software used for the seed-to-sale tracking of cannabis adopted by the Board; and (2) a cannabis establishment to include any information on the label for any cannabis or a cannabis product that is already included on the packaging for the cannabis or cannabis product. The Bill also allows information required to be included on a label to instead be included on the packaging and revises the definition of the terms "label" and "packaging. SB 168 requires that CCB to put together a "frequently asked questions" webpage. Finally, SB 168 requires that a single package containing an infused pre-roll, to contain a net weight of not more than seven (7) grams.
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Public Opinion
The increase in state legalization of cannabis use is largely a result of changing public opinion in the United States. According to an October 2025 poll conducted by Gallup, 64% of Americans think that the use of cannabis should be made legal. A January 2026 Pew Research Center survey found that 63% of adults under 30 support legalization for both uses. That compares with 50% of those ages 65 to 74 and 34% of Americans ages 75 and older. A 2025 Gallup poll found that 64% of adults supported legalization. That's a slight decrease from the 70% who favored legalization in 2023. But it's about double the 31% who favored it in 2000.
Industry Outlook
Due to increases in state legalization, shifting public opinion, and recent rescheduling of state licensed medical marijuana to Schedule III, state-legal cannabis industry sales have grown substantially in recent years. According to projections from Statista, total revenue from cannabis is expected to reach $47 billion in 2026. With an estimated annual growth rate of 3.36%, the market volume is projected to reach $55.43 billion by 2030.
Other than as disclosed here and elsewhere in this Annual Report, we are not aware of any trends, uncertainties, demands, commitments or events for the period from April 1, 2025 to March 31, 2026 that are reasonably likely to have a material adverse effect on our net revenues, income from continuing operations, profitability, liquidity or capital resources, or that would cause our reported financial information not necessarily to be indicative of future operating results or financial condition.
E. Critical Accounting Estimates
The preparation of the Company's 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 business combinations, 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 and share-based compensation.
i. Business combinations
Judgment is used in determining whether the Company's acquisition is considered a business combination or an asset acquisition. Additionally, judgment is required to assess whether any amounts paid on the achievement of agreed upon milestones represents contingent consideration or compensation for post-acquisition services. Judgment is also required to assess whether contingent consideration arising from an acquisition should be classified as a liability or equity. Contingent consideration classified as equity is not remeasured at subsequent reporting dates and its subsequent settlement by the Company is accounted for within equity. Contingent consideration classified as a liability is remeasured at reporting period ends in accordance with the Company's accounting policies for financial liabilities.
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ii. Assets and liabilities held for resale
Non-current assets, or disposal groups comprising assets and liabilities, are classified as held for sale if it is highly probable that they will be recovered primarily through sale rather than through continuing use. Such assets, or disposal groups, are measured at the lower of their carrying amount and fair value less costs to sell. The comparative consolidated balance sheet is re-presented to classify assets as held for sale in the period that the respective assets are classified as held for sale.
iii. Income taxes and deferred tax assets/liabilities
The Company uses the asset and liability method to account for income taxes. Deferred income tax assets and liabilities are determined based on enacted tax rates and laws for the years in which the differences are expected to reverse. Deferred tax assets are reduced by a valuation allowance when, in the opinion of management, it is more likely than not that some portion or all of the deferred tax assets will not be realized.
The Company recognizes uncertain income tax positions at the largest amount that is more-likely-than-not to be sustained upon examination by the relevant taxing authority. An uncertain income tax position will not be recognized if it has less than a 50% likelihood of being sustained. Recognition or measurement is reflected in the period in which the likelihood changes. Any interest and penalties related to unrecognized tax liabilities are presented within income tax expense in the consolidated statements of loss and comprehensive loss.
iv. Impairment of long-lived assets
Long-lived assets include property and equipment, right-of-use assets, and intangible assets with finite useful lives. At the end of each fiscal year, the Company reviews the intangible assets estimated useful lives and amortization methods, with the effect of any changes in estimates accounted for on a prospective basis. Long-lived assets are reviewed for indicators of impairment at each statement of balance sheet date or whenever events or changes in circumstances indicate that a potential impairment has occurred. The Company groups assets at the lowest level for which cash flows are separately identifiable, referred to as an asset group. When indicators of potential impairment are present the Company prepares a projected undiscounted cash flow analysis to determine the recoverable amount for the respective asset or asset group. An impairment loss is recognized whenever the carrying amount of the asset exceeds its recoverable amount and is recorded as in profit or loss equal to the amount by which the carrying amount exceeds the fair value.
v. Inventories
Inventory consists of raw materials, consumables and packaging supplies used in the process to prepare inventory for sale; work in process consisting of pre-harvested cannabis plants, by-products to be extracted, oils and terpenes; and finished goods. Inventory is valued at the lower of cost and net realizable value, with cost determined using the weighted average cost method. Net realizable value is calculated as the estimated selling price in the ordinary course of business, less any estimated costs to complete and sell the goods. Costs are capitalized to inventory, until substantially ready for sale. Costs include direct and indirect labor, raw materials, consumables, packaging supplies, utilities, facility costs, quality and testing costs, production related depreciation and other overhead costs. The Company records inventory reserves for obsolete and slow-moving inventory. Inventory reserves are based on inventory obsolescence trends, and the historical and professional experience of management. The Company classifies cannabis inventory as a current asset, although, due to the duration of the cultivation, drying, and conversion process, certain inventory items may not be realized in cost of sales within one year.
vi. Fair value measurements
Certain assets and liabilities held by the Company are measured at fair value. In measuring fair value, management estimates the price at which assets or liabilities could be exchanged between knowledgeable, willing parties in an orderly transaction. The Company uses market-observable data to the extent that such data is available. The Company follows the fair value hierarchy, utilizing Level 1, Level 2, or Level 3 inputs depending on their availability. In situations where Level 1 inputs are not available, the Company makes an estimate or engages qualified, third-party valuators to perform the valuation.
vii. Estimated useful lives and depreciation and amortization of property, equipment and intangible assets
The Company's depreciation and amortization of property, equipment and intangible assets are dependent on the estimation of the assets' useful lives, which requires management to exercise judgment. The Company's assessment of any impairment of assets is dependent on its estimation of recoverable amounts that consider various factors, including market and economic conditions and the assets' useful lives.
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viii. Share-based compensation
The Company measures equity settled share-based payments based on their fair value at their grant date and recognizes share-based compensation expense over the vesting period based on the Company's estimate of equity instruments that will eventually vest. Consideration paid to the Company on the exercise of stock options is recorded as common stock.
ix. Convertible Instruments
The Company accounts for convertible debt as a single unit of account, unless the conversion feature requires bifurcation and recognition as a derivative. Additionally, the Company uses the if-converted method for all convertible instruments in the diluted earnings per share calculation and includes the effect of potential share settlement for instruments that may be settled in cash or shares.
x. Financial Instruments
Financial instruments are contracts that give rise to a financial asset of one party and a financial liability or equity instrument of another party. Financial instruments are recorded initially at fair value, which is the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. Subsequent measurement depends on how the financial instrument has been classified and may be at fair value or amortized cost. For financial instruments subsequently measured at fair value, the Company calculates the estimated fair value of financial instruments using quoted market prices whenever available. When quoted market prices are not available, the Company uses standard pricing models including the Black-Scholes option pricing model.
Financial instruments measured at fair value are classified into one of three levels in the fair value hierarchy according to the relative reliability of the inputs used to estimate the fair values. The three levels of the fair value hierarchy are:
Level 1 - Unadjusted quoted prices in active markets for identical assets or liabilities;
Level 2 - Inputs other than quoted prices that are observable for the asset or liability either directly (i.e., as prices) or indirectly (i.e., derived from prices); and
Level 3 - Inputs that are not based on observable market data.
There have been no transfers between fair value hierarchy levels during the years ended March 31, 2026, March 31, 2025 and March 31, 2024
The Company's measures the derivative liability at fair value using Level 3 inputs.
The Company's cash, receivables, accounts payable and accrued liabilities, and income taxes payable are recorded at cost. The carrying values of these financial instruments approximate their fair value due to their short-term maturities. Unless otherwise noted, it is management's opinion that the Company is not exposed to significant interest or credit risks arising from these financial instruments.
Financial instruments subsequently measured at amortized cost include promissory note payable, and reclamation obligation.
Item 6. Directors, Senior Management and Employees
A. Directors and Senior Management
The size of the Company's Board is currently set at four. The Company's directors are elected annually by the shareholders and hold office until the next annual general meeting or until their successors are duly elected and qualified, unless their office is earlier vacated in accordance with the BCBCA and the Company's articles of incorporation. The Company's current directors and officers, and their respective current positions, are as follows:
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| Name | Position |
| Sonny Newman | President and Chief Executive Officer. |
| Michael Kidd | Chief Financial Officer, Corporate Secretary and Director. |
| Aron Swan | Chief Operating Officer |
| Todd Harrison | Director, Audit Committee Member and Corporate Governance and Compensation Committee Member |
| D. Bruce Macdonald | Chairman of the Board, Director, Audit Committee Member, Corporate Governance and Compensation Committee Member and Financial Expert. |
| Leonard (Will) Werden | Director, Audit Committee Member, and Corporate Governance and Compensation Committee Member. |
The following is biographical information on our directors and officers who are acting in the capacity of director or officer as of the date hereof:
Sonny Newman, Chief Executive Officer, and President. Sonny Newman is the founder of Silver State Relief and Silver State Cultivation in Nevada, and has several other companies in electronics, manufacturing, electronics distribution, real estate development and an investment company. Mr. Newman was the sole owner of the Silver State companies when they were purchased by the Company in 2019 and today is the largest shareholder of the Company. Mr. Newman's proven operational and financial discipline in the cannabis and other sectors shows his ability to build solid teams and make strategic investments into opportunistic markets.
Michael Kidd, Chief Financial Officer, Corporate Secretary and Director. A native of Vancouver with international experience, Mr. Kidd brings an extensive background in finance with privately held firms in a variety of industries ranging from forestry to online retailing. Before joining the Company, Mr. Kidd was Chief Operating Officer and Chief Financial Officer at a privately held leading distributor with operations in Canada and Dubai. Mr. Kidd graduated from the University of British Columbia with a Bachelor of Commerce and is a Certified Public Accountant (Chartered Accountant).
Aron Swan, Chief Operating Officer. Mr. Swan has been the long-standing head of operations for the Silver State Relief and Silver State Cultivation companies. Mr. Swan brings a breadth of experience in manufacturing, supply chain, and technology. Before joining the Company, Mr. Swan was Chief Information Officer at a prominent electronics manufacturer and has held other senior supply chain and operations roles. Mr. Swan holds a Bachelor of Science in Logistics Management and an MBA, both from the University of Nevada.
Todd Harrison, Director. Mr. Harrison brings a wealth of knowledge and insight to the Company's Board, both through his near 30 years on Wall Street as VP at Morgan Stanley to President of Cramer Berkowitz, as well as through his current role as Chief Investment Officer of CB1 Capital Management. He is also an author and Emmy award-winning executive producer for his work at financial media company, Minyanville. Mr. Harrison founded CB1 Capital Management in 2017 - an investment advisory firm that invests in stocks focused on cannabinoid-based wellness solutions and other cannabis-based bio-pharmaceutical applications, therapies, and other use-cases. Mr. Harrison has lectured at numerous academic institutions, has appeared on CNBC, CNN, FOX, Bloomberg TV, and has been featured across numerous publications and platforms. Mr. Harrison has a Bachelor of Science degree in Finance from Syracuse University.
D. Bruce Macdonald, Chairman of the Board and Director. Mr. Macdonald is a seasoned senior executive with more than 35 years of experience in financial services including extensive expertise in the capital markets sector. He has an impressive track record of leading innovative new business ventures in support of global growth strategies. Mr. Macdonald has exceptional expertise in building risk management and corporate governance control environments. Further, he serves on the boards of several Canadian corporations and associations and holds an ICD.D designation from the Institute of Corporate Directors.
Leonard (Will) Werden, Director. Mr. Werden has over 30 years of experience in global horticulture cultivation. He specializes in outdoor and indoor grow practices, facilities construction and design, lighting systems and practices, temperature and humidity control, and genetic strain selection. Having overseen large-scale grow operations with state-of-the-art technology, Mr. Werden brings a wealth of valuable knowledge to the Company. Mr. Werden was formerly a certified Millwright for over 30 years, and has been involved in numerous projects, including the Cyclotron Project for TRIUMF (Canada's national laboratory for particle and nuclear physics) at the University of British Columbia. Mr. Werden was also former CEO of Seashore Organic Marijuana Corp. (which transitioned to Veritas Pharma Inc.) until February 2016.
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No family relationships exist between any of the directors or senior management
Arrangements, Understandings, etc.
The Company has no arrangements or understanding with any major shareholders, customers, suppliers or others, pursuant to which any person referred to above was selected as a director or member of senior management.
B. Compensation
Compensation Discussion and Analysis
Process for Determining Executive Compensation
To determine compensation payable, the Corporate Governance and Compensation Committee will generally review compensation paid for directors, CEOs and CFOs (or persons acting in a similar capacity to a CEO or a CFO) of companies of similar size and stage of development in the cannabis industry and determines an appropriate compensation reflecting the need to provide incentive and compensation for the time and effort expended by the directors and senior management while taking into account the financial and other resources of the Company. In setting the compensation, the independent director will annually review the performance of the CEO and the CFO in light of the Company's objectives and consider other factors that may have impacted the success of the Company in achieving its objectives.
Compensation Policies and Risk Management
The Board has not proceeded to an evaluation of the implications of the risks associated with the Company's compensation policies and practices.
The Company has not retained a compensation consultant during or subsequent to the most recently completed financial year.
The Company does not use a specific "benchmark group" to determine executive compensation levels.
Total compensation for executive officers includes consulting fees, long-term incentive stock options and performance milestone payments.
Hedging of Economic Risks in the Company's Securities
The Company has not adopted a policy forbidding directors or officers from purchasing financial instruments that are designed to hedge or offset a decrease in market value of the Company's securities granted as compensation or held, directly or indirectly, by directors or officers. The Company is not, however, aware of any directors or officers having entered into this type of transaction.
Pension Plan Benefits
The Company does not have a pension plan that provides for payments or benefits to its executive officers at, following, or in connection with retirement.
Compensation for Year Ending March 31, 2026
The following table sets forth all annual and long-term compensation for services in all capacities to the Company for the most recently completed financial year of the Company ending on March 31, 2026, in respect of each of the individuals comprised of the Company's directors and members of it administrative, supervisory and management bodies for services provided by such persons to the Company and its subsidiaries. During the year ended March 31, 2026, the Company paid aggregate remuneration to its directors and officers as a group who served in the capacity of director or executive officer during such year of US$925,981
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| Name and principal position |
Salary, Consulting Fees, Retainer or Commission |
Share-based awards |
Option-based awards |
Non-equity incentive plan compensation |
Pension value |
All other compensation |
Total compensation | |||||||||||||||||
| Annual incentive plans |
Long-term incentive plans |
|||||||||||||||||||||||
| Sonny Newman President and Chief Executive Officer |
$ | 200,000 | Nil | 22,442 | Nil | N/A | N/A | - | $ | 222,442 | ||||||||||||||
| Michael Kidd Chief Financial Officer, Corporate Secretary and Director |
$ | 161,136(1 | ) | Nil | 15,709 | Nil | N/A | N/A | - | $ | 176,845 | |||||||||||||
| Aron Swan Chief Operating Officer |
$ | 350,000 | Nil | 67,323 | Nil | N/A | N/A | - | $ | 417,323 | ||||||||||||||
| Todd Harrison Director |
$ | 60,000 | Nil | 11,220 | Nil | N/A | N/A | - | $ | 71,220 | ||||||||||||||
| D. Bruce Macdonald Chairman of the Board and Director |
Nil | Nil | 33,662 | Nil | N/A | N/A | - | $ | 33,662 | |||||||||||||||
| Leonard (Will) Werden Director |
Nil | Nil | 4,489 | Nil | N/A | N/A | - | $ | 4,489 | |||||||||||||||
___________________________
(1) Michael Kidd was not paid any compensation for his role as director of the Company.
Please see section entitled "Deferred Share Units" in Item 6.E. "Share Ownership" below for a brief summary of DSU treatment upon the termination of a director.
C. Board Practices
The Board currently consists of four directors. Two of the four current members of the Board are considered independent directors using the definition set forth in Section 803A of the NYSE American Company Guide. The independent directors are D. Bruce Macdonald and Leonard Werden. Todd Harrison is not an independent director as he controls CB1, a company which is engaged as a consultant to the Company. Michael Kidd is not an independent director as he is an executive officer of the Company. The size of the Company is such that all the Company's operations are conducted by a small management team. The Board considers that management is effectively supervised by the independent director on an informal basis as the independent director is involved in reviewing and supervising the operations of the Company and has full access to management.
The directors of the Company are elected annually by the shareholders and hold office until the next annual general meeting or until their successors are duly elected and qualified, unless their office is earlier vacated in accordance with the BCBCA and the Company's articles of incorporation.
The mandate of the Board, as prescribed by the BCBCA, is to manage or supervise the management of the business and affairs of the Company and to act with a view to the best interests of the Company. In doing so, the Board oversees the management of the Company's affairs directly and through its various committees. In fulfilling its mandate, the Board, among other matters, is responsible for reviewing and approving the Company's overall business strategies, reviewing and approving significant acquisitions and capital investments; reviewing major strategic initiatives to ensure that the Company's proposed actions accord with shareholder objectives; reviewing succession planning; assessing management's performance against industry standards; reviewing and approving the reports and other disclosure issued to shareholders; ensuring the effective operation of the Board; and safeguarding shareholders' equity interests through the optimum utilization of the Company's capital resources.
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The Board is responsible for identifying individuals qualified to become new members of the Board and recommending to the Board, new director nominees for the next annual meeting of shareholders. New nominees must have a track record in general business management, special expertise in an area of strategic interest to the Company, the ability to devote the required time, show support for the Company's mission and strategic objectives, and a willingness to serve.
The Board also takes responsibility for identifying the principal risks of the Company's business and for ensuring these risks are effectively monitored and mitigated to the extent reasonably practicable. At this stage of the Company's development, the Board does not believe it is necessary to adopt a written mandate, as sufficient guidance is found in the applicable corporate legislation and regulatory policies. However, as the Company grows, the Board may determine it is appropriate to develop a formal written mandate.
In keeping with its overall responsibility for the stewardship of the Company, the Board is responsible for the integrity of the Company's internal control and management information systems and for the Company's policies respecting corporate disclosure and communications.
Each member of the Board understands that he is entitled, at the cost of the Company, to seek the advice of an independent expert if he reasonably considers it warranted under the circumstances. No director found it necessary to do so during the financial year ended March 31, 2026.
The Board does not, and does not consider it necessary to, have any formal structures or procedures in place to ensure that it can function independently of management. The Board of the Company briefs all new directors with respect to the policies of the Board and other relevant corporate and business information. The Board does not provide any continuing education.
The Board regularly monitors the adequacy of information given to directors, communications between the Board and management and the strategic direction and processes of the Board and its committees.
Directorships
The current directors of the Company are not presently directors of other reporting issuers in Canada or elsewhere. Other than by virtue of being an officer, there are no termination benefits for directors who serve on the Board.
Orientation and Continuing Education
The Company does not have formal orientation and training programs and does not consider these programs necessary at this stage of the Company's development. Board members are encouraged to communicate with management, auditors and technical consultants in order to keep themselves current with industry trends and developments and changes in legislation with management's assistance. Board members are also encouraged to attend related industry seminars and visit the Company's operations. Board members have full access to the Company's records.
Ethical Business Conduct
The Board views good corporate governance as an integral component to the success of the Company and to meet responsibilities to shareholders. The Company's reputation for integrity is an important asset. The Company has always set high standards of personal and business integrity for its employees and intends to continue to conduct its business in accordance with those high standards. It is expected that the Company's business conduct and the personal actions of its employees reflect the spirit and intent of the laws under which the Company operates, and its employees live. Common sense and judgment supported by a deeply ingrained tradition of integrity provide the Company's foundation.
The Board has found that the fiduciary duties placed on individual directors by the Company's governing corporate legislation and the common law, and the restrictions placed by applicable corporate legislation on an individual director's participation in decisions of the Board in which the director has an interest have been sufficient to ensure that the Board operates independently of management and in the best interests of the Company.
Under corporate legislation, a director is required to act honestly and in good faith with a view to the best interests of the Company and exercise the level of care, diligence and skill that a reasonably prudent person would exercise in comparable circumstances. In addition, as some of the directors of the Company also serve as directors and officers of other companies engaged in similar business activities, directors must comply with the conflict-of-interest provisions of the BCBCA as well as the relevant securities regulatory instruments, in order to ensure that directors exercise independent judgment in considering transactions and agreements in respect of which a director or officer has a material interest. Any interested director would be required to declare the nature and extent of his interest and would not be entitled to vote at meetings of directors which evoke such a conflict.
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Nomination of Directors
The Board as a whole has responsibility for identifying potential Board candidates. The Board has not formed a nominating committee or similar committee to assist the Board with the nomination of directors for the Company. Each of the directors has contacts he can draw upon to identify new members of the Board as needed from time to time.
The Board will continually assess its size, structure and composition, taking into consideration its current strengths, skills and experience, proposed retirements and the requirements and strategic direction of the Company. As required, directors will recommend suitable candidates for consideration as members of the Board.
Board Committees - Audit Committee; Corporate Governance and Compensation Committee; Special Committee
The current Company committees include the Audit Committee and Corporate Governance and Compensation Committee and a Special Committee. The Board has no other standing committees.
The Company's Audit Committee has a charter. The primary function of the Audit Committee is to assist the Board in fulfilling its financial oversight responsibilities by reviewing (1) the financial reports and other financial information provided by the Company to regulatory authorities and shareholders, (2) the Company's systems of internal controls regarding finance and accounting, and (3) the Company's auditing, accounting and financial reporting processes. Consistent with this function, the Audit Committee encourages continuous improvement of, and fosters adherence to, the Company's policies, procedures and practices at all levels. As at the date of this Annual Report, the following Board members sit on the Audit Committee, all of which are financially literate: Leonard (Will) Werden, D. Bruce Macdonald and Todd Harrison. D. Bruce Macdonald is the Chair of the Audit Committee.
The Corporate Governance and Compensation Committee exercises the powers and carries out the obligations provided for in its mandate and in accordance with applicable regulatory standards and requirements and has the responsibility for determining director and senior management compensation. As at the date of this Annual Report, the following Board members sit on the Corporate Governance and Compensation Committee: Leonard (Will) Werden, D. Bruce Macdonald and Todd Harrison. D. Bruce Macdonald is the Chair of the Corporate Governance and Compensation Committee.
To determine compensation, the Corporate Governance and Compensation Committee reviews compensation paid for directors and CEOs (or persons acting in a similar capacity to CEO, such as Presidents) of companies of similar size and stage of development in the cannabis industry and determines an appropriate compensation reflecting the need to provide incentive and compensation for the time and effort expended by the directors and senior management, while taking into account the financial and other resources of the Company. In setting the compensation, the Corporate Governance and Compensation Committee annually reviews the performance of the CEO (or President) in light of the Company's objectives and considers other factors that may have impacted the success of the Company in achieving its objectives. Further information regarding director compensation appears above under "Compensation - Compensation Discussion and Analysis".
The Special Committee's purpose is to evaluate all strategic alternatives, change of control or business combination transactions, and opportunities that may be available to the Company with a view towards maximizing value for its stakeholders and to advise the Board. The Committee shall convey its findings and make recommendations with respect to its review to the Board for consideration and, where required, decision by the Board. The Committee does not have decision-making authority except where, and only to the extent that, such authority is expressly delegated by the Board, including as described in this Charter. As at the date of this Annual Report, the following Board members sit on the Special Committee: Michael Kidd, D. Bruce Macdonald and Todd Harrison. D. Bruce Macdonald and Todd Harrison are voting members. D. Bruce Macdonald is the Chair of the Special Committee.
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Assessments
The Board does not consider that formal assessments would be useful at this stage of the Company's development. The Board conducts informal annual assessments of the Board's effectiveness, the individual directors and its Audit Committee. To assist in its review, the Board conducts informal surveys of its directors.
D. Employees
The following outlines the number of employees of the Company for the last three fiscal years, categorized by activity (operations or corporate) and geographic location (Canada or Nevada):
| Financial Year Ended |
Canada Employees |
Nevada Employees |
Operations Employees |
Corporate Employees |
Total |
| March 31, 2026 | 2 | 134 | 129 | 6 | 136 |
| March 31, 2025 | 1 | 136 | 132 | 5 | 137 |
| March 31, 2024 | 1 | 113 | 110 | 4 | 114 |
The increase in employees in 2025 is due to the opening of our third dispensary. No employees are represented by a labor union or covered by a collective bargaining agreement.
E. Share Ownership
Share Capital
The Company is authorized to issue an unlimited number of common shares. As of the date of this Annual Report, there are 118,678,994 common shares issued and outstanding. The holders of the common shares are entitled to one vote per share at all meetings of the shareholders of the Company. The holders of common shares are also entitled to dividends, if and when declared by the Board and the distribution of the residual assets of the Company in the event of a liquidation, dissolution or winding up of the Company.
The following table sets forth the share ownership of the persons set forth in the Compensation table at Item 6.B above, as of the date of this Annual Report:
| Names and Principal Position | No. of Shares Held |
Percentage Ownership (capital and voting) |
Percentage of holding on a fully diluted bases (capital and voting) |
| Sonny Newman, President and Chief Executive Officer | 12,500,000 | 10.5% | 10.3% |
| Michael Kidd, Chief Financial Officer and Director | 38,055 | 0.0% | 0.0% |
| Aron Swan, Chief Operating Officer | 24,449 | 0.0% | 0.0% |
| Todd Harrison, Director | 300,000 | 0.3% | 0.2% |
| D. Bruce Macdonald, Chairman of the Board and Director | 1,440,000 | 1.2% | 1.2% |
| Leonard (Will) Werden, Director | 265,000 | 0.2% | 0.2% |
Equity Incentive Plan
On March 17, 2026, the Board adopted a 10% rolling security based compensation plan (the "Plan"). The Plan replaces the Company's prior 10% rolling stock option plan and restricted share unit plan (collectively, the "Prior Plans"). All outstanding awards previously granted under the Prior Plans will be treated as outstanding awards granted under the Plan; provided, however, that in the event of any inconsistency between the terms of any agreement governing the awards granted under the Prior Plans and the terms of this Plan, the terms of such agreement will govern.
The maximum number of common shares issuable under the Plan will not exceed 10% of the number of common shares that are issued and outstanding from time to time, inclusive of all common shares reserved for issuance pursuant to previously granted stock options or security based compensation plans including the Prior Plans. Unless disinterested shareholder approval is obtained, the maximum number of common shares which may be reserved for issuance on a yearly basis to any one Participant under the Plan, together with all of the Company's other security based compensation arrangements, cannot exceed 5% of the outstanding common shares at the time of the grant. The maximum number of common shares which may be reserved for issuance on a yearly basis to any one consultant under the Plan, together with all of the Company's other security based compensation arrangements, shall not exceed 2% of the outstanding common shares at the time of the grant. Unless disinterested shareholder approval is obtained, the maximum number of Common Shares reserved for issuance to insiders under the Plan, together with all of the Company's other security based compensation arrangements, cannot exceed 10% of the outstanding common shares at the time of the grant. Lastly, investor relations service providers may only be granted Options under the Plan, and the maximum number of Shares that are issuable to all investor relations service providers in any 12-month period must not exceed 2% of the outstanding common shares at the time of the grant. Moreover, Options granted to any investor relations service provider must vest in stages over a period of not less than 12 months, such that not more than 25% vest any sooner than three months after the date of grant, and not more than 25% vest any sooner than every three months thereafter.
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The Plan is administered by the Board or a committee authorized and appointed by the Board to administer the Plan. Awards may be granted under the Plan to such directors, officers, employees or consultants of the Company and its subsidiaries or such eligible charitable organizations, as the Board may from time to time designate ("Participants"). Awards that may be granted under the Plan include stock options ("Options"), deferred share units ("DSUs"), restricted stock units ("RSUs"), performance share units ("PSUs") and bonus shares.
Options
Options awarded by the Board will be subject to a vesting schedule as set forth in the applicable award agreement; provided, however, that the Board may elect to accelerate vesting at any time. The exercise price for options is determined by the Board, but cannot, in any event, be less than the greater of (i) $0.05; (ii) the closing price of the common shares on the CSE on the date prior to grant; and (iii) the closing price of the common shares on the CSE on the date of grant. The Plan provides for a net exercise feature which allows an option holder to exercise vested Options without paying the exercise price in cash, and in return, the Company will deliver the number of common shares to such option holder equal to the value of the Options that are "in-the-money" (i.e. the 5-day VWAP of the common shares on the date of exercise less the exercise price of the respective Options) as well as a cashless exercise feature (i.e. a broker-assisted sale of a sufficient number of common shares to cover the exercise price). Options may be granted for a maximum term of 10 years.
Restricted Share Units
RSUs represents the right of a Participant to receive payment, in the form of common shares, a cash equivalent or a combination thereof, subject to the terms of the Plan. The Board will determine the period of time during which an RSU is not vested and the Participant holding such RSU remains ineligible to receive common shares (the "Restricted Period"). In addition, at the sole discretion of the Board, at the time of grant, the RSU may be subject to performance conditions to be achieved by the Company, a class of Participants or by a particular Participant on an individual basis, within a Restricted Period, for such RSUs to entitle the holder thereof to receive the underlying common shares. Upon the expiry of the applicable Restricted Period (or on the deferred payment date (as described below), as applicable), an RSU will be automatically settled and the underlying common share will be issued, or the cash equivalent will be paid, to the holder of such RSU.
Participants who are residents of Canada for the purposes of the Income Tax Act (Canada) and not otherwise subject to the provisions of the Internal Revenue Code may elect no later than 30 days following the end of the Restricted Period to defer the receipt of all or any part of their common shares until one or more deferred payment dates which will be the earlier of (i) the date which the Participant has elected to defer receipt of common shares (which, for avoidance of doubt, must be a date after the end of the Restricted Period); and (ii) the date the Participant retires or otherwise terminates from employment with the Company or a related entity. No other Participants may elect a deferred payment date. In the event of a Participant's death or disability, the Board may, in its absolute discretion, accelerate vesting of a pro rata portion of the Participant's RSUs. In the event of the retirement or termination of employment of a Participant during the Restricted Period, any unvested RSUs will terminate; provided, however, the Board has the absolute discretion to modify the grant of the RSUs to provide that the Restricted Period will terminate immediately prior to the date of such retirement or termination of employment. In the event that a dividend is declared and paid by the Company, a Participant may be credited with additional RSUs, subject to the Board's discretion.
Performance Share Units
PSUs represent the right, upon attainment of certain performance-based criteria, for a Participant to receive payment in the form of common shares, a cash equivalent or a combination thereof, at the end of the applicable performance period. The Board will determine, in its sole discretion, the performance period and performance-based criteria and multipliers applicable to a PSU. A payment for a PSU will be made following the end of the performance period in the form determined by the Board, subject to specific Plan terms regarding U.S. taxpayers.
In the event of the death or disability of a Participant during the performance period, the performance period will be deemed to end at the end of the calendar quarter immediately before the date of death or disability of the Participant and the amount payable to the Participant or its executors, as the case may be, will be calculated as of such date. In the event of the retirement or termination of employment of a Participant during the performance period, any unvested PSUs will terminate; provided, however, the Board has the absolute discretion to modify the grant of the PSU to provide that the performance period would have ended at the end of the calendar quarter immediately prior to the date of such retirement or termination of employment, and the amount payable to the Participant will be calculated as of such date. In the event that a dividend is declared and paid by the Company, a Participant may be credited with additional PSUs, subject to the Board's discretion.
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Deferred Share Units
The Board may grant DSUs to directors, officers or employees, but in the case of U.S. taxpayers, only a non-employee director may be granted DSUs. DSUs represent the right to receive common shares, a cash equivalent or a combination thereof with respect to each DSU. DSUs may not be redeemed until after the earlier of a director's retirement, a director's termination, a director's death or a participant's separation date (each, a "DSU Termination Date"). Unless otherwise determined by the Board, if the DSU Termination Date occurs as a result of a termination for cause, all DSUs credited to such Participant will be forfeited and cancelled immediately. If a DSU Termination Date occurs as a result of the death of a Participant, all DSUs will vest upon the Participant's death. As soon as reasonably practicable after the DSU Termination Date of a Participant, or as the Participant may elect otherwise elect (as described below), and in any event, no later than December 15 of the first calendar year commencing after the DSU Termination Date, the Company will redeem and fully settle each vested DSU (such settlement date being a "Redemption Date"), subject to certain specific Plan terms regarding U.S. taxpayers. With respect to Participants who are residents of Canada for the purposes of the Tax Act and who are not otherwise U.S. taxpayers, if the DSU Termination Date of a Participant occurs for a reason other than cause, after the DSU Termination Date, the Participant (or their estate) may elect up to three separate Redemption Dates as of which either a portion or all of the Participant's DSUs will be redeemed and settled, provided that the elected Redemption Dates are no later than December 15 of the first calendar year commencing after the Participant's DSU Termination Date. In the event that a dividend is declared and paid by the Company, a Participant may be credited with additional DSUs, subject to the Board's discretion.
Bonus Shares
Bonus shares may be granted to participants as a discretionary bonus at such time or times as will be determined by the Board by resolution, pursuant to recommendations of the Board from time to time. All bonus shares will be issued at the fair market value on the grant date.
As of March 31, 2026, there were 5,375,000 options outstanding to purchase common shares of which 3,583,333 had vested. As of the date of this Annual Report there were 5,375,000 options outstanding to purchase common shares of which 5,375,000 had vested.
As of March 31, 2026, there no RSU's, PSU's or DSU's outstanding. As of the date of this Annual Report there were 833,339 RSU's outstanding of which none had vested, and 1,275,000 DSU's outstanding of which half had vested.
The following table sets forth the options, RSU's and DSU's exercisable into common shares, owned by the persons set forth in the Compensation table at Item 6.B above, as of the date of this Annual Report:
| Names and Principal Position | No. of Options Held |
No. of Shares Underlying the Options |
Option Strike Price (C$) |
Option Expiration Date |
RSU | DSU |
| Sonny Newman, President and Chief Executive Officer | 500,000 | 500,000 | 0.53 | May 13, 2027 | - | - |
| Michael Kidd, Chief Financial Officer and Director | 350,000 | 350,000 | 0.53 | May 13, 2027 | - | 200,000 |
| Aron Swan, Chief Operating Officer | 1,500,000 | 1,500,000 | 0.53 | May 13, 2027 | 66,667 | - |
| Todd Harrison, Director | 250,000 | 250,000 | 0.53 | May 13, 2027 | - | 250,000 |
| D. Bruce Macdonald, Chairman of the Board and Director | 750,000 |
750,000 |
.0.53 |
May 13, 2027 |
- | 675,000 |
| Leonard (Will) Werden, Director | 100,000 | 100,000 | 0.53 | May 13, 2027 | - | 150,000 |
A copy of the Equity Incentive Plan is incorporated by reference into this Annual Report as Exhibit 4.1.
Warrants
As of March 31, 2026, there were 4,000,000 warrants outstanding to purchase common shares. As at the date of this Annual Report there were 4,000,000 warrants outstanding to purchase common shares.
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The following table sets forth the warrants, exercisable into common shares, owned by the persons set forth in the Compensation table at Item 6.B above, as of the date of this Annual Report:
| Names and Principal Position | Allotment Date |
Expiration Date | Exercise Price (C$) |
Total |
| Sonny Newman, President and Chief Executive Officer | N/A |
N/A | N/A | Nil |
| Aron Swan, Chief Operating Officer | N/A | N/A | N/A | Nil |
| Michael Kidd, Chief Financial Officer and Director | N/A | N/A | N/A | Nil |
| Todd Harrison, Director | N/A | N/A | N/A | Nil |
| D. Bruce Macdonald, Chairman of the Board and Director | N/A | N/A | N/A | Nil |
| Leonard (Will) Werden, Director | N/A | N/A | N/A | Nil |
For further information, see Management's Discussion and Analysis, attached hereto as Exhibit 15.1, and incorporated by reference herein.
F. Disclosure of a Registrant's Action to Recover Erroneously Awarded Compensation
Not applicable.
Item 7. Major Shareholders and Related Party Transactions
A. Major Shareholders
The Company's securities are recorded on the books of its transfer agent, Computershare, in registered form. The majority of such shares are, however, registered in the name of intermediaries such as brokerage houses and clearing houses on behalf of their respective clients. The Company does not have knowledge of the beneficial owners thereof.
To the best of the Company's knowledge, there are no persons or companies who beneficially own, directly or indirectly, or exercise control or direction over, securities carrying more than 5% of the voting rights attached to any class of voting securities of the Company, other than the Company's President and Chief Executive Officer, Sonny Newman, through his control of The Newman Family 1999 Trust (the "Trust").
The Trust obtained 12,500,000 common shares as a result of the Company's acquisition of 100% of the membership interests of both Silver State Relief LLC and Silver State Cultivation LLC, which are Nevada limited liability companies, on January 15, 2019.
As of December 31, 2024, Nomura Holdings, Inc. ("Nomura") held 10,146,622 common shares, which represents an approximate 21% increase from the common shares held as of December 31, 2023, according to the Schedule 13G/A beneficial ownership report filed by Nomura and one of their wholly owned subsidiaries with the SEC on February 19, 2025. This 13G/A showed that both Nomura and its wholly owned subsidiary each held less than 5% of the Company's shares. Accordingly, there has been no Schedule 13G/A filed by Nomura since. There has also been no Schedule 13G filed by any company for any period after December 31, 2024.
The securities held by the Trust do not have different voting rights from those of the other securityholders of the same class of securities.
The following table shows the record and, where known to us, the beneficial ownership of our shares by each shareholder holding at least 5% of the common shares of the Company as at the date of this report. As used herein, the term beneficial ownership with respect to a security is defined by Rule 13d-3 under the Exchange Act.
| Name of Shareholder | No. of Shares Held |
Percentage of Issued Shares |
| The Newman Family 1999 Trust | 12,500,000 | 10.5% |
The Company is not owned directly or indirectly by another corporation, foreign government or any other natural person. There are no arrangements known to the Company, the operation of which may result in a change of control of the Company.
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As of May 31, 2026, there were 104 registered holders of the Company's Common Shares with addresses in the United States, with combined holdings of 15,263,295 Common Shares. The number of registered holders does not include beneficial owners whose Common Shares are held in street name by brokers and other nominees. Common Shares held by persons in the United States may be held by a non-US registered holder and therefore the number of common shares held by persons in the United States may be higher."
B. Related Party Transactions
Consulting Agreement with CB1
CB1 Capital currently invoices $5,000 per month, on a month to month basis. Mr. Harrison is a principal of CB1. On January 28, 2021, Mr. Harrison was named to the Company's Board of Directors.
For further information, see Management's Discussion and Analysis, attached hereto as Exhibit 15.1, and incorporated by reference herein.
C. Interests of Experts and Counsel
Not Applicable.
Item 8. Financial Information
A. Consolidated Statements and Other Financial Information
Financial Statements
See Item 18 "Financial Statements" for our Annual Audited Consolidated Financial Statements, related notes and other financial information filed with this Annual Report.
Settlement of Legal Proceedings
On September 4, 2025, the Company entered into a settlement agreement (the "EFF Settlement Agreement") with respect to certain actions filed in the Oregon State Circuit Court for Clackamas County and the Oregon Court of Appeals by two owners (each, a "Vendor") of Proudest Monkey Holdings, LLC ("Proudest Monkey"), an entity that was previously the sole owner of EFF (the "Oregon Actions") and an action filed in the Supreme Court of British Columbia by Proudest Monkey and one of its owners (the "BC Action", and together with the Oregon Actions, the "Litigation"). The Company acquired all the membership units of EFF from Proudest Monkey pursuant to a purchase and sale agreement dated January 19, 2018 (the "EFF Agreement").
Pursuant to the Oregon Actions, two Vendors made claims related to contract, employment and statutory damages against the Company, its wholly-owned subsidiaries 320204 US Holdings Corp, EFF, Swell Companies Limited, and Phantom Brands LLC, and three directors, two officers, and one former employee of the Company. The Company alleged breach and default under the EFF Agreement in connection with certain conduct by the Vendors which occurred prior to and after the completion of the acquisition of EFF. As a result, the Company withheld issuing certain equity consideration payable to the Vendors pursuant to the terms of the EFF Agreement, as a result of which Proudest Monkey and one of the Vendors launched the BC Action, to which the Company filed counterclaims.
In addition to such other terms and conditions as agreed to among the parties, pursuant to the EFF Settlement Agreement, the parties to the Litigation agreed to (a) fully and finally settle all claims between them, have each action dismissed with respect to all remaining claims on a with prejudice basis and to mutually release each other from all claims asserted in the BC Action and Oregon Actions, (b) the Company agreed to pay to the plaintiffs under the Litigation (the "Plaintiffs") the total cash sum of $2,400,000 (the "Settlement Amount") as follows: (i) $500,000 payable on or before September 12, 2025 (the "Initial Payment Date") (paid); (ii) $100,000 per month payable over a period of 19 months commencing one month after the Initial Payment Date ($300,000 paid to December 31, 2025), and (c) pursuant to the terms of the EFF Agreement, the Company agreed to issue to certain of the Vendors an aggregate of 555,793 (reduced from 793,093) common shares of the Company (the "Share Consideration").
The Settlement resulted in the cash liability in respect of the payment of the Settlement Amount being offset by the extinguishment of convertible notes of $1,156,259 and the accounts payable Litigation related accrual of $612,500. The recognition of the $2,400,000 settlement liability, extinguishment of liabilities totaling $1,768,759, and reduction of the commitment to issue shares possessing a value of $188,698 (C$260,950) resulted in a loss on settlement of legal proceedings of $442,543. The Share Consideration was paid after March 31, 2026.
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Dividends
The Company has not paid any dividends on its common shares in its last three financial years and does not anticipate doing so in the foreseeable future. It is contemplated by the Company that it will reinvest all future earnings in order to finance the development and growth of its business. Any future determination to pay distributions will be at the discretion of the Board and will be made in accordance with the BCBCA and will depend on the financial condition, business environment, operating results, capital requirements, any contractual restrictions on the payment of distributions and any other factors that the Board deems relevant. The Company is not restricted from declaring dividends or other distributions on its common shares.
B. Significant Changes
The Company has not experienced any significant changes since the date of the financial statements included with this Annual Report, except as disclosed in this Annual Report.
Item 9. The Offer and Listing
A. Offer and Listing
The Company's common shares are listed for trading on the CSE under the symbol "CXXI" and are quoted on the OTCQX marketplace in the United States under the symbol "CXXIF".
B. Plan of Distribution
Not Applicable.
C. Markets
The Company's common shares are listed for trading on the CSE under the symbol "CXXI" and are quoted on the OTCQX marketplace in the United States under the symbol "CXXIF".
D. Selling Shareholders
Not Applicable.
E. Dilution
Not Applicable.
F. Expenses of the Issue
Not Applicable.
Item 10. Additional Information
A. Share Capital
Not Applicable.
B. Articles
The Company is a British Columbia corporation existing under the BCBCA under incorporation number BC0320204. A copy of the Company's Articles is incorporated by reference into this Annual Report as Exhibit 1.1.
The Company 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. with a focus on acquiring United States assets in the state-legal cannabis industry.
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The Company's Articles do not limit the Company's objects and purposes and there are no restrictions on the business the Company may carry out in the Articles.
Other than as disclosed below, our articles do not restrict directors' power to vote compensation to themselves or any other members of their body in the absence of an independent quorum. The Company is authorized to issue an unlimited number of common shares without par value. Each common share is entitled to one vote. All common shares of the Company rank equally as to dividends, voting power and participation in assets. No common shares have been issued subject to call or assessment. There are no pre-emptive or conversion rights and no provision for exchange, exercise, redemption and retraction, purchase for cancellation, surrender or sinking or purchase funds. Provisions as to modification, amendments or variation of such rights or such provisions are contained in the BCBCA and the Company's Articles.
A director or senior officer who has, directly or indirectly, a material interest in an existing or proposed material contract or transaction of the Company may not vote in respect of any such proposed material contract or transaction.
The directors may from time to time in their discretion authorize and cause the Company to:
(a) borrow money in such amount, in such manner, on such security, from such sources and upon such terms and conditions as they think fit;
(b) guarantee the repayment of money borrowed by any person or the performance of any obligation of any person;
(c) issue bonds, debentures, notes and other debt obligations either outright or as continuing security for any indebtedness or liability, direct or indirect, or obligation of the Company or of any other person; and
(d) mortgage, charge (whether by way of a specific or floating charge), grant a security interest in or give other security on the undertaking or on the whole or any part of the property and assets of the Company, both present and future.
There are no age considerations pertaining to the retirement or non-retirement of directors.
A director is not required to hold a share in the capital of the Company as a qualification for his office but shall be qualified as required by the BCBCA, to become or act as a director.
A director may hold any office or appointment with the Company (except as auditor of the Company) in conjunction with his office of director for such period and on such terms (as to remuneration or otherwise) as the Board may determine. The Company must reimburse each director for the reasonable expenses that he may incur in and about the business of the Company. If a director performs any professional or other services for the Company that in the opinion of the directors are outside the ordinary duties of a director or shall otherwise be specially occupied in or about the Company's business, he may be paid remuneration to be fixed by the Board, or, at the option of such director, by ordinary resolution, and such remuneration may be either in addition to or in substitution for any other remuneration that he may be entitled to receive.
Subject to the provisions of the BCBCA, the Company may indemnify any person. The Company must, subject to the provisions of the BCBCA, indemnify a director, officer or alternate director or a former director, officer or alternate director of the Company or a person who, at the request of the Company, is or was a director, alternate director or officer of another corporation, at a time when the corporation is or was an affiliate of the Company or a person who, at the request of the Company, is or was, or holds or held a position equivalent to that of, a director, alternate director or officer of a partnership, trust, joint venture or other unincorporated entity (in each case, an "eligible party"), and the heirs and personal representatives of any such eligible party, against all judgments, penalties or fines awarded or imposed in, or an amount paid in settlement of, a legal proceeding or investigative action (whether current, threatened, pending or completed) in which such eligible party or any of the heirs and personal representatives of such eligible party, by reason of such eligible party being or having been a director, alternate director or officer or holding or having held a position equivalent to that of a director, alternate director or officer, is or may be joined as a party or is or may be liable for or in respect of a judgment, penalty or fine in, or expenses related to the proceeding.
All of the authorized common shares of the Company are of the same class and, once issued, rank equally as to dividends, voting powers, and participation in assets. Holders of common shares are entitled to one vote for each common share held of record on all matters to be acted upon by the shareholders. Holders of common shares are entitled to receive such dividends as may be declared from time to time by the Board, in its discretion, out of funds legally available therefore.
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Upon liquidation, dissolution or winding up of the Company, holders of common shares are entitled to receive pro rata the assets of the Company, if any, remaining after payment of all debts and liabilities. No common shares have been issued subject to call or assessment. There are no pre-emptive or conversion rights and no provisions for redemption or purchase for cancellation, surrender, sinking or purchase funds.
Provisions as to the modification, amendment or variation of such shareholder rights or provisions are contained in the BCBCA and the Articles. Unless the BCBCA or the Company's Articles otherwise provide, any action to be taken by a resolution of the shareholders may be taken by an ordinary resolution or by a vote of a majority or more of the shares represented at the shareholders' meeting.
The BCBCA contains provisions which require a "special resolution" for effecting certain corporate actions. Such a "special resolution" requires a two-thirds vote of shareholders rather than a simple majority for passage. The principle corporate actions that require a "special resolution" include:
(a) transferring the Company's jurisdiction from British Columbia to another jurisdiction;
(b) giving financial assistance under certain circumstances;
(c) certain conflicts of interest by directors;
(d) disposing of all or substantially all of the Company's undertakings;
(e) certain alterations of share capital;
(f) altering any restrictions on the Company's business; and
(g) certain reorganizations of the Company.
There are no restrictions on the repurchase or redemption of common shares of the Company while there is any arrearage in the payment of dividends or sinking fund installments.
There is no liability to further capital calls by the Company.
There are no provisions discriminating against any existing or prospective holder of securities as a result of such shareholder owning a substantial number of common shares.
No right or special right attached to issued shares may be prejudiced or interfered with unless the shareholders holding shares of the class or series of shares to which the right or special right is attached consent by a separate special resolution of those shareholders.
There are no limitations on the rights to own securities.
There is no provision of the Company's Articles that would have an effect of delaying, deferring or preventing a change in control of the Company and that would operate only with respect to a merger, acquisition or corporate restructuring involving the Company (or any of its subsidiaries).
Shareholder ownership must be disclosed to Canadian securities administrators and the CSE by any shareholder who owns more than 10% of the Company's outstanding common shares.
As a Canadian public company, the convocation of our annual general meetings and special meetings are governed by Canadian corporate and securities laws, including the BCBCA, National Instrument 51-102 - Continuous Disclosure Obligations, National Instrument 52-110 - Audit Committees and National Instrument 54-101 - Communication with Beneficial Owners of Securities of a Reporting Issuer.
C. Material Contracts
Except for contracts entered into in the ordinary course of business and other than those described in Item 4. "Information on the Company" or elsewhere in this Annual Report, the only contract entered into by the Company during the two years immediately preceding the date of this Annual Report that is material is the following:
(i) Trust Indenture dated May 6, 2024, between the Company and Alliance, as trustee, registrar and transfer agent
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D. Exchange Controls
Canada has no system of exchange controls. There are no Canadian restrictions on the repatriation of capital or earnings of a Canadian public company to non-resident investors. There are no laws in Canada or exchange restrictions affecting the remittance of dividends, profits, interest, royalties and other payments to non-resident holders of the Company's securities, except as discussed below under Item 10.E "Additional Information - Taxation".
There are no limitations under the laws of Canada or in the organizing documents of the Company on the right of foreigners to hold or vote securities of the Company, except that the Investment Canada Act may require review and approval by the Minister of Industry (Canada) of certain acquisitions of "control" of the Company by a "non-Canadian". The threshold for acquisitions of control is generally defined as being one-third or more of the voting shares of the Company. "Non-Canadian" generally means an individual who is not a Canadian citizen, or a corporation, partnership, trust or joint venture that is ultimately controlled by non-Canadians.
E. Taxation
Certain United States Federal Income Tax Considerations
The following is a general summary of certain material U.S. federal income tax considerations applicable to a U.S. Holder (as defined below) arising from and relating to the acquisition, ownership, and disposition of common shares. This summary is for general information purposes only and does not purport to be a complete analysis or listing of all potential U.S. federal income tax considerations that may apply to a U.S. Holder arising from and relating to the acquisition, ownership, or disposition of common shares. In addition, this summary does not take into account the individual facts and circumstances of any particular U.S. Holder that may affect the U.S. federal income tax considerations applicable to such U.S. Holder, including without limitation specific tax considerations applicable to a U.S. Holder under an applicable income tax treaty. Accordingly, this summary is not intended to be, and should not be construed as, legal or U.S. federal income tax advice with respect to any particular U.S. Holder. This summary does not address the U.S. federal net investment income tax, U.S. federal alternative minimum tax, U.S. federal estate and gift tax, U.S. state and local tax, or non-U.S. tax considerations applicable to U.S. Holders of the acquisition, ownership, and disposition of common shares. In addition, except as specifically set forth below, this summary does not discuss applicable tax reporting requirements. Each prospective U.S. Holder should consult its own tax advisor regarding the U.S. federal, U.S. state and local, and non-U.S. tax considerations applicable to the acquisition, ownership, and disposition of common shares.
No legal opinion from U.S. legal counsel or ruling from the Internal Revenue Service (the "IRS") has been requested, or will be obtained, regarding the U.S. federal income tax considerations applicable to a U.S. Holder arising from or relating to the acquisition, ownership, and disposition of common shares. This summary is not binding on the IRS, and the IRS is not precluded from taking a position that is different from, and contrary to, the positions taken in this summary. In addition, because the authorities on which this summary is based are subject to various interpretations, the IRS and the U.S. courts could disagree with one or more of the conclusions described in this summary.
Scope of this Summary
Authorities
This summary is based on the Internal Revenue Code of 1986, as amended (the "Code"), Treasury Regulations (whether final, temporary, or proposed) promulgated thereunder, published rulings of the IRS, published administrative positions of the IRS, the Convention Between Canada and the United States of America with Respect to Taxes on Income and on Capital, signed September 26, 1980, as amended (the "Canada-U.S. Tax Convention"), and U.S. court decisions that are applicable and, in each case, as in effect and available, as of the date of this document. Any of the authorities on which this summary is based could be changed in a material and adverse manner at any time, and any such change could be applied on a retroactive or prospective basis which could affect the U.S. federal income tax considerations described in this summary. This summary does not discuss the potential effects, whether adverse or beneficial, of any proposed legislation that, if enacted, could be applied on a retroactive, current or prospective basis.
U.S. Holders
For purposes of this summary, the term "U.S. Holder" means a beneficial owner of common shares that is for U.S. federal income tax purposes:
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- an individual who is a citizen or resident of the United States;
- a corporation organized under the laws of the U.S., any state thereof or the District of Columbia;
- an estate the income of which is subject to U.S. federal income taxation regardless of its source; or
- a trust that (1) is subject to the primary supervision of a court within the United States and the control of one or more U.S. persons for all substantial decisions or (2) has a valid election in effect under applicable Treasury Regulations to be treated as a U.S. person.
Non-U.S. Holders
For purposes of this summary, a "non-U.S. Holder" is a beneficial owner of common shares that is not a U.S. Holder or a partnership. This summary does not address the U.S. federal income tax considerations to non-U.S. Holders arising from and relating to the acquisition, ownership, and disposition of common shares. Accordingly, a non-U.S. Holder should consult its own tax advisors regarding the U.S. federal, U.S. state and local, and non-U.S. tax considerations (including the potential application of, and operation of, any income tax treaties) applicable to the acquisition, ownership and disposition of common shares.
U.S. Holders Subject to Special U.S. Federal Income Tax Rules Not Addressed
This summary does not address the U.S. federal income tax considerations applicable to U.S. Holders that are subject to special provisions under the Code, including, but not limited to, U.S. Holders that: (a) are tax-exempt organizations, qualified retirement plans, individual retirement accounts, or other tax-deferred accounts; (b) are banks, financial institutions, underwriters, insurance companies, real estate investment trusts, or regulated investment companies; (c) are brokers, broker-dealers, dealers, or traders in securities or currencies that elect to apply a mark-to-market accounting method; (d) have a "functional currency" other than the U.S. dollar; (e) own common shares as part of a straddle, hedging transaction, conversion transaction, constructive sale, or other integrated transaction; (f) acquire common shares in connection with the exercise or cancellation of employee stock options or otherwise as compensation for services; (g) hold common shares other than as a capital asset within the meaning of Section 1221 of the Code (generally, property held for investment purposes); (h) are subject to special tax accounting rules; (i) are partnerships and other "pass-through" entities (and partners or other owners in such partnerships and entities); (j) are S corporations (and shareholders or investors in such S corporations); (k) own, have owned or will own (directly, indirectly, or by attribution) 10% or more of the total combined voting power or value of the outstanding common shares of the Company; (l) are U.S. expatriates or former long-term residents of the United States; or (m) hold common shares in connection with a trade or business, permanent establishment, or fixed base outside the United States. U.S. Holders that are subject to special provisions under the Code, including, but not limited to, U.S. Holders described immediately above, should consult their own tax advisor regarding the U.S. federal, U.S. state and local, and non-U.S. tax considerations applicable to the acquisition, ownership and disposition of common shares.
If an entity or arrangement that is classified as a partnership (or other pass-through entity) for U.S. federal income tax purposes holds common shares, the U.S. federal income tax considerations applicable to such entity or arrangement and the partners (or other owners or participants) of such entity or arrangement generally will depend on the activities of such entity or arrangement and the status of such partners (or other owners or participants). This summary does not address the tax considerations applicable to any such entity, arrangement or partner (or other owner or participant). Partners (or other owners or participants) of entities or arrangements that are classified as partnerships or as pass-through entities for U.S. federal income tax purposes should consult their own tax advisors regarding the U.S. federal income tax considerations arising from and relating to the acquisition, ownership, and disposition of common shares.
Ownership and Disposition of Common Shares
The following discussion is subject in its entirety to the rules described below under the heading "Passive Foreign Investment Company Rules".
Taxation of Distributions
The Company has not paid dividends to shareholders in the past and does not anticipate paying dividends in the foreseeable future. A U.S. Holder that receives a distribution, including a constructive distribution, with respect to a common share will be required to include the amount of such distribution in gross income as a dividend (without reduction for any Canadian income tax withheld from such distribution) to the extent of the current or accumulated "earnings and profits" of the Company, as computed in accordance with U.S. federal income tax principles. To the extent that a distribution exceeds the current and accumulated "earnings and profits" of the Company, such distribution will be treated first as a tax-free return of capital to the extent of a U.S. Holder's adjusted tax basis in the common shares and thereafter as gain from the sale or exchange of such common shares (see "Sale or Other Taxable Disposition of Common Shares" below). However, the Company does not intend to maintain calculations of its earnings and profits in accordance with U.S. federal income tax principles, and each U.S. Holder may be required to assume that any distribution by the Company with respect to the common shares will constitute ordinary dividend income. Dividends received on common shares by corporate U.S. Holders generally will not be eligible for the "dividends received deduction". Subject to applicable limitations and provided the Company is eligible for the benefits of the Canada-U.S. Tax Convention, or the common shares are readily tradeable on a United States securities market, dividends paid by the Company to non-corporate U.S. Holders, including individuals, generally will be eligible for the preferential tax rates applicable to long-term capital gains for dividends, provided certain holding period and other conditions are satisfied, including that the Company not be classified as a PFIC (as defined below) in the tax year of distribution or in the preceding tax year. A dividend generally will be taxed to a U.S. Holder at ordinary income tax rates if the Company is a PFIC for the tax year of such distribution or the preceding tax year. The dividend rules are complex, and each U.S. Holder should consult its own tax advisor regarding the application of such rules.
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Sale or Other Taxable Disposition of Common Shares
Upon the sale or other taxable disposition of common shares, a U.S. Holder will generally recognize gain or loss in an amount equal to the difference, if any, between (a) the U.S. dollar value of any cash plus the fair market value of any property received and (b) such U.S. Holder's adjusted tax basis in such common shares sold or otherwise disposed of. A U.S. Holder's tax basis in common shares generally will be such U.S. Holder's U.S. dollar cost for such common shares. Any such gain or loss recognized on such sale or other disposition generally will be capital gain or loss, which will be long-term capital gain or loss if, at the time of the sale or other disposition, such common shares are held for longer than one year. Gain or loss, as well as the holding period for the common shares, is determined separately for each block of common shares (that is, common shares acquired at the same cost in a single transaction) sold or otherwise disposed of in a taxable disposition.
Preferential tax rates currently apply to long-term capital gain of a U.S. Holder that is an individual, estate, or trust. There are currently no preferential tax rates for long-term capital gain of a U.S. Holder that is a corporation. Deductions for capital losses are subject to significant limitations under the Code.
Passive Foreign Investment Company Rules
If the Company were to constitute a "passive foreign investment company" within the meaning of Section 1297(a) of the Code (a "PFIC") for any year during a U.S. Holder's holding period, then certain potentially adverse rules would affect the U.S. federal income tax considerations applicable to a U.S. Holder resulting from the acquisition, ownership and disposition of common shares. The Company believes that it was not a PFIC for its most recently completed tax year, and based on current business plans and financial expectations, the Company does not anticipate that it will be a PFIC for its current tax year. No opinion of legal counsel or ruling from the IRS concerning the status of the Company as a PFIC has been obtained or is currently planned to be requested. However, PFIC classification is fundamentally factual in nature, generally cannot be determined until the close of the tax year in question, and is determined annually. Additionally, the analysis depends, in part, on the application of complex U.S. federal income tax rules, which are subject to differing interpretations. Consequently, there can be no assurance that the Company has never been and will not become a PFIC for any tax year during which U.S. Holders hold common shares.
In addition, in any year in which the Company is classified as a PFIC, a U.S. Holder will be required to file an annual report with the IRS containing such information as Treasury Regulations and/or other IRS guidance may require. A failure to satisfy such reporting requirements may result in an extension of the time period during which the IRS can assess a tax. U.S. Holders should consult their own tax advisors regarding the requirements of filing such information returns under these rules, including the requirement to file an IRS Form 8621 annually.
The Company generally will be a PFIC if, after the application of certain "look-through" rules with respect to subsidiaries in which the Company holds at least 25% of the value of such subsidiary, for a tax year, (a) 75% or more of the gross income of the Company for such tax year is passive income (the "PFIC income test") or (b) 50% or more of the value of the Company's assets either produce passive income or are held for the production of passive income (the "PFIC asset test"), based on the quarterly average of the fair market value of such assets. "Gross income" generally includes all sales revenues less the cost of goods sold, plus income from investments and incidental or outside operations or sources, and "passive income" generally includes, for example, dividends, interest, certain rents and royalties, certain gains from the sale of stock and securities, and certain gains from commodities transactions.
In addition, for purposes of the PFIC income test and PFIC asset test described above, if the Company owns, directly or indirectly, 25% or more of the total value of the outstanding shares of another corporation, the Company will be treated as if it (a) held a proportionate share of the assets of such other corporation and (b) received directly a proportionate share of the income of such other corporation.
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Under certain attribution rules, if the Company is a PFIC, U.S. Holders will be deemed to own their proportionate share of any subsidiary of the Company which is also a PFIC (a "Subsidiary PFIC"), and will be subject to U.S. federal income tax on (i) a distribution on the shares of a Subsidiary PFIC or (ii) a disposition of shares of a Subsidiary PFIC, both as if the holder directly held the shares of such Subsidiary PFIC.
If the Company were a PFIC in any tax year during which a U.S. Holder held common shares, such holder generally would be subject to special rules with respect to "excess distributions" made by the Company on the common shares and with respect to gain from the disposition of common shares. An "excess distribution" generally is defined as the excess of distributions with respect to the common shares received by a U.S Holder in any tax year over 125% of the average annual distributions such U.S. Holder has received from the Company during the shorter of the three preceding tax years, or such U.S. Holder's holding period for the common shares. Generally, a U.S. Holder would be required to allocate any excess distribution or gain from the disposition of the common shares ratably over its holding period for the common shares. Such amounts allocated to the year of the disposition or excess distribution would be taxed as ordinary income, and amounts allocated to prior tax years would be taxed as ordinary income at the highest tax rate in effect for each such year and an interest charge at a rate applicable to underpayments of tax would apply.
While there are U.S. federal income tax elections that sometimes can be made to alter these adverse tax consequences (including the "QEF Election" under Section 1295 of the Code and the "Mark-to-Market Election" under Section 1296 of the Code), such elections are available in limited circumstances and must be made in a timely manner.
U.S. Holders should be aware that, for each tax year, if any, that the Company is a PFIC, the Company can provide no assurances that it will satisfy the record keeping requirements of a PFIC, or that it will make available to U.S. Holders the information such U.S. Holders require to make a QEF Election with respect to the Company or any of its Subsidiary PFICs. Each U.S. Holder should consult its own tax advisors regarding the potential application of the PFIC rules to the ownership and disposition of the Shares, and the availability of certain U.S. tax elections under the PFIC rules.
Certain additional adverse rules may apply with respect to a U.S. Holder if the Company is a PFIC, regardless of whether the U.S. Holder makes a QEF Election. These rules include special rules that apply to the amount of foreign tax credit that a U.S. Holder may claim on a distribution from a PFIC. Subject to these special rules, foreign taxes paid with respect to any distribution in respect of stock in a PFIC are generally eligible for the foreign tax credit. U.S. Holders should consult their own tax advisors regarding the potential application of the PFIC rules to the ownership and disposition of common shares and the availability of certain U.S. tax elections under the PFIC rules.
Additional Considerations
Receipt of Foreign Currency
The amount of any distribution paid to a U.S. Holder in foreign currency, or payment received on the sale, exchange or other taxable disposition of common shares, generally will be equal to the U.S. dollar value of such foreign currency based on the exchange rate applicable on the date of receipt or, if applicable, the date of settlement if the common shares are traded on an established securities market (regardless of whether such foreign currency is converted into U.S. dollars at that time). If the foreign currency received is not converted into U.S. dollars on the date of receipt, a U.S. Holder will have a tax basis in the foreign currency equal to its U.S. dollar value on the date of receipt. A U.S. Holder that receives foreign currency and converts such foreign currency into U.S. dollars at the conversion rate other than the rate in effect on the date of receipt may have a foreign currency exchange gain or loss, which generally would be treated as U.S.-source ordinary income or loss for foreign tax credit purposes. Different rules apply to U.S. Holders who use the accrual method with respect to foreign currency received upon the sale, exchange or other taxable disposition of the common shares. Each U.S. Holder should consult its own U.S. tax advisor regarding the U.S. federal income tax considerations of the acquisition, ownership, and disposition of foreign currency.
Foreign Tax Credit
Dividends paid on the common shares will be treated as foreign-source income and generally will be treated as "passive category income" or "general category income" for U.S. foreign tax credit purposes. Any gain or loss recognized on a sale or other disposition of common shares generally will be U.S.-source gain or loss. Certain U.S. Holders that are eligible for the benefits of the Canada-U.S. Tax Convention may elect to treat such gain or loss as Canadian-source gain or loss for U.S. foreign tax credit purposes. The Code applies various complex limitations on the amount of foreign taxes that may be claimed as a credit by U.S. taxpayers. In addition, Treasury Regulations that apply for taxes paid or accrued (the "Foreign Tax Credit Regulations") impose additional requirements for Canadian withholding taxes to be eligible for a foreign tax credit, and there can be no assurance that those requirements will be satisfied. The Treasury Department has released guidance temporarily pausing the application of certain of the Foreign Tax Credit Regulations.
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Subject to the PFIC rules and the Foreign Tax Credit Regulations, each as discussed above, a U.S. Holder that pays (whether directly or through withholding) Canadian income tax with respect to dividends paid on the common shares generally will be entitled, at the election of such U.S. Holder, to receive either a deduction or a credit for such Canadian income tax paid. Generally, a credit will reduce a U.S. Holder's U.S. federal income tax liability on a dollar-for-dollar basis, whereas a deduction will reduce a U.S. Holder's income that is subject to U.S. federal income tax. This election is made on a year-by-year basis and applies to all foreign taxes paid (whether directly or through withholding) by a U.S. Holder during a year. The foreign tax credit rules are complex and involve the application of rules that depend on a U.S. Holder's particular circumstances. Accordingly, each U.S. Holder should consult its own U.S. tax advisor regarding the foreign tax credit rules.
Backup Withholding and Information Reporting
Under U.S. federal income tax law and Treasury Regulations, certain categories of U.S. Holders must file information returns with respect to their investment in, or involvement in, a foreign corporation. For example, U.S. return disclosure obligations (and related penalties) are imposed on individuals who are U.S. Holders that hold certain specified foreign financial assets in excess of certain threshold amounts. The definition of specified foreign financial assets includes not only financial accounts maintained in foreign financial institutions, but also, unless held in accounts maintained by a financial institution, any stock or security issued by a non-U.S. person, any financial instrument or contract held for investment that has an issuer or counterparty other than a U.S. person and any interest in a foreign entity. U.S. Holders may be subject to these reporting requirements unless their common shares are held in an account at certain financial institutions. Penalties for failure to file certain of these information returns are substantial. U.S. Holders should consult their own tax advisors regarding the requirements of filing information returns, including the requirement to file an IRS Form 8938.
Payments made within the United States or by a U.S. payor or U.S. middleman, of dividends on, and proceeds arising from the sale or other taxable disposition of, common shares will generally be subject to information reporting and backup withholding, currently at the rate of 24%, if a U.S. Holder (a) fails to furnish such U.S. Holder's correct U.S. taxpayer identification number (generally on IRS Form W-9), (b) furnishes an incorrect U.S. taxpayer identification number, (c) is notified by the IRS that such U.S. Holder has previously failed to properly report items subject to backup withholding, or (d) fails to certify, under penalty of perjury, that such U.S. Holder has furnished its correct U.S. taxpayer identification number and that the IRS has not notified such U.S. Holder that it is subject to backup withholding. However, certain exempt persons generally are excluded from these information reporting and backup withholding rules. Backup withholding is not an additional tax. Any amounts withheld under the U.S. backup withholding rules will be allowed as a credit against a U.S. Holder's U.S. federal income tax liability, if any, or will be refunded, if such U.S. Holder furnishes required information to the IRS in a timely manner.
The discussion of reporting requirements set forth above is not intended to constitute a complete description of all reporting requirements that may apply to a U.S. Holder. A failure to satisfy certain reporting requirements may result in an extension of the time period during which the IRS can assess a tax, and under certain circumstances, such an extension may apply to assessments of amounts unrelated to any unsatisfied reporting requirement. Each U.S. Holder should consult its own financial advisor, legal counsel or other tax advisor regarding the information reporting and backup withholding rules.
THE ABOVE SUMMARY IS NOT INTENDED TO CONSTITUTE A COMPLETE ANALYSIS OF ALL TAX CONSIDERATIONS APPLICABLE TO U.S. HOLDERS WITH RESPECT TO THE ACQUISITION, OWNERSHIP, AND DISPOSITION OF COMMON SHARES. U.S. HOLDERS SHOULD CONSULT THEIR OWN TAX ADVISORS AS TO THE TAX CONSIDERATIONS APPLICABLE TO THEM IN LIGHT OF THEIR OWN PARTICULAR CIRCUMSTANCES.
F. Dividends and Paying Agents
Not Applicable.
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G. Statement by Experts
Not Applicable.
H. Documents on Display
The Company is subject to the informational requirements of the Exchange Act and files reports and other information with the SEC. The SEC maintains a website that contains reports and other information regarding registrants that file electronically with the SEC at http://www.sec.gov ("EDGAR")
The documents concerning the Company referred to in this Annual Report may be inspected at the Company's registered and records office, located at 19th Floor, 885 West Georgia Street, Vancouver, British Columbia, Canada V6C 3H4.
The Company is subject to reporting requirements as a "reporting issuer" under applicable securities legislation in Canada and as a "foreign private issuer" under the Exchange Act. As a result, the Company must file periodic reports and other information with the Canadian securities regulatory authorities and the SEC.
A copy of this Annual Report and certain other documents referred to in this Annual Report and other documents filed by the Company may be retrieved from the system for electronic document analysis and retrieval ("SEDAR") system maintained by the Canadian securities regulatory authorities at www.sedar.ca or from EDGAR.
I. Subsidiary Information
Not Applicable.
J. Annual Report to Security Holders
Not Applicable.
Item 11. Quantitative and Qualitative Disclosures about Market Risk
The Company, through its financial assets and liabilities, is exposed to various risks. The Company has established policies and procedures to manage these risks, with the objective of minimizing any adverse effect that changes in these variables could have on these consolidated financial statements. The following analysis provides a measurement of risks as at the date of this Annual Report:
Credit Risk
Credit risk is the risk of financial loss to the Company if a customer or counterparty to a financial instrument fails to meet its contractual obligations. The Company deposits the majority of its cash with high credit quality financial institutions in the United States. The Company is not exposed to any significant credit risk.
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 investment and financing activities. Management and the Board are actively involved in the review, planning and approval of significant expenditures and commitments.
The Company's consolidated financial statements for year ended March 31, 2026, 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.
The Company takes a disciplined approach to financing and intends to protect shareholder value by raising capital strategically. The Company is assessing various opportunities for additional financing through either debt or equity to be used for corporate working capital and possible future acquisitions.
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Further, 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. 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.
Foreign Currency Risk
The Company is exposed to foreign currency risk from fluctuations in foreign exchange rates and the degree of volatility in these rates due to the timing of their accounts payable balances. The risk is mitigated by timely payment of creditors and monitoring of foreign exchange fluctuations by management. As at the date of this Annual Report, the Company did not use derivative instruments to hedge its exposure to foreign currency risk.
Commodity Price Risk
The Company's operations do not involve the direct input or output of any commodities and therefore it is not subject to any significant commodity price risk. In addition, the Company does not have any equity investment in other listed public companies, and therefore it is not subject to any significant stock market price risk.
The Company is not a party to any foreign currency hedge contracts as at the date of this Annual Report.
Inflation Risk
Inflationary factors such as increases in the cost of our product and overhead costs may adversely affect our operating results. Although we do not believe that inflation has had a material effect on our financial position or results of operations to date, a continued high rate of inflation in the future may have an adverse effect on our ability to maintain current levels of gross profit and selling, general and administrative expenses as a percentage of net sales if the selling prices of our services do not increase with these increased costs.
Item 12. Description of Securities Other than Equity Securities
A. - C.
Not Applicable.
D. American Depository Receipts
The Company does not have securities registered as American Depository Receipts.
PART II.
Item 13. Defaults, Dividend Arrearages and Delinquencies
None.
Item 14. Material Modifications to the Rights of Security Holders and Use of Proceeds
No modifications or qualifications have been made to the instruments defining the rights of the holders of the Company's common shares and no material amount of assets securing the Company's securities has been withdrawn or substituted by the Company or anyone else, other than in the ordinary course of business.
Item 15. Controls and Procedures
(a) Disclosure Controls and Procedures
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Under the supervision and with the participation of our senior management, including the Company's Chief Executive Officer and Chief Financial Officer, the Company conducted an evaluation of the effectiveness of the design and operation of its disclosure controls and procedures, as defined in Rules 13a-15(e) and 15d-15(e) under the Exchange Act as at March 31, 2026 (the "Evaluation Date").
Disclosure controls and procedures are controls and procedures that are designed to ensure that that the information required to be disclosed by the Company in reports that it files or submits under the Exchange Act is (i) recorded, processed, summarized and reported, within the time periods specified in the SEC's rules and forms, and (ii) accumulated and communicated to management, including the Chief Executive Officer and Chief Financial Officer, as appropriate to allow timely decisions regarding required disclosure. Based on this evaluation, our Chief Executive Officer and our Chief Financial Officer concluded that our disclosure controls and procedures were not effective as of the Evaluation Date.
(b) Management's Annual Report on Internal Control Over Financial Reporting
The Company's management is responsible for designing, establishing and maintaining a system of internal controls over financial reporting (as defined in Exchange Act Rule 13a-15(f)) to provide reasonable assurance that the financial information prepared by the Company for external purposes is reliable and has been recorded, processed and reported in an accurate and timely manner in accordance with GAAP as issued by FASB. The Board is responsible for ensuring that management fulfills its responsibilities. The Audit Committee fulfills its role of ensuring the integrity of the reported information through its review of the interim and annual financial statements. Management reviewed the results of their assessment with the Company's Audit Committee.
Because of its inherent limitations, the Company's internal control over financial reporting may not prevent or detect all possible misstatements or fraud. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with policies or procedures may deteriorate.
To evaluate the effectiveness of the Company's internal control over financial reporting, management has used the Internal Control - Integrated Framework (2013), which is a suitable, recognized control framework established by the Committee of Sponsoring Organizations of the Treadway Commission (COSO).
Based on this evaluation, our management concluded that certain of our internal controls over financial reporting were not effective as of the Evaluation Date, due to the existence of a material weakness as it relates to inadequate segregation of duties in certain financial reporting processes, including accounting for deferred income taxes and preparation of statements of cash flows related to foreign currency translations, partly because of the Company's small size and insufficient personnel with an appropriate level of technical accounting knowledge, experience and training commensurate with the Company's complexity and its financial accounting and reporting requirements.
The Company is committed to maintaining a strong internal control environment. In order to address the material weaknesses in internal control over financial reporting noted above, management with oversight and direction from the Audit Committee and the Board of Directors, is developing a remediation plan. To remediate the material weakness and significant deficiencies described above, management is currently considering the following actions:
- retain additional in-house accounting personnel and continue to enhance our internal finance and accounting organizational structure;
- strengthen the direct management oversight of complex transactions, along with the use of legal and accounting professionals; and
- expand the scope of services with the Company's independent outside accounting consulting firm to assist with addition oversight of its financial statements and regulatory filings.
As we continue to develop and implement our remediation plan, additional remediation steps will be identified and adopted.
We will consider the material weaknesses remediated after the applicable controls operate for a sufficient period of time, and management has concluded that the controls are operating effectively.
The Company's management, including the Chief Executive Officer and Chief Financial Officer, does not expect that the Disclosure Controls or its Internal Controls will prevent all error and all fraud. A control system, no matter how well designed and operated, can provide only reasonable, not absolute, assurance that the objectives of the control system are met. Further, the design of a control system must reflect the fact that there are resource constraints, and the benefits of controls must be considered relative to their costs. Because of the inherent limitations in all control systems, no evaluation of controls can provide absolute assurance that all control issues and instances of fraud, if any, within the Company have been detected. These inherent limitations include the realities that judgments in decision-making can be faulty, and that breakdowns can occur because of simple error or mistake. Additionally, controls can be circumvented by the individual acts of some persons, by collusion of two or more people, or by management override of the control. The design of any system of controls is also based in part upon certain assumptions about the likelihood of future events, and there can be no assurance that any design will succeed achieving its stated goals under all potential future conditions; over time, control may become inadequate because of changes in conditions, or the degree of compliance with the policies or procedures may deteriorate. Because of the inherent limitations in a cost-effective control system, misstatements due to error or fraud may occur and not be detected.
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(c) Attestation Report of Registered Public Accounting Firm
This Annual Report does not include an attestation report of the Company's registered public accounting firm regarding internal control over financial reporting. Under the Jumpstart Our Business & Startups Act ("JOBS Act"), emerging growth companies are exempt from Section 404(b) of the Sarbanes-Oxley Act, which generally requires public companies to provide an independent auditor attestation of management's assessment of the effectiveness of their internal control over financial reporting. The Company qualifies as an emerging growth company under the JOBS Act and therefore has not included an independent auditor attestation of management's assessment of the effectiveness of its internal control over financial reporting.
(d) Changes in Internal Control over Financial Reporting
There have been no changes in the Company's internal controls over financial reporting that occurred during the year ended March 31, 2026, that have materially affected or are reasonably likely to materially affect the Company's internal control over financial reporting.
Item 16. [Reserved]
Item 16A. Audit Committee Financial Expert
The Board has determined that D. Bruce Macdonald qualifies as a financial expert and is independent (as determined under Exchange Act Rule 10A-3 and section 803A of the NYSE American Company Guide).
Item 16B. Code of Ethics
On February 4, 2019, the Company adopted a Code of Business Conduct and Ethics that applies to all employees of the Company, including its Chief Executive Officer and Chief Financial Officer. A copy of the Company's Code of Ethics will be provided to any person requesting the same without charge. To request a copy of our Code of Ethics, please make a written request to our Chief Financial Officer at the Company's corporate office, located at 19th Floor, 885 West Georgia Street, Vancouver, British Columbia, Canada V6C 3H4.
As at the date of this Annual Report, the Company has not made any modification, material departure, waiver or implicit waiver of the Company's Code of Business Conduct and Ethics.
Item 16C. Principal Accountant Fees and Services
| Financial Year End | Audit Fees | Audit Related Fees(1) | Tax Fees(2) | All Other Fees(3) |
| March 31, 2026 | C$355,671 | C$92,616 | C$23,000 | Nil |
| March 31, 2025 | C$336,959 | Nil | C$46,200 | Nil |
(1) Pertains to assurance and related services that are reasonably related to the performance of the audit or review of the Company's financial statements and that are not reported under "Audit Fees".
(2) Pertains to professional services for tax compliance, tax advice and tax planning.
(3) Pertains to products and services other than services reported under the other categories.
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The audit committee pre-approves all audit and audit-related services and the fees and other compensation related thereto, and any non-audit services, provided by our independent auditors. The authority to pre-approve non-audit services may be delegated by the audit committee to one or more independent members of the audit committee, provided that such pre-approval must be presented to the audit committee's first scheduled meeting following such pre-approval. The Company's external auditor has been approved by majority vote of the Audit Committee and 100% of the services described above were approved by the Audit Committee. At no time since February 1, 2020, was a recommendation of the Audit Committee to nominate or compensate an external auditor not adopted by the Company's Board of Directors.
Item 16D. Exemptions from the Listing Standards for Audit Committees
Not Applicable.
Item 16E. Purchases of Equity Securities by the Issuer and Affiliated Purchasers
Issuer Purchases of Equity Securities
| Period | (a) Total number of shares purchased |
(b) Average price paid per share |
(c) Total number of shares purchased as part of publicly announced plans or programs |
(d) Maximum number (or approximate dollar value) of that may yet be purchased under the plans or programs |
| Month #1 (April 1- April 30, 2025) |
109,500 | $0.14 | 109,500 | 5,892,890 |
| Month #2 (May 1- May 31, 2025) | 25,000 | $0.14 | 134,500 | 5,867,890 |
| Month #3 (June 1, 2025 - June 30, 2025) | 50,000 | $0.14 | 184,500 | 5,817,890 |
| Month #4 (July 1, 2025 - July 31, 2025) | 39,500 | $0.15 | 224,000 | 5,778,390 |
| Month #5 (August 1- August 31, 2025) | 224,000 | 5,778,390 | ||
| Month #6 (September 1- September 30, 2025) | 224,000 | 5,778,390 | ||
| Month #7 (October 1- October 31, 2025) | 224,000 | 5,778,390 | ||
| Month #8 (November 1 - November 30, 2025) | 224,000 | 5,778,390 | ||
| Month #9 (December 1- December 31, 2025) | 224,000 | 5,898,596 | ||
| Month #10 (January 1 - January 31, 2026) | 51,500 | $0.29 | 275,500 | 5,847,096 |
| Month #11 (February 1- February 28, 2026) | 79,000 | $0.29 | 354,500 | 5,768,096 |
| Month #12 (March 1- March 31, 2026) | 125,000 | $0.26 | 479,500 | 5,643,096 |
| Total | 479,500 | $0.21 | 479,500 | 5,643,096 1 |
On November 27, 2024, the Company established a Normal Course Issuer Bid (the "NCIB") to repurchase up to 6,002,390 common shares of the Company, representing approximately 5% of the issued and outstanding common shares. The expiration date of the NCIB is December 2, 2025. On December 5, 2025, the Company established a Normal Course Issuer Bid (the "NCIB") to repurchase up to 5,898,596 common shares of the Company, representing approximately 5% of the issued and outstanding common shares. The expiration date of the NCIB is December 9, 2026.
72
Item 16F. Changes in Registrant's Certifying Accountant
At the Company's request, the Company's former independent auditor, Marcum, resigned effective January 19, 2024, and Davidson was engaged as the Company's new independent auditor effective January 19, 2024. The disclosure required pursuant to this Item 16F was included in the Company's Current Report on Form 6-K filed with the SEC on February 1, 2024, in Exhibits 99.1, 99.2 and 99.3, which are hereby incorporated by reference into this Annual Report.
Item 16G. Corporate Governance
Not Applicable.
Item 16H. Mine Safety Disclosure.
Not Applicable.
Item 16I. Disclosure Regarding Foreign Jurisdictions that Prevent Inspections
Not Applicable.
Item 16J. Insider Trading Policies
The Company does
Item 16K. Cybersecurity
Risk Management and Strategy
As of the date of the filing of this Annual Report, the Company has
Refer to the "Cybersecurity risk" section in "Item 3-D - Risk Factors" for the complete information regarding cybersecurity risks and, the potential likelihood of impacting the Company's technology systems.
In order to mitigate these risks to a degree, the Company has a full-time IT manager ("Manager") and also
The Company has implemented multiple measures to combat and reduce the risk of cybersecurity threats and cybersecurity incidents such as:
- Hiring the Manager, who is available to respond immediately in the event of any cybersecurity threat or cybersecurity incident;
- Developing an internal IT Control Guide ("IT Guide") reviewed by the COO;
- Enhancing the scrutiny of the emails received via
- Implementing informal educational outreach programs including email reminders to educate staff about certain cybersecurity risks.
Governance
The Manager monitors cybersecurity risks and potential incidents while following and periodically reviewing the IT Guide, recommending updates to the COO where needed. The COO advise the Board of any potential cybersecurity threat and the corresponding mitigation steps needed.
73
At the time of filing this Annual Report the Company does not have a subcommittee dedicated to cybersecurity but will consider increased oversight from the Board as the Company's situation evolves responsible for the oversight of risks from cybersecurity threats.
______________________________
PART III.
Item 17. Financial Statements
See Item 18 "Financial Statements".
Item 18. Financial Statements
The following financial statements pertaining to the Company are filed as part of this Annual Report:
Audited Financial Statements of the Company for the years ended March 31, 2026 and March 31, 2025 and are audited in accordance with U.S. GAAP.
74
Consolidated Financial Statements For the years ended March 31, 2026 and 2025 (Expressed in U.S. Dollars) |
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
To the Shareholders and Directors of
C21 Investments Inc.
Opinion on the Consolidated Financial Statements
We have audited the accompanying consolidated balance sheets of C21 Investments Inc. (the "Company"), as of March 31, 2026 and 2025, and the related consolidated statements of loss and comprehensive loss, changes in shareholders' equity, and cash flows for the years ended March 31, 2026 and 2025, and the related notes (collectively referred to as the "financial statements"). In our opinion, the consolidated financial statements present fairly, in all material respects, the financial position of the Company as of March 31, 2026 and 2025, and the results of its operations and its cash flows for the years ended March 31, 2026 and 2025 in conformity with accounting principles generally accepted in the United States of America.
Basis for Opinion
These consolidated financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on the Company's consolidated financial statements based on our audits. We are a public accounting firm registered with the Public Company Accounting Oversight Board (United States) ("PCAOB") and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.
We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the consolidated financial statements are free of material misstatement, whether due to error or fraud. The Company is not required to have, nor were we engaged to perform, an audit of its internal control over financial reporting. As part of our audits we are required to obtain an understanding of internal control over financial reporting but not for the purpose of expressing an opinion on the effectiveness of the Company's internal control over financial reporting. Accordingly, we express no such opinion.
Our audits included performing procedures to assess the risks of material misstatements of the financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the consolidated financial statements. Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the consolidated financial statements. We believe that our audits provide a reasonable basis for our opinion.
We have served as the Company's auditor since 2024.
/s/ DAVIDSON & COMPANY LLP
| Chartered Professional Accountants |
June 10, 2026
| DAVIDSON & COMPANY LLP | 1200-609 Granville Street | 604 687 0947 |
| PO BOX 10372, Pacific Centre | davidson-co.com | |
| Vancouver, BC V7Y 1G6 |
| C21 INVESTMENTS INC. Consolidated Balance Sheets (Expressed in U.S. dollars) |
| March 31, 2026 |
March 31, 2025 |
|||||
| $ | $ | |||||
| ASSETS | ||||||
| Current assets | ||||||
| Cash | ||||||
| Receivables | ||||||
| Inventory | ||||||
| Prepaid expenses and deposits | ||||||
| Note receivable - current portion | ||||||
| Assets classified as held for sale | ||||||
| Non-current assets | ||||||
| Property and equipment | ||||||
| Right-of-use assets | ||||||
| Intangible assets | ||||||
| Goodwill | ||||||
| Note receivable | ||||||
| Deferred tax asset | ||||||
| Total assets | ||||||
| LIABILITIES | ||||||
| Current liabilities | ||||||
| Accounts payable and accrued liabilities | ||||||
| Convertible promissory notes | ||||||
| Convertible debentures - current portion | ||||||
| Settlement liability - current portion | ||||||
| Income taxes payable | ||||||
| Deferred revenue | ||||||
| Lease liabilities - current portion | ||||||
| Non-current liabilities | ||||||
| Convertible debentures | ||||||
| Settlement liability | ||||||
| Lease liabilities | ||||||
| Uncertain tax position | ||||||
| Derivative liability | ||||||
| Deferred tax liability | ||||||
| Total liabilities | ||||||
| SHAREHOLDERS' EQUITY | ||||||
| Common stock, |
||||||
| Subordinate shares, |
||||||
| Commitment to issue shares | ||||||
| Accumulated other comprehensive loss | ( |
) | ( |
) | ||
| Deficit | ( |
) | ( |
) | ||
| Total shareholders' equity | ||||||
| Total liabilities and shareholders' equity |
Commitments (Note 17)
Subsequent events (Note 23)
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 consolidated financial statements. | |
| 4 | |
| C21 INVESTMENTS INC. Consolidated Statements of Loss and Comprehensive Loss (Expressed in U.S. dollars, except number of shares) |
| Year ended March 31, | ||||||
| 2026 | 2025 | |||||
| $ | $ | |||||
| Revenue | ||||||
| Cost of sales | ||||||
| Gross profit | ||||||
| Selling, general and administrative expenses | ||||||
| Income from operations | ||||||
| Accretion expense | ( |
) | ( |
) | ||
| Gain on change in fair value of derivative liabilities | ||||||
| Interest expense | ( |
) | ( |
) | ||
| Loss on settlement of legal proceedings | ( |
) | ||||
| Gain (loss) on disposal of assets | ( |
) | ||||
| Other income | ||||||
| Net income from continuing operations before income tax expense | ||||||
| Income tax expense | ( |
) | ( |
) | ||
| Net loss from continuing operations after income tax expense | ( |
) | ( |
) | ||
| Net loss from discontinued operations after income tax expense | ( |
) | ( |
) | ||
| Net loss | ( |
) | ( |
) | ||
| Other comprehensive income (loss): | ||||||
| Cumulative translation adjustment | ( |
) | ||||
| Comprehensive loss | ( |
) | ( |
) | ||
| Basic and diluted loss per share from continuing operations | ( |
) | ( |
) | ||
| Basic and diluted loss per share from discontinued operations | ( |
) | ( |
) | ||
| Basic and diluted loss per share | ( |
) | ( |
) | ||
| Weighted average number of common shares outstanding - basic | ||||||
| Weighted average number of common shares outstanding - diluted | ||||||
| The accompanying notes are an integral part of these consolidated financial statements. | |
| 5 | |
| C21 INVESTMENTS INC. Consolidated Statements of Changes in Shareholders’ Equity (Expressed in U.S. dollars, except number of shares) |
| Number of common shares |
Common stock and reserves |
Number of subordinate shares |
Subordinate share capital |
Commitment to issue shares |
Accumulated other comprehensive loss |
Deficit | Total shareholders' equity |
|||||||||||||||||
| # | $ | # | $ | $ | $ | $ | $ | |||||||||||||||||
| Balance, March 31, 2024 | - | - | ( |
) | ( |
) | ||||||||||||||||||
| Warrants issued in private placement | - | - | - | - | - | - | ||||||||||||||||||
| Share-based compensation | - | - | - | - | - | - | ||||||||||||||||||
| Repurchase and cancellation of shares | ( |
) | ( |
) | - | - | - | - | - | ( |
) | |||||||||||||
| Net loss and comprehensive income | - | - | - | - | - | ( |
) | ( |
) | |||||||||||||||
| Balance, March 31, 2025 | - | - | ( |
) | ( |
) | ||||||||||||||||||
| Share-based compensation | - | - | - | - | - | - | ||||||||||||||||||
| Repurchase and cancellation of shares | ( |
) | ( |
) | - | - | - | - | - | ( |
) | |||||||||||||
| Exercise of debentures | - | - | - | - | - | |||||||||||||||||||
| Issuance of subordinate shares | - | - | - | - | - | |||||||||||||||||||
| EFF Settlement | - | - | - | - | ( |
) | - | - | ( |
) | ||||||||||||||
| Net loss and comprehensive loss | - | - | - | - | - | ( |
) | ( |
) | ( |
) | |||||||||||||
| Balance, March 31, 2026 | ( |
) | ( |
) |
| The accompanying notes are an integral part of these consolidated financial statements. | |
| 6 | |
| C21 INVESTMENTS INC. Consolidated Statements of Cash Flows (Expressed in U.S. dollars) |
| Year ended March 31, | ||||||
| 2026 | 2025 | |||||
| $ | $ | |||||
| OPERATING ACTIVITIES | ||||||
| Net loss from continuing operations after income tax expense | ( |
) | ( |
) | ||
| Adjustments to reconcile net loss to cash provided by operating activities: | ||||||
| Accretion expense | ||||||
| Amortization of right-of-use assets | ||||||
| Deferred income tax recovery | ( |
) | ||||
| Depreciation and amortization | ||||||
| Gain on change in fair value of derivative liabilities | ( |
) | ( |
) | ||
| Interest expense | ||||||
| Interest and accretion income included in other income | ( |
) | ||||
| Loss on extinguishment of EFF liability | ||||||
| (Gain) loss on disposal of assets | ( |
) | ||||
| Share-based compensation | ||||||
| Changes in operating assets and liabilities: | ||||||
| Receivables | ||||||
| Inventory | ( |
) | ( |
) | ||
| Prepaid expenses and deposits | ( |
) | ||||
| Accounts payable and accrued liabilities | ( |
) | ||||
| Settlement liability | ( |
) | ||||
| Income taxes payable | ( |
) | ( |
) | ||
| Uncertain tax position | ||||||
| Deferred revenue | ( |
) | ||||
| Lease liabilities | ( |
) | ( |
) | ||
| Cash provided by operating activities of continuing operations | ||||||
| Cash used in operating activities of discontinued operations | ( |
) | ( |
) | ||
| INVESTING ACTIVITIES | ||||||
| Purchases of property and equipment | ( |
) | ( |
) | ||
| Purchases of intangible assets | ( |
) | ||||
| Proceeds from disposal of assets | ||||||
| Cash used in investing activities of continuing operations | ( |
) | ( |
) | ||
| Cash provided by investing activities of discontinued operations | ||||||
| FINANCING ACTIVITIES | ||||||
| Proceeds from issuance of debenture units | ||||||
| Interest payments received on note receivable | ||||||
| Principal repayments on convertible debentures | ( |
) | ( |
) | ||
| Interest paid in cash | ( |
) | ( |
) | ||
| Repurchase and cancellation of shares | ( |
) | ( |
) | ||
| Cash (used in) provided by financing activities of continuing operations | ( |
) | ||||
| Cash used in financing activities of discontinued operations | ( |
) | ||||
| Effect of foreign exchange on cash | ||||||
| Change in cash during the year | ( |
) | ( |
) | ||
| Cash, beginning of year | ||||||
| Cash, end of year | ||||||
| Supplemental disclosure of cash flow information: | ||||||
| Income tax paid in cash | ||||||
| Interest payments received on note receivable | ||||||
| Interest paid in cash | ( |
) | ||||
| Addition in right-of-use assets and lease liabilities | ||||||
| The accompanying notes are an integral part of these consolidated financial statements. | |
| 7 | |
| C21 INVESTMENTS INC. Notes to the Consolidated Financial Statements For the years ended March 31, 2026 and 2025 (Expressed in U.S. dollars, except as noted) |
1. NATURE OF OPERATIONS
C21 Investments Inc. (the "Company" or "C21") was incorporated on January 15, 1987, under the Company Act of British Columbia. The Company is a publicly traded company with its registered office at 170-601 West Cordova Street, Vancouver, BC, V6B 1G1. The Company is listed on the Canadian Securities Exchange under the symbol CXXI and on the OTCQB® Venture Market under the symbol CXXIF.
The Company is a cannabis operator in Nevada, USA and is engaged in the cultivation of and manufacturing of cannabis flower products, vape products and extract products for wholesale and retail sales. The Company initially had operations in the state of Oregon. During the year ended January 31, 2022, the Company made a strategic decision to cease operations in Oregon. The results of the Company's Oregon operations are presented as discontinued operations.
As at March 31, 2026, the Company had a working capital surplus of $
At the federal level, cannabis, other than certain medical cannabis products, currently remains a Schedule I controlled substance under the Controlled Substances Act of 1970. Under U.S. federal law, a Schedule I drug or substance is characterized by a high potential for abuse, no currently accepted medical use in the United States, and a lack of accepted safety for use under medical supervision. As such, even in those states in which cannabis has been 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 that remains illegal at the federal level.
On April 23, 2026, the U.S. Department of Justice announced that it had moved FDA-approved marijuana products and marijuana products produced and dispensed pursuant to qualifying state medical marijuana licenses to Schedule III of the Controlled Substances Act. The DOJ also announced that the Drug Enforcement Administration ("DEA") would withdraw its prior notice of hearing and terminate those proceedings, with new administrative hearings scheduled to begin on June 29, 2026.
On April 28, 2026, the DEA published a rule in the Federal Register formalizing the rescheduling of FDA-approved marijuana products and marijuana products produced pursuant to state medical marijuana programs from Schedule I to Schedule III (the "Rescheduling Rule"). The Rescheduling Rule also established an expedited process for state-licensed medical marijuana operators to register with the DEA, which would permit such entities, subject to registration, to manufacture, distribute, and dispense marijuana for medical purposes under federal law. The Rescheduling Rule did not address or amend the status of adult-use cannabis, which remains classified as a Schedule I substance and is expected to be considered as part of the new administrative hearings beginning June 29, 2026. The Company is currently assessing the potential impact of these developments on its operations and financial reporting; however, the effects, if any, have not yet been determined.
There remains uncertainty regarding the U.S. federal government's overall position on cannabis, particularly with respect to adult-use cannabis and the implementation of the Rescheduling Rule. Any changes in federal enforcement priorities or interpretation could impact the Company's operations and its ability to continue as a going concern.
2. BASIS OF PREPARATION
a) Basis of presentation
These consolidated financial statements for the years ended March 31, 2026 and 2025 ("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.
These consolidated financial statements have been prepared on a going concern basis, which assumes that the Company will continue in operation for the foreseeable future and, accordingly, will be able to realize its assets and discharge its liabilities in the normal course of operations as they come due.
Failure to arrange adequate financing on acceptable terms and/or achieve profitability may have an adverse effect on the financial position, results of operations, cash flows and prospects of the Company. These consolidated financial statements do not give effect to adjustments to assets or liabilities that would be necessary should the Company be unable to continue as a going concern. Such adjustments could be material.
8
C21 INVESTMENTS INC.
Notes to the Consolidated Financial Statements
For the years ended March 31, 2026 and 2025
(Expressed in U.S. dollars, except as noted)
2. BASIS OF PREPARATION (continued)
b) Functional and reporting currency
The functional currency of the Company is Canadian dollars ("C$"), and the functional currency of the Company's subsidiaries is U.S. dollars ("US$"). C21 has determined that the US$ is the most relevant and appropriate reporting currency as the Company's operations are conducted in US$ and its financial results are prepared and reviewed internally by management in US$. The consolidated financial statements are presented in US$ 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.
A summary of the Company's subsidiaries included in these consolidated financial statements as at March 31, 2026 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 ("EFF") (2) | Cannabis producer | ||
| Silver State Cultivation LLC | Cannabis producer | ||
| Silver State Relief LLC | Cannabis retailer | ||
| Phantom Brands, LLC (2) | Holding Company | ||
| Phantom Distribution, LLC (2) | Cannabis distributor | ||
| Workforce Concepts 21, Inc. | Payroll and benefits services |
(1) All subsidiaries of the Company were incorporated in the USA, are wholly owned and have US$ as their functional currency.
(2) Operations have been discontinued and results are included in discontinued operations.
3. ACCOUNTING POLICIES
a) Significant accounting judgement, 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 judgement and estimation relate to the assessment of the transactions as business combinations or asset acquisitions, 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.
b) Recently issued accounting pronouncements
In November 2023, the Financial Accounting Standards Board (FASB) issued ASU 2023-07, Improvements to Reportable Segment Disclosures (Topic 280). The Company adopted ASU 2023-07 as of April 1, 2024. This update enhances the disclosure requirements for reportable segments, including significant segment expenses and interim period disclosures. The Company has disclosed the title and position of our Chief Operating Decision Maker (CODM) to provide clarity on who is responsible for making operating decisions. These disclosures aim to enhance transparency and provide more decision-useful information to investors and other stakeholders.
9
C21 INVESTMENTS INC.
Notes to the Consolidated Financial Statements
For the years ended March 31, 2026 and 2025
(Expressed in U.S. dollars, except as noted)
3. ACCOUNTING POLICIES (continued)
In December 2023, the Financial Accounting Standards Board issued Accounting Standards Update 2023-09 ("ASU 2023-09"), Income Taxes (Topic 740): Improvements to Income Tax Disclosures, requiring entities to disclose more detailed information about income tax expense (benefit), significant components of income tax expense (benefit), separate disclosure of income tax expense (benefit) for domestic and foreign jurisdictions and by major jurisdictions. The Company adopted ASU 2023-09 on April 1, 2025 on a prospective basis. The adoption did not have a material impact on the Company’s consolidated financial statements but resulted in enhanced income tax disclosures (Note 21).
The Company has implemented all new accounting pronouncements that are in effect and that may impact its financial statements and does not believe that there are any other new pronouncements that have been issued that might have a material impact on its financial position or results of operations.
Recently issued accounting pronouncements not yet effective
In November 2024, the FASB issued Accounting Standards Update 2024-03 ("ASU 2024-03"), Income Statement - Reporting Comprehensive Income - Expense Disaggregation Disclosure (Subtopic 220-40): update required disclosure of specified information about certain costs and expenses. ASU 2024-03 is effective for annual reporting periods beginning after December 15, 2026. The Company has not adopted this standard early. The Company is currently evaluating the impact of the adoption of this amendment.
In November 2024, the Financial Accounting Standards Board issued Accounting Standards Update 2024-04, Debt-Debt with Conversion and Other Options (Subtopic 470-20): Induced Conversions of Convertible Debt Instruments. The amendments clarify when the settlement of convertible debt should be accounted for as an induced conversion versus a debt extinguishment and update related accounting and disclosure requirements. ASU 2024-04 is effective for annual reporting periods beginning after December 15, 2025, including interim periods within those fiscal years and is effective for the Company beginning April 1, 2026. The Company has evaluated the impact of adopting ASU 2024-04 based on its current convertible debt arrangements and recent conversion activity. During the year ended March 31, 2026, conversions of convertible debentures were completed in accordance with their original contractual terms and did not involve the provision of incremental consideration to induce conversion. As the Company has not entered into, and does not currently expect to enter into, arrangements to induce early conversion of its convertible debt, the adoption of ASU 2024-04 is not expected to have a material impact on its financial statements and disclosures.
c) Cash
Cash is held in financial institutions and at retail locations. The carrying value of cash approximates its fair value.
The failure of any bank in which C21 deposits funds may reduce the amount of cash available for operations or delay the ability to access such funds. C21 does not currently have a commercial relationship with a bank that has failed or has shown indications of experiencing operational distress, nor has C21 experienced delays or other issues in meeting its financial obligations. If banks and financial institutions where C21's cash is held enter receivership or become insolvent in response to financial conditions affecting the banking system and financial markets, its ability to access cash may be threatened and could have a material adverse effect on operations and financial condition of the Company.
As at March 31, 2026, the Company had FDIC coverage over $
d) Foreign currency translation
Foreign currency transactions are translated into U.S. dollars at exchange rates in effect on the date of the transactions. Monetary assets and liabilities denominated in foreign currencies are translated at the functional currency spot rate at the reporting date. All differences are recorded in the consolidated statements of loss and comprehensive loss. Non-monetary items that are measured in terms of historical cost in a foreign currency are translated using the exchange rate at the date of the initial transaction. Non-monetary items measured at fair value in a foreign currency are translated using the exchange rates at the date when the fair value is determined.
Assets and liabilities of foreign operations are translated into U.S. dollars at year-end exchange rates and any revenue and expenses are translated at the average exchange rate for the year. The resulting exchange differences are recognized in other comprehensive income.
10
C21 INVESTMENTS INC.
Notes to the Consolidated Financial Statements
For the years ended March 31, 2026 and 2025
(Expressed in U.S. dollars, except as noted)
e) Inventory
Inventory consists of raw materials, consumables and packaging supplies used in the process to prepare inventory for sale; work in process consisting of pre-harvested cannabis plants, by-products to be extracted, oils and terpenes; and finished goods.
Inventory is valued at the lower of cost and net realizable value, with cost determined using the weighted average cost method. Net realizable value is calculated as the estimated selling price in the ordinary course of business, less any estimated costs to complete and sell the goods. Costs are capitalized to inventory, until substantially ready for sale. Costs include direct and indirect labor, raw materials, consumables, packaging supplies, utilities, facility costs, quality and testing costs, production related depreciation and other overhead costs. The Company records inventory reserves for obsolete and slow-moving inventory.
Inventory reserves are based on inventory obsolescence trends, and the historical and professional experience of management. The Company classifies cannabis inventory as a current asset, although, due to the duration of the cultivation, drying, and conversion process, certain inventory items may not be realized in cost of sales within one year.
f) Property and equipment
Property and equipment is measured at cost less accumulated depreciation and losses on impairment.
Depreciation is provided on the straight-line basis over the estimated useful lives of the assets as follows:
| Furniture & fixtures | |
| Computer equipment | |
| Machinery & equipment | |
| Leasehold improvements |
g) Intangible assets
Intangible assets are recorded at cost less accumulated amortization and accumulated impairment losses, if any. Intangible assets acquired in a business combination are measured at fair value at the acquisition date.
Intangible assets with finite useful lives are amortized on a straight-line basis over their estimated useful lives. Amortization of intangible assets begins when the asset becomes available for use. Brands, licenses, and customer relationships are amortized over
h) Goodwill
Goodwill represents the excess of the purchase price paid for the acquisition of subsidiaries over the fair value of the net intangible and tangible assets acquired. Following the initial recognition, goodwill is measured at cost less any accumulated impairment losses. Goodwill is allocated to the reporting unit in which the business that created the goodwill resides. A reporting unit is an operating segment, or a business unit one level below that operating segment, for which discrete financial information is prepared and regularly reviewed by segment management. The Company's goodwill is part of the Nevada reporting unit.
Goodwill is tested annually for any impairment, or more frequently in the case that events or circumstances indicate that the carrying amount of a reporting unit may not be recoverable. The Company may elect to first assess qualitative factors to determine whether it is more likely than not that the fair value of a reporting unit is less than its carrying amount. If factors indicate this is the case, then a quantitative test is performed and impairment is recorded for any excess carrying value above the reporting unit's fair value, not to exceed the amount of goodwill.
For the years ended March 31, 2026 and 2025, the recoverable amount of goodwill allocated to the Nevada reporting unit exceeded the carrying amount and no impairment was noted.
i) Impairment of long-lived assets
Long-lived assets include property and equipment, right-of-use assets, and intangible assets with finite useful lives.
At the end of each fiscal year, the Company reviews the intangible assets estimated useful lives and amortization methods, with the effect of any changes in estimates accounted for on a prospective basis.
11
C21 INVESTMENTS INC.
Notes to the Consolidated Financial Statements
For the years ended March 31, 2026 and 2025
(Expressed in U.S. dollars, except as noted)
3. ACCOUNTING POLICIES (continued)
Long-lived assets are reviewed for indicators of impairment at each statement of balance sheet date or whenever events or changes in circumstances indicate that a potential impairment has occurred. The Company groups assets at the lowest level for which cash flows are separately identifiable, referred to as an asset group. When indicators of potential impairment are present the Company prepares a projected undiscounted cash flow analysis to determine the recoverable amount for the respective asset or asset group. An impairment loss is recognized whenever the carrying amount of the asset exceeds its recoverable amount and is recorded as in profit or loss equal to the amount by which the carrying amount exceeds the fair value.
j) Assets and liabilities held for sale
Non-current assets, or disposal groups comprising assets and liabilities, are classified as held for sale if it is highly probable that they will be recovered primarily through sale rather than through continuing use. Such assets, or disposal groups, are measured at the lower of their carrying amount and fair value less costs to sell. The comparative consolidated balance sheet is re-presented to classify assets as held for sale in the period that the respective assets are classified as held for sale.
k) Convertible instruments
The Company accounts for convertible debt as a single unit of account, unless the conversion feature requires bifurcation and recognition as a derivative. Additionally, the Company uses the if-converted method for all convertible instruments in the diluted earnings per share calculation and includes the effect of potential share settlement for instruments that may be settled in cash or shares.
l) Leases
Upon commencement of a contract containing a lease, the Company classifies leases other than short-term leases as either an operating lease or a finance lease according to the criteria prescribed by ASU 2016-02, Leases ("ASC 842"). The lease classification is reassessed only when: (a) the contract is modified and the modification is not accounted for as a separate contract, and (b) there is a change in the lease term or the assessment of whether the lessee is reasonably certain to exercise an option to purchase the underlying asset. The Company has elected not to recognize right-of-use assets and liabilities for short-term leases that have a term of 12 months or less.
For both finance leases and operating leases, right-of-use assets and lease liabilities are initially measured as the present value of future lease payments and initial direct costs discounted at the interest rate implicit in the lease, or if that rate is not readily determinable, the Company's incremental borrowing rate. Subsequent measurement of lease liabilities classified as finance leases is at amortized cost using the effective interest rate method. Subsequent measurement of right-of-use assets classified as finance leases is at carrying amount less accumulated amortization, where amortization is recorded straight-line over the lease term. Subsequent measurement of lease liabilities classified as operating leases is at the present value of the unpaid lease payments discounted at the discount rate for the lease established at the commencement date. Subsequent measurement of right-of-use assets classified as operating leases is carrying amount less accumulated amortization where amortization is calculated as the difference between straight-line lease cost for the period, including amortization of initial direct costs, and the periodic accretion of the lease liability.
m) Financial instruments
Financial instruments are contracts that give rise to a financial asset of one party and a financial liability or equity instrument of another party. Financial instruments are recorded initially at fair value, which is the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. Subsequent measurement depends on how the financial instrument has been classified and may be at fair value or amortized cost. For financial instruments subsequently measured at fair value, the Company determines the fair value of financial instruments using quoted market prices whenever available. When quoted market prices are not available, the Company uses standard pricing models including the Black-Scholes option pricing model.
Financial instruments measured at fair value are classified into one of three levels in the fair value hierarchy according to the relative reliability of the inputs used to estimate the fair values. The three levels of the fair value hierarchy are:
Level 1 - Unadjusted quoted prices in active markets for identical assets or liabilities;
Level 2 - Inputs other than quoted prices that are observable for the asset or liability either directly (i.e. as prices) or indirectly (i.e. derived from prices); and
Level 3 - Inputs that are not based on observable market data.
12
C21 INVESTMENTS INC.
Notes to the Consolidated Financial Statements
For the years ended March 31, 2026 and 2025
(Expressed in U.S. dollars, except as noted)
3. ACCOUNTING POLICIES (continued)
There have been no transfers between fair value hierarchy levels during the years ended March 31, 2026 and 2025.
The Company's financial instruments that are classified as amortized cost and subsequently measured at amortized cost include cash, receivables, note receivable, accounts payable and accrued liabilities, convertible promissory notes, convertible debentures, and settlement liability. The carrying amounts of cash, receivables, and accounts payable and accrued liabilities approximate their fair values due to their short-term maturities. The Company's note receivable, convertible promissory notes, convertible debentures and settlement liability are measured at amortized cost using the effective interest method. Unless otherwise noted, it is management's opinion that the Company is not exposed to significant interest risks arising from these financial instruments.
Credit risk
Credit risk is the risk of potential loss to the Company if the counterparty to a financial instrument fails to meet its contractual obligations.
The Company has the following financial instruments with potential exposure to credit risk:
|
March 31, 2026 |
March 31, 2025 |
|||||
| $ | $ | |||||
| Cash | ||||||
| Receivables | ||||||
| Note receivable | ||||||
| Total |
The Company mitigates its exposure to credit loss associated with cash by placing its cash in major financial institutions. The counterparties to the trade receivables and note receivable have a strong credit profile, and as such, the Company has assessed the associated credit risk as low.
As at March 31, 2026, the Company's earn out shares constitute a derivative financial liability classified as and measured at fair value through profit or loss. The fair value of earn out shares at March 31, 2026 was $
Liquidity risk
Liquidity risk is the risk that the Company will not be able to meet its financial obligations as they come due. As at March 31, 2026, the Company had a working capital surplus of $
Foreign currency risk
Foreign currency risk is the risk that the fair values of future cash flows of a financial instrument will fluctuate because they are denominated in currencies that differ from the respective functional currency. The Company is not exposed to significant foreign currency risk as its operations and cash flows are all denominated in US$. The Canadian parent has a functional currency of Canadian dollars but does not routinely engage in financing activities in alternate currencies and during the years ended March 31, 2026 and 2025 had no exposure to foreign currency risk.
n) Share-based compensation
The Company measures equity settled share-based payments based on their fair value at their grant date and recognizes share-based compensation expense over the vesting period based on the Company's estimate of equity instruments that will eventually vest. Consideration paid to the Company on the exercise of stock options is recorded as common stock.
13
C21 INVESTMENTS INC.
Notes to the Consolidated Financial Statements
For the years ended March 31, 2026 and 2025
(Expressed in U.S. dollars, except as noted)
3. ACCOUNTING POLICIES (continued)
o) Income taxes
The Company uses the asset and liability method to account for income taxes. Deferred income tax assets and liabilities are determined based on enacted tax rates and laws for the years in which the differences are expected to reverse.
Deferred tax assets are reduced by a valuation allowance when, in the opinion of management, it is more likely than not that some portion or all of the deferred tax assets will not be realized.
The Company recognizes uncertain income tax positions at the largest amount that is more-likely-than-not to be sustained upon examination by the relevant taxing authority. An uncertain income tax position will not be recognized if it has less than a 50% likelihood of being sustained. Recognition or measurement is reflected in the period in which the likelihood changes. Any interest and penalties related to unrecognized tax liabilities are presented within income tax expense in the consolidated statements of loss and comprehensive loss.
p) Loss per share
The Company presents basic and diluted loss per share data for its common shares. Basic loss per share is calculated using the weighted average number of shares outstanding during the respective years. Diluted loss per share is computed by dividing net loss by the weighted average shares outstanding adjusted for additional shares from the assumed exercise of stock options, restricted share units, or warrants, if dilutive.
The number of additional shares is calculated by assuming the outstanding dilutive convertible instruments, options, and warrants are exercised and that the assumed proceeds are used to acquire common shares at the average market price during the year. Diluted loss per share figures for the years presented are equal to those of basic loss per share for the years since the effects of convertible instruments, stock options and warrants are anti-dilutive.
q) Revenue recognition
Revenue is recognized by the Company in accordance with ASC 606 - Revenue From Contracts With Customers ("ASC 606"). Through application of the standard, the Company recognizes revenue to depict the transfer of promised goods or services to the customer in an amount that reflects the consideration to which the Company expects to be entitled in exchange for those goods or services.
In order to recognize revenue under ASC 606, the Company applies the following five steps:
1. Identify a customer along with a corresponding contract
2. Identify the performance obligation(s) in the contract to transfer goods or provide distinct services to a customer
3. Determine the transaction price that the Company expects to be entitled to in exchange for transferring promised goods or services to a customer
4. Allocate the transaction price to the performance obligation(s) in the contract
5. Recognize revenue when or as the Company satisfies the performance obligation(s) in the contract
The Company's contracts with customers for the sale of dried cannabis and other products derived from cannabis consist of one performance obligation, being the transfer of control of the goods to the customer at the point of sale. The Company transfers control and satisfies its performance obligation when collection has taken place, compliant documentation has been signed, and the product was accepted by the buyer. The Company does not have performance obligations subsequent to delivery on the sale of goods to customers and revenues from sale of goods are recognized at a "point in time", which is upon passing of control to the customer.
Provisions for expected credit losses on accounts receivable are based on the Company's assessment of the collectability of specific customer balances, which is based upon a review of the customer's creditworthiness and past collection history. For trade receivables deemed to be uncollectible, and arose from the sale of goods, the Company will write off the specific balance against the allowance for doubtful accounts when it is known that a provided amount will not be collected.
The Company disaggregates its revenues based on sales to its retail customers where cash is received immediately versus wholesale customers to whom the Company extends credit terms. For the year ended March 31, 2026, revenue from retail sales from continuing operations totaled $
14
C21 INVESTMENTS INC.
Notes to the Consolidated Financial Statements
For the years ended March 31, 2026 and 2025
(Expressed in U.S. dollars, except as noted)
3. ACCOUNTING POLICIES (continued)
r) Loyalty program
The Company offers a loyalty reward program to its dispensary customers that allows customers to earn reward credits that can be applied to future purchases. Loyalty reward credits issued as part of a sales transaction result in revenue being deferred until the loyalty reward is redeemed by the customer. The loyalty rewards are shown as reductions to the 'Revenue' line within the accompanying consolidated statements of loss and comprehensive loss and included as deferred revenue on the consolidated balance sheets. A portion of the revenue generated in a sale must be allocated to the loyalty points earned. The amount allocated to the points earned is deferred until the loyalty points are redeemed or expire. The loyalty program expiration policy is six months. As at March 31, 2026 and 2025, the loyalty liability totaled $
4. ACQUISITION
On June 7, 2024, the Company completed the acquisition of a
The acquisition of the new dispensary is accounted for as an asset acquisition due to the absence of identifiable processes and the inability of the acquired assets alone to operate as a business. The allocation of the purchase price to the acquired assets is as follows:
| $ | |||
| Total consideration transferred | |||
| Assets acquired: | |||
| Property and equipment | |||
| Licenses | |||
Acquired property and equipment consisted of fixtures and leasehold improvements and have an assessed useful life of
5. DISCONTINUED OPERATIONS
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 comprised the assets of multiple components in distinct geographic locations, management completed the sale on a piecemeal basis. By March 31, 2024, the Company's remaining assets and liabilities held for sale consisted of a building and associated mortgage. The mortgage carried a fixed interest rate of
15
C21 INVESTMENTS INC.
Notes to the Consolidated Financial Statements
For the years ended March 31, 2026 and 2025
(Expressed in U.S. dollars, except as noted)
5. DISCONTINUED OPERATIONS (continued)
On March 28, 2025, the Company completed the sale of the building for total consideration of $
A summary of major classes of assets and liabilities of the discontinued Oregon operation that are classified as held for sale in the consolidated balance sheets is as follows:
|
March 31, 2026 |
March 31, 2025 |
|||||
| $ | $ | |||||
| Carrying amounts of the major classes of assets included in discontinued operations: | ||||||
| Prepaid expenses and deposits | ||||||
| Total assets classified as held for sale |
A summary of the Company's net loss from discontinued operations is as follows:
| Year ended March 31, | ||||||
| 2026 | 2025 | |||||
| $ | $ | |||||
| Expenses | ||||||
| Selling, general and administrative expenses | ||||||
| Other expenses | ( |
) | ||||
| Net loss from discontinued operations before income tax expense | ( |
) | ( |
) | ||
| Income tax expense | ||||||
| Net loss from discontinued operations after income tax expense | ( |
) | ( |
) | ||
A summary of the Company's cash flows from discontinued operations is as follows:
| Year ended March 31, | ||||||
| 2026 | 2025 | |||||
| $ | $ | |||||
| Net cash used in operating activities of discontinued operations | ( |
) | ( |
) | ||
| Net cash provided by investing activities of discontinued operations | ||||||
| Net cash used in financing activities of discontinued operations | ( |
) | ||||
6. RECEIVABLES
A summary of the Company's receivables is as follows:
|
March 31, 2026 |
March 31, 2025 |
|||||
| $ | $ | |||||
| Taxes receivable | ||||||
| Trade receivables | ||||||
There was
16
C21 INVESTMENTS INC.
Notes to the Consolidated Financial Statements
For the years ended March 31, 2026 and 2025
(Expressed in U.S. dollars, except as noted)
7. INVENTORY
A summary of the Company's inventory is as follows:
|
March 31, 2026 |
March 31, 2025 |
|||||
| $ | $ | |||||
| Finished goods | ||||||
| Work in process | ||||||
| Raw materials | ||||||
8. NOTE RECEIVABLE
The Company has a note receivable that was issued in connection with the sale of a building on March 28, 2025. The note receivable has a principal balance of $
The Company evaluates the collectability of the note receivable based on the borrower's financial condition and compliance with the note terms. As at March 31, 2026, there are no indicators that the borrower's financial condition raises doubt regarding the collectability of the note receivable and the borrower is in compliance with the note terms.
A summary of the Company's note receivable is as follows:
| $ | |||
| Balance, March 31, 2025 | |||
| Interest income | |||
| Accretion income | |||
| Interest payments received | ( |
) | |
| Balance, March 31, 2026 |
During the year ended March 31, 2026, the Company earned interest income of $
9. PROPERTY AND EQUIPMENT AND RIGHT-OF-USE ASSETS
a) Property and equipment
A summary of the Company's property and equipment is as follows:
|
March 31, 2026 |
March 31, 2025 |
|||||
| $ | $ | |||||
| Leasehold improvements | ||||||
| Furniture and fixtures | ||||||
| Computer equipment | ||||||
| Machinery and equipment | ||||||
| Less: Accumulated depreciation | ( |
) | ( |
) | ||
In June 2024, as part of the acquisition of the new dispensary store (Note 4), the Company acquired furniture and fixtures as well as leasehold improvements with a fair value of $
Total depreciation of property and equipment for the years ended March 31, 2026 was $
17
C21 INVESTMENTS INC.
Notes to the Consolidated Financial Statements
For the years ended March 31, 2026 and 2025
(Expressed in U.S. dollars, except as noted)
9. PROPERTY AND EQUIPMENT AND RIGHT-OF-USE ASSETS (continued)
During the year ended March 31, 2026, the Company did not record any gain or loss on the disposal of property and equipment. For the year ended March 31, 2025, the Company recognized a loss on disposal of property and equipment of $
b) Right-of-use assets
The Company's right-of-use assets result from its operating leases and consist of land and buildings used in the cultivation, processing, and warehousing of its products. During the year ended March 31, 2025, the Company recognized additional right-of-use assets of $
10. INTANGIBLE ASSETS AND GOODWILL
a) Intangible assets
A summary of the Company's intangible assets subject to amortization is as follows:
|
March 31, 2026 |
March 31, 2025 |
|||||
| $ | $ | |||||
| Licenses | ||||||
| Brands | ||||||
| Customer relationships | ||||||
| Less: Accumulated amortization | ( |
) | ( |
) | ||
During the year ended March 31, 2026, the Company disposed of a license with a cost of $
During the year ended March 31, 2026, the Company recognized amortization expense on intangible assets of $
b) Goodwill
As at March 31, 2026, the Company had goodwill of $
11. ACCOUNTS PAYABLE AND ACCRUED LIABILITIES
A summary of the Company's accounts payable and accrued liabilities is as follows:
|
March 31, 2026 |
March 31, 2025 |
|||||
| $ | $ | |||||
| Accounts payable | ||||||
| Accrued liabilities | ||||||
| EFF settlement accrual (Note 20) | ||||||
18
C21 INVESTMENTS INC.
Notes to the Consolidated Financial Statements
For the years ended March 31, 2026 and 2025
(Expressed in U.S. dollars, except as noted)
12. CONVERTIBLE DEBENTURES
On May 6, 2024, the Company closed a non-brokered private placement, issuing
The proceeds from the private placement were allocated to convertible debentures and warrants using the relative fair value method. Accordingly, $
A summary of the Company's convertible debentures is as follows:
| $ | |||
| Balance, March 31, 2024 | |||
| Additions from private placements, net of transaction costs | |||
| Accretion expense | |||
| Interest expense | |||
| Repayment | ( |
) | |
| Effect of foreign exchange | ( |
) | |
| Balance, March 31, 2025 | |||
| Accretion expense | |||
| Interest expense | |||
| Repayment | ( |
) | |
| Conversion to common shares | ( |
) | |
| Effect of foreign exchange | |||
| Balance, March 31, 2026 |
During the year ended March 31, 2026, the Company incurred interest expense of $
13. LEASE LIABILITIES
The Company has four active leases comprised of land and buildings used in cultivation, processing, warehousing, and dispensary of its products. All leases were classified as operating leases in accordance with ASC 842.
A summary of the Company's weighted average discount rate used in calculating lease liabilities and weighted average remaining lease term is as follows:
|
March 31, 2026 |
March 31, 2025 |
|||||
| Weighted average discount rate | ||||||
| Weighted average remaining lease term (years) |
On June 11, 2024, the Company entered into a lease agreement for the new dispensary store in South Reno, Nevada. The lease commenced on July 1, 2024, and will expire on June 30, 2034. Monthly payments are required at the beginning of each calendar month, with the first payment of $
For the year ended March 31, 2026, the Company incurred operating lease costs of $
19
C21 INVESTMENTS INC.
Notes to the Consolidated Financial Statements
For the years ended March 31, 2026 and 2025
(Expressed in U.S. dollars, except as noted)
13. LEASE LIABILITIES (continued)
A summary of the maturity of contractual undiscounted liabilities associated with the Company's operating leases as at March 31, 2026 is as follows:
| Year ending March 31, | $ | ||
| 2027 | |||
| 2028 | |||
| 2029 | |||
| 2030 | |||
| Thereafter | |||
| Total undiscounted lease liabilities | |||
| Effects of discounting | ( |
) | |
| Total present value of minimum lease payments | |||
| Current portion of lease liability | |||
| Lease liabilities |
14. SHARE CAPITAL
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
b) Repurchase and cancellation of shares
During the year ended March 31, 2026, the Company repurchased and cancelled
c) Warrants
A summary of the Company's warrant activity is as follows:
|
Number of warrants |
Weighted average exercise price |
|||||
| # | C$ | |||||
| Balance, March 31, 2024 | ||||||
| Issuance from private placement | ||||||
| Expired | ( |
) | ||||
| Balance, March 31, 2026 and March 31, 2025 |
On May 6, 2024, the Company closed its debenture unit private placement (Note 12) and issued
20
C21 INVESTMENTS INC.
Notes to the Consolidated Financial Statements
For the years ended March 31, 2026 and 2025
(Expressed in U.S. dollars, except as noted)
14. SHARE CAPITAL (continued)
A summary of the Company's outstanding and exercisable warrants as at March 31, 2026 is as follows:
| Expiry date | Exercise price |
Number of warrants outstanding |
Weighted average remaining life |
||||||
| C$ | # | Years | |||||||
| November 6, 2026 |
As at March 31, 2026 and March 31, 2025, outstanding and exercisable warrants had intrinsic values of $
d) 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
A summary of the Company's stock option activity is as follows:
|
Number of options |
Weighted average exercise price |
|||||
| # | C$ | |||||
| Balance, March 31, 2024 | ||||||
| Granted | ||||||
| Expired | ( |
) | ||||
| Balance, March 31, 2025 | ||||||
| Forfeited | ( |
) | ||||
| Balance, March 31, 2026 |
On May 13, 2024, the Company granted
A summary of the Company's stock options outstanding and exercisable as at March 31, 2026, is as follows:
| Expiry date | Exercise price |
Number of options outstanding |
Number of options exercisable |
Weighted average remaining life |
||||||||
| C$ | # | # | Years | |||||||||
| May 13, 2027 |
As at March 31, 2026 and March 31, 2025, outstanding and exercisable stock options had intrinsic values of $
During the year ended March 31, 2026, the Company recorded share-based compensation expense on vesting of stock options of $
21
C21 INVESTMENTS INC.
Notes to the Consolidated Financial Statements
For the years ended March 31, 2026 and 2025
(Expressed in U.S. dollars, except as noted)
14. SHARE CAPITAL (continued)
The Company used the following inputs in the Black-Scholes option pricing model to determine the fair value of options granted during the year ended March 31, 2025:
| Stock price | C$ |
||
| Exercise price | C$ |
||
| Risk-free interest rate | |||
| Expected life | |||
| Expected volatility | |||
| Expected annual dividend yield |
For non-employee options, the expected term is the contractual life, while for employees and directors, it is the estimated period the options are expected to be outstanding, using the 'simplified' method for 'plain vanilla' employee options. Expected volatility is based on historical volatilities of similarly positioned public companies over a period equivalent to the expected life of the options. The risk-free interest rate is derived from the Treasury zero-coupon bond yields with a term matching the expected life of the options.
15. SELLING, GENERAL AND ADMINISTRATIVE EXPENSES
A summary of the Company's selling, general and administration expenses is as follows:
| Year ended March 31, | ||||||
| 2026 | 2025 | |||||
| $ | $ | |||||
| Accounting and legal | ||||||
| Depreciation and amortization | ||||||
| License fees, taxes, and insurance | ||||||
| Office facilities and administrative | ||||||
| Operating lease costs | ||||||
| Other expenses | ||||||
| Professional fees and consulting | ||||||
| Salaries and wages | ||||||
| Sales, marketing, and promotion | ||||||
| Share-based compensation | ||||||
| Shareholder communications | ||||||
| Travel and entertainment expense | ||||||
16. SEGMENTED INFORMATION
The Company defines its major geographic operating segments as Oregon and Nevada. Due to the ever-present jurisdictional cannabis compliance issues in the industry, each state operation is by nature operationally segmented.
The CODM is the Company's CEO, Sonny Newman. The CODM's review consists of revenue, cost of sales, and gross profit as the primary measures of segment performance. The CODM reviews key categories of operating expenses including general and administration expenses, sales, marketing, and promotion expenses, and operating lease costs. The Corporate segment does not conduct income generating activities and its results are reviewed for cost management. 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.
22
C21 INVESTMENTS INC.
Notes to the Consolidated Financial Statements
For the years ended March 31, 2026 and 2025
(Expressed in U.S. dollars, except as noted)
16. SEGMENTED INFORMATION (continued)
A summary of the Company's segmented operational activity and balances from continuing operations for the year ended March 31, 2026 is as follows:
| Nevada | Corporate | Total | |||||||
| $ | $ | $ | |||||||
| Total revenue | |||||||||
| Gross profit | |||||||||
| Operating expenses: | |||||||||
| General and administration | ( |
) | ( |
) | ( |
) | |||
| Sales, marketing, and promotion | ( |
) | ( |
) | |||||
| Operating lease cost | ( |
) | ( |
) | |||||
| Depreciation and amortization | ( |
) | ( |
) | ( |
) | |||
| Share-based compensation | ( |
) | ( |
) | |||||
| Interest expense and other income (loss) | ( |
) | ( |
) | |||||
| Net income (loss) from continuing operations before income tax expense | ( |
) |
Segmented information pertaining to discontinued operations (Oregon) is contained within Note 5.
A summary of the Company's segmented operational activity and balances from continuing operations for the year ended March 31, 2025 is as follows:
| Nevada | Corporate | Total | |||||||
| $ | $ | $ | |||||||
| Total revenue | |||||||||
| Gross profit | |||||||||
| Operating expenses: | |||||||||
| General and administration | ( |
) | ( |
) | ( |
) | |||
| Sales, marketing, and promotion | ( |
) | ( |
) | |||||
| Operating lease cost | ( |
) | ( |
) | |||||
| Depreciation and amortization | ( |
) | ( |
) | ( |
) | |||
| Share-based compensation | ( |
) | ( |
) | |||||
| Interest expense and others | ( |
) | ( |
) | ( |
) | |||
| Net income (loss) from continuing operations before income tax expense | ( |
) |
Entity-wide disclosures
All revenue for the years ended March 31, 2026 and 2025 was earned in the United States. For the years ended March 31, 2026 and 2025, no customer represented more than 10% of the Company's net revenue. As at March 31, 2026 and March 31, 2025, no customer represented more than 10% of the Company's receivables.
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. A summary of the Company's future minimum payments as at March 31, 2026 is as follows:
| Year ending March 31, |
Third parties |
Related parties |
Total | ||||||
| $ | $ | $ | |||||||
| 2027 | |||||||||
| 2028 | |||||||||
| 2029 | |||||||||
| 2030 | |||||||||
| Thereafter | |||||||||
23
C21 INVESTMENTS INC.
Notes to the Consolidated Financial Statements
For the years ended March 31, 2026 and 2025
(Expressed in U.S. dollars, except as noted)
18. RELATED PARTY TRANSACTIONS
A summary of the Company's related balances included in accounts payable and accrued liabilities, and lease liabilities is as follows:
|
March 31, 2026 |
March 31, 2025 |
|||||
| $ | $ | |||||
| Lease liabilities due to a company controlled by the Chief Executive Officer ("CEO") | ||||||
| Due to the Chief Financial Officer ("CFO") | ||||||
Due to the CFO consists of reimbursable expenses incurred in the normal course of business.
A summary of the Company's transactions with related parties including key management personnel is as follows:
| Year ended March 31, | ||||||
| 2026 | 2025 | |||||
| $ | $ | |||||
| Consulting fees paid to a director | ||||||
| Amounts paid to CEO or companies controlled by CEO for leases | ||||||
| Amounts paid to CEO or companies controlled by CEO for remuneration | ||||||
| Salary paid to directors and officers | ||||||
| Share-based compensation | ||||||
19. EARNINGS PER SHARE
A summary of the Company's calculation of basic and diluted earnings per share is as follows:
| Year ended March 31, | ||||||
| 2026 | 2025 | |||||
| $ | $ | |||||
| Net loss from continuing operations after income taxes | ( |
) | ( |
) | ||
| Net loss from discontinued operations after income taxes | ( |
) | ( |
) | ||
| Net loss | ( |
) | ( |
) | ||
| Weighted average number of common shares outstanding | ||||||
| Dilutive effect of commitment to issue shares | ||||||
| Diluted weighted average number of common shares outstanding | ||||||
| Basic and diluted loss per share, continuing operations | ( |
) | ( |
) | ||
| Basic and diluted loss per share, discontinued operations | ( |
) | ( |
) | ||
| Basic and diluted loss per share | ( |
) | ( |
) | ||
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 years ended March 31, 2026 and 2025, the number of warrants excluded from the computation was
24
C21 INVESTMENTS INC.
Notes to the Consolidated Financial Statements
For the years ended March 31, 2026 and 2025
(Expressed in U.S. dollars, except as noted)
20. SETTLEMENT OF LEGAL PROCEEDINGS
On September 4, 2025, the Company entered into a settlement agreement (the "EFF Settlement Agreement") with respect to certain actions filed in the Oregon State Circuit Court for Clackamas County and the Oregon Court of Appeals by two owners (each, a "Vendor") of Proudest Monkey Holdings, LLC ("Proudest Monkey"), an entity that was previously the sole owner of EFF (the "Oregon Actions") and an action filed in the Supreme Court of British Columbia by Proudest Monkey and one of its owners (the "BC Action", and together with the Oregon Actions, the "Litigation"). The Company acquired all the membership units of EFF from Proudest Monkey pursuant to a purchase and sale agreement dated January 19, 2018 (the "EFF Agreement").
Pursuant to the Oregon Actions, two Vendors made claims related to contract, employment and statutory damages against the Company, its wholly-owned subsidiaries 320204 US Holdings Corp, EFF, Swell Companies Limited, and Phantom Brands LLC,
and three directors, two officers, and one former employee of the Company. The Company alleged breach and default under the EFF Agreement in connection with certain conduct by the Vendors which occurred prior to and after the completion of the acquisition of EFF. As a result, the Company withheld issuing certain equity consideration payable to the Vendors pursuant to the terms of the EFF Agreement, as a result of which Proudest Monkey and one of the Vendors launched the BC Action, to which the Company filed counterclaims.
In addition to such other terms and conditions as agreed to among the parties, pursuant to the EFF Settlement Agreement, the parties to the Litigation agreed to (a) fully and finally settle all claims between them, have each action dismissed with respect to all remaining claims on a with prejudice basis and to mutually release each other from all claims asserted in the BC Action and Oregon Actions, (b) the Company agreed to pay to the plaintiffs under the Litigation (the "Plaintiffs") the total cash sum of $
The Settlement resulted in the cash liability in respect of the payment of the Settlement Amount being offset by the extinguishment of convertible promissory notes (which had an outstanding balance of $
During the year ended March 31, 2026, the Company made payments toward the Settlement Amount totaling $
21. INCOME TAXES
The Company is a Canadian resident company, as defined in the Income Tax Act (Canada) (the "ITA"), for Canadian income tax purposes. However, it has subsidiaries that are treated as United States corporations for US federal income tax purposes per the Internal Revenue Code (US) ("IRC") and are thereby subject to federal income tax on their worldwide income. As a result, the Company is subject to taxation both in Canada and the United States.
A summary of the Company's domestic and foreign components of income (loss) before income taxes for continuing operations were as follows:
| Year ended March 31, | ||||||
| 2026 | 2025 | |||||
| $ | $ | |||||
| Canadian | ( |
) | ( |
) | ||
| United States | ||||||
| Income before income taxes | ||||||
Section 280E of the Internal Revenue Code ("IRC") prohibits taxpayers engaged in the trafficking of Schedule I or Schedule II controlled substances from deducting ordinary and necessary business expenses (excluding cost of goods sold) from gross income. While Section 280E was originally enacted to address criminal market participants, its application has been extended by the Internal Revenue Service ("IRS") to include state-legal cannabis businesses, as cannabis remains classified as a Schedule I controlled substance under federal law. As a result, cannabis businesses operating in states that conform to the IRC are similarly disallowed from deducting ordinary business expenses for state tax purposes.
21. INCOME TAXES (continued)
Management asserts, based on a legal opinion, that Section 280E should not apply to the Company's operations. This constitutes an uncertain tax position. In accordance with ASC 740, this position does not meet the "more likely than not" recognition threshold, but management believes it is supported by a reasonable basis standard.
The differences between income taxes expected at the statutory income tax rates and the reported income tax (benefit) expense for continuing operations as presented under ASU 2023-09 are summarized below:
| Amount | Percentage | |||||
| $ | % | |||||
| Canada Income tax expense (recovery) at statutory rate | ||||||
| Non-deductible expenditures and non-taxable revenues - USA | ||||||
| IRC section 280E disallowance | ||||||
| Foreign – USA | ||||||
| Change in foreign exchange rates, and others | ( |
) | ( |
) | ||
| Non-deductible expenditures and non-taxable revenues | ||||||
| Uncertain tax position, inclusive of interest and penalties | ||||||
| Change in valuation allowance | ( |
) | ( |
) | ||
| Payable adjustment to provision | ||||||
| State tax(1) | ( |
) | ( |
) | ||
| Change in valuation allowance | ||||||
| Deferred adjustment to provision versus statutory tax returns | ||||||
|
Total income tax expense for continuing operations |
(1) The Company has state footprints in Oregon and Nevada.
A summary of the Company's reconciliation of the statutory income tax rate percentage to the effective tax is as follows prior to the adoption of ASU 2023-09 is as follows:
| Year ended March 31, | ||||||
| 2026 | 2025 | |||||
| $ | $ | |||||
| Net income from continuing operations before income tax expense | ||||||
| Statutory rate | ||||||
| Income tax expense (recovery) at statutory rate | ( |
) | ||||
| IRC section 280E disallowance | ||||||
| Foreign tax rate differential | ( |
) | ||||
| Change in foreign exchange rates and other | ||||||
| Uncertain tax position, inclusive of interest and penalties | ||||||
| Change in valuation allowance | ||||||
| Payable adjustment to provision versus statutory tax returns | ( |
) | ||||
| Deferred adjustment to provision versus statutory tax returns | ( |
) | ||||
| Total income tax expense for continuing operations | ||||||
A summary of the Company's components of the income tax expense for continuing operations is as follows:
| Year ended March 31, | ||||||
| 2026 | 2025 | |||||
| $ | $ | |||||
| Current | ||||||
| Canadian | ||||||
| US Federal and State | ||||||
| Total current income tax expense | ||||||
| Deferred | ||||||
| Canadian | ||||||
| US Federal and State | ( |
) | ||||
| Total deferred income tax expense (recovery) | ( |
) | ||||
|
Total income tax expense for continuing operations |
||||||
25
C21 INVESTMENTS INC.
Notes to the Consolidated Financial Statements
For the years ended March 31, 2026 and 2025
(Expressed in U.S. dollars, except as noted)
21. INCOME TAXES (continued)
The tax effects of temporary differences that give rise to significant portions of the deferred tax assets and liabilities were as follows:
| Year ended March 31, | ||||||
| 2026 | 2025 | |||||
| $ | $ | |||||
| Deferred tax assets | ||||||
| Share issuance costs and financing fees | ||||||
| Allowable capital losses | ||||||
| Non-capital losses | ||||||
| Intangible assets | ||||||
| Goodwill | ||||||
| Lease liabilities | ||||||
| Derivative liability | ||||||
| Property and equipment | ||||||
| ARO and other | ||||||
| Total deferred tax assets | ||||||
| Valuation allowance | ( |
) | ( |
) | ||
| Total net deferred tax assets | ||||||
| Deferred tax liabilities | ||||||
| Right-of-use assets | ( |
) | ( |
) | ||
| Total deferred tax liabilities | ( |
) | ( |
) | ||
| Net deferred tax asset (liability) | ( |
) | ||||
There are no deferred tax assets and liabilities included in the carrying amount of the disposal group classified as held for sale as of March 31, 2026. Amounts classified as part of the disposal group have been reclassified to continuing operations under ASC 360-10-20.
As the Company operates in the cannabis industry, the Company is subject to the limits of Internal Revenue Code ("IRC") Section 280E for US federal income tax purposes as well as state income tax purposes. Under IRC Section 280E, the Company is only allowed to deduct expenses directly related to costs of goods sold. This results in permanent differences between ordinary and necessary business expenses deemed non-allowable under IRC Section 280E. However, based on a legal opinion, management has concluded that Section 280E should not apply to the Company's operations. This represents an uncertain tax position that, while supported by a reasonable basis, does not meet the "more likely than not" threshold for recognition under ASC 740.
Management regularly assesses the ability to realize deferred tax assets recorded based upon the weight of available evidence, including such factors as recent earnings history and expected future taxable income on a jurisdiction-by-jurisdiction basis. In the event that the Company changes its determination as to the amount of realizable deferred tax assets, the Company will adjust its valuation allowance with a corresponding impact to the provision for income taxes in the period in which such determination is made. The Company's management believes that, based on a number of factors, it is more likely than not, that all or some portion of the deferred tax assets will not be realized; and accordingly, for the fiscal year ended March 31, 2025, the Company has provided a valuation allowance against the Company's Canadian net deferred tax assets. The net change in the valuation allowance for the year ended March 31, 2026 was an increase of $
As of March 31, 2026, the Company had net operating loss ("NOL") carryforwards for Canada and U.S. state income tax purposes of approximately $
As of March 31, 2026, the Company had Canadian capital losses of approximately $
21. INCOME TAXES (continued)
The Internal Revenue Code of 1986, as amended, imposes restrictions on the utilization of net operating losses in the event of an "ownership change" of a corporation. Accordingly, a company's ability to use net operating losses may be limited as prescribed under Internal Revenue Code Section 382 ("IRC Section 382"). Events which may cause limitations in the amount of the net operating losses that the Company may use in any one year include, but are not limited to, a cumulative ownership change of more than 50% over a three-year period. Utilization of the federal and state net operating losses may be subject to substantial annual limitation due to the ownership change limitations provided by the IRC Section 382 and similar state provisions. The Company may, in the future, experience one or more additional Section 382 "ownership changes." If so, the Company may not be able to utilize some of its carryforwards or other tax attributes, even if the Company achieves profitability in the jurisdiction of the carryforwards or other tax attributes. The Company has not completed a study to assess whether a change of ownership has occurred, or whether there have been multiple ownership changes since its formation, due to the significant cost and complexity associated with such a study. Any limitation may result in expiration of a portion of the NOL carryforwards before utilization. Further, until a study is completed by the Company and any limitation is known, no amounts are being presented as an uncertain tax position.
The uncertain tax position arises from management's position that Section 280E does not apply to the Company. As a result, the Company has claimed deductions-including those for selling, general and administrative expenses-that would otherwise be disallowed under Section 280E.
As of March 31, 2026, the total amount of gross unrecognized tax benefits was $
The Company estimates that approximately $
During the year ended March 31, 2026, the Company recorded interest of $
The aggregate change in the balance of gross unrecognized tax (benefits) liabilities, excluding penalties and interest, is as follows:
|
March 31, 2026 |
March 31, 2025 |
|||||
| $ | $ | |||||
| Beginning balance | ( |
) | ||||
| Increase due to tax positions taken during current year | ||||||
| Decrease in balance as a result of lapse of the applicable statute of limitations | ||||||
| Increase in balance due to tax positions taken during prior years | ||||||
| Decrease in balance due to tax positions taken during prior years | ||||||
| Ending balance |
On July 4, 2025, the One Big Beautiful Bill Act ("OBBBA") was enacted, introducing changes to various provisions of the Internal Revenue Code, including the treatment of research and experimentation expenditures under Section 174. The Company evaluated the impact of the OBBBA in accordance with ASC 740, including applicable effective dates. Based on this assessment, management determined the impact of the OBBBA is not material to the Company's consolidated financial statements, and no material adjustments were recorded.
The following table presents a summary of income taxes paid in cash during the years ended March 31, 2026 and March 31, 2025:
| March 31, 2026 |
March 31, 2025 |
|||||
| $ | $ | |||||
| Federal | ||||||
| Oregon | ||||||
| Canada | ||||||
| Total |
26
C21 INVESTMENTS INC.
Notes to the Consolidated Financial Statements
For the years ended March 31, 2026 and 2025
(Expressed in U.S. dollars, except as noted)
22. FINANCIAL INSTRUMENTS
A summary of the Company's financial instruments classified as fair value through profit or loss and their classification in the fair value hierarchy is as follows:
| Fair value measurements at March 31, 2026 using: | Level 1 | Level 2 | Level 3 | Total | ||||||||
| $ | $ | $ | $ | |||||||||
| Financial liabilities: | ||||||||||||
| Earn out shares |
| Fair value measurements at March 31, 2025 using: | Level 1 | Level 2 | Level 3 | Total | ||||||||
| $ | $ | $ | $ | |||||||||
| Financial liabilities: | ||||||||||||
| Earn out shares |
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 EVENTS
On April 1, 2026, the Company granted
On April 1, 2026, the Company granted
On May 1, 2026, one-third of the RSUs granted on April 1, 2026 vested, resulting in the issuance of
On May 27, 2026, pursuant to the terms of the EFF Agreement (Note 20), the Company issued an aggregate of
29
Item 19. Exhibits
75
SIGNATURES
The Registrant hereby certifies that it meets all of the requirements for filing on Form 20-F and has duly caused and authorized the undersigned to sight this Annual Report on its behalf.
| C21 Investments Inc. | ||
| By: | /s/ Sonny Newman | |
| Name: | Sonny Newman | |
| Title: | President and Chief Executive Officer | |
Date: June 10, 2026
76
C21 INVESTMENTS INC.
EQUITY INCENTIVE PLAN
(10% Rolling Security Based Compensation Plan)
EFFECTIVE DATE: March 17, 2026
TABLE OF CONTENTS
| SCHEDULE "A" FORM OF STOCK OPTION AGREEMENT | A-1 |
| SCHEDULE "B" FORM OF AWARD AGREEMENT FOR RSUs, PSUs AND DSUs | B-1 |
5
C21 INVESTMENTS INC.
(the "Corporation")
EQUITY INCENTIVE PLAN
PART 1
PURPOSE
1.1 Establishment of the Plan
The Corporation hereby establishes this Plan to govern the grant, administration and exercise of Security Based Compensation which may be granted to eligible Participants. The maximum number of Shares issuable under this Plan shall not exceed 10% of the number of Issued Shares of the Corporation outstanding as of the date of each grant hereunder, inclusive of all Shares then reserved for issuance pursuant to previously granted stock options or security based compensation plans.
1.2 Principal Purposes
The principal purposes of this Plan are to provide the Corporation with the advantages of the incentive inherent in stock ownership on the part of Directors, Officers, Employees and Consultants responsible for the continued success of the Corporation; to create in such individuals a proprietary interest in, and a greater concern for, the welfare and success of the Corporation; to encourage such individuals to remain with the Corporation; and to attract new Directors, Officers, Employees and Consultants to the Corporation.
1.3 Available Awards
Awards that may be granted under this Plan include Stock Options; Deferred Share Units; Restricted Share Units; Performance Share Units; and Bonus Shares.
PART 2
INTERPRETATION
2.1 Definitions
"Affiliate" has the meaning set forth in the BCBCA.
"Applicable Laws" means all legal requirements relating to the administration of equity compensation plans, if any, under applicable corporate laws, any applicable provincial securities laws and the rules and regulations promulgated thereunder, the requirements of the Exchange, and the laws of any foreign jurisdiction applicable to securities granted to residents therein.
"Associate" means, where used to indicate a relationship with any Person,
(a) any relative, including the spouse, son or daughter, of that Person or a relative of that Person's spouse,
if the relative has the same address as that Person,
(b) any partner, other than a limited partner, of that Person,
(c) any trust or estate in which such Person has a substantial beneficial interest or as to which such Person serves as trustee or in a similar capacity, or
(d) any corporation of which such Person beneficially owns, directly or indirectly, voting securities carrying more than ten percent of the voting rights attached to all outstanding voting securities of the corporation.
"Award" means any right granted under this Plan, including Stock Options, DSUs, RSUs, PSUs and Bonus Shares.
6
"Award Agreement" means, as the case may be, a Stock Option Agreement, DSU Agreement, RSU Agreement or PSU Agreement.
"business day" means any day, other than a Saturday, Sunday or any statutory holiday in the City of Vancouver in the
Province of British Columbia.
"BCBCA" means the Business Corporations Act (British Columbia).
"Blackout Period" means a period in which the trading of Shares or other securities of the Corporation is restricted pursuant to its internal trading policies, which has been formally imposed by the Corporation as a result of the bona fide existence of undisclosed material information; and which expires following the general disclosure of the undisclosed material information (provided that, for clarity, the automatic extension of a Participant's Awards will not be permitted where the Participant or the Corporation is subject to a cease trade order (or similar order under Applicable Laws) in respect of the Corporation's securities).
"Board" means the board of directors of the Corporation or a committee of the Board to which a responsibility or power has been delegated pursuant to Section 11.1(b)(iv) hereto.
"Bonus Share" means a Share granted under Part 7.
"California Award" means an Award granted to a California Participant;
"California Option" means a Stock Option granted to a California Participant:
"California Participant" means a Participant that is resident in the State of California, United States;
"Change of Control" means the occurrence of any one or more of the following events (unless the Board determines otherwise):
(a) the direct or indirect acquisition or conversion from time to time of more than 50% of the issued and outstanding Voting Securities, in aggregate, by a Person or group of Persons acting in concert, other than: (i) through the exercise or settlement of any equity compensation securities granted by the Corporation under any equity incentive plan, employee share purchase plan or employee share ownership plan of the Company; or (ii) as a result of the conversion of any multiple voting shares in the capital of the Corporation into Shares;
(b) a change in the composition of the Board which results in the majority of the directors of the Corporation not being individuals nominated by the Corporation's then incumbent directors;
(c) there is consummated an arrangement, amalgamation, merger, consolidation or similar transaction involving (directly or indirectly) the Corporation and, immediately after the consummation of such arrangement, amalgamation, merger, consolidation or similar transaction, the shareholders of the Corporation immediately prior thereto do not beneficially own, directly or indirectly, either: (i) outstanding voting securities representing more than 50% of the combined outstanding voting power of the surviving or resulting entity in such amalgamation, merger, consolidation or similar transaction; or (ii) more than 50% of the combined outstanding voting power of the parent of the surviving or resulting entity in such arrangement, amalgamation merger, consolidation or similar transaction, in each case in substantially the same proportions as their beneficial ownership of the outstanding Voting Securities of the Corporation immediately prior to such transaction; or
(d) the sale, lease, exchange, license or other disposition of all or substantially all of the Corporation's assets to a Person other than a Person that was an Affiliate of the Corporation at the time of such sale, lease, exchange, license or other disposition, other than a sale, lease, exchange, license or other disposition to an entity, more than fifty percent (50%) of the combined voting power of the voting securities of which are beneficially owned by shareholders of the Corporation in substantially the same proportions as their beneficial ownership of the outstanding Voting Securities of the Corporation immediately prior to such sale, lease, exchange, license or other disposition;
"Charitable Organization" means "charitable organization" as defined in the Tax Act.
7
"Charitable Stock Option" means any Stock Option granted to an Eligible Charitable Organization.
"Code" means the United States Internal Revenue Code of 1986, as amended, and any applicable United States Treasury Regulations and other binding guidance thereunder.
"Committee" means any committee of the Board duly authorized and appointed by the Board to administer the Plan. Any time that the Corporation is an United States Securities and Exchange Commission registrant and is not a "foreign private issuer" for purposes of the U.S. Securities Act and the U.S. Exchange Act, the Committee shall be comprised of not less than such number of Directors as shall be required to permit Awards granted under the Plan to qualify under Rule 16b-3 of the U.S. Exchange Act, and each member of the Committee shall be a "non-employee director" within the meaning of Rule 16b-3 of the U.S. Exchange Act.
"Consultant" means a person (other than a Director, Officer or Employee of the Corporation or of any of its subsidiaries that:
(a) is engaged to provide on an ongoing bona fide basis, consulting, technical, management or other services to the Corporation or to any of its subsidiaries, other than services provided in relation to a distribution of securities;
(b) provides the services under a written contract between the Corporation or any of its subsidiaries;
(c) in the reasonable opinion of the Corporation, spends or will spend a significant amount of time and attention on the affairs and business of the Corporation or of any of its subsidiaries; and
(d) meets the requirements of a "consultant" or "advisor" pursuant to the Registration Statement on Form S-8.
"Corporation" means C21 Investments Inc., a company existing under the laws of British Columbia, and any successor entity.
"Date of Grant" means, for any Stock Option, the date specified by the Board at the time it grants the Stock Option (which, for greater certainty, shall be no earlier than the date on which the Board meets or otherwise acts for the purpose of granting such Stock Option) or if no such date is specified, the date upon which the Stock Option was granted;
"Deferred Payment Date" for a Participant means the date after a Restricted Period which is the earlier of (i) the date which the Participant has elected to defer receipt of Shares under an RSU in accordance with Section 4.4 of this Plan; and (ii) the Participant's Separation Date.
"Deferred Share Unit" or "DSU" means a right granted to a Participant by the Corporation as compensation for employment or consulting services or services as a Director, Officer or Employee, to receive by way of a DSU Payment, for no additional cash consideration, securities of the Corporation on a deferred basis (which is typically after the earliest of the Retirement, termination of employment or death of the Participant), evidenced by a DSU Agreement. Notwithstanding the foregoing, with respect to U.S. Taxpayers, only non-employee Directors may be granted DSUs.
"Designated Affiliate" means subsidiaries of the Corporation designated by the Board from time to time for purposes of this Plan.
"Director" means a director of the Corporation or any of its subsidiaries.
"Director Retirement" in respect of a Participant, means the Participant ceasing to hold any directorships with the Corporation, any Designated Affiliate and any entity related to the Corporation for purposes of the Tax Act as a result of retirement in a manner or on such basis as acceptable to the Corporation.
"Director Termination" means the removal of, resignation or failure to re-elect the Director (excluding a Director Retirement) as a director of the Corporation, a Designated Affiliate and any entity related to the Corporation for purposes of the Tax Act.
8
"Disability" means a medically determinable physical or mental impairment expected to result in death or to last for a continuous period of not less than 12 months which causes an individual to be unable to engage in any substantial gainful activity.
"Disinterested Shareholder Approval" means approval by a majority of shareholders of the Corporation at any meeting of the shareholders of the Corporation, excluding votes attaching to any Shares held by any Director, Officer or other Insider of the Corporation.
"DRS" means Direct Registration System.
"DSU Agreement" means a written confirmation or agreement, in the form provided in Schedule "B" of the Plan, or in such other form(s) adopted by the Board from time to time, in physical or electronic format (including by way of an entry in any electronic incentive compensation system maintained by the Corporation or a third party service provider on its behalf), setting out the terms and conditions relating to a Deferred Share Unit and entered into in accordance with Section 5.2.
"DSU Payment" means, subject to any adjustment in accordance with Section 5.4 of this Plan, the issuance to a Participant of one previously unissued Share for each whole DSU credited to such Participant.
"DSU Termination Date" has the meaning given to such term in Section 5.3(a).
"Effective Date" means the date this Plan becomes effective, which shall be upon receipt of Board approval for the adoption of this Plan.
"Eligible Charitable Organization" means: (i) any Charitable Organization or "public foundation" which is a "registered charity", but is not a "private foundation"; or (ii) a "registered national arts service organization" (as all of such terms are defined in the Tax Act).
"Employee" means a person (who may be an Officer or Director) who is:
(a) an individual who is considered an employee of the Corporation or of its subsidiary under the Tax Act and for whom income tax, employment insurance and Canada Pension Plan deductions must be made at source;
(b) an individual who works full-time for the Corporation or its subsidiary providing services normally provided by an employee and who is subject to the same control and direction by the Corporation or its subsidiary over the details and methods of work as an employee of the Corporation or of the subsidiary, as the case may be, but for whom income tax deductions are not made at source; or
(c) an individual who works for the Corporation or its subsidiary on a continuing and regular basis for a minimum amount of time per week (the number of hours should be disclosed in the submission) providing services normally provided by an employee and who is subject to the same control and direction by the Corporation or its subsidiary over the details and methods of work as an employee of the Corporation or of the subsidiary, as the case may be, but for whom income tax deductions are not made at source, whether or not they have a written employment contract with the Corporation or a subsidiary, determined by the Board as employees eligible for participation in this Plan. Employees also include Service Providers eligible for participation in this Plan as determined by the Board.
"Exchange" means the (a) Canadian Securities Exchange, or any successor entity, which is the principal stock exchange on which the Shares are listed for trading or (b) the primary exchange on which the Shares are then listed, as determined from by the Board, if (i) the Canadian Securities Exchange is no longer the Corporation's primary exchange, or (ii) the Shares are not listed on the Canadian Securities Exchange.
"Exchange Policies" mean the policies established and published by the Exchange's, as amended from time to time. "Exchange Policy 1" means Policy 1 - Interpretation and General Provisions, as amended from time to time.
"Exchange Policy 6" means Policy 6 - Distributions & Corporate Finance, as amended from time to time.
9
"Fair Market Value" with respect to Shares as of any date, means the closing market price of the Shares on the trading day prior to such date, and for the purposes of establishing the exercise price per Share of any Stock Option, or the value of any Share underlying a RSU, DSU, PSU or Bonus Share on the grant date, the Market Price.
"Insider" means (a) a Director or Officer of the Corporation, (b) a director or Officer of a company that is an Insider or subsidiary of the Corporation; or (c) a Person that beneficially owns or controls, directly or indirectly, or a combination of beneficial ownership of, and control and direction over, directly or indirectly, Shares carrying more than 10% of the voting rights attached to all outstanding Shares.
"Investor Relations Activities" has the meaning ascribed in Exchange Policy 1.
"Investor Relations Service Provider" includes any Consultant that performs Investor Relations Activities and any Director, Officer, Employee or Management Company Employee whose role and duties primarily consist of Investor Relations Activities.
"Issued Shares" means the number of Shares of the Corporation that are issued and outstanding on a non-diluted basis at a particular point in time.
"Listed Security" means any security of the Corporation that is listed or approved for listing on a U.S. national securities exchange or designated or approved for designation as a national market system security on an interdealer quotation system by the U.S. Financial Industry Regulatory Authority (or any successor thereto).
"Management Company Employee" means an individual employed by a company providing management services to the Corporation, which services are required for the ongoing operation of the business enterprise of the Corporation.
"Market Price" means the market value of the Shares as determined in accordance with Section 3.2.
"Multiplier(s)" means the factor(s) by which a Participant's PSUs may be multiplied, as determined by the Board and set out in the applicable PSU Agreement, commonly based on performance measures.
"Officer" means an officer (as defined under Securities Laws) of the Corporation or any of its subsidiaries.
"Option Period" means the period during which a Stock Option is outstanding.
"Optionee" means a Participant to whom a Stock Option has been granted under this Plan.
"Participant" means a Director, Officer, Employee, Management Company Employee, Consultant, or Eligible Charitable Organization that is the recipient of an Award granted or issued by the Corporation.
"Performance Period" means the period provided for in Section 6.2.
"Performance Share Unit" or "PSU" means a right granted to a Participant by the Corporation as compensation for employment or consulting services or services as a Director or Officer, to receive, for no additional cash consideration, securities of the Corporation upon specified vesting criteria being satisfied (which are typically performance based) and which may provide that, upon vesting, the award may be paid in cash and/or Shares (at the option of the Board); represented by a PSU Agreement evidencing the right of such Participant to receive the value of one Share at the time of payment, multiplied by any applicable Multiplier(s).
"Person" includes an individual, sole proprietorship, partnership, unincorporated association, unincorporated syndicate, unincorporated organization, trust, body corporate, and a natural person in his or her capacity as trustee, executor, administrator or other legal representative.
"Plan" means this Equity Incentive Plan, as it may be amended and restated from time to time.
"Prior Plans" has the meaning given to such term in Section 10.20.
"PSU Agreement" means a written confirmation or agreement, in the form provided in Schedule "B" of the Plan, or in such other form(s) adopted by the Board from time to time, in physical or electronic format (including by way of an entry in any electronic incentive compensation system maintained by the Corporation or a third party service provider on its behalf), setting out the terms and conditions relating to a Performance Share Unit and entered into in accordance with Section 6.1.
10
"Redemption Date" has the meaning given to such term in Section 5.3(c).
"Restricted Period" means any period of time that a Restricted Share Unit is not vested and the Participant holding such Restricted Share Unit remains ineligible to receive the relevant Shares, determined by the Board in its absolute discretion, provided, however, such period of time may be reduced or eliminated from time to time and at any time and for any reason as determined by the Board, including, but not limited to, circumstances involving death or Disability of a Participant and provided further, that with respect to U.S. Taxpayers, the Restricted Period shall expire on the date upon which the RSUs are no longer subject to a substantial risk of forfeiture.
"Restricted Share Unit" or "RSU" means a right granted to a Participant as compensation for employment or consulting services or services as a Director or Officer, to receive, for no additional cash consideration, securities of the Corporation upon specified vesting criteria being satisfied (which are typically time based) and which may provide that, upon vesting, the award may be paid in cash and/or Shares (at the option of the Board), represented by an RSU Agreement evidencing the right of such Participant to receive the value of one Share at the time of payment.
"Retirement" in respect of an Employee or Officer, means ceasing to hold any employment or engagement with the Corporation or any Designated Affiliate as a result of retirement in a manner or on such basis as acceptable to the Corporation.
"RSU Agreement" means a written confirmation or agreement, in the form provided in Schedule "B" of the Plan, or in such other form(s) adopted by the Board from time to time, in physical or electronic format (including by way of an entry in any electronic incentive compensation system maintained by the Corporation or a third party service provider on its behalf), setting out the terms and conditions relating to a Restricted Share Unit and entered into in accordance with Section 4.2.
"Securities Laws" means the Securities Act (British Columbia), and all relevant securities regulation and securities rules, as amended, and the policies, notices, instruments and blanket orders in force from time to time that are applicable to a corporation.
"Security Based Compensation" means any compensation or Award granted under a Security Based Compensation
Arrangement.
"Security Based Compensation Arrangement" has the meaning given to such term in Exchange Policy 1.
"Separation Date" means the date that a Participant ceases to be eligible to be a Participant under this Plan.
"Service Agreement" means any written agreement between a Participant and the Corporation or any subsidiary of the Corporation (as applicable), in connection with that Participant's employment, service or engagement as a Director, Officer, Employee or Consultant or the termination thereof, as amended, replaced or restated from time to time.
"Service Provider" means any person or company engaged by the Corporation or a Designated Affiliate to provide services to the Corporation or a Designated Affiliate, as applicable.
"Shareholder" means a holder of Shares.
"Shares" means the common shares of the Corporation.
"Specified Employee" means a U.S. Taxpayer who meets the definition of "specified employee", as defined in Section 409A(a)(2)(B)(i) of the Code.
"Stock Option" means a right granted to a Participant to acquire Shares at a specified exercise price for a specified period of time.
"Stock Option Agreement" means a written certificate, confirmation or agreement, in the form provided in Schedule "A" to the Plan, or such other form(s) adopted by the Board from time to time, in physical or electronic format (including by way of an entry in any electronic incentive compensation system maintained by the Corporation or a third party service provider on its behalf), setting out the terms and conditions relating to a Stock Option and entered into in accordance with Part 3.
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"Tax Act" means the Income Tax Act (Canada), as amended from time to time.
"Termination" means the termination of the employment or engagement (or consulting services) of an Employee or Officer with or without cause by the Corporation or a Designated Affiliate or the cessation of employment or engagement (or consulting services) of the Employee or Officer with the Corporation or a Designated Affiliate as a result of resignation or otherwise, other than as a Retirement.
"United States" means the United States of America, its territories and possession, any State of the United States, and the District of Columbia.
"U.S. Person" means a "U.S. person" as such term is defined in Rule 902(k) of Regulation S under the U.S. Securities Act (the definition of which includes, but is not limited to, (i) any natural person resident in the United States, (ii) any partnership or corporation organized or incorporated under the laws of the United States, (iii) any partnership or corporation organized outside of the United States by a U.S. Person principally for the purpose of investing in securities not registered under the U.S. Securities Act, unless it is organized, or incorporated, and owned, by accredited investors who are not natural persons, estates or trusts, and (iv) any estate or trust of which any executor or administrator or trustee is a U.S. Person).
"U.S. Exchange Act" means the United States Securities Exchange Act of 1934, as amended.
"U.S. Securities Act" means the United States Securities Act of 1933, as amended.
"U.S. Taxpayer" means a Participant who is a U.S. citizen, U.S. permanent resident or other person whose Awards under this Plan are subject to income tax under the Code.
"Voting Securities" means any securities of the Corporation ordinarily carrying the right to vote at elections of Directors and any securities immediately convertible into or exchangeable for such securities.
"VWAP" means the volume-weighted average trading price of the Shares on the Exchange calculated by dividing the total value by the total volume of such securities traded for the five trading days immediately preceding the applicable date. Where appropriate, internal crosses and certain other special trades may be excluded from the calculation.
2.2 Interpretation
(a) This Plan is created under and is to be governed, construed and administered in accordance with the laws of the Province of British Columbia and the federal laws of Canada applicable therein. The Corporation and each Participant irrevocably submits to the exclusive jurisdiction of the courts of competent jurisdiction in the Province of British Columbia in respect of any action or proceeding relating in any way to the Plan.
(b) Whenever the Board (or Board committee, as the case may be) is to exercise discretion in the administration of the terms and conditions of this Plan, the term "discretion" means the sole and absolute discretion of the Board (or Board committee, as the case may be).
(c) As used herein, the terms "Part" or "Section" mean and refer to the specified Part or Section of this Plan, respectively.
(d) Where the word "including" or "includes" is used in this Plan, it means "including (or includes) without limitation".
(e) Words importing the singular include the plural and vice versa, and words importing any gender include any other gender.
(f) Unless otherwise specified, all references to money amounts are to Canadian dollars.
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PART 3
STOCK OPTIONS
3.1 Participation
The Corporation may from time to time grant Stock Options to Participants pursuant to this Plan.
3.2 Exercise Price of a Stock Option
The exercise price at which a Participant may purchase a Share upon the exercise of a Stock Option shall be determined by the Board and shall be set out in the Stock Option Agreement issued in respect of the Stock Option. The Exercise Price shall not be less than the Market Price of the Shares as of the Date of Grant. The Market Price of the Shares for a particular Date of Grant shall be determined as follows:
(a) subject to a minimum price of $0.05, the Market Price, at which an Option may be exercised or granted will be the greater of:
(i) the closing trading price of the Shares on the Exchange on the day immediately preceding the date of the grant of the Stock Option, or
(ii) the closing trading price of the Shares on the Exchange on the day the date of the grant of the Stock Option.
If the Shares are not listed on any organized trading facility, then, with respect to any Stock Option granted to a U.S. Taxpayer, to the extent reasonably possible, the Market Price shall be determined in a manner that avoids application of penalty taxes under Section 409A of the Code.
3.3 Grant of Stock Options
The Board may at any time authorize the granting of Stock Options to such Participants as it may select for the number of Shares that it shall designate, subject to the provisions of this Plan.
Each Stock Option granted to a Participant shall be evidenced by a Stock Option Agreement with terms and conditions consistent with this Plan and as approved by the Board (and in all cases which terms and conditions need not be the same in each case, and may be changed from time to time subject to any required Disinterested Shareholder Approval and any required approval of the Exchange).
3.4 Terms of Stock Options
The Option Period shall be for such term as the Board may determine at the Date of Grant, provided that:
(a) Stock Options can be exercisable for a maximum of 10 years from the Date of Grant (subject to extension where the expiry date falls within a Blackout Period);
(b) the term may thereafter be reduced with respect to any such Stock Option as provided for herein regarding termination of employment / engagement or death of the Optionee; and
(c) should the expiry date of the Option Period in respect of any outstanding Stock Option be determined to occur during a Blackout Period, the expiry date of such Option Period shall be deemed to be the date that is the tenth business day following the expiry of the Blackout Period. Notwithstanding the foregoing, with respect to any Stock Option granted to a U.S. Taxpayer, no Stock Option shall be extended beyond its maximum expiry date provided in the applicable Stock Option Agreement, to the extent such extension would trigger application of penalty taxes under Section 409A of the Code.
3.5 Vesting
Subject to the limitations in Part 10 and all Applicable Laws, the vesting schedule for a Stock Option, if any, shall be determined by the Board and shall be set out in the Stock Option Agreement issued in respect of the Stock Option. The Board may elect, at any time, to accelerate the vesting schedule of one or more Stock Options including, without limitation, on a Change of Control, and such acceleration will not be considered an amendment to the Stock Option in question requiring the consent of the Participant under Part 11 of the Plan. Notwithstanding the foregoing, if the Corporation is listed on the Exchange, no acceleration to the vesting schedule of one or more Stock Options granted to an Investor Relations Service Provider can be made without compliance with the requirements of the Exchange, if any.
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3.6 Exercise of Stock Options
Subject to any limitations or conditions imposed upon an Optionee pursuant to the Stock Option Agreement or this Plan, an Optionee may exercise a Stock Option, prior to the expiry date thereof, by giving written notice thereof to the Corporation at its principal place of business or as otherwise indicated by the Corporation in writing. The notice shall be accompanied by full payment of the exercise price to the extent the Stock Option is so exercised, and full payment of any amounts the Corporation determines must be withheld for tax purposes from the Optionee pursuant to the Stock Option Agreement. Such payment shall be in lawful money in the currency as stated in the Stock Option Agreement, in cash, wire transfer or certified cheque. As soon as practicable after exercise of a Stock Option in accordance herewith, the Corporation shall issue a certificate or DRS statement evidencing the Shares with respect to which the Stock Option has been exercised. Upon due exercise of a Stock Option, the Optionee shall be entitled to all rights to vote or receive dividends or any other rights as a shareholder with respect to such Shares.
3.7 Cashless Exercise
Subject to the approval of the Board or the Committee, and further subject to the Shares being traded on the Exchange, consideration may be paid by a Participant as follows: (i) a brokerage firm loans money to the Participant in order for the Participant to exercise Stock Options to acquire the underlying Shares (the "Loan");
(ii) the brokerage firm then sells a sufficient number of Shares to cover the exercise price of the Stock Options that were exercised by the Participant in order to repay the Loan; and (iii) the brokerage firm receives an equivalent number of Shares from the exercise of the Stock Options and the Participant receives the balance of the Shares or the cash proceeds from the balance of such Shares.
3.8 Net Exercise
Subject to the approval of the Board or the Committee, and further subject to the Shares being traded on the Exchange, consideration may be paid by reducing the number of Shares otherwise issuable under the Stock Options such that, in lieu of a cash payment to the Corporation, a Participant, excluding Investor Relations Service Providers, only receives the number of Shares that is equal to the quotient obtained by dividing: (i) the product of the number of Stock Options being exercised multiplied by the difference between the VWAP of the underlying Shares and the exercise price of the subject Stock Options, by (ii) the VWAP of the underlying Shares. The number of Shares delivered to the Participant may be further reduced to satisfy applicable tax withholding obligations pursuant to Part 8. In the event of a net exercise, the number of Stock Options exercised, surrendered or converted, and not the number of Shares issued, must be included in calculating the limits set forth in Part 10.
3.9 Effect of Termination of Employment or Death
If an Optionee:
(a) dies while employed or engaged by, or while a director of, the Corporation or a Designated Affiliate, any Stock Option held by him or her at the date of death, then eligible to be exercised, shall become exercisable in whole or in part, but only by the person or persons to whom the Optionee's rights under the Stock Option shall pass by the Optionee's will or applicable laws of descent and distribution. Unless otherwise determined by the Board but subject to Section 10.9, all such Stock Options shall be exercisable only to the extent that the Optionee was entitled to exercise the Stock Option at the date of his or her death and only for 12 months after the date of death or prior to the expiration of the Option Period in respect thereof, whichever is sooner;
(b) ceases to be employed or engaged by, or a director of, the Corporation or a Designated Affiliate, as a result of a Disability, any Stock Option held by him or her at the date of Disability, then eligible to be exercised, shall become exercisable in whole or in part by the Optionee or their legal guardian. Unless otherwise determined by the Board but subject to Section 10.9, all such Stock Options shall be exercisable only to the extent that the Optionee was entitled to exercise the Stock Option at the date of his or her Disability and only for 12 months after the date of Disability or prior to the expiration of the Option Period in respect thereof, whichever is sooner;
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(c) ceases to be employed or engaged by, or a director of, the Corporation or a Designated Affiliate, for cause, no Stock Option held by such Optionee will, unless otherwise determined by the Board but subject to Section 10.9, be exercisable following the date on which such Optionee ceases to be so engaged; or
(d) ceases to be employed or engaged by, or a director of, the Corporation or a Designated Affiliate, for any reason other than cause, death or Disability then, unless otherwise determined by the Board but subject to Section 10.9, any Stock Option held by such Optionee which was then eligible to be exercised at the effective date thereof shall become exercisable for a period of up to 90 days thereafter or prior to the expiration of the Option Period in respect thereof, whichever is sooner.
3.10 Effect of Amalgamation or Merger
If the Corporation amalgamates or otherwise completes a plan of arrangement or merges with or into another corporation, any Shares receivable on the exercise of a Stock Option shall, subject to the prior acceptance of the Exchange, if required under Exchange policies, be adjusted to give the Participant the ability to acquire, upon exercise of the Stock Option, including payment, the securities, property or cash which the Participant would have received upon such amalgamation, arrangement or merger if the Participant had exercised his or her Stock Option immediately prior to the record date applicable to such amalgamation, arrangement or merger, and the exercise price shall, subject to the prior acceptance of the Exchange, if required under Exchange policies, be adjusted appropriately by the Board and such adjustment shall be binding for all purposes of this Plan.
PART 4
RESTRICTED SHARE UNITS
4.1 Participants
The Corporation has the right to grant, in its sole and absolute discretion, to any Participant, Restricted Share Units to receive any number of fully paid and non-assessable Shares as a discretionary payment in consideration of past services to the Corporation or as an incentive for future services, subject to this Plan and with such additional provisions and restrictions as the Board may determine. For purposes of calculating the number of Restricted Share Units to be granted, the Corporation shall be obligated to value the Shares underlying such RSUs at not less than the Fair Market Value.
4.2 RSU Agreement
Each grant of a RSU under this Plan shall be evidenced by an RSU Agreement between the Participant and the Corporation. Such RSU Agreement shall be subject to all applicable terms and conditions of this Plan and may be subject to any other terms and conditions (including without limitation any recoupment, reimbursement or claw-back compensation policy as may be adopted by the Board from time to time) which are not inconsistent with this Plan and which the Board deems appropriate for inclusion in an RSU Agreement. The provisions of the various RSU Agreements issued under this Plan need not be identical.
4.3 Restricted Period
Concurrent with the determination to grant RSUs to a Participant, the Board shall determine the Restricted Period applicable to such RSUs. In addition, at the sole discretion of the Board, at the time of grant, the RSUs may be subject to performance conditions to be achieved by the Corporation or a class of Participants or by a particular Participant on an individual basis, within a Restricted Period, for such RSUs to entitle the holder thereof to receive the underlying Shares or cash. Upon expiry of the applicable Restricted Period (or on the Deferred Payment Date, as applicable) and upon satisfaction of any performance criteria or other terms set out in the RSU Agreement, a RSU shall be automatically settled, and without the payment of additional consideration or any other further action on the part of the holder of the RSU, the underlying Shares shall be issued or cash paid to the holder of such RSUs, which RSUs shall then be cancelled. In all cases, with respect to RSUs awarded to U.S. Taxpayers, the RSUs shall be settled no later than 60 days following the expiration of the applicable Restricted Period. Subject to the terms of this Plan, the Board, in its sole discretion, may pay earned RSUs in the form of cash or in Shares issued from treasury (or in a combination thereof) equal to the value of the RSUs at the end of the applicable Restricted Period (or on the Deferred Payment Date, as applicable) and upon satisfaction of any performance criteria or other terms set out in the RSU Agreement. The determination of the Board with respect to the form of payout of such RSUs shall be set out in the RSU Agreement for the grant of the RSU or reserved for later determination.
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4.4 Deferred Payment Date
Participants who are residents of Canada for the purposes of the Tax Act (and for greater certainty, who are not U.S. Taxpayers), may elect to defer to receive all or any part of the Shares underlying Restricted Share Units until one or more Deferred Payment Dates. No other Participants may elect a Deferred Payment Date. Participants who elect to set a Deferred Payment Date must, in respect of each such Deferred Payment Date, give the Corporation written notice of the Deferred Payment Date(s) not later than thirty (30) days prior to the expiration of the applicable Restricted Period (or such lesser period of time as the Board may approve).
4.5 Retirement or Termination during Restricted Period
In the event and to the extent of the Retirement or Termination and/or, as applicable, the Director Retirement or Director Termination of a Participant from all such roles with the Corporation during the Restricted Period, any Restricted Share Units held by the Participant shall immediately terminate and be of no further force or effect; provided, however, that the Board shall have the absolute discretion to modify the grant of the Restricted Share Units to provide that the Restricted Period shall terminate immediately prior to the date of such occurrence.
4.6 Retirement or Termination after Restricted Period
Subject to Section 10.9, in the event and to the extent of the Retirement or Termination and/or, as applicable, the Director Retirement or Director Termination of the Participant from all such roles with the Corporation following the Restricted Period and prior to a Deferred Payment Date, the Participant shall be entitled to receive, and the Corporation shall issue forthwith, Shares or cash, as determined by the Board, in satisfaction of the Restricted Share Units then held by the Participant.
4.7 Acceleration of Vesting
Notwithstanding Sections 4.5 and 4.6 above, subject to the absolute discretion of the Board, in the event of the death or Disability of a Participant, Shares represented by RSUs held by the Participant, calculated on a pro-rata basis as to the number of days passed under the vesting restrictions, shall then be immediately issued by the Corporation to the Participant or legal representative of the Participant.
4.8 Payment of Dividends
Subject to the absolute discretion of the Board, in the event that a dividend (other than a stock dividend) is declared and paid by the Corporation on its Shares, a Participant may be credited with additional Restricted Share Units. The number of such additional RSUs, if any, will be calculated by dividing (a) the total amount of the dividends that would have been paid to the Participant if the RSUs (including RSUs in which the Restricted Period has expired but the Shares have not been issued due to a Deferred Payment Date) in the Participant's account on the dividend record date had been outstanding Shares (and the Participant held no other Shares) by (b) the Fair Market Value of the Shares on the date on which such dividends were paid. Where the proposed issuance of Shares in settlement of such additional RSUs would result the Corporation having insufficient Shares available for issuance or in the limits in Part 10 exceeded, the additional RSUs should instead be settled in cash.
PART 5
DEFERRED SHARE UNITS
5.1 Deferred Share Unit Grants
The Board may from time to time determine to grant Deferred Share Units to one or more Directors, Officers or Employees (other than Participant's that are U.S. Taxpayers, in which case only non-employee Directors may be granted DSUs) in a lump sum amount or on regular intervals, based on such formulas or criteria as the Board may from time to time determine. DSUs will be credited to the Participant's account when designated by the Board. For purposes of calculating the number of DSUs to be granted, the Corporation shall be obligated to value the Shares underlying such Deferred Share Units at not less than the Fair Market Value.
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5.2 DSU Agreement
Each grant of a DSU under this Plan shall be evidenced by a DSU Agreement between the Participant and the Corporation. Such DSU Agreement shall be subject to all applicable terms and conditions of this Plan and may be subject to any other terms and conditions (including without limitation any recoupment, reimbursement or claw-back compensation policy as may be adopted by the Board from time to time) which are not inconsistent with this Plan and the policies of the Exchange and which the Board deems appropriate for inclusion in a DSU Agreement. The provisions of each DSU Agreement issued under this Plan need not be identical.
5.3 Redemption of Deferred Share Units and Issuance of Deferred Shares
(a) No amount may be received in respect of a DSU until after the earlier of the date of a: (i) Director Retirement; (ii) Director Termination; (iii) the death of a Director; (iv) or the Separation Date of a Participant occurring for any other reason (each, a "DSU Termination Date").
(b) Termination for Cause. If the DSU Termination Date of a Participant occurs as a result of a termination of a Participant for cause, unless otherwise determined by the Board but subject to Section 10.9, all outstanding DSUs credited to such Participant's account (whether or not vested) shall be forfeited and cancelled immediately, and the Participant shall have no entitlement to receive any payment in respect of such forfeited DSUs, by way of damages, pay in lieu of notice or otherwise.
(c) Termination Event other than for Cause: If the DSU Termination Date of a Participant occurs as a result of the death of a Participant, unless otherwise determined by the Board, all DSUs credited to such Participant's account at such time that have not yet vested pursuant to the terms of this Plan shall be deemed to vest in the moment immediately prior to the Participant's death. As soon as reasonably practicable after the DSU Termination Date of a Participant for a reason other than cause, or as the Participant may elect under Section 5.3(d), and in any event, no later than December 15 of the first calendar year commencing after the DSU Termination Date, the Corporation shall redeem and fully settle each DSU in respect of which all vesting and other conditions to redemption and settlement have been met, deemed to have been met or waived by the Board on or before the DSU Termination Date (such settlement date being a "Redemption Date").
(d) With respect to Participants who are residents of Canada for the purposes of the Tax Act (and for greater certainty, who are not U.S. Taxpayers), if the DSU Termination Date of a Participant occurs for a reason other than cause, except as otherwise provided in the Plan, after the DSU Termination Date, the Participant (or their estate) may elect up to three separate Redemption Dates as of which either a portion (specified in whole percentages) or all of the value of the Participant's DSUs shall be redeemed and settled, by filing with the Corporation, following such Participant's DSU Termination Date, in the form and manner specified by the Board, up to three irrevocable written elections, provided that the elected Redemption Dates are no later than December 15 of the first calendar year commencing after the Participant's DSU Termination Date.
(e) Notwithstanding the foregoing, the Corporation shall have the ability to require the Participant to hold any Shares received pursuant to such redeemed DSUs for a specified period of time.
(f) Notwithstanding the provisions of this Part 5, for U.S. Taxpayers, (i) the DSU Termination Date must constitute a "separation from service" within the meaning of Section 409A of the Code, (ii) the Redemption Date shall be the Director's DSU Termination Date, with DSUs redeemed in all events no later than December 31 of the year in which the Director's DSU Termination Date occurs, and (iii) DSUs held by a Director who is a Specified Employee will be automatically redeemed with no further action by the Director on the date that is six months and one day following the DSU Termination Date. Upon redemption, the former Director shall be entitled to receive and the Corporation shall issue, the number of Shares issued from treasury equal to the number of DSUs in the Director's account, subject to any applicable deductions and withholdings.
(g) No amount will be paid to, or in respect of, a Participant under this Plan or pursuant to any other arrangement, and no other additional DSUs will be granted to compensate for a downward fluctuation in the value of the Shares of the Corporation nor will any other benefit be conferred upon, or in respect of, a Participant for such purpose.
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5.4 Payment of Dividends
Subject to the absolute discretion of the Board, in the event that a dividend (other than a stock dividend) is declared and paid by the Corporation on its Shares, a Participant may be credited with additional Deferred Share Units. The number of such additional Deferred Share Units, if any, will be calculated by dividing (a) the total amount of the dividends that would have been paid to the Participant if the Deferred Share Units in the Participant's account on the dividend record date had been outstanding Shares (and the Participant held no other Shares), by (b) the Fair Market Value of the Shares on the date on which such dividends were paid. Where the proposed issuance of Shares in settlement of such additional Deferred Share Units would result in the Corporation having insufficient Shares available for issuance or in the limits in Part 10 being exceeded, the additional Deferred Share Units should instead be settled in cash.
PART 6
PERFORMANCE SHARE UNITS
6.1 Performance Share Units
The Board may from time to time determine to grant Performance Share Units to one or more Participants with the specific terms and conditions thereof to be as provided in this Plan and in the PSU Agreement entered into in respect of such grant. The PSU Agreement in respect of the PSUs granted will set out, at a minimum, the number of PSUs granted, the Performance Period, the performance-based criteria and any Multiplier(s). Subject to the provisions of this Part 6, each PSU awarded to a Participant for services performed during the year in which the PSU is granted shall entitle the Participant to receive payment, in the form of Shares, cash payment or combination thereof, as determined by the Board, in an amount equal to the Fair Market Value on the day immediately prior to the last day of the applicable Performance Period multiplied by the applicable Multiplier(s), to be determined on the last day of the Performance Period.
6.2 Performance Period
Subject to Sections 6.4, 6.5 and any other terms of this Plan, the Board may, in it sole discretion, determine the Performance Period in respect of a particular Award, to a maximum of three years from the date of grant of the applicable Performance Share Unit.
6.3 Performance-Based Criteria and Multipliers
The Board may establish performance-based criteria which, if met, will entitle the Participant to be paid an amount in excess of or less than the Fair Market Value of one Share for each PSU at the end of the applicable Performance Period. The Board, in its sole discretion, may waive the performance-based criteria if the Board determines there were material unusual circumstances that occurred during the Performance Period (as an example only, if take-over speculation significantly affects the Fair Market Value at the end of the Performance Period).
6.4 Retirement or Termination During Performance Period
If a Participant ceases to be an Employee or Director, as applicable, during the Performance Period because of Retirement or Termination of the Participant, all PSUs previously awarded to the Participant shall be forfeited and cease to be credited to the Participant on the date of the Retirement or Termination, as the case may be; however, the Board shall have the absolute discretion to modify the grant of the PSUs to provide that the Performance Period would end at the end of the calendar quarter immediately before the date of the Retirement or Termination, as the case may be, and the amount payable to the Participant shall be calculated as of such date.
6.5 Death or Disability
In the event of the death or Disability of a Participant during the Performance Period, the Performance Period shall be deemed to end at the end of the calendar quarter immediately before the date of death or Disability of the Participant and the amount payable to the Participant or its executors, as the case may be, shall be calculated as of such date.
6.6 Payment to Participants
Subject to the terms of this Plan, the Board, in its sole discretion, may pay earned PSUs in the form of cash or in Shares issued from treasury (or in a combination thereof) equal to the value of the PSUs at the end of the applicable Performance Period. The determination of the Board with respect to the form of payout of such PSUs shall be set out in the Performance Share Unit Agreement for the grant of the PSU or reserved for later determination. In no event will delivery of such Shares or payment of any cash amounts be made later than two and a half months after the end of the year in which such conditions or restrictions were satisfied or lapsed, and for avoidance with doubt, with respect to a U.S. Taxpayer, all PSUs will be settled no later than March 15 of the year following the year in which the PSUs are no longer subject to a substantial risk of forfeiture.
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6.7 Payment of Dividends
Subject to the absolute discretion of the Board, in the event that a dividend (other than a stock dividend) is declared and paid by the Corporation on the Shares, a Participant may be credited with additional PSUs. The number of such additional PSUs, if any, will be calculated by dividing (a) the total amount of the dividends that would have been paid to the Participant if the PSUs in his or her account on the dividend record date had been outstanding Shares (and the Participant held no other Shares), by (b) the Fair Market Value of the Shares on the date on which such dividends were paid. Where the proposed issuance of Shares in settlement of such additional PSUs would result in the Corporation having insufficient Shares available for issuance or in the limits in Part 10 being exceeded, the additional PSUs should instead be settled in cash. For greater certainty, the Performance Period and Multiplier(s), if any, shall be the same as the Performance Period and Multiplier(s), if any, for the additional Performance Share Units.
PART 7
BONUS SHARES
7.1 Grant of Bonus Shares
Bonus Shares may be granted to Participants as a discretionary bonus at such time or times as will be determined by the Board by resolution, pursuant to recommendations of the Board from time to time. All Bonus Shares shall be issued at the Fair Market Value on the grant date.
PART 8
WITHHOLDING TAXES
8.1 Withholding Taxes
The Corporation or any Designated Affiliate may take such steps as are considered necessary or appropriate for the withholding of any taxes or other amounts which the Corporation or any Designated Affiliate is required by any law or regulation of any governmental authority whatsoever to withhold in connection with any Award including, without limiting the generality of the foregoing, the withholding of all or any portion of any payment or the withholding of the issue of any Shares to be issued under this Plan, until such time as the Participant has paid the Corporation or any Designated Affiliate for any amount which the Corporation or Designated Affiliate is required to withhold by law with respect to such taxes or other amounts. Without limitation to the foregoing, the Board may adopt administrative rules under this Plan, which provide for the automatic sale of Shares (or a portion thereof) in the market upon the issuance of such Shares under this Plan on behalf of the Participant to satisfy withholding obligations under an Award.
PART 9
CHANGE OF CONTROL
9.1 Change of Control.
(a) If a Change of Control shall conclusively be deemed to be imminent, or to have occurred, there shall be immediate full vesting of each outstanding Stock Option granted, which may be exercised and settled, in whole or in part, even if such Stock Option is not otherwise exercisable or vested by its terms, but subject to any required approval of the Exchange, if required under Exchange policies. Notwithstanding the foregoing, if the Corporation is listed on the Exchange, no acceleration to the vesting schedule of one or more Stock Options granted to an Investor Relations Service Provider can be made without the prior acceptance of the Exchange, if required under Exchange policies.
(b) Unless otherwise determined by the Board, or unless otherwise provided in a Participant's Service Agreement or Award Agreement, if a Change of Control shall conclusively be deemed to be imminent, or to have occurred, then the Board shall have the discretion, without the prior approval of the Participants but subject to any required approval of the Exchange, to any one or more of the following:
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(i) determine that there shall be immediate full vesting of each outstanding Award (other than Stock Options) granted, which may be exercised and settled, in whole or in part, even if such Award is not otherwise exercisable or vested by its terms;
(ii) subject to the prior acceptance of the Exchange, if required under Exchange policies, the termination of an Award in exchange for an amount of cash and/or property, if any, equal to the amount that would have been attained upon the settlement of such Award or realization of the Participant's rights as of the date of the occurrence of the transaction (and, for the avoidance of doubt, if as of the date of the occurrence of the transaction the Board determines in good faith that no amount would have been attained upon the settlement of such Award or realization of the Participant's rights, then such Award may be terminated by the Corporation without payment);
(iii) subject to the prior acceptance of the Exchange, if required under Exchange policies, cause the Corporation to offer to acquire from each Award holder his or her Awards for a cash payment, and any Awards not so acquired, surrendered or exercised by the effective time of the Change of Control will be deemed to have expired;
(iv) subject to the prior acceptance of the Exchange, if required under Exchange policies, cause a Stock Option granted under this Plan to be exchanged for an option to acquire for the same exercise price, the number and type of securities as would be distributed to the Stock Option holder in respect of the Shares to be issued to the Stock Option holder had he or she exercised the Stock Option prior to the effective time of the Change of Control;
(v) subject to the prior acceptance of the Exchange, if required under Exchange policies, cause the surviving, successor or acquiring entity to assume any Awards or substitute similar stock options, share units or other share-based awards for the outstanding Awards, as applicable;
(vi) permit each Participant, within a specified period of time prior to the completion of the Change of Control as determined by the Board, to exercise all of the Participant's outstanding Stock Options and to settle all of the Participant's outstanding PSUs, RSUs and DSUs (to the extent then vested and exercisable, including by reason of acceleration by the Board pursuant to Section 9.1 or in accordance with the Award Agreement) but subject to and conditional upon the completion of the Change of Control;
(vii) accelerate the dates upon which any or all outstanding Awards shall vest and be exercisable or settled, without regard to whether such Awards have otherwise vested in accordance with their terms; or
(viii) make no change to any of the terms or provisions of any Award.
9.2 Awards Need Not be Treated Identically
In taking any of the actions contemplated by this Part 9, the Board shall not be obligated to treat all Awards held by any Participant, or all Awards in general, identically.
PART 10
GENERAL TERMS
10.1 Number of Shares
The aggregate number of Shares that may be issued under this Plan shall not exceed 10% of the number of Issued Shares outstanding in the capital of the Corporation from time to time as of the date of each grant (inclusive of the Shares reserved for issuance pursuant to any stock options granted under the Prior Plans), such Shares to be allocated among Awards and Participants in amounts and at such times as may be determined by the Board from time to time.
10.2 Limits for Individuals
Unless Disinterested Shareholder Approval is obtained (or unless permitted otherwise by the policies of the Exchange), the maximum number of Shares that may be issued to any one Participant (and where permitted pursuant to the policies of the Exchange, any company that is wholly-owned by the Participant) under this Plan, together with all of the Corporation's other Security Based Compensation Arrangements, at any point in time may not exceed 5% of the Issued Shares of the Corporation, calculated as at the date any Security Based Compensation is granted or issued to the Person.
20
10.3 Limits for Insiders
Unless Disinterested Shareholder Approval is obtained (or unless permitted otherwise by the policies of the Exchange), the maximum number of Shares that are issuable pursuant to all the Corporation's Security Based Compensation plans granted or issued in any 12-month period to Insiders (as a group) must not exceed 10% of the Issued Shares, calculated as at the date any Security Based Compensation of the Corporation is granted or issued to any Insider.
Unless Disinterested Shareholder Approval is obtained (or unless permitted otherwise by the policies of the Exchange), the maximum number of Shares that are issuable pursuant to all of the Corporation's Security Based Compensation plans granted or issued to Insiders (as a group) at any point in time must not exceed 10% of the Issued Shares at any point in time.
10.4 Limits for Consultants
The maximum number of Shares that may be issued to any one Consultant under this Plan, together with all of the Corporation's other Security Based Compensation plans, within a 12-month period, may not exceed 2% of the Issued Shares calculated on the date such Security Based Compensation is granted or issued to the Consultant.
10.5 Limits for Investor Relations Service Providers
Notwithstanding any other provision of this Plan, Investor Relations Service Providers may only be granted Stock Options (and no other forms of Security Based Compensation) under this Plan. The maximum aggregate number of Shares that are issuable pursuant to all Stock Options granted in any 12-month period to all Investor Relations Service Providers in aggregate must not exceed 2% of the Issued Shares, calculated as at the date any Stock Option is granted to any such Investor Relations Service Provider.
Stock Options granted to any Investor Relations Service Provider must vest in stages over a period of not less than 12 months, such that not more than 25% vest any sooner than three months after the date of grant, and not more than 25% vest any sooner than every three months thereafter.
The Board (or any committee thereof) must, through the establishment of appropriate procedures, monitor the trading in the securities of the Corporation by all Investor Relations Service Providers. These procedures may include the establishment of a designated brokerage account through which the Participant conducts all trades in the securities of the Corporation or a requirement for such Participants to file reports of their trades with the Board on a timely basis.
10.6 Limits for Charitable Organizations
The only Security Based Compensation that may be granted or issued to a Charitable Organization is Charitable Stock Options. The maximum aggregate number of Shares that are issuable pursuant to all outstanding Charitable Stock Options must not exceed 1% of the Issued Shares, calculated as at the date each Charitable Stock Option is granted to a Charitable Organization. A Charitable Stock Option must expire on or before the earlier of: (i) the date that is 10 years from the date of grant of the Charitable Stock Option; and (ii) the 90th day following the date that the holder of the Charitable Stock Option ceases to be a Charitable Organization.
10.7 Limitation on Rights as a Shareholder
No Security Based Compensation entitles the holder thereof to any Shareholder rights (including without limitation voting rights, dividend entitlement or rights on liquidation) until such time as underlying Shares are issued to such Participant; provided, however, that the accrual of any dividend entitlements on a DSU, PSU or RSU where such dividend entitlements vest and are redeemed, as applicable, along with the underlying award. Where the proposed issuance of Shares in settlement of such additional DSUs, PSUs or RSUs would result in the Corporation having insufficient Shares available for issuance or in the limits in in the limits in Part 10 being exceeded, the additional DSUs, PSUs or RSUs should instead be settled in cash.
21
10.8 Lapsed Awards or Awards Settled in Cash
If Awards are settled in cash, cancelled, surrendered, terminated or forfeited or expire without being exercised in whole or in part and pursuant to which no securities have been issued, new Awards may be granted covering the Shares not issued under such lapsed Awards, subject to any restrictions that may be imposed by the Exchange.
10.9 Expiration of Security Based Compensation
Notwithstanding any other provision of this Plan, any Security Based Compensation granted or issued to any Participant who is a Director, Officer, Employee, Consultant or Management Company Employee must expire within a reasonable period, not exceeding 12 months, following the date the Participant ceases to be an eligible Participant under this Plan.
10.10 Availability of Shares under this Plan and Payment in Cash
The Corporation must have a sufficient number of Shares available under this Plan in order to be able to issue Shares to satisfy its obligations under a Multiplier or any other provision of this Plan. The Corporation may settle any Award by making payment in cash if it does not have a sufficient number of Shares available under this Plan to satisfy its obligations under a Multiplier or any other provision of this Plan.
10.11 Adjustment in Shares Subject to this Plan
If there is any change in the Shares through (i) the declaration of stock dividends of Shares, (ii) any consolidations, subdivisions or reclassification or recapitalization of Shares, or (iii) adjustments related to an amalgamation, merger, arrangement, reorganization, spin-off, the number of Shares available under this Plan, other than under a Change of Control, then the Shares subject to any Award, and the exercise price of any Stock Option shall be adjusted as determined to be appropriate by the Board, and such adjustment shall be effective and binding for all purposes of this Plan, provided any such change (other than in connection with a share consolidation or a security split) is subject to the prior acceptance of the Exchange, if required under Exchange policies,.
10.12 Transferability
Any Awards (other than Bonus Shares) accruing to any Participant in accordance with the terms and conditions of this Plan shall not be assignable or transferable. During the lifetime of a Participant all Awards may only be exercised by the Participant. Awards (other than Bonus Shares) are non-transferable and non-assignable except by will or by the laws of descent and distribution.
10.13 Employment
Nothing contained in this Plan shall confer upon any Participant any right with respect to employment or continuance of employment with the Corporation or any Affiliate, or interfere in any way with the right of the Corporation or any Affiliate to terminate the Participant's employment at any time. Participation in this Plan by a Participant is voluntary.
10.14 Record Keeping
The Corporation shall maintain a register in which shall be recorded:
(a) the name and address of each Participant;
(b) the number of Awards granted to each Participant and relevant details regarding such Awards; and
(c) such other information as the Board may determine.
10.15 Resale Restrictions
In addition to any legends or resale restrictions required under applicable Canadian Securities Laws Awards and Shares issued by the Corporation are subject to resale and trading restrictions in effect pursuant to Applicable Laws, and accordingly the Corporation shall be entitled to place any restriction or legend on the Awards and Shares. If required by Applicable Laws, any Award will be subject to a hold period expiring on the date that is four months and a day after the date of grant and the DRS, confirmations, agreements or certificates representing such Awards and any Shares issued prior to the expiry of such hold period will bear the following legend in substantially the following form:
22
"WITHOUT PRIOR WRITTEN APPROVAL OF CANADIAN SECURITIES EXCHANGE AND COMPLIANCE WITH ALL APPLICABLE SECURITIES LEGISLATION, THE SECURITIES REPRESENTED BY THIS CERTIFICATE [FOR APPLICABLE AWARDS: AND ANY SECURITIES ISSUED UPON EXERCISE, VESTING OR SETTLEMENT HEREOF] MAY NOT BE SOLD, TRANSFERRED, HYPOTHECATED OR OTHERWISE TRADED UNTIL [INSERT THE DATE THAT IS FOUR MONTHS AND ONE DAY AFTER THE DATE OF GRANT]."
10.16 No Representation or Warranty
The Corporation makes no representation or warranty as to the future market value of any Shares issued in accordance with the provisions of this Plan.
10.17 Section 409A
(a) This Plan will be construed and interpreted to be exempt from, or where not so exempt, to comply with Section 409A of the Code to the extent required to preserve the intended tax consequences of this Plan. To the extent that an Award or payment, or the settlement or deferral thereof, is subject to Section 409A of the Code, it is intended that the Award will be granted, paid, settled or deferred in a manner that will meet the requirements of Section 409A of the Code, such that the grant, payment, settlement or deferral will not be subject to the additional tax or interest applicable under Section 409A of the Code. The Corporation reserves the right to amend this Plan to the extent it reasonably determines is necessary in order to preserve the intended tax consequences of this Plan in light of Section 409A of the Code. In no event will the Corporation or any of its subsidiaries or Affiliates be liable for any tax, interest or penalties that may be imposed on a Participant under Section 409A of the Code or any damages for failing to comply with Section 409A of the Code.
(b) All terms of the Plan that are undefined or ambiguous must be interpreted in a manner that complies with Section 409A of the Code if necessary to comply with Section 409A of the Code.
(c) Subject to compliance with the policies of the Exchange, the Board, in its sole discretion, may permit the acceleration of the time or schedule of payment of a U.S. Taxpayer's vested Awards in the Plan only under circumstances that constitute permissible acceleration events under Section 409A of the Code.
(d) Any amendment to the Plan or an Award Agreement that would cause an Award held by a U.S. Taxpayer to be subject to the additional tax penalty under Section 409A(1)(b)(i)(II) of the Code shall be null and void ab initio with respect to the U.S. Taxpayer unless the consent of the U.S. Taxpayer is obtained.
(e) Notwithstanding anything in the Plan or any Award Agreement to the contrary, to the extent that any amount or benefit that constitutes "deferred compensation" to a Participant under Section 409A of the Code and applicable guidance thereunder is otherwise payable or distributable to a Participant under the Plan or any Award Agreement solely by reason of the occurrence of a change in control or due to the Participant's disability or "separation from service" (as such term is defined under Section 409A), such amount or benefit will not be payable or distributable to the Participant by reason of such circumstance unless the Board determines in good faith that (i) the circumstances giving rise to such change in control event, disability or separation from service meet the definition of a change in control event, disability, or separation from service, as the case may be, in Section 409A(a)(2)(A) of the Code and applicable proposed or final regulations, or (ii) the payment or distribution of such amount or benefit would be exempt from the application of Section 409A by reason of the short term deferral exemption or otherwise.
10.18 Awards Granted to U.S. Residents
If the Awards and the Shares are not registered under the U.S. Securities Act or any state securities laws, the Awards may not be issued or exercised in the United States unless an exemption from the registration requirements of the U.S. Securities Act is available. Any Awards or Shares issued to a Participant in the United States that have not been registered under the U.S. Securities Act will be deemed "restricted securities" (as such term is defined in Rule 144(a)(3) under the U.S. Securities Act) and shall be affixed with an applicable restrictive legend as set forth in the Award Agreement. The Awards may not be offered or sold, directly or indirectly, in the United States except pursuant to registration under the U.S. Securities Act and the securities laws of all applicable states or available exemptions therefrom. Each U.S. Award Holder or anyone who becomes a U.S. Award Holder, who is granted an Award in the United States, who is a resident of the United States or who is otherwise subject to the U.S. Securities Act or the securities laws of any state of the United States will be required to complete an Award Agreement which sets out the applicable United States restrictions.
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10.19 Term of the Plan
This Plan shall remain in effect until it is terminated by the Board.
10.20 Effective Date and Replacement
This Plan shall become effective on the Effective Date, and will replace the Corporation's prior 10% "rolling" stock option plan and restricted share unit plan (collectively, the "Prior Plans"). All outstanding awards previously granted under the Prior Plans as at the Effective Date shall continue to be outstanding as awards granted under this Plan, provided however that in the event of any inconsistency between the terms of any agreement governing the awards granted under any of the Prior Plans and the terms of this Plan, the terms of such agreement shall govern.
10.21 Eligibility
Subject to the discretion of the Board, all Directors, Officers, Employees, Management Company Employees, and Consultants are eligible to participate in the Plan (as well as Eligible Charitable Organizations). Participation in the Plan is voluntary and eligibility to participate does not confer upon any Director, Officer, Employee, Management Company Employee, Consultant, or Eligible Charitable Organization any right to receive any grant of an Award pursuant to the Plan. In addition, in order to be eligible to receive Awards, in the case of Employees, Management Company Employees, and Consultants , the Award Agreement to which they are a party must contain a representation of the Corporation and of such Employee, Management Company Employee, or Consultant, as the case may be, that such Employee, Management Company Employee, or Consultant, is a bona fide Employee, Management Company Employee, or Consultant of the Corporation or a subsidiary of the Corporation, as the case may be. Awards may be granted to a company that is wholly-owned by an individual Director, Officer, Employee or Consultant.
10.22 Fractions
No fractional Shares will be issued pursuant to an Award. Accordingly, if a Participant becomes entitled to a fractional Share under this Plan, the Participant has the right to acquire only the adjusted number of full Shares (rounded down to the nearest whole number) and no payment or other adjustment will be made with respect to the fractional Shares, which shall be disregarded.
10.23 Severability
The invalidity or unenforceability of any provision of the Plan shall not affect the validity or enforceability of any other provision and any invalid or unenforceable provision shall be severed from the Plan.
10.24 Reorganization of the Corporation
The existence of any Awards shall not affect in any way the right or power of the Corporation or its Shareholders to make or authorize any adjustment, reclassification, recapitalization, reorganization or other change in the Corporation's capital structure or its business, or any amalgamation, combination, merger or consolidation involving the Corporation or to create or issue any bonds, debentures, shares or other securities of the Corporation or the rights and conditions attaching thereto or to affect the dissolution or liquidation of the Corporation or any sale or transfer of all or any part of its assets or business, or any other corporate act or proceeding, whether of a similar nature or otherwise.
24
PART 11
ADMINISTRATION AND AMENDMENT OF THIS PLAN
11.1 Administration by the Board
(a) Unless otherwise determined by the Board, this Plan shall be administered by the Board or the Committee.
(b) Subject to Section 11.6 and the approval of the Exchange, if required under Exchange policies, the Board (or the Committee, as applicable) shall have the power, where consistent with the general purpose and intent of this Plan and subject to the specific provisions of this Plan, to:
(i) adopt and amend rules and regulations relating to the administration of this Plan and make all other determinations necessary or desirable for the administration of this Plan. The interpretation and construction of the provisions of this Plan and related agreements by the Board (or the Committee, as applicable) shall be final and conclusive. The Board (or the Committee, as applicable) may correct any defect or supply any omission or reconcile any inconsistency in this Plan or in any related agreement in the manner and to the extent it shall deem expedient to carry this Plan into effect and it shall be the sole and final judge of such expediency;
(ii) determine and designate from time to time the individuals to whom Awards shall be made, the amounts of the Awards and the other terms and conditions of the Awards;
(iii) correct any defect, supply any information, or reconcile any inconsistency in this Plan in such manner and to such extent as shall be deemed necessary or advisable to carry out the purposes of this Plan;
(iv) delegate any of its responsibilities or powers under this Plan to the Committee; and
(v) otherwise exercise the powers under this Plan as set forth herein.
11.2 Regulatory and Shareholder Approvals
In administering this Plan, the Board will obtain any regulatory approvals which may be required pursuant to Exchange Policies, and this Plan is subject to such approvals.
11.3 Use of Administrative Agent
The Board (or the Committee, as applicable) may in its sole discretion appoint from time to time one or more entities to act as administrative agent to administer Awards granted under the Plan and to act as trustee to hold and administer the Plan and the assets that may be held in respect of Awards granted under the Plan, the whole in accordance with the terms and conditions determined by the Board (or the Committee, as applicable) in its sole discretion.
11.4 Limitation of Liability and Indemnification
No member of the Board or the Committee will be liable for any action or determination taken or made in good faith with respect to the Plan or any Awards granted thereunder and each such member shall be entitled to indemnification by the Corporation with respect to any such action or determination in the manner provided for by the Board or the Committee.
11.5 Amendments to Plan
Subject to Sections 11.2 and 11.6, the Board shall have the power, at any time and from time to time, either prospectively or retrospectively, to amend, suspend or terminate this Plan or any Award granted under this Plan without shareholder approval, regarding (i) amendments to fix typographical errors; and (ii) amendments to clarify existing provisions of this Plan that do not have the effect of altering the scope, nature and intent of such provisions; provided however that:
(a) any amendment, suspension or termination is in accordance with applicable laws and Exchange Policies; and
25
(b) no amendment to this Plan or to an Award granted hereunder will have the effect of impairing, derogating from or otherwise adversely affecting the terms of an Award which is outstanding at the time of such amendment without the written consent of the holder of such Award.
If this Plan is terminated, the provisions of this Plan and any administrative guidelines and other rules and regulations adopted by the Board and in force on the date of termination will continue in effect as long as any Award or any rights pursuant thereto remain outstanding and, notwithstanding the termination of this Plan, the Board shall remain able to make such amendments to this Plan or the Award as they would have been entitled to make if this Plan were still in effect.
11.6 Shareholder Approval
Any amendment to this Plan, other than the amendments specified in Section 11.5, is subject to Shareholder approval and, Exchange acceptance of the amendment if required under Exchange policies. For clarity, certain amendments to the provisions of this Plan may be subject only to approval by a majority of Shareholders instead of Disinterested Shareholder Approval, and, if applicable, subject to Exchange approval.
11.7 Notices
All written notices to be given by the Participant to the Corporation shall be delivered by: (a) hand or courier, with all fees and postage prepaid, addressed using the information specified on the SEDAR+ profile of the Corporation, or otherwise designated by the Corporation in writing; or (b) email to the email address that the parties regularly use to correspond with one another or to any other email address specified by the Corporation in writing to the Participant.
Such notices are, if delivered by hand or by courier, deemed to have been given by the sender and received by the addressee at the time of delivery. Any notice sent by email will be deemed to have been given by the sender and received by the addressee on the first business day after it was transmitted. Any notice given by either the Participant or the Corporation is not binding on the recipient thereof until received.
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ADDENDUM A
Prior to the date, if ever, on which any of the Shares become a Listed Security and/or the Corporation is subject to the reporting requirements of the U.S. Exchange Act, the terms set forth herein shall apply to Awards issued to California Participants. Notwithstanding any other provision of this Plan, the provisions of this Addendum A shall apply to any California Award granted or proposed to be granted, unless such California Award is otherwise exempt from the applicable securities laws of California.
12.1 Termination Date
California Awards shall be granted within ten (10) years from the earlier of (i) the date on which this Plan is adopted by the Board and (ii) the date on which this Plan is approved by shareholders of the Corporation.
12.2 Non-Transferability
No California Participant may transfer any California Award or any rights to acquire any securities thereunder except by will, the laws of descent and distribution, to a revocable trust, or as permitted by Rule 701 of the U.S. Securities Act.
12.3 Proportionate Adjustment
In the event of a stock split, reverse stock split, stock dividend, recapitalization, combination, reclassification or other distribution of the issuer's equity securities without the receipt of consideration by the issuer, the Plan Administrator shall, in the case of a California Award that is not a California Option, make a proportionate adjustment to the number of securities allocated to any California Participant, and, in the case of California Options, make a proportionate adjustment to the number of securities purchasable and the exercise price thereof.
12.4 Post-Termination Exercise Period
Subject to Section 12.1, unless employment is terminated for cause, the terms of the Plan or California Option grant or a contract of employment, the right to exercise a California Option by a California Participant in the event of termination of employment of such California Participant, to the extent that the California Participant is entitled to exercise their California Option on the date employment terminate, continues until the earlier of the option Expiry Date or:
(a) Six (6) months from the date of termination, if termination was caused by death or Disability.
(b) At least thirty (30) days from the date of termination, if termination was caused by other than death or Disability.
12.5 Shareholder Approval
The Corporation shall not grant a California Award unless:
(a) the Corporation is a foreign private issuer, as defined by Rule 3b-4 under the U.S. Exchange Act, on the grant date of the California Award, and the aggregate number of persons in California granted awards under all compensation plans and agreements and issued securities under all purchase and bonus plans and agreements of the Corporation does not exceed thirty five (35); or
(b) prior to any grant made in reliance upon this subparagraph (b) and within twelve (12) months before or after the Plan was adopted by the Board, the Plan is approved by a majority of the Corporation's outstanding securities entitled to vote, not counting for the purpose of calculating such vote any securities issued or granted in California.
A-1
SCHEDULE "A"
FORM OF STOCK OPTION AGREEMENT
WITHOUT PRIOR WRITTEN APPROVAL OF CANADIAN SECURITIES EXCHANGE AND COMPLIANCE WITH ALL APPLICABLE SECURITIES LEGISLATION, THE SECURITIES REPRESENTED BY THIS CERTIFICATE [FOR APPLICABLE AWARDS: AND ANY SECURITIES ISSUED UPON EXERCISE, VESTING OR SETTLEMENT HEREOF] MAY NOT BE SOLD, TRANSFERRED, HYPOTHECATED OR OTHERWISE TRADED UNTIL [INSERT THE DATE THAT IS FOUR MONTHS AND ONE DAY AFTER THE DATE OF GRANT].
[Include the following Canadian securities law legend if the Stock Option is granted to a person other than an employee, executive officer, director or consultant of the company or a permitted assign thereof]
UNLESS PERMITTED UNDER SECURITIES LEGISLATION, THE HOLDER OF THIS SECURITY MUST NOT TRADE THE SECURITY BEFORE [INSERT THE DATE THAT IS FOUR MONTHS AND ONE DAY AFTER THE DATE OF GRANT].
[Include the following legend for Stock Options granted to Participants in the United States if the Stock Options and Shares are not registered under the U.S. Securities Act:]
THIS SECURITY AND THE SECURITIES ISSUABLE UPON EXERCISE HEREOF HAVE NOT BEEN AND WILL NOT BE REGISTERED UNDER THE UNITED STATES SECURITIES ACT OF 1933, AS AMENDED (THE "U.S. SECURITIES ACT"), OR THE SECURITIES LAWS OF ANY STATE OF THE UNITED STATES. THIS SECURITY MAY NOT BE EXERCISED IN THE UNITED STATES OR BY OR ON BEHALF OF, OR FOR THE ACCOUNT OR BENEFIT OF, A U.S. PERSON OR A PERSON IN THE UNITED STATES AND THE SHARES ISSUABLE UPON EXERCISE, VESTING OR SETTLEMENT HEREOF MAY NOT BE DELIVERED TO AN ADDRESS IN THE UNITED STATES UNLESS THE COMMON SHARES HAVE BEEN REGISTERED UNDER THE U.S. SECURITIES ACT AND THE APPLICABLE SECURITIES LEGISLATION OF ANY SUCH STATE OR AN EXEMPTION FROM SUCH REGISTRATION REQUIREMENTS IS AVAILABLE. "UNITED STATES" AND "U.S. PERSON" ARE AS DEFINED IN REGULATION S UNDER THE U.S. SECURITIES ACT.
C21 INVESTMENTS INC.
STOCK OPTION AGREEMENT
C21 Investments Inc. (the "Corporation") hereby grants to the holder (the "Participant") named below in accordance with and subject to the terms, conditions and restrictions of this Stock Option Agreement and the provisions of the Equity Incentive Plan (the "Plan") of the Corporation, an option (the "Stock Option") to purchase up to common shares (the "Shares") in the capital stock of the Corporation at an exercise price of $● per Share (the "Exercise Price"). This Stock Option may be exercised at any time and from time to time from and including the following date of the grant of the Stock Option (the "Date of Grant") through to and including up to 5:00 p.m. local time in Vancouver, British Columbia (the "Expiry Time") on the following Expiry Date:
(a) the Date of Grant of this Stock Option is ●, 202●; and
(b) subject to the terms the Plan, the Expiry Date of this Stock Option is ●, 20●.
To exercise this Stock Option, the Participant or, if applicable, the personal representative of any Participant (the "Personal Representative") must deliver to the Corporation at its principal office, prior to the Expiry Time on the Expiry Date, a written notice of exercise (the "Exercise Notice") addressed to the Corporation's Board, in the form attached hereto as Exhibit "B" or such other form as may be approved by the Board from time to time, together with the original of this Stock Option Agreement and cash, certified cheque, bank draft, evidence of wire transferred funds or such other method of payment as the Board deems appropriate (including pursuant to the cashless exercise or net exercise provisions of Section 3.7 and 3.8 of the Plan) payable to the Corporation in an amount equal to the aggregate of the Exercise Price of the Shares in respect of which this Stock Option is being exercised.
A-2
This Stock Option Agreement and the Stock Option evidenced hereby are not assignable or transferable, except with in accordance with the Plan. This Stock Option Agreement shall be subject in all respects to the provisions of the Plan, the terms and conditions of which are hereby expressly incorporated by reference. In the event of any discrepancy between the terms of the Plan and the terms of this Stock Option Agreement, the terms of the Plan shall prevail. This Stock Option is also subject to the terms and conditions contained in Exhibit "A" attached hereto.
[Any share certificates or DRS issued for Shares issued pursuant to an exercise of the Stock Option before ● [date four months and one day after the date of grant] will contain the following legend:]
WITHOUT PRIOR WRITTEN APPROVAL OF CANADIAN SECURITIES EXCHANGE AND COMPLIANCE WITH ALL APPLICABLE SECURITIES LEGISLATION, THE SECURITIES REPRESENTED BY THIS CERTIFICATE [FOR AWARDS: AND ANY SECURITIES ISSUED UPON EXERCISE, VESTING OR SETTLEMENT HEREOF] MAY NOT BE SOLD, TRANSFERRED, HYPOTHECATED OR OTHERWISE TRADED UNTIL [INSERT THE DATE THAT IS FOUR MONTHS AND ONE DAY AFTER THE DATE OF GRANT].
[Include the following Canadian securities law legend if the Stock Option is granted to a person other than an employee, executive officer, director or consultant of the company or a permitted assign thereof]
UNLESS PERMITTED UNDER SECURITIES LEGISLATION, THE HOLDER OF THIS SECURITY MUST NOT TRADE THE SECURITY BEFORE [INSERT THE DATE THAT IS FOUR MONTHS AND ONE DAY AFTER THE DATE OF GRANT].
[Include the following legend for Participants in the United States:]
[If the Stock Options and the Shares issuable on exercise of the Stock Options are not registered under the U,S. Securities Act, the DRS or certificates representing the Shares issuable upon exercise of the Stock Options will bear the following legend upon the original issuance of any such Shares and until the legend is no longer required under applicable requirements of the U.S. Securities Act:]
"THE SECURITIES REPRESENTED HEREBY HAVE NOT BEEN AND WILL NOT BE REGISTERED UNDER THE UNITED STATES SECURITIES ACT OF 1933, AS AMENDED (THE "U.S. SECURITIES ACT") OR STATE SECURITIES LAWS. THE HOLDER HEREOF, BY PURCHASING SUCH SECURITIES, AGREES FOR THE BENEFIT OF C21 INVESTMENTS INC. (THE "CORPORATION") THAT THE SECURITIES REPRESENTED HEREBY MAY BE OFFERED, SOLD, PLEDGED OR OTHERWISE TRANSFERRED, DIRECTLY OR INDIRECTLY, ONLY (A) TO THE CORPORATION; (B) OUTSIDE THE UNITED STATES IN ACCORDANCE WITH REGULATION S UNDER THE U.S. SECURITIES ACT AND IN COMPLIANCE WITH APPLICABLE LOCAL LAWS AND REGULATIONS; (C) PURSUANT TO THE EXEMPTIONS FROM REGISTRATION UNDER THE U.S. SECURITIES ACT PROVIDED BY (I) RULE 144 THEREUNDER, IF AVAILABLE OR (II) RULE 144A, IF AVAILABLE AND IN EACH CASE IN ACCORDANCE WITH APPLICABLE STATE SECURITIES LAWS OF THE UNITED STATES, OR (D) IN A TRANSACTION THAT DOES NOT REQUIRE REGISTRATION UNDER THE U.S. SECURITIES ACT OR ANY APPLICABLE STATE SECURITIES LAWS OF THE UNITED STATES AND, IN THE CASE OF CLAUSES (C)(I) OR (D) ABOVE, OR IF OTHERWISE REASONABLY REQUIRED BY THE CORPORATION, THE SELLER HAS FURNISHED TO THE CORPORATION AN OPINION OF COUNSEL OF RECOGNIZED STANDING IN FORM AND SUBSTANCE REASONABLY SATISFACTORY TO THE CORPORATION TO SUCH EFFECT."
A-3
The Corporation and the Participant hereby represent and warrant to each other that the Participant is a bona fide ● [select applicable role, otherwise delete this paragraph: Employee, Management Company Employee, or Consultant] of the Corporation or a subsidiary of the Corporation.
All capitalized terms in this Stock Option Agreement not otherwise defined herein shall have the meaning given to those terms in the Plan.
The Participant acknowledges receipt of a copy of the Plan and represents to the Corporation that the Participant is familiar with the terms and conditions of the Plan, and hereby accepts this Stock Option subject to all of the terms and conditions of the Plan. The Participant agrees to execute, deliver, file and otherwise assist the Corporation in filing any report, undertaking or document with respect to the awarding of the Stock Option and exercise of the Stock Option, as may be required by any applicable regulatory authority.
Neither the Corporation, the Board, and the Directors, Officers, Employees, Consultants, agents, advisors or representatives of the Corporation or an affiliate of the Corporation shall have any liability for: (i) the income or other tax consequences to Participants arising from participation in the Plan; (ii) any change in the value of the Shares; or
(iii) any delays or errors in the administration of the Plan, except where such person has acted with willful misconduct. Participants should consult their own tax and business advisors as neither the Corporation nor any of its affiliates is providing any such advice to any Participant.
The granting, vesting or settlement of each Award under the Plan is subject to the condition that if at any time the Board determines, in its discretion, that the satisfaction of withholding of tax or withholding liabilities is necessary or desirable in respect of such grant, vesting or settlement, such action is not effective unless such withholding has been effected to the satisfaction of the Board. In such circumstances, the Participant agrees, if requested by the Board, to remit to the Corporation or a subsidiary of the Corporation, as the case may be, at the time of the redemption of the Awards, any such amount necessary to pay the relevant taxing authorities. The Participant hereby acknowledges and confirms that the Corporation may: (a) withhold such amount from any remuneration or other amount payable by the Corporation or a subsidiary of the Corporation to the Participant, (b) require the sale of a number of Shares issued upon exercise, vesting or settlement of such Award and the remittance to the Corporation or the net proceeds from such sale sufficient to satisfy such amount, or (c) require other suitable arrangements for the receipt of such amount. The Participant hereby acknowledges and confirms that the Corporation makes no representation or warranties regarding the tax consequences to the Participant in connection with the Plan.
By signing this Stock Option Agreement, the Participant also provides its express written consent to:
(a) the disclosure of Personal Information (as defined below) by the Corporation to the Canadian Securities Exchange (the "Exchange") with respect to any and all forms required to be filed by the Corporation with the Exchange with respect to the grant of this Award; and
(b) the collection, use and disclosure of Personal Information by the Exchange for the purposes described the policies of the Exchange, or as otherwise identified by the Exchange, from time to time.
"Personal Information" means any information about an identifiable individual, and includes the information
contained in any materials to be filed by the Corporation with the Exchange.
This Stock Option Agreement shall be construed in accordance with and governed by the laws of British Columbia and the federal laws of Canada applicable therein. The parties agree to attorn to the executive jurisdiction of the courts of British Columbia in respect of any dispute arising from this Stock Option Agreement.
[see following page]
A-4
This Stock Option Agreement may be executed (including by electronic means) in any number of counterparts, each of which (including any electronic transmission of an executed signature page), is deemed to be an original, and such counterparts together constitute one and the same instrument.
IN WITNESS WHEREOF the Corporation and the Participant have executed this Stock Option Agreement as of the date set out below.
DATED as of this day of ________________________, _________.
C21 INVESTMENTS INC.
Per:
_________________________________________________
Authorized Signatory
Signature of Participant:
_______________________________________________________
Signature
_______________________________________________________
Print Name
_______________________________________________________
Address
_______________________________________________________
A-5
EXHIBIT "A" TO STOCK OPTION AGREEMENT
[Complete the following additional terms and any other special terms, if applicable, or remove the inapplicable terms or this exhibit entirely.]
The additional terms and conditions attached to the Stock Option represented by this Stock Option Agreement are as follows:
1. The Stock Option will not be exercisable unless and until it has vested and then only to the extent that it has vested. The Stock Option will vest in accordance with the following:
(a) ● Shares (●%) will vest and be exercisable on or after the Date of Grant;
(b) ● additional Shares (●%) will vest and be exercisable on or after ● [date];
(c) ● additional Shares (●%) will vest and be exercisable on or after ● [date]; and
(d) ● additional Shares (●%) will vest and be exercisable on or after ● [date];
A-6
EXHIBIT "B" TO STOCK OPTION AGREEMENT
NOTICE OF EXERCISE OF STOCK OPTION
TO: C21 Investments Inc.
19th Floor, 885 West Georgia Street
Vancouver, BC V6C 3H4
Email: Michael.kidd@cxxi.ca
Attention: Chief Financial Officer
(or such other address as the Corporation may advise)
The undersigned (the "Optionee") hereby irrevocably gives notice, pursuant to the Plan of the Corporation, of the exercise of the Stock Option to acquire and hereby subscribes for (cross out inapplicable items):
(a) all of the Shares;
(b) ____________________of the Shares; or
(c) to exercise ___________Stock Options on a net exercise basis pursuant to Section 3.8 of the Plan, subject to the approval of the Board, and to receive such number of Shares that is equal to the quotient obtained by dividing: (i) the product of the number of Stock Options being exercised multiplied by the difference between the VWAP of the underlying Shares and the Exercise Price of the subject Stock Options, by (ii) the VWAP of the underlying Shares, in accordance with the terms of the Plan,
which are the subject of the Stock Option Agreement attached hereto (attach your original Stock Option Agreement).
The undersigned tenders herewith cash, certified cheque, bank draft, wire transfer transferred funds or such other method of payment as the Board deems appropriate, being (circle one) payable to "C21 Investments Inc." in an amount equal to the aggregate Exercise Price of the aforesaid Shares and directs the Corporation to issue the certificate or DRS evidencing said Shares in the name of the undersigned to be delivered to the undersigned at the following address (provide full complete address):
_______________________________________________________
_______________________________________________________
_______________________________________________________
If the undersigned Optionee is resident in the United States, the undersigned hereby represents, warrants, acknowledges and agrees that unless the Shares issuable hereby have been registered under the United States Securities Act of 1933, as amended (the "U.S. Securities Act"), the issuance hereby is being made pursuant to an exemption or exclusion from the registration requirements of the U.S. Securities Act and similar exemptions under applicable state securities laws. Accordingly, any Common Shares issued prior to an effective registration statement filed with the United States Securities and Exchange Commission will be "restricted securities" as such term is defined in Rule 144 under the U.S. Securities Act, and, therefore may not be transferred, sold, assigned, pledged, hypothecated or otherwise disposed by the Optionee, directly or indirectly, without registration under the U.S. Securities Act and applicable state securities laws or unless in compliance with an available exemption therefrom. The undersigned Optionee understands and agrees that unless the Shares have been registered under the U.S. Securities Act, the certificate(s) representing the Shares and all certificate(s) issued in exchange therefor or in substitution thereof, will be endorsed with the following or a similar legend until such time as it is no longer required under the applicable requirements of the U.S. Securities Act:
"THE SECURITIES REPRESENTED HEREBY HAVE NOT BEEN AND WILL NOT BE REGISTERED UNDER THE UNITED STATES SECURITIES ACT OF 1933, AS AMENDED (THE "U.S. SECURITIES ACT") OR STATE SECURITIES LAWS. THE HOLDER HEREOF, BY PURCHASING SUCH SECURITIES, AGREES FOR THE BENEFIT OF C21 INVESTMENTS INC. (THE "CORPORATION") THAT THE SECURITIES REPRESENTED HEREBY MAY BE OFFERED, SOLD, PLEDGED OR OTHERWISE TRANSFERRED, DIRECTLY OR INDIRECTLY, ONLY (A) TO THE CORPORATION; (B) OUTSIDE THE UNITED STATES IN ACCORDANCE WITH REGULATION S UNDER THE U.S. SECURITIES ACT AND IN COMPLIANCE WITH APPLICABLE LOCAL LAWS AND REGULATIONS; (C) PURSUANT TO THE EXEMPTIONS FROM REGISTRATION UNDER THE U.S. SECURITIES ACT PROVIDED BY (I) RULE 144 THEREUNDER, IF AVAILABLE OR (II) RULE 144A, IF AVAILABLE AND IN EACH CASE IN ACCORDANCE WITH APPLICABLE STATE SECURITIES LAWS OF THE UNITED STATES, OR (D) IN A TRANSACTION THAT DOES NOT REQUIRE REGISTRATION UNDER THE U.S. SECURITIES ACT OR ANY APPLICABLE STATE SECURITIES LAWS OF THE UNITED STATES AND, IN THE CASE OF CLAUSES (C)(I) OR (D) ABOVE, OR IF OTHERWISE REASONABLY REQUIRED BY THE CORPORATION, THE SELLER HAS FURNISHED TO THE CORPORATION AN OPINION OF COUNSEL OF RECOGNIZED STANDING IN FORM AND SUBSTANCE REASONABLY SATISFACTORY TO THE CORPORATION TO SUCH EFFECT."
A-7
The undersigned acknowledges the Stock Option is not validly exercised unless this Notice is completed in strict compliance with this form and delivered to the required address with the required payment prior to 5:00 p.m. local time in Vancouver, B.C. on the Expiry Date of the Stock Option.
Signature of Participant:
_______________________________________________________ Date signed: _______________________________________________________
Signature
_______________________________________________________
Print Name
B-1
SCHEDULE "B"
FORM OF AWARD AGREEMENT FOR RSUS, PSUS AND DSUS
WITHOUT PRIOR WRITTEN APPROVAL OF CANADIAN SECURITIES EXCHANGE AND COMPLIANCE WITH ALL APPLICABLE SECURITIES LEGISLATION, THE SECURITIES REPRESENTED BY THIS CERTIFICATE AND ANY SECURITIES ISSUED UPON EXERCISE, VESTING OR SETTLEMENT HEREOF MAY NOT BE SOLD, TRANSFERRED, HYPOTHECATED OR OTHERWISE TRADED UNTIL [INSERT THE DATE THAT IS FOUR MONTHS AND ONE DAY AFTER THE DATE OF GRANT].
[Include the following Canadian securities law legend if the Award is granted to a person other than an employee, executive officer, director or consultant of the company or a permitted assign thereof]
UNLESS PERMITTED UNDER SECURITIES LEGISLATION, THE HOLDER OF THIS SECURITY MUST NOT TRADE THE SECURITY BEFORE [INSERT THE DATE THAT IS FOUR MONTHS AND ONE DAY AFTER THE DATE OF GRANT].
[Include the following legend for Awards granted to Participants in the United States if the Award and the Common Share underlying the Awards are not registered under the U.S. Securities Act:]
THIS SECURITY AND THE SECURITIES ISSUABLE UPON EXERCISE HEREOF HAVE NOT BEEN AND WILL NOT BE REGISTERED UNDER THE UNITED STATES SECURITIES ACT OF 1933, AS AMENDED (THE "U.S. SECURITIES ACT"), OR THE SECURITIES LAWS OF ANY STATE OF THE UNITED STATES. THE SHARES ISSUABLE UPON EXERCISE, VESTING OR SETTLEMENT HEREOF MAY NOT BE DELIVERED TO AN ADDRESS IN THE UNITED STATES UNLESS THE COMMON SHARES HAVE BEEN REGISTERED UNDER THE U.S. SECURITIES ACT AND THE APPLICABLE SECURITIES LEGISLATION OF ANY SUCH STATE OR AN EXEMPTION FROM SUCH REGISTRATION REQUIREMENTS IS AVAILABLE. "UNITED STATES" AND "U.S. PERSON" ARE AS DEFINED IN REGULATION S UNDER THE U.S. SECURITIES ACT.
C21 INVESTMENTS INC. AWARD AGREEMENT
C21 Investments Inc. (the "Corporation") hereby grants to the holder (the "Participant") named below in accordance with and subject to the terms, conditions and restrictions of this Award Agreement and the provisions of the Equity Incentive Plan (the "Plan") of the Corporation, an award of ● [select Awards to be granted: Restricted Share Units, Performance Share and/or Units Deferred Share Units] (the "Award"), as follows:
Restricted Share Units
Number of RSUs:____________________________________________________________________________________________________
Date of Grant:_______________________________________________________________________________________________________
Restricted Period:____________________________________________________________________________________________________
___________________________________________________________________________________________________________________
Any Performance Criteria: _____________________________________________________________________________________________
___________________________________________________________________________________________________________________
B-2
Other Vesting Conditions:______________________________________________________________________________________________
___________________________________________________________________________________________________________________
Other Terms and Conditions: ___________________________________________________________________________________________
___________________________________________________________________________________________________________________
Form of Settlement (cash payment or Shares or a combination thereof):__________________________________________________________
___________________________________________________________________________________________________________________
Performance Share Units
Number of PSUs:_____________________________________________________________________________________________________
Date of Grant:_______________________________________________________________________________________________________
Performance Criteria: _________________________________________________________________________________________________
___________________________________________________________________________________________________________________
Multipliers:_________________________________________________________________________________________________________
___________________________________________________________________________________________________________________
Performance Period (up to three years):___________________________________________________________________________________
___________________________________________________________________________________________________________________
Other Vesting Conditions:______________________________________________________________________________________________
___________________________________________________________________________________________________________________
Other Terms and Conditions: ___________________________________________________________________________________________
___________________________________________________________________________________________________________________
Form of Settlement (cash payment or Shares or a combination thereof):__________________________________________________________
___________________________________________________________________________________________________________________
Deferred Share Units
Number of DSUs:____________________________________________________________________________________________________
Date of Grant:_______________________________________________________________________________________________________
Other Vesting Conditions:______________________________________________________________________________________________
___________________________________________________________________________________________________________________
Other Terms and Conditions:____________________________________________________________________________________________
___________________________________________________________________________________________________________________
Form of Settlement (cash payment or Shares or a combination thereof):__________________________________________________________
B-3
This Award Agreement and the Award evidenced hereby are not assignable or transferable, except with in accordance with the Plan. This Award Agreement shall be subject in all respects to the provisions of the Plan, the terms and conditions of which are hereby expressly incorporated by reference. In the event of any discrepancy between the terms of the Plan and the terms of this Award Agreement, the terms of the Plan shall prevail.
[Any share certificates or DRS for Shares issued pursuant to the Award before ● [date four months and one day after the date of grant] will contain the following legend:]
WITHOUT PRIOR WRITTEN APPROVAL OF CANADIAN SECURITIES EXCHANGE AND COMPLIANCE WITH ALL APPLICABLE SECURITIES LEGISLATION, THE SECURITIES REPRESENTED BY THIS CERTIFICATE MAY NOT BE SOLD, TRANSFERRED, HYPOTHECATED OR OTHERWISE TRADED UNTIL [INSERT THE DATE THAT IS FOUR MONTHS AND ONE DAY AFTER THE DATE OF GRANT].
[Include the following Canadian securities law legend if the Award is granted to a person other than an employee, executive officer, director or consultant of the company or a permitted assign thereof]
UNLESS PERMITTED UNDER SECURITIES LEGISLATION, THE HOLDER OF THIS SECURITY MUST NOT TRADE THE SECURITY BEFORE [INSERT THE DATE THAT IS FOUR MONTHS AND ONE DAY AFTER THE DATE OF GRANT].
[Include the following legend for Participants in the United States:]
[If the Awards and the Shares issuable on exercise, vesting or settlement of the Awards are not registered under the U,S. Securities Act, the DRS or certificates representing the Shares issuable upon exercise, vesting or settlement of the Award will bear the following legend upon the original issuance of any such Shares and until the legend is no longer required under applicable requirements of the U.S. Securities Act:]
"THE SECURITIES REPRESENTED HEREBY HAVE NOT BEEN AND WILL NOT BE REGISTERED UNDER THE UNITED STATES SECURITIES ACT OF 1933, AS AMENDED (THE "U.S. SECURITIES ACT") OR STATE SECURITIES LAWS. THE HOLDER HEREOF, BY PURCHASING SUCH SECURITIES, AGREES FOR THE BENEFIT OF C21 INVESTMENTS INC. (THE "CORPORATION") THAT THE SECURITIES REPRESENTED HEREBY MAY BE OFFERED, SOLD, PLEDGED OR OTHERWISE TRANSFERRED, DIRECTLY OR INDIRECTLY, ONLY (A) TO THE CORPORATION; (B) OUTSIDE THE UNITED STATES IN ACCORDANCE WITH REGULATION S UNDER THE U.S. SECURITIES ACT AND IN COMPLIANCE WITH APPLICABLE LOCAL LAWS AND REGULATIONS; (C) PURSUANT TO THE EXEMPTIONS FROM REGISTRATION UNDER THE U.S. SECURITIES ACT PROVIDED BY (I) RULE 144 THEREUNDER, IF AVAILABLE OR (II) RULE 144A, IF AVAILABLE AND IN EACH CASE IN ACCORDANCE WITH APPLICABLE STATE SECURITIES LAWS OF THE UNITED STATES, OR (D) IN A TRANSACTION THAT DOES NOT REQUIRE REGISTRATION UNDER THE U.S. SECURITIES ACT OR ANY APPLICABLE STATE SECURITIES LAWS OF THE UNITED STATES AND, IN THE CASE OF CLAUSES (C)(I) OR (D) ABOVE, OR IF OTHERWISE REASONABLY REQUIRED BY THE CORPORATION, THE SELLER HAS FURNISHED TO THE CORPORATION AN OPINION OF COUNSEL OF RECOGNIZED STANDING IN FORM AND SUBSTANCE REASONABLY SATISFACTORY TO THE CORPORATION TO SUCH EFFECT."
The Corporation and the Participant hereby represent and warrant to each other that the Participant is a bona fide ● [select applicable role, otherwise delete this paragraph: Employee, Management Company Employee, or Consultant] of the Corporation or a subsidiary of the Corporation, as the case may be.
All capitalized terms in this Award Agreement not otherwise defined herein shall have the meaning given to those terms in the Plan.
B-4
The Participant acknowledges receipt of a copy of the Plan and represents to the Corporation that the Participant is familiar with the terms and conditions of the Plan, and hereby accepts this Award subject to all of the terms and conditions of the Plan. The Participant agrees to execute, deliver, file and otherwise assist the Corporation in filing any report, undertaking or document with respect to the awarding of the Award and exercise of the Award, as may be required by any applicable regulatory authority.
Neither the Corporation, the Board, and the Directors, Officers, Employees, Consultants, agents, advisors or representatives of the Corporation or an affiliate of the Corporation shall have any liability for: (i) the income or other tax consequences to Participants arising from participation in the Plan; (ii) any change in the value of the Shares; or (iii) any delays or errors in the administration of the Plan, except where such person has acted with willful misconduct. Participants should consult their own tax and business advisors as neither the Corporation nor any of its affiliates is providing any such advice to any Participant.
The granting, vesting or settlement of each Award under the Plan is subject to the condition that if at any time the Board determines, in its discretion, that the satisfaction of withholding of tax or withholding liabilities is necessary or desirable in respect of such grant, vesting or settlement, such action is not effective unless such withholding has been effected to the satisfaction of the Board. In such circumstances, the Participant agrees, if requested by the Board, to remit to the Corporation or a subsidiary of the Corporation, as the case may be, at the time of the redemption of the Awards, any such amount necessary to pay the relevant taxing authorities. The Participant hereby acknowledges and confirms that the Corporation may: (a) withhold such amount from any remuneration or other amount payable by the Corporation or a subsidiary of the Corporation to the Participant, (b) require the sale of a number of Shares issued upon exercise, vesting or settlement of such Award and the remittance to the Corporation or the net proceeds from such sale sufficient to satisfy such amount, or (c) require other suitable arrangements for the receipt of such amount. The Participant hereby acknowledges and confirms that the Corporation makes no representation or warranties regarding the tax consequences to the Participant in connection with the Plan.
By signing this Award Agreement, the Participant also provides its express written consent to:
(a) the disclosure of Personal Information (as defined below) by the Corporation to the Canadian Securities Exchange (the "Exchange") with respect to any and all forms required to be filed by the Corporation with the Exchange with respect to the grant of this Award; and
(b) the collection, use and disclosure of Personal Information by the Exchange for the purposes described in the policies of the Exchange, or as otherwise identified by the Exchange, from time to time.
"Personal Information" means any information about an identifiable individual, and includes the information
contained in any materials to be filed by the Corporation with the Exchange.
This Award Agreement shall be construed in accordance with and governed by the laws of British Columbia and the federal laws of Canada applicable therein. The parties agree to attorn to the executive jurisdiction of the courts of British Columbia in respect of any dispute arising from this Award Agreement.
B-5
This Award Agreement may be executed (including by electronic means) in any number of counterparts, each of which (including any electronic transmission of an executed signature page), is deemed to be an original, and such counterparts together constitute one and the same instrument.
IN WITNESS WHEREOF the Corporation and the Participant have executed this Award Agreement as of the date set out below.
DATED as of this day of ________________________, _________.
C21 INVESTMENTS INC.
Per:
_________________________________________________
Authorized Signatory
Signature of Participant:
_______________________________________________________
Signature
_______________________________________________________
Print Name
_______________________________________________________
Address
_______________________________________________________
| Name of Subsidiary | Country of Incorporation |
Percentage Ownership |
Principal Activity |
| 320204 US Holdings | USA | 100% | Holding Company |
| 320204 Oregon Holdings Corp | USA | 100% | Holding Company |
| 320204 Nevada Holdings Corp | USA | 100% | Holding Company |
| Silver State Cultivation LLC | USA | 100% | Cannabis producer |
| Silver State Relief LLC | USA | 100% | Cannabis retailer |
| Workforce Concepts 21, Inc | USA | 100% | Payroll and benefits services |
Exhibit 12.1
CERTIFICATION REQUIRED BY RULE 13a-14(a) UNDER THE SECURITIES EXCHANGE
ACT OF 1934
I, Sonny Newman, certify that:
1. I have reviewed this annual report on Form 20-F of C21 Investments Inc. (the "Issuer");
2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;
3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the Issuer as of, and for, the periods presented in this report;
4. The Issuer's other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the Issuer and have:
a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the Issuer, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;
b) Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;
c) Evaluated the effectiveness of the Issuer's disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and
d) Disclosed in this report any change in the Issuer's internal control over financial reporting that occurred during the period covered by the annual report that has materially affected, or is reasonably likely to materially affect, the Issuer's internal control over financial reporting.
5. The Issuer's other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the Issuer's auditor and the audit committee of the Issuer's board of directors (or persons performing the equivalent functions):
a) All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the Issuer's ability to record, process, summarize and report financial information; and
b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the Issuer's internal control over financial reporting.
| Date: June 10, 2026 | By: | /s/ Sonny Newman |
| Sonny Newman | ||
| President and Chief Executive Officer | ||
| (Principal Executive Officer) |
Exhibit 12.2
CERTIFICATION REQUIRED BY RULE 13a-14(a) UNDER THE SECURITIES EXCHANGE
ACT OF 1934
I, Michael Kidd, certify that:
1. I have reviewed this annual report on Form 20-F of C21 Investments Inc. (the "Issuer");
2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;
3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the Issuer as of, and for, the periods presented in this report;
4. The Issuer's other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the issuer and have:
a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the issuer, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;
b) Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;
c) Evaluated the effectiveness of the Issuer's disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and
d) Disclosed in this report any change in the Issuer's internal control over financial reporting that occurred during the period covered by the annual report that has materially affected, or is reasonably likely to materially affect, the Issuer's internal control over financial reporting.
5. The Issuer's other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the Issuer's auditor and the audit committee of the Issuer's board of directors (or persons performing the equivalent functions):
a) All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the Issuer's ability to record, process, summarize and report financial information; and
b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the Issuer's internal control over financial reporting.
| Date: June 10, 2026 | By: | /s/ Michael Kidd |
| Michael Kidd | ||
| Chief Financial Officer and Director | ||
| (Principal Financial and Accounting Officer) |
Exhibit 13.1
CERTIFICATION PURSUANT TO
18 U.S.C. §1350,
AS ADOPTED PURSUANT TO
SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002
In connection with the Annual Report of C21 Investments Inc. (the "Company") on Form 20-F for the period ended March 31, 2026, as filed with the Securities and Exchange Commission on the date hereof (the "Report"), I, Sonny Newman, President and Chief Executive Officer of the Company, certify, pursuant to 18 U.S.C. §1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that:
(1) The Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934; and
(2) The information contained in this Report fairly presents, in all material respects, the financial condition and results of operations of the Company.
| June 10, 2026 | /s/ Sonny Newman |
| Sonny Newman | |
| President and Chief Executive Officer | |
| (Principal Executive Officer) |
A signed original of this written statement required by Section 906 has been provided to C21 Investments Inc. and will be retained by C21 Investments Inc. and furnished to the Securities and Exchange Commission or its staff upon request.
Exhibit 13.2
CERTIFICATION PURSUANT TO
18 U.S.C. §1350,
AS ADOPTED PURSUANT TO
SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002
In connection with the Annual Report of C21 Investments Inc. (the "Company") on Form 20-F for the period ended March 31, 2026, as filed with the Securities and Exchange Commission on the date hereof (the "Report"), I, Michael Kidd, Chief Financial Officer of the Company, certify, pursuant to 18 U.S.C. §1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that:
(1) The Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934; and
(2) The information contained in this Report fairly presents, in all material respects, the financial condition and results of operations of the Company.
| June 10, 2026 | /s/ Michael Kidd |
| Michael Kidd | |
| Chief Financial Officer | |
| (Principal Financial and Accounting Officer) |
A signed original of this written statement required by Section 906 has been provided to C21 Investments Inc. and will be retained by C21 Investments Inc. and furnished to the Securities and Exchange Commission or its staff upon request.
C21 INVESTMENTS INC.
Management's Discussion and Analysis For the Year Ended March 31, 2026 (Expressed in U.S. Dollars) |
GENERAL
C21 Investments Inc. (the "Company", "C21", "we", "us", "it" 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.
This Management's Discussion and Analysis ("MD&A") covers the operations of the Company for the year ended March 31, 2026. The MD&A should be read in conjunction with the Company's audited consolidated financial statements and accompanying notes for the year ended March 31, 2026. All inter-company balances and transactions have been eliminated upon consolidation. The Company's financial statements are prepared in accordance accounting principles generally accepted in the United States of America ("GAAP"). Financial information presented in this MD&A is presented in United States dollars ("$" or "US$"), unless otherwise indicated.
The Company's audited consolidated financial statements for the year ended March 31, 2026 and the year ended March 31, 2025, were authorized for issuance on June 10, 2026 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. 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 operations 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 2026:
- On April 1, 2026, the Company granted 1,250,000 restricted share units ("RSUs") to officers and employees. One third of the RSU's will vest and become exercisable on May 1, 2026, provided the holder remains actively employed or engaged with the Company on that date. The remaining two-thirds will vest in equal installments on April 1, 2027 and April 1, 2028, subject to the holders continued active employment of engagement with the Company.
- On April 1, 2026, the Company granted 1,275,000 deferred share units ("DSUs") to directors of the company. Of the DSU's granted, 50% vested and became exercisable on the grant date, the other 50% will vest and become exercisable on April 1, 2027. Common shares are issued upon departure of individuals according to the number of DSU's vested as at the departure date.
- During the year ended March 31, 2026, the Company purchased for cancellation 479,000 of its own common shares in the open market pursuant to a NCIB (see below December 5, 2025) and a previous NCIB that ended on December 2, 2025.
- On Dec 5, 2025, the Company announced that it intends to commence a normal course issuer bid (NCIB) under which it may purchase up to 5,898,596 common shares of the Company representing approximately 5% of the issued and outstanding shares of the Company. The Company may purchase common shares for a period of 12 months ending on December 9, 2026. All shares will be purchased on the open market at the prevailing market prices. The Company repurchased 255,500 shares to date.
- On September 8, 2025, the Company announced the completion of a non-dilutive creation and issuance of subordinate voting shares. Representing the same economic interest as 100 common shares of the Company, these 100 million shares will not impact in any way the economic or voting rights of the Common Shares outstanding at any time and are non-dilutive. The purpose of the issuance of these subordinate voting shares is to ensure the Company maintains its "Foreign private issuer" status in the United States. Each of the 100 million subordinate voting shares is convertible into .000001 of a common share of the Company. See the News release of September 8, 2025 for complete details.
- On September 4, 2025, the Company announced the settlement of the Eco Firma Farms litigation. This settlement represents the resolution of the final remaining dispute in the Companies' exit from the Oregon market. This settlement is offset by the resulting extinguishment of $1.16 million in Convertible notes and $0.61 million in accounts payable. The Company will pay $2.4 million in cash consideration over 19 months including an initial payment of $0.5 million (made on September 11, 2025) and monthly payments of $0.1 million thereafter. The Company will also issue 555,793 shares in share consideration (which was recorded in 2018 as a commitment to issue shares).
- The Company has taken the position that it does not owe taxes attributable to the application of Section 280E of the Internal Revenue Code of 1986, including the refiling of amended U.S. federal income tax returns for the years ended January 31, 2022, January 31, 2023, January 31, 2024, and the two months ended March 31, 2024, based on legal interpretations that challenge its tax liability under Section 280E of the Code. Management exercises significant judgment when assessing the probability of successfully sustaining the Company's tax filing positions, and in determining whether a contingent tax liability should be recorded and, if so, estimating the amount. See disclosure of Risks Factors later in this document.
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.
NEVADA
The Company acquired Silver State Relief and Silver State Cultivation ("Silver State") on January 1, 2019. On June 7, 2024 acquired a cannabis dispensary license and opened a dispensary located in South Reno, Nevada. The Nevada business operates in Sparks, Reno and Fernley.
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 cannabis 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 cannabis 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 cannabis flower strains, together with the Silver State branded products which include cannabis flower, pre-rolls, and concentrates. In-house brands make up 37% of sales in the dispensaries. Wholesale sales were $1.3 million for the year ended March 31, 2026 ($1.5 million in year ended March 31, 2025).
Retail
The Company now owns and operates three dispensaries with the acquisition of the third, the South Reno Dispensary, finalized on June 7, 2024. Its grand opening was on June 26, 2024. It is a 6,500 square foot, purpose-built, retail cannabis dispensary. With the dispensary's desirable location in a high traffic, flourishing area of Southern Reno, the Company has seen strong revenue growth from this acquisition, along with the added benefit of allowing it to expand the portion of our cultivation capacity sell through.
Our two established stores are an 8,000-square foot retail dispensary, located in Sparks, Nevada, and a 6,000-square foot dispensary located in Fernley, Nevada. Silver State Relief had total retail sales of $31.3 million during the year ended March 31, 2026 as compared to $28.7 million in the year ended March 31, 2025. The three stores now collectively service a total of more than 175,000 recreational and medical cannabis customers per quarter, with over 700 SKUs in each store.
RESULTS OF OPERATIONS
Summary derived from the Company's consolidated financial statements:
| C21 Investments Inc., PROFIT AND LOSS | Year ended | Year ended | Two months ended |
||||||
| 31-Mar-26 | 31-Mar-25 | 31-Mar-24 | |||||||
| Revenue | 32,614,513 | 30,117,880 | 4,464,950 | ||||||
| Inventory expensed to cost of sales | 19,009,393 | 17,558,940 | 2,688,650 | ||||||
| Gross profit | 13,605,120 | 12,558,940 | 1,776,300 | ||||||
| Gross Margin% | 41.7% | 41.7% | 39.8% | ||||||
| Expenses | |||||||||
| General and administration | 8,234,388 | 7,728,838 | 1,151,305 | ||||||
| Sales, marketing, and promotion | 241,063 | 207,634 | 21,581 | ||||||
| Operating lease cost | 834,421 | 785,241 | 106,283 | ||||||
| Depreciation and amortization | 1,780,182 | 1,706,012 | 207,225 | ||||||
| Share based compensation | 236,779 | 849,559 | - | ||||||
| Total expenses | 11,326,833 | 11,277,284 | 1,486,394 | ||||||
| Income from operations | 2,278,287 | 1,281,656 | 289,906 | ||||||
| Income from operations% | 7.0% | 4.3% | 6.5% | ||||||
| Other items | |||||||||
| Interest expense | (187,241 | ) | (293,675 | ) | - | ||||
| Accretion expense | (372,018 | ) | (509,871 | ) | - | ||||
| Other Income (loss) | (369,398 | ) | (135,446 | ) | 9,209 | ||||
| Gain on change in fair value of derivative liabilities | 29,160 | 52,257 | 22,189 | ||||||
| Net income (loss) from continuing operations before income taxes | 1,378,790 | 394,921 | 321,304 | ||||||
| Income tax expense | (4,614,428 | ) | (4,151,650 | ) | (372,743 | ) | |||
| Net income (loss) from continuing operations after income taxes | (3,235,638 | ) | (3,756,729 | ) | (51,439 | ) | |||
| Net loss from discontinued operations | (8,080 | ) | (212,813 | ) | (22,965 | ) | |||
| Net income (loss) | (3,243,718 | ) | (3,969,542 | ) | (74,404 | ) | |||
| Income (loss) from continuing operations per share, basic and dilute | (0.03 | ) | (0.03 | ) | (0.00 | ) | |||
| Basic and diluted income (loss) per share | (0.03 | ) | (0.03 | ) | (0.00 | ) | |||
| Distributions or cash dividends | n/a | n/a | n/a | ||||||
| Weighted average number of shares outstanding - basic | 117,910,795 | 119,794,951 | 120,047,814 | ||||||
| Weighted average number of shares outstanding - diluted | 118,466,588 | 120,588,044 | 122,880,907 |
"Revenue" includes retail revenues from our three stores and wholesale revenue from our cultivation operations. Financial Year ("FY") and the year ended March 31, 2026 ("FY2026") and the year ended March 31, 2025 ("FY2025") are defined here. FY2026 revenues increased versus FY2025 by 8.3% to $32.6 million. This increase is mainly due to a full year of operations in our third store. State of Nevada sales were down 10.0% over the comparative period.
"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" increased by $1.05 million in FY 2026 to $13.61 million (41.7% of Revenue) versus FY 2025 of $12.56 million (41.7% of Revenue), mainly due to economies of scale with the added third store.
"Income from operations" Income from operations for FY 2026 increased to $2.3 million, up 78% versus FY 2025 of $1.3 million. This result is due to increased gross profit of $1.0 million, a decrease in share-based compensation expense (a non-cash expense) of $0.6 million, offset by small increases in other expenses.
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. FY 2026 costs were $8,234,388 versus $7,728,838 (FY2025), an increase of $505,550 (6.5%) due to increased salaries, wages and professional fees.
"Operating lease cost" is the cost of our facility leases not included in cost of sales and were $834,421 in FY 2026 versus $785,241 in FY 2025. The increase is due to the addition of our third store.
"Depreciation and amortization" include provisions for fixed assets and intangibles not included in cost of sales. The total depreciation and amortization in FY2026 was $1,780,182 versus $1,706,012 in FY 2025.
"Share based compensation" is a non-cash item and reflects the issuance of stock options to employees, officers, and directors. The decrease of $612,780 in FY 2026 is due to no issuance of stock options in FY2026.
Other Items
"Interest expense" in FY2026 decreased to $187,241 versus $293,675 in FY 2025 due to repayment of the 12% convertible debentures during the year.
"Accretion expense" in FY2026 decreased to $372,018 versus $509,871 in FY2025 due to repayment of the 12% convertible debentures during the year.
"Other income (loss)" in FY2026 is a loss of $369,398 versus a loss of $135,446 in FY 2025. This is due mainly to the settlement of the Eco Firma Farms litigation.
"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 as at year end March 31, 2026. Of the original 10.5 million of earn out shares to both Phantom and Swell, 1.2 million remain. As of March 31, 2026, the fair value of the remaining shares making up the derivative liability have been written down to zero.
The Swell Earn-Out shares expired May 24, 2026.
"Provision for income taxes" for FY 2026 of $4,614,428 is up from $4,151,650 in FY2025. The Company had more taxable income in the current year as well as interest and penalties relating to prior years.
"Other comprehensive income (loss)," specifically the cumulative translation adjustment, comes about in GAAP when translating the balances between the parent company (recorded in C$) 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. There is no effect of this treatment on our revenues (FY2026 -$nil, FY2025-$nil) and our gross profit (FY2026-$nil, FY2025-$nil) and an increase to our income from operations and net income of (FY 2026-$8,080, FY2025-$212,813). 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. Our remaining two properties in Oregon were both sold to third parties in FY 2025.
FOURTH QUARTER
| LAST EIGHT QUARTERS, except as noted | (000's unless noted) | |||||||||||||||||||||||
| 31-Mar-26 | 31-Dec-25 | 30-Sep-25 | 30-Jun-25 | 31-Mar-25 | 31-Dec-24 | 30-Sep-24 | 30-Jun-24 | |||||||||||||||||
| Inventory | 4,591 | 4,257 | 4,767 | 4,163 | 4,051 | 3,885 | 3,975 | 3,300 | ||||||||||||||||
| Revenues | 7,450 | 8,141 | 8,470 | 8,553 | 8,106 | 7,908 | 7,509 | 6,596 | ||||||||||||||||
| Income (loss) from operations, adding back share based compensation | 531 | 404 | 1,279 | 301 | 974 | 1,122 | 454 | (418 | ) | |||||||||||||||
| Adjusted EBITDA | 1,181 | 1,051 | 2,216 | 1,069 | 1,692 | 1,568 | 1,295 | 311 | ||||||||||||||||
| Income (loss) from continuing operations | (1,388 | ) | (609 | ) | (482 | ) | (757 | ) | (1,530 | ) | (81 | ) | (759 | ) | (1,386 | ) | ||||||||
| *per common share, basic & diluted | (0.01 | ) | (0.01 | ) | (0.00 | ) | (0.01 | ) | (0.01 | ) | (0.00 | ) | (0.01 | ) | (0.01 | ) | ||||||||
| Profit (loss) attributable to owners | (1,377 | ) | (624 | ) | (448 | ) | (842 | ) | (1,563 | ) | (1 | ) | (845 | ) | (1,412 | ) | ||||||||
| *per common share basic & diluted | (0.01 | ) | (0.01 | ) | (0.00 | ) | (0.01 | ) | (0.01 | ) | (0.00 | ) | (0.01 | ) | (0.01 | ) | ||||||||
Revenues continued to grow in the last 12 months with the opening of our third store in South Reno on June 26, 2024.
Inventory balance at March 31, 2026, increased by $1.3 million since June 30, 2024 due to the opening of our third store and additional stock on hand for additional 4/20 sales.
Adjusted EBITDA for quarter-ended March 31, 2026, was up slightly from the quarter-ended December 31, 2025. See non-GAAP financial measures below.
Federal corporate income taxes are very high in the cannabis industry due to the restrictions of Section 280E of the U.S Internal Revenue Code. Share-based compensation is a non-cash expense. Therefore, the measure of income from operations (before taxes), adding back share-based compensation is a useful measure.
Adjusted EBITDA for the full year ended March 31, 2026 (FY 2026) is $5.52 million, an increase of $650,461 from FY 2025 of $4.87 million. See explanation of non-GAAP financial measures below.
| Adjusted EBITDA | |||||||||
| Year ended | Year ended | 2 months ended | |||||||
| March 31, 2026 | March 31, 2025 | March 31, 2024 | |||||||
| Net Income (loss) | $ | (3,243,718 | ) | $ | (3,969,542 | ) | $ | (74,404 | ) |
| Interest, accretion expenses, net | 559,259 | 803,546 | - | ||||||
| Provision for income taxes | 4,614,428 | 4,151,650 | 372,743 | ||||||
| Depreciation and amortization | 1,780,182 | 1,706,012 | 207,225 | ||||||
| Depreciation and interest in cost of sales | 812,368 | 812,366 | 135,395 | ||||||
| EBITDA | 4,522,519 | 3,504,032 | 640,959 | ||||||
| Change in fair value of derivative liabilities | (29,160 | ) | (52,257 | ) | (22,189 | ) | |||
| Share based compensation | 236,779 | 849,559 | - | ||||||
| Loss from discontinued operations | 8,080 | 212,813 | 22,965 | ||||||
| One-time special project costs | 408,681 | 187,543 | - | ||||||
| Production curtailment, inventory adjustments | - | 28,700 | - | ||||||
| Other gain/loss | 369,398 | 135,446 | (9,209 | ) | |||||
| Adjusted EBITDA | $ | 5,516,297 | $ | 4,865,836 | $ | 632,526 |
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 the current presentation.
"Free Cash Flow" is defined as Cash Provided by Operating Activities from Continuing Operations in a period minus capital expenses of property and equipment. Management believes that Free Cash Flow, which measures our ability to generate additional 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.
| FREE CASH FLOW | |||||||||
| Year ended | Year ended | 2 months ended | |||||||
| Mar 31, 2026 | Mar 31, 2025 | Mar 31, 2024 | |||||||
| Cash provided by operating activities before taxes and changes in working capital (continuing operations) | $ | 4,803,570 | $ | 4,432,159 | $ | 588,813 | |||
| Purchases of property and equipment | (244,838 | ) | (406,733 | ) | (51,483 | ) | |||
| Free Cash Flow | $ | 4,558,732 | $ | 4,025,426 | $ | 537,330 |
SELECTED ANNUAL INFORMATION
The following table summarizes selected information for the most recent three fiscal year ends.
| Selected Balance Sheet (000's) | as at: | ||||||||
| 31-Mar-26 | 31-Mar-25 | 31-Mar-24 | |||||||
| Assets | |||||||||
| Cash and other | 3,716 | 3,453 | 5,272 | ||||||
| Inventory | 4,591 | 4,051 | 2,866 | ||||||
| current | 8,307 | 7,504 | 8,138 | ||||||
| Property and equipment | 2,299 | 2,666 | 3,391 | ||||||
| Goodwill, Intangibles, Right of use | 43,813 | 46,830 | 43,697 | ||||||
| Total assets | 54,419 | 57,000 | 55,226 | ||||||
| Liabilities | |||||||||
| Accounts payable | 1,861 | 2,148 | 2,593 | ||||||
| Convertible debentures and other | 1,932 | 2,134 | 1,156 | ||||||
| Income taxes payable | 1,655 | 2,834 | 10,230 | ||||||
| Deferred tax , other | 939 | 841 | 1,067 | ||||||
| current | 6,387 | 7,957 | 15,047 | ||||||
| Lease liabilities | 9,136 | 9,771 | 9,120 | ||||||
| Uncertain tax position | 13,362 | 9,823 | - | ||||||
| Convertible debentures | - | 710 | - | ||||||
| Other | 100 | 63 | 85 | ||||||
| Non-current financial liabilities | 22,598 | 20,367 | 9,205 | ||||||
| Equity | 25,434 | 28,676 | 30,973 | ||||||
| Total liabilities and equity | 54,419 | 57,000 | 55,226 |
"Total Assets" decreased in the past year due to amortization of fixed assets offset by the increase in inventory. Inventory has increased in the past couple of years due to the addition of our third dispensary in June 2024 for consideration of $3.5 million. This acquisition reduced our cash balance, increased inventory to stock the new store, and increased intangibles.
"Current liabilities" has decreased mainly due to the change in our position on the 280E income taxes. This change in position has moved much of the income tax payable balance to long term included in Uncertain tax position. The convertible debenture balance increased with the issuance of 12% convertible debentures to assist in funding the acquisition of the third dispensary. Reduction of current income taxes is due to making cash payment of income taxes during the year of $2.4 million (FY March 31, 2025 - $1.5 million).
"Non-current financial liabilities" has increased in the past couple of years with the change in our position on 280E income taxes. Uncertain tax position is $13.4 million versus nil two years ago.
RELATED PARTY TRANSACTIONS
A summary of the Company's related balances included in accounts payable, accrued liabilities, and promissory note payable is as follows:
| March 31, 2026 |
March 31, 2025 |
March 31, 2024 |
|||||||
| $ | $ | $ | |||||||
| Lease liabilities due to a company controlled by the Chief Executive Officer ("CEO") | 4,288,924 | 4,630,273 | 4,917,482 | ||||||
| Due to the Chief Financial Officer ("CFO") | 400 | 557 | 770 | ||||||
| 4,289,324 | 4,630,830 | 4,918,252 |
"Lease liabilities due to the CEO" consists of the lease on one of our buildings.
A summary of the Company's transactions with related parties including key management personnel for the years ended March 31, 2026, March 31, 2025 and the two months ended March 31, 2024 is as follows:
| Year ended | Year ended | Two months ended |
|||||||
| March 31, 2026 |
March 31, 2025 |
March 31, 2024 |
|||||||
| $ | $ | $ | |||||||
| Consulting fees paid to a director | 60,000 | 60,000 | 30,000 | ||||||
| Amounts paid to CEO or companies controlled by CEO for leases | 791,188 | 768,143 | 126,756 | ||||||
| Amounts paid to CEO or companies controlled by CEO for remuneration | 200,000 | 200,000 | 38,462 | ||||||
| Salary paid to directors and officers | 511,135 | 489,042 | 92,420 | ||||||
| Share-based compensation | 154,845 | 513,735 | - | ||||||
| 1,717,168 | 2,030,920 | 287,638 |
SHARE CAPITAL
The Company is authorized to issue an unlimited number of Common Shares.
As of March 31, 2026, there were:
- 117,836,067 Common Shares issued and outstanding;
- 5,375,000 options outstanding to purchase Common Shares, of which 3,583,333 options had vested;
- 4,000,000 warrants outstanding to purchase Common Shares; and
- no restricted share units ("RSUs") outstanding to purchase Common Shares.
- 555,793 acquisition shares to EFF vendors, yet to be issued. See 'Settlement of Legal Proceedings' later in this MD&A. These were issued on May 27, 2026.
As of June 10, 2026 (the date of this MD&A) the Company had the following securities outstanding:
| Type of Security | Number outstanding | ||||
| Common Shares | 118,678,994 | ||||
| Stock Options | 5,375,000 | ||||
| Warrants | 4,000,000 | ||||
| RSU's/DSU's | 2,108,339 | ||||
| Subordinated Voting shares (100 million) convert to common shares | 100 | ||||
| 130,162,433 | |||||
OVERALL PERFORMANCE
FACTORS AFFECTING PERFORMANCE:
EMPLOYEES
The Company's employees are highly talented individuals who have educational achievements ranging from Ph.D., Masters, and undergraduate degrees in a wide range of disciplines, as well as staff who have been trained on the job to uphold the highest standards set by the Company. The Company hires and promotes individuals who are best qualified for each position, priding itself on using a process that identifies people who are trainable, cooperative and share the Company's core values.
The Company takes all reasonable steps to ensure staff are appropriately informed and trained to ensure 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 ("CDC") and all orders from relevant provincial, state and local jurisdictions and authorities.
BRANDING AND MARKETING
The Company utilizes consistent branding and messaging across its retail and wholesale channels under Phantom Farms, Hood Oil, and Silver State Relief. The Company currently sells over 700 distinct SKUs, including the following product categories: CO2 vaporizer pens, live resin vaporizer pens, distillate vaporizer pens, live resin extract, cured resin extract, wholesale cannabis flower, packaged cannabis flower, pre-rolls, CBD cured resin vaporizer pens, CBD CO2 vaporizer pens, and CBD cured resin extracts.
BANKING AND PROCESSING
In Nevada, the Company deposits funds from its operations into its bank accounts held at FFB-First Fresno Bank, Greater Nevada Credit Union and Partner Colorado Credit Union through Safe Harbor Private Banking services. The Company is fully transparent with its banking partners regarding the nature of its business.
PRODUCT SELECTION AND OFFERINGS
Product selection decisions are currently made by the Company's buyers, who negotiate with potential vendors across all product categories including packaged and wholesale cannabis flower, vaporizer pens, cured extracts, edibles and pre-rolls. The Company bases its product selection decisions on product quality, margin potential, and scalability.
The Company's branded CPG and flower-based products are sold primarily through captive retail and wholesale channels in Nevada. The Company's retail locations in Nevada also offer third party branded CPG and flower-based products including a wide variety of THC and CBD based products, including vaporizer pens, cured resin extracts, wholesale cannabis flower, packaged cannabis flower, pre-rolls, edibles, tinctures, and topicals.
IN-STORE PICKUP, CURBSIDE DELIVERY AND DELIVERY
In addition to traditional point-of-sale retail, the Company's Nevada retail locations offer in-store pickup, curbside delivery and delivery utilizing the leading third-party service providers, a leading cannabis sales and fulfillment web-based application. The Company actively monitors the continued growth of a number of cannabis web-based sales and fulfillment platforms and is well poised to utilize strategic third-party service providers.
INVENTORY MANAGEMENT
The Company has comprehensive inventory management procedures, which are compliant with all applicable state and local laws, regulations, ordinances, and other requirements. These procedures ensure strict controls over the Company's cannabis flower and CPG inventory from its production, processing and distribution licensees through to ultimate sale to end consumers (or rare cases disposal as cannabis waste). Such inventory management procedures also include strong quality control and quality assurance measures to prevent in-process contamination and maintain the safety and quality of the products. The Company is committed to supplying safe, consistent, and high-quality cannabis flower and CPG products at a value-oriented price.
RESEARCH AND DEVELOPMENT
Through its research and development activities, the Company expects to create proprietary genetics, processes, technologies, and products from its existing Nevada operations, as well as from future expansion in new markets. The Company may license these genetics, processes, technologies, and products as part of its future business. The Company may also seek appropriate federal patent, trademark, copyright, and other customary intellectual property protections when the same becomes available and/or are appropriate.
COMPETITION
Across a modified and strategic cannabis value chain, the Company expects to continue to vigorously compete with other licensees in Nevada. Nevada is a "limited" license state, therefore competition to date has been less challenging and the broader market dynamics are more favorable. While many of the Company's direct competitors continue to be small-scale local operators, market rationalization through consolidation is increasingly a trend. Of note is the increased participation of multi-state operators with national growth aspirations in the Nevada marketplace. As more U.S. jurisdictions pass state legislation allowing the recreational use and sale of cannabis, the Company is assured an increased level of competition in U.S. markets. These increasingly competitive U.S. markets may adversely affect the financial condition and operations of the Company.
INTELLECTUAL PROPERTY
The Company has developed numerous proprietary genetics, processes, technologies and products. These assets include genetics, ERP and other software applications, cultivation and extraction technologies, as well as consumer brands. Whenever it is available and appropriate, the Company undertakes reasonable intellectual property protections to secure these assets.
To date, absent the availability of customary federal patent, trademark, and copyright protections for cannabis applications, the Company has relied on non-disclosure/confidentiality arrangements, common law trade secrets, and state-based trademark protections. The Company actively monitors and responds to all potentially material intellectual property infringements and maintains strict standards and controls regarding the use and dissemination of its intellectual property.
In addition, the Company owns three (3) website domains including: www.cxxi.ca, www.phantom-farms.com and www.silverstaterelief.com, along with social media accounts across several platforms.
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 March 31, 2026 | ||||||||||||||||||
| Trade and other payables | $ | 1,861,171 | $ | 1,861,171 | $ | 1,861,171 | $ | - | $ | - | $ | - | ||||||
| Finance lease payments (1) | 9,771,124 | 14,981,069 | 1,582,287 | 3,308,405 | 3,509,886 | 6,580,491 | ||||||||||||
| Convertible & settlement debt (2) | 2,032,638 | 2,032,638 | 1,932,638 | 100,000 | - | - | ||||||||||||
| Total | $ | 13,664,933 | $ | 18,874,878 | $ | 5,376,096 | $ | 3,408,405 | $ | 3,509,886 | $ | 6,580,491 |
(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 the EFF settlement and convertible debenture agreements.
ADDITIONAL INFORMATION
SETTLEMENT OF LEGAL PROCEEDINGS
On September 4, 2025, the Company entered into a settlement agreement (the "EFF Settlement Agreement") with respect to certain actions filed in the Oregon State Circuit Court for Clackamas County and the Oregon Court of Appeals by two owners (each, a "Vendor") of Proudest Monkey Holdings, LLC ("Proudest Monkey"), an entity that was previously the sole owner of EFF (the "Oregon Actions") and an action filed in the Supreme Court of British Columbia by Proudest Monkey and one of its owners (the "BC Action", and together with the Oregon Actions, the "Litigation"). The Company acquired all the membership units of EFF from Proudest Monkey pursuant to a purchase and sale agreement dated January 19, 2018 (the "EFF Agreement").
Pursuant to the Oregon Actions, two Vendors made claims related to contract, employment and statutory damages against the Company, its wholly owned subsidiaries 320204 US Holdings Corp, EFF, Swell Companies Limited, and Phantom Brands LLC, and three directors, two officers, and one former employee of the Company. The Company alleged breach and default under the EFF Agreement in connection with certain conduct by the Vendors which occurred prior to and after the completion of the acquisition of EFF. As a result, the Company withheld issuing certain equity consideration payable to the Vendors pursuant to the terms of the EFF Agreement, as a result of which Proudest Monkey and one of the Vendors launched the BC Action, to which the Company filed counterclaims.
In addition to such other terms and conditions as agreed to among the parties, pursuant to the EFF Settlement Agreement, the parties to the Litigation agreed to (a) fully and finally settle all claims between them, have each action dismissed with respect to all remaining claims on a with prejudice basis and to mutually release each other from all claims asserted in the BC Action and Oregon Actions, (b) the Company agreed to pay to the plaintiffs under the Litigation (the "Plaintiffs") the total cash sum of $2,400,000 (the "Settlement Amount") as follows: (i) $500,000 payable on or before September 12, 2025 (the "Initial Payment Date") (paid); (ii) $100,000 per month payable over a period of 19 months commencing one month after the Initial Payment Date ($300,000 paid to December 31, 2025), and (c) pursuant to the terms of the EFF Agreement, the Company agreed to issue to certain of the Vendors an aggregate of 555,793 (reduced from 793,093) common shares of the Company (the "Share Consideration").
The Settlement resulted in the cash liability in respect of the payment of the Settlement Amount being offset by the extinguishment of convertible notes of $1,156,259 and the accounts payable Litigation related accrual of $612,500. The recognition of the $2,400,000 settlement liability, extinguishment of liabilities totaling $1,768,759, and reduction of the commitment to issue shares possessing a value of $188,698 (C$260,950) resulted in a loss on settlement of legal proceedings of $442,543. The Share Consideration was paid after March 31, 2026.
OFF-BALANCE SHEET ARRANGEMENTS
As of the date of this MD&A, the Company has not entered into any off-balance sheet arrangements.
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.
Recently issued accounting pronouncements
Please refer to the discussion of recently adopted/issued accounting pronouncements in the Notes to the Consolidated Financial Statements Note 2 - Basis of Presentation.
PROPOSED TRANSACTIONS
There are no proposed transactions for the current fiscal year
FINANCIAL INSTRUMENTS AND OTHER INSTRUMENTS
A summary of the Company's financial instruments classified as fair value through profit or loss and their classification in the fair value hierarchy is as follows:
| Fair value measurements at March 31, 2026 using: | Level 1 | Level 2 | Level 3 | Total | ||||||||
| $ | $ | $ | $ | |||||||||
| Financial liabilities: | ||||||||||||
| Earn out shares | - | - | - | - |
| Fair value measurements at March 31, 2025 using: | Level 1 | Level 2 | Level 3 | Total | ||||||||
| $ | $ | $ | $ | |||||||||
| Financial liabilities: | ||||||||||||
| Earn out shares (Note 22) | - | - | 27,824 | 27,824 |
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.
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, and banks and credit unions in California, 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 year ended March 31, 2026, 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 March 31, 2026, the Company had cash of $2,234,306, a working capital surplus of $1,920,024.
The Company has generated significant positive cash flow for the year ended March 31, 2026, and the fiscal year ended March 31, 2025. The Statement of Cash Flows for the year ended March 31, 2026, shows cash provided by continuing operations of $1.4 million ($1.4 million - year ended March 31, 2025).
The Company closed on the purchase of the South Reno Dispensary on June 7, 2024, which was paid for from cash on hand and the May 2024 Private Placement.
The Company acquired, for $3.5 million, a third retail dispensary as of June 7, 2024. This store located in South Reno, Nevada opened for business on June 26, 2024. The acquisition was paid for with cash on hand generated by the Company and a C$4.0 million financing completed in May 2024. The Company is repaying C$160,000 per month plus interest on this debt. The Company is also making periodic payments against its corporate income tax payable.
The Company does not have any other significant capital expenditure plans in the next 12 months. While operations' cash flow has slowed as our local markets in general have slowed, we expect to continue to generate positive operations cash flow, and the addition of the third dispensary has improved our cash flow.
Additionally, as at March 31, 2026, the Company had current income tax payable of $1,654,854, and an uncertain tax position of $13,362,009. See income tax discussion below. To manage liquidity risk, the Company endeavors to ensure it has sufficient cash resources to meet its financial obligations. The Company's ability to service its debt depends on sustaining the profitability of its operations and obtaining sufficient financing on acceptable terms.
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. See more complete discussion in Risk factors below.
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. 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 79% of Americans live in a state where cannabis is legal in some form and 54% 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 a January 2026 Pew Research Center survey, around nine-in-ten Americans favor some form of cannabis legalization, with only 11% saying cannabis should not be legal in any form. In that survey, 89% of U.S. adults support legalizing cannabis either for medical and recreational use (55%) or medical use only (33%). 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 42 states and the District of Columbia have now legalized adult-use and/or medical cannabis, state legal 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
Under U.S. federal law, marijuana is currently a Schedule I drug. The CSA has five different tiers or schedules. A Schedule I drug means the U.S. Drug Enforcement Agency ("DEA") considers it to have a high potential for abuse, no accepted medical treatment, and lack of accepted safety for the use of it even under medical supervision. Other Schedule I drugs are heroin, LSD and ecstasy. The Company believes the CSA categorization as a Schedule I drug is not reflective of the medicinal properties of marijuana or the public perception thereof, and numerous studies show cannabis is not able to be abused in the same way as other Schedule I drugs, has medicinal properties, and can be safely administered. Additionally, while some studies show cannabis is less harmful than alcohol, alcohol is not classified under the CSA.
Forty-two (42) states and the District of Columbia have now legalized adult-use and/or medical marijuana. The federal government sought to provide guidance to enforcement agencies and banking institutions with the introduction of the U.S. Department of Justice Memorandum drafted by former Deputy Attorney General James Michael Cole in 2013 (the "Cole Memo") and U.S. Department of the Treasury Financial Crimes Enforcement Network ("FinCEN") guidance in 2014.
The Cole Memo offered guidance to federal enforcement agencies as to how to prioritize civil enforcement, criminal investigations and prosecutions regarding marijuana in all states. The memo put forth eight prosecution priorities:
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preventing the distribution of marijuana to minors;
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preventing revenue from the sale of marijuana from going to criminal enterprises, gangs and cartels;
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preventing the diversion of marijuana from states where it is legal under state law in some form to other states;
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preventing the state-authorized marijuana activity from being used as a cover or pretext for the trafficking of other illegal drugs or other illegal activity;
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preventing the violence and the use of firearms in the cultivation and distribution of marijuana;
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preventing the drugged driving and the exacerbation of other adverse public health consequences associated with marijuana use;
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preventing the growing of marijuana on public lands and the attendant public safety and environmental dangers posed by marijuana production on public lands; and,
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preventing marijuana possession or use on federal property.
In January 2018, the then United States Attorney General, Jeff Sessions, by way of issuance of a new U.S. Department of Justice Memorandum (the "Sessions Memo"), rescinded the Cole Memo and thereby created a vacuum of guidance for U.S. enforcement agencies and the U.S. Department of Justice ("DOJ"). Rather than establish national enforcement priorities particular to marijuana-related crimes in jurisdictions where certain marijuana activity was legal under State law, the Sessions Memo instructs that "[i]n deciding which marijuana activities to prosecute... with the [DOJ's] finite resources, prosecutors should follow the well-established principles that govern all federal prosecutions." Namely, these include the seriousness of the offense, history of criminal activity, deterrent effect of prosecution, the interests of victims, and other principles.
Former United States Attorney General Sessions resigned on November 7, 2018 and was replaced by William Barr on February 14, 2019. On December 14, 2020, former President Trump announced that Mr. Barr would be resigning from his post as Attorney General, effective December 23, 2020. Merrick Garland, President Biden's nominee to succeed Mr. Barr, was sworn in as the current United States Attorney General on March 11, 2021. During his campaign, President Biden stated a policy goal to decriminalize possession of cannabis at the federal level, but he has not publicly supported the full legalization of cannabis. In response to questions posed by Senator Cory Booker, Merrick Garland stated during February 2021 congressional testimony that he would reinstitute a version of the Cole Memo. He reiterated the statement that the Justice Department under his leadership would not pursue cases against Americans "complying with the laws in states that have legalized and are effectively regulating marijuana", in written responses to the Senate Judiciary Committee provided around March 1. It is not yet known whether the Department of Justice under President Biden and Attorney General Garland, will re-adopt the Cole Memo or announce a substantive marijuana enforcement policy. Justice Garland indicated at a confirmation hearing before the United States Senate that it did not seem to him to be a useful use of limited resources to pursue prosecutions in states that have legalized and that are regulating the use of marijuana, either medically or otherwise. It is unclear what specific impact the new Biden administration will have on U.S. federal government enforcement policy. There is no guarantee that state laws legalizing and regulating the sale and use of cannabis will not be repealed or overturned, or that local governmental authorities will not limit the applicability of state laws within their respective jurisdictions. Unless and until the United States Congress amends the CSA with respect to cannabis (and as to the timing or scope of any such potential amendments there can be no assurance), there is a risk that federal authorities may enforce current U.S. federal law.
Due to the CSA categorization of marijuana as a Schedule I drug, U.S. federal law makes it illegal for financial institutions that depend on the Federal Reserve's money transfer system to take any proceeds from marijuana sales as deposits. Banks and other financial institutions could be prosecuted and possibly convicted of money laundering for providing services to cannabis businesses under the Bank Secrecy Act (as defined herein). Under U.S. federal law, banks or other financial institutions that provide a cannabis business with a checking account, debit or credit card, small business loan, or any other service could be found guilty of money laundering or conspiracy.
While there has been no change in U.S. federal banking laws to account for the trend towards legalizing medical and recreational marijuana by U.S. states, FinCEN has issued guidance advising prosecutors of money laundering and other financial crimes not to focus their enforcement efforts on banks and other financial institutions that serve marijuana-related businesses, so long as that business is legal in their state and none of the federal enforcement priorities are being violated (such as keeping marijuana away from children and out of the hands of organized crime). The "FinCEN Guidance" also clarifies how financial institutions can provide services to marijuana-related businesses consistent with the Bank Secrecy Act obligations, including thorough customer due diligence, but makes it clear that they are doing so at their own risk.
The customer due diligence steps include:
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verifying with the appropriate state authorities whether the business is duly licensed and registered;
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reviewing the license application (and related documentation) submitted by the business for obtaining a state license to operate its marijuana-related business;
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requesting from state licensing and enforcement authorities available information about the business and related parties;
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developing an understanding of the normal and expected activity for the business, including the types of products to be sold and the type of customers to be served (e.g., medical versus recreational customers);
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ongoing monitoring of publicly available sources for adverse information about the business and related parties;
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ongoing monitoring for suspicious activity, including for any of the red flags described in this guidance; and
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refreshing information obtained as part of customer due diligence on a periodic basis and commensurate with the risk. With respect to information regarding state licensure obtained in connection with such customer due diligence, a financial institution may reasonably rely on the accuracy of information provided by state licensing authorities, where states make such information available.
Due to the fear by financial institutions of being implicated in or prosecuted for money laundering, cannabis businesses are often forced into becoming "cash-only" businesses. As banks and other financial institutions in the U.S. are generally unwilling to risk a potential violation of federal law without guaranteed immunity from prosecution, most refuse to provide any kind of services to cannabis businesses. Despite the attempt by FinCEN to legitimize cannabis banking, in practice its guidance has not made banks much more willing to provide services to cannabis businesses. This is because, as described above, the current law does not guarantee banks immunity from prosecution, and it also requires banks and other financial institutions to undertake time-consuming and costly due diligence on each cannabis business they take on as a customer. Recently, some banks that have been servicing cannabis businesses have been closing accounts operated by cannabis businesses and are now refusing to open accounts for new cannabis businesses for the reasons enumerated above.
The few credit unions who have agreed to work with cannabis businesses are limiting those accounts to no more than 5% of their total deposits to avoid creating a liquidity risk. Since the federal government could change the banking laws as it relates to cannabis businesses at any time and without notice, these credit unions must keep sufficient cash on hand to be able to return the full value of all deposits from cannabis businesses in a single day, while also servicing the need of their other customers. Those state-chartered banks and credit unions that do have customers in the cannabis industry charge marijuana businesses high fees to pass on the added cost of ensuring compliance with the FinCEN Guidance. Unlike the Cole Memo, however, the FinCEN Guidance from 2014 has not been rescinded.
The U.S. Treasury Department has publicly stated they were not informed of the then Attorney General Jeff Sessions' desire to rescind the Cole Memo and do not have a desire to rescind the FinCEN Guidance for financial institutions. The former Secretary of the U.S. Department of the Treasury, Stephen Mnuchin, publicly stated that he did not have a desire to rescind the FinCEN Guidance. The newly appointed Secretary of the Treasury, Janet Yellen, has not yet articulated an official Treasury Department position with regard to the FinCEN Guidance and thus as an industry best practice and consistent with its standard operating procedures, the Company adheres to all customer due diligence steps in the FinCEN Guidance.
Because the DOJ memorandums serve as discretionary agency guidance and do not constitute a force of law, cannabis related businesses have worked to continually renew the Rohrabacher-Blumenauer Amendment (originally the Rohrabacher-Farr Amendment) that has been included in federal annual spending bills since 2014. This amendment restricts the DOJ from using federals funds to prevent states with medical cannabis regulations from implementing laws that authorize the use, distribution, possession, or cultivation of medical cannabis. In 2017, Senator Patrick Leahy (D-Vermont) introduced a parity amendment to H.R.1625 - a vehicle for the Consolidated Appropriations Act of 2018, preventing federal prosecutors from using federal funds to impede the implementation of medical cannabis laws enacted at the state level, subject to Congress restoring such funding.
An additional challenge to cannabis-related businesses is that the provisions of Section 280E of the Code are being applied by the United States Internal Revenue Service ("IRS") to businesses operating in the medical and adult use cannabis industry. Section 280E of the Code prohibits cannabis businesses from deducting their ordinary and necessary business expenses, forcing them to pay higher effective federal tax rates than similar companies in other industries. The effective tax rate on a cannabis business depends on how large its ratio of non-deductible expenses is to its total revenues. Therefore, businesses in the legal cannabis industry may be less profitable than they would otherwise be.
Another aspect of federal law is that it provides that cannabis and cannabis products may not be transported across state lines in the United States. As a result, all cannabis consumed in a state must be grown and produced in that same state. This dynamic could make it more difficult for the Company, in the short term, to maintain a balance between supply and demand. If excess cultivation and production capacity is created in any given state and this is not matched by increased demand in that state, then this could exert downward pressure on the retail price for the products the Company sells. If too many retail licenses are offered by state authorities in any given state, then this could result in increased competition and exert downward pressure on the retail price for the products the Company sells. On the other hand, if cultivation and production in a state fails to match growing demand then, in the short term, there could be insufficient supply of product in a state to meet demand and while the Company may be able to raise its prices there could be inadequate product availability in the short term, causing the Company's revenue in that state to fall.
Progressive federal legislation has been both introduced in the U.S. House of Representatives ("U.S. House") and received positive votes in recent years. On September 26, 2019, the U.S. House passed the Secure and Fair Enforcement Banking Act of 2019 (commonly known as the "SAFE Banking Act"), which aims to provide safe harbor and guidance to financial institutions that work with legal U.S. cannabis businesses. On May 11, 2020, the U.S. House introduced the Health and Economic Recovery Omnibus Emergency Solutions Act (the "HEROES Act"), an economic stimulus package which included the language of the SAFE Banking Act. On September 28, 2020, the House introduced a revised version of the HEROES Act, including the text of the SAFE Act for a second time. The revised bill was passed by the U.S. House on October 1, 2020, before going to the Senate. On December 21, 2020, Congress reached a deal for a different $900 billion stimulus package. On April 19, 2021, the U.S. House again passed the SAFE Banking Act, but the Senate did not. Most recently, on July 14, 2022, the U.S. House voted to include the SAFE Banking Act in the must pass fiscal year 2023 defense budget bill (the 2023 National Defense Authorization Act - "NDAA"), but again, the U.S. Senate required the SAFE Act's removal from the NDAA. On April 23, 2023, Sen. Jeff Merkley (D-OR) and Sen. Steve Daines (R-MT), along with Rep. Dave Joyce (R-OH) and Rep. Earl Blumenauer (D-OR), reintroduced the SAFE Banking Act of 2023. All told, the SAFE Banking Act has passed the House six times but has yet to pass the Senate. A new version of the SAFE Banking Act known as the Secure and Fair Enforcement Regulation ("SAFER Banking Act") was introduced in the Senate on September 21, 2023, and subsequently approved by the Senate Committee on Banking. The SAFER Banking Act is still pending passage in the U.S. Senate and, if passed, will move on to the House where it faces an uncertain future. While Congress may introduce and consider this and other legislation in the future that may address issues that are important to the Company, there can be no assurance of the content of any proposed legislation or that any pending legislation will ever be passed.
Further, the Marijuana Opportunity Reinvestment and Expungement Act, also known as the "MORE Act", is a proposal to legalize cannabis and expunge prior cannabis related convictions. On November 20th, 2019, the MORE Act was passed by the House Judiciary Committee, and although the U.S. House voted to pass the MORE Act on December 4, 2020, it failed to pass in the Senate prior to the end of the 2020 legislative session. There can be no assurance that it will be passed in its current form or at all.
The Joseph R. Biden ("Biden") Administration and balance of power in U.S. Congress could still impact the likelihood of any legal developments regarding cannabis at the national level, including the passage of the SAFE Banking Act and the MORE Act, as well as potential executive action to clarify federal policy toward the industry, although it is uncertain whether and in what manner any such federal changes will occur. On a federal level, President Biden campaigned on a platform that included cannabis decriminalization. Democrats, who are generally more supportive of federal cannabis reform than Republicans, maintained their majority in the U.S. House, although at a smaller margin than initially expected, and have gained sufficient seats in the Senate to control a majority by a single vote. As of this writing, both the SAFE Banking and MORE Acts have yet to receive action in the U.S. Senate, however, in late 2020, incoming Senate Majority Leader Charles Schumer made comments on multipole occasions suggesting that passage of these bills and potential additional favorable federal legislation are on his agenda. The Company continues to monitor U.S. federal law and the law in all jurisdictions where it is active, with respect to (a) compliance with applicable state regulatory frameworks, and (b) potential exposure and implications arising from U.S. federal law.
On July 21, 2022, U.S. Senate Majority Leader Chuck Schumer (D-NY), Senate Finance Committee Chairman Ron Wyden (D-OR) and Sen. Cory Booker (D-NJ) formally filed the Cannabis Administration and Opportunity Act ("CAOA"), a much-anticipated bill to federally legalize marijuana and promote social equity. On July 22, 2022, Assistant Democratic Leader Patty Murray (D-WA) and Sen. Gary Peters (D-MI) signed onto the CAOA. The CAOA would have legalized cannabis nationwide, ending federal prohibition and expunging records of some cannabis offenders, and it also lays out a framework to establish a federal cannabis tax and Federal Drug Administration ("FDA") regulations for cannabis products. The bill did not pass the U.S. Senate during the 2022 legislative session (i.e., the 117th Congress).
On January 17, 2023, U.S. Representative Gregory Steube (R-FL) introduced H.R. 610, the Marijuana 1-to-3 Act of 2023 ("1-to-3 Act"), which would direct the DEA to transfer marijuana from Schedule I to Schedule III. A Schedule III controlled substance is a drug, substance, or chemical that has less potential for abuse than a Schedule I or II substance; that has a currently accepted medical use; and that has low or moderate risk of dependence if abused. The 1-to-3 Act bill was referred to the Committee on Energy and Commerce, and the Committee on the Judiciary, for further consideration.
On October 6, 2022, President Biden requested that the Secretary of Health and Human Services ("HHS") and the Attorney General initiate a review of cannabis scheduling pursuant to the Controlled Substances Act and federal law. On August 29, 2023, following a review by the FDA, the Assistant Secretary of HHS, Anne Milgram, issued a letter recommendation to the DEA that cannabis be rescheduled under the Controlled Substances Act to Schedule III. In December 2023, the DEA confirmed it was conducting its review.
On May 21, 2024, the DOJ published a "Notice of Proposed Rulemaking" to reschedule cannabis from Schedule I to Schedule III of the CSA in the Federal Register. In-person testimony in the DEA's upcoming hearing on marijuana rescheduling would not begin until January or February 2025, and it was later scheduled for January 21, 2025. On January 13, 2025, the hearing was canceled by Chief Administrative Law Judge ("ALJ") John Mulrooney, and the proceedings were stayed indefinitely pending an interlocutory appeal brought by two private movants who sought to remove the DEA from its role as proponent of the proposed rescheduling through a motion which was denied. ALJ Mulrooney later retired.
However, under President Trump, the Rescheduling Rule moved forward. On April 28, 2026, the DEA issued rules in the Federal Register rescheduling FDA-approved marijuana products and products containing medical marijuana from a state medical marijuana license from Schedule I to Schedule III of the CSA. The Rescheduling Rule also created an expedited process for state medical marijuana licensees to register with the DEA enabling these entities holding state medical marijuana licenses to engage in the manufacture, distribution, and/or dispensing of marijuana for medical purposes under federal law. The Rescheduling Rule did not appear to address or amend the legality of adult-use marijuana which are subject to the new administrative hearings beginning on June 29, 2026.
It remains to be seen how the Rescheduling Rule will apply to Company as its operations are not limited to medical marijuana and it is unclear as to whether Company can or will register with DEA. The Company continues to monitor the impacts and options in light of the Rescheduling Rule.
The following sections describe the legal and regulatory landscape in Nevada, where the Company operates. The Company believes that its operations are in full compliance with all applicable state laws, regulations and licensing requirements. Nonetheless, for the reasons described above and the risks further described under the heading "Risk Factors" herein, there are significant risks associated with the business of the Company. Readers are strongly encouraged to carefully read all of the risk factors contained under the heading "Risk Factors" herein.
NEVADA REGULATORY ENVIRONMENT
Nevada Summary
Nevada has a medical marijuana program and passed an adult-use (21 and older) legalization through the ballot box in November 2016. In 2000, Nevada voters passed a medical marijuana initiative allowing physicians to recommend cannabis for an inclusive set of qualifying conditions, including severe pain and created a limited non-commercial medical marijuana patient/caregiver system. Senate Bill 374, which passed the legislature and was signed by the Governor in 2013, expanded this program and established a for-profit regulated medical marijuana industry.
The Nevada Division of Public and Behavioral Health licensed medical marijuana establishments up until July 1, 2017 when the state's medical marijuana program merged with adult-use marijuana enforcement under the Nevada Department of Taxation ("NDOT"). In 2014, Nevada accepted medical marijuana business applications and a few months later the Division approved 182 cultivation licenses, 118 licenses for the production of edibles and infused products, 17 independent testing laboratories, and 55 medical marijuana dispensary licenses. The number of dispensary licenses was then increased to 66 by legislative action in 2015. The application process is merit-based, competitive, and is currently closed. Nevada residency is not required to own or invest in a Nevada medical cannabis business. In addition, vertical integration is neither required nor prohibited. Nevada's medical law includes patient reciprocity, which permits medical patients from certain other states to purchase medical marijuana from Nevada dispensaries. Nevada also allows for dispensaries to deliver medical marijuana to patients.
Under Nevada's adult-use marijuana law, the NDOT licensed marijuana cultivation facilities, product manufacturing facilities, distributors, retail stores and testing facilities. After merging medical and adult-use marijuana regulation and enforcement, the single regulatory agency is now known as the Marijuana Enforcement Division of the NDOT. Until November 2018, applications to the NDOT for adult-use establishment licenses were being accepted from existing medical marijuana establishments and existing liquor distributors for the adult-use distribution license.
In February 2017, the NDOT announced plans to issue "early start" adult use marijuana establishment licenses in the summer of 2017. These licenses, beginning on July 1, 2017, allowed marijuana establishments holding both a retail marijuana store and dispensary license to sell their existing medical marijuana inventory as either medical or adult-use marijuana, and expired 90 days after January 1, 2018 (per Sec. 24 of LCB File No. T002-17). Starting July 1, 2017, medical and adult-use marijuana have incurred a 15% excise tax on the first wholesale sale (calculated on the fair market value) and adult-use cannabis have incurred an additional 10% special retail marijuana sales tax in addition to any general state and local sales and use taxes.
On January 16, 2018, the Marijuana Enforcement Division of the NDOT issued final rules governing its adult-use marijuana program, pursuant to which up to sixty-six (66) permanent adult-use marijuana dispensary licenses will be issued. Existing adult-use marijuana licensees under the "early start" regulations must re-apply for licensure under the permanent rules in order to continue adult-use sales.
In May of 2019, Governor Steve Sisolak signed into law Senate Bill 32, that increased transparency in the licensing process by releasing certain information about license applicants, as well as methods used to issue licenses. In June 2019, Governor Sisolak approved Assembly Bill 132 making Nevada the first state to ban employers from refusing to hire job applicants who test positive for marijuana during the hiring process.
As of August 23, 2019, as a result of discrepancies discovered in the application process by the State of Nevada, a court issued a partial preliminary injunction against the State of Nevada from moving forward with the numerous holders of provisional licenses awarded under the December 5, 2018, provisional license awards. In addition to the preliminary injunction, the State of Nevada and various intervenors remain subject to ongoing litigation.
In early 2019, Nevada legislature passed Nevada Assembly Bill 533 ("AB 533"), which authorized the formation of the Cannabis Compliance Board (the "CCB") to be vested with the authority to license and regulate persons and establishments engaged in cannabis activities within Nevada. The CCB consists of an executive director and five board members appointed by the Governor Steve Sisolak. Board members must have expertise in a range of fields, including financial and accounting, law enforcement, medicine, regulatory and legal compliance, and cannabis. AB 533 also established the Cannabis Advisory Commission (the "CAC") which serves to study cannabis-related issues and make recommendations to the CCB. The CAC consists of 12-members appointed by the governor representing relevant state agencies and members of the cannabis industry and the public. Pursuant to AB 533, the CCB is mandated with studying the feasibility and safe implementation of licensing for lounges, in addition to their general authority and oversight of cannabis operations in Nevada. The CCB held its first meeting in July 2021, and regularly meets regarding public health and safety, license suspensions and held public workshops regarding, and moved forward with licensing, a limited number of cannabis consumption lounges.
Nevada Regulatory Framework
Nevada Revised Statues 678C and 678D regulate the Medical and Adult Use of cannabis in Nevada. Nevada Administrative Code 453D provides a regulatory framework that outlines the function of the CCB Marijuana program. Subsections of this chapter outline licensing and enforcement guidelines which guide the CCB.
Nevada Licensing Requirements
Licenses issued by CCB can be renewed annually so long as the licensee continues to demonstrate compliance with local and state law and pays the renewal fee. Dispensary/Retail store licenses have a set statutory "cap" (per NRS 453D.210 & NRS 453A.324), other license types do not. Moreover, statutory license caps can only be changed by the Nevada legislature, which meets bi-annually. Marijuana businesses in Nevada may also be governed by local ordinances, which can include caps on the number of marijuana businesses, zoning limitations, and additional screening of business owners and investors. Applicants must demonstrate (and license holders must maintain) that: (i) they are registered with the Nevada Secretary of State to do business in Nevada, (ii) they have contributed to the advancement of the State of Nevada via regular tax payments, (iii) they do not have interests in the Casino or Alcohol industries, (iv) they have the operational expertise required by the individual license type, demonstrated by submission of an operation plan, (v) they have the ability to secure the premises, resources, and personnel necessary to operate the license, (vi) they have the ability to maintain accountability of all cannabis and cannabinoid products and by-products via the state mandated "seed-to-sale" CTS to prevent diversion or unlawful access to these materials, (vii) they have the financial ability to maintain operations for the duration of the license, (viii) all owners have passed background screening, inclusive of fingerprinting, and (ix) all local land use, zoning, and planning notices have been followed in the development of the licensed site.
Nevada Security Requirements
A licensee must maintain a fully operational alarm and video monitoring system at all times. The alarm system must secure all points of ingress and egress and be equipped with motion detectors. The 24-hour video surveillance system must record at a high-resolution format approved by the CCB and have camera coverage which covers all areas of the facility without any blind spots. Video footage must be backed-up for a minimum of 30 days in hard-form. Cultivation and product manufacturing sites are not open to the public.
Nevada Transportation and Storage Requirements
Cannabis and cannabis goods must be stored in a lockable safe or vault at any time that employees are not on location. Any storage container that is large enough to allow an employee to walk into it must have cameras placed inside. Goods to be transported to another licensee must be fully manifested via the state mandated "seed-to-sale" CTS prior to being transported.
Nevada CCB Inspections
The CCB conducts announced and unannounced inspections of all licensed facilities to determine compliance with laws and rules. The CCB will inspect a licensee in the event of a complaint indicating that the licensee has or is actively violating existing statute. The CCB will also inspect at the time of any modification, as well as at the time of annual renewal. As of June 13, 2023, the CCB is no longer allowed to bill a licensee for time and effort related to oversight of a cannabis establishment, including for inspections and audits.
Nevada Product Testing and Packaging Requirements
Both medical and adult-use marijuana and marijuana products are subject to stringent testing and packaging requirements. Before usable marijuana, concentrated marijuana, or marijuana products may be packaged for further processing or for transfer to a dispensary or retail store, an independent testing laboratory licensed by the CCB must collect samples from each homogenized lot or production run for testing. These samples are tested by the independent testing laboratory for compliance with specified limits on contaminants such as yeast and mold, heavy metals and pesticides, and microbes. Testing is also done to determine the potency of the sample. Cultivation and product manufacturing facilities are also subject to random quality assurance compliance testing at the discretion of the CCB. Generally, if a sample fails any of the tests conducted by the testing laboratory, the entire lot or production run must be destroyed.
All marijuana or marijuana products intended to be sold to consumers must be individually packaged, sealed, and labeled. Edible products must be packaged in opaque, child-resistant containers. Depending on the type of marijuana product, the CCB places limit on the amount of THC that a single package of marijuana may contain or the number of ounces of product a package may contain. All packages of marijuana or marijuana product sold to consumers must have detailed labels that include, inter alia, various warnings about the effects and risks of marijuana use; the name, license number, and contact information of the dispensary or retail store conducting the sale; the name and license number of the cultivation or product manufacturing facility that harvested or produced the marijuana or marijuana product; the potency levels of the marijuana or marijuana product; and the date the marijuana or marijuana product was harvested or produced.
PUBLIC OPINION
The increase in state legalization of cannabis use is largely a result of changing public opinion in the United States. According to an April 2017 Quinnipiac University Poll, 94% of U.S. voters support the medical use of cannabis if recommended by a physician. https://poll.qu.edu/poll-results/ An April 2021 Pew Research Center poll found that 91% of U.S. voters support legal marijuana for either medical or recreational use; only 8% of U.S. voters say marijuana should not be legal for use by adults. https://www.pewresearch.org/ As of July 21, 2022, by a margin of more than 2 to 1, Americans favor a federal mandate legalizing the adult use of marijuana nationwide, according to polling data compiled by The Economist and YouGov.com. https://today.yougov.com/topics/politics/explore/topic/The_Economist_YouGov_polls Based on a Pew Research Center survey conducted Oct 16-22, 2022, 88% of U.S. adults say either that marijuana should be legal for medical and recreational use by adults (59%) or that it should be legal for medical use only (30%). Based on a Pew Research Center survey conducted January 16-20, 2024, an overwhelming share of U.S. adults (88%) maintain that marijuana should be legal for medical or recreational use. Nearly six-in-ten Americans (57%) say that marijuana should be legal for medical and recreational purposes, while roughly a third (32%) say that marijuana should be legal for medical use only. Further Pew Research Center analysis finds: (a) 54% of Americans live in a state where the recreational use of marijuana is legal, (b) 74% of Americans live in a state where marijuana is legal for either recreational or medical use, and (c)79% of Americans live in a county with at least one cannabis dispensary.
INDUSTRY OUTLOOK
Due to increases in state legalization and shifting public opinion, state-legal cannabis industry sales have grown substantially in recent years. According to an April 2023 study by MJBizDaily Research, a leading business-to-business industry resource, legal sales of marijuana are expected to reach $38 billion by the end of 2024, a 12% increase over 2023's total of $34 billion. By 2027, MJBizDaily Factbook estimates retail cannabis sales are projected to be upwards of $53.5 billion.
https://insights.mjbizdaily.com/factbook-2024/
RISK FACTORS
The following are certain factors relating to the business and securities of the Company. The Company may face a few challenges and significant risks in the development of its business due to the nature of and present stage of its business. 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 described herein are interrelated and, consequently, readers should carefully review such risk factors together with other information in this MD&A. In addition to the risks described in the MD&A, refer to the "Risk Factors" section in the Company's Annual Report on Form 20-F.
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.
While certain U.S. states have enacted medical and/or adult-use cannabis legislation, cannabis continues to be illegal under U.S. federal law, which may subject us to regulatory or legal enforcement, litigation, increased costs and reputational harm.
Ninety-four percent (94%) of the U.S. states have enacted legislation to regulate the sale and use of cannabis on either a medical or adult- use level. However, notwithstanding the permissive regulatory environment of cannabis at the state level, cannabis continues to be categorized as a controlled substance under the U.S. Controlled Substances Act of 1970 ("CSA"), and as such, activities within the cannabis industry are illegal under U.S. federal law. It is also illegal to aid or abet such activities or to conspire to attempt to engage in such activities. Financing businesses in the cannabis industry may be deemed aiding and abetting an illegal activity under federal law. If such an action were brought, we may be forced to cease operations and our investors could lose their entire investment. Such an action would have a material negative effect on our business and operations.
Individual U.S. state laws do not always conform to U.S. federal regulatory standards, or to other U.S. state laws. A number of states have decriminalized marijuana to varying degrees, other states have created exemptions specifically for medical cannabis, and several have both decriminalized and/or created medical marijuana exemptions. Several states have also legalized the recreational use of cannabis. Variations exist among states that have legalized, decriminalized or created medical marijuana exemptions. For example, Oregon and Colorado have limits on the number of marijuana plants that can be home grown. In most states, the cultivation of marijuana for personal use continues to be prohibited except for those states that allow small-scale cultivation by the individual in possession of a medical marijuana license or that person's caregiver. Even in those states in which the use and commercialization of marijuana has been legalized, its use remains a violation of U.S. federal law.
The Company is currently aware of 47 states of the United States, the District of Columbia, and four out of five U.S. territories, that have laws and/or regulations that recognize, in one form or another, legitimate medical uses for cannabis and consumer use of cannabis in connection with medical treatment. Additionally, the sale and adult-use of recreational cannabis is legal in 24 U.S. states and the District of Columbia, including: Alaska, Arizona, California, Colorado, Connecticut, Delaware, Illinois, Maine, Maryland, Massachusetts, Michigan, Minnesota, Missouri, Montana, Nevada, New Jersey, New Mexico, New York, Ohio, Oregon, Rhode Island, Vermont, Virginia, and Washington. At the federal level, however, adult-use cannabis currently remains a Schedule I controlled substance under the CSA while state-legal medical marijuana and drugs containing marijuana which have been approved by the Food and Drug Administration ("FDA") have recently been rescheduled to Schedule III. 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. Schedule III drugs have currently accepted medical use in treatment in the United States and abuse of the drug may lead to moderate or low physical dependence or high psychological dependence, 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. Even with the rescheduling of state-medical marijuana and FDA approved drugs, if those substances are not manufactured, possessed, and distributed pursuant to the CSA, these activities remain illegal.
Although the Company's activities are in compliance with applicable state and local law, strict compliance with state and local laws with respect to cannabis may neither absolve the Company of liability under U.S. federal law, nor may it provide a defence to any federal proceeding which may be brought against the Company. Any such proceedings brought against the Company may adversely affect the Company's operations and financial performance.
Proceeds from the Company's financings could be considered proceeds of crime which may restrict the Company's ability to pay dividends or effect other distributions to its shareholders.
Currently, the Company engages in the manufacture, distribution, possession and sale of cannabis in the U.S. medical and adult-use cannabis markets, and therefore the enforcement of U.S. federal laws is a significant risk to the Company. Unless and until the U.S. Congress amends the CSA (or the Drug Enforcement Agency ("DEA") reschedules all forms of cannabis and establishes a pathway for state-legal cannabis operators to comply with the CSA or de-schedules cannabis), there is a risk that U.S. federal authorities, including the United States Attorney's Office for the District of Nevada, may enforce current federal law, and the Company may be deemed to be possessing, manufacturing, and trafficking marijuana in violation of U.S. federal law. Such activities also may serve as the basis for the prosecution of other crimes, such as those prohibited by the money laundering statutes, the unlicensed money transmitter statute, and the U.S. Currency and Foreign Transactions Reporting Act of 1970 ("Bank Secrecy Act"). Additionally, the Company may be deemed to be facilitating the sale or distribution of drug paraphernalia in violation of U.S. federal law with respect to the Company's current or proposed business operations. As to the timing or scope of any such potential amendments to the CSA, there can be no assurances to when or if any potential amendments will be enacted. Active enforcement of the current federal statutory laws and regulatory rules regarding cannabis may thus directly and/or indirectly and adversely affect the Company's future operations, cash flows, earnings, and financial condition.
The Company could face (i) seizure of its cash and other assets used to support or derived from its cannabis subsidiaries; and (ii) the arrest of its employees, directors, officers, managers and investors, who could face charges of ancillary criminal violations of the CSA for aiding and abetting and conspiring to violate the CSA by virtue of providing financial support to state-licensed or permitted cultivators, processors, distributors, and/or retailers of cannabis. Additionally, as affirmed by U.S. Customs and Border Protection, employees, directors, officers, managers and investors of the Company who are not U.S. citizens face the risk of being barred from entry into the United States for life.
Management may not be able to predict all new emerging risks or how such risks may impact actual results of the Company in the highly regulated, highly competitive and rapidly evolving U.S. cannabis industry.
As a result of the conflicting views between individual state governments and the U.S. federal government regarding cannabis, investments in U.S. cannabis businesses are subject to inconsistent legislation and regulation. The response to this inconsistency was addressed in August 2013 when then U.S. Deputy Attorney General, James Cole, authorized the Cole Memo (as defined herein) addressed to all United States Attorneys acknowledging that, notwithstanding the designation of cannabis as a controlled substance at the federal level in the U.S., several U.S. states have enacted laws relating to cannabis for medical purposes. The Cole Memo outlined certain priorities for the U.S. Department of Justice ("DOJ") relating to the prosecution of cannabis offenses. In particular, the Cole Memo noted that in jurisdictions that have enacted laws legalizing cannabis in some form, and that have also implemented strong and effective regulatory and enforcement systems to control the cultivation, distribution, sale and possession of cannabis, that conduct in compliance with those laws and regulations is less likely to be a priority at the federal level.
On January 4, 2018, Jeff Sessions, the U.S. Attorney General at the time, issued the Sessions Memo (as defined herein) to all United States Attorneys, which rescinded the Cole Memo in its entirety. The Sessions Memo provided that in deciding which marijuana activities to prosecute under U.S. federal laws, prosecutors should follow the same well-established principles that govern all U.S. federal prosecutions. Following the release of the Sessions Memo, the fate of state-legal cannabis is uncertain, and the risk of prosecution varies from state to state based on the posture, priorities and resources of each United States Attorney's Office for each applicable state.
Although the Cole Memo was rescinded, one legislative safeguard for the medical cannabis industry, appended to federal appropriations legislation, remains in place. Currently referred to as the "Rohrabacher-Blumenauer Amendment", this so-called "rider" provision has been appended to the Consolidated Appropriations Acts every year since fiscal year 2015. Under the terms of the Rohrabacher-Blumenauer rider, the federal government is prohibited from using congressionally appropriated funds to enforce federal cannabis laws against regulated medical cannabis actors operating in compliance with state and local law. There can be no assurances that the Rohrabacher-Blumenauer Amendment will be included in future appropriations bills to prevent the federal government from using congressionally appropriated funds to enforce federal cannabis laws against regulated medical cannabis actors operating in compliance with state and local law.
In October of 2022, the Biden Administration announced its intention to review the regulation of cannabis under the CSA by directing the Secretary of Health and Human Services and the Attorney General to initiate the administrative process to expeditiously review marijuana's Schedule I status. On August 29, 2023, HHS delivered a recommendation to move cannabis from Schedule I to Schedule III to the DEA.
On May 21, 2024, the DEA published a proposed rule in the Federal register by which it proposed to transfer marijuana from Schedule I of the Controlled Substances Act to Schedule III. The DEA stated that the re-scheduling would be "consistent with the view of the Department of Health and Human Services that marijuana has a currently accepted medical use as well as HHS's views about marijuana's abuse potential and level of physical or psychological dependence." The DEA further stated that "if the transfer to Schedule III is finalized, the regulatory controls applicable to Schedule III controlled substances would apply, as appropriate, along with existing marijuana-specific requirements and any additional controls that might be implemented, including those that might be implemented to meet U.S. treaty obligations. If marijuana is transferred to Schedule III, the manufacture, distribution, dispensing, and possession of marijuana would remain subject to the applicable criminal prohibitions of the Controlled Substances Act. Any drugs containing a substance within the Controlled Substances Act's definition of 'marijuana' would also remain subject to the applicable prohibitions in the Federal Food, Drug, and Cosmetic Act."
On August 29, 2024, the DEA announced in the Federal Register that it would be holding a hearing on December 2, 2024, to address procedural and scheduling matters. Merits-based hearings were set to begin on January 1, 2025, with testimony from government witnesses, but these hearings were stayed indefinitely and later terminated. Meanwhile, federal litigation alleging impropriety by DEA in connection with the rescheduling remains pending. On December 18, 2025, President Trump signed an executive order directing U.S. Attorney General Pam Bondi to complete the rescheduling process in an "expeditious manner."
On April 23, 2026, the DOJ announced that it placed FDA-approved marijuana products and products containing medical marijuana subject to a qualifying state-issued license in Schedule III and announced that the DEA would be withdrawing the prior notice of hearing and terminating those proceedings. The DEA will hold new administrative hearings beginning on June 29, 2026.
On April 28, 2026, the DEA issued rules in the Federal Register rescheduling FDA-approved marijuana products and products containing medical marijuana from a state medical marijuana license from Schedule I to Schedule III of the CSA ("Rescheduling Rule"). The Rescheduling Rule also created an expedited process for state medical marijuana licensees to register with the DEA enabling these entities holding state medical marijuana licenses to engage in the manufacture, distribution, and/or dispensing of marijuana for medical purposes under federal law. The Rescheduling Rule did not appear to address or amend the legality of adult-use marijuana which are subject to the new administrative hearings beginning on June 29, 2026.
Given the conflict of laws and regulations, there is no certainty as to how the DOJ, Federal Bureau of Investigation and other government agencies will handle cannabis matters in the future. There can be no assurance that the Trump Administration would not change the current enforcement policies, priorities and resources and choose to enforce the subject federal laws. The Company regularly monitors ongoing developments in this regard.
Violations of any laws and regulations could result in significant fines, penalties, administrative sanctions, forfeiture, convictions or settlements arising from civil proceedings conducted by either the federal government or private citizens, or criminal charges, including, but not limited to, disgorgement of profits, cessation of business activities or divestiture. This could have a material adverse effect on the Company, including its reputation and ability to conduct business, its title (directly or indirectly) to cannabis licenses in the United States, the listing of its securities on various stock exchanges, its financial position, its operating results, and profitability or liquidity or the market price of its publicly traded shares. In addition, it is difficult for the Company to estimate the time or resources that would be needed for the investigation of any such matters or the final resolution of such matters because, in part, the time and resources that may be needed are dependent on the nature and extent of any information requested and degree of enforcement by the applicable authorities involved, and such time or resources could be substantial.
As a company listed on the Canadian Securities Exchange (the "CSE"), the Company accesses the Canadian capital markets on a public and private basis, and any capital raised may be utilized for the ongoing operations of its U.S. holdings that operate in the U.S. cannabis industry. There is no assurance that the Company will be successful, in whole or in part, in raising funds, particularly if the U.S. federal authorities change their position toward enforcing the CSA. Further, access to funding from residents, citizens, venture capital, private equity and banks in the United States may be limited due to their unwillingness to be associated with activities that violate U.S. federal laws. Notwithstanding the above, the SAFE Banking Act (as defined herein) would be a positive development for the industry and access to more affordable banking and lending
Changes to current laws and regulation may impose substantial costs on the Company.
Local, state and federal cannabis laws and regulations in the United States are broad in scope and subject to evolving interpretations, which could require the Company to incur substantial costs associated with compliance or alter certain aspects of its business plan. In addition, violations of these laws, or allegations of such violations, could disrupt certain aspects of the Company's business plan and result in a material adverse effect on certain aspects of the Company's planned operations. Furthermore, it is possible that regulations may be enacted in the future that will be directly applicable to certain aspects of the Company's cannabis business. The Company cannot predict the nature of any future laws, rules, regulations, resolutions, declarations, policy positions, interpretations or applications, nor can it determine what affect additional governmental regulations or administrative policies and procedures, when and if promulgated, could have on the Company's business.
Further, there is no guarantee that state laws legalizing and regulating the sale and use of cannabis will not be repealed or overturned, or that local governmental authorities will not limit the applicability of state laws within their respective jurisdictions. If the federal government begins to enforce federal laws relating to cannabis in states where the sale and use of cannabis is currently legal, or if existing applicable state laws are repealed or curtailed, the Company's business, results of operations, financial condition and prospects would be materially adversely affected.
The Company is aware that multiple states are considering special taxes or fees on businesses in the marijuana industry. It is a potential yet unknown risk at this time that other states are in the process of reviewing such additional fees and taxation. This could have a material adverse effect on the Company's business, results of operations, financial condition and prospects.
Beginning in September 2019, the United States media began reporting on potential vape related illnesses and death based on conditions resembling pneumonia, that consumers of flavored nicotine and flavored THC vaping products were experiencing. Vaping product sales are a material source of revenue for the Company. Although there has been no conclusive medical or scientific determination as to the cause of the subject conditions, management believes that the Company's products do not contain any of the components or chemicals, including but not limited to vitamin E acetate, which were implicated as possible sources of the condition, and which were identified by the CDC based on laboratory findings released on November 8, 2019. Out of an abundance of caution, governors of certain US states took precautionary, short-term actions until a more conclusive link between vaping products and the condition is determined; as mentioned in previous reports, Oregon was one of those states until the State was forced to lift its ban by court order on January 16, 2020.
The cannabis industry is subject to extensive controls and regulations, which may significantly affect the financial condition of market participants, including the Company.
The Company operates in a new industry which is highly regulated, highly competitive and evolving rapidly. As such, new risks may emerge, and management may not be able to predict all such risks. The Company incurs ongoing costs and obligations related to regulatory compliance. Failure to comply with regulations may result in additional costs for corrective measures, penalties or in restrictions of operations. In addition, changes in regulations, more vigorous enforcement thereof or other unanticipated events could require extensive changes to operations, increased compliance costs or give rise to material liabilities, which could have a material adverse effect on the business, results of operations and financial condition of the Company.
Further, the Company may be subject to a variety of claims and lawsuits. Adverse outcomes in some or all of these claims may result in significant monetary damages or injunctive relief that could adversely affect its ability to conduct its business.
Litigation and other claims are subject to inherent uncertainties and management's view of these matters may change in the future. A material adverse impact on the Company's financial statements could also occur for the period in which the effect of an unfavorable outcome becomes probable and reasonably estimable.
The cannabis industry is subject to extensive controls and regulations, which may significantly affect the financial condition of market participants. The marketability of any product may be affected by numerous factors that are beyond the control of the Company and which cannot be predicted, such as changes to government regulations, including those relating to taxes and other government levies which may be imposed. Changes in government levies, including taxes, could reduce the Company's earnings on investments and could make future capital investments or the Company's operations uneconomic.
The cannabis industry is also subject to numerous legal challenges, which may significantly affect the financial condition of market participants in the industry, such as the Company, which cannot be readily predicted.
Regulatory scrutiny of the Company's industry may negatively impact its ability to raise additional capital.
The Company's business activities rely on newly established and/or developing laws and regulations. These laws and regulations are rapidly evolving and subject to change with minimal notice. Regulatory changes may adversely affect the Company's profitability or cause it to cease operations entirely. The cannabis industry may come under the scrutiny or further scrutiny by the U.S. Food and Drug Administration, Securities and Exchange Commission, the DOJ, the Financial Industry Regulatory Authority or other federal, applicable state or nongovernmental regulatory authorities or self-regulatory organizations that supervise or regulate the production, distribution, sale or use of cannabis for medical or nonmedical purposes in the United States.
It is impossible to determine the extent of the impact of any new laws, regulations or initiatives that may be proposed, or whether any proposals will become law. The regulatory uncertainty surrounding the Company's industry may adversely affect the business and operations of the Company, including without limitation, the costs to remain compliant with applicable laws and the impairment of its ability to raise additional capital, which could reduce, delay or eliminate any return on investment in the Company.
The Company's operations in the U.S. are subject to applicable anti-money laundering laws and regulations.
The Company is subject to a variety of laws and regulations domestically and in the United States that involve money laundering, financial record keeping and proceeds of crime, including the U.S. Currency and Foreign Transactions Reporting Act of 1970 ("Bank Secrecy Act"), as amended by Title III of the Uniting and Strengthening America by Providing Appropriate Tools Required to Intercept and Obstruct Terrorism Act of 2001, the Proceeds of Crime (Money Laundering) and Terrorist Financing Act (Canada), as amended and the rules and regulations thereunder, and any related or similar rules, regulations or guidelines, issued, administered or enforced by governmental authorities in the United States and Canada.
In the event that any of the Company's operations, or any proceeds thereof, any dividends or distributions therefrom, or any profits or revenues accruing from such operations in the United States were found to be in violation of money laundering legislation or otherwise, such transactions may be viewed as proceeds of crime under one or more of the statutes noted above or any other applicable legislation. This could restrict or otherwise jeopardize the ability of the Company to declare or pay dividends, effect other distributions or subsequently repatriate such funds back to Canada. Furthermore, while there are no current intentions to declare or pay dividends on C21's Common Shares in the foreseeable future, in the event that a determination was made that the Company's proceeds from operations (or any future operations or investments in the United States) could reasonably be shown to constitute proceeds of crime, the Company may decide or be required to suspend declaring or paying dividends without advance notice and for an indefinite period of time.
The Company's operations and any proceeds thereof may be considered proceeds of crime since cannabis remains illegal federally in the United States. This restricts the ability of the Company to declare or pay dividends, effect other distributions or subsequently repatriate such funds back to Canada. Furthermore, while the Company has no current intention to declare or pay dividends on its shares in the foreseeable future, the Company may decide or be required to suspend declaring or paying dividends without advance notice and for an indefinite period of time in response to factors outside of the Company's control.
The Company may have difficulty accessing the services of banks and processing credit card payments in the future, which may make it difficult to operate. To mitigate this risk, the Company has maintained banking relations with three banks and credit unions in states where cannabis has been legalized at the state level, including Partners Colorado Credit Union (Colorado), FFB-First Fresno Bank (California) and Greater Nevada Credit Union (Nevada). Through these banks and credit unions, the Company is able to access banking services to support its Nevada cannabis operations.
Losing access to traditional banking, including bank-specific liquidity risks, could have a significant effect on our ability to operate, conclude financings and achieve returns.
Since the use of cannabis is illegal under U.S. federal law, there is a strong argument that banks cannot accept for deposit funds from businesses involved with the cannabis industry. Consequently, businesses involved in the cannabis industry often have difficulty finding a bank willing to accept their business. The inability to open or maintain traditional bank accounts may make it difficult to operate the Company's cannabis business. To mitigate this risk, the Company has maintained banking relations with three banks and credit unions in states where cannabis has been legalized at the state level, including Partners Colorado Credit Union (Colorado), FFB-First Fresno Bank (California) and Greater Nevada Credit Union (Nevada). Through these private credit union banks, the Company can access comprehensive banking services including cash management checking accounts, ACH transfer processing, cash pick-up and delivery services, debit card and credit card processing, online banking, and processing of bank wires and transfers.
The recent closures of Silicon Valley Bank, Signature Bank and First Republic Bank and their placement into receivership with the Federal Deposit Insurance Corporation ("FDIC") have identified bank-specific liquidity risks and concerns. Although the Department of the Treasury, the Federal Reserve, and the FDIC jointly released a statement that depositors at Silicon Valley Band Bank and Signature Bank would have access to their funds, even deposit amounts that exceed FDIC deposit insurance limits, future adverse developments with respect to specific financial institutions or the broader financial services industry may lead to market-wide liquidity shortages.
The February 2014 U.S. Department of the Treasury Financial Crimes Enforcement Network ("FinCEN") Guidance (as defined herein), sets forth certain circumstances whereby it is permissible for banks to provide services to cannabis-related businesses without risking prosecution for violation of federal money laundering laws. However, as discussed above, most banks and other financial institutions do not feel comfortable providing banking services to cannabis-related businesses, or relying on the FinCEN Guidance which could be revoked at any time by the Trump Administration. In addition to the foregoing, banks may refuse to process debit card payments and credit card companies generally refuse to process credit card payments for cannabis-related businesses.
Accordingly, the Company may have limited or no access to banking or other financial services in the U.S. in the future and may have to operate the Company's U.S. business on a cash-only basis. In addition, federal money laundering statutes and Bank Secrecy Act regulations discourage financial institutions from working with any organization that sells a controlled substance, regardless of whether the state it resides in permits cannabis sales. While the United States House of Representatives has passed the SAFE Banking Act, which would permit commercial banks to offer services to cannabis companies that are in compliance with state law, it remains under consideration by the Senate, and if Congress fails to pass the SAFE Banking Act, the Company's inability, or limitations on the Company's ability, to open or maintain bank accounts, obtain other banking services and/or accept credit card and debit card payments, may make it difficult for the Company to operate and conduct its business as planned or to operate efficiently. The prospects of the SAFE Banking Act, or some permutation thereof, becoming law is uncertain as of the date of this MD&A.
The Company's operations in the United States may be subject to heightened scrutiny.
The Company's existing operations in the United States cannabis market, and any future interests, may become the subject of heightened scrutiny by regulators, stock exchanges, clearing agencies or other authorities in Canada. As a result, the Company may be subject to significant direct and indirect interaction with public officials. There can be no assurance that this heightened scrutiny will not in turn lead to the imposition of certain restrictions on the Company's ability to invest in the United States or any other jurisdiction.
Given the heightened risk profile associated with cannabis in the United States, it was previously reported by certain publications in Canada that the Canadian Depository for Securities Limited may implement policies that would see its subsidiary, CDS Clearing and Depository Services Inc. ("CDS"), refuse to settle trades for cannabis issuers that have investments in the United States. The TMX Group, the owner and operator of CDS, subsequently issued a statement on August 17, 2017, reaffirming that there is no CDS ban on the clearing of securities of issuers with cannabis-related activities in the United States, despite media reports to the contrary, and that the TMX Group was working with regulators to arrive at a solution that will clarify this matter, which would be communicated at a later time.
On February 8, 2018, following discussions with the Canadian Securities Administrators and recognized Canadian securities exchanges, the TMX Group announced the signing of a Memorandum of Understanding (the "TMX MOU") with Aequitas NEO Exchange Inc., the CSE, the Toronto Stock Exchange and the TSX Venture Exchange (the "TSXV"). The TMX MOU outlines the parties' understanding of Canada's regulatory framework applicable to the rules, procedures and regulatory oversight of the exchanges and CDS as it relates to issuers with cannabis-related activities in the United States.
The TMX MOU confirms, with respect to the clearing of listed securities, that CDS relies on the exchanges to review the conduct of listed issuers. As a result, there is no CDS ban on the clearing of securities of issuers with cannabis-related activities in the United States. However, there can be no guarantee that this approach to regulation will continue in the future. If such a ban were to be implemented, it would have a material adverse effect on the ability of holders of Common Shares to make and settle trades. In particular, the Common Shares would become highly illiquid and until an alternative was implemented investors would have no ability to affect a trade of Common Shares through the facilities of a stock exchange.
Through its subsidiaries, the Company is licensed by the State of Nevada Department of Taxation to cultivate and distribute wholesale and retail recreational and medicinal cannabis products in Nevada.
The following table is a summary of C21's balance sheet exposure to U.S. cannabis-related activities as of March 31, 2026:
| 2026 | |||||||||
| Subsidiaries | Investments | Total | |||||||
| Current Assets | $ | 7,988,396 | $ | - | $ | 7,988,396 | |||
| Non-current Assets | 46,111,597 | - | 46,112,101 | ||||||
| Total Assets | $ | 54,099,993 | $ | - | $ | 54,100,497 | |||
| Current Liabilities | $ | 6,134,336 | $ | - | $ | 6,819,019 | |||
| Non-Current liabilities | 22,598,316 | - | 20,010,954 | ||||||
| Total Liabilities | $ | 28,732,652 | $ | - | $ | 26,829,973 |
Goodwill and intangibles related to the acquisition of U.S. based subsidiaries are included within the noncurrent asset totals above.
The following represents the portion of certain assets on C21's consolidated balance sheet that pertain to U.S. Cannabis activity as of March 31, 2026:
-
Inventory: 100%
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Property plant & equipment: 100%
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Intangible assets and goodwill: 100%
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Notes receivable and deposits: 84%
Unfavorable publicity or consumer perception of cannabis may have an adverse effect on the demand for our products.
The Company believes the adult-use and medical cannabis industries are highly dependent upon consumer perception regarding the safety, efficacy and quality of the cannabis produced. Consumer perception can be significantly influenced by scientific research or findings, regulatory investigations, litigation, media attention and other publicity regarding the consumption of cannabis products. There can be no assurance that future scientific research or findings, regulatory investigations, litigation, media attention or other publicity will be favorable to the cannabis market or any particular product, or consistent with earlier publicity. Future research reports, findings, regulatory investigations, litigation, media attention or other publicity that are perceived as less favorable than, or that question, earlier research reports, findings or other publicity could have a material adverse effect on the demand for adult-use or medical cannabis and on the business, results of operations, financial condition, cash flows or prospects of the Company. Further, adverse publicity reports or other media attention regarding the safety, efficacy and quality of cannabis in general, or associating the consumption of adult-use and medical cannabis with illness or other negative effects or events, could have such a material adverse effect. There is no assurance that such adverse publicity reports, findings or other media attention will not arise.
Public opinion may result in a significant influence over the regulation of the cannabis industry in Canada, the United States or elsewhere. A negative shift in the public's perception of cannabis in the United States, or any other applicable jurisdiction could affect future legislation or regulation. Among other things, such a shift could cause state jurisdictions to abandon initiatives or proposals to legalize medical cannabis, thereby limiting the number of new state jurisdictions into which the Company could expand. Any limits on future expansion may have a material adverse effect on the Company's business, financial condition, and results of operations.
State and local laws and regulations may heavily regulate brands and forms of cannabis products and there is no guarantee that the Company's current and proposed brands and products will remain or be approved for sale and distribution in any state.
States generally only allow the manufacture, sale and distribution of cannabis products that are grown in that state and may require advance notice of such products. Certain states and local jurisdictions have promulgated certain requirements for approved cannabis products based on the form of the product and the concentration of the various cannabinoids in the product. While the Company will continue to follow the guidelines and regulations of each applicable state and local jurisdiction in preparing products for sale and distribution, there is no guarantee that such future products will be approved to the extent necessary. For the products that are approved, there is a risk that any state or local jurisdiction may revoke its approval for such products based on changes in laws or regulations or based on its discretion or otherwise.
The business premises of the Company are a target for theft, which may have an adverse impact on its financial condition and results of operations.
The business premises of the Company are a target for theft. While the Company has implemented security measures and continues to monitor and improve its security measures, its cultivation, processing, distribution and dispensary facilities could be subject to break-ins, robberies and other breaches in security. If there was a breach in security and the Company fell victim to a robbery or theft, the loss of cannabis plants, cannabis oils, cannabis flowers, cannabis products, cultivation and processing equipment, and cash could have a material adverse impact on the business, financials condition, results of operation and property of the Company.
The Company has historically relied on access to both public and private capital in order to support its continuing operations, and the Company expects to continue to rely on the capital markets to finance its business.
Although such business carries a higher degree of risk, and despite the legal standing of cannabis businesses pursuant to U.S. federal laws, Canadian based issuers involved in the U.S. state-legal cannabis industry have been successful in raising substantial amounts of private and public financing. However, there is no assurance the Company will be successful, in whole or in part, in raising funds in the future, particularly if the U.S. federal authorities change their position toward enforcing the CSA. Further, access to funding from U.S. residents may be limited due to their unwillingness to be associated with activities which violate U.S. federal laws.
As consumer perceptions of cannabis evolve, the Company may face unfavorable publicity or consumer perception.
The state-legal cannabis industry in the U.S. is at an early stage of its development. Cannabis has been, and will continue to be, a controlled substance for the foreseeable future. Consumer perceptions regarding legality, morality, consumption, safety, efficacy and quality of cannabis are mixed and evolving. Consumer perception can be significantly influenced by scientific research or findings, regulatory investigations, litigation, media attention and other publicity regarding the consumption of cannabis products. There can be no assurance that future scientific research, findings, regulatory proceedings, litigation, media attention or other research findings or publicity will be favorable to the cannabis market or any particular product, or consistent with earlier publicity. Future research reports, findings, regulatory proceedings, litigation, media attention or other publicity that are perceived as less favourable than, or that question, earlier research reports, findings or publicity could have a material adverse effect on the demand for cannabis and on the business, results of operations, financial condition and cash flows of the Company. Further, adverse publicity reports or other media attention regarding cannabis in general or associating the consumption of cannabis with illness or other negative effects or events, could have such a material adverse effect. Public opinion and support for medical and adult-use cannabis use has traditionally been inconsistent and varies from jurisdiction to jurisdiction. While public opinion and support appears to be rising for legalizing medical and adult-use cannabis, it remains a controversial issue subject to differing opinions surrounding the nature of legalization (for example, support for legalization of medical versus recreational cannabis). The Company's ability to maintain and increase market acceptance of its company and products may require substantial expenditures on investor relations, strategic relationships and marketing initiatives. There can be no assurance that such initiatives will be successful, and their failure may have an adverse effect on the Company.
Product liability claims or regulatory actions against the Company could result in increased costs, could adversely affect the Company's reputation with its clients and consumers generally, and could have a material adverse effect on the business.
As a manufacturer and distributor of products designed to be ingested by humans, the Company faces an inherent risk of exposure to product liability claims, regulatory action and litigation if its products are alleged to have caused significant loss or injury. This is particularly true in light of the United States media news, beginning in September 2019, regarding potential vaporizer (vape) related illnesses and deaths. The Company closely monitors the news reports on this topic, including results from the investigations being conducted by the CDC, and put out a statement over its social media feed on September 11, 2019 confirming its commitment to consumer safety, discussing the rigorous quality control and testing of its products, and explaining that none of its vape products are manufactured with vitamin E acetate, or any other additives, thickeners or agents. The Company further disclosed its complete ingredient list for all of its vape products. In addition, the manufacture and sale of marijuana involve the risk of injury to consumers due to tampering by unauthorized third parties or product contamination. Previously unknown adverse reactions resulting from human consumption of marijuana alone or in combination with other medications or substances could occur. As a manufacturer, distributor and retailer of adult-use and medical marijuana, or in its role as an investor in or service provider to an entity that is a manufacturer, distributor and/or retailer of adult-use or medical marijuana, the Company may be subject to various product liability claims, including, among others, that the marijuana product caused injury or illness, include inadequate instructions for use or include inadequate warnings concerning possible side effects or interactions with other substances. A product liability claim or regulatory action against the Company could result in increased costs, could adversely affect the Company's reputation with its clients and consumers generally, and could have a material adverse effect on the business, results of operations, financial condition or prospects of the Company. There can be no assurances that the Company will be able to maintain product liability insurance on acceptable terms or with adequate coverage against potential liabilities. Such insurance is expensive and may not be available in the future on acceptable terms, or at all. The inability to maintain sufficient insurance coverage on reasonable terms or to otherwise protect against potential product liability claims could prevent or inhibit the commercialization of the Company's potential products or otherwise have a material adverse effect on the business, results of operations, financial condition or prospects of the Company.
As the cannabis industry is nascent, expectations regarding the development of the market may not be accurate and may change.
Due to the early stage of the state-legal cannabis industry, forecasts regarding the size of the industry and the sales of products are inherently subject to significant unreliability. A failure in the demand for products to materialize as a result of competition, technological change or other factors could have a material adverse effect on the business, results of operations and financial condition of the Company.
The cultivation, extraction and processing of cannabis and derivative products is dependent on a number of key inputs and their related costs which relies on a health supply chain.
Any significant interruption or negative change in the availability or economics of the supply chain for key inputs could materially impact the business, financial condition and operating results of an operator. Some of these inputs may only be available from a single supplier or a limited group of suppliers. If a single source supplier were to go out of business, an operator might be unable to find a replacement for such source in a timely manner or at all. Any inability to secure required supplies and services or to do so on appropriate terms could have a materially adverse impact on the business, financial condition and operating results of an operator, and consequently, the Company. Given the recent, systemic issues with the global supply chain, there is an increased risk of interruption or negative change in the availability of key inputs the Company relies upon which could materially adversely impact the Company in the current supply chain environment and into the foreseeable future.
There is no assurance of the Company's profitability.
The Company cannot give assurances that it will not incur losses in the future. The limited operating history makes it difficult to predict future operating results. The Company is subject to the risks inherent in the operation of a new business enterprise in an emerging and uncertain business sector, and there can be no assurance that the Company will be able to successfully address these risks.
The Company Company's operations are impacted by general economic trends.
Any worldwide economic slowdown and tightening of credit in the financial markets may impact the business of the Company's customers, which could have an adverse effect on the Company's business, financial condition, or results of operations. Adverse changes in general economic or political conditions in the United States and elsewhere could adversely affect the Company's business, financial condition, results of operations and property.
The Company faces risks related to tax credits and deductions.
Currently, U.S. state licensed adult-use cannabis businesses are assessed at a comparatively high effective U.S. federal income tax rate due to Section 280E of the Internal Revenue Code of 1986, as amended (the "Code"), which prohibits businesses associated with trafficking in Schedule I and II substance from deducting certain expenses. The IRS has invoked Section 280E of the Code in tax audits against various cannabis businesses in the United States that are permitted under applicable U.S. state laws. Although the IRS issued a clarification allowing the deduction of certain expenses, the scope of such items is interpreted very narrowly, and the bulk of operating costs and general administrative costs are not permitted to be deducted. In addition, on June 28, 2024, the IRS published a press release reminding taxpayers that cannabis remains a Schedule I controlled substance until a final rule is published that reschedules cannabis and, therefore, cannabis is still subject to the limitations of Section 280E of the Code, and stating that taxpayers that have filed amended returns seeking a refund of taxes paid related to Section 280E of the Code are not entitled to a refund or payment and that the IRS is taking steps to address these claims. While there are currently several pending cases before various U.S. administrative and federal courts challenging these restrictions, there is no guarantee that these courts will issue an interpretation of Section 280E of the Code favourable to cannabis businesses. Given these facts, the impact of any such challenges cannot be reliably estimated; however, it may be significant to the financial condition and/or the overall operations of the Company.
The Company has taken the position that it does not owe taxes attributable to the application of Section 280E of the Code, including the planned refiling of amended U.S. federal income tax returns in the next few months. The refiling of tax returns will be for the years ended January 31, 2022, January 31, 2023, January 31, 2024, and March 31, 2024, based on legal interpretations that challenge its tax liability under Section 280E of the Code. Because the Company's tax positions could be (and, as discussed below, has been) challenged by the IRS and other taxing authorities and the Company may not be wholly successful in defending its tax positions, the Company records reserves for unrecognized tax benefits based on its assessment of the probability of successfully sustaining its tax filing positions. Management exercises significant judgment when assessing the probability of successfully sustaining the Company's tax filing positions, and in determining whether a contingent tax liability should be recorded and, if so, estimating the amount.
The Company may be at risk of increased scrutiny from the IRS on past and future tax filings and, in the normal course of business, the Company receives notices, from time to time, from various local, state, and federal tax agencies. If the IRS makes a determination that the Company is not in compliance with Section 280E of the Code, the Company may be required to pay any difference in the amounts owed, in addition to penalties and interest, which could equal or exceed the amounts reserved by the Company, exceed the amount of cash on hand and materially impact the Company's financial condition or results of operations.
The Rescheduling Rule has moved FDA approved drugs containing cannabis and state-licensed medical cannabis to Schedule III making 280E inapplicable to these forms of marijuana. Unless and until adult-use marijuana is rescheduled, 280E continues to apply to that form of marijuana. On April 23, 2026, the IRS announced that it will issuing guidance in light of Rescheduling. It is currently unclear how Rescheduling will impact Company's operations.
Currency fluctuations may have a material adverse effect on the Company's business, financial condition and operating results.
Due to the Company's present operations in the United States, and its intention to continue future operations outside Canada, the Company is expected to be exposed to significant currency fluctuations. All or substantially all of the Company's revenue will be earned in U.S. dollars, but operating expenses are incurred in both U.S. and Canadian dollars. The Company does not have currency hedging arrangements in place, and there is no expectation that the Company will put any currency hedging arrangements in place in the future. Fluctuations in the exchange rate between the U.S. dollar and Canadian dollar may have a material adverse effect on the Company's business, financial condition and operating results. The Company may, in the future, establish a program to hedge a portion of its foreign currency exposure with the objective of minimizing the impact of adverse foreign currency exchange movements. However, even if the Company develops a hedging program, there can be no assurance that it will effectively mitigate currency risks.
Rising energy costs may have a material adverse effect on the Company's business, financial condition and operating results.
Adult-use and medical marijuana growing operations consume considerable energy, making the Company potentially vulnerable to rising energy costs. Rising or volatile energy costs may adversely impact the business, results of operations, financial condition or prospects of the Company.
The Company faces risks related to supply chain issues and interruptions.
Any significant interruption or negative change in the availability or economics of the supply chain for key inputs could materially impact the business, financial condition and operating results of an operator. Some of these inputs may only be available from a single supplier or a limited group of suppliers. If a single source supplier were to go out of business, an operator might be unable to find a replacement for such source in a timely manner or at all. Any inability to secure required supplies and services or to do so on appropriate terms could have a materially adverse impact on the business, financial condition and operating results of an operator, and consequently, the Company. Given the recent, systemic issues with the global supply chain, there is an increased risk of interruption or negative change in the availability of key inputs the Company relies upon which could materially adversely impact the Company in the current supply chain environment and into the foreseeable future.
The Company may not be able to meet its obligations as they become due, and the Company may require additional funding to continue as a going concern.
Liquidity risk is the risk that the Company will not be able to meet its obligations as they become due. The Company's ability to continue as a going concern may be dependent on management's ability to raise required funding through future equity or debt issuances. The Company manages its liquidity risk by forecasting cash flows from operations and anticipating any investment and financing activities. While the Company experiences positive cash flow from operations, such cash flow may not be sufficient on their own to fund payments to unsecured creditors. These material uncertainties cast doubt upon the Company's ability to continue as a going concern.
The Company may require additional financing, which may not be available.
The continued development of the Company may require additional financing. There is no guarantee that the Company will be able to achieve its business objectives. The Company intends to fund its business objectives by way of additional offerings of equity and/or debt financing. The failure to raise or procure such additional funds could result in the delay or indefinite postponement of current business objectives. There can be no assurance that additional capital or other types of financing will be available if needed or that, if available, will be on terms acceptable to the Company. If additional funds are raised by offering equity securities or convertible debt, existing shareholders could suffer significant dilution. Any debt financing secured in the future could involve the granting of security against assets of the Company and also contain restrictive covenants relating to capital raising activities and other financial and operational matters, which may make it more difficult for the Company to obtain additional capital and to pursue business opportunities, including potential acquisitions.
Company indebtedness could have a number of adverse impacts on the Company, including reducing the availability of cash flows to fund working capital and capital expenses.
Any indebtedness of the Company could have significant consequences on the Company, including: increase the Company's vulnerability to general adverse economic and industry conditions; require the Company to dedicate a substantial portion of its cash flow from operations to making interest and principal payments on its indebtedness, reducing the availability of the Company's cash flow to fund capital expenditures, working capital and other general corporate purposes; limit the Company's flexibility in planning for, or reacting to, changes in the business and the industry in which it operates; place the Company at a competitive disadvantage compared to its competitors that have greater financial resources; and limit the Company's ability to complete fundamental corporate changes or transactions or to declare or pay dividends.
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 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. 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, 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.
CONSENT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
We consent to the incorporation by reference in the Registration Statement on Form S-8 (No.333-259093) of C21 Investments Inc. (the "Company") of our report dated June 10, 2026, relating to the consolidated financial statements of the Company as of and for the year ended March 31, 2026, included in this Annual Report on Form 20-F for the year ended March 31, 2026.
/s/ DAVIDSON & COMPANY LLP
| Chartered Professional Accountants | Vancouver, Canada |
June 10, 2026
| DAVIDSON & COMPANY LLP | 1200-609 Granville Street | 604 687 0947 |
| PO BOX 10372, Pacific Centre | davidson-co.com | |
| Vancouver, BC V7Y 1G6 |