CXXIF 20-F/A
C21 Investments Inc. (CXXIF)
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM
(Amendment No. 2)
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REGISTRATION STATEMENT PURSUANT TO SECTION 12(b) OR (g) OF THE SECURITIES EXCHANGE ACT OF 1934 |
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ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
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TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
| For the transition period from January 31, 2024 to |
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SHELL COMPANY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
| Date of event requiring this shell company report: | |
| Commission file number
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(Exact name of Registrant as specified in its charter)
British Columbia,
(Jurisdiction of incorporation or organization)
(Address of principal executive offices)
C21 Investments Inc.
Tel:
(Name, Telephone, E-mail and/or Facsimile number and Address of Company Contact Person)
1
Securities registered pursuant to Section 12(b) of the Act: Not applicable.
Securities registered pursuant to Section 12(g) of the Act:
Securities for which there is a reporting obligation pursuant to Section 15(d) of the Act: None
Indicate the number of outstanding shares of each of the issuer's classes of capital or common stock as of the close of the period covered by the transition report: As at March 31, 2024,
Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act.
Yes ☐
If this report is an annual or transition report, indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934.
Yes ☐
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.
Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files.
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or an emerging growth company. See definition of "large accelerated filer, "accelerated filer," and "emerging growth company" in Rule 12b-2 of the Exchange Act.
| Large accelerated filer ☐ | Accelerated filer ☐ |
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Emerging growth company |
If an emerging growth company that prepares its financial statements in accordance with U.S. GAAP, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards† provided pursuant to Section 13(a) of the Exchange Act.
| † | The term "new or revised financial accounting standard" refers to any update issued by the Financial Accounting Standards Board to its Accounting Standards Codification after April 5, 2012. |
Indicate by check mark whether the registrant has filed a report on and attestation to its management's assessment of the effectiveness of its internal control over financial reporting under Section 404(b) of the Sarbanes-Oxley Act (15 U.S.C. 7262(b)) by the registered public accounting firm that prepared or issued its audit report.
If securities are registered pursuant to Section 12(b) of the Act, indicate by check mark whether the financial statements of the registrant included in the filing reflect the correction of an error to previously issued financial statements.
Indicate by check mark whether any of those error corrections are restatements that required a recovery analysis of incentive-based compensation received by any of the registrant's executive officers during the relevant recovery period pursuant to §240.10D-1(b). [ ]
Indicate by check mark which basis of accounting the registrant has used to prepare the financial statements included in this filing:
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International Financial Reporting Standards as issued ☐ Other ☐ | ||
| by the International Accounting Standards Board | |||
2
If "Other" has been checked in response to the previous question, indicate by check mark which financial statement item the registrant has elected to follow:
Item 17 ☐ Item 18 ☐
If this is an annual report, indicate by check mark whether the Registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).
Yes ☐ No
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EXPLANATORY NOTE
This Amendment No. 2 to Form 20-F (the “Form 20-F/A”) amends our transition report on Form 20-F/A (Amendment No. 1) (the “Original Report”), which was filed with the U.S. Securities and Exchange Commission (the “SEC”) on August 16, 2024. The purpose of this Form 20-F/A is to amend the audited financial statements for the transition period from January 31, 2024 to March 31, 2024, to explicitly identify columnar headings and footnote disclosures applicable to the transition period as representing the Two Months Ended March 31, 2024.
This Form 20-F/A includes new certifications by our Principal Executive Officer and Principal Financial Officer pursuant to Sections 302 and 906 of the Sarbanes-Oxley Act of 2002 as Exhibits 12.1, 12.2, 13.1 and 13.2 hereto.
Other than as expressly set forth herein, this Form 20-F/A does not, and does not purport to, amend, update or restate the information in the Original Report or reflect any events that have occurred after the original filing was made. Information not affected by this Form 20-F/A remains unchanged and reflects the disclosures made at the time as of which the original filing was made. This Amendment should be read together with the Original Report and the Company's other filings with the SEC.
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Consolidated Financial Statements For the two months ended March 31, 2024 (1) and the year ended January 31, 2024 (Expressed in U.S. Dollars) |
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(1) See note 2(d) regarding change in financial year.
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
To the Shareholders and Directors of
C21 Investments Inc.
Opinion on the Consolidated Financial Statements
We have audited the accompanying consolidated balance sheets of C21 Investments Inc. (the “Company”) as of March 31, 2024 and January 31, 2024, and the related consolidated statements of income (loss) and comprehensive income (loss), changes in shareholders’ equity, and cash flows for the two month fiscal year ended March 31, 2024 and year ended January 31, 2024, and the related notes (collectively referred to as the “financial statements”). In our opinion, the financial statements present fairly, in all material respects, the financial position of the Company as of March 31, 2024 and January 31, 2024, and the results of its operations and its cash flows for the two month fiscal year ended March 31, 2024 and year ended January 31, 2024, in conformity with accounting principles generally accepted in the United States of America.
Basis for Opinion
These financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on these financial statements based on our audits. We are a public accounting firm registered with the Public Company Accounting Oversight Board (United States) ("PCAOB") and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.
We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement, whether due to error or fraud. The Company is not required to have, nor were we engaged to perform, an audit of its internal control over financial reporting. As part of our audits we are required to obtain an understanding of internal control over financial reporting but not for the purpose of expressing an opinion on the effectiveness of the entity’s internal control over financial reporting. Accordingly, we express no such opinion.
Our audits included performing procedures to assess the risks of material misstatement of the financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the financial statements. Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the financial statements. We believe that our audits provide a reasonable basis for our opinion.
We have served as the Company’s auditor since 2024.
/s/
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Chartered Professional Accountants |
August 1, 2024
PCAOB #ID:
| C21 INVESTMENTS INC. Consolidated Balance Sheets (Expressed in U.S. dollars) |
| March 31, 2024 |
January 31, 2024 |
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| $ | $ | |||||
| ASSETS | ||||||
| Current assets | ||||||
| Cash | ||||||
| Receivables | ||||||
| Inventory | ||||||
| Prepaid expenses and deposits | ||||||
| Assets classified as held for sale | ||||||
| Non-current assets | ||||||
| Property and equipment | ||||||
| Right-of-use assets | ||||||
| Intangible assets | ||||||
| Goodwill | ||||||
| Deferred tax asset | ||||||
| Total assets | ||||||
| LIABILITIES | ||||||
| Current liabilities | ||||||
| Accounts payable and accrued liabilities | ||||||
| Convertible promissory notes | ||||||
| Income taxes payable | ||||||
| Deferred revenue | ||||||
| Lease liabilities - current portion | ||||||
| Liabilities classified as held for sale | ||||||
| Non-current liabilities | ||||||
| Lease liabilities | ||||||
| Derivative liability | ||||||
| Deferred tax liability | ||||||
| Total liabilities | ||||||
| SHAREHOLDERS' EQUITY | ||||||
| Common stock, |
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| Commitment to issue shares | ||||||
| Accumulated other comprehensive loss | ( |
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| Deficit | ( |
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| Total shareholders' equity | ||||||
| Total liabilities and shareholders' equity |
Commitments and contingencies (Notes 17 and 20)
Subsequent events (Note 23)
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Approved and authorized for issue on behalf of the Board of Directors: |
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/s/ "Bruce Macdonald" |
Director |
/s/ "Michael Kidd" |
Director |
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The accompanying notes are an integral part of these consolidated financial statements. |
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| C21 INVESTMENTS INC. Consolidated Statements of Income (Loss) and Comprehensive Income (Loss) (Expressed in U.S. dollars, except number of shares) |
| Two Months ended | Year ended | |||||
| March 31, 2024 |
January 31, 2024 |
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| $ | $ | |||||
| Revenue | ||||||
| Cost of sales | ||||||
| Gross profit | ||||||
| Selling, general and administrative expenses | ||||||
| Income from operations | ||||||
| Gain (loss) on change in fair value of derivative liability | ( |
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| Gain on termination of sales-type lease and disposal of licenses | ||||||
| Loss on disposal of assets | ( |
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| Impairment loss | ( |
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| Interest expense | ( |
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| Other expense | ( |
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| Net income from continuing operations before income tax expense | ||||||
| Income tax expense | ( |
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| Net loss from continuing operations after income tax expense | ( |
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| Net loss from discontinued operations after income tax expense | ( |
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| Net loss | ( |
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| Other comprehensive income: | ||||||
| Cumulative translation adjustment | ||||||
| Comprehensive loss | ( |
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| Basic and diluted loss per share from continuing operations | ( |
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| Basic and diluted loss per share from discontinued operations | ( |
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| Basic and diluted loss per share | ( |
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| Weighted average number of common shares outstanding - basic and diluted |
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The accompanying notes are an integral part of these consolidated financial statements. |
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| C21 INVESTMENTS INC. Consolidated Statements of Changes in Shareholders’ Equity (Expressed in U.S. dollars, except number of shares) |
| Number of shares | Common stock | Commitment to issue shares | Accumulated other comprehensive loss | Deficit | Total shareholders' equity | |||||||||||||
| # | $ | $ | $ | $ | $ | |||||||||||||
| Balance, January 31, 2023 | ( |
) | ( |
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| Share-based compensation | - | - | - | - | ||||||||||||||
| Net loss and other comprehensive income for the year | - | - | - | ( |
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| Balance, January 31, 2024 | ( |
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| Net loss and other comprehensive income for the year | - | - | - | ( |
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| Balance, March 31, 2024 | ( |
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The accompanying notes are an integral part of these consolidated financial statements. |
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| C21 INVESTMENTS INC. Consolidated Statements of Cash Flows (Expressed in U.S. dollars) |
| Two Months ended | Year ended | |||||
| March 31, 2024 |
January 31, 2024 |
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| OPERATING ACTIVITIES | ||||||
| Net loss from continuing operations after income tax expense | ( |
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| Adjustments to reconcile net (loss) income to cash provided by operating activities: | ||||||
| Amortization of right-of-use assets | ||||||
| Deferred income tax recovery | ( |
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| Depreciation and amortization | ||||||
| Foreign exchange gain | ( |
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| (Gain) loss on change in fair value of derivative liability | ( |
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| Gain on termination of sales-type lease and disposal of licenses | ( |
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| Loss on disposal of assets | ||||||
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| Changes in operating assets and liabilities: | ||||||
| Receivables | ( |
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| Inventory | ( |
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| Prepaid expenses and deposits | ||||||
| Accounts payable and accrued liabilities | ( |
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| Income taxes payable | ||||||
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| Lease liabilities | ( |
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| Cash provided by operating activities of continuing operations | ||||||
| Cash provided by operating activities of discontinued operations | ||||||
| INVESTING ACTIVITIES | ||||||
| Purchases of property and equipment | ( |
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| Proceeds from termination of sales-type lease and disposal of licenses | ||||||
| Cash used in investing activities of continuing operations | ( |
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| Cash provided by investing activities of discontinued operations | ||||||
| FINANCING ACTIVITIES | ||||||
| Settlement of earn out shares | ( |
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| Principal repayments on promissory note payable | ( |
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| Interest paid in cash | ( |
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| Cash used in financing activities of continuing operations | ( |
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| Cash used in financing activities of discontinued operations | ( |
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| Effect of foreign exchange on cash | ( |
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| Change in cash during the year | ||||||
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| Supplemental disclosure of cash flow information: | ||||||
| Income tax paid in cash | ||||||
| Interest paid in cash | ||||||
| Additions in right-of-use assets and lease liabilities (Note 12) |
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The accompanying notes are an integral part of these consolidated financial statements. |
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C21 INVESTMENTS INC. Notes to the Consolidated Financial Statements For the two months ended March 31, 2024 and the year January 31, 2024 |
1. NATURE OF OPERATIONS
C21 Investments Inc. (the "Company" or "C21") was incorporated on January 15, 1987, under the Company Act of British Columbia. The Company is a publicly traded company with its registered office is 170-601 West Cordova Street, Vancouver, BC, V6B 1G1. The Company is listed on the Canadian Securities Exchange under the symbol CXXI and on the OTCQB® Venture Market under the symbol CXXIF.
The Company is a cannabis operator in Nevada, USA and is engaged in the cultivation of and manufacturing of cannabis flower products, vape products and extract products for wholesale and retail sales. The Company initially also had operations in the state of Oregon. During the year ended January 31, 2022, the Company made a strategic decision to cease operations in Oregon. The results of the Company's Oregon operations are presented as discontinued operations.
As at March 31, 2024, the Company had a working capital deficit of $
At the federal level, cannabis currently remains a Schedule I controlled substance under the Federal Controlled Substances Act of 1970. Under U.S. federal law, a Schedule I drug or substance has a high potential for abuse, no accepted medical use in the United States, and a lack of accepted safety for the use of the drug under medical supervision. As such, even in those states in which marijuana is legalized under state law, the manufacture, importation, possession, use or distribution of cannabis remains illegal under U.S. federal law. This has created a dichotomy between state and federal law, whereby many states have elected to regulate and remove state-level penalties regarding a substance which is still illegal at the federal level. There remains uncertainty about the US federal government's position on cannabis with respect to cannabis-legal status. A change in its enforcement policies could impact the ability of the Company to continue as a going concern.
2. BASIS OF PREPARATION
a) Basis of presentation
These consolidated financial statements for the two months ended March 31, 2024 and the year ended January 31, 2024 ("consolidated financial statements") are prepared in accordance with accounting principles generally accepted in the United States of America ("U.S. GAAP"). These consolidated financial statements have been prepared on an accrual basis and are based on historical costs, except for certain financial instruments classified as fair value through profit or loss.
These consolidated financial statements have been prepared on a going concern basis, which assumes that the Company will continue in operation for the foreseeable future and, accordingly, will be able to realize its assets and discharge its liabilities in the normal course of operations as they come due.
Failure to arrange adequate financing on acceptable terms and/or achieve profitability may have an adverse effect on the financial position, results of operations, cash flows and prospects of the Company. These consolidated financial statements do not give effect to adjustments to assets or liabilities that would be necessary should the Company be unable to continue as a going concern. Such adjustments could be material.
b) Functional and reporting currency
The functional currency of C21 Investments Inc. is Canadian dollar ("C$"), and the functional currency of the Company's subsidiaries is U.S. dollars ("US$"). C21 has determined that U.S dollars is the most relevant and appropriate reporting currency as the Company's operations are conducted in U.S dollars and its financial results are prepared and reviewed internally by management in U.S. dollars. The consolidated financial statements are presented in U.S. dollars unless otherwise noted.
c) Basis of consolidation
The consolidated financial statements incorporate the accounts of the Company and all the entities in which the Company has a controlling voting interest and is deemed to be the primary beneficiary. All consolidated entities were under common control during the entirety of the periods for which their respective results of operations were included in the consolidated statements from the date of acquisition. All intercompany balances and transactions are eliminated upon consolidation.
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C21 INVESTMENTS INC.
Notes to the Consolidated Financial Statements
For the two months ended March 31, 2024 and the year
ended January 31, 2024
2. BASIS OF PREPARATION (continued)
A summary of the Company's subsidiaries included in these consolidated financial statements as at March 31, 2024 is as follows:
| Name of subsidiary (1) | Principal activity |
| 320204 US Holdings Corp. | Holding Company |
| 320204 Oregon Holdings Corp. | Holding Company |
| 320204 Nevada Holdings Corp. | Holding Company |
| 320204 Re Holdings, LLC | Holding Company |
| Eco Firma Farms LLC (2) | Cannabis producer |
| Silver State Cultivation LLC | Cannabis producer |
| Silver State Relief LLC | Cannabis retailer |
| Phantom Brands, LLC (2) | Holding Company |
| Phantom Distribution, LLC (2) | Cannabis distributor |
| Workforce Concepts 21, Inc. | Payroll and benefits services |
(1) All subsidiaries of the Company were incorporated in the USA, are wholly owned and have US$ as their functional currency.
(2) Operations have been discontinued and results are included in discontinued operations.
d) Change in financial year
In May 2024, the Company changed its financial year end from January 31 to March 31 as approved by the Canadian Securities Exchange. The change will allow more capacity to complete annual financial statements in a timely and cost-efficient manner. The Company elected to have transition year of two months from February 1, 2024 to March 31, 2024. Accordingly, these consolidated financial statements presented the Company's financial condition and performance for the transition two months ended March 31, 2024, with the comparable period being the twelve months ended January 31, 2024. The Company's first full financial year under the new schedule will cover the twelve months ended March 31, 2025.
3. ACCOUNTING POLICIES
a) Significant accounting estimates and assumptions
The preparation of the Company's consolidated financial statements in conformity with U.S. GAAP requires management to make judgments, estimates and assumptions that affect the reported amounts of assets, liabilities and contingent liabilities at the date of the financial statements and reported amounts of revenues and expenses during the reporting period. Estimates and assumptions are continuously evaluated and are based on management's experience and other factors, including expectations of future events that are believed to be reasonable under the circumstances. Actual results may differ from those estimates and judgments.
Areas requiring a significant degree of estimation and judgment relate to the determination of recoverability of goodwill, recoverability of intangible assets, fair value less costs to sell of assets classified as held for sale, estimates used in valuation and costing of inventory, impairment of long-lived assets and inventory, fair value measurements, useful lives, depreciation and amortization of property, equipment and intangible assets, the recoverability and measurement of deferred tax assets and liabilities, share-based compensation, and fair value of derivative liability.
b) Recently issued accounting pronouncements
Recent accounting pronouncements issued by the Financial Accounting Standards Board, the American Institute of Certified Public Accountants and the U.S. Securities and Exchange Commission did not or are not believed by management to have a material effect on the Company's present or future financial statements.
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C21 INVESTMENTS INC.
Notes to the Consolidated Financial Statements
For the two months ended March 31, 2024 and the year
ended January 31, 2024
3. ACCOUNTING POLICIES (continued)
c) Cash
Cash is held in financial institutions and at retail locations. The carrying value of cash approximates its fair value.
The failure of any bank in which C21 deposits funds may reduce the amount of cash available for operations or delay the ability to access such funds. C21 does not currently have a commercial relationship with a bank that has failed or is has shown indications of experiencing operational distress, nor has C21 experienced delays or other issues in meeting its financial obligations. If banks and financial institutions where C21's cash is held enter receivership or become insolvent in response to financial conditions affecting the banking system and financial markets, its ability to access cash may be threatened and could have a material adverse effect on operations and financial condition of the Company.
As at March 31, 2024, the Company had FDIC coverage over $
d) Foreign currency translation
Foreign currency transactions are translated into U.S. dollars at exchange rates in effect on the date of the transactions. Monetary assets and liabilities denominated in foreign currencies are translated at the functional currency spot rate at the reporting date. All differences are recorded in the consolidated statements of income and comprehensive income. Non-monetary items that are measured in terms of historical cost in a foreign currency are translated using the exchange rate at the date of the initial transaction. Non-monetary items measured at fair value in a foreign currency are translated using the exchange rates at the date when the fair value is determined.
Assets and liabilities of foreign operations are translated into U.S. dollars at year-end exchange rates and any revenue and expenses are translated at the average exchange rate for the year. The resulting exchange differences are recognized in other comprehensive income.
e) Inventory
Inventory consists of raw materials, consumables and packaging supplies used in the process to prepare inventory for sale; work in process consisting of pre-harvested cannabis plants, by-products to be extracted, oils and terpenes; and finished goods.
Inventory is valued at the lower of cost and net realizable value, with cost determined using the weighted average cost method. Net realizable value is calculated as the estimated selling price in the ordinary course of business, less any estimated costs to complete and sell the goods. Costs are capitalized to inventory, until substantially ready for sale. Costs include direct and indirect labor, raw materials, consumables, packaging supplies, utilities, facility costs, quality and testing costs, production related depreciation and other overhead costs. The Company records inventory reserves for obsolete and slow-moving inventory.
Inventory reserves are based on inventory obsolescence trends, and the historical and professional experience of management. The Company classifies cannabis inventory as a current asset, although, due to the duration of the cultivation, drying, and conversion process, certain inventory items may not be realized in cost of sales within one year.
f) Property and equipment
Property and equipment is measured at cost less accumulated depreciation and losses on impairment.
Depreciation is provided on the straight-line basis over the estimated useful lives of the assets as follows:
| Buildings |
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| Furniture & fixtures |
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| Computer equipment |
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| Machinery & equipment |
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| Leasehold improvements |
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C21 INVESTMENTS INC.
Notes to the Consolidated Financial Statements
For the two months ended March 31, 2024 and the year
ended January 31, 2024
3. ACCOUNTING POLICIES (continued)
g) Intangible assets
Intangible assets are recorded at cost less accumulated amortization and accumulated impairment losses, if any. Intangible assets acquired in a business combination are measured at fair value at the acquisition date.
Intangible assets with finite useful lives are amortized on a straight-line basis over their estimated useful lives. Amortization of intangible assets begins when the asset becomes available for use. Brands, licenses, and customer relationships are amortized over
h) Goodwill
Goodwill represents the excess of the purchase price paid for the acquisition of subsidiaries over the fair value of the net intangible and tangible assets acquired. Following the initial recognition, goodwill is measured at cost less any accumulated impairment losses. Goodwill is allocated to the reporting unit in which the business that created the goodwill resides. A reporting unit is an operating segment, or a business unit one level below that operating segment, for which discrete financial information is prepared and regularly reviewed by segment management. The Company's goodwill is part of the Nevada reporting unit.
Goodwill is tested annually for any impairment, or more frequently in the case that events or circumstances indicate that the carrying amount of a reporting unit may not be recoverable. The Company may elect to first assess qualitative factors to determine whether it is more likely than not that the fair value of a reporting unit is less than its carrying amount. If factors indicate this is the case, then a quantitative test is performed and an impairment is recorded for any excess carrying value above the reporting unit's fair value, not to exceed the amount of goodwill.
For the two months ended March 31, 2024 and the year ended January 31, 2024, the recoverable amount of goodwill allocated to the Nevada reporting unit exceeded the carrying amount and no impairment was noted.
i) Impairment of long-lived assets
Long-lived assets include property and equipment, right-of-use assets, and intangible assets with finite useful lives.
At the end of each fiscal year, the Company reviews the intangible assets' estimated useful lives and amortization methods, with the effect of any changes in estimates accounted for on a prospective basis.
Long-lived assets are reviewed for indicators of impairment at each statement of balance sheet date or whenever events or changes in circumstances indicate that a potential impairment has occurred. The Company groups assets at the lowest level for which cash flows are separately identifiable, referred to as an asset group. When indicators of potential impairment are present the Company prepares a projected undiscounted cash flow analysis to determine the recoverable amount for the respective asset or asset group. An impairment loss is recognized whenever the carrying amount of the asset exceeds its recoverable amount and is recorded as in profit or loss equal to the amount by which the carrying amount exceeds the fair value.
j) Assets and liabilities held for sale
Non-current assets, or disposal groups comprising assets and liabilities, are classified as held for sale if it is highly probable that they will be recovered primarily through sale rather than through continuing use. Such assets, or disposal groups, are measured at the lower of their carrying amount and fair value less costs to sell. The comparative consolidated balance sheet is re-presented to classify assets as held for sale in the period that the respective assets are classified as held for sale.
k) Convertible instruments
The Company accounts for convertible debt as a single unit of account unless the conversion feature requires bifurcation and recognition as a derivative. Additionally, the Company uses the if-converted method for all convertible instruments in the diluted earnings per share calculation and includes the effect of potential share settlement for instruments that may be settled in cash or shares.
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C21 INVESTMENTS INC.
Notes to the Consolidated Financial Statements
For the two months ended March 31, 2024 and the year
ended January 31, 2024
3. ACCOUNTING POLICIES (continued)
l) Leases
Upon commencement of a contract containing a lease, the Company classifies leases other than short-term leases as either an operating lease or a finance lease according to the criteria prescribed by ASU 2016-02, Leases ("ASC 842"). The lease classification is reassessed only when: (a) the contract is modified, and the modification is not accounted for as a separate contract, and (b) there is a change in the lease term or the assessment of whether the lessee is reasonably certain to exercise an option to purchase the underlying asset. The Company has elected not to recognize right-of-use assets and liabilities for short-term leases that have a term of 12 months or less.
For both finance leases and operating leases, right-of-use assets and lease liabilities are initially measured as the present value of future lease payments and initial direct costs discounted at the interest rate implicit in the lease, or if that rate is not readily determinable, the Company's incremental borrowing rate. Subsequent measurement of lease liabilities classified as finance leases is at amortized cost using the effective interest rate method. Subsequent measurement of right-of-use assets classified as finance leases is at carrying amount less accumulated amortization, where amortization is recorded straight-line over the lease term. Subsequent measurement of lease liabilities classified as operating leases is at the present value of the unpaid lease payments discounted at the discount rate for the lease established at the commencement date. Subsequent measurement of right-of-use assets classified as operating leases is carrying amount less accumulated amortization where amortization is calculated as the difference between straight-line lease cost for the period, including amortization of initial direct costs, and the periodic accretion of the lease liability.
m) Financial instruments
Financial instruments are contracts that give rise to a financial asset of one party and a financial liability or equity instrument of another party. Financial instruments are recorded initially at fair value, which is the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. Subsequent measurement depends on how the financial instrument has been classified and may be at fair value or amortized cost. For financial instruments subsequently measured at fair value, the Company determines the fair value of financial instruments using quoted market prices whenever available. When quoted market prices are not available, the Company uses standard pricing models including the Black-Scholes option pricing model.
Financial instruments measured at fair value are classified into one of three levels in the fair value hierarchy according to the relative reliability of the inputs used to estimate the fair values. The three levels of the fair value hierarchy are:
Level 1 - Unadjusted quoted prices in active markets for identical assets or liabilities;
Level 2 - Inputs other than quoted prices that are observable for the asset or liability either directly (i.e. as prices) or indirectly (i.e. derived from prices); and
Level 3 - Inputs that are not based on observable market data.
There have been no transfers between fair value hierarchy levels during the two months ended March 31, 2024 and the year ended January 31, 2024.
The Company's cash, receivables, accounts payable and accrued liabilities are recorded at cost. The carrying values of these financial instruments approximate their fair value due to their short-term maturities. Unless otherwise noted, it is management's opinion that the Company is not exposed to significant interest or credit risks arising from these financial instruments.
Financial instruments subsequently measured at amortized cost include promissory note payable, convertible promissory notes, and reclamation obligation.
Liquidity risk is the risk that the Company will not be able to meet its financial obligations as they come due. As at March 31, 2024, the Company had a working capital deficiency of $
12
C21 INVESTMENTS INC.
Notes to the Consolidated Financial Statements
For the two months ended March 31, 2024 and the year
ended January 31, 2024
3. ACCOUNTING POLICIES (continued)
Foreign currency risk is the risk that the fair values of future cash flows of a financial instrument will fluctuate because they are denominated in currencies that differ from the respective functional currency. The Company is not exposed to significant foreign currency risk as its operations and cash flows are all denominated in US$. The Canadian parent has a functional currency of Canadian dollars but does not routinely engage in financing activities in alternate currencies and during the two months ended March 31, 2024 and the year ended January 31, 2024 had minimal exposure to foreign currency risk.
n) Share-based compensation
The Company measures equity settled share-based payments based on their fair value at their grant date and recognizes share-based compensation expense over the vesting period based on the Company's estimate of equity instruments that will eventually vest. Consideration paid to the Company on the exercise of stock options is recorded as common stock.
o) Income taxes
The Company uses the asset and liability method to account for income taxes. Deferred income tax assets and liabilities are determined based on enacted tax rates and laws for the years in which the differences are expected to reverse.
Deferred tax assets are reduced by a valuation allowance when, in the opinion of management, it is more likely than not that some portion or all of the deferred tax assets will not be realized.
As the Company operates in the cannabis industry, it is subject to the limits of Internal Revenue Code Section 280E under which the Company is only allowed to deduct expenses directly related to the cost of producing the products or cost of production.
The Company recognizes uncertain income tax positions at the largest amount that is more-likely-than-not to be sustained upon examination by the relevant taxing authority. An uncertain income tax position will not be recognized if it has less than a 50% likelihood of being sustained. Recognition or measurement is reflected in the period in which the likelihood changes. Any interest and penalties related to unrecognized tax liabilities are presented within income tax expense in the consolidated statements of comprehensive income.
p) Earnings (loss) per share
The Company presents basic and diluted loss per share data for its common shares. Basic loss per share is calculated using the weighted average number of shares outstanding during the respective years. Diluted loss per share is computed by dividing net loss by the weighted average shares outstanding adjusted for additional shares from the assumed exercise of stock options, restricted share units, or warrants, if dilutive.
The number of additional shares is calculated by assuming the outstanding dilutive convertible instruments, options, and warrants are exercised and that the assumed proceeds are used to acquire common shares at the average market price during the year. Diluted loss per share figures for the years presented are equal to those of basic loss per share for the years since the effects of convertible instruments, stock options and warrants are anti-dilutive.
q) Revenue recognition
Revenue is recognized by the Company in accordance with ASC 606 - Revenue From Contracts With Customers ("ASC 606"). Through application of the standard, the Company recognizes revenue to depict the transfer of promised goods or services to the customer in an amount that reflects the consideration to which the Company expects to be entitled in exchange for those goods or services.
In order to recognize revenue under ASC 606, the Company applies the following five steps:
1. Identify a customer along with a corresponding contract
2. Identify the performance obligation(s) in the contract to transfer goods or provide distinct services to a customer
3. Determine the transaction price that the Company expects to be entitled to in exchange for transferring promised goods or services to a customer
4. Allocate the transaction price to the performance obligation(s) in the contract
5. Recognize revenue when or as the Company satisfies the performance obligation(s) in the contract
13
C21 INVESTMENTS INC.
Notes to the Consolidated Financial Statements
For the two months ended March 31, 2024 and the year
ended January 31, 2024
3. ACCOUNTING POLICIES (continued)
The Company's contracts with customers for the sale of dried cannabis and other products derived from cannabis consist of one performance obligation, being the transfer of control of the goods to the customer at the point of sale. The Company transfers control and satisfies its performance obligation when collection has taken place, compliant documentation has been signed, and the product was accepted by the buyer. The Company does not have performance obligations subsequent to delivery on the sale of goods to customers and revenues from sale of goods are recognized at a "point in time", which is upon passing of control to the customer.
Provisions for expected credit losses on accounts receivable are based on the Company's assessment of the collectability of specific customer balances, which is based upon a review of the customer's creditworthiness and past collection history. For trade receivables deemed to be uncollectible, and arose from the sale of goods, the Company will write off the specific balance against the allowance for doubtful accounts when it is known that a provided amount will not be collected.
The Company disaggregates its revenues based on sales to its retail customers where cash is received immediately versus wholesale customers to whom the Company extends credit terms. For the two months ended March 31, 2024, revenue from retail sales from continuing operations totaled $
r) Loyalty program
The Company offers a loyalty reward program to its dispensary customers that allows customers to earn reward credits that can be applied to future purchases. Loyalty reward credits issued as part of a sales transaction result in revenue being deferred until the loyalty reward is redeemed by the customer. The loyalty rewards are shown as reductions to the 'Revenue' line within the accompanying consolidated statements of income and comprehensive income and included as deferred revenue on the consolidated balance sheets. A portion of the revenue generated in a sale must be allocated to the loyalty points earned. The amount allocated to the points earned is deferred until the loyalty points are redeemed or expire. The loyalty program expiration policy is six months. As of March 31, 2024 and January 31, 2024, the loyalty liability totaled $
4. DISCONTINUED OPERATIONS
a) Sales-type lease and disposal of licenses
In January 2022, the Company entered into a lease-to-own arrangement with a lessee for certain licenses, land and equipment in Oregon, USA, representing its outdoor growing operation. The Company determined that the arrangement should be accounted for as a sales-type lease and concluded that it is not probable that all required payments will be made such that title will transfer at the end of the term. As such, in accordance with ASC 842, the land and equipment were not derecognized, and payments received are recorded as a deposit liability until such time that collectability becomes probable.
During the year ended January 31, 2024, the Company executed a settlement agreement to terminate its lease-to-own arrangement. Prior to the settlement, the Company had collected a cumulative $
Additionally, the Company sold three licenses in Bend, Oregon, with a carrying value of $
b) Oregon reporting unit
As a result of non-profitable operations in the Oregon reporting unit, the Company began to wind down operations in Oregon beginning in the year ended January 31, 2021. By January 31, 2022, the Company made the decision to cease all growing, manufacturing, and processing activities in Bend, Oregon. As the Oregon reporting unit comprises the assets of multiple components in distinct geographic locations, management anticipates completing the sale on a piecemeal basis. Management is engaged in an active program to seek buyers for the major classes of assets and liabilities in Oregon in order to complete a sale.
14
C21 INVESTMENTS INC.
Notes to the Consolidated Financial Statements
For the two months ended March 31, 2024 and the year
ended January 31, 2024
4. DISCONTINUED OPERATIONS (continued)
During April 2023, the Company had terminated all operating lease agreements in Oregon and paid a settlement payment of $
Property and equipment contain a building and fixtures that were previously used for cannabis operations. Long-term debt balance as at March 31, 2024 and January 31, 2024 comprises building mortgage associated with the building that is held for sale. The building mortgage was entered into on February 1, 2015 and matures on January 1, 2025. The mortgage bears interest at a fixed rate of
A summary of major classes of assets and liabilities of the discontinued Oregon operation that are classified as held for sale in the consolidated balance sheets is as follows:
| March 31, 2024 |
January 31, 2024 |
|||||
| $ | $ | |||||
| Carrying amounts of the major classes of assets included in discontinued operations: | ||||||
| Prepaid expenses and deposits | ||||||
| Property and equipment | ||||||
| Total assets classified as held for sale | ||||||
| Carrying amounts of the major classes of liabilities included in discontinued operations: | ||||||
| Long-term debt | ||||||
| Total liabilities classified as held for sale |
A summary of the Company's net loss from discontinued operations is as follows:
| Two Months ended | Year ended | |||||
| March 31, 2024 |
January 31, 2024 |
|||||
| $ | $ | |||||
| Revenue | ||||||
| Cost of sales | ||||||
| Gross loss | ||||||
| Expenses | ||||||
| Selling, general and administrative expenses | ||||||
| Loss on lease termination | ||||||
| Other expenses | ||||||
| Net loss from discontinued operations before income tax expense | ( |
) | ( |
) | ||
| Income tax recovery | ||||||
| Net loss from discontinued operations after income tax expense | ( |
) | ( |
) | ||
A summary of the Company's cash flows from discontinued is as follows:
| Two Months ended | Year ended | |||||
| March 31, 2024 |
January 31, 2024 |
|||||
| $ | $ | |||||
| Net cash provided by operating activities of discontinued operations | ||||||
| Net cash used in financing activities of discontinued operations | ( |
) | ( |
) | ||
15
C21 INVESTMENTS INC.
Notes to the Consolidated Financial Statements
For the two months ended March 31, 2024 and the year
ended January 31, 2024
5. RECEIVABLES
A summary of the Company's receivables is as follows:
|
March 31, 2024 |
January 31, 2024 |
|||||
| $ | $ | |||||
| Taxes receivable | ||||||
| Trade receivables | ||||||
There was
6. INVENTORY
A summary of the Company's inventory is as follows:
|
March 31, 2024 |
January 31, 2024 |
|||||
| $ | $ | |||||
| Finished goods | ||||||
| Work in process | ||||||
| Raw materials | ||||||
7. PROPERTY AND EQUIPMENT AND RIGHT-OF-USE ASSETS
a) Property and equipment
A summary of the Company's property and equipment is as follows:
|
March 31, 2024 |
January 31, 2024 |
|||||
| $ | $ | |||||
| Land | ||||||
| Leasehold improvements | ||||||
| Furniture and fixtures | ||||||
| Computer equipment | ||||||
| Machinery and equipment | ||||||
| Less: accumulated depreciation | ( |
) | ( |
) | ||
Total depreciation expense for the two months ended March 31, 2024 was $
b) Right-of-use assets
The Company's right-of-use assets result from its operating leases (Note 12) and consist of land and buildings used in the cultivation, processing, and warehousing of its products.
16
C21 INVESTMENTS INC.
Notes to the Consolidated Financial Statements
For the two months ended March 31, 2024 and the year
ended January 31, 2024
8. INTANGIBLE ASSETS AND GOODWILL
a) Intangible assets
A summary of the Company's intangible assets subject to amortization is as follows:
|
March 31, 2024 |
January 31, 2024 |
|||||
| $ | $ | |||||
| Licenses | ||||||
| Brands | ||||||
| Customer relationships | ||||||
| Less: accumulated amortization | ( |
) | ( |
) | ||
During the year ended January 31, 2024, the Company disposed of licenses in Oregon with total cost of $
During the two months ended March 31, 2024, the Company recognized amortization expense on intangible assets of $
The estimated aggregate amortization expense for each of the five succeeding years is as follows:
| $ | |||
| March 31, 2025 | |||
| March 31, 2026 | |||
| March 31, 2027 | |||
| March 31, 2028 | |||
| March 30, 2029 | |||
b) Goodwill
As at March 31, 2024 and January 31, 2024, the Company had goodwill of $
9. SECURITY DEPOSIT
Security deposit consisted of a deposit with the Alberta Energy Regulator ("AER") under the AER's Liability Management programs to cover potential liabilities relating to its wells. On January 19, 2024, the AER claimed $
17
C21 INVESTMENTS INC.
Notes to the Consolidated Financial Statements
For the two months ended March 31, 2024 and the year
ended January 31, 2024
10. ACCOUNTS PAYABLE AND ACCRUED LIABILITIES
A summary of the Company's accounts payable and accrued liabilities is as follows:
|
March 31, 2024 |
January 31, 2024 |
|||||
| $ | $ | |||||
| Accounts payable | ||||||
| Accrued liabilities | ||||||
| EFF settlement accrual (Note 20) | ||||||
11. PROMISSORY NOTES
Transaction costs related to the issuance of convertible promissory notes are apportioned to their respective financial liability and equity components (if applicable) in proportion to the allocation of proceeds as a reduction to the carrying amount of each component.
When valuing the financial liability component of the promissory notes, the Company used specific interest rates assuming no conversion features existed. The resulting liability component is accreted to its face value over the convertible note's term until its maturity date.
a) Convertible promissory notes
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 $
b) Promissory note payable
A summary of the Company's promissory note payable denominated in US$ is as follows:
| $ | |||
| Balance, January 31, 2023 | |||
| Repayments | ( |
) | |
| Balance, March 31, 2024 and January 31, 2024 |
The promissory note payable was issued to the Company's CEO, Sonny Newman in connection with the acquisition of Silver State Cultivation LLC and Silver State Relief LLC in January 2019. During the year ended January 31, 2024 the promissory note was fully repaid. Interest expense on the promissory note payable during the two months ended March 31, 2024 and year ended January 31, 2024 was $
12. LEASE LIABILITIES
The Company's leases consist of land and buildings used in the cultivation, processing, and warehousing of its products. All leases were classified as operating leases in accordance with ASC 842. A summary of the Company's active leases under contract as at March 31, 2024 is as follows:
| Entity Name/Lessee | Asset |
Remaining lease term (years) |
Type |
| Silver State Cultivation LLC | Land/ Building |
|
Operating lease |
| Silver State Relief LLC (Sparks) | Land/ Building |
|
Operating lease |
| Silver State Relief LLC (Fernley) | Land/ Building |
|
Operating lease |
18
C21 INVESTMENTS INC.
Notes to the Consolidated Financial Statements
For the two months ended March 31, 2024 and the year
ended January 31, 2024
12. LEASE LIABILITIES (continued)
On February 1, 2023, the Company entered into an amended agreements for the Sparks and Fernley leases, extending the lease terms from their original end date in 2025 to 2029, with three renewal periods of seven years each. The Company opted for one renewal term under the amended contracts, extending the lease terms until December 31, 2036. The carrying amounts of right-of-use assets and lease liabilities were remeasured, resulting in an increase of $
For the two months ended March 31, 2024, the Company incurred operating lease costs in continuing operations of $
A summary of the Company's weighted average discount rate used in calculating lease liabilities and weighted average remaining lease term is as follows:
|
March 31, 2024 |
January 31, 2024 |
|||||
| Weighted average discount rate | ||||||
| Weighted average remaining lease term (years) |
|
|
A summary of the maturity of contractual undiscounted liabilities associated with the Company's operating leases as at March 31, 2024 is as follows:
| Year ending March 31, | $ | ||
| 2025 | |||
| 2026 | |||
| 2027 | |||
| 2028 | |||
| 2029 | |||
| Thereafter | |||
| Total undiscounted lease liabilities | |||
| Effects of discounting | ( |
) | |
| Total present value of minimum lease payments | |||
| Current portion of lease liability | |||
| Lease liabilities |
As at March 31, 2024, the Company has total undiscounted lease liabilities of $
13. DERIVATIVE LIABILITY
A summary of the Company's derivative liability is as follows:
|
Earn out shares |
|||
| $ | |||
| Balance, January 31, 2023 | |||
| Loss on change in fair value of derivative liability | |||
| Settlement | ( |
) | |
| Effect of foreign exchange | ( |
) | |
| Balance, January 31, 2024 | |||
| Gain on change in fair value of derivative liability | ( |
) | |
| Effect of foreign exchange | ( |
) | |
| Balance, March 31, 2024 |
Upon the May 24, 2019 acquisition of Swell Companies, the vendors can earn up to
19
C21 INVESTMENTS INC.
Notes to the Consolidated Financial Statements
For the two months ended March 31, 2024 and the year
ended January 31, 2024
13. DERIVATIVE LIABILITY (continued)
During the year ended January 31, 2024, the Company settled the obligation to issue
14. SHARE CAPITAL
Share capital consists of one class of fully paid common shares, with no par value. The Company is authorized to issue an unlimited number of common shares. All shares are equally eligible to receive dividends and repayment of capital and represent one vote at the Company's shareholders' meetings.
A summary of the Company's share capital is as follows:
|
Number of shares |
Common stock |
|||||
| # | $ | |||||
| Balance, January 31, 2023 | ||||||
| Share-based compensation | ||||||
| Balance, March 31, 2024 and January 31, 2024 |
a) Commitment to issue shares
In connection with the acquisition of EFF on June 13, 2018, the Company issued a promissory note payable to deliver
b) Warrants
A summary of the Company's warrant activity is as follows:
|
Number of warrants |
Weighted average exercise price |
Weighted average remaining life |
|||||||
| # | C$ | Years | |||||||
| Balance, January 31, 2023 |
|
||||||||
| Expired | ( |
) | - | ||||||
| Balance, January 31, 2024 |
|
||||||||
| Balance, March 31, 2024 |
|
A summary of the Company's outstanding and exercisable warrants as at March 31, 2024, is as follows:
| Expiry date | Exercise price |
Number of warrants outstanding |
||||
| C$ | # | |||||
| May 24, 2024 | ||||||
As at March 31, 2024 and January 31, 2024, outstanding and exercisable warrants had intrinsic values of $
Subsequent to March 31, 2024, there were
c) Stock options
The Company is authorized to grant options to executive officers and directors, employees, and consultants, enabling them to acquire up to 10% of the issued and outstanding common shares of the Company. The exercise price of each option equals the market price of the Company's shares as calculated on the date of grant. The options can be granted for a maximum term of
20
C21 INVESTMENTS INC.
Notes to the Consolidated Financial Statements
For the two months ended March 31, 2024 and the year
ended January 31, 2024
14. SHARE CAPITAL (continued)
A summary of the Company's stock option activity is as follows:
|
Number of options |
Weighted average exercise price |
Weighted average remaining life |
|||||||
| # | C$ | Years | |||||||
| Balance, January 31, 2022 |
|
||||||||
| Granted |
|
||||||||
| Expired/forfeited | ( |
) | - | ||||||
| Balance, January 31, 2023 |
|
||||||||
| Expired/forfeited | ( |
) | - | ||||||
| Balance, January 31, 2024 |
|
||||||||
| Balance, March 31, 2024 |
|
A summary of the Company's stock options outstanding and exercisable as at March 31, 2024, is as follows:
| Expiry date | Exercise price |
Number of options outstanding |
Number of options exercisable |
||||||
| C$ | # | # | |||||||
| October 9, 2024 | |||||||||
| February 10, 2025 | |||||||||
As at March 31, 2024 and January 31, 2024, outstanding and exercisable stock options had intrinsic values of $
During the two months ended March 31, 2024 and year ended January 31, 2024, the Company recorded share-based compensation expense on vesting of stock options of $
15. SELLING, GENERAL AND ADMINISTRATIVE EXPENSES
A summary of the Company's selling, general and administration expenses for the two months ended March 31, 2024 and year ended January 31, 2024 is as follows:
| Two Months ended | Year ended | |||||
| March 31, 2024 | January 31, 2024 | |||||
| $ | $ | |||||
| Accounting and legal | ||||||
| Depreciation and amortization | ||||||
| License fees, taxes, and insurance | ||||||
| Office facilities and administrative | ||||||
| Operating lease costs | ||||||
| Other expenses | ||||||
| Professional fees and consulting | ||||||
| Salaries and wages | ||||||
| Sales, marketing, and promotion | ||||||
| Share-based compensation | ||||||
| Shareholder communications | ||||||
| Travel and entertainment | ||||||
21
C21 INVESTMENTS INC.
Notes to the Consolidated Financial Statements
For the two months ended March 31, 2024 and the year
ended January 31, 2024
16. SEGMENTED INFORMATION
The Company defines its major geographic operating segments as Oregon and Nevada. Due to the jurisdictional cannabis compliance issues ever-present in the industry, each state operation is by nature operationally segmented.
Key decision makers primarily review revenue, cost of sales expense, and gross margin as the primary indicators of segment performance. As the Company continues to expand via acquisition, the segmented information will expand based on management's agreed upon allocation of costs beyond gross margin.
A summary of the Company's segmented operational activity and balances from continuing operations for the two months ended March 31, 2024 is as follows:
| Nevada | Corporate | Total | |||||||
| $ | $ | $ | |||||||
| Total revenue | |||||||||
| Gross profit | |||||||||
| Operating income (expenses): | |||||||||
| General and administration | ( |
) | ( |
) | ( |
) | |||
| Sales, marketing, and promotion | ( |
) | ( |
) | |||||
| Operating lease cost | ( |
) | ( |
) | |||||
| Depreciation and amortization | ( |
) | ( |
) | ( |
) | |||
| Interest expense and others | |||||||||
| Net income (loss) from continuing operations before income tax expense | ( |
) |
A summary of the Company's segmented operational activity and balances from continuing operations for the year ended January 31, 2024 is as follows:
| Nevada | Corporate | Total | |||||||
| $ | $ | $ | |||||||
| Total revenue | |||||||||
| Gross profit | |||||||||
| Operating income (expenses): | |||||||||
| General and administration | ( |
) | ( |
) | ( |
) | |||
| Sales, marketing, and promotion | ( |
) | ( |
) | |||||
| Operating lease cost | ( |
) | ( |
) | |||||
| Depreciation and amortization | ( |
) | ( |
) | ( |
) | |||
| Share-based compensation | ( |
) | ( |
) | |||||
| Impairment loss | ( |
) | ( |
) | |||||
| Gain on termination of sales-type lease and disposal of licenses | |||||||||
| Interest expense and others | ( |
) | ( |
) | ( |
) | |||
| Net income (loss) from continuing operations before income tax expense | ( |
) |
Segmented information pertaining to discontinued operations is contained within Note 4.
Entity-wide disclosures
All revenue for the two months ended March 31, 2024 and year ended January 31, 2024 was earned in the United States.
For the two months ended March 31, 2024 and year ended January 31, 2024, no customer represented more than 10% of the Company's net revenue. As at March 31, 2024 and January 31, 2024, no customer represented more than 10% of the Company's receivables.
22
C21 INVESTMENTS INC.
Notes to the Consolidated Financial Statements
For the two months ended March 31, 2024 and the year
ended January 31, 2024
16. SEGMENTED INFORMATION (continued)
A summary of the Company's long-lived tangible assets disaggregation by geographic area is as follows:
|
March 31, 2024 |
January 31, 2024 |
|||||
| $ | $ | |||||
| Nevada | ||||||
| Discontinued operations (Oregon) | ||||||
17. COMMITMENTS
The Company and its subsidiaries are committed under lease agreements with third parties and related parties, for land, office space, and equipment in Nevada. A summary of the Company's future minimum payments as at March 31, 2024 is as follows:
| Year ending March 31, |
Third parties |
Related parties | Total | ||||||
| $ | $ | $ | |||||||
| 2025 | |||||||||
| 2026 | |||||||||
| 2027 | |||||||||
| 2028 | |||||||||
| Thereafter | |||||||||
18. RELATED PARTY TRANSACTIONS
A summary of the Company's related balances included in accounts payable and accrued liabilities, and promissory note payable is as follows:
|
March 31, 2024 |
January 31, 2024 |
|||||
| $ | $ | |||||
| Lease liabilities due to a company controlled by the CEO | ||||||
| Due to the CFO | ||||||
As at March 31, 2024 and January 31, 2024, Due to the CFO consists of reimbursable expenses incurred in the normal course of business.
A summary of the Company's transactions with related parties including key management personnel is as follows:
| Two Months ended | Year ended | |||||
|
March 31, 2024 |
January 31, 2024 |
|||||
| $ | $ | |||||
| Consulting fees paid to a director | ||||||
| Amounts paid to CEO or companies controlled by CEO for leases | ||||||
| Amounts paid to CEO or companies controlled by CEO for repayments of promissory note | ||||||
| Amounts paid to CEO or companies controlled by CEO for remuneration | ||||||
| Salary paid to directors and officers | ||||||
| Share-based compensation | ||||||
23
C21 INVESTMENTS INC.
Notes to the Consolidated Financial Statements
For the two months ended March 31, 2024 and the year
ended January 31, 2024
18. RELATED PARTY TRANSACTIONS (continued)
On June 5, 2023, the company controlled by the CEO sold its interest in the Silver State Relief LLC (Sparks) property. The Company continues to lease this facility from a third party.
On August 19, 2023, the company controlled by the CEO sold its interest in the Silver State Relief LLC (Fernley) property. The Company continues to lease this facility from a third party.
19. EARNINGS PER SHARE
A summary of the Company's calculation of basic and diluted earnings per share for the two months ended March 31, 2024 and year ended January 31, 2024 is as follows:
| Two Months ended | Year ended | |||||
|
March 31, 2024 |
January 31, 2024 |
|||||
| Net loss from continuing operations after income taxes | $ | ( |
) | $ | ( |
) |
| Net loss from discontinued operations after income taxes | $ | ( |
) | $ | ( |
) |
| Net loss | $ | ( |
) | $ | ( |
) |
| Weighted average number of common shares outstanding | ||||||
| Dilutive effect of warrants and stock options outstanding | ||||||
| Diluted weighted average number of common shares outstanding | ||||||
| Basic loss per share, continuing operations | ( |
) | ( |
) | ||
| Diluted loss per share, continuing operations | ( |
) | ( |
) | ||
| Basic loss per share, discontinued operations | ( |
) | ( |
) | ||
| Diluted loss per share, discontinued operations | ( |
) | ( |
) | ||
| Basic loss per share | ( |
) | ( |
) | ||
| Diluted loss per share | ( |
) | ( |
) | ||
The computation of diluted earnings per share excludes the effect of the potential exercise of warrants and stock options when the average market price of the common stock is lower than the exercise price of the respective warrant or stock option and when inclusion of these amounts would be anti-dilutive. For the two months ended March 31, 2024 and year ended January 31, 2024, the number of warrants excluded from the computation was
20. CONTINGENCIES
From time to time, the Company is involved in various litigation matters arising in the ordinary course of its business. Management is of the opinion that disposition of any current matter will not have a material adverse impact on the Company's financial position, results of operations, or the ability to carry on any of its business activities.
24
C21 INVESTMENTS INC.
Notes to the Consolidated Financial Statements
For the two months ended March 31, 2024 and the year
ended January 31, 2024
20. CONTINGENCIES
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 $
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 $
On November 12, 2020, the Plaintiffs appealed the order dismissing the claims alleged in their amended complaint. On March 2, 2021, the Plaintiffs amended their appeal to appeal the award of attorney fees and costs.
On October 26, 2022, the Court of Appeals issued its decision, reversing the general and supplemental judgments in favor of the Company and remanding the case to the trial court for further proceedings. The Company filed a petition for reconsideration of the Court of Appeals decision on December 7, 2022, which was denied. On April 19, 2023, the Company filed a petition for review in the Oregon Supreme Court, which was denied. On November 1, 2023, the Court of Appeals issued the appellate judgement that reversed the October 2023 dismissal as well as the judgement for attorney fees and remanded the case against Phantom Brands, LLC, Swell Companies Limited, and two former employees. On December 21, 2023, the Plaintiffs filed a second amended complaint.
On April 2, 2024, the court confirmed dismissal of the Company and other defendants no longer named. The Company has filed a motion for costs and attorney fees totaling $
British Columbia Action: On or about September 13, 2019, the Company delivered a notice to the above-mentioned Plaintiffs of alleged breach and default under the EFF purchase and sale agreement, due to alleged unlawful, intentional acts and material misrepresentations by the Plaintiffs before and after the completion of the purchase. As a result of such breach, the Company denied the Plaintiffs' tender of their share payment notes in connection with the agreement. On or about October 14, 2019, Proudest Monkey Holdings, LLC and one of its current owners, sued the Company in the Supreme Court of British Columbia to compel the issuance and delivery of the subject shares, including interests and costs (the "British Columbia Action").
On November 8, 2019, the Company responded and counterclaimed for general, special and punitive damages, including interest and costs, related to breach of contract, repudiation of contract, breach of indemnity and fraudulent and negligent misrepresentation by the Plaintiffs. The Plaintiffs filed a response to the Company's counterclaims on or about June 5, 2020, and the parties stipulated to a form of amended pleading which included the joinder of additional parties, an owner of Proudest Monkey Holdings, LLC and EFF, and additional contract and equitable claims and damages, partially duplicative to those alleged by the Plaintiffs in the Oregon Action (breach of contract, indemnity, unjust enrichment and wrongful termination claims). Plaintiffs allege $
25
C21 INVESTMENTS INC.
Notes to the Consolidated Financial Statements
For the two months ended March 31, 2024 and the year
ended January 31, 2024
21. INCOME TAXES
The Company is a Canadian resident company, as defined in the Income Tax Act (Canada) (the "ITA"), for Canadian income tax purposes. However, it has subsidiaries that are treated as United States corporations for US federal income tax purposes per the Internal Revenue Code (US) ("IRC") and are thereby subject to federal income tax on their worldwide income. As a result, the Company is subject to taxation both in Canada and the United States.
A summary of the Company's components of the income tax provision is as follows:
| Two Months ended | Year ended | |||||
|
March 31, 2024 |
January 31, 2024 |
|||||
| $ | $ | |||||
| Current | ||||||
| Canadian | ||||||
| US Federal and State | ||||||
| Total current income tax expense | ||||||
| Deferred | ||||||
| Canadian | ||||||
| US Federal and State | ( |
) | ||||
| Total deferred income tax expense (recovery) | ( |
) | ||||
| Total income tax expense | ||||||
A summary of the Company's domestic and foreign components of income (loss) before provision for income taxes is as follows:
| Two Months ended | Year ended | |||||
|
March 31, 2024 |
January 31, 2024 |
|||||
| $ | $ | |||||
| Canadian | ( |
) | ( |
) | ||
| United States | ||||||
| Income before income taxes | ||||||
Section 280E of the Internal Revenue Code ("IRC") prohibits businesses engaged in the trafficking of Schedule I or Schedule II controlled substances from deducting normal business expenses, such as payroll and rent, from gross income (revenue less cost of goods sold). Section 280E was originally intended to penalize criminal market operators, but because cannabis remains a Schedule I controlled substance for U.S. Federal purposes, the Internal Revenue Service (the "IRS") has subsequently applied Section 280E to state-legal cannabis businesses. Cannabis businesses operating in states that align their tax codes with the IRC are also unable to deduct normal business expenses from their state taxes. The nondeductible expenses shown in the effective rate reconciliation above is comprised primarily of the impact of applying Section 280E to the Company's businesses that are involved in selling cannabis, along with other typical non-deductible expenses such as lobbying expenses.
26
C21 INVESTMENTS INC.
Notes to the Consolidated Financial Statements
For the two months ended March 31, 2024 and the year
ended January 31, 2024
21. INCOME TAXES (continued)
A summary of the Company's reconciliation of the statutory income tax rate percentage to the effective tax rate is as follows:
| Two Months ended | Year ended | |||||
|
March 31, 2024 |
January 31, 2024 |
|||||
| $ | $ | |||||
| Income (loss) for the period | ||||||
| Statutory rate | ||||||
| Income tax expense at statutory rate | ( |
) | ||||
| IRC section 280E disallowance | ||||||
| Foreign tax rate differential | ||||||
| Change in foreign exchange rates and other | ||||||
| Uncertain tax position, inclusive of interest and penalties | ( |
) | ||||
| Change in valuation allowance | ( |
) | ( |
) | ||
| Payable adjustment to provision versus statutory tax returns | ||||||
| Deferred adjustment to provision versus statutory tax returns | ( |
) | ||||
| Other | ( |
) | ||||
A summary of the Company's deferred tax assets and liabilities significant components is as follows:
| March 31, 2024 | January 31, 2024 | |||||
| $ | $ | |||||
| Deferred tax assets | ||||||
| Share issuance costs and financing fees | ||||||
| Allowable capital losses | ||||||
| Non-capital losses | ||||||
| Intangible assets | ||||||
| Goodwill | ||||||
| Lease liabilities | ||||||
| Derivative liability | ||||||
| Property and equipment | ||||||
| Other | ||||||
| Total deferred tax assets | ||||||
| Valuation allowance | ( |
) | ( |
) | ||
| Total net deferred tax assets | ||||||
| Deferred tax liabilities | ||||||
| Right-of-use assets | ( |
) | ( |
) | ||
| IRC 481(a) adjustments | ( |
) | ( |
) | ||
| Total deferred tax liabilities | ( |
) | ( |
) | ||
| Net deferred tax asset (liability) | ( |
) |
There are no deferred tax assets and liabilities included in the carrying amount of the disposal group classified as held for sale as of March 31, 2024.
Realization of deferred tax assets associated with the net operating loss carryforwards is dependent upon generating sufficient taxable income prior to their expiration. A valuation allowance to reflect management's estimate of the Canadian loss carryforwards that may expire prior to their utilization has been recorded as at March 31, 2024.
27
C21 INVESTMENTS INC.
Notes to the Consolidated Financial Statements
For the two months ended March 31, 2024 and the year
ended January 31, 2024
21. INCOME TAXES (continued)
As the Company operates in the cannabis industry, the Company is subject to the limits of Internal Revenue Code ("IRC") Section 280E for US federal income tax purposes as well as state income tax purposes. Under IRC Section 280E, the Company is only allowed to deduct expenses directly related to costs of goods sold. This results in permanent differences between ordinary and necessary business expenses deemed non-allowable under IRC Section 280E.
Management regularly assesses the ability to realize deferred tax assets recorded based upon the weight of available evidence, including such factors as recent earnings history and expected future taxable income on a jurisdiction-by-jurisdiction basis. In the event that the Company changes its determination as to the amount of realizable deferred tax assets, the Company will adjust its valuation allowance with a corresponding impact to the provision for income taxes in the period in which such determination is made. The Company's management believes that, based on a number of factors, it is more likely than not, that all or some portion of the deferred tax assets will not be realized; and accordingly, for the two months ended March 31, 2024, the Company has provided a valuation allowance against the Company's Canadian net deferred tax assets. The net change in the valuation allowance for the two months ended March 31, 2024 was a decrease of $
The Company had net operating loss (NOL) carryforwards for Canada, U.S. federal and state income tax purposes of approximately $
As of March 31, 2024, the Company had Canadian capital losses of approximately $
The uncertain tax position comprises of certain deductions for lease obligations, depreciation and amortization taken in prior years in excess of the accounting expenses in respect of assets used in production as well as deductions for inventory impairment that were not previously taken.
As of March 31, 2024, the total amount of gross unrecognized tax benefits was $
The Company estimates that approximately $
During the two months ended March 31, 2024, the Company recorded interest of $
28
C21 INVESTMENTS INC.
Notes to the Consolidated Financial Statements
For the two months ended March 31, 2024 and the year
ended January 31, 2024
21. INCOME TAXES (continued)
The aggregate change in the balance of gross unrecognized tax benefits, excluding interest and penalties is as follows:
|
March 31, 2024 |
January 31, 2024 |
|||||
| $ | $ | |||||
| Beginning balance | ( |
) | ||||
| Increase due to tax positions taken during current period | ||||||
| Decrease in balance as a result of lapse of the applicable statute of limitations | ( |
) | ||||
| Decrease in balance due to tax positions taken during prior years | ( |
) | ( |
) | ||
| Ending balance | ( |
) | ( |
) |
Beginning on January 1, 2022, the Tax Cuts and Jobs Act ("the Act"), enacted in December 2017, eliminated the option to deduct research and development expenditures in the current period and requires taxpayers to capitalize and amortize U.S.-based and non-U.S. based research and development expenditures over five and fifteen years, respectively. There is no impact to our current income tax provision as a result of this tax legislation.
On August 16, 2022 the Inflation Reduction Act of 2022 ("the Act") was signed into law.
22. FINANCIAL INSTRUMENTS
A summary of the Company's financial instruments classified as fair value through profit or loss and their classification in the fair value hierarchy is as follows:
| Fair value measurements at March 31, 2024 using: | Level 1 | Level 2 | Level 3 | Total | ||||||||
| $ | $ | $ | $ | |||||||||
| Financial liabilities: | ||||||||||||
| Earn out shares (Note 13) |
| Fair value measurements at January 31, 2024 using: | Level 1 | Level 2 | Level 3 | Total | ||||||||
| $ | $ | $ | $ | |||||||||
| Financial liabilities: | ||||||||||||
| Earn out shares (Note 13) |
|
The fair value of the derivative liability associated with the earn out shares was derived using a Monte Carlo simulation using non-observable inputs, and therefore represents a Level 3 measurement. |
29
C21 INVESTMENTS INC.
Notes to the Consolidated Financial Statements
For the two months ended March 31, 2024 and the year
ended January 31, 2024
23. SUBSEQUENT EVENTS
On May 6, 2024, the Company closed a non-brokered private placement in which the Company issued
Each convertible debenture unit offered under the private placement is comprised of: (i) a convertible debenture of the Company secured against the Nevada operations of the Company in principal amount of C$
The principal amount of the convertible debentures, together with any accrued and unpaid interest, will mature and become due and payable on the date that is 30 months from the issue date, subject to earlier conversion or repayment. The principal amount owing under the convertible debentures will accrue interest from the issue date at rate of
On May 13, 2024, the Company granted
On June 7, 2024, the Company completed the acquisition of a
30
Item 19. Exhibits
*Previously filed
5
SIGNATURES
The Registrant hereby certifies that it meets all of the requirements for filing on Form 20-F/A and has duly caused and authorized the undersigned to sight this Transition Report on its behalf.
| C21 Investments Inc. | ||
| By: | /s/ Sonny Newman | |
| Name: | Sonny Newman | |
| Title: | President and Chief Executive Officer | |
Date: March 6, 2025
6