C21 Investments Inc 6-K, filed Sep 22, 2022
C21 Investments Inc. (CWLXF)
About this 6-K
C21 Investments Inc filed this 6-K on September 22, 2022.
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 6-K
REPORT OF FOREIGN PRIVATE ISSUER PURSUANT TO RULE 13a-16 OR 15d-16
UNDER THE SECURITIES EXCHANGE ACT OF 1934
For the month of September, 2022
Commission File Number: 000-55982
C21 Investments Inc.
(Translation of registrant's name into English)
Suite 1900-855 West Georgia St., Vancouver, BC, V6C 3H4
(Address of principal executive offices)
Indicate by check mark whether the registrant files or will file annual reports under cover Form 20-F or Form 40-F.
[ x ] Form 20-F [ ] Form 40-F
Indicate by check mark if the registrant is submitting the Form 6-K in paper as permitted by Regulation S-T Rule 101(b)(1): [ ]
Indicate by check mark if the registrant is submitting the Form 6-K in paper as permitted by Regulation S-T Rule 101(b)(7): [ ]
SUBMITTED HEREWITH
Exhibits
| 99.1 | Q2 Financial Statements July 31, 2022 | |
| 99.2 | Q2 Management Discussion and Analysis July 31, 2022 | |
| 99.3 | Q2 CEO Certification | |
| 99.4 | Q2 CFO certification |
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.
| C21 Investments Inc. | ||
| (Registrant) | ||
| Date: September 21, 2022 | By: | /s/ Michael Kidd |
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| Michael Kidd | ||
| Title: | CFO | |
C21 INVESTMENTS INC.
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Interim Condensed Consolidated Financial Statements |
| For the three and six months ended July 31, 2022 and 2021 | |
| (Expressed in U.S. Dollars) | |
C21 INVESTMENTS INC.
INDEX TO THE INTERIM CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
Notice of Disclosure of Non-auditor Review of the Interim Condensed Consolidated Financial Statements for the three and six months ended July 31, 2022 and 2021.
Pursuant to National Instrument 51-102, Part 4, subsection 4.3(3)(a) issued by the Canadian Securities administrators, if an auditor has not performed a review of the interim financial statements, they must be accompanied by a notice indicating that the financial statements have not been reviewed by an auditor.
The accompanying unaudited interim condensed consolidated financial statements of C21 Investments Inc. (the "Company" or "C21") for the interim period ended July 31, 2022, have been prepared in accordance with accounting principles generally accepted in the United States of America ("U.S. GAAP") and are the responsibility of the Company's management.
The Company's independent auditors, Baker Tilly US, LLP, have not performed a review of these interim condensed consolidated financial statements.
September 21, 2022
C21 INVESTMENTS INC.
INTERIM CONDENSED CONSOLIDATED BALANCE SHEETS
As at July 31, 2022 and January 31, 2022
(Expressed in U.S. dollars) - Unaudited
| July 31, 2022 | January 31, 2022 | |||||
| $ | $ | |||||
| ASSETS | ||||||
| Current assets | ||||||
| Cash | 2,341,411 | 3,067,983 | ||||
| Receivables | 231,169 | 210,423 | ||||
| Inventory | 5,415,090 | 4,054,473 | ||||
| Prepaid expenses and deposits | 495,710 | 773,450 | ||||
| Current portion of assets classified as held for sale | 1,952,594 | 2,178,145 | ||||
| 10,435,974 | 10,284,474 | |||||
| Non-current assets | ||||||
| Property and equipment | 4,937,903 | 4,869,593 | ||||
| Right-of-use assets | 8,634,724 | 8,875,884 | ||||
| Intangible assets | 8,555,495 | 9,224,165 | ||||
| Goodwill | 28,541,323 | 28,541,323 | ||||
| Restricted cash | 48,794 | 49,011 | ||||
| Deferred tax asset | 549,580 | 9,024 | ||||
| TOTAL ASSETS | 61,703,793 | 61,853,474 | ||||
| LIABILITIES | ||||||
| Current liabilities | ||||||
| Accounts payable and accrued liabilities | 2,614,216 | 2,508,869 | ||||
| Promissory note payable - current portion | 5,066,667 | 6,080,000 | ||||
| Convertible promissory notes - current portion | 1,281,442 | 1,281,442 | ||||
| Income taxes payable | 5,182,133 | 3,658,162 | ||||
| Lease liabilities - current portion | 361,257 | 325,698 | ||||
| Current portion of liabilities classified as held for sale | 753,664 | 874,379 | ||||
| 15,259,379 | 14,728,550 | |||||
| Non-current liabilities | ||||||
| Lease liabilities | 8,760,577 | 8,953,425 | ||||
| Deposit liability | 175,000 | 100,000 | ||||
| Promissory note payable | - | 2,026,667 | ||||
| Derivative liability | 366,500 | 1,006,368 | ||||
| Reclamation obligation | 54,819 | 55,272 | ||||
| TOTAL LIABILITIES | 24,616,275 | 26,870,282 | ||||
| SHAREHOLDERS' EQUITY | ||||||
| Common stock, no par value; unlimited shares authorized; 120,047,814 and 117,057,860 shares issued and outstanding as at July 31, 2022 and January 31, 2022 and 2021, respectively | 105,393,201 | 105,236,351 | ||||
| Commitment to issue shares | 628,141 | 628,141 | ||||
| Accumulated other comprehensive loss | (2,587,354 | ) | (2,370,967 | ) | ||
| Deficit | (66,346,470 | ) | (68,510,333 | ) | ||
| TOTAL SHAREHOLDERS' EQUITY | 37,087,518 | 34,983,192 | ||||
| TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY | 61,703,793 | 61,853,474 |
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On behalf of the Board: |
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"Bruce Macdonald" |
Director |
"Michael Kidd" |
Director |
C21 INVESTMENTS INC.
INTERIM CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
For the three and six months ended July 31, 2022 and 2021
(Expressed in U.S. dollars) - Unaudited
| Three months ended July 31 | Six months ended July 31 | |||||||||||
| 2022 | 2021 | 2022 | 2021 | |||||||||
| $ | $ | $ | $ | |||||||||
| Revenue | 7,175,493 | 8,592,872 | 14,647,954 | 17,390,222 | ||||||||
| Cost of sales | 3,316,161 | 3,487,499 | 6,800,985 | 7,000,103 | ||||||||
| Gross profit | 3,859,332 | 5,105,373 | 7,846,969 | 10,390,119 | ||||||||
| Selling, general and administrative expense | 2,335,764 | 2,249,577 | 4,628,090 | 4,481,778 | ||||||||
| Income from operations | 1,523,568 | 2,855,796 | 3,218,879 | 5,908,341 | ||||||||
| - | ||||||||||||
| Impairment loss | (20,726 | ) | - | (20,726 | ) | - | ||||||
| Interest expense | (133,455 | ) | (301,201 | ) | (297,504 | ) | (628,307 | ) | ||||
| Accretion expense | - | (75,551 | ) | - | (230,462 | ) | ||||||
| Other (expense) income | (1,246 | ) | (5,327 | ) | 2,900 | 114,606 | ||||||
| Gain on change in fair value of derivative liabilities | 629,500 | 2,746,018 | 629,500 | 5,868,328 | ||||||||
| Net income from continuing operations before income taxes | 1,997,641 | 5,219,735 | 3,533,049 | 11,032,506 | ||||||||
| Income tax expense | (485,152 | ) | (1,009,425 | ) | (983,415 | ) | (1,920,045 | ) | ||||
| Net income from continuing operations after income taxes | 1,512,489 | 4,210,310 | 2,549,634 | 9,112,461 | ||||||||
| Net income (loss) from discontinued operations after income taxes | 344,554 | (148,492 | ) | (385,771 | ) | (2,337 | ) | |||||
| NET INCOME | 1,857,043 | 4,061,818 | 2,163,863 | 9,110,124 | ||||||||
| Other comprehensive loss | ||||||||||||
| Cumulative translation adjustment | (219,207 | ) | (114,220 | ) | (216,387 | ) | (832,543 | ) | ||||
| COMPREHENSIVE INCOME | 1,637,836 | 3,947,598 | 1,947,476 | 8,277,581 | ||||||||
| Basic income per share from continuing operations | 0.01 | 0.04 | 0.02 | 0.08 | ||||||||
| Diluted income per share from continuing operations | 0.01 | 0.03 | 0.02 | 0.07 | ||||||||
| Basic and diluted income (loss) per share from discontinued operations | 0.00 | 0.00 | 0.00 | 0.00 | ||||||||
| Basic income per share | 0.02 | 0.03 | 0.02 | 0.08 | ||||||||
| Diluted income per share | 0.02 | 0.03 | 0.02 | 0.07 | ||||||||
| Weighted average number of common shares outstanding - basic | 120,047,814 | 117,811,798 | 120,047,814 | 117,828,869 | ||||||||
| Weighted average number of common shares outstanding - diluted | 122,880,907 | 122,046,558 | 122,880,907 | 122,063,629 | ||||||||
C21 INVESTMENTS INC.
INTERIM CONDENSED CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS’ EQUITY
For the six months ended July 31, 2022 and 2021
(Expressed in U.S. dollars, except number of shares) - Unaudited
| Number of shares |
Common stock | Commitment to issue shares |
Accumulated other comprehensive loss |
Deficit | Total | |||||||||||||
| # | $ | $ | $ | $ | $ | |||||||||||||
| Balance at January 31, 2021 | 117,057,860 | 103,636,830 | 649,928 | (1,604,126 | ) | (79,426,484 | ) | 23,256,148 | ||||||||||
| Commitment to issue shares on purchase of EFF | 19,774 | 21,787 | (21,787 | ) | - | - | - | |||||||||||
| Shares issued on exercise of Phantom Farms warrants | 456,100 | 533,326 | - | - | - | 533,326 | ||||||||||||
| Shares issued on exercise of guaranteed warrants | 1,214,080 | - | - | - | - | - | ||||||||||||
| Shares-based compensation | - | 254,171 | - | - | - | 254,171 | ||||||||||||
| Net income and other comprehensive loss for the period | - | - | - | (832,543 | ) | 9,110,124 | 8,277,581 | |||||||||||
| Balance at July 31, 2021 | 118,747,814 | 104,446,114 | 628,141 | (2,436,669 | ) | (70,316,360 | ) | 32,321,226 | ||||||||||
| Balance at January 31, 2022 | 120,047,814 | 105,236,351 | 628,141 | (2,370,967 | ) | (68,510,333 | ) | 34,983,192 | ||||||||||
| Share-based compensation | - | 156,850 | - | - | - | 156,850 | ||||||||||||
| Net income and other comprehensive loss for the period | - | - | - | (216,387 | ) | 2,163,863 | 1,947,476 | |||||||||||
| Balance at July 31, 2022 | 120,047,814 | 105,393,201 | 628,141 | (2,587,354 | ) | (66,346,470 | ) | 37,087,518 |
C21 INVESTMENTS INC.
INTERIM CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
For the six months ended July 31, 2022 and 2021
(Expressed in U.S. dollars) - Unaudited
| Six months ended July 31, | ||||||
| 2022 | 2021 | |||||
| $ | $ | |||||
| OPERATING ACTIVITIES | ||||||
| Net income from continuing operations | 2,549,634 | 9,112,461 | ||||
| Adjustments to reconcile net income to net cash provided by operating activities: | ||||||
| Depreciation and amortization | 918,538 | 959,069 | ||||
| Share-based compensation | 156,850 | 254,171 | ||||
| Impairment loss | 20,726 | - | ||||
| Interest expense | 24,527 | 415,941 | ||||
| Accretion expense | - | 230,402 | ||||
| Deferred income tax | (540,556 | ) | 274,238 | |||
| Foreign exchange gain | (10,574 | ) | - | |||
| Gain on change in fair value of derivative liabilities | (629,500 | ) | (5,868,328 | ) | ||
| Changes in operating assets and liabilities: | ||||||
| Inventory | (1,360,617 | ) | (661,339 | ) | ||
| Prepaid expenses and deposits | 277,741 | (15,027 | ) | |||
| Receivables | (20,746 | ) | 37,526 | |||
| Accounts payable and accrued liabilities | 318,081 | 529,898 | ||||
| Income taxes payable | 1,523,971 | (58,086 | ) | |||
| Lease liabilities | 83,872 | (114,952 | ) | |||
| Cash provided by operating activities of continuing operations | 3,311,947 | 5,095,974 | ||||
| Cash used in operating activities of discontinued operations | (53,964 | ) | (1,514,497 | ) | ||
| INVESTING ACTIVITIES | ||||||
| Purchases of property and equipment | (422,119 | ) | (2,384,703 | ) | ||
| Cash used in investing activities of continuing operations | (422,119 | ) | (2,384,703 | ) | ||
| Cash provided by investing activities of discontinued operations | 51,357 | 1,177,350 | ||||
| FINANCING ACTIVITIES | ||||||
| Principal repayments on promissory note payable | (3,040,000 | ) | (3,040,000 | ) | ||
| Repayment of convertible promissory notes | - | (1,210,000 | ) | |||
| Cash proceeds from warrants | - | 533,326 | ||||
| Interest paid in cash | (322,032 | ) | (622,806 | ) | ||
| Cash used in financing activities of continuing operations | (3,362,032 | ) | (4,339,480 | ) | ||
| Cash used in financing activities of discontinued operations | (35,374 | ) | (64,032 | ) | ||
| Effect of foreign exchange on cash | (216,387 | ) | (878 | ) | ||
| Decrease in cash during the period | (726,572 | ) | (2,030,266 | ) | ||
| Cash beginning of period | 3,067,983 | 6,237,182 | ||||
| Cash end of period | 2,341,411 | 4,206,916 | ||||
| Supplemental disclosure of cash flow information | ||||||
| Interest paid in cash | 322,032 | 622,806 | ||||
| Income taxes paid in cash | - | 1,977,638 | ||||
| Non-cash financing activities | ||||||
| Common shares issued as partial settlement of commitment to issue shares | - | 21,787 | ||||
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C21 INVESTMENTS INC. |
1. NATURE OF OPERATIONS
C21 Investments Inc. (the "Company" or "C21") was incorporated January 15, 1987, under the Company Act of British Columbia. The Company is a publicly traded company with its registered office is 1900-885 West Georgia Street, Vancouver, BC, V6C 3H4.
Pursuant to a change of business announced on January 29, 2018 to the Cannabis industry, the Company commenced acquiring and operating revenue-producing cannabis operations in the USA.
On June 15, 2018, the Company's common shares were delisted from the TSX Venture Exchange ("TSX-V") at the Company's request and on June 18, 2018 the Company commenced trading on the Canadian Securities Exchange ("CSE"), completed its change of business to the cannabis industry and commenced trading under the symbol CXXI. The Company registered its common shares in the United States and on May 6, 2019, its shares were cleared by the Financial Industry Regulatory Authority for trading on the OTC Markets platform under the U.S. trading symbol CXXIF. On September 28, 2020, the Company began trading on the OTCQB® Venture Market.
For the year ended January 31, 2021, the Company operated in two segments: recreational cannabis in Oregon, USA and recreational and medical cannabis in Nevada, USA (Note 15). During the year ended January 31, 2022, the Company made the strategic decision to exit operations in Oregon. The comparative results of operations have been re-stated to present the operating results of the Oregon segment as discontinued operations. The Nevada segment remains engaged in the cultivation of and manufacturing of cannabis flower products, vape products and extract products for wholesale and retail sales.
At July 31, 2022, the Company had cash of $2,341,411, a working capital deficiency of $4,823,405 and an accumulated deficit of $66,346,470. However, for the period ended July 31, 2022, the Company generated net income and positive cash flows from operations.
Management has taken several actions to ensure that the Company will continue as a going concern through July 31, 2023, including the closing of its operations in Oregon (Note 4), selling the assets in Oregon, reducing headcount, and reducing discretionary expenditures. The Company is seeking additional financing in the form of debt, which could consolidate existing debt on its balance sheet on more favorable terms. Management believes that these actions will enable the Company to continue as a going concern through September 21, 2023, one year from the date these consolidated financial statements were issued.
In the United States, 36 states, the District of Columbia, and four out of five U.S. territories allow the use of medical cannabis. The recreational adult-use of cannabis is legalized in 17 states, including Alaska, Arizona, California, Colorado, Illinois, Maine, Massachusetts, Michigan, Montana, Nevada, New Jersey, New Mexico, New York, Oregon, Vermont, Virginia, Washington, and the District of Columbia. At the federal level, however, cannabis currently remains a Schedule I controlled substance under the Federal Controlled Substances Act of 1970. Under U.S. federal law, a Schedule I drug or substance has a high potential for abuse, no accepted medical use in the United States, and a lack of accepted safety for the use of the drug under medical supervision. As such, even in those states in which marijuana is legalized under state law, the manufacture, importation, possession, use or distribution of cannabis remains illegal under U.S. federal law. This has created a dichotomy between state and federal law, whereby many states have elected to regulate and remove state-level penalties regarding a substance which is still illegal at the federal level. There remains uncertainty about the US federal government's position on cannabis with respect to cannabis-legal status. A change in its enforcement policies could impact the ability of the Company to continue as a going concern.
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C21 INVESTMENTS INC. |
2. BASIS OF PREPARATION
Basis of presentation
These unaudited interim condensed consolidated financial statements as at and for the three and six months ended July 31, 2022 and 2021 ("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.
Functional and reporting currency
The functional currency of C21 Investments Inc. is Canadian dollars ("C$"), and the functional currency of the Company's subsidiaries is U.S. dollars. C21 has determined that the U.S. dollar ("USD") is the most relevant and appropriate reporting currency as the Company's operations are conducted in U.S. dollars and its financial results are prepared and reviewed internally by management in U.S. dollars. The consolidated financial statements are presented in U.S. dollars unless otherwise noted.
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.
The following are the Company's subsidiaries that are included in these interim financial statements as at and for the period ended July 31, 2022:
| Name of Subsidiary | Country of Incorporation |
Percentage Ownership |
Functional Currency |
Principal Activity |
| 320204 US Holdings Corp. | USA | 100% | USD | Holding Company |
| 320204 Oregon Holdings Corp. | USA | 100% | USD | Holding Company |
| 320204 Nevada Holdings Corp. | USA | 100% | USD | Holding Company |
| 320204 Re Holdings, LLC | USA | 100% | USD | Holding Company |
| Eco Firma Farms LLC | USA | 100% | USD | Cannabis producer |
| Silver State Cultivation LLC | USA | 100% | USD | Cannabis producer |
| Silver State Relief LLC | USA | 100% | USD | Cannabis retailer |
| Phantom Venture Group, LLC | USA | 100% | USD | Holding Company |
| Phantom Brands, LLC | USA | 100% | USD | Holding Company |
| Phantom Distribution, LLC | USA | 100% | USD | Cannabis distributor |
| 63353 Bend, LLC | USA | 100% | USD | Cannabis producer |
| 20727-4 Bend, LLC | USA | 100% | USD | Cannabis processor |
| 4964 BFH, LLC | USA | 100% | USD | Cannabis producer |
| Workforce Concepts 21, Inc. | USA | 100% | USD | Payroll and benefits services |
3. SIGNIFICANT ACCOUNTING POLICIES
The Company's significant accounting policies are more fully described in Note 3 to the consolidated financial statements for the years ended January 31, 2022 and December 31, 2021. There have been no material changes to the Company's significant accounting policies.
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C21 INVESTMENTS INC. |
3. SIGNIFICANT ACCOUNTING POLICIES (Continued)
Significant accounting estimates and assumptions
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 fair values of assets acquired and liabilities assumed in 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, share-based compensation, and fair value of derivative liabilities.
Recently issued accounting pronouncements
Recent accounting pronouncements, other than those below, issued by the FASB, the American Institute of Certified Public Accountants ("AICPA") and the U.S. Securities and Exchange Commission ("SEC") did not or are not believed by management to have a material effect on the Company's present or future financial statements.
In October 2021, the FASB issued ASU No. 2021-08, Business Combinations (Topic 805): Accounting for Contract Assets and Contract Liabilities from Contracts with Customers ("ASU 2021-08"), which requires an acquirer to recognize and measure contract assets and liabilities acquired in a business combination in accordance with Revenue from Contracts with Customers ("Topic 606") rather than adjust them to fair value at the acquisition date. ASU 2021-08 is effective for fiscal periods beginning after December 15, 2022. The Company does not expect the adoption of this standard to have any material impact on the consolidated financial statements.
4. DISCONTINUED OPERATIONS
In January 2022, the Company entered into to a lease-to-own arrangement with a lessee for certain licenses, land and equipment in Oregon, USA, representing its outdoor growing operation. The lease-to-own arrangement concludes in January 2027 with total undiscounted payments over the term amounting to $2,514,805. The Company determined that the arrangement should be accounted for as a sales-type lease and concluded that it is not probable that all required payments will be made such that title will transfer at the end of the term. As such, in accordance with ASC 842, the land and equipment have not been derecognized and payments received will be recorded as a deposit liability until such time that collectability becomes probable. As at July 31, 2022, $175,000 has been received under the arrangement and has been recorded as a deposit liability.
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. At January 31, 2021, the Company classified the assets and liabilities in Swell and Megawood as held for sale and completed the sale of these assets in April 2021. By January 31, 2022, the Company made the decision to cease all growing, manufacturing, and processing activities in Bend, Oregon. As the Oregon reporting unit comprises the assets of multiple components in distinct geographic locations, management anticipates completing the sale on a piecemeal basis. Management is engaged in an active program to seek buyers for the major classes of assets and liabilities in Oregon in order to complete a sale in the next twelve months.
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C21 INVESTMENTS INC. |
4. DISCONTINUED OPERATIONS (Continued)
Prepaid expenses classified as held for sale primarily relates to the renewal of licenses that may be transferred in the event of a sale. Otherwise, prepaid expenses will be expensed within loss from discontinued operations over the next twelve months.
Long-term debt consists of vehicle loans and a building mortgage. The mortgage began on February 1, 2015 and matures on January 1, 2035 (20 years). The mortgage bears interest at a fixed rate of 4.5% with payments made monthly. The equipment and vehicle loans consist of three loans with maturity dates ranging from June 1, 2021 through May 15, 2023 and interest rates ranging from 5.59% to 19.9% with payments made monthly.
The following table summarizes the major classes of assets and liabilities of the discontinued Oregon operation that have been classified as held-for-sale in the consolidated balance sheets:
| July 31, 2022 | January 31, 2022 | |||||
| $ | $ | |||||
| Carrying amounts of the major classes of assets included in discontinued operations: | ||||||
| Receivables | 191,957 | 64,456 | ||||
| Inventory | - | 363,391 | ||||
| Prepaid expenses and deposits | 67,547 | 111,617 | ||||
| Deferred tax asset | 285,770 | 152,177 | ||||
| Property and equipment | 1,139,517 | 1,139,517 | ||||
| Right-of-use assets | 267,803 | 346,987 | ||||
| Total assets classified as held for sale | 1,952,594 | 2,178,145 | ||||
| Current portion of assets classified as held for sale | (1,952,594 | ) | (2,178,145 | ) | ||
| Non-current portion of assets classified as held for sale | - | - | ||||
| Carrying amounts of the major classes of liabilities included in discontinued operations: | ||||||
| Lease liabilities | 316,632 | 412,093 | ||||
| Long-term debt | 437,032 | 462,286 | ||||
| Total liabilities classified as held for sale | 753,664 | 874,379 | ||||
| Current portion of liabilities classified as held for sale | (753,664 | ) | (874,379 | ) | ||
| Non-current portion of liabilities classified as held for sale | - | - |
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C21 INVESTMENTS INC. |
4. DISCONTINUED OPERATIONS (Continued)
The following table provides the major classes of line items constituting pre-tax loss from discontinued operations:
| Three months ended July 31, | Six months ended July 31, | |||||||||||
| 2022 | 2021 | 2022 | 2021 | |||||||||
| $ | $ | $ | $ | |||||||||
| Revenue | 89,856 | 382,859 | 357,540 | 735,777 | ||||||||
| Cost of sales | 41,549 | 414,558 | 477,205 | 733,960 | ||||||||
| Gross profit (loss) | 48,307 | (31,699 | ) | (119,665 | ) | 1,817 | ||||||
| Expenses (income) | ||||||||||||
| General and administration | 77,680 | 102,269 | 195,575 | 195,868 | ||||||||
| Sales, marketing, and promotion | - | 25,243 | 1,939 | 51,796 | ||||||||
| Operating lease cost | 97,820 | - | 97,820 | 1,233 | ||||||||
| Depreciation and amortization | 6,919 | 42,655 | 9,919 | 122,009 | ||||||||
| Impairment loss | 14,461 | - | 61,937 | - | ||||||||
| Provision for expected credit losses | 35,359 | - | 35,359 | - | ||||||||
| Other income | (10,102 | ) | (25,731 | ) | (2,850 | ) | (366,259 | ) | ||||
| Net loss from discontinued operations | (173,830 | ) | (176,135 | ) | (519,364 | ) | (2,830 | ) | ||||
| Income tax recovery | 518,384 | 27,643 | 133,593 | 493 | ||||||||
| Net income (loss) from discontinued operations after income taxes | 344,554 | (148,492 | ) | (385,771 | ) | (2,337 | ) | |||||
The following table summarizes the cash flows from discontinued operations:
| July 31, 2022 | July 31, 2021 | |||||
| $ | $ | |||||
| Net cash used in operating activities of discontinued operations | (53,964 | ) | (1,514,497 | ) | ||
| Net cash provided by investing activities of discontinued operations | 51,357 | 1,177,350 | ||||
| Net cash used in financing activities of discontinued operations | (35,374 | ) | (64,032 | ) |
5. RECEIVABLES
| July 31, 2022 | January 31, 2022 | |||||
| $ | $ | |||||
| Taxes receivable | 8,747 | 11,945 | ||||
| Trade receivables | 222,422 | 198,478 | ||||
| 231,169 | 210,423 |
There was no provision for expected credit losses on trade receivables at July 31, 2022 or January 31, 2022.
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C21 INVESTMENTS INC. |
6. INVENTORY
| July 31, 2022 | January 31, 2022 | |||||
| $ | $ | |||||
| Finished goods | 2,806,181 | 1,848,392 | ||||
| Work in process | 2,400,587 | 2,029,133 | ||||
| Raw materials | 208,322 | 176,948 | ||||
| 5,415,090 | 4,054,473 |
7. PROPERTY AND EQUIPMENT AND RIGHT-OF-USE ASSETS
Property and equipment
The following table summarizes the Company's property and equipment:
| July 31, 2022 | January 31, 2022 | |||||
| $ | $ | |||||
| Land | 1,330,000 | 1,330,000 | ||||
| Leasehold improvements | 1,892,078 | 1,758,229 | ||||
| Furniture & fixtures | 335,424 | 460,890 | ||||
| Computer equipment | 6,932 | 46,484 | ||||
| Machinery & equipment | 2,448,419 | 2,305,217 | ||||
| 6,012,853 | 5,900,820 | |||||
| Less: accumulated depreciation | (1,074,950 | ) | (1,031,227 | ) | ||
| 4,937,903 | 4,869,593 |
Total depreciation expense for the three and six months ended July 31, 2022 was $137,519 and $263,615, respectively (2021 - $118,583 and $236,936, respectively). Of the total depreciation expense, $121,371 and $231,434 was allocated to inventory (2021 - $47,316 and $85,261, respectively).
At January 31, 2022, the Company reclassified buildings with a cost of $1,370,212 and accumulated depreciation of $230,695 to assets classified as held for sale. The prior period comparative amounts of cost of $1,370,212 and accumulated depreciation of $202,072 were also re-classified.
Right-of-use assets
The Company's right-of-use assets result from its operating leases (Note 10) and consist of land and buildings used in the cultivation, processing, and warehousing of its products.
At July 31, 2022, assets classified as held for sale contains right-of-use assets with a carrying value of $267,803 (January 31, 2022 - $346,987). Management estimated the fair value less costs to sell exceeds the carrying value and therefore the assets are measured at their carrying values.
|
C21 INVESTMENTS INC. |
8. INTANGIBLE ASSETS AND GOODWILL
Intangible assets
The following table summarizes the Company's intangible assets:
| July 31, 2022 | January 31, 2022 | |||||
| $ | $ | |||||
| Licenses | 12,167,022 | 12,141,476 | ||||
| Brands | 644,800 | 868,982 | ||||
| Customer relationships | 1,540,447 | 1,758,553 | ||||
| 14,352,269 | 14,769,011 | |||||
| Less: accumulated amortization | (5,796,774 | ) | (5,544,846 | ) | ||
| 8,555,495 | 9,224,165 |
Total amortization expense from intangible assets for the three and six months ended July 31, 2022 was $334,334 and $668,668, respectively (2021 - $342,572 and $685,143, respectively). Of the total expense, $2,266 and $4,533 was allocated to inventory (2021 - $2,266 and $4,533, respectively).
During the year ended January 31, 2022, the Company recognized impairment charges of $363,510 on customer relationships allocated to the Oregon reporting unit (Note 4).
Goodwill
As at July 31, 2022, the Company had goodwill of $28,541,323 (January 31, 2022 - $28,541,323) which was allocated to the Nevada reporting unit.
9. ACCOUNTS PAYABLE AND ACCRUED LIABILITIES
The following table presents the composition of accounts payable and accrued liabilities:
| July 31, 2022 | January 31, 2022 | |||||
| $ | $ | |||||
| Accounts payable | 1,425,495 | 1,402,546 | ||||
| Accrued liabilities | 1,147,841 | 1,040,914 | ||||
| Interest payable | 40,880 | 65,409 | ||||
| 2,614,216 | 2,508,869 |
|
C21 INVESTMENTS INC. |
10. LEASES
The Company's leases consist of land and buildings used in the cultivation, processing, and warehousing of its products. All leases were classified as operating leases in accordance with ASC 842.
The following table presents the Company's active leases and total lease term under contract:
| Entity Name/Lessee | Asset | Useful life (years) |
Type |
| Silver State Cultivation LLC | Land/Building | 12 | Operating lease |
| Silver State Relief LLC (Sparks) | Land/Building | 12 | Operating lease |
| Silver State Relief LLC (Fernley) | Land/Building | 12 | Operating lease |
| Phantom Distribution, LLC | Land/Building | 5 | Operating lease |
| 63353 Bend, LLC | Land/Building | 5 | Operating lease |
| 20727-4 Bend, LLC | Land/Building | 5 | Operating lease |
For the three and six months ended July 31, 2022, the Company incurred operating lease costs in continuing operations of $350,936 and $708,872, respectively (2021 - $350,936 and $708,872, respectively). Of these amounts, $203,092 and $406,184 were allocated to inventory, respectively (2021 - $203,092 and $406,184, respectively).
The following table displays the weighted average discount rate used in calculating lease liabilities and weighted average remaining lease term:
| July 31, 2022 | January 31, 2022 |
|||||
| Weighted average discount rate | 10% | 10% | ||||
| Weighted average remaining lease term (years) | 10.21 | 10.46 |
The maturity of the contractual undiscounted lease liabilities of the Company's operating leases as of July 31, 2022 is as follows:
| Year ending January, | $ | ||
| 2023 | 1,257,630 | ||
| 2024 | 1,295,359 | ||
| 2025 | 1,334,220 | ||
| 2026 | 1,374,246 | ||
| 2027 | 1,415,474 | ||
| Thereafter | 8,432,507 | ||
| Total undiscounted lease liabilities | 15,109,436 | ||
| Interest on lease liabilities | (5,987,602 | ) | |
| Total present value of minimum lease payments | 9,121,834 | ||
| Current portion of lease liability | 361,257 | ||
| Lease liability | 8,760,577 |
As at July 31, 2022, liabilities classified as held for sale includes lease liabilities of $316,632 (January 31, 2022 - $412,093). The Company has total undiscounted lease liabilities with related parties of $15,451,724 (Note 17). Of the total undiscounted lease liabilities, $342,288 are classified as held for sale.
|
C21 INVESTMENTS INC. |
11. PROMISSORY NOTES
The Company early adopted ASU 2020-06 on February 1, 2021 using the full retrospective method. The adoption eliminates the cash conversion and beneficial conversion feature models used to separately account for embedded conversion features as a component of equity.
Transaction costs related to the issuance of convertible promissory notes are apportioned to their respective financial liability and equity components (if applicable) in proportion to the allocation of proceeds as a reduction to the carrying amount of each component.
When valuing the financial liability component of the promissory notes, the Company used specific interest rates assuming no conversion features existed. The resulting liability component is accreted to its face value over the convertible note's term until its maturity date.
Convertible promissory notes
The following is a continuity of the Company's convertible promissory notes denominated in U.S. dollars:
| June 13, 2018 | May 24, 2019 | ||||||||
| issuance | issuance | Total | |||||||
| $ | $ | $ | |||||||
| Balance, January 31, 2021 | 1,072,590 | 1,130,056 | 2,202,646 | ||||||
| Payment | - | (1,210,000 | ) | (1,210,000 | ) | ||||
| Interest expense | 17,649 | 40,685 | 58,334 | ||||||
| Accretion expense | 191,203 | 39,259 | 230,462 | ||||||
| Balance, January 31, 2022 and July 31, 2022 | 1,281,442 | - | 1,281,442 |
On June 13, 2018, the Company issued convertible promissory notes to the vendors that sold Eco Firma Farms, LLC ("EFF") to the Company in the aggregate principal amount of $2,000,000. The convertible promissory notes were convertible at $1.00 per share. The convertible promissory notes accrue interest at a rate of 4% per annum, compounded annually, and were fully due and payable on June 13, 2021. The Company is in an ongoing dispute with the vendors over repayment (Note 19). On issuance, the Company determined the conversion feature was a derivative liability as the convertible promissory notes are exercisable in USD while the functional currency of the Company is Canadian dollars. The fair value of the conversion feature as at July 31, 2022 was $nil (January 31, 2022 - $nil).
On May 24, 2019, the Company issued a two-year unsecured convertible promissory note to a debtor of Swell Companies in the principal amount of $1,000,000. The convertible note accrues interest at 10% per annum compounded annually and payable at maturity. The note is convertible into common shares of the Company at a conversion price of $1.56 per share and may be converted at the maturity date. On issuance, the Company determined the conversion feature was a derivative liability as the convertible promissory notes are exercisable in USD while the functional currency of the Company is Canadian dollars. On May 24, 2021 the note was fully repaid.
|
C21 INVESTMENTS INC. |
11. PROMISSORY NOTES (Continued)
Promissory note payable
The following is a continuity of the Company's promissory note payable denominated in U.S. dollars:
| January 1, 2019 | |||
| issuance | |||
| $ | |||
| Balance, January 31, 2021 | 14,186,667 | ||
| Payments | (6,080,000 | ) | |
| Balance, January 31, 2022 | 8,106,667 | ||
| Payments | (3,040,000 | ) | |
| Balance, July 31, 2022 | 5,066,667 | ||
| Current portion | 5,066,667 | ||
| Non-current portion | - |
On January 1, 2019, the Company issued a promissory note to Mr. Newman, who sold Silver State to the Company in the principal amount of $30,000,000. The promissory note is payable in the following principal instalments: $3,000,000 on April 1, 2019, $6,000,000 on each of July 1, 2019, October 1, 2019, January 1, 2020, and April 1, 2020, and $3,000,000 on July 1, 2020. The promissory note accrues interest at a rate of 10% per annum. The promissory note is secured by all of the outstanding membership interests, and a security interest in all of the assets, of Silver State.
On July 1, 2019, the terms of the promissory note payable for the acquisition of Silver State were amended to call for immediate payment of $2,000,000 plus accrued interest on July 1, 2019 followed by payments of $800,000 plus accrued interest on the first of each of August, September, October, November, and December 2019.
Effective November 21, 2019 and June 25, 2020, Mr. Newman and the Company agreed to further amend the terms of the promissory note due to Mr. Newman. The December 1, 2019 principal payment of $800,000 was cancelled and the monthly principal payments thereafter were reduced to $600,000 per month. Further, the annual interest rate on the note was reduced from 10% to 9.5%. The remaining balance on the promissory note is due and payable on January 1, 2021. This modification resulted in a gain of $nil.
On November 19, 2020, the Company announced an agreement with Mr. Newman that the remaining $15,200,000 principal outstanding on his promissory note, due to mature on January 1, 2021, has been amended with lower monthly payments amortized over a 30-month period. Commencing December 1, 2020, the monthly payments are $506,667 plus interest. The interest rate at 9.5% was unchanged.
For the three and six months ended July 31, 2022, interest expense was $133,455 and $297,504, respectively (2021 - $279,041 and $583,930, respectively). Interest paid during the three and six months ended July 31, 2022 was $144,004 and $322,032, respectively (2021 - $288,009 and $609,211, respectively).
|
C21 INVESTMENTS INC. |
12. DERIVATIVE LIABILITY
The following reflects the continuity of derivative liabilities:
| Conversion feature of convertible promissory notes |
Earn out shares | Total | |||||||
| $ | $ | $ | |||||||
| Balance, January 31, 2021 | 485,157 | 9,273,970 | 9,759,127 | ||||||
| Fair value adjustment on derivative liabilities | (485,157 | ) | (8,091,133 | ) | (8,576,290 | ) | |||
| Settlement of Phantom earn out | - | (677,939 | ) | (677,939 | ) | ||||
| Effect of foreign exchange | - | 501,470 | 501,470 | ||||||
| Balance, January 31, 2022 | - | 1,006,368 | 1,006,368 | ||||||
| Fair value adjustment on derivative liabilities | - | (629,500 | ) | (629,500 | ) | ||||
| Effect of foreign exchange | - | (10,368 | ) | (10,368 | ) | ||||
| Balance, July 31, 2022 | - | 366,500 | 366,500 |
Upon the February 4, 2019 acquisition of Phantom Farms, the vendors can earn up to 4,500,000 'earn out' shares over a period of seven years. The conditions were based on the Company's common shares exceeding certain share prices during the period. The fair value of the derivative liability is derived using a Monte Carlo simulation. On January 24, 2022, the Company issued 1,300,000 common shares for full settlement of the Phantom earn out shares.
Upon the May 24, 2019 acquisition of Swell Companies, the vendors can earn up to 6,000,000 'earn out' shares over a period of seven years. The conditions were based on the Company's common shares exceeding certain share prices during the period. Additionally, the 50% of the earn out shares are earned upon a change of control of the Company. The fair value of the derivative liability is derived using a Monte Carlo simulation.
Significant inputs into the Monte Carlo simulation used to determine the fair value of earn out shares were as follows:
| Earn out shares July 31, 2022 |
Earn out shares January 31, 2022 |
|||||
| Discount rate | 2.65% | 1.24% | ||||
| Expected life in years | 3.81 | 4.33 | ||||
| Expected stock volatility | 80% | 80% | ||||
| Expected volatility of foreign exchange | 6.29% | 6.52% |
The conversion feature of the June 13, 2018 and May 24, 2019 convertible promissory notes expired on June 13, 2021 and May 24, 2021, respectively. As such, the fair value of each at July 31, 2022 and January 31, 2022 was $nil.
|
C21 INVESTMENTS INC. |
13. SHARE CAPITAL
Share capital consists of one class of fully paid common shares, with no par value. The Company is authorized to issue an unlimited number of common shares. All shares are equally eligible to receive dividends and repayment of capital and represent one vote at the Company's shareholders' meetings.
The following table reflects the continuity of share capital from January 31, 2021 to July 31, 2022:
| Number of Shares |
Common stock | |||||
| $ | ||||||
| Balance, January 31, 2021 | 117,057,860 | 103,636,830 | ||||
| Shares issued - Phantom Farm warrants exercises (i) | 456,100 | 533,326 | ||||
| Shares issued - EFF commitment (ii) | 19,774 | 21,787 | ||||
| Shares issued - Guaranteed warrants (iii) | 1,214,080 | - | ||||
| Shares issued - Settlement of Earn out shares (iv) | 1,300,000 | 677,939 | ||||
| Share-based compensation | - | 366,469 | ||||
| Balance, January 31, 2022 | 120,047,814 | 105,236,351 | ||||
| Share-based compensation | - | 156,850 | ||||
| Balance, July 31, 2022 | 120,047,814 | 105,393,201 |
(i) On February 4, 2021 the Company issued 456,100 shares upon the exercise of Phantom Farm warrants.
(ii) On April 5, 2021, the Company issued 19,774 common shares to the vendors of EFF for a partial settlement of the Company's commitment to issue shares.
(iii) On June 17, 2021, the Company issued 1,214,080 common shares pursuant to the cashless exercise of 4,160,000 warrants.
(iv) On January 24, 2022, the Company issued 1,300,000 common shares for the settlement of Phantom earn out shares.
Commitment to issue shares
The Company issued a promissory note payable to deliver 2,142,000 shares to the vendors of EFF in the amount of $1,905,635, without interest, any time after October 15, 2018. As at July 31, 2022 shares issued pursuant to this commitment total 793,093 shares.
Warrants
The following summarizes the Company's warrant activity:
| Warrants outstanding |
Weighted average exercise price |
Weighted average remaining life |
|||||||
| # | C$ | Years | |||||||
| Balance January 31, 2021 | 11,894,746 | 1.32 | 1.96 | ||||||
| Exercised | (4,616,100 | ) | 1.05 | ||||||
| Expired | (4,038,646 | ) | 1.73 | ||||||
| Balance, January 31, 2022 | 3,240,000 | 1.18 | 2.10 | ||||||
| Balance, July 31, 2022 | 3,240,000 | 1.18 | 1.85 |
|
C21 INVESTMENTS INC. |
13. SHARE CAPITAL (Continued)
As at July 31, 2022, the following warrants were outstanding and exercisable:
| Expiry Date | Exercise Price | Number of Warrants |
||||
| C$ | # | |||||
| December 31, 2023 | 1.00 | 632,400 | ||||
| January 30, 2024 | 1.00 | 1,407,600 | ||||
| May 24, 2024 | 1.50 | 1,200,000 | ||||
| 3,240,000 |
On February 4, 2021, 456,100 warrants with an exercise price of $1.17 (C$1.50) were exercised to purchase 456,100 common shares of the Company for proceeds of $533,326. Of the warrants exercised, 426,100 were exercised by a Director of the Company. On the same date, 1,243,900 warrants expired unexercised.
On June 17, 2021, 4,160,000 warrants were exercised on a cashless basis for 1,214,080 common shares of the Company.
Stock options
The Company is authorized to grant options to executive officers and directors, employees, and consultants, enabling them to acquire up to 10% of the issued and outstanding common shares of the Company. The exercise price of each option equals the market price of the Company's shares as calculated on the date of grant. The options can be granted for a maximum term of 10 years. Vesting is determined by the Board of Directors.
Details of the Company's stock option activity are as follows:
| Options outstanding and exercisable |
Weighted average exercise price |
Weighted average remaining life |
|||||||
| # | C$ | Years | |||||||
| Balance January 31, 2021 | 6,965,000 | 1.22 | 2.05 | ||||||
| Expired | (1,350,000 | ) | 2.80 | ||||||
| Balance, January 31, 2022 | 5,615,000 | 0.84 | 1.45 | ||||||
| Granted | 600,000 | 0.70 | |||||||
| Expired | (460,000 | ) | 1.11 | ||||||
| Balance, July 31, 2022 | 5,755,000 | 0.80 | 1.48 |
As at July 31, 2022, the following stock options were outstanding and exercisable:
| Expiry Date | Exercise Price | Outstanding | Exercisable | ||||||
| C$ | # | # | |||||||
| October 9, 2022 | 1.38 | 500,000 | 500,000 | ||||||
| January 24, 2023 | 0.80 | 100,000 | 100,000 | ||||||
| August 17, 2023 | 0.70 | 3,905,000 | 2,603,333 | ||||||
| January 28, 2024 | 1.50 | 150,000 | 100,000 | ||||||
| October 9, 2024 | 1.00 | 500,000 | 500,000 | ||||||
| February 10, 2025 | 0.70 | 600,000 | 199,998 | ||||||
| 5,755,000 | 4,003,331 |
|
C21 INVESTMENTS INC. |
13. SHARE CAPITAL (Continued)
During the three and six months ended July 31, 2022, the Company recorded a share-based compensation expense of $54,064 and $156,850, respectively (2021 - $112,455 and $254,171, respectively). The fair value of stock options was calculated using the Black-Scholes Option Pricing Model using the following weighted average assumptions:
| 2022 | 2021 | |||||
| Risk-free rate | 1.60% | 0.19% | ||||
| Expected life of options | 3 years | 3 years | ||||
| Annualized volatility | 80% | 80% | ||||
| Dividend rate | 0% | 0% |
The Company has computed the fair value of options granted using the Black-Scholes option pricing model. The expected term used for options issued to non-employees is the contractual life and the expected term used for options issued to employees and directors is the estimated period of time that options granted are expected to be outstanding. The Company utilizes the "simplified" method to develop an estimate of the expected term of "plain vanilla" employee option grants. The Company is utilizing an expected volatility figure based on a review of the historical volatilities, over a period of time, equivalent to the expected life of the instrument being valued, of similarly positioned public companies within its industry. The risk-free interest rate was determined from the implied yields from U.S. Treasury zero-coupon bonds with a remaining term consistent with the expected term of the instrument being valued.
14. SELLING, GENERAL AND ADMINISTRATIVE EXPENSE
Selling, general and administration expenses for the three and six months ended July 31, 2022 and 2021 comprised of:
| Three months ended July 31, | Six months ended July 31, | |||||||||||
| 2022 | 2021 | 2022 | 2021 | |||||||||
| $ | $ | $ | $ | |||||||||
| Accounting and legal | 140,463 | 134,435 | 233,657 | 238,537 | ||||||||
| Depreciation and amortization | 341,286 | 320,807 | 682,572 | 641,440 | ||||||||
| License fees, taxes and insurance | 440,894 | 475,437 | 854,378 | 923,650 | ||||||||
| Office facilities and administrative | 93,314 | 46,114 | 195,021 | 112,497 | ||||||||
| Operating lease cost | 147,844 | 147,844 | 295,688 | 295,688 | ||||||||
| Other expenses | 159,817 | 81,413 | 322,435 | 141,208 | ||||||||
| Professional fees and consulting | 236,602 | 125,471 | 405,549 | 279,802 | ||||||||
| Salaries and wages | 683,820 | 775,124 | 1,404,064 | 1,523,226 | ||||||||
| Sales, marketing, and promotion | 17,197 | 11,798 | 39,098 | 27,796 | ||||||||
| Share-based compensation | 54,064 | 112,455 | 156,850 | 254,171 | ||||||||
| Shareholder communications | 5,821 | 6,442 | 9,792 | 16,627 | ||||||||
| Travel and entertainment | 14,642 | 12,237 | 28,986 | 27,136 | ||||||||
| 2,335,764 | 2,249,577 | 4,628,090 | 4,481,778 | |||||||||
|
C21 INVESTMENTS INC. |
15. SEGMENTED INFORMATION
The Company defines its major geographic operating segments as Oregon and Nevada. Due to the jurisdictional cannabis compliance issues ever-present in the industry, each state operation is by nature operationally segmented.
Key decision makers primarily review revenue, cost of sales expense, and gross margin as the primary indicators of segment performance. As the Company continues to expand via acquisition, the segmented information will expand based on management's agreed upon allocation of costs beyond gross margin.
Segmented operational activity and balances are as follows:
| Six months ended July 31, 2022 | Discontinued operations |
Nevada | Corporate | Consolidated | ||||||||
| $ | $ | $ | $ | |||||||||
| Total revenue | 357,540 | 14,647,954 | - | 15,005,494 | ||||||||
| Gross profit | (119,665 | ) | 7,846,969 | - | 7,727,304 | |||||||
| Operating expenses: | ||||||||||||
| General and administration | (195,577 | ) | (2,117,916 | ) | (1,335,966 | ) | (3,649,459 | ) | ||||
| Sales, marketing, and promotion | (1,938 | ) | (39,098 | ) | - | (41,036 | ) | |||||
| Operating lease cost | (97,820 | ) | (295,688 | ) | - | (393,508 | ) | |||||
| Provision for expected credit losses | (35,359 | ) | - | - | (35,359 | ) | ||||||
| Depreciation and amortization | (9,919 | ) | (636,515 | ) | (46,057 | ) | (692,491 | ) | ||||
| Share-based compensation | - | - | (156,850 | ) | (156,850 | ) | ||||||
| Impairment of inventory | (61,937 | ) | - | (20,726 | ) | (82,663 | ) | |||||
| Interest, accretion, and other | 2,851 | 1,756 | 333,140 | 337,747 | ||||||||
| Net income (loss) before taxes | (519,364 | ) | 4,759,508 | (1,226,459 | ) | 3,013,685 |
Entity-wide disclosures
All revenue for the periods ended July 31, 2022 and 2021 was earned in the United States.
For the periods ended July 31, 2022 and year ended January 31, 2022, no customer represented more than 10% of the Company's net revenue.
The following table displays the disaggregation of long-lived tangible assets by geographic area:
| July 31, 2022 | January 31, 2022 | |||||
| $ | $ | |||||
| Nevada | 11,820,682 | 11,903,430 | ||||
| Discontinued operations (Oregon) | 1,748,286 | 1,817,633 | ||||
| Other | 3,659 | 24,414 | ||||
| Total | 13,572,627 | 13,745,477 |
|
C21 INVESTMENTS INC. |
16. COMMITMENTS
The Company and its subsidiaries are committed under lease agreements with third parties and related parties, for land, office space, and equipment in Nevada and Oregon. At July 31, 2022, the Company has the following future minimum payments:
| Third Parties | Related Parties | Total | |||||||
| $ | $ | $ | |||||||
| 2023 | 136,871 | 621,090 | 757,961 | ||||||
| 2024 | 273,743 | 1,276,263 | 1,550,006 | ||||||
| 2025 | 45,551 | 1,314,551 | 1,360,102 | ||||||
| 2026 | 45,551 | 1,353,987 | 1,399,538 | ||||||
| 2027 | 45,551 | 1,394,607 | 1,440,158 | ||||||
| Thereafter | 368,202 | 9,148,937 | 9,517,139 | ||||||
| 915,469 | 15,109,435 | 16,024,904 |
17. RELATED PARTY TRANSACTIONS
Balances due to related parties included in accounts payable, accrued liabilities, and promissory note payable at July 31, 2022 and January 31, 2022:
| July 31, 2022 | January 31, 2022 | |||||
| $ | $ | |||||
| Due to the President and CEO | 5,107,547 | 8,172,075 | ||||
| Lease liabilities due to a company controlled by the CEO | 9,121,834 | 9,279,123 | ||||
| Lease liabilities due to SDP Development | - | 412,093 | ||||
| Due to the CFO of the Company | 983 | 360 | ||||
| 14,230,364 | 17,863,651 |
Due to the President and CEO consists of promissory note principal and interest and reimbursable expenses incurred in the normal course of business.
The Company had the following transactions with related parties including key management personnel during the three and six months ended July 31, 2022 and 2021:
| Three months ended July 31, | Six months ended July 31, | |||||||||||
| 2022 | 2021 | 2022 | 2021 | |||||||||
| $ | $ | $ | $ | |||||||||
| Consulting fees paid to a director | - | 60,000 | 20,000 | 120,000 | ||||||||
| Amounts paid to CEO or companies controlled by CEO |
2,019,158 | 2,154,163 | 4,080,032 | 4,416,330 | ||||||||
| Share based compensation including warrants and stock options for directors and officers |
31,794 | 43,358 | 111,882 | 185,939 | ||||||||
| Lease payments made to SDP Development |
- | 57,048 | - | 114,096 | ||||||||
| 2,050,952 | 2,314,569 | 4,211,914 | 4,836,365 | |||||||||
|
C21 INVESTMENTS INC. |
17. RELATED PARTY TRANSACTIONS (Continued)
Amounts paid to CEO or companies controlled by CEO consists of salary, lease payments, and promissory note principal and interest.
On February 12, 2020, the Company amended the purchase agreement with SDP Development, of which a Director of the Company is a principal owner. The Company had agreed on February 4, 2019 to purchase SDP Development on October 15, 2020, which owned six real estate properties that were leased in connection with Phantom Farms' cannabis cultivation, processing and wholesale distribution operations. The aggregate purchase price was $8,010,000 payable in cash, or, at the election of the vendors, in whole or in part by the issue of 2,670,000 shares at $3.00 per common share.
18. EARNINGS PER SHARE
The following is a reconciliation for the calculation of basic and diluted earnings per share for the periods ended July 31, 2022 and 2021:
| July 31, 2022 | July 31, 2021 | |||||
| Net income from continuing operations after income taxes | $ | 2,549,634 | $ | 9,112,461 | ||
| Net loss from discontinued operations after income taxes | ($385,771 | ) | ($2,337 | ) | ||
| Net income | $ | 2,163,863 | $ | 9,110,124 | ||
| Weighted average number of common shares outstanding | 120,047,814 | 117,828,869 | ||||
| Dilutive effect of warrants and stock options outstanding | 2,833,093 | 4,234,760 | ||||
| Diluted weighted average number of common shares outstanding | 122,880,907 | 122,063,629 | ||||
| Basic earnings per share, continuing operations | $ | 0.02 | $ | 0.08 | ||
| Diluted earnings per share, continuing operations | $ | 0.02 | $ | 0.07 | ||
| Basic (loss) income per share, discontinued operations | $ | 0.00 | $ | 0.00 | ||
| Diluted (loss) income per share, discontinued operations | $ | 0.00 | $ | 0.00 | ||
| Basic earnings per share | $ | 0.02 | $ | 0.08 | ||
| Diluted earnings per share | $ | 0.02 | $ | 0.07 |
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 six months ended July 31, 2022 and 2021, the number of warrants and stock options excluded from the computation was 5,203,331 and 4,111,667, respectively.
|
C21 INVESTMENTS INC. |
19. CONTINGENCIES
From time to time, the Company is involved in various litigation matters arising in the ordinary course of its business. Management is of the opinion that disposition of any current matter will not have a material adverse impact on the Company's financial position, results of operations, or the ability to carry on any of its business activities.
Legal proceedings
Oregon Action: A complaint was filed in the Oregon State Circuit Court for Clackamas County, on April 29, 2019, by two current owners of Proudest Monkey Holdings, LLC (the former sole member of EFF) (the "Plaintiffs"), alleging contract, employment, and statutory claims, alleging $612,500 in damages (as amended), against the Company, its wholly-owned subsidiaries 320204 US Holdings Corp, EFF, Swell Companies Limited, and Phantom Brands LLC, in addition to three directors, two officers, and one former employee (the "Oregon Action"). The Company and the other defendants wholly denied the allegations and claims made in the lawsuit and is defending the lawsuit. On June 21, 2019, the Company filed Oregon Rule of Civil Procedure ("ORCP") 21 motions to dismiss all of the Plaintiffs' claims against it, its wholly-owned subsidiaries, and other defendants; on May 6, 2020, the court granted the Company's ORCP 21 motion in its entirety to dismiss all of Plaintiffs' claims. The judgment of dismissal was entered by the Clackamas County court on or about October 14, 2020. On November 12, 2020, Plaintiffs filed a notice of appeal of the judgement of dismissal.
On October 22, 2020, the Company submitted a petition to recover the costs and attorney fees incurred by the Company as the prevailing party in the Oregon Action. On January 20, 2021, the Court ruled in the Company's favor, awarding the Company and its subsidiaries $68,195 in attorney's fees, $1,252 in costs, and a statutory prevailing party fee of $640, through a supplemental judgment. On March 3, 2021, Plaintiffs filed an amended notice of appeal from the supplemental judgement awarding attorney fees.
The parties have since briefed the appeal to the Oregon Court of Appeals and await a determination from the Court. It is too early to predict the resolution of the appeal.
British Columbia Action: On or about September 13, 2019, the Company delivered a notice to the above-mentioned Plaintiffs of alleged breach and default under the EFF purchase and sale agreement, due to alleged unlawful, intentional acts and material misrepresentations by the Plaintiffs before and after the completion of the purchase. As a result of such breach, the Company denied the Plaintiffs' tender of their share payment notes in connection with the agreement. On or about October 14, 2019, Proudest Monkey Holdings, LLC and one of its current owners, sued the Company in the Supreme Court of British Columbia to compel the issuance and delivery of the subject shares, including interests and costs (the "British Columbia Action").
On November 8, 2019, the Company responded and counterclaimed for general, special and punitive damages, including interest and costs, related to breach of contract, repudiation of contract, breach of indemnity and fraudulent and negligent misrepresentation by the Plaintiffs. Plaintiffs filed a response to the Company's counterclaims on or about June 5, 2020, and the parties stipulated to a form of amended pleading which included the joinder of additional parties, an owner of Proudest Monkey Holdings, LLC and EFF, and additional contract and equitable claims and damages, partially duplicative to those alleged by the Plaintiffs in the Oregon lawsuit (breach of contract, indemnity, unjust enrichment and wrongful termination claims). Plaintiffs allege $2,774,176 in damages (as amended), plus unquantified additional damages, interest and costs, of which amounts are partially duplicative of the Oregon Action. This action remains in the discovery stage, but no trial date has been set. It is too early to predict the resolution of the claims and counterclaims.
|
C21 INVESTMENTS INC. |
19. CONTINGENCIES (continued)
Settled and Dismissed Action: On or about May 30, 2019, Wallace Hill Partners Ltd. ("Wallace Hill") filed a civil claim in the Supreme Court of British Columbia alleging breach of contract and entitlement to 1,800,000 common shares of the Company, fully vested by March 1, 2019, and damages due to the lost opportunity to sell those shares after such date for a profit. On June 23, 2019, the Company circulated a letter to Wallace Hill terminating the agreement and accepting Wallace Hill's repudiation of the agreement based on Wallace Hill's previously published defamatory comments and termination of the agreement. Also, on June 23, 2019, the Company filed its response to the civil claim denying all claims and filed counterclaims alleging breach of contract, a declaratory judgment of termination of the agreement, defamation and an injunction from further defamatory comments.
On March 23, 2022, the Company and Wallace Hill entered into a mutual release agreement, pursuant to which, among other things, all parties agreed to dismiss their respective claims and to release one another from any further causes of action in connection with the subject matter of the original claims. On April 23, 2022, the parties filed a Notice of Discontinuance in the Supreme Court of British Columbia formally dismissing the civil action.
20. INCOME TAXES
The following table summarizes the Company's income tax expense and effective tax rate for the three and six months ended July 31, 2022 and 2021:
| Three months ended July 31, | Six months ended July 31, | |||||||||||
| 2022 | 2021 | 2022 | 2021 | |||||||||
| Net income from continuing operations before income taxes |
$ | 1,997,641 | $ | 5,219,735 | $ | 3,533,049 | $ | 11,032,506 | ||||
| Income tax expense | $ | 485,152 | $ | 1,009,425 | $ | 983,415 | $ | 1,920,045 | ||||
| Effective tax rate | 24% | 19% | 28% | 17% | ||||||||
The Company is subject to income taxes in the United States and Canada. Significant judgement is required in evaluating the Company's uncertain tax positions and determining the provision for income taxes. The Company's gross unrecognized tax benefits totaled approximately $2,617,057 and $42,974 as of July 31, 2022, and January 31, 2022, respectively, which is recorded in deferred tax asset in the condensed consolidated balance sheets.
21. FINANCIAL INSTRUMENTS
The following tables present information about the Company's financial instruments and their classifications as of July 31, 2022 and January 31, 2022 and indicate the fair value hierarchy of the valuation inputs utilized to determine such fair value:
| Fair value measurements at July 31, 2022 using: |
Level 1 | Level 2 | Level 3 | Total | ||||||||
| $ | $ | $ | $ | |||||||||
| Financial liabilities: | ||||||||||||
| Earn out shares (Note 12) | - | - | 366,500 | 366,500 |
| Fair value measurements at January 31, 2022 using: |
Level 1 | Level 2 | Level 3 | Total | ||||||||
| $ | $ | $ | $ | |||||||||
| Financial liabilities: | ||||||||||||
| Earn out shares (Note 12) | - | - | 1,006,368 | 1,006,368 |
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 represent a level 3 measurement.
C21 INVESTMENTS INC.
 |
Management's Discussion and Analysis |
| For the three and six months ended July 31, 2022 | |
| (Expressed in U.S. Dollars) |
GENERAL
This Management's Discussion and Analysis ("MD&A") is prepared as of September 21, 2022 and covers the operations of the Company for the three and six months ended July 31, 2022. This MD&A should be read in conjunction with the Company's unaudited interim condensed consolidated financial statements and accompanying notes for the three and six months ended July 31, 2022. 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 unaudited interim condensed consolidated financial statements for the three and six months ended July 31, 2022 were authorized for issuance on September 21, 2022 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 the United States. 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 and in Oregon. With the winding down and sale of our Oregon operations, the Company presents the Oregon operations now as 'held for sale' on the Balance Sheet and as 'discontinued operations' in the Income Statement.
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 and venture capital. Management also includes experts from more traditional industries like forestry, manufacturing, real estate, and capital markets
Strategic Focus and Growth
Our flagship operation in Reno, Nevada under the Silver State Relief brand continues its strong financial performance generating healthy cash flow and satisfied customers. Building around this strong core we have accomplished much in the past 12 months.
- Executed on our capital expansion program in Nevada which included new grow rooms and upgraded lighting in the existing rooms, building out an additional 15,000 sq ft of space (canopy added of 4,800 sq ft). The new rooms together with yield gains from the lighting has doubled the production of high-quality flower to 8,200 lbs/year. Total built out space is now 37,000 sq ft. This project, including the lighting retrofit completed in April 2022, cost $3.0 million.
- An additional 30,000 sq ft of cultivation to be built out on expansion of Nevada retail footprint would produce an additional 6,000 lbs/year of high-quality flower.
- Paid down the $30 million secured promissory note (the "Newman Note") owing to the Company's President and Chief Executive Officer to a balance of $5.1 million as at July 31, 2022 ($8.1 million as at January 31, 2022). The balance of the Newman Note is $4.1 million as of September 2, 2022.
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, which includes the expansion of our Nevada cultivation operations.
The Company has changed from International Financial Reporting Standards to GAAP starting with the January 31, 2022 audited financial statements, which has been applied retrospectively back to February 1, 2020. Therefore, all the figures and comparative figures in the financial statements and in this MD&A were prepared in GAAP.
With the issuance of the January 31, 2022 audited financial statements, the Oregon operations are presented as discontinued operations. This treatment has been applied retrospectively back to February 1, 2020. As such, the revenue and expenses of the Company now include only the Nevada operations.
NEVADA
The Company acquired Silver State Relief and Silver State Cultivation on January 1, 2019. The Nevada business operates in Sparks and Fernley, Nevada, and is the flagship operation of C21.
CULTIVATION, PROCESSING AND WHOLESALE
Through Silver State Cultivation in Nevada, the Company operates its recently expanded 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 has expanded production up to 11,700 pounds of biomass with flower of 8,200 pounds and trim 3,400 pounds annually. More than half of this expanded production will be sold within the Company's Silver State Relief dispensaries.
The Company's extraction processing supports branded CPG in both captive retail and wholesale channels. Silver State manufactures Hood Oil cartridges, Phantom Farms pre-rolls, and flower strains, together with the Silver State branded products which include Flower, pre-rolls, and concentrates. These in-house brands make up over 60% of sales in the dispensaries. Wholesale sales amounted to $0.5 million in sales during the quarter ended April 30, 2022 ($0.6 million in prior year Q1).
RETAIL
The Company operates two dispensaries, an 8,000-square foot retail dispensary, located in Sparks, and a 6,000-square foot dispensary located in Fernley, Nevada collectively servicing a total of more than 125,000 recreational and medical cannabis customers per quarter, with over 700 SKUs in each store. As the novel coronavirus ("COVID-19") restrictions have eased in the past 12 months, the Nevada industry has seen sales slow since a peak in March/April 2021. Silver State had total retail sales of $32.4 million during the year ended January 31, 2022 as compared to $32.9 million in the prior year.
RESULTS OF OPERATIONS
Summary derived from the Company's audited consolidated financial statements:
| PROFIT AND LOSS | 3 months ended July 31, | 6 months ended July 31, | ||||||||||
| 2022 | 2021 | 2022 | 2021 | |||||||||
| Revenue | $ | 7,175,493 | $ | 8,592,872 | $ | 14,647,954 | $ | 17,390,222 | ||||
| Inventory expensed to cost of sales | 3,316,161 | 3,487,499 | 6,800,985 | 7,000,103 | ||||||||
| Gross profit | 3,859,332 | 5,105,373 | 7,846,969 | 10,390,119 | ||||||||
| 53.8% | 59.4% | 53.6% | 59.7% | |||||||||
| Expenses | ||||||||||||
| General and administration | 1,775,373 | 1,656,673 | 3,453,882 | 3,262,683 | ||||||||
| Sales, marketing, and promotion | 17,197 | 11,798 | 39,098 | 27,797 | ||||||||
| Operating lease cost | 147,844 | 147,844 | 295,688 | 295,688 | ||||||||
| Depreciation and amortization | 341,286 | 320,807 | 682,572 | 641,440 | ||||||||
| Share based compensation | 54,064 | 112,455 | 156,850 | 254,171 | ||||||||
| Total expenses | 2,335,764 | 2,249,577 | 4,628,090 | 4,481,779 | ||||||||
| Income from operations | 1,523,568 | 2,855,796 | 3,218,879 | 5,908,340 | ||||||||
| Other items | ||||||||||||
| Interest expense | (133,455 | ) | (301,201 | ) | (297,504 | ) | (628,307 | ) | ||||
| Accretion expense | - | (75,551 | ) | - | (230,462 | ) | ||||||
| Other Income (loss) | (21,972 | ) | (5,327 | ) | (17,826 | ) | 114,606 | |||||
| Change in fair value of derivative liabilities | 629,500 | 2,746,018 | 629,500 | 5,868,328 | ||||||||
| Income (loss) before undernoted | 1,997,641 | 5,219,735 | 3,533,049 | 11,032,505 | ||||||||
| Net income (loss) from discontinued operations | 344,554 | (176,135 | ) | (385,771 | ) | (2,830 | ) | |||||
| Provision for income taxes | (485,152 | ) | (981,782 | ) | (983,415 | ) | (1,919,552 | ) | ||||
| Net income (loss) | $ | 1,857,043 | $ | 4,061,818 | $ | 2,163,863 | $ | 9,110,123 | ||||
| Cumulative translation adjustment | (219,207 | ) | (114,220 | ) | (216,387 | ) | (832,543 | ) | ||||
| Income (loss) and comprehensive income (loss) for the period | 1,637,836 | 3,947,598 | 1,947,476 | 8,277,580 | ||||||||
The Company has adopted GAAP as of January 31, 2022 with effect retroactively to February 1, 2020. All the current and comparative figures are in GAAP.
"Revenue" includes retail revenues from our two stores and wholesale revenue from our cultivation operations. Second Quarter 2023 ("Q2") revenues declined versus prior year Q2-2022 by 16% to $7.2 million. Revenues for the 6 months ended July 31, 2022 declined versus the prior year by 16% to $14.6 million. This is consistent with industry trends since the easing of pandemic restrictions. This trend is also consistent with the State of Nevada industry figures.
"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 costs to produce have increased, but the production cost per pound has started to come down due to economies of scale. We use an average costing model which captures and averages costs over several quarters.
"Gross profit" fell in Q2 versus prior year Q2 from 59% to 54%, mainly due to weaker demand and a decline in retail selling prices. Gross profit fell in the 6 months ended July 31, 2022 versus the prior year period from 60% to 54%.
"Income from operations" for Q2 decreased to $1.5 million, down 47% versus prior year Q2 of $2.9 million. Income from operations in the six months ended July 31, 2022 decreased to $3.2 million, down 46% versus the prior year period of $5.9 million.
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. Q2 costs increased by $118,700 as compared to prior year Q2 due to increased professional fees. Costs for the six months ended July 31, 2022 increased versus the same period last year by $191,199.
"Operating lease cost" is the cost of our leases not included in cost of sales and was $147,844, unchanged from prior year Q2, and unchanged in the six months ended July 31, 2022 versus the prior year period.
"Depreciation and amortization" include provisions for fixed assets and intangibles not included in cost of sales. The total depreciation and amortization in Q2 was $341,286 versus $320,807 in prior year Q2. Total depreciation and amortization for the six months ended July 31, 2022 was $682,572 versus 641,440 in the prior year period.
"Share based compensation" is a non-cash item and reflects the issuance of stock options to employees, officers and directors.
Other Items
"Interest expense" in Q2 was $133,455 versus $301,201 in prior year Q2. Interest expense for the six months ended July 31, 2022 was $297,504 versus $628,307 in the prior year period. These decreases reflect the reduction in interest bearing debt during the period.
"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.
"Net income (loss) from discontinued operations" the Company has classified all revenues and expenses pertaining to its Oregon operations to 'discontinued operations'. This treatment has been applied to all the current and comparative figures above.
"Provision for income taxes" for Q2 of $485,152 versus $981,782 in the previous year Q2. In the six months ended July 31, 2022 the provision for income taxes was $983,415 versus $1,919,552 in the prior year period.
"Other comprehensive income (loss)," specifically the cumulative translation adjustment, comes about in GAAP when translating the balances between the parent company (investments made in C$) and the US subsidiaries (US$). These foreign exchange gains or losses at each reporting date result from the translation of C$ amounts to US$ (which is our reporting currency).
Adjusted EBITDA
The adjusted EBITDA figures below are presented in GAAP and with the Oregon operations categorized as "discontinued". Both these changes took effect with the preparation of the January 31, 2022 audited financial statements and were applied retroactively back to February 1, 2020.
| ADJUSTED EBITDA - Quarters ending | ||||||||||||||||||
| 31-Jul-22 | 30-Apr-22 | 31-Jan-22 | 31-Oct-21 | 31-Jul-21 | 30-Apr-21 | |||||||||||||
| Net income (loss) | 1,857,043 | 306,820 | (1,031,705 | ) | 2,837,732 | 4,061,818 | 5,048,306 | |||||||||||
| Interest & accretion | 133,455 | 164,049 | 206,116 | 242,645 | 376,752 | 482,017 | ||||||||||||
| Provision for taxes | 485,152 | 498,263 | 948,152 | 1,105,542 | 981,782 | 937,770 | ||||||||||||
| Depreciation and amortization | 341,286 | 341,286 | 319,445 | 319,561 | 320,807 | 320,633 | ||||||||||||
| Depreciation and interest in COS | 203,091 | 203,092 | 203,093 | 203,092 | 203,091 | 203,092 | ||||||||||||
| EBITDA | 3,020,027 | 1,513,510 | 645,101 | 4,708,572 | 5,944,250 | 6,991,818 | ||||||||||||
| Change in FV of derivative liability | (629,500 | ) | - | (315,943 | ) | (2,392,019 | ) | (2,746,018 | ) | (3,122,310 | ) | |||||||
| Share based compensation | 54,064 | 102,786 | 44,902 | 67,396 | 112,455 | 141,716 | ||||||||||||
| Loss (gain) discontinued operations | (344,554 | ) | 730,325 | 1,914,577 | 325,237 | 176,135 | (173,305 | ) | ||||||||||
| One-time special project costs | 89,331 | 50,000 | - | 229,069 | - | - | ||||||||||||
| Other gain/loss | 21,972 | (4,146 | ) | 29,268 | (23,132 | ) | 5,327 | (119,933 | ) | |||||||||
| Adjusted EBITDA | 2,211,340 | 2,392,475 | 2,317,905 | 2,915,123 | 3,492,149 | 3,717,986 | ||||||||||||
Non-GAAP Financial Measures
"Adjusted EBITDA" is supplemental, non-GAAP financial measures. The Company defines EBITDA as earnings before depreciation and amortization, depreciation and interest in cost of sales, income taxes, and interest. Additionally, the Company's Adjusted EBITDA presented above excludes accretion, loss from discontinued operations, one-time transaction costs and all other non-cash items. The Company has presented "Adjusted EBITDA" because its management believes it is a useful measure for investors when assessing and considering the Company's continuing operations and prospects for the future. Furthermore, "Adjusted EBITDA" is a commonly used measurement in the financial community when evaluating the market value of similar companies. "Adjusted EBITDA" is not a measure of performance calculated in accordance with GAAP, and these metrics should not be considered in isolation of, or as a substitute for, the measurement of the Company's performance prepared in accordance with GAAP. "Adjusted EBITDA," as calculated and reconciled in the table above, may not be comparable to similarly titled measurements used by other issuers and is not necessarily a measure of the Company's ability to fund its cash needs. Figures have been restated to match current presentation.
SELECTED QUARTERLY INFORMATION
The following table summarizes selected consolidated financial information of the Company for the preceding eight quarters.
| SUMMARY OF QUARTERLY RESULTS | ||||||||||||
| 31-Jul-22 | 30-Apr-22 | 31-Jan-22 | 31-Oct-21 | |||||||||
| Total assets | $ | 61,703,793 | $ | 61,580,422 | $ | 61,853,474 | $ | 64,315,094 | ||||
| Working capital (deficiency) | $ | (4,823,405 | ) | $ | (5,679,998 | ) | $ | (4,444,076 | ) | $ | (5,133,865 | ) |
| Shareholders' equity (deficiency) | $ | 37,087,518 | $ | 35,395,618 | $ | 34,983,192 | $ | 35,204,614 | ||||
| Revenue | $ | 7,175,493 | $ | 7,472,461 | $ | 7,654,566 | $ | 7,938,188 | ||||
| Net income (loss) | $ | 1,857,043 | $ | 306,820 | $ | (1,031,705 | ) | $ | 2,837,732 | |||
| Net income (loss) per share | 0.02 | 0.00 | (0.01 | ) | 0.02 | |||||||
| 31-Jul-21 | 30-Apr-21 | 31-Jan-21 | 31-Oct-20 | |||||||||
| Total assets | $ | 65,317,561 | 66,261,274 | 66,819,464 | 59,614,191 | |||||||
| Working capital (deficiency) | $ | (4,632,617 | ) | (4,014,559 | ) | (3,914,024 | ) | (26,298,511 | ) | |||
| Shareholders' equity (deficiency) | $ | 32,321,225 | 28,043,749 | 23,256,148 | 16,384,432 | |||||||
| Revenue | $ | 8,592,872 | 8,797,350 | 8,811,046 | 8,994,301 | |||||||
| Net income (loss) | $ | 4,061,818 | 5,048,306 | (7,314,184 | ) | 2,479,915 | ||||||
| Net income (loss) per share | 0.03 | 0.04 | (0.07 | ) | 0.03 | |||||||
Quarter ended July 31, 2022 (Q2)
Total assets increased slightly during the Quarter. Increase in inventory resulting from the expansion start-up, offset by a decrease in cash and decrease in Right-of-use and intangible assets due to accretion.
Working capital deficiency improved to $4.8 million during Q2, positive operations cash flow was offset by debt and interest payments and increase in income taxes payable.
Shareholders equity improved from $35.4 million to $37.1 million during Q2.
Revenue fell sequentially from Q1-2023 to current Q2-2023 by 4%, consistent with industry trends. Industry website, BDSA reports a 31% decline in Nevada retail sales from quarter ending April 2021 to quarter ending April 2022, while C21 revenues have fallen by 15% in the same period. This reflects more distributed customer discretionary spending while COVID-19 restrictions and stimulus eased, as well as increased local competition and lower retail pricing. Currently, delivery and curbside pick-up account for about 21% of transactions and 25% of revenue.
Net Income increased sequentially in Q2-2023 to $1.8 million from $0.3 million in Q1-2023 mainly due to gain on derivative liabilities.
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 July 31, 2022 | ||||||||||||||||||
| Trade and other payables | $ | 2,614,216 | $ | 2,614,216 | $ | 2,614,216 | $ | - | $ | - | $ | - | ||||||
| Finance lease payments (1) | 9,121,834 | 15,109,437 | 1,257,630 | 2,629,579 | 2,789,720 | 8,432,508 | ||||||||||||
| Convertible debt (2) | 1,281,442 | 1,281,442 | 1,281,442 | - | - | - | ||||||||||||
| Notes and other borrowings (3) | 5,503,699 | 5,639,848 | 5,112,218 | 91,102 | 91,102 | 345,426 | ||||||||||||
| Total | $ | 18,521,191 | $ | 24,644,943 | $ | 10,265,506 | $ | 2,720,681 | $ | 2,880,822 | $ | 8,777,934 | ||||||
(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 a convertible promissory note agreement.
(3) Amounts in the table reflect the contractually required principal payments payable under a promissory note issued to the vendor that sold Silver State to the Company, and miscellaneous debt.
COVID-19 GLOBAL PANDEMIC
On March 11, 2020, the World Health Organization ("WHO") declared the novel coronavirus contagious disease outbreak and related adverse public health developments ("COVID-19") a global pandemic and recommended containment and mitigation measures worldwide. While the continued severity of the pandemic and its impact on the economic environment is uncertain, the Company continues to monitor its status closely. The Company's priority during the COVID-19 pandemic is the protection and safety of its employees and customers and it continues to follow the recommended guidelines of applicable government and health authorities. Despite being deemed as an essential retailer in its core markets, the Company experienced a negative impact on FY 2022 sales in certain markets.
COVID-19 may continue to materially impact the Company, including its ability, and the ability of its suppliers and distributors, to effectively manage the restrictions, limitations and health issues presented by the COVID-19 pandemic, the ability to continue its production, distribution and wholesale sale of its products and the demand for and use of its products by consumers, disruptions to the global and local economies due to related stay-at-home orders, quarantine policies and restrictions on travel, trade and business operations and a reduction in discretionary consumer spending. The Company continues to closely monitor the ongoing impacts of COVID-19, in particular regarding the global supply chain and the retail sector.
The Company takes all reasonable steps to ensure staff are appropriately informed and trained to promote a culture of health, safety, and continuous improvement, especially during these difficult times for public health and safety due to the COVID-19 pandemic. Wherever possible, the Company will continue to adopt generally accepted health and safety best practices from non-cannabis-related industries and follows all health and safety guidelines issued by the United States Centers for Disease Control and all orders from relevant provincial, state and local jurisdictions and authorities.
ADDITIONAL INFORMATION
LEGAL PROCEEDINGS
For a summary of the current legal proceedings, please refer to the Company's MD&A for the years ended January 31, 2022 and 2021 for detailed disclosure in this regard.
OFF-BALANCE SHEET ARRANGEMENTS
As of the date of this report, the Company has not entered into any off-balance sheet arrangements.
DISCLOSURE OF OUTSTANDING SHARE DATA
The Company's authorized share capital consists of an unlimited number of common shares without par value.
As of July 31, 2022, there were:
- 120,047,814 Common Shares issued and outstanding;
- 5,755,000 options outstanding to purchase Common Shares, of which 4,003,331 options had vested;
- 3,240,000 warrants outstanding to purchase Common Shares; and
- no restricted share units ("RSUs") outstanding to purchase Common Shares.
As of September 21, 2022 (the date of this MD&A) the Company had the following securities outstanding:
| Type of Security | Number outstanding |
| Common Shares | 120,047,814 |
| Stock Options | 5,755,000 |
| Warrants | 3,240,000 |
| Acquisition shares | 793,093 |
| 129,835,907 |
MANAGEMENT'S RESPONSIBILITY FOR FINANCIAL INFORMATION
The Company's financial statements and the other financial information included in this MDA 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 International Financial Reporting Standards ("IFRS") issued by the International Accounting Standards Board, 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. This committee is responsible for recommending the appointment of the external auditors or the renewal of their engagement.
ACCOUNTING POLICIES AND ESTIMATES
FINANCIAL RISK MANAGEMENT
The Board approves and monitors the risk management processes of the Company, inclusive of documented investment policies, counterparty limits, and controlling and reporting structures. The type of risk exposure and the way in which such exposure is managed is provided as follows:
CREDIT RISK
Credit risk is the risk that one party to a financial instrument will fail to discharge an obligation and cause the other party to incur a financial loss. The Company's primary exposure to credit risk is on its cash held in bank accounts, accounts receivable, and its notes receivable from acquisition targets. The Company's cash is deposited in bank accounts held with a bank in Canada, a trust company in Canada, and three credit unions in Nevada, Washington and Colorado; and accordingly, there is a concentration of credit risk. This risk is managed by using a bank that is a high credit quality financial institution as determined by rating agencies. The Company's notes receivables are placed with acquisition targets that are under definitive agreements, in which closing is based primarily on receipt of regulatory approval. If an unlikely event occurred which delayed regulatory approval for an extended period of time or permanently, the risk of default on these notes would be increased based on the liquidity of the acquisition targets.
LIQUIDITY RISK
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 is 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 investing 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 three months and six ended July 31, 2022, 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 reports an accumulated deficit of $66,346,470, and a working capital deficit of $4,823,405 as at July 31, 2022.
The Company has generated significant positive cash flow for the three and six months ended July 31, 2022, and the fiscal year ended January 31, 2022. The Statement of Cash Flows for the six months ended July 31, 2022, shows cash provided by continuing operations of $3.3 million ($8.4 million - year ended January 31, 2022). Management has taken several actions to ensure that the Company will continue as a going concern through July 31, 2023, including the closing of its operations in Oregon, selling the assets in Oregon, reducing headcount, and reducing discretionary expenditures. The Company is seeking additional financing in the form of debt which could consolidate existing debt on its balance sheet on more favorable terms. Management believes that these actions will enable the Company to continue as a going concern through September 21, 2023, one year from the date these consolidated financial statements were issued.
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.
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, Needham & Company based in California and 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 60% of Americans live in a state where cannabis is legal in some form and almost a quarter 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. It is estimated that 94% of U.S. voters support legalizing cannabis for medical use. In addition, 66% of the U.S. public supports legalizing cannabis for adult recreational use. These are large increases in public support over the past 40 years in favor of legalized cannabis use.
Notwithstanding that 36 states and the District of Columbia have now legalized adult-use and/or medical cannabis, cannabis remains illegal under U.S. federal law with cannabis listed as a Schedule I drug under the U.S. Federal Controlled Substances Act of 1970 ("CSA").
Currently the Company only operates in the states of Oregon and Nevada. The Company may expand internally within Nevada or into other states within the United States that have legalized cannabis use either medicinally or recreationally and expand internationally.
FEDERAL REGULATORY UPDATE
For a complete summary of the Federal regulatory environment, please refer to the Company's MDA for the years ended January 31, 2022, and 2021, for detailed disclosure in this regard.
NEVADA REGULATORY UPDATE
For a summary of the Nevada regulatory environment, please refer to the Company's MDA for the years ended January 31, 2022, and 2021, for detailed disclosure in this regard.
OREGON REGULATORY UPDATE
For a summary of the Oregon regulatory environment, please refer to the Company's MDA for the years ended January 31, 2022, and 2021 for detailed disclosure in this regard.
RISK FACTORS
For a comprehensive list of the risk factors relating to the business and securities of the Company, please refer to the Company's MDA for the years ended January 31, 2022 and 2021 for detailed disclosure in this regard. The Company will face a few challenges and significant risks in the development of its business due to the nature of and present stage of its business. These risks and uncertainties are not the only ones facing the Company. Additional risks and uncertainties not presently known to the Company or currently deemed immaterial by the Company, may also impair the operations of or materially adversely affect the securities of the Company. If any such risks occur, the Company's shareholders could lose all or part of their investment and the business, financial condition, liquidity, results of operations and prospects of the Company could be materially adversely affected. Some of the risk factors previously disclosed are interrelated and, consequently, readers should read such risk factors in connection with one another.
The acquisition of any of the securities of the Company is speculative, involving a high degree of risk and should be undertaken only by persons whose financial resources are enough to enable them to assume such risks and who have no need for immediate liquidity in their investment. An investment in the securities of the Company should not constitute a major portion of a person's investment portfolio and should only be made by persons who can afford a total loss of their investment.
FORWARD LOOKING STATEMENTS
This Management's Discussion and Analysis 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 MDA 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 ongoing impact of the COVID-19 pandemic with reductions of operating (including marketing) and capital expenses and revenues, future business strategy, competitive strengths, goals, expansion and growth of the Company's business, operations and plans, including the Company's positioning in the United States cannabis industry, including the continued performance of the Company's operations generally, and specifically its Nevada retail operations, including the continued profitability of the Company's Nevada operations, including the Company's ability to continue to service its debt through operating cash flows, including the Company's ability to pursue growth opportunities and generate future growth for the Company by scaling and replicating its profitable model in Nevada, including the Company's ability of to secure non-dilutive debt financing, including the continued performance of the Company's brands and the expectations as to the development and distribution of the Company's brands and products, including the continued demand for cannabis products, including the timing of the completion of any acquisitions or dispositions and expectations of whether such proposed transactions will be consummated on the current terms or otherwise and contemplated timing, expectations and effects of such proposed transactions, 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 from 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 the Company to secure a non-dilutive debt financing on terms acceptable to the Company; and the ability of the Company's operations to continue to perform and continue in the ordinary course in light of the ongoing COVID-19 pandemic. While the Company considers these assumptions to be reasonable, the assumptions are inherently subject to significant business, social, economic, political, regulatory, competitive and other risks, uncertainties, contingencies and other factors that could cause actual performance, achievements, actions, events, results or conditions to be materially different from those projected in the forward-looking information and statements. Many assumptions are based on factors and events that are not within the control of the Company and there is no assurance they will prove to be correct.
Risks, uncertainties and other factors which may cause the actual results, performance or achievements of the Company to be materially different from any future results, performance or achievements expressed or implied by such forward-looking information and statements include, among others, risks relating to U.S. regulatory landscape and enforcement related to cannabis, including governmental and environmental regulation, public opinion and perception of the cannabis industry, risks related to the ability to consummate any proposed acquisitions or dispositions on the proposed terms and the ability to obtain requisite regulatory approvals and third party consents and the satisfaction of other conditions, risks related to reliance on third party service providers, the limited operating history of the Company, risks inherent in an agricultural business, risks related to proprietary intellectual property, risks relating to financing activities, risks relating to the management of growth, increasing competition in the cannabis industry, risks associated to cannabis products manufactured for human consumption including potential product recalls, reliance on key inputs, suppliers and skilled labor (the availability and retention of which is subject to uncertainty), cybersecurity 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, limited research and data relating to cannabis, risks and uncertainties related to the impact of the COVID-19 pandemic and the impact it may continue to 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.
While the Company may elect to update such forward-looking information and statements at a future time, it assumes no obligation for doing so except to the extent required by applicable law.
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This is an unofficial consolidation of Form 52-109FV2 Certification of Interim Filings Venture Issuer Basic Certificate reflecting amendments made effective January 1, 2011 in connection with Canada's changeover to IFRS. The amendments apply for financial periods relating to financial years beginning on or after January 1, 2011. This document is for reference purposes only and is not an official statement of the law. |
Form 52-109FV2
Certification of Interim Filings
Venture Issuer Basic Certificate
I, Sonny Newman, Chief Executive Officer of C21 Investments Inc., certify the following:
1. Review: I have reviewed the interim financial report and interim MD&A (together, the "interim filings") of C21 Investments Inc. (the "issuer") for the interim period ended July 31, 2022.
2. No misrepresentations: Based on my knowledge, having exercised reasonable diligence, the interim filings do not contain any untrue statement of a material fact or omit to state a material fact required to be stated or that is necessary to make a statement not misleading in light of the circumstances under which it was made, with respect to the period covered by the interim filings.
3. Fair presentation: Based on my knowledge, having exercised reasonable diligence, the interim financial report together with the other financial information included in the interim filings fairly present in all material respects the financial condition, financial performance and cash flows of the issuer, as of the date of and for the periods presented in the interim filings.
Date: September 21, 2022
| SIGNED: "Sonny Newman" |
| Sonny Newman, Chief Executive Officer |
NOTE TO READER
In contrast to the certificate required for non-venture issuers under National Instrument 52-109 Certification of Disclosure in Issuers' Annual and Interim Filings (NI 52-109), this Venture Issuer Basic Certificate does not include representations relating to the establishment and maintenance of disclosure controls and procedures (DC&P) and internal control over financial reporting (ICFR), as defined in NI 52-109. In particular, the certifying officers filing this certificate are not making any representations relating to the establishment and maintenance of
i) controls and other procedures designed to provide reasonable assurance that information required to be disclosed by the issuer in its annual filings, interim filings or other reports filed or submitted under securities legislation is recorded, processed, summarized and reported within the time periods specified in securities legislation; and
ii) a process to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with the issuer's GAAP.
The issuer's certifying officers are responsible for ensuring that processes are in place to provide them with sufficient knowledge to support the representations they are making in this certificate. Investors should be aware that inherent limitations on the ability of certifying officers of a venture issuer to design and implement on a cost effective basis DC&P and ICFR as defined in NI 52-109 may result in additional risks to the quality, reliability, transparency and timeliness of interim and annual filings and other reports provided under securities legislation.
|
This is an unofficial consolidation of Form 52-109FV2 Certification of Interim Filings Venture Issuer Basic Certificate reflecting amendments made effective January 1, 2011 in connection with Canada's changeover to IFRS. The amendments apply for financial periods relating to financial years beginning on or after January 1, 2011. This document is for reference purposes only and is not an official statement of the law. |
Form 52-109FV2
Certification of Interim Filings
Venture Issuer Basic Certificate
I, Michael Kidd, Chief Financial Officer of C21 Investments Inc., certify the following:
1. Review: I have reviewed the interim financial report and interim MD&A (together, the "interim filings") of C21 Investments Inc. (the "issuer") for the interim period ended July 31, 2022.
2. No misrepresentations: Based on my knowledge, having exercised reasonable diligence, the interim filings do not contain any untrue statement of a material fact or omit to state a material fact required to be stated or that is necessary to make a statement not misleading in light of the circumstances under which it was made, with respect to the period covered by the interim filings.
3. Fair presentation: Based on my knowledge, having exercised reasonable diligence, the interim financial report together with the other financial information included in the interim filings fairly present in all material respects the financial condition, financial performance and cash flows of the issuer, as of the date of and for the periods presented in the interim filings.
Date: September 21, 2022
| SIGNED: "Michael Kidd" |
| Michael Kidd, Chief Financial Officer |
NOTE TO READER
In contrast to the certificate required for non-venture issuers under National Instrument 52-109 Certification of Disclosure in Issuers' Annual and Interim Filings (NI 52-109), this Venture Issuer Basic Certificate does not include representations relating to the establishment and maintenance of disclosure controls and procedures (DC&P) and internal control over financial reporting (ICFR), as defined in NI 52-109. In particular, the certifying officers filing this certificate are not making any representations relating to the establishment and maintenance of
i) controls and other procedures designed to provide reasonable assurance that information required to be disclosed by the issuer in its annual filings, interim filings or other reports filed or submitted under securities legislation is recorded, processed, summarized and reported within the time periods specified in securities legislation; and
ii) a process to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with the issuer's GAAP.
The issuer's certifying officers are responsible for ensuring that processes are in place to provide them with sufficient knowledge to support the representations they are making in this certificate. Investors should be aware that inherent limitations on the ability of certifying officers of a venture issuer to design and implement on a cost effective basis DC&P and ICFR as defined in NI 52-109 may result in additional risks to the quality, reliability, transparency and timeliness of interim and annual filings and other reports provided under securities legislation.