GRUSF 6-K
Grown Rogue International Inc. (GRUSF)
UNITEDSTATES
SECURITIESAND EXCHANGE COMMISSION
WASHINGTON,D.C. 20549
FORM6-K
REPORTOF FOREIGN PRIVATE ISSUER
PURSUANTTO RULE 13a-16 OR 15d-16 UNDER THE
THESECURITIES EXCHANGE ACT OF 1934
Date: March 7, 2024
Commission File No. 0-53646
GrownRogue International Inc. (formerly Novicius Corp.)
(Translation of Registrant’s name into English)
550 Airport Road
Medford, Oregon, United States 97504
(Address of principal executive office)
Indicate by check mark whether the registrant files or will file annual reports under cover of Form 20-F or Form 40-F.
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):
Yes ☐ No ☒
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):
Yes ☐ No ☒
TABLEOF CONTENTS
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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.
| Dated<br> March 11, 2024 | GROWN ROGUE INTERNATIONAL INC. | |
|---|---|---|
| (FORMERLY: <br> NOVICIUS CORP.) | ||
| By: | /s/<br> Obie Strickler | |
| Name: | Obie<br> Strickler | |
| Title: | President<br> & Chief Executive Officer |
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Exhibit 1
Goodness Growth Holdings and Grown Rogue International
Announce Strategic Advisory Agreement
– Goodness Growth engages Grown Rogue to prioritize improved quality and productivity of its cultivation operations –
– Agreement unites Grown Rogue’s cultivation expertise with Goodness Growth’s footprint and commitment to its customers for accessible, quality cannabis products –
MINNEAPOLIS, MN and MEDFORD, OR – May 25, 2023 – Goodness Growth Holdings, Inc. (“Goodness Growth”) (CSE: GDNS; OTCQX: GDNSF), and Grown Rogue International, Inc. (“Grown Rogue”) (CSE: GRIN; OTC: GRUSF) (collectively “The Parties” or “The Companies”), today announced that they have entered into a strategic agreement (the “Agreement”) whereby Grown Rogue will support Goodness Growth in the optimization of its cannabis flower products, with a particular focus on improving the quality and yield of top-grade “A” cannabis flower across its various operating markets, starting with Maryland and Minnesota.
Grown Rogue, based in Oregon, is a renowned craft cannabis operator with proven expertise growing, harvesting, processing, packaging and selling cannabis flower in the most competitive adult-use markets. The company has a relentless focus on driving quality and value through efficient standard operating procedures and superior genetics, which has resulted in Grown Rogue becoming the number one flower brand in Oregon and a top five indoor flower brand in Michigan. Goodness Growth is a Minneapolis-based operator whose medical expertise helped its team build a portfolio of merit-based medical license awards, which are all currently experiencing transitions to adult-use regulatory frameworks.
Interim Chief Executive Officer of Goodness Growth, Josh Rosen, said, “As we have recently discussed, cultivation improvements are an important focus for us this year. We’ve been impressed by the initial site visits and preliminary work that Grown Rogue’s team has already completed. We’re striving to put more passion into quality and efficiency so we can deliver affordable products that meet the demands of medical and adult-use markets and compete effectively with the illicit market. This strategic agreement aligns with that focus, and we’re optimistic that it will accelerate operational improvements that, most importantly, should both lower our cost of production and provide higher quality, a true win-win for our patients and customers.”
Obie Strickler, Chief Executive Officer of Grown Rogue, commented, “While this is a great strategic collaboration for Grown Rogue and Goodness Growth, we are especially excited for the many patients and customers in the markets that Goodness Growth serves. We have been actively looking to expand the reach of our craft-quality cannabis flower. This agreement enables us to help Goodness Growth delight customers and patients as we have been in Oregon and Michigan in exchange for a modest increase in our operating expenses and no increase in capital expenses. The incentive structure of the agreement, whereby Grown Rogue only benefits if Goodness Growth benefits as well, reflects my confidence in our operational ability to drive improved cultivation performance, and I am excited about this opportunity because we have one of the best operations teams in the country.”
Under the terms of the agreement, which expires on September 30, 2025, Goodness Growth will provide compensation to Grown Rogue for sustained consulting support, including input on systems and processes, and recommendations to improve Goodness Growth’s cultivation operations. Grown Rogue will be entitled to receive additional incentive compensation if its services result in improved cash flow performance as compared to Goodness Growth’s baseline expectations over the term of the agreement. Grown Rogue’s cooperation in the agreement will be on an exclusive basis to Goodness Growth within the markets in which Goodness Growth operates.
In addition, Goodness Growth will issue 10,000,000 warrants to purchase subordinate voting shares of Goodness Growth to Grown Rogue, with a strike price equal to a 25.0 percent premium to the 10-day volume weighted average price (“VWAP”) of Goodness Growth’s subordinate voting shares prior to the effective date of the agreement. Similarly, Grown Rogue will issue 8,500,000 warrants to purchase subordinate voting shares of Grown Rogue to Goodness Growth, with a strike price equal to a 25.0 percent premium to the 10-day VWAP of Grown Rogue’s subordinate voting shares prior to the effective date of the agreement. The warrants exchanged in the agreement will be issued with five year terms to exercise, shall not be registered with the United States Securities & Exchange Commission or qualified by any Canadian provincial securities commission, and shall not be assignable except as set forth in the warrant certificates. The parties intend to issue the warrants within 60 days. The aforementioned warrants and shares underlying such warrants will be subject to a four-month and one-day hold period under applicable Canadian securities laws.
About Goodness Growth Holdings, Inc.
Goodness Growth Holdings, Inc. (CSE: GDNS; OTCQX: GDNSF), is a cannabis company based in Minneapolis. The Company’s mission is to provide safe access, quality products and value to its customers while supporting its local communities through active participation and restorative justice programs. The Company is evolving with the industry and is in the midst of a transformation to being significantly more customer-centric across its operations, which include cultivation, manufacturing, wholesale and retail business lines. For more information about Goodness Growth Holdings, please visit www.goodnessgrowth.com.
About Grown Rogue International, Inc.
Grown Rogue International, Inc. (CSE: GRIN; OTC: GRUSF), is a craft cannabis company focused on delighting customers with premium flower and flower-derived products at fair prices. The Company’s roots are in Southern Oregon where it has demonstrated its capabilities in the highly competitive and discerning Oregon market and, more recently, successfully expanded its platform to Michigan. The Company combines its passion for product and value with a disciplined approach to growth, prioritizing profitability and return on capital. Its strategy is to pursue capital efficient methods to expand into new markets, bringing craft quality and value to more consumers. The Company also continues to make modest investments to improve its outdoor craft cultivation capabilities in preparation for eventual interstate commerce. For more information about Grown Rogue, please visit www.grownrogue.com.
Contact Information:
Goodness Growth Holdings, Inc.:
Amanda Hutcheson
Senior Manager, Communications
(919) 815-1476
Grown Rogue International, Inc.:
Investor Relations Desk
(458) 226-2100
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Forward-Looking Statement Disclosure
This press release contains “forward-looking information” within the meaning of applicable United States and Canadian securities legislation. To the extent any forward-looking information in this press release constitutes “financial outlooks” within the meaning of applicable United States or Canadian securities laws, such information is being provided as preliminary financial results and the reader is cautioned that this information may not be appropriate for any other purpose and the reader should not place undue reliance on such financial outlooks. Forward-looking information contained in this press release may be identified by the use of words such as “should,” “believe,” “could,” “looking forward,” “may,” “continue,” “expect,” “will,” “subject to,” and variations of such words and phrases, or any verbs in the future tense. These statements should not be read as guarantees of future performance or results. Forward-looking information includes both known and unknown risks, uncertainties, and other factors which may cause the actual results, performance, or achievements of Goodness Growth and Grown Rogue or their subsidiaries to be materially different from any future results, performance, or achievements expressed or implied by the forward-looking statements or information contained in this press release. Forward-looking information is based upon a number of estimates and assumptions of Goodness Growth’s and Grown Rogue’s management teams, believed but not certain to be reasonable, in light of management’s experience and perception of trends, current conditions, and expected developments, as well as other factors relevant in the circumstances, including assumptions in respect of current and future market conditions, the current and future regulatory environment, and the availability of licenses, approvals and permits.
Although Goodness Growth and Grown Rogue believe that the expectations and assumptions on which such forward-looking information is based are reasonable, undue reliance should not be placed on the forward-looking information because Goodness Growth and Grown Rogue can give no assurance that they will prove to be correct. Actual results and developments may differ materially from those contemplated by these statements. Forward-looking information is subject to a variety of risks and uncertainties that could cause actual events or results to differ materially from those projected in the forward-looking information. Such risks and uncertainties include, but are not limited to, risks related to the timing of adult-use legislation in markets where the Company currently operates; current and future market conditions, including the market price of the subordinate voting shares Goodness Growth and Grown Rogue; risks related to epidemics and pandemics, federal, state, local, and foreign government laws, rules, and regulations, including federal and state laws and regulations in the United States relating to cannabis operations in the United States and any changes to such laws or regulations; operational, regulatory and other risks; execution of business strategy; management of growth; difficulties inherent in forecasting future events; conflicts of interest; risks inherent in an agricultural business; risks inherent in a manufacturing business; liquidity risks and other risk factors set out in Goodness Growth and Grown Rogue’s Annual Reports for the year ended December 31, 2022, which are available, if applicable, on EDGAR with the U.S. Securities and Exchange Commission and filed with the Canadian securities regulators and available under the Goodness Growth’s and Grown Rogue’s company profiles on SEDAR at www.sedar.com.
The statements in this press release are made as of the date of this release. Except as required by law, Goodness Growth and Grown Rogue undertake no obligation to update any forward-looking statements or forward-looking information to reflect events or circumstances after the date of such statements.
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Exhibit 2
Form 51-102F3
Material Change Report
| Item 1 | Nameand Address of Company |
|---|
Grown Rogue International Inc. (the “Company” or “Grown Rogue”)
340 Richmond Street West
Toronto, Ontario
M5V 1X2
| Item 2 | Date of Material Change |
|---|
May 25, 2023
| Item 3 | News Release |
|---|
A joint news release was issued by the Company and Goodness Growth Holdings, Inc. (“Goodness Growth”) on May 25, 2023, through the facilities of GlobeNewswire and was subsequently filed on SEDAR.
| Item 4 | Summary of MaterialChange |
|---|
The Company announced that they have entered into a strategic agreement with Goodness Growth (the “Agreement”) effective on May 24, 2023 whereby the Company will support Goodness Growth in the optimization of its cannabis flower products, with a particular focus on improving the quality and yield of top-grade “A” cannabis flower across its various operating markets, starting with Maryland and Minnesota.
| Item 5.1 | Full Descriptionof Material Change |
|---|
Under the terms of the agreement, which expires on September 30, 2025, Goodness Growth will provide compensation to Grown Rogue for sustained consulting support, including input on systems and processes, and recommendations to improve Goodness Growth’s cultivation operations. Grown Rogue will be entitled to receive additional incentive compensation if its services result in improved cash flow performance as compared to Goodness Growth’s baseline expectations over the term of the Agreement. Grown Rogue’s cooperation in the Agreement will be on an exclusive basis to Goodness Growth within the markets in which Goodness Growth operates.
In addition, Goodness Growth will issue 10,000,000 warrants to purchase 10,000,000 subordinate voting shares of Goodness Growth to Grown Rogue, with a strike price equal to $0.317 (US$0.233), being a 25.0 percent premium to the 10-day volume weighted average price (“VWAP”) of Goodness Growth’s subordinate voting shares prior to the effective date of the Agreement. Similarly, Grown Rogue will issue 8,500,000 warrants to purchase 8,500,000 common shares of Grown Rogue to Goodness Growth, with a strike price equal to $0.225 (US$0.166), being a 25.0 percent premium to the 10-day VWAP of Grown Rogue’s common shares prior to the effective date of the Agreement. The warrants exchanged under the terms of the Agreement will be issued with five year terms to exercise, shall not be registered with the United States Securities & Exchange Commission or qualified by any Canadian provincial securities commission, and shall not be assignable except as set forth in the warrant certificates. The parties intend to issue the warrants by the end of July 2023. The aforementioned warrants and shares underlying such warrants will be subject to a four-month and one-day hold period under applicable Canadian securities laws.
| Item 6 | Reliance on Subsection 7.1(2) of NationalInstrument 51-102 |
|---|
Not applicable.
| Item 7 | Omitted Information |
|---|
Not applicable.
| Item 8 | Executive Officer |
|---|
J. Obie Strickler
President and Chief Executive Officer
Tel: (503) 765-8108
| Item 9 | Date of Report |
|---|
June 2, 2023.
Forward Looking Information
This Material Change Report contains “forward-looking information” within the meaning of applicable United States and Canadian securities legislation. To the extent any forward-looking information in this report constitutes “financial outlooks” within the meaning of applicable United States or Canadian securities laws, such information is being provided as preliminary financial results and the reader is cautioned that this information may not be appropriate for any other purpose and the reader should not place undue reliance on such financial outlooks. Forward-looking information contained in this report may be identified by the use of words such as “should,” “believe,” “could,” “looking forward,” “may,” “continue,” “expect,” “will,” “subject to,” and variations of such words and phrases, or any verbs in the future tense. These statements should not be read as guarantees of future performance or results. Forward-looking information includes both known and unknown risks, uncertainties, and other factors which may cause the actual results, performance, or achievements of Goodness Growth and Grown Rogue or their subsidiaries to be materially different from any future results, performance, or achievements expressed or implied by the forward-looking statements or information contained in this report. Forward-looking information is based upon a number of estimates and assumptions of Goodness Growth’s and Grown Rogue’s management teams, believed but not certain to be reasonable, in light of management’s experience and perception of trends, current conditions, and expected developments, as well as other factors relevant in the circumstances, including assumptions in respect of current and future market conditions, the current and future regulatory environment, and the availability of licenses, approvals and permits.
Although Goodness Growth and Grown Rogue believe that the expectations and assumptions on which such forward-looking information is based are reasonable, undue reliance should not be placed on the forward-looking information because Goodness Growth and Grown Rogue can give no assurance that they will prove to be correct. Actual results and developments may differ materially from those contemplated by these statements. Forward-looking information is subject to a variety of risks and uncertainties that could cause actual events or results to differ materially from those projected in the forward-looking information. Such risks and uncertainties include, but are not limited to, risks related to the timing of adult-use legislation in markets where the Company currently operates; current and future market conditions, including the market price of the shares of Goodness Growth and Grown Rogue; risks related to epidemics and pandemics, federal, state, local, and foreign government laws, rules, and regulations, including federal and state laws and regulations in the United States relating to cannabis operations in the United States and any changes to such laws or regulations; operational, regulatory and other risks; execution of business strategy; management of growth; difficulties inherent in forecasting future events; conflicts of interest; risks inherent in an agricultural business; risks inherent in a manufacturing business; liquidity risks and other risk factors set out in Goodness Growth and Grown Rogue’s Annual Reports for the year ended December 31, 2022 and October 31, 2022, respectively, which are available, if applicable, on EDGAR with the U.S. Securities and Exchange Commission and filed with the Canadian securities regulators and available under the Goodness Growth’s and Grown Rogue’s company profiles on SEDAR at www.sedar.com.
The statements in this report are made as of the date of this report. Except as required by law, Goodness Growth and Grown Rogue undertake no obligation to update any forward-looking statements or forward-looking information to reflect events or circumstances after the date of such statements.
Exhibit 3
CONSULTING AGREEMENT
This Consulting Agreement (“Agreement”) dated as of the 24th day of May, 2023 (the “Effective Date”), is between Goodness Growth Holdings, Inc., a British Columbia corporation having an address of 207 S. Ninth Street, Minneapolis, MN (the “Company”) and Grown Rogue Unlimited, LLC, an Oregon limited liability company having an address of 550 Airport Road, Medford, OR 97501 (“Consultant”) (Company and Consultant are referred to herein individually as the “Party” or collectively as the “Parties”).
Recitals
WHEREAS, Company owns vertically-integrated, state-licensed cultivator, processor, and retail assets producing and selling commercialized cannabis products in the states of Maryland and Minnesota (the “Initial Markets”);
WHEREAS, Consultant has experience and competency in growing, harvesting, post-harvest processing, packaging and selling cannabis products, as well as driving continuous improvements in cannabis flower production, with an emphasis on quality through genetics and best practices;
WHEREAS, Company desires to obtain Consultant’s assistance in commercializing Company’s products in its Initial Markets; and
WHEREAS, the Parties wish to set forth in writing the terms and conditions of this independent consultant engagement.
Agreement
NOW THEREFORE, in consideration of the promises contained in this Agreement, and intending to be legally bound, the Parties agree as follows:
1. Term and Termination.
A. Term. Company hereby engages Consultant in the capacity set forth in this Agreement, and Consultant hereby accepts this engagement, for a term beginning on the Effective Date and ending on June 30, 2025 (the “Initial Term”). Upon the expiration of the Initial Term, this Agreement shall automatically renew for an additional two (2) year term (the “Renewal Term”), unless and until Company provides notice of nonrenewal to Consultant in writing at least ninety (90) days before the end of the Initial Term, or unless and until earlier termination under this Agreement by either Company or Consultant pursuant to the terms of this Agreement. Upon the expiration of the Renewal Term, this Agreement shall automatically renew for a final two (2) year term (the “Final Term”, and together with the Initial Term and Renewal Term, the “Term”) unless and until Company provides notice of nonrenewal to Consultant in writing at least ninety (90) days before the end of the Renewal Term, or unless and until earlier termination under this Agreement by either Company or Consultant pursuant to the terms of this Agreement.
B. Termination by Company. This Agreement may be terminated by Company by providing written notice to Consultant:
| i. | If Consultant is in material breach of any representation, warranty, or covenant under<br> this Agreement and either the breach cannot be cured or, if the breach can be cured,<br> it is not cured by Consultant within a commercially reasonable period of time, in<br> no case exceeding sixty (60) days, following Consultant’s receipt of written notice of such breach from Company; |
|---|---|
| ii. | If, as a result of Consultant’s intentional, reckless or negligent action or failure to act, any of Company’s cannabis-related licenses in the Initial Markets are actually or reasonably likely<br> to be suspended, revoked, or terminated; |
| --- | --- |
| iii. | If, as a result of changes to federal, state or local law, rule or regulation, any<br> of Company’s cannabis related licenses in the Initial Markets are actually or reasonably likely<br> to be non-renewed, expired, or otherwise of no force or effect due to the existence<br> of either Party’s performance under this Agreement; provided, however, that, before exercising its<br> right of termination under this subsection (iii), Company shall use commercially reasonable<br> efforts to comply with any such changes to federal, state or local law, rule or regulation<br> in order to maintain its cannabis related licenses in full force and effect and in<br> good standing after giving effect to such changes in federal, state or local law,<br> rule or regulation; |
| --- | --- |
| iv. | If Company is acquired, sells all or substantially all of its assets, or is merged<br> into another entity and is not the surviving entity of such merger; |
| --- | --- |
| v. | If any of the following events occur (each such event shall be referred to as a “Company Insolvency Event”): (a) Company becomes insolvent or is generally unable to pay, or fails to pay, its debts including principal and/or interest due as those debts become due;,<br> (b) Company files, or has filed against it, a petition for voluntary or involuntary<br> bankruptcy or otherwise becomes subject, voluntarily or involuntarily, to any proceeding<br> under any domestic or foreign bankruptcy or insolvency Law, and such petition or proceeding is not dismissed within forty-five (45) days; or (c) Company applies for or has<br> appointed a receiver, trustee, custodian or similar agent appointed by order of any<br> court of competent jurisdiction to take charge of or sell any material portion of<br> its property or business, and such application or appointment is not withdrawn or<br> dismissed within forty-five (45) days; |
| --- | --- |
| vi. | For convenience, provided that such termination for convenience shall take effect<br> ninety (90) days after written notice by Company to Consultant; |
| --- | --- |
| vii. | If any of the following events occurs (each, a “Consultant Insolvency Event”): (a) Consultant becomes insolvent or generally unable to pay, or fails to pay,<br> its debts as they become due, (b) Consultant files, or has filed against it, a petition<br> for voluntary or involuntary bankruptcy or otherwise becomes subject, voluntarily<br> or involuntarily, to any proceeding under any domestic or foreign bankruptcy or insolvency<br> Law, and such petition or proceeding is not dismissed within one hundred twenty (120)<br> days, or (c) Consultant applies for or has appointed a receiver, trustee, custodian or similar<br> agent appointed by order of any court of competent jurisdiction to take charge of<br> or sell any material portion of its property or business, and such application or<br> appointment is not withdrawn or dismissed within one hundred twenty (120) days |
| --- | --- |
C. Termination by Consultant. This Agreement may be terminated by Consultant by providing written notice to Company:
| i. | If Company is in material breach of any representation, warranty, or covenant under<br> this Agreement (other than a breach covered by subsection (iv) below) and either the<br> breach cannot be cured or, if the breach can be cured, it is not cured by Company<br> within a commercially reasonable period of time, in no case exceeding ninety (90)<br> days, following Company’s receipt of written notice of such breach from Consultant, unless a Company Insolvency<br> Event shall have occurred; |
|---|---|
| ii. | If, as a result of Company’s intentional, reckless or negligent action or failure to act, any of Company’s cannabis-related licenses are actually or reasonably likely to be suspended, revoked,<br> or terminated, unless a Company Insolvency Event shall have occurred,; |
| --- | --- |
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| iii. | If, as a result of changes to federal, state or local law, rule or regulation, any<br> of Company’s cannabis related licenses are actually or reasonably likely to be non-renewed, expired,<br> or otherwise of no force or effect due to the existence of or either Party’s performance under this Agreement; |
|---|---|
| iv. | If Company shall fail to (a) pay any amount owed when due pursuant to Section 3 of this Agreement and such failure continues beyond thirty (30) days after Company’s receipt of written notice from Consultant, or (b) issue warrants when due pursuant<br> to Section 3 of this Agreement and such failure continues beyond sixty (60) days after Company’s receipt of written notice from Consultant, unless a Company Insolvency Event shall<br> have occurred; |
| --- | --- |
| v. | If a Consultant Insolvency Event shall have occurred; or |
| --- | --- |
| vi. | For convenience, provided that such termination for convenience shall take effect<br> ninety (90) days after written notice by Consultant to Company. |
| --- | --- |
D. Termination Fee. Provided no Company Insolvency Event or Consultant Insolvency Event shall have occurred, should this Agreement be terminated by Company pursuant to Section 1.B.(vi), or by Consultant during the same period, pursuant to Section 1.C(i), 1.C(ii), or 1.C(iv), Company shall pay Consultant a termination fee (the “Termination Fee”) as described in Exhibit A. If Company terminates this Agreement pursuant to Section 1.B.(iv), the Termination Fee shall be an amount equal to the greater of: (i) $5,000,000 and (ii) four (4) times the arithmetic mean of the quarterly fees paid pursuant to Section 3.A. of the Agreement, calculated by using the quarterly fees paid for the most recent two (2) calendar quarter period. From and after April 1, 2025, if Company owes a Termination Fee to Consultant pursuant to this Agreement, at Company’s election, up to fifty percent (50%) of the Termination Fee may be paid in the subordinate voting shares of Company’s capital stock, valuing the stock for such purpose at the greatest discount off of market price permitted under the circumstances, up to twenty percent (20%), by the Canadian Securities Exchange or any successor principal stock exchange on which Company’s subordinate voting shares are traded. For the avoidance of doubt, no Termination Fee shall be owed if a Company Insolvency Event shall have occurred.
E. Survival. In the event that this Agreement is terminated pursuant to the provisions of Sections 1.B. or 1.C., all obligations under Sections 6, 7, 8, 9, 10, 13, 16, 17, and 18 of this Agreement shall survive termination or expiration of this Agreement.
2. Services. During the Term, Consultant shall provide the services described in Exhibit B hereto to Company (the “Services”). Exhibit B may be amended from time to time during the Term by written consent of both Parties. To the extent of a conflict between the terms of this Agreement and Exhibit B, the terms of this Agreement shall supersede and be controlling. Such Services shall be performed at times and places as shall be mutually convenient for Company and Consultant, and Consultant shall exercise independent judgment as to the method for accomplishing the Services. The nature, extent, period of performance, and limitations of the Services provided will be mutually agreed to by Company and Consultant. Consultant shall: (i) devote whatever time, effort and resources may be necessary or required to provide Services hereunder in a professional manner; and (ii) at all times in the performance of the Services, comply with all applicable laws, codes and regulations and the reasonable and lawful instructions, standards of conduct, policies and procedures established and/or promulgated by Company, in written or electronic form, which may be amended from time to time upon written notice to Consultant. Company does not control the manner or means of Consultant’s transportation to any worksite. In performing the Services, Consultant shall: (i) hire, supervise, compensate and terminate its own employees; (ii) maintain all licenses and permits necessary to perform the Services; and (iii) perform the Services in a timely and professional manner.
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3. Compensation.
A. Fees. For the services described in Exhibit B, during the Term of this Agreement Company agrees to pay Consultant a sum equal to Twenty Per Cent (20%) (the “Base Fees”) of any increase (the “ANI Increase”) in Company’s quarterly adjusted net income from operations (the “ANI”) for the aggregate of Company’s Minnesota and Maryland operations over the Q4 (October 1 through December 31) 2022 ANI Baseline (as defined in Exhibit C) plus any annual increase in CPI-U (all items) for the period between June 1, 2023, and the date of calculation for such operations. Base Fees shall be calculated for each of Company’s fiscal quarters using ANI as described in, and calculated in accordance with, Exhibit C. If Company determines, acting reasonably and in good faith, that the quarterly ANI Increase for a given fiscal quarter is at least Fifty Per Cent (50%) attributable to Consultant’s services described in Exhibit B, Company shall pay Consultant an additional sum up to Seven and a Half Per Cent (7.5%) of ANI Increase (the “Additional Base Fees”). If Company determines, acting reasonably and in good faith, that the quarterly ANI Increase for a given fiscal quarter is at least Seventy-Five Per Cent (75%) attributable to Consultant’s services described in Exhibit B, Company shall pay Consultant an additional sum up to Seven and a Half Per Cent (7.5%) of ANI Increase (the “Final Additional Base Fees”). For the purposes of calculating Additional Base Fees and Final Additional Base Fees, Company shall provide Consultant with its determination of the ANI Increase attributable to Consultant’s services within thirty (30) days of the end of Company’s fiscal quarter (the “Fee Attribution Statement”) on a form mutually agreeable to both Parties. Consultant shall have ten (10) days to accept or dispute the Fee Attribution Statement or dispute Company’s calculation pursuant to Section 3.B. If Consultant does not respond to the Fee Attribution Statement within the ten (10) day period (the “Fee Attribution Statement Review Period”), Consultant shall forfeit any dispute rights and Company shall make any payment for Additional Base Fees and Final Additional Base Fees in accordance with its calculation set forth on the Fee Attribution Statement.
B. Fee Disputes. If Consultant disputes Company’s Fee Attribution Statement, the Parties acknowledge and agree that they will work in good faith to resolve the dispute. The Parties further acknowledge and agree that if they are not able to agree upon a Fee Attribution Statement within twenty (20) days following the expiration of the Fee Attribution Statement Review Period, the Parties will resolve the dispute by binding arbitration, using a single arbitrator acceptable to both Parties, and employing American Arbitration Association rules for commercial disputes. The Parties agree that the results of the arbitration will be final and binding on the Parties and may be entered in any court with jurisdiction thereof. Each Party shall pay Fifty Per Cent (50%) of the cost and expense of the arbitrator and arbitration process, excluding each Party’s legal fees and related costs, which each Party shall bear separately. Notwithstanding the existence of any dispute over Additional Base Fees and/or Final Base Fees, Company shall remit payment of the Base Fees in accordance with subsection 3.D.
C. Renewal Term and Final Term Base Fee Reductions. If Company pays Base Fees, Additional Base Fees, and Final Additional Base Fees in excess of Fifteen Million Dollars ($15,000,000.00) in the aggregate during the Initial Term and this Agreement renews for the Renewal Term, then the Base Fees payable to Consultant by Company shall be reduced to Fifteen Per Cent (15%) for the Renewal Term. In addition, if Company pays Base Fees, Additional Base Fees, and Final Additional Base Fees in excess of Twelve Million Dollars ($12,000,000.00) in the aggregate during the Renewal Term and this Agreement renews for the Final Term, then the Base Fees payable to Consultant by Company shall be further reduced to Ten Per Cent (10%) for the Final Term. A form 1099 shall be issued each calendar year for all payments made and other compensation given, if required by applicable law.
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D. Payment. Company shall pay Base Fees to Consultant for each of the fiscal quarters ending March 31, June 30, and September 30 within thirty (30) days after the end of each such quarter. Company shall pay Base Fees to Consultant for each fiscal quarter ending December 31 within sixty (60) days after Company’s fiscal quarter and year end. Company shall pay any Additional Base Fees and Final Additional Base Fees, if achieved, to Consultant within Fifteen (15) days after the determination of the final amount thereof pursuant to subsection 3.A. or 3.B. The Parties agree that, notwithstanding the Effective Date, the first Base Fee due to Consultant under this Agreement shall be based on the ANI Increase for the fiscal quarter beginning January 1, 2023, and ending March 31, 2023, as compensation for Services provided by Consultant to Company during such period under the terms of a Memorandum of Understanding between the Parties, which Base Fee Company shall pay to Consultant on or before July 1, 2023.
E. Annual Review of Payments. Concurrently with filing its annual audited financial statements on EDGAR and/or SEDAR for each fiscal year during the Term, Company shall deliver a copy of such audited financial statements to Consultant together with (i) Company’s calculation of ANI for each quarter during such prior fiscal year and the ANI for the fiscal year ended the prior December 31, in each case, in accordance with Exhibit C and based on such annual audited financial statements, and (ii) Company’s determination of any over- or under-payment of Base Fees, Additional Base Fees, and Final Additional Base Fees during the prior fiscal year based thereon (collectively, the “Annual True-Up Report”). Consultant shall have thirty (30) days after it receives the Annual True-Up Report to accept Company’s year-end reconciliation as set forth in such Annual True-Up Report or to give notice of a dispute of such year-end reconciliation pursuant to Section 3.B. If Company has, in the aggregate, overpaid Base Fees, Additional Base Fees, or Final Additional Base Fees to Consultant during the prior fiscal year, Company may offset the overpayment from the next payment(s) of Base Fees due to Consultant. If Consultant was underpaid by Company Base Fees, Additional Base Fees, or Final Additional Base Fees, in the aggregate for such fiscal year, Company shall pay Consultant the amount of the underpayment, without interest or penalty, pursuant to the terms of subsection 3.D.
F. Company Warrants. Upon the commencement date of the Initial Term of this Agreement, Company shall grant to Consultant Ten Million (10,000,000) warrants to purchase subordinate voting shares of Company with a strike price set at a Twenty-Five Per Cent (25%) premium of the 10-day volume weighted average price (“VWAP”) of Company’s subordinated voting shares prior to the Effective Date. Such warrants shall be issued to Consultant with a five (5) year term to exercise, shall not be registered with the United States Securities Exchange Commission or any Canadian provincial securities commission, and shall not be assignable except as set forth in the warrant certificate.
G. Consultant Warrants. Upon the commencement date of the Initial Term of this Agreement, Consultant shall cause its parent company, Grown Rogue International, Inc. (“GRIN”), to grant to Company Eight Million Five Hundred Thousand (8,500,000) warrants to purchase subordinate voting shares of GRIN with a strike price set at a Twenty-Five Per Cent (25%) premium of the 10-day VWAP of GRIN’s subordinated voting shares prior to the Effective Date. Such warrants shall be issued to Company with a five (5) year term to exercise, shall not be registered with the United States Securities Exchange Commission or any Canadian provincial securities commission, and shall not be assignable except as set forth in the warrant certificate.
4. Expenses. Company shall be solely responsible for paying all reasonable expenses incurred by Consultant in performing its obligations under this Agreement, including but not limited to travel, food, lodging, and other expenses.
5. Assignment. This is a contract for personal services by Consultant, and this Agreement may not be assigned to any Party without the prior written consent of Company.
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6. Independent Consultant. Consultant shall be for all purposes an independent contractor of Company and not, solely by reason of the existence of this Agreement, an employee, partner, or owner of Company and shall not participate in any employee benefit program of Company by reason of this Agreement. Except as required by law, Company shall not withhold any sums from the payments to be pursuant to Section 3 for Social Security, FICA, unemployment, employment, or other federal, state, or local tax liabilities or contributions, and all withholdings, liabilities, and contributions shall be solely the responsibility of Consultant. Neither Consultant nor its employees, nor employees of an entity for which Consultant serves as an employee, partner or other type of owner, shall be entitled to receive any benefits which employees of Company receive and shall not be entitled to receive from Company workers’ compensation, unemployment compensation, medical insurance, life insurance, paid vacations, paid holidays, pension, profit sharing, or Social Security on account of and work or Services provided to Company. Consultant shall be solely responsible for paying: (i) its employees, if any, and all taxes, FICA, workers’ compensation, unemployment compensation, medical insurance, life insurance, paid vacations, paid holidays, pension, profit sharing and other benefits for Consultant and its employees, servants and agents; and (ii) any employees of a business entity for whom Consultant serves as an employee, partner or other type of owner. Consultant will defend, indemnify, and hold harmless Company from any and all loss or liability, including attorney’s fees, arising from its failure to make these payments, withholdings, or benefits, if any. Consultant shall: (i) be totally and solely responsible for the timely reporting and payment of all income or other taxes and other governmental liabilities resulting from the performance of its Services hereunder, (ii) pay all self-employment and other taxes, including income taxes and estimates thereof, as shall be required by the Internal Revenue Code and the laws, rules, and regulations of any other government entity having jurisdiction over Consultant, and (iii) indemnify, defend and hold Company harmless for any tax or other liability arising from or related to Consultant’s failure to timely report and pay all income or other taxes or other governmental liabilities relating to compensation received from Company or otherwise relating to the Services.
7. Restrictive Covenants. As an inducement for each Party to enter into this Agreement, each Party covenants and agrees as follows:
A. Non-Solicitation. During the period commencing on the Effective Date and ending with the expiration of the Term or the earlier termination of this Agreement for any reason (“Restrictive Term”), neither Party (the “Restricted Party”) will, directly or indirectly, on Restricted Party’s behalf or on behalf of or in conjunction with any other Person:
| (i) | Solicit, attempt to solicit (whether or not said solicitation<br>is initiated by Restricted Party), induce, or attempt to induce the business of any person or entity who is a customer or who Restricted<br>Party knows or reasonably should know is a prospective customer of the other Party; |
|---|---|
| (ii) | Cause, induce, attempt to cause or induce, solicit, or attempt<br>to solicit (whether or not said solicitation is initiated by Restricted Party) any customer, supplier, subcontractor, tradesman, lessor,<br>licensor, licensee, employee, consultant or any other person or entity with a business relationship with the other Party to cease doing<br>business with the other Party, to deal with any competitor of the other Party or in any way interfere with any such person’s or<br>entities’ relationship with the other Party; or |
| --- | --- |
| (iii) | Recruit, solicit, hire, retain or attempt to recruit, solicit<br>(whether or not said solicitation is initiated by Restricted Party), hire or retain any employee or independent contractors of the other<br>Party or in any way interfere with the relationship between the other Party and any of its employees or independent contractors. The<br>Parties agree that, with respect to this subsection (iii) (and only this subsection (iii)), the Restrictive Term shall continue after<br>the expiration of the Term or earlier termination of this Agreement for a period of one (1) year; |
| --- | --- |
B. Extension of Term. In the event of a breach by Restricted Party of any covenant set forth in Sections 7.A of this Agreement, the Restrictive Term of such covenant will be extended by the period of the duration of such breach.
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C. Modification. The terms and conditions of this Agreement shall be enforced to the maximum extent allowed by law. Therefore, if a final, non-appealable judgment of a court or tribunal of competent jurisdiction (“Judicial Authority”) determines that any term or provision contained in Section 7.A is invalid or unenforceable, then the Parties agree that: (i) such provisions shall be rendered invalid, unenforceable, or void only to the extent that such final, non-appealable determination of such Judicial Authority finds such provision unreasonable or otherwise unenforceable with respect to Restricted Party, and (ii) the Judicial Authority making the determination of invalidity or unenforceability will have the power to reduce the scope, duration or geographic area, to delete specific words or phrases or to replace any invalid or unenforceable term or provision with a term or provision that is valid and enforceable and that comes closest to expressing the intention of the invalid or unenforceable term or provision. This Agreement will be deemed amended and enforceable within the jurisdiction of such Judicial Authority as so modified after the expiration of the time within which the judgment may be appealed and this Agreement shall remain in full force and effect, as originally drafted, in all other jurisdictions. This Section 7.C is reasonable and necessary to protect and preserve each Party’s legitimate business interests and to prevent any unfair advantage conferred on Restricted Party, or any of Restricted Party’s affiliates.
8. Confidential Information.
A. Defined. For the purposes of this Agreement, the term “Confidential Information” means all information in whatever form (whether oral, written, electronic, paper, or other medium), concerning a Party (the “Disclosing Party”), furnished by or on behalf of the Disclosing Party to the other Party (the “Receiving Party”), or learned by the Receiving Party as a result of the Services, at any time (whether before or after the date of this Agreement) and in each case, regardless of the manner in which the medium in or on which such information is furnished, stored or displayed, including without limitation: (i) the occurrence and subject matter of the Services; (ii) all information, products, plans, methods, ideas, intellectual property, trade secrets, compensation data, financial information, marketing strategies and information, programs and services, inventions, processes, designs, sketches, drawings, business opportunities, projections, developments, know-how, formulae, computer software and programs, (including all code) and intellectual property, prospects, pending projects and proposals, pricing information, technical data, customer and supplier lists, customer prospect lists, product and equipment designs or enhancements, concepts, inventions and ideas, and other developments and techniques, other trade secrets or confidential or proprietary information, whether patentable or copyrightable or not, and other information that is not generally known or readily ascertainable by other persons. Written information supplied to the Receiving Party may be marked “CONFIDENTIAL” when feasible, but the failure to so mark such information shall not be deemed a waiver by the Disclosing Party of confidentiality.
B. Exclusion. “Confidential Information” shall not include any information which: (i) was in the possession of the Receiving Party at the time it was first disclosed by or on behalf of the Disclosing Party; (ii) was in the public domain at the time it was disclosed to the Receiving Party; (iii) enters the public domain through sources independent of the Receiving Party and through no act or omission of the Receiving Party; (iv) was lawfully obtained by the Receiving Party from a third party not known by the Receiving Party to be under an obligation of confidentiality to Company; or (v) was independently developed by the Receiving Party with the use of or reference to the Confidential Information.
C**.** Use of Confidential Information**.** The Receiving Party agrees that Confidential Information shall be used solely for the purposes of performing its obligations under this Agreement (“Permitted Purposes”). The Receiving Party agrees: (i) not to disclose (or permit disclosure of) any Confidential Information (or any portion thereof) to any person or entity; (ii) not use the Confidential Information for its own purposes, or any other purposes other than Permitted Purposes; and (iii) to keep and shall cause its representatives and affiliates to keep all such Confidential Information confidential and shall exercise reasonable care to prevent disclosure of such Confidential Information to any third party, except as authorized in writing by the Disclosing Party. Internal dissemination of Confidential Information by the Receiving Party shall be limited to those representatives who are directly involved in the Services and whose duties justify their need to know such information, provided that the Receiving Party shall be liable for any breach of this Section 8 by its representatives and affiliates to which it discloses Confidential Information. The Receiving Party shall promptly notify the Disclosing Party in writing of any unauthorized use or disclosure of Confidential Information which may come to the Receiving Party’s attention.
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D. Ownership. The Receiving Party agrees that: (i) Confidential Information and all goodwill associated with or symbolized by such Confidential Information are and shall remain the sole property of the Disclosing Party; (ii) no action by the Disclosing Party shall be deemed to constitute or result in an assignment of any Confidential Information to the Receiving Party or the creation of any equitable or other interest herein or to grant the Receiving Party the right to use the Confidential Information except as contemplated herein; (iii) all legal rights in the Confidential Information, including the right to patent any technology arising therefrom, shall belong exclusively to the Disclosing Party; and (iv) this Agreement does not constitute a license of any Confidential Information.
E. Mandatory Disclosure**.** In the event the Receiving Party is legally compelled to disclose any Confidential Information, the Receiving Party shall, to the extent legally permitted, promptly give notice to the Disclosing Party so that the Disclosing Party may seek to quash such compulsion or to obtain an appropriate protective order. In the event the Disclosing Party does not (or seek to) quash such compulsion, and regardless of whether a protective order is obtained, the Receiving Party shall, without violating this Section 8, disclose only such limited portion of the Confidential Information as is required to avoid sanction by the court having jurisdiction of such matter.
F. Return of Documents / Cessation of Use. In the event the Agreement is terminated for any reason, or at any time within five (5) days following the Disclosing Party’s written request, the Receiving Party shall: (i) promptly return (or upon the Disclosing Party’s written direction, destroy) all documentation (whether original or copies whether electronic or other medium) and other materials (whether tangible or stored in any storage medium, and whether prepared by the Receiving Party or the Disclosing Party from information supplied by the Disclosing Party) containing any Confidential Information to the Receiving Party without retaining any copies thereof; and (ii) immediately cease any use of the Confidential Information.
9. Intellectual Property.
A. Definitions.
| (i) | “Intellectual Property” means,<br>collectively, Hard Intellectual Property and Soft Intellectual Property. |
|---|---|
| (ii) | “Hard Intellectual Property”<br>means any copyrights, patents and patent applications, trademarks, service marks, logos, trade dress, brands, product names, domain names,<br>formulas and recipes, and other similar intellectual property. |
| --- | --- |
| (ii) | “Soft Intellectual Property”<br>means any process, technique, system, method, algorithm, technology, and other similar trade secrets and know-how, but expressly excluding<br>any Hard Intellectual Property. |
| --- | --- |
B. Ownership.
| i. | Consultant Intellectual Property. Subject to Section C below, Consultant will own all Intellectual Property that (a) was in existence and owned by Consultant before the<br> Effective Date; or (b) was made or discovered by Consultant after the Effective Date,<br> other than in any Intellectual Property developed or created by Consultant specifically<br> for Company in connection with the Services. |
|---|---|
| ii. | Company Intellectual Property. Company will own all Intellectual Property that (a) was in existence and owned by Company before the Effective Date; (b) was made or discovered<br> by Company after the Effective Date; or (c) constitutes Intellectual Property and was<br> developed or created by Consultant specifically for Company in connection with the<br> Services. |
| --- | --- |
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C. Grant of Licenses.
| i. | Soft Intellectual Property License. Consultant hereby grants to Company a non-exclusive, royalty-free, irrevocable, perpetual, sub-licensable right and license to make or<br> cause to be made, use, and sell Consultant’s Soft Intellectual Property in connection with Company’s cannabis products in Company’s Initial Markets (the “Soft IP License”). |
|---|---|
| ii. | Hard Intellectual Property License. Consultant hereby grants to Company a right and license, during the Term of this Agreement and for the one-year period following the expiration<br> or earlier termination of this Agreement (such one-year period, the “Tail Period”) to make or cause to be made, use, and sell Consultant’s Hard Intellectual Property in connection with Company’s cannabis products in Company’s Initial Markets (the “Hard IP License”). |
| --- | --- |
| iii. | Exclusivity. The Hard IP License granted herein shall be (a) exclusive to Company in its Initial Markets during the Term of this Agreement, and (b) non-exclusive to Company,<br> including in its Initial Markets, during the Tail Period. For the avoidance of doubt,<br> the Hard IP License shall terminate automatically upon the expiration of the Tail<br> Period and from and after the expiration of the Tail Period Company shall cease using<br> any of the Hard Intellectual Property. |
| --- | --- |
| iv. | Royalty. During the Term of this Agreement, the Hard IP License shall be royalty-free at<br> no additional cost to Company. During the Tail Period, Company agrees to pay Consultant<br> a royalty fee for the Hard IP License at the rate of Five Per Cent (5%) of the net<br> selling price, as herein defined, of all products subject to the Hard IP License (the<br> “Royalty”). For the purposes of computing the Royalty, the net selling price shall be the<br> total of all gross sales amounts actually invoiced or shipped, reduced by any cash<br> discount actually granted to customers which are directly related to their respective<br> purchase of products subject to the Hard IP License from Company and separately billed<br> and itemized on the invoice to the customer and credits or refunds for returns actually<br> made. |
| --- | --- |
| v. | Payment and Reporting. Company agrees to make any Royalty payments to Consultant on a monthly basis to be paid by the fifteenth (15^th^) day of the immediately subsequent month. With each monthly Royalty payment, Company<br> will deliver to Consultant a report with the following information for the previous<br> month: (a) gross consideration received by Company for sales of products subject to<br> the Hard IP License during the month, (b) the calculation of the net selling price<br> for each sale of products, and (c) the calculation of the monthly Royalty payment due to Consultant. Consultant’s acceptance of or any report or Royalty payment will not in any manner preclude Consultant<br> from questioning the accuracy of any report or correctness of any payment at any time. |
| --- | --- |
10. Remedies. The Parties agree that their obligations in Sections 7, 8 and 9 of this Agreement are necessary and reasonable in order to protect each Party and its business. The Parties agrees that the remedy at law for any breach of the provisions of this Agreement will be adequate as defined by the Court.
11. Consideration. The consideration given to Consultant by Company shall be the fees and warrants paid to Consultant pursuant to Section 3 hereof.
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12. Notices. All notices and other communications shall be in writing and shall be deemed to have been duly given if delivered via: (i) personal delivery; (ii) expedited delivery service with proof of delivery; (iii) registered or certified United States mail, postage prepaid; or (iv) upon delivery by email, in each case, addressed to the appropriate Party as follows:
| To Company: | Vireo Health, Inc. | To Consultant: | Grown Rogue Unlimited, LLC |
|---|---|---|---|
| [REDACTED – Personal Information] | 550 Airport Road | ||
| Medford, OR 97501 | |||
| Attn: [REDACTED – Personal Information] | Attn: Obie Strickler | ||
| E-mail: [REDACTED – Personal Information] | E-mail: [email protected] |
or to any other address as the person to whom notice is to be given may have previously furnished to the other in writing as set forth above, provided that notice of an address change shall be deemed given only upon receipt.
13. Representations and Warranties.
A. Consultant’s Representations and Warranties. Consultant represents and warrants to Company that:
| i. | It is a limited liability company, duly organized and validly existing under the laws<br> of the State of Oregon; |
|---|---|
| ii. | It has the full right, power and authority to enter into this Agreement and to perform<br> its obligations hereunder; |
| --- | --- |
| iii. | The execution of this Agreement by its representative whose signature is set forth<br> at the end of this Agreement, and the delivery and performance of this Agreement by<br> Consultant, have been fully authorized by all necessary action on the part of Consultant; |
| --- | --- |
| iv. | It has duly executed and delivered this Agreement and this Agreement constitutes the<br> legally binding obligation of Consultant enforceable against Consultant in accordance<br> with its terms; |
| --- | --- |
| v. | Consultant’s performance of the Services will not involve the use or disclosure of any trade<br> secret information of any third party or the infringement of any intellectual property<br> ownership or rights of any third party; |
| --- | --- |
| vi. | The execution, delivery, and performance of this Agreement by Consultant will not<br> violate, conflict with, require consent under or result in any breach or default under<br> (a) any of Consultant’s organizational documents; (b) any applicable law; or (c) with or without notice<br> or lapse of time or both, the provisions of any material contract to which Consultant<br> is a party; |
| --- | --- |
| vii. | It has obtained all material licenses, authorizations, approvals, consents or permits<br> required by applicable laws to conduct its business generally and to exercise its<br> rights and perform its obligations under this Agreement; and |
| --- | --- |
| viii. | Consultant will perform the Services diligently and in accordance with accepted and<br> sound professional practices and procedures. |
| --- | --- |
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B. Company’s Representations and Warranties. Company represents and warrants to Consultant that:
| i. | It is a corporation, duly organized, validly existing and in good standing under the<br> laws of British Columbia; |
|---|---|
| ii. | It has the full right, power and authority to enter into this Agreement and to perform<br> its obligations hereunder; |
| --- | --- |
| iii. | The execution of this Agreement by its representative whose signature is set forth<br> at the end of this Agreement, and the delivery and performance of this Agreement by<br> Company, have been fully authorized by all necessary action on the part of Company; |
| --- | --- |
| iv. | It has duly executed and delivered this Agreement and this Agreement constitutes the<br> legally binding obligation of Company enforceable against Company in accordance with<br> its terms; |
| --- | --- |
| v. | The execution, delivery, and performance of this Agreement by Company will not violate,<br> conflict with, require consent under or result in any breach or default under (a)<br> any of Company’s organizational documents; (b) any applicable law; or (c) with or without notice<br> or lapse of time or both, the provisions of any material contract to which Company<br> is a party; and |
| --- | --- |
| vi. | It has obtained all material licenses, authorizations, approvals, consents or permits<br> required by applicable laws to conduct its business generally and to exercise its<br> rights and perform its obligations under this Agreement. |
| --- | --- |
14. Entire Agreement and Amendment. This Agreement: (i) constitutes the entire agreement between the Parties relating to the subject matter of this Agreement and supersedes all prior agreements or understandings between Consultant and Company or their agents; and (ii) may be changed or modified only by an agreement in writing signed by both Parties.
15. Severability. Each provision, section, sentence, clause, phrase, and word of this Agreement is intended to be severable. If any provision, section, sentence, clause, phrase, and word hereof is illegal or invalid for any reason whatsoever, such illegality or invalidity shall not affect the validity of the remainder of this Agreement, provided that: (i) each Party receives the substantial benefit of its bargain with respect to the transaction contemplated hereby; and (ii) the ineffectiveness of such provision would not result in such a material change as to cause completion of the transactions contemplated hereby to be unreasonable.
16. Indemnification.
A. Indemnification by Consultant. Consultant shall indemnify, defend, and hold Company, its officers, directors, and employees harmless from and against any and all liabilities, claims, demands, proceedings, obligations, assessments, losses, costs, damages, or expense, or any nature whatsoever, contingent or otherwise (including, without limitation, any and all judgments, degrees, equitable relief, extraordinary relief, settlements, awards, and reasonable attorneys’ fees and court costs, including arbitrators’ fees) that are incurred, sustained, suffered, or assessed against Company in a third party claim arising out of, relating to, or as a result of alleged or actual breach of this Agreement by Consultant or Consultant’s intentional misconduct or gross negligence.
B. Indemnification by Company. Company shall indemnify, defend and hold Consultant, its officers, directors, and employees harmless from and against any and all liabilities, claims, demands, proceedings, obligations, assessments, losses, costs, damages, or expense, of any nature whatsoever, contingent or otherwise (including, without limitation, any and all judgments, degrees, equitable relief, extraordinary relief, settlements, awards, and reasonable attorneys’ fees, and court costs, including arbitrators’ fees) that are incurred, sustained, suffered, or assessed against Consultant in a third party claim arising out of, relating to, or as a result of alleged or actual breach of this Agreement by Company or Company’s intentional misconduct or gross negligence.
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17. Remedies. In the event of any breach by Consultant or Company of any of the provisions of this Agreement, the other Party, in addition to any other rights, remedies or damages available at law or in equity, will be entitled to recover all costs and expenses, including without limitation reasonable attorneys’ fees, incurred by such Party, its successors and assigns as a consequence of any such breach. This Section 17 will survive the termination or expiration of this Agreement.
18. Set Off. Company shall have the absolute right to offset against any and all payments or consideration due Consultant under this Agreement for any damages to which Company is entitled due to Consultant’s breach of its representations, warranties and covenants as set forth in this Agreement provided that Company’s entitlement to such damages is agreed to by the Parties or such damages have been awarded to Company by a court or arbitrator of competent jurisdiction.
19. Exclusivity. The work performed for Company under this Agreement shall be performed by Consultant on an exclusive basis with respect to the Initial Markets. During the Term, Consultant shall not perform any services similar to the Services for any person or entity other than Company in any of the Initial Markets. Consultant shall be free to undertake additional activities for another party in locations outside of the Initial Markets, provided that such activities do not interfere with execution of the Services under this Agreement or otherwise violate this Agreement, including Sections 7, 8, and 9.
20. [Intentionally Omitted.]
21. Insurance. During the Term, Consultant will acquire and be responsible for maintaining appropriate insurance, including comprehensive automobile liability insurance in the amount of $1,000,000 and comprehensive general liability insurance, and all other insurance necessary or desirable for Consultant, its representatives and affiliates, and any employees including unemployment and worker’s compensation insurance, if required by applicable law. Prior to commencing the Services, Consultant shall provide certificates of insurance to Company as evidence of Consultant’s compliance with this Section 21 upon request.
22. General Terms.
A. Governing Law; Venue. The validity, construction and performance of this Agreement shall be governed by and construed in accordance with the law of the State of New York, U.S.A. applicable to contracts executed in and performed entirely within such state, without reference to any choice of law principals thereof, but the specific performance provisions and right a Party to seek injunctive relief for the other Party’s breach of the covenants contained herein may also be enforced in any other state or country or nation wherever such breach occurs, and in accordance with the laws of such other state, country or nation, to the extent necessary to secure enforcement in such other jurisdiction. Each Party: (i) agrees that all actions, claims or proceedings related to this Agreement shall be commenced and maintained exclusively in the Supreme Court of New York, Albany County, or the United States Federal Courts for the Northern District of New York; and (ii) irrevocably consents to submit to the personal jurisdiction and venue of such courts and waives, to the fullest extent permitted by law, any objection which it may now or hereafter have to the laying of venue in any such court or that any such proceeding which is brought in accordance with this Section has been brought in an inconvenient forum.
B. Waiver. The failure of either Party to insist upon strict compliance with any of the terms, covenants, or conditions hereof shall not be deemed a waiver of such term, covenant, or condition, nor shall any waiver or relinquishment of any right, power or privilege hereunder at any one or more times be deemed a waiver or relinquishment of such right, power or privilege at any other time or times.
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C. Counterparts. This Agreement may be executed in one or more counterparts, each of which will be deemed to be an original, but all of which, when taken together, will be deemed to constitute one and the same agreement.
D. Captions. The captions stated herein are for convenience only and are not intended to alter any of the provisions of this Agreement.
23. Representatives and Affiliates. Each Party agrees that any breach by any of the follow is a breach of such party: (i) any one or more of its principals, shareholders, owners, directors, officers, employees, financing sources, professional advisors (including financial advisors, accountants, and consultants) or agents (collectively the “Representatives”); and (ii) all of its affiliated companies, if any, and the successors and permitted assigns of any of such entities and the owners thereof (collectively, “Affiliates”) and Representatives of any Affiliates. Thus, when the term Party is used in this Agreement, that term shall be read and interpreted to include each Party and its Representatives and Affiliates. The benefits of this Agreement shall inure to the benefit of each Party and any other company directly or indirectly controlled by, or under direct or indirect common control with the Party.
[Signatures on Following Page]
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IN WITNESS WHEREOF, this Agreement has been duly executed by the Parties as of the Effective Date.
Company: GOODNESS GROWTH HOLDINGS, INC.
| Signature: | “Joshua Rosen” |
|---|---|
| Print Name: | Joshua Rosen |
| Title: | Interim Chief Executive Officer |
Consultant: GROWN ROGUE UNLIMITED, LLC
| Signature: | “Obie Strickler” |
|---|---|
| Print Name: | Obie Strickler |
| Title: | Manager |
(Signature Page to Consulting Agreement)
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EXHIBIT A
to
Independent Consultant Agreement
| Date Range of Effective Termination | Termination Fee |
|---|---|
| Any time during the Term | An<br> amount equal to the greater of: (i) $2,500,000 and (ii) four (4) times the arithmetic mean of the quarterly fees paid pursuant<br> to Section 3.A. of the Agreement, calculated by using the quarterly fees paid for the most recent two (2) calendar<br> quarter period |
A-1
EXHIBIT B
to
Independent Consultant Agreement
Consultant shall be responsible for directing and supervising cultivation and post-harvest practices for all flower and flower products (i.e., pre-rolls) from clone to package for the Company in the Initial Markets. This work shall include oversight and supervision of the following key tasks:
| ● | Genetic selection and planning; |
|---|---|
| ● | Crop scheduling and orchestration; |
| --- | --- |
| ● | Data collection and tracking of cultivation and post-harvest processes; |
| --- | --- |
| ● | Propagation; vegetative; and flowering plant management; |
| --- | --- |
| ● | Design and infrastructure improvements and upgrades; |
| --- | --- |
| ● | Development of standard operating procedures for all facets of cultivation and post-harvest; |
| --- | --- |
| ● | Training and staff development; |
| --- | --- |
| ● | Fertigation programs, schedules, and operations; |
| --- | --- |
| ● | Integrated pest management (IPM) programs, schedules, and operations; |
| --- | --- |
| ● | Plant health; |
| --- | --- |
| ● | Plant care including pruning, shaping, and defoliation; |
| --- | --- |
| ● | Plant harvesting, drying and curing; |
| --- | --- |
| ● | Bucking and trimming; |
| --- | --- |
| ● | Flower bucking and sorting; |
| --- | --- |
| ● | Flower and flower derived product creation (i.e., pre-rolls); |
| --- | --- |
| ● | Coordination with sales and laboratory staff on genetic selection, prioritization,<br> and end product distribution; |
| --- | --- |
| ● | Managing cost of goods sold for flower and flower related products; |
| --- | --- |
| ● | Develop plans and strategies for growing the business and achieving Company’s production and product margin goals; |
| --- | --- |
| ● | Managing budgets; |
| --- | --- |
| ● | Creating a culture of success and ongoing business and goal achievement; |
| --- | --- |
| ● | Collaborating with leadership on progress and Company goals for continued success;<br> and |
| --- | --- |
| ● | Other objectives that Consultant and Company mutually agree upon. |
| --- | --- |
B-1
EXHIBIT C
to
Independent Consultant Agreement
[REDACTED - CONFIDENTIAL]
C-1
Exhibit 4
GROWN ROGUEINTERNATIONAL INC.
Unaudited Condensed Interim Consolidated Financial Statements
For the Three and Six Months ended April 30, 2023, and 2022
Expressed in United States Dollars
NOTICE TO READER
The accompanying unaudited condensed consolidated interim financial statements have been prepared
by the Company’s management and the Company’s independent auditors have not performed a review
of these interim financial statements.
Table of Contents
| Consolidated Statements of Financial Position | 3 |
|---|---|
| Consolidated Statements of Comprehensive Income | 4 |
| Consolidated Statements of Changes in Equity | 5 |
| Consolidated Statements of Cash Flows | 6 |
Notes to the Consolidated Financial Statements
| 1. | Corporate Information and Defined Terms | 7 |
|---|---|---|
| 2. | Significant Accounting Policies and Judgments and Defined Terms | 9 |
| 3. | Biological Assets | 12 |
| 4. | Inventory | 12 |
| 5. | Business combinations | 13 |
| 6. | Other investments and purchase deposits | 13 |
| 7. | Leases | 14 |
| 8. | Property and Equipment | 14 |
| 9. | Intangible assets and goodwill | 15 |
| 10. | Long-term Debt | 15 |
| 11. | Convertible Debentures | 17 |
| 12. | Share Capital and Shares Issuable | 18 |
| 13. | Warrants | 19 |
| 14. | Stock Options | 20 |
| 15. | Changes in Non-Cash Working Capital | 21 |
| 16. | Supplemental Cash Flow Disclosure | 21 |
| 17. | Related Party Transactions | 21 |
| 18. | Financial Instruments | 23 |
| 19. | General and Administrative Expenses | 26 |
| 20. | Capital Disclosures | 26 |
| 21. | Segment Reporting | 27 |
| 22. | Non-controlling Interests | 28 |
| 23. | Subsequent events | 29 |
i
GrownRogue International Inc.
Condensed Interim Consolidated Statements of FinancialPosition
Unaudited - Expressed in United States Dollars
| April 30,<br>2023 | October 31,<br>2022 | |||
|---|---|---|---|---|
| ASSETS | ||||
| Current assets | ||||
| Cash and cash equivalents | ||||
| Accounts receivable (Note 18) | ||||
| Biological assets (Note 3) | ||||
| Inventory (Note 4) | ||||
| Prepaid expenses and other assets | ||||
| Total current assets | ||||
| Property and equipment (Note 8) | ||||
| Intangible assets and goodwill (Note 9) | ||||
| TOTAL ASSETS | ||||
| LIABILITIES | ||||
| Current liabilities | ||||
| Accounts payable and accrued liabilities | ||||
| Current portion of lease liabilities (Note 7) | ||||
| Current portion of long-term debt (Note 10) | ||||
| Current portion of convertible debentures (Note 11) | ||||
| Business acquisition consideration payable (Note 5) | ||||
| Unearned revenue | ||||
| Derivative liability (Note 11.1) | ||||
| Income tax | ||||
| Total current liabilities | ||||
| Lease liabilities (Note 7) | ||||
| Long-term debt (Note 10) | ||||
| Convertible debentures (Note 11) | ||||
| TOTAL LIABILITIES | ||||
| EQUITY | ||||
| Share capital (Note 12) | ||||
| Shares issuable (Note 12) | ||||
| Contributed surplus (Notes 13, 14) | ||||
| Accumulated other comprehensive loss | ) | ) | ||
| Accumulated deficit | ) | ) | ||
| Equity attributable to shareholders | ||||
| Non-controlling interests (Note 22) | ||||
| TOTAL EQUITY | ||||
| TOTAL LIABILITIES AND EQUITY |
All values are in US Dollars.
Going Concern (Note 2)
Approved on behalf of the Board of Directors:
| Signed “J. Obie Strickler”, Director | Signed<br>“Stephen Gledhill”, Director |
|---|
The accompanying notes form an integral part of these condensed interim consolidated financial statements.
Pg 3 of 29
GrownRogue International Inc.
Condensed Interim Consolidated Statements of ComprehensiveIncome
Unaudited - Expressed in United States Dollars
| Three months ended<br>April 30, | Six months ended <br>April 30, | |||||||
|---|---|---|---|---|---|---|---|---|
| 2023 | 2022 | 2023 | 2022 | |||||
| Revenue | ||||||||
| Product sales | ||||||||
| Service revenue | ||||||||
| Total revenue | ||||||||
| Cost of goods sold | ||||||||
| Cost of finished cannabis inventory sold | ) | ) | ) | ) | ||||
| Costs of service revenue | ) | ) | ||||||
| Gross profit, excluding fair value items | ||||||||
| Realized fair value amounts in inventory sold | ) | ) | ) | ) | ||||
| Unrealized fair value gain on growth of biological assets | ||||||||
| Gross profit | ||||||||
| Expenses | ||||||||
| Accretion expense | ||||||||
| Amortization of property and equipment | ||||||||
| General and administrative | ||||||||
| Share-based compensation | ||||||||
| Total expenses | ||||||||
| Income from operations | ||||||||
| Other income and (expense) | ||||||||
| Interest expense | ) | ) | ) | ) | ||||
| Other income (expense) | ) | ) | ||||||
| Unrealized loss on marketable securities | ) | ) | ||||||
| Unrealized loss on derivative liability | ) | ) | ||||||
| Loss on disposal of property and equipment | ) | ) | ||||||
| Gain from operations before taxes | ||||||||
| Income tax | ) | ) | ) | ) | ||||
| Net income | ||||||||
| Other comprehensive income (items<br> that may be subsequently reclassified to profit & loss) | ||||||||
| Currency translation loss | ) | ) | ) | ) | ||||
| Total comprehensive income | ||||||||
| Gain per share attributable to owners of the parent – basic and diluted | ||||||||
| Weighted average shares outstanding – basic | ||||||||
| Net income (loss) for the period attributable to: | ||||||||
| Non-controlling interest | ) | ) | ) | ) | ||||
| Shareholders | ||||||||
| Net income | ||||||||
| Comprehensive income (loss) for the period attributable to: | ||||||||
| Non-controlling interest | ) | ) | ) | ) | ||||
| Shareholders | ||||||||
| Total comprehensive income |
All values are in US Dollars.
The accompanying notes form an integral part of these condensed interim consolidated financial statements.
Pg 4 of 29
GrownRogue International Inc.
Condensed Interim Consolidated Statements of Changesin Equity
Unaudited - Expressed in United States Dollars
| Number<br> of<br> common<br> shares | Share<br>capital | Shares<br>issuable | Contributed<br>surplus | Currency<br> translation reserve | Accumulated<br>deficit | Non-<br> controlling interests | Total<br>equity | |||||||
|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
| **** | # | **** | **** | **** | **** | **** | ||||||||
| Balance<br> - October 31, 2022 | 170,632,611 | ) | ) | |||||||||||
| Issuance<br> of shares underlying shares issuable (Note 12.1) | 200,000 | ) | ||||||||||||
| Stock<br> option vesting expense | - | |||||||||||||
| Currency<br> translation adjustment | - | ) | ) | |||||||||||
| Exercise<br> of option to acquire 87% of Canopy membership units | ) | |||||||||||||
| Net<br> income (loss) | - | ) | ||||||||||||
| Balance<br> – April 30, 2023 | 170,832,611 | ) | ) |
All values are in US Dollars.
| Number<br> of<br> common<br> shares | Share<br> capital | Shares<br> issuable | Contributed<br> surplus | Currency<br> translation reserve | Accumulated<br> deficit | Non-<br> controlling interests | Total<br> equity | |||||||
|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
| **** | # | **** | **** | **** | **** | **** | ||||||||
| Balance<br> - October 31, 2021 | 156,936,876 | ) | ) | |||||||||||
| Shares<br> issued for employment, director, & consulting services (Note 12.2) | 529,335 | ) | ||||||||||||
| Private<br> placement of shares (Note 12.3) | 13,166,400 | |||||||||||||
| Stock option<br> vesting | - | |||||||||||||
| Currency<br> translation adjustment | - | ) | ) | |||||||||||
| Net<br> income | - | ) | ||||||||||||
| Balance<br> – April 30, 2022 | 170,632,611 | ) | ) |
All values are in US Dollars.
The accompanying notes form an integral part of these condensed interim consolidated financial statements.
Pg 5 of 29
GrownRogue International Inc.
Condensed Interim Consolidated Cash Flow Statements
Unaudited - Expressed in United States Dollars
| Six months ended<br>April 30, | ||||
|---|---|---|---|---|
| 2023 | 2022 | |||
| Operating activities | ||||
| Net income | ||||
| Adjustments for non-cash items in net income: | ||||
| Amortization of property and equipment | ||||
| Amortization of property and equipment included in costs of inventory sold | ||||
| Unrealized gain on changes in fair value of biological assets | ) | ) | ||
| Changes in fair value of inventory sold | ||||
| Share-based compensation | ||||
| Stock option expense | ||||
| Accretion expense | ||||
| Loss on disposal of property & equipment | ||||
| Unrealized loss on marketable securities | ||||
| Loss on fair value of derivative liability | ||||
| Effects of foreign exchange | ) | |||
| Changes in non-cash working capital (Note 15) | ) | ) | ||
| Net cash provided by operating activities | ||||
| Investing activities | ||||
| Purchase of property and equipment and intangibles | ) | ) | ||
| Payments of acquisition payable | ) | |||
| Net cash used in investing activities | ) | ) | ||
| Financing activities | ||||
| Proceeds from convertible debentures | ||||
| Proceeds from long-term debt | ||||
| Proceeds from private placement | ||||
| Repayment of long-term debt | ) | ) | ||
| Repayment of convertible debentures | ) | |||
| Payments of lease principal | ) | ) | ||
| Net cash provided by financing activities | ||||
| Change in cash | ||||
| Cash balance, beginning | ||||
| Cash balance, ending |
All values are in US Dollars.
Supplemental cash flow disclosures (Note 16)
The accompanying notes form an integral part of these condensed interim consolidated financial statements.
Pg 6 of 29
GrownRogue International Inc.
Notes to the Condensed Interim Consolidated FinancialStatements
For the Three and Six Months Ended April 30,2023, and 2022
Unaudited - Expressed in United States Dollars, unless otherwise indicated
| 1. | CORPORATE INFORMATION AND DEFINED TERMS |
|---|---|
| 1.1 | Corporate Information |
| --- | --- |
These unaudited condensed interim consolidated financial statements for the three and six months ended April 30, 2023, and 2022, include the accounts of Grown Rogue International Inc. and its subsidiaries. The registered office is located at 40 King St W Suite 5800, Toronto, ON M5H 3S1.
Grown Rogue International Inc.’s subsidiaries and ownership thereof are summarized in the table below.
| Company | Ownership | Defined Term |
|---|---|---|
| Grown Rogue International Inc. | 100% owner of GR Unlimited | The “Company” |
| Grown Rogue Unlimited, LLC | 100% by the Company | “GR Unlimited” |
| Grown Rogue Gardens, LLC | 100% by Grown Rogue Unlimited, LLC | “GR Gardens” |
| GRU Properties, LLC | 100% by Grown Rogue Unlimited, LLC | “GRU Properties” |
| GRIP, LLC | 100% by Grown Rogue Unlimited, LLC | “GRIP” |
| Grown Rogue Distribution, LLC | 100% by Grown Rogue Unlimited, LLC | “GR Distribution” |
| GR Michigan, LLC | 87% by Grown Rogue Unlimited, LLC | “GR Michigan” |
| Idalia, LLC | 60% by Grown Rogue Unlimited, LLC | “Idalia” |
| Canopy Management, LLC | 87% by Grown Rogue Unlimited, LLC | “Canopy” |
| Golden Harvests, LLC | 60% by Canopy Management, LLC | “Golden Harvests” |
The Company is primarily engaged in the business of growing and selling cannabis products. The primary cannabis product produced and sold is cannabis flower.
| 1.2 | Defined Terms | |
|---|---|---|
| Following are certain defined terms used herein: | ||
| Term | Defined Term | Reference |
| --- | --- | --- |
| General terms: | ||
| International Financial Reporting Standards | “IFRS” | |
| International Accounting Standards | “IAS” | |
| United States dollar | “U.S. dollar” | |
| Fair value less costs to sell | “FVLCTS” | |
| Terms related to the Company’s locations: | ||
| Outdoor grow property located in Trail, Oregon leased from CEO | “Trail” | |
| Outdoor post-harvest facility located in Medford, Oregon leased from CEO | “Lars” | |
| Terms related to officers and directors of the Company: | ||
| President & Chief Executive Officer | “CEO” | |
| Chief Financial Officer | “CFO” | |
| Senior Vice President of GR Unlimited | “SVP” | |
| Chief Operating Officer (position eliminated in December 2021) | “COO” |
Pg 7 of 29
GrownRogue International Inc.
Notes to the Condensed Interim Consolidated FinancialStatements
For the Three and Six Months Ended April 30,2023, and 2022
Unaudited - Expressed in United States Dollars, unless otherwise indicated
| Term | Defined Term | Reference |
|---|---|---|
| Terms related to transactions with High Street Capital Partners, LLC: | ||
| High Street Capital Partners, LLC | “HSCP” | Note 6.1 |
| Agreement of the Company to acquire substantially all of the assets of the growing and retail operations of HSCP | “HSCP Transaction” | Note 6.1 |
| Management Services Agreement with HSCP | “HSCP MSA” | Note 6.1 |
| Principal Payment of $500,000 due to HSCP on May 1, 2023 | “First Principal Payment” | Note 10.1 |
| Terms related to transactions with Plant-Based Investment Corp.: | ||
| Plant-Based Investment Corp., formerly related party | “PBIC” | |
| Unsecured promissory note agreement with PBIC of September 9, 2021 | “PBIC Note” | Note 10.2 |
| The Company’s sun-grown A-flower 2021 harvest, defined in the PBIC Note | “Harvest” | Note 10.2 |
| The Company’s former ownership of 2,362,204 shares of PBIC | “PBIC Shares” | Note 10.2 |
| 2766923 Ontario Inc., receiver of PBIC Shares from the Company as part of the settlement of the PBIC Note | “Creditor” | Note 10.2 |
| Terms related to Convertible Debentures issued in December 2022: | ||
| Convertible debentures with aggregate principal amount of $2,000,000 issued in December 2022 | “Convertible Debentures” | Note 11.1 |
| Purchasers of Convertible Debentures | “Purchasers” | Note 11.1 |
| 6,716,499 warrants issued to the Purchasers | “Warrants” | Note 11.1 |
| Terms related to December 2021 non-brokered private placement of common shares: | ||
| Non-brokered private placement of common shares (“Private Placement”)<br> for total gross proceeds of $1,300,000 | “Private Placement” | Note 12.3 |
| Terms related to March 2021 brokered private placement of special warrants: | ||
| Agent for March 2021 brokered private placement of special warrants | “Agent” | Note 13.1 |
| March 2021 brokered private placement of special warrants | “Offering” | |
| An aggregate of 1,127,758 broker warrants of the Company | “Broker Warrants” | Note 13.1 |
| Compensation options, resulting from exercise of Broker Warrants | “Compensation Options” | Note 13.1 |
| Warrants for consideration of advisory services issued to the Agent | “Advisory Warrants” | Note 13.1 |
| The Broker Warrants and Advisory Warrants referred to collectively | “Agent Warrants” | Note 13.1 |
| One unit of the Company resulting from exercise of a Compensation Option,<br> comprised of one common share and one common share purchase warrant | “Compensation Unit” | Note 13.1 |
| Warrant resulting from Compensation Option | “Compensation Warrant” | Note 13.1 |
Pg 8 of 29
GrownRogue International Inc.
Notes to the Condensed Interim Consolidated FinancialStatements
For the Three and Six Months Ended April 30,2023, and 2022
Unaudited - Expressed in United States Dollars, unless otherwise indicated
| Term | Defined Term | Reference |
|---|---|---|
| Terms related to consulting agreement with Goodness Growth | ||
| Goodness Growth Holdings, Inc. (CSE: GDNS; OTCQX: GDNSF) | “Goodness Growth” | Note 23.1 |
| The consulting agreement under which the Company provides services to Goodness Growth | “Consulting Agreement” | Note 23.1 |
| Goodness Growth and the Company, collectively | “The Parties” | Note 23.1 |
| 2. | SIGNIFICANT ACCOUNTING POLICIES AND JUDGMENTS AND DEFINED TERMS | |
| --- | --- | |
| 2.1 | Statement of Compliance and Going Concern | |
| --- | --- |
The financial statements have been prepared in accordance with IAS 34 - Interim Financial Reporting, applicable to a going concern, which contemplates the realization of assets and liabilities in the normal course of business as they become due.
The Company’s ability to continue as a going concern is dependent upon, but not limited to, its ability to raise financing necessary to discharge its liabilities as they become due and generate positive cash flows from operations. Although during the six months ended April 30, 2023, the Company generated net income of approximately $1.0 million, it has historically incurred net losses, and as of that date, the Company’s accumulated deficit was approximately $19.1 million. These conditions have resulted in material uncertainties that may cast significant doubt about the Company’s ability to continue as a going concern. The ability of the Company to continue as a going concern and to meet its obligations will be dependent upon successful sales of product and generating positive cash flows from operations as well as obtaining suitable financing. The accompanying financial statements do not reflect any adjustment that might result from the outcome of this uncertainty. If the going concern assumption is not used, then the adjustments required to report the Company’s assets and liabilities at liquidation values could be material to these financial statements.
These financial statements do not include all disclosures required by IFRS for annual audited consolidated financial statements and accordingly should be read in conjunction with our annual consolidated financial statements for the year ended October 31, 2022. These unaudited condensed interim financial statements were authorized for issuance by the Board of Directors on June 19, 2023.
| 2.2 | Basis of Consolidation |
|---|
The subsidiaries are those companies controlled by the Company, as the Company is exposed, or has rights, to variable returns from its involvement with the subsidiaries and has the ability to affect those returns through its power over the subsidiaries by way of its ownership and rights pertaining to the subsidiaries. The financial statements of subsidiaries are included in these financial statements from the date that control commences until the date control ceases. All intercompany balances and transactions have been eliminated upon consolidation.
| 2.3 | Basis of Measurement |
|---|
These financial statements have been prepared on a historical cost basis except for certain financial instruments and biological assets, which are measured at fair value, as described herein.
Pg 9 of 29
GrownRogue International Inc.
Notes to the Condensed Interim Consolidated FinancialStatements
For the Three and Six Months Ended April 30,2023, and 2022
Unaudited - Expressed in United States Dollars, unless otherwise indicated
| 2.4 | Functional and Presentation Currency |
|---|
The Company’s functional currency is the Canadian dollar, and the functional currency of its subsidiaries is the United States dollar. These financial statements are presented in U.S. dollars.
Transactions denominated in foreign currencies are initially recorded in the functional currency using exchange rates in effect at the dates of the transactions. Monetary assets and liabilities denominated in foreign currencies are translated into the functional currency using exchange rates prevailing at the end of the reporting period. All exchange gains and losses are included in the statements of loss and comprehensive loss.
For the purpose of presenting consolidated financial statements, the assets and liabilities of the Company are expressed in U.S. Dollars using exchange rates prevailing at the end of the reporting period. Income and expense items are translated at the average exchange rates for the period, unless exchange rates fluctuated significantly during that period, in which case the exchange rates at the dates of the transactions are used. Exchange differences arising, if any, are recognized in other comprehensive loss and reported as currency translation reserve in shareholders’ equity.
Foreign exchange gains or losses arising from a monetary item receivable from or payable to a foreign operation, the settlement of which is neither planned nor likely to occur in the foreseeable future and which, in substance, is considered to form part of the net investment in the foreign operation, are recognized in other comprehensive loss.
The preparation of these financial statements requires management to make judgments, estimates, and assumptions that affect the application of policies and reported amounts of assets, liabilities, and expenses. Areas that have the most significant effect on the amounts recognized in the financial statements are disclosed in Note 3 of the Company’s consolidated financial statements for the year ended October 31, 2022. The accounting policies applied in these financial statements are consistent with those used in the Company’s consolidated financial statements for the year ended October 31, 2022, except for the adoption of new accounting policies (Note 2.5).
| 2.5 | Adoption of New Accounting Pronouncements |
|---|
Amendments to IAS 41: Agriculture
As part of its 2018-2020 annual improvements to IFRS standards process, the IASB issued amendments to IAS 41. The amendment removes the requirement in paragraph 22 of IAS 41 for entities to exclude taxation cash flow when measuring the fair value of a biological asset using a present value technique. This will ensure consistency with the requirements in IFRS 13. The amendment is effective for annual reporting periods beginning on or after January 1, 2022. The Company adopted the Amendments to IAS 41 effective November 1, 2022, which did not have material impact to the Company’s financial statements.
Pg 10 of 29
GrownRogue International Inc.
Notes to the Condensed Interim Consolidated FinancialStatements
For the Three and Six Months Ended April 30,2023, and 2022
Unaudited - Expressed in United States Dollars, unless otherwise indicated
Amendments to IFRS 9: Financial Instruments
As part of its 2018-2020 annual improvements to IFRS standards process, the IASB issued amendments to IFRS 9. The amendment clarifies the fees that an entity includes when assessing whether the terms of a new or modified financial liability are substantially different from the terms of the original financial liability. These fees include only those paid or received between the borrower and the lender, including fees paid or received by either the borrower or lender on the other’s behalf. An entity applies the amendment to financial liabilities that are modified or exchanged on or after the beginning of the annual reporting period in which the entity first applies the amendment. The amendment is effective for annual reporting periods beginning on or after January 1, 2022 with earlier adoption permitted. The Company adopted the Amendments to IFRS 9 effective November 1, 2022, which did not have material impact to the Company’s financial statements.
Amendments to IAS 37: Onerous Contracts and the Cost of Fulfilling a Contract
The amendment specifies that the ‘cost of fulfilling’ a contract comprises the ‘costs that relate directly to the contract’. Costs that relate directly to a contract can either be incremental costs of fulfilling that contract or an allocation of other costs that relate directly to fulfilling contracts. The amendment is effective for annual periods beginning on or after January 1, 2022 with early application permitted. The Company adopted the Amendments to IAS 41 effective November 1, 2022, which did not have material impact to the Company’s financial statements.
| 2.6 | New Accounting Pronouncements |
|---|
Amendments to IAS 1: Classification of Liabilities as Current or Non-current
The amendment clarifies the requirements relating to determining if a liability should be presented as current or non-current in the statement of financial position. Under the new requirement, the assessment of whether a liability is presented as current or non-current is based on the contractual arrangements in place as at the reporting date and does not impact the amount or timing of recognition. The amendment applies retrospectively for annual reporting periods beginning on or after January 1, 2024. The Company is currently evaluating the potential impact of these amendments on the Company’s consolidated financial statements.
IFRS 17 – Insurance Contracts
IFRS 17 establishes the principles for the recognition, measurement, presentation and disclosure of insurance contracts within the scope of the standard. The objective of IFRS 17 is to ensure that an entity provides relevant information that faithfully represents those contracts. The standard is effective for annual periods beginning on or after January 1, 2023. The Company is currently evaluating the potential impact of this standard on the Company’s consolidated financial statements.
Pg 11 of 29
GrownRogue International Inc.
Notes to the Condensed Interim Consolidated FinancialStatements
For the Three and Six Months Ended April 30,2023, and 2022
Unaudited - Expressed in United States Dollars, unless otherwise indicated
| 3. | BIOLOGICAL ASSETS |
|---|
Biological assets consist of cannabis plants, which reflect measurement at FVLCTS. Changes in the carrying amounts of biological assets for the six months ended April 30, 2023, are as follows:
| April 30, 2023 | October 31, 2022 | |||
|---|---|---|---|---|
| **** | **** | **** | ||
| Beginning balance | ||||
| Increase in biological assets due to capitalized costs | ||||
| Change in FVLCTS due to biological transformation | ||||
| Transferred to inventory upon harvest | ) | ) | ||
| Ending balance |
All values are in US Dollars.
FVLCTS is determined using a model which estimates the expected harvest yield for plants currently being cultivated, and then adjusts that amount for the expected selling price and also for any additional costs to be incurred, such as post-harvest costs.
The following significant unobservable inputs, all of which are classified as level 3 on the fair value hierarchy, were used by management as part of this model:
| - | Expected costs required to grow the cannabis up to the point<br>of harvest | |||||||||
|---|---|---|---|---|---|---|---|---|---|---|
| - | Estimated selling price per pound | |||||||||
| --- | --- | |||||||||
| - | Expected yield from the cannabis plants | |||||||||
| --- | --- | |||||||||
| - | Estimated stage of growth – the Company applied a weighted<br>average number of days out of the approximately 62-day growing cycle that biological assets have reached as of the measurement date based<br>on historical evidence. The Company assigns fair value according to the stage of growth and estimated costs to complete cultivation. | |||||||||
| --- | --- | |||||||||
| Impact of 20% change | ||||||||||
| --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- |
| April 30,<br> 2023 | October 31,<br> 2022 | April 30,<br> 2023 | October 31,<br> 2022 | |||||||
| Estimated selling price per (pound) | $ | 845 | $ | 817 | $ | 309,863 | $ | 246,397 | ||
| Estimated stage of growth | 54 | % | 49 | % | $ | 244,904 | $ | 204,814 | ||
| Estimated flower yield per harvest (pound) | 3,413 | 2,638 | $ | 244,904 | $ | 204,814 | ||||
| 4. | INVENTORY | |||||||||
| --- | --- |
The Company’s inventory composition is as follows:
| April 30, 2023 | October 31, 2022 | |
|---|---|---|
| **** | ||
| Raw materials | ||
| Work in process | ||
| Finished goods | ||
| Ending balance |
All values are in US Dollars.
The cost of inventories, excluding changes in fair value, included as an expense and included in cost of goods sold for the six months ended April 30, 2023, was $5,101,838 (2022 - $3,864,473). The cost of inventories, excluding changes in fair value, included as an expense and included in cost of goods sold for the three months ended April 30, 2023, was $3,064,557 (2022 - $2,165,447).
Pg 12 of 29
GrownRogue International Inc.
Notes to the Condensed Interim Consolidated FinancialStatements
For the Three and Six Months Ended April 30,2023, and 2022
Unaudited - Expressed in United States Dollars, unless otherwise indicated
| 5. | BUSINESS COMBINATIONS |
|---|---|
| 5.1 | Golden Harvests |
| --- | --- |
On May 1, 2021, the Company acquired a controlling 60% interest in Golden Harvests for aggregate consideration of $1,007,719 comprised of 1,025,000 common shares of the Company with a fair value of $158,181 and cash payments of $849,536. Consideration remaining to be paid at the date of these financial statements included cash payments of $360,000. During the six months ended April 30, 2023, 200,000 common shares issuable since May 1, 2021, with an aggregate fair value of $35,806, were issued.
On December 1, 2021, the Company and the seller of the 60% controlling interest in Golden Harvests agreed to extend the due date of the cash portion of business acquisition consideration payable until December 31, 2024, in exchange for monthly payments at a rate of 18% per annum. The Company may pay all or part of the cash portion of the business acquisition consideration payable prior to December 31, 2024. The following table summarizes the movement in business acquisition consideration payable.
| Business acquisition consideration payable | ||
|---|---|---|
| Acquisition date fair value | ||
| Payments | ) | |
| Application of prepayments | ) | |
| Accretion | ||
| Balance – October 31, 2022 and April 30, 2023 |
All values are in US Dollars.
| 6. | OTHER INVESTMENTS AND PURCHASE DEPOSITS |
|---|---|
| 6.1 | Investment in assets sold by HSCP |
| --- | --- |
On February 5, 2021, the Company agreed to acquire substantially all of the assets of the growing and retail operations pursuant to the HSCP Transaction, for an aggregate total of $3,000,000 in consideration, payable in a series of tranches, subject to receipt of all necessary regulatory and other approvals. A payment of $250,000 was to be due at closing and the payment of the remaining purchase price was to depend on the timing of the closing. If the closing were to take place before the 12-month anniversary date of the February 5, 2021, effective date, the remaining balance of $2,000,000 would be paid by a promissory note payable. If the closing were to take place after the 12-month anniversary date but before the 18-month anniversary date, the remaining balance would be paid $750,000 in cash and $1,250,000 by a promissory note payable. If the closing were to take place later than the 18-month anniversary date, the remaining $2,000,000 would be paid in cash. The Company also executed the HSCP MSA, a management services agreement, pursuant to which the Company agreed to pay $21,500 per month as consideration for services rendered thereunder, until the completion of the HSCP Transaction. In accordance with the MSA, the Company owned all production from the growing assets derived from the growing operations of HSCP, and the Company operated the growing facility of HSCP under the MSA until receipt of the necessary regulatory approvals relating to the acquisition by the Company of HSCP’s growing assets. The Company had no involvement with the retail operations contemplated in the agreement until the HSCP Transaction was completed.
Pg 13 of 29
GrownRogue International Inc.
Notes to the Condensed Interim Consolidated FinancialStatements
For the Three and Six Months Ended April 30,2023, and 2022
Unaudited - Expressed in United States Dollars, unless otherwise indicated
On April 14, 2022, the HSCP Transaction closed with modifications to the original terms: the retail purchase was mutually terminated, and total consideration for the acquisition was reduced to $2,000,000. Upon closing, the Company had paid $750,000 towards the acquisition, and owed a promissory note payable with a principal sum of $1,250,000, of which $500,000 was on August 1, 2022, and $750,000 was on May 1, 2023. The agreement was amended August 1, 2022, as described at Note 10.1.
| 7. | LEASES |
|---|
The following is a continuity schedule of lease liabilities.
| April 30, 2023 | October 31, 2022 | |||
|---|---|---|---|---|
| Balance - beginning | ||||
| Additions | ||||
| Disposals | ||||
| Interest expense on lease liabilities | ||||
| Payments | ) | ) | ||
| Balance - ending | ||||
| Current portion | ||||
| Non-current portion |
All values are in US Dollars.
| 8. | PROPERTY AND EQUIPMENT | ||||||||
|---|---|---|---|---|---|---|---|---|---|
| Computer and Office Equipment | Production Equipment and Other | Leasehold Improvements | Right-of- use Assets | Total | |||||
| --- | --- | --- | --- | --- | --- | --- | --- | --- | --- |
| **** | **** | **** | **** | ||||||
| COST | |||||||||
| Balance - October 31, 2021 | |||||||||
| Additions | |||||||||
| Disposals | ) | ) | ) | ||||||
| Balance - October 31, 2022 | |||||||||
| Additions | |||||||||
| Disposals | ) | ) | ) | ) | |||||
| Balance – April 30, 2023 | |||||||||
| ACCUMULATED AMORTIZATION | |||||||||
| Balance - October 31, 2021 | |||||||||
| Amortization for the period | |||||||||
| Disposals | ) | ) | ) | ||||||
| Balance - October 31, 2022 | |||||||||
| Amortization for the period | |||||||||
| Disposals | ) | ) | ) | ) | |||||
| Balance – April 30, 2023 | |||||||||
| NET BOOK VALUE | |||||||||
| Balance - October 31, 2022 | |||||||||
| Balance – April 30, 2023 |
All values are in US Dollars.
For the six months ended April 30, 2023, amortization capitalized was $985,799 (2022 - $467,385) and expensed amortization was $183,459 (2022 - $291,693).
Pg 14 of 29
GrownRogue International Inc.
Notes to the Condensed Interim Consolidated FinancialStatements
For the Three and Six Months Ended April 30,2023, and 2022
Unaudited - Expressed in United States Dollars, unless otherwise indicated
| 9. | INTANGIBLE ASSETS AND GOODWILL | |
|---|---|---|
| Indefinite lived intangible assets and goodwill | April 30,<br>2023 | October 31,<br>2022 |
| --- | --- | --- |
| Balance – beginning | ||
| Additions – grower licenses | ||
| Balance – ending |
All values are in US Dollars.
Additions during the year ended October 31, 2022, resulted from the HSCP Transaction (Note 6.1).
| 10. | LONG-TERM DEBT |
|---|
Transactions related to the Company’s long-term debt for the six months ended April 30, 2023, include the following:
| Note | |||||||||||||||||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
| Movement in long-term debt | 10.1 | **** | 10.2 | **** | 10.3 | **** | 10.4 | **** | 10.5 | **** | 10.6 | **** | 10.7 | **** | Total | **** | |||||||
| Balance - October 31, 2021 | - | 600,572 | 249,064 | 280,567 | 150,000 | 142,997 | 786,461 | ||||||||||||||||
| Additions to debt | 1,250,000 | 100,000 | - | - | - | - | - | ||||||||||||||||
| Settlement of debt | - | (706,352 | ) | - | - | - | - | - | ) | ||||||||||||||
| Interest accretion | - | 5,780 | 79,046 | 71,443 | - | 36,594 | 295,453 | ||||||||||||||||
| Debt payments | - | - | (25,000 | ) | (25,000 | ) | (150,000 | ) | (12,500 | ) | (520,303 | ) | ) | ||||||||||
| Balance - October 31, 2022 | 1,250,000 | - | 303,110 | 327,010 | - | 167,091 | 561,611 | ||||||||||||||||
| Interest accretion | - | - | 45,522 | 39,810 | - | 20,429 | 115,538 | ||||||||||||||||
| Debt payments | (250,000 | ) | - | (12,500 | ) | (12,500 | ) | - | (6,250 | ) | (333,463 | ) | ) | ||||||||||
| Balance – April 30, 2023 | 1,000,000 | - | 336,132 | 354,320 | - | 181,270 | 343,686 | ||||||||||||||||
| Current portion | 1,000,000 | - | 222,341 | 236,440 | - | 123,087 | 343,686 | ||||||||||||||||
| Non-current portion | - | - | 113,791 | 117,880 | - | 58,183 | - |
All values are in US Dollars.
| Note | |||||||||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
| Undiscounted<br> future payments at: | 10.1 | 10.2 | 10.3 | 10.4 | 10.5 | 10.6 | 10.7 | Total | |||||||
| October 31,<br> 2022 | 1,250,000 | - | 456,250 | 457,991 | - | 225,799 | 754,150 | ||||||||
| April 30,<br> 2023 | 1,000,000 | - | 443,750 | 445,491 | - | 219,549 | 420,687 | ||||||||
| Current<br> portion | 1,000,000 | 312,500 | 401,306 | 154,106 | 420,687 | ||||||||||
| Non-current portion | 131,250 | 44,185 | 65,443 |
All values are in US Dollars.
| 10.1 | 12.5% note payable owed by GR Distribution to HSCP with original principal amount of $1,250,000 |
|---|
On April 14, 2022, the Company purchased indoor growing assets from HSCP (Note 6.1). Purchase consideration included a secured promissory note payable with a principal sum of $1,250,000, of which $500,000 was due on August 1, 2022 and $750,000 was due on May 1, 2023, before amendment of the agreement, which is described below. Collateral for the secured promissory note payable is comprised of the assets purchased.
On August 1, 2022, the terms of the Secured Promissory Note between GR Distribution and HSCP, were amended. As amended, the Secured Promissory Note will be fully settled by two principal amounts of $500,000 (the First Principal Payment) and $750,000 due on May 1, 2023. Beginning on August 1, 2022, and continuing until repaid in full, the unpaid portion of the First Principal Amount will accrue simple interest at a
Pg 15 of 29
Grown Rogue International Inc.
Notes to the Condensed Interim Consolidated Financial Statements
For the Three and Six Months Ended April 30, 2023, and 2022
Unaudited - Expressed in United States Dollars, unless otherwise indicated
rate per annum of 12.5%, payable monthly. In the event the Company raises capital, principal payments shall be made as follows. If the capital raise is less than or equal to $2 million, then 25% of the capital raise shall be paid against the First Principal Payment; if the capital raise is greater than $2 million and less than or equal to $3 million, then $250,000 shall be paid against the First Principal Payment; and if the capital raise is greater than $3 million, then $500,000 shall be paid against the First Principal Payment. The Company paid $250,000 against the First Principal Payment during the six months ended April 30, 2023.
| 10.2 | 0% stated rate note payable to PBIC with original principal amount of $800,000 and Harvest-based payments (settled) |
|---|
On September 9, 2021, the Company entered into the PBIC Note, an unsecured promissory note agreement with PBIC, a formerly related party, in the amount of $800,000, which was to be fully advanced by September 30, 2021. During the year ended October 31, 2022, $100,000 was received (through October 31, 2021 - $600,000). The PBIC Note was to mature on December 15, 2022, with payments commencing January 15, 2022, and continuing through and including December 15, 2022. The terms required the Company to make certain participation payments to the lender based on a percentage monthly sales of cannabis flower sold from the Company’s Harvest (sun-grown A-flower 2021 harvest), less 15% of such amount to account for costs of sales. The percentage was determined by dividing 2,000 by the total volume of pounds of the Harvest, proportionate to principal proceeds. A portion of these payments were to be used to pay down the outstanding principal on a monthly basis. The PBIC Note would have automatically terminated when the full amount of any outstanding principal plus the applicable participation payments were paid prior to the maturity date. Should the participation payments have fully repaid the principal amount prior to the maturity date then the PBIC Note would have automatically terminated. The PBIC Note bore no stated rate of interest, and in the event of default, would have born interest at 15% per annum. The PBIC Note was reported at amortized cost using an effective interest rate of approximately 1.9%.
On June 20, 2022, the Company announced the settlement of the PBIC Note, which had a principal balance owing of $700,000. The Company agreed to transfer its PBIC Shares (the Company’s ownership of 2,362,204 common shares of PBIC), to the Creditor (2766923 Ontario Inc.), to which PBIC sold and assigned the PBIC Note. In exchange, the Creditor provided forgiveness and settlement of all amounts owing in connection with the PBIC Note. The Company reported a gain on debt settlement of $449,684 as a result of the settlement.
| 10.3 | 10% note payable owed by Golden Harvests with original principal amount of $250,000 |
|---|
On May 1, 2021, the Company assumed a note payable owed by Golden Harvests (Note 5) with a carrying value of $227,056. The note is for a principal amount of $250,000, interest paid monthly at 10% per annum, and a maturity date of January 14, 2024. After the maturity date, additional interest payments are due quarterly, at amounts that cause total interest paid over the life of the debt to equal $250,000. The note is reported at amortized cost using an effective interest rate of approximately 33%.
| 10.4 | 10% note payable owed by GR Distribution with original principal amount of $250,000 |
|---|
On January 27, 2021, debt was issued by GR Distribution with a principal amount of $250,000, interest paid monthly at 10% per annum, and a maturity date of January 27, 2024. After the maturity date, additional interest payments are due quarterly, at amounts that cause total interest paid over the life of the debt to equal $250,000. The note is reported at amortized cost using an effective interest rate of approximately 27%.
Pg 16 of 29
Grown Rogue International Inc.
Notes to the Condensed Interim Consolidated Financial Statements
For the Three and Six Months Ended April 30, 2023, and 2022
Unaudited - Expressed in United States Dollars, unless otherwise indicated
| 10.5 | 10% note payable owed by GR Gardens with original principal amount of $150,000 (settled) |
|---|
On December 2, 2020, debt was issued by GR Gardens with a principal amount of $150,000, interest accrued at 10% per annum, and a maturity date of December 31, 2021. Interest and principal are payable upon maturity. The maturity date was be extended by six-months for a fee of $1,000 per $10,000 of principal extended, which was $75,000.
| 10.6 | 10% note payable owed by GR Distribution with original principal amount of $125,000 |
|---|
On November 23, 2020, debt was issued by GR Distribution with a principal amount of $125,000, interest paid monthly at 10% per annum, and a maturity date of November 23, 2023. After the maturity date, additional interest payments are due quarterly, at amounts that cause total interest paid over the life of the debt to equal $125,000. The note is reported at amortized cost using an effective interest rate of approximately 27%.
| 10.7 | 0% stated rate note payable by Canopy with original principal amount of $600,000 and royalty payments to lenders |
|---|
On March 20, 2020, debt with a principal amount of $600,000 was received under a secured debt investment of $600,000). It carries a two-year term, with monthly payments of principal commencing June 15, 2020, and with payments calculated at 1% of cash sales receipts of Golden Harvests. Once the principal is repaid, each investor receives a monthly royalty of 1% per $100,000 invested of cash receipts for sales by Golden Harvests. The royalty commenced in December 2021, at which time principal was repaid, and is payable monthly a period of two years. The royalty maximum is two times the amount of principal invested, and the royalty minimum is equal to the principal loaned. The Company has the right, but not the obligation, to purchase terminate royalty payments from any lender by paying an amount equal to the original principal invested by such lender. The debt is reported at the carrying value of the probability-weighted estimated future cash flows of all payments under the agreement at amortized cost using the effective interest method, at an effective interest rate of approximately 73%. A portion of this debt is due to related parties (Note 17.4).
| 10.8 | Accrued interest payable |
|---|
Accrued interest payable on long-term debt at April 30, 2023 was $Nil (October 31, 2022 - $Nil).
| 11. | CONVERTIBLE DEBENTURES |
|---|
Transactions relating to the Company’s convertible debentures for the six months ended April 30, 2023, include the following:
| Movement<br> in convertible debentures | ||
|---|---|---|
| Balance<br> - October 31, 2022 | ||
| Additions<br> to debenture (Note 11.1) | ||
| Derivative<br> liability recognition | ) | |
| Interest<br> accretion | ||
| Payments | ) | |
| Balance – April 30, 2023 | ||
| Current<br> portion | ||
| Non-current<br> portion |
All values are in US Dollars.
Pg 17 of 29
Grown Rogue International Inc.
Notes to the Condensed Interim Consolidated Financial Statements
For the Three and Six Months Ended April 30, 2023, and 2022
Unaudited - Expressed in United States Dollars, unless otherwise indicated
| 11.1 | 9% convertible debentures with original principal amount of $2,000,000 |
|---|
On December 5, 2022, the Company announced the closing of a non-brokered private placement of Convertible Debentures with an aggregate principal amount of $2,000,000. The Convertible Debentures accrue interest at 9% per year, paid quarterly, and mature 36 months from the date of issue. The Convertible Debentures are convertible into common shares of the Company at a conversion price of CAD$0.20 per common share. Additionally, on closing, the Company issued to the Purchasers of the Convertible Debentures an aggregate of 6,716,499 Warrants, that represents 50% coverage of each Purchaser’s Convertible Debenture investment. The Warrants are exercisable for a period of three years from issuance into common shares at an exercise price of $0.25 CAD per common share. The Company has the right to accelerate the warrants if the closing share price of the common shares on the Canadian Securities Exchange is CAD$0.40 or higher for a period of 10 consecutive trading days. The Convertible Debentures and Warrants issued pursuant to the private placement (and the underlying common shares) were subject to a statutory hold period of four months and one day from the closing date.
The conversion feature of the Convertible Debentures gives rise to the derivative liability reported on the statement of financial position at April 30, 2023. The derivative liability is remeasured at fair value through profit and loss at each reporting period using the Black-Scholes pricing model. The fair value of the derivative liability at April 30, 2023, was estimated to be $992,560 (October 31, 2022 - $Nil) using the following assumptions:
| Expected<br> dividend yield | Nil |
|---|---|
| Risk-free<br> interest rate | 3.8% |
| Expected<br> life | 2.6<br> years |
| Expected<br> volatility | 99% |
| 12. | SHARECAPITAL AND SHARES ISSUABLE |
| --- | --- |
The Company is authorized to issue an unlimited number of common shares at no par value and an unlimited number of preferred shares issuable in series.
During the six months ended April 30, 2023, the following share transactions occurred:
| 12.1 | 200,000 common shares issued to settle shares issuable |
|---|
On January 10, 2023, the Company issued 200,000 common shares with an aggregate fair value of $35,806, which was reported as issuable as at October 31, 2022, which represented a portion of consideration for the acquisition of Golden Harvests (Note 5).
During the six months ended April 30, 2022, the following share transactions occurred:
| 12.2 | 529,335 common shares issued to employees, directors, and/or consultants |
|---|
The Company issued 529,335 common shares with a fair value of $59,796 for employment compensation, director services and consulting services.
Pg 18 of 29
Grown Rogue International Inc.
Notes to the Condensed Interim Consolidated Financial Statements
For the Three and Six Months Ended April 30, 2023, and 2022
Unaudited - Expressed in United States Dollars, unless otherwise indicated
| 12.3 | 13,166,400 common shares issued in Private Placement for proceeds of $1,300,000 |
|---|
On December 9, 2021, the Company closed the Private Placement, a non-brokered private placement of common shares, for total gross proceeds of $1,300,000 (CDN$1,645,800). The Private Placement resulted in the issuance of 13,166,400 common shares of Grown Rogue at a purchase price of CAD$0.125 per share. All common shares issued pursuant to the Private Placement were subject to a hold period of four months and one day. The CEO of Grown Rogue invested $300,000 in the Private Placement and received 3,038,400 common shares of the Company.
| 13. | WARRANTS |
|---|
The following table summarizes the warrant activities for the six months ended April 30, 2023:
| Number | Weighted<br> Average Exercise Price (CAD) | |||
|---|---|---|---|---|
| Balance<br> - October 31, 2021 | 56,919,787 | |||
| Expiration<br> of warrants pursuant to convertible debt deemed re-issuance | (8,409,091 | ) | ||
| Expiration<br> of warrants issued pursuant to private placement to CGOC | (15,000,000 | ) | ||
| Balance<br> – October 31, 2022 | 33,510,696 | |||
| Issuance<br> pursuant to private placement of convertible debentures (Note 11.1) | 6,716,499 | |||
| Expiration<br> of warrants pursuant to Feb 2021 subscriptions | (8,200,000 | ) | ||
| Expiration<br> of warrants pursuant to the Offering (Special warrant issue) | (23,162,579 | ) | ||
| Balance<br> – April 30, 2023 | 8,864,616 |
All values are in US Dollars.
As at April 30, 2023, the following warrants were issued and outstanding:
| Exercise<br> price (CAD) | Warrants<br> outstanding | Life<br> (years) | Expiry<br> date | ||
|---|---|---|---|---|---|
| 2,148,117 | 0.16 | June 28, 2023 | |||
| 6,716,499 | 2.59 | December 2, 2025 | |||
| 8,864,616 | 2.00 |
All values are in US Dollars.
| 13.1 | Agent Warrants |
|---|
On March 5, 2021, as consideration for the services rendered the Agent to the Offering (a brokered private placement of special warrants), the Company issued to the Agent an aggregate of 1,127,758 Broker Warrants of the Company exercisable to acquire 1,127,758 Compensation Options for no additional consideration. As consideration for certain advisory services provided in connection with the Offering, the Company issued to the Agent an aggregate of 113,500 Advisory Warrants exercisable to acquire 113,500 Compensation Options for no additional consideration. The Broker Warrants and Advisory Warrants are collectively referred to as the Agent Warrants.
Each Compensation Option entitled the holder thereof to purchase one Compensation Unit of the Company at the Issue Price of CAD$0.225 for a period of twenty-four (24) months. Each Compensation Unit was comprised of one common share and one Compensation Warrant. Each Compensation Warrant entitled the holder thereof to purchase one common share in the capital of the Company at a price of CAD$0.30 for twenty-four (24) months. The Agent Warrants expired on March 5, 2023.
Pg 19 of 29
Grown Rogue International Inc.
Notes to the Condensed Interim Consolidated Financial Statements
For the Three and Six Months Ended April 30, 2023, and 2022
Unaudited - Expressed in United States Dollars, unless otherwise indicated
| 14. | STOCKOPTIONS |
|---|
The following table summarizes the stock option movements for the six months ended April 30, 2023:
| Number | Exercise<br> price (CAD) | |||
|---|---|---|---|---|
| Balance<br> - October 31, 2021 | 5,765,000 | |||
| Granted<br> to employees | 605,000 | |||
| Forfeitures<br> by service provider | (500,000 | ) | ||
| Forfeitures<br> by employees | (960,000 | ) | ||
| Balance<br> – October 31, 2022 | 4,910,000 | |||
| Granted<br> to employees | 3,650,000 | |||
| Granted<br> to service providers | 2,750,000 | |||
| Expiration<br> of options to employees | (30,000 | ) | ||
| Expiration<br> of options to employees | (75,000 | ) | ||
| Balance<br> – April 30, 2023 | 11,205,000 |
All values are in US Dollars.
| 14.1 | Stock options granted |
|---|
During the six months ended April 30, 2023, 6,400,000 options were granted (2022 – 195,000) to employees.
The fair value of the options granted during the six months ended April 30, 2023, was approximately $422,835 (CAD$535,642) which was estimated at the grant dates based on the Black-Scholes pricing model, using the following assumptions:
| Expected<br> dividend yield | Nil% |
|---|---|
| Risk-free<br> interest rate | 3.89% |
| Expected<br> life | 4.0<br> years |
| Expected<br> volatility | 86% |
The vesting terms of options granted during the six months ended April 30, 2023, are set out in the table below:
| Number<br> granted | Vesting<br> terms | |
|---|---|---|
| 400,000 | Fully vested on grant date | |
| 6,000,000 | Vest on one year anniversary<br> of grant date | |
| 6,400,000 |
Pg 20 of 29
Grown Rogue International Inc.
Notes to the Condensed Interim Consolidated Financial Statements
For the Three and Six Months Ended April 30, 2023, and 2022
Unaudited - Expressed in United States Dollars, unless otherwise indicated
| 14.2 | Stock options issued and outstanding |
|---|
As at April 30, 2023, the following stock options were issued and outstanding:
| Exercise<br> price<br>(CAD) | Optionsoutstanding | Numberexercisable | Remaining<br> Contractual Life (years) | Expiry period | |||
|---|---|---|---|---|---|---|---|
| 1,970,000 | 1,827,500 | 1.2 | July 2024 | ||||
| 200,000 | 200,000 | 1.6 | November 2024 | ||||
| 1,000,000 | 850,000 | 2.0 | April 2025 | ||||
| 1,150,000 | 1,075,000 | 2.1 | May 2025 | ||||
| 85,000 | 75,000 | 2.5 | November 2025 | ||||
| 400,000 | 250,000 | 3.0 | April 2026 | ||||
| 6,400,000 | 400,000 | 3.7 | January 2027 | ||||
| 11,205,000 | 4,677,500 | 2.9 |
All values are in US Dollars.
| 15. | CHANGESIN NON-CASH WORKING CAPITAL |
|---|
The changes to the Company’s non-cash working capital for the six months ended April 30, 2023, and 2022 are as follows:
| Six<br> months ended April 30, | 2023 | 2022 | ||
|---|---|---|---|---|
| **** | **** | **** | ||
| Accounts<br> receivable | ) | ) | ||
| Inventory<br> & biological assets | ) | ) | ||
| Prepaid<br> expenses and other assets | ||||
| Accounts<br> payable and accrued liabilities | ) | ) | ||
| Interest<br> payable | ||||
| Income<br> tax payable | ||||
| Unearned<br> revenue | ) | |||
| Total | ) | ) |
All values are in US Dollars.
| 16. | SUPPLEMENTALCASH FLOW DISCLOSURE | |
|---|---|---|
| Six<br> months ended April 30, | 2023 | 2022 |
| --- | --- | --- |
| **** | ||
| Interest<br> paid | ||
| Fair<br> value of common shares issued & issuable for services | ||
| Right-of-use<br> assets acquired through leases (Note 7) | ||
| Note<br> payable to HSCP used to acquire assets (Note 6.1) |
All values are in US Dollars.
| 17. | RELATEDPARTY TRANSACTIONS |
|---|
During the six months ended April 30, 2023, the Company incurred the following related party transactions.
Pg 21 of 29
Grown Rogue International Inc.
Notes to the Condensed Interim Consolidated Financial Statements
For the Three and Six Months Ended April 30, 2023, and 2022
Unaudited - Expressed in United States Dollars, unless otherwise indicated
| 17.1 | Transactions with CEO |
|---|
Through its wholly owned subsidiary, GRU Properties, the Company leases Trail, owned by the Company’s President and CEO. The lease was extended during the year ended October 31, 2021, with a term through December 31, 2025. Lease charges of $36,000 were incurred for six months ended April 30, 2023 (2022 – 36,000). The lease liability balance for Trail at April 30, 2023, was $166,871 (October 31, 2022 - $193,312).
During the year ended October 31, 2021, the Company leased Lars, a facility which is beneficially owned by the CEO, and is located in Medford, Oregon with a term through June 30, 2026. Lease charges for Lars of $94,554 (2022 - $91,800) were incurred for the six months ended April 30, 2023. The lease liability for Lars at April 30, 2023, was $541,127 (October 31, 2022 - $607,900).
During the year ended October 31, 2021, the CEO leased equipment to the Company, which had a balance due of $Nil at April 30, 2023 (October 31, 2022 - $9,433). Lease payments of $9,433 were made against the equipment leases during the six months ended April 30, 2023 (2022 - $15,260).
Leases liabilities payable to the CEO were $707,998 in aggregate at April 30, 2023 (October 31, 2022 - $810,645).
The CEO earned a royalty of 2.5% of sales of flower produced at Trail through December 31, 2021, at which time the royalty terminated. The CEO earned royalties of $Nil during the six months ended April 30, 2023 (2022 - $305).
During the year ended October 31, 2022, the Company settled $62,900 in long-term liabilities due to the CEO as part of the CEO’s total $300,000 subscription to a non-brokered private placement of common shares (Note 12.3). During the year ended October 31, 2021, the Company settled $162,899 in long-term accrued liabilities due to the CEO by way of a payment of $62,899 and $100,000 attributed to the CEO’s subscription to a non-brokered private placement on February 5, 2021.
| 17.2 | Transactions with spouse of CEO |
|---|
During the six months ended April 30, 2023, the Company incurred expenses of $48,077 (2022 - $30,000) for services provided by the spouse of the CEO. At April 30, 2023, accounts and accrued liabilities payable to this individual were $1,923 (October 31, 2022 - $1,154). The spouse of the CEO was granted 500,000 options during the six months ended April 30, 2023.
| 17.3 | Transactions with key management personnel |
|---|
Key management personnel consists of the President and CEO; the CFO, the COO, and the SVP of the Company. The compensation to key management is presented in the following table:
| Six<br> months ended April 30, | 2023 | 2022 |
|---|---|---|
| **** | ||
| Salaries<br> and consulting fees | ||
| Share-based<br> compensation | ||
| Stock<br> option expense | ||
| Total |
All values are in US Dollars.
Pg 22 of 29
Grown Rogue International Inc.
Notes to the Condensed Interim Consolidated Financial Statements
For the Three and Six Months Ended April 30, 2023, and 2022
Unaudited - Expressed in United States Dollars, unless otherwise indicated
Stock options granted to key management personnel and close family members of key management personnel include the following. During the six months ended April 30, 2023, 1,500,000 options were granted to the CEO; 750,000 options were granted to the CFO; and 750,000 options were granted to the SVP. During the year ended October 31, 2022, no options were granted to key management personnel. During the year ended October 31, 2021: 500,000 options were granted to the COO, which expired following the COO’s resignation.
Compensation to directors during the six months ended April 30, 2023, was $9,000, (2022 – fees of $9,000 and common share issuances of 273,750 common shares with a fair value of $20,562).
Accounts payable, accrued liabilities, and lease liabilities due to key management at April 30, 2023, totaled $854,209 (October 31, 2022 - $947,233).
| 17.4 | Debt balances and movements with related parties |
|---|
The following table sets out portions of debt pertaining to related parties:
| CEO | SVP | Director | COO | Total | ||||||
|---|---|---|---|---|---|---|---|---|---|---|
| **** | **** | **** | **** | **** | **** | |||||
| Balance<br> - October 31, 2021 | ||||||||||
| Borrowed | ||||||||||
| Interest | ||||||||||
| Payments | ) | ) | ) | ) | ) | |||||
| Balance<br> - October 31, 2022 | ||||||||||
| Borrowed | ||||||||||
| Interest | ||||||||||
| Payments | ) | ) | ) | ) | ||||||
| Balance – April 30, 2023 |
All values are in US Dollars.
Pursuant to the loan and related agreements transacted during the year ended October 31, 2020, the CEO, SVP, and a director obtained 5.5%; 1%; and 2.5% of GR Michigan, respectively; third parties obtained 4% as part of the agreements, such that GR Michigan has a 13% non-controlling interest (Note 22.2). These parties, except the CEO, obtained the same interests in Canopy; the CEO obtained 92.5% of Canopy Management, of which 87% was acquired by the Company in January 2023 (Note 22.3); all payments necessary for the Company to exercise its option to acquire 87% of Canopy were equal to payments made by Canopy to purchase a controlling 60% interest of Golden Harvests.
| 18. | FINANCIAL INSTRUMENTS |
|---|---|
| 18.1 | Market Risk (including interest rate risk and currency risk) |
| --- | --- |
Market risk is the risk that the fair value or cash flows of a financial instrument will fluctuate due to changes in market prices. Market risk reflects interest rate risk, currency risk and other price risks.
| 18.1.1 | Interest Rate Risk |
|---|
At April 30, 2023, the Company’s exposure to interest rate risk relates to long-term debt and finance lease obligations; each of these items bears interest at a fixed rate.
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Grown Rogue International Inc.
Notes to the Condensed Interim Consolidated Financial Statements
For the Three and Six Months Ended April 30, 2023, and 2022
Unaudited - Expressed in United States Dollars, unless otherwise indicated
| 18.1.2 | Currency Risk |
|---|
As at April 30, 2023, the Company had accounts payable and accrued liabilities of CAD$350,668. The Company is exposed to the risk of fluctuation in the rate of exchange between the Canadian Dollar and the United States Dollar.
| 18.2 | Credit Risk |
|---|
Credit risk is the risk that one party to a financial instrument will cause a loss for the other party by failing to pay for its obligation.
Credit risk to the Company is derived from cash and trade accounts receivable. The Company places its cash in deposit with United States financial institutions. The Company has established a policy to mitigate the risk of loss related to granting customer credit by primarily selling on a cash-on-delivery basis.
Accounts receivable primarily consist of trade accounts receivable and sales tax receivable. The Company provides credit to certain customers in the normal course of business and has established credit evaluation and monitoring processes to mitigate credit risk. Credit risk is assessed on a case-by-case basis and a provision is recorded where required.
The carrying amount of cash, accounts receivable, and other receivables represent the Company’s maximum exposure to credit risk; the balances of these accounts are summarized in the following table:
| April 30,<br> 2023 | October 31,<br> 2022 | |
|---|---|---|
| **** | ||
| Cash | ||
| Accounts<br> Receivable | ||
| Total |
All values are in US Dollars.
The allowance for doubtful accounts at April 30, 2023, was $277,182 (October 31, 2022 - $264,719).
As at April 30, 2023 and October 31, 2022, the Company’s trade accounts receivable and other receivable were aged as follows:
| April 30,<br> 2023 | October 31,<br> 2022 | |||
|---|---|---|---|---|
| **** | **** | **** | ||
| Current | ||||
| 1-30<br> days | ||||
| 31<br> days-older | ||||
| Total<br> trade accounts receivable | ||||
| Other<br> receivables | ||||
| Provision<br> for bad debt | ) | ) | ||
| Total<br> accounts receivable |
All values are in US Dollars.
| 18.3 | Liquidity Risk |
|---|
Liquidity risk is the risk that an entity will have difficulties in paying its financial liabilities.
The Company’s approach to managing liquidity risk is to ensure that it will have sufficient liquidity to meet liabilities when they become due. At April 30, 2023, the Company’s working capital accounts were as follows:
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Grown Rogue International Inc.
Notes to the Condensed Interim Consolidated Financial Statements
For the Three and Six Months Ended April 30, 2023, and 2022
Unaudited - Expressed in United States Dollars, unless otherwise indicated
| **** | April 30,<br> 2023 | **** | October 31,<br> 2022 | **** |
|---|---|---|---|---|
| **** | **** | **** | ||
| Cash | ||||
| Current<br> assets excluding cash | ||||
| Total<br> current assets | ||||
| Current<br> liabilities | ) | ) | ||
| Working<br> capital |
All values are in US Dollars.
The contractual maturities of the Company’s liabilities occur over the next five years are as follows:
| **** | Year<br> 1 | Over<br> 1 Year <br>- 3 Years | Over<br> 3 Years<br>- 5 Years |
|---|---|---|---|
| **** | |||
| Accounts<br> payable and accrued liabilities | |||
| Lease<br> liabilities | |||
| Convertible<br> debentures | |||
| Debt | |||
| Business<br> acquisition consideration payable | |||
| Unearned<br> revenue | |||
| Derivative<br> liability | |||
| Income<br> tax | |||
| Total |
All values are in US Dollars.
| 18.4 | Fair Values |
|---|
The carrying amounts for the Company’s cash, accounts receivable, prepaid and other assets, accounts payable and accrued liabilities, current portions of debt and debentures payable, unearned revenue, and interest payable approximate their fair values because of the short-term nature of these items.
| 18.5 | Fair Value Hierarchy |
|---|
A number of the Company’s accounting policies and disclosures require the measurement of fair valued for both financial and nonfinancial assets and liabilities. The Company has an established framework, which includes team members who have overall responsibility for overseeing all significant fair value measurements, including Level 3 fair values. When measuring the fair value of an asset or liability, the Company uses observable market data as far as possible. The Company regularly assesses significant unobservable inputs and valuation adjustments. Fair values are categorized into different levels in a fair value hierarchy based on the inputs used in the valuation techniques as follows:
Level 1: unadjusted quoted prices in active markets for identical assets or liabilities;
Level 2: inputs other than quoted prices included in Level 1 that are observable for the asset or liability, either directly or indirectly; or
Level 3: inputs for the asset or liability that are not based on observable market data (unobservable inputs).
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Grown Rogue International Inc.
Notes to the Condensed Interim Consolidated Financial Statements
For the Three and Six Months Ended April 30, 2023, and 2022
Unaudited - Expressed in United States Dollars, unless otherwise indicated
The carrying values of the financial instruments at April 30, 2023, are summarized in the following table:
| Level<br> in fair<br> value hierarchy | Amortized<br> Cost | FVTPL | |
|---|---|---|---|
| **** | **** | ||
| Financial<br> Assets | |||
| Cash | Level 1 | ||
| Accounts<br> receivable | Level 2 | ||
| Financial<br> Liabilities | |||
| Accounts<br> payable and accrued liabilities | Level 2 | ||
| Debt | Level 2 | ||
| Convertible<br> debentures | Level 2 | ||
| Business<br> acquisition consideration payable | Level 2 | ||
| Derivative<br> liabilities | Level 2 |
All values are in US Dollars.
During the six months ended April 30, 2023, there were no transfers of amounts between levels.
| 19. | GENERALAND ADMINISTRATIVE EXPENSES |
|---|
General and administrative expenses for the three months ended April 30, 2023, and 2022 are as follows:
| Three<br> months ended<br><br> April 30, | Six<br> months ended<br><br> April 30, | |||||||
|---|---|---|---|---|---|---|---|---|
| 2023 | 2022 | 2023 | 2022 | |||||
| Office,<br> banking, travel, and overheads | $ | 456,846 | $ | 492,330 | $ | 967,081 | $ | 972,192 |
| Professional<br> services | 69,882 | 140,222 | 224,363 | 248,243 | ||||
| Salaries<br> and benefits | 880,793 | 836,981 | 1,751,319 | 1,853,024 | ||||
| Total | $ | 1,407,521 | $ | 1,469,533 | $ | 2,942,763 | $ | 3,073,459 |
| 20. | CAPITALDISCLOSURES | |||||||
| --- | --- |
The Company includes equity, comprised of share capital, contributed surplus (including the fair value of equity instruments to be issued), equity component of convertible promissory notes and deficit, in the definition of capital.
The Company’s objectives when managing capital are as follows:
| - | to<br>safeguard the Company’s assets and ensure the Company’s ability to continue as a going concern. |
|---|---|
| - | to<br>raise sufficient capital to finance the construction of its production facility and obtain license to produce recreational marijuana;<br>and |
| --- | --- |
| - | to<br>raise sufficient capital to meet its general and administrative expenditures. |
| --- | --- |
The Company manages its capital structure and makes adjustments to, based on the general economic conditions, the Company’s short-term working capital requirements, and its planned capital requirements and strategic growth initiatives.
The Company’s principal source of capital is from the issuance of common shares and debt. In order to achieve its objectives, the Company expects to spend its working capital, when applicable, and raise additional funds as required.
The Company does not have any externally imposed capital requirements.
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Grown Rogue International Inc.
Notes to the Condensed Interim Consolidated Financial Statements
For the Three and Six Months Ended April 30, 2023, and 2022
Unaudited - Expressed in United States Dollars, unless otherwise indicated
| 21. | SEGMENTREPORTING |
|---|
Geographical information relating to the Company’s activities is as follows:
| Segments | Oregon | Michigan | Services | Total |
|---|---|---|---|---|
| **** | ||||
| Non-current<br> assets other than financial instruments: | ||||
| As<br> at April 30, 2023 | ||||
| As<br> at October 31, 2022 | ||||
| Six<br> months ended April 30, 2023: | ||||
| Net<br> revenue | ||||
| Gross<br> profit (loss) | ||||
| Gross<br> profit (loss) before fair value adjustments | ||||
| Six<br> months ended April 30, 2022: | ||||
| Net<br> revenue | ||||
| Gross<br> profit (loss) | ||||
| Gross<br> profit (loss) before fair value adjustments | ||||
| Three<br> months ended April 30, 2023: | ||||
| Net<br> revenue | ||||
| Gross<br> profit (loss) | ||||
| Gross<br> profit (loss) before fair value adjustments | ||||
| Three<br> months ended April 30, 2022: | ||||
| Net<br> revenue | ||||
| Gross<br> profit (loss) | ||||
| Gross<br> profit (loss) before fair value adjustments |
All values are in US Dollars.
Major customers are defined as customers that each individually account for greater than 10% of the Company’s annual revenues. During the three months ended April 30, 2023, one major customer accounted for 11% of revenues (Q2 2022 – two major customers accounted for 29% of annual revenues). During the six months ended April 30, 2022, there were no major customers accounting for 10% of revenues (2022 – two major customers accounted for 24% of revenues).
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GrownRogue International Inc.
Notes to the Condensed Interim Consolidated Financial Statements
For the Three and Six Months Ended April 30, 2023, and 2022
Unaudited - Expressed in United States Dollars, unless otherwise indicated
| 22. | NON-CONTROLLINGINTERESTS |
|---|
The changes to the non-controlling interest for the six months ended April 30, 2023, and the year ended October 31, 2022 are as follows:
| April 30,<br> 2023 | October 31,<br> 2022 | |||
|---|---|---|---|---|
| **** | **** | **** | ||
| Balance,<br> beginning of period | ||||
| Non-controlling<br> interest’s 40% share of Idalia | ||||
| Non-controlling<br> interest’s 13% share of GR Michigan | ||||
| Non-controlling<br> interest’s 100% share of Canopy | ) | ) | ||
| Acquisition<br> of 87% of Canopy | ) | |||
| Balance,<br> end of period |
All values are in US Dollars.
| 22.1 | Non-controlling interest in Idalia |
|---|
The following is summarized financial information for Idalia:
| April 30,<br> 2023 | October 31,<br> 2022 | |
|---|---|---|
| **** | ||
| Net<br> loss for the period |
All values are in US Dollars.
| 22.2 | Non-controlling interest in GR Michigan: | |
|---|---|---|
| April 30,<br> 2023 | October 31,<br> 2022 | |
| --- | --- | --- |
| **** | ||
| Current<br> assets | ||
| Net<br> loss for the period |
All values are in US Dollars.
Nine percent (9%) of GR Michigan is owned by officers and directors of the Company; this ownership is pursuant to an agreement that included their loans made to GR Michigan (Note 17.4), and 4% of GR Michigan owned by a third party. The total non-controlling ownership, including ownership by officers and directors, is 13%.
| 22.3 | Non-controlling interest in Canopy | |||
|---|---|---|---|---|
| April 30,<br> 2023 | October 31,<br> 2022 | |||
| --- | --- | --- | --- | --- |
| **** | **** | **** | ||
| Current<br> assets | ||||
| Non-current<br> assets | ||||
| Current<br> liabilities | ||||
| Non-current<br> liabilities | ||||
| Net<br> loss for the period attributed to<br> non-controlling interest | ) | ) |
All values are in US Dollars.
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Grown Rogue International Inc.
Notes to the Condensed Interim Consolidated Financial Statements
For the Three and Six Months Ended April 30, 2023, and 2022
Unaudited - Expressed in United States Dollars, unless otherwise indicated
In January of 2023, GR Unlimited exercised its option to acquire 87% of the membership units of Canopy from the CEO. Prior to this, ninety-six percent (96%) of Canopy was owned by officers and directors of the Company, and four percent (4%) was owned by a third party. Ownership by officers and directors, excluding the CEO, was pursuant to agreements which caused their ownership of Canopy to be equal to their ownership in GR Michigan (Note 22.2), which total 3.5%. The CEO owned 92.5% of Canopy, which was analogous to the CEO’s 5.5% ownership of GR Michigan, and an additional 87% of Canopy, which was and is equal to the Company’s 87% ownership of GR Michigan. Following GR Unlimited’s acquisition of 87% of the membership units of Canopy in January of 2023, Canopy became owned 87% by GR Unlimited; 7.5% by officers and directors; and 5.5% by the CEO.
| 23. | SUBSEQUENT EVENTS |
|---|---|
| 23.1 | Consulting Agreement with Goodness Growth |
| --- | --- |
On May 25, 2023, the Company announced the Consulting Agreement with Goodness Growth, whereby the Company will support Goodness Growth in the optimization of its cannabis flower products, with a particular focus on improving the quality and yield of top-grade “A” cannabis flower across its various operating markets, starting with Maryland and Minnesota.
Under the terms of the Consulting Agreement, which expires on September 30, 2025, Goodness Growth will provide compensation to the Company for sustained consulting support, including input on systems and processes, and recommendations to improve Goodness Growth’s cultivation operations. The Company will be entitled to receive additional incentive compensation if its services result in improved cash flow performance as compared to Goodness Growth’s baseline expectations over the term of the agreement. The Company’s cooperation in the agreement will be on an exclusive basis to Goodness Growth within the markets in which Goodness Growth operates. The Consulting Agreement provides for services revenue earned by us to be calculated from January 2023, and the services revenues we reported for the three months ended April 30, 2023, reflect earnings calculated from the January 2023 through April 30, 2023, based upon work performed in anticipation of execution of the Consulting Agreement. We reported revenues of $271,140 and costs of revenues of $125,424 for the three months ended April 30, 2023, earned under the Consulting Agreement.
In addition, Goodness Growth will issue 10,000,000 warrants to purchase 10,000,000 subordinate voting shares of Goodness Growth to the Company, with a strike price equal to CAD$0.317 (US$0.233), being a 25.0 percent premium to the 10-day volume weighted average price (“VWAP”) of Goodness Growth’s subordinate voting shares prior to the effective date of the Consulting Agreement. Similarly, the Company will issue 8,500,000 warrants to purchase 8,500,000 common shares of the Company to Goodness Growth, with a strike price equal to CAD$0.225 (US$0.166), being a 25.0 percent premium to the 10-day VWAP of the Company’s common shares prior to the effective date of the Consulting Agreement. The warrants exchanged under the terms of the Consulting Agreement will be issued with five-year terms to exercise, shall not be registered with the United States Securities & Exchange Commission or qualified by any Canadian provincial securities commission, and shall not be assignable except as set forth in the warrant certificates. The Parties intend to issue the warrants by the end of July 2023. The aforementioned warrants and shares underlying such warrants will be subject to a four-month and one-day hold period under applicable Canadian securities laws.
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Exhibit 5
GROWN ROGUE INTERNATIONAL INC.
FORM 51-102F1
MANAGEMENT DISCUSSION & ANALYSIS
FOR THE THREE AND SIX MONTHS ENDED APRIL 30, 2023
TABLE OF CONTENTS
| Management’s Responsibilities for Financial Reporting | 3 |
|---|---|
| Forward-Looking Statements | 3 |
| Description of Business | 4 |
| Selected Annual Information | 9 |
| Results of Operations | 10 |
| Summary of Quarterly Results | 15 |
| Liquidity | 15 |
| Capital Resources | 18 |
| Off-Balance Sheet Arrangements | 19 |
| Transactions with Related Parties | 19 |
| Other Selected Financial Information | 22 |
| Outstanding Share Data | 23 |
| Critical Accounting Judgments and Estimation Uncertainties | 24 |
| Newly Adopted Accounting Pronouncements | 24 |
| Financial Instruments and Other Risk Factors | 25 |
| Subsequent events | 27 |
| Regulatory Disclosure | 27 |
| Internal Control over Financial Reporting and Disclosure Controls | 37 |
i
This Management Discussion and Analysis (“MD&A”) made as of June 19, 2023, should be read in conjunction with the unaudited condensed consolidated financial statements of Grown Rogue International Inc. (the “Company”, “Grown Rogue”, (“we”, “our”, or “us”) for the three and six months ended April 30, 2023, and 2022 (the “Reporting Period”), and the related notes thereto (the “Financial Statements”). The Company’s Financial Statements are presented on a consolidated basis with its wholly-owned subsidiaries: Grown Rogue Unlimited, LLC (“GR Unlimited”) and GR Unlimited’s wholly-owned subsidiaries Grown Rogue Gardens, LLC (“GR Gardens”) GRU Properties, LLC (“GRU Properties”), GRIP, LLC (“GRIP”), and Grown Rogue Distribution, LLC (“GR Distribution”); as well as GR Unlimited’s 87% interest in GR Michigan, LLC (“GR Michigan”), GR Unlimited’s 87% interest in Canopy Management, LLC (“Canopy”), which owns 60% of Golden Harvests, LLC (“Golden Harvests”), and GR Unlimited’s 60% interest in Idalia, LLC (“Idalia”). During the six months ended April 30, 2023, The Company announced that it had exercised its option to obtain 87% of the membership units of Canopy (through GR Unlimited). Grown Rogue’s reporting currency is the United States dollar and all amounts in this MD&A are expressed in United States dollars unless otherwise noted. The use of “CAD$” refers to Canadian dollars.
The three months ended April 30, 2023, and 2022 are referred to herein as “Q2 2023” and “Q2 2022” respectively.
The Company’s comparative information included in this MD&A has been prepared in accordance with International Financial Reporting Standards (“IFRS”).
Additional information relating to the Company is also available on the System for Electronic Document Analysis and Retrieval (SEDAR) at www.sedar.com. The common shares of GRIN are listed on the Canadian Securities Exchange under the symbol “GRIN”.
MANAGEMENT’S RESPONSIBILITIES FOR FINANCIAL REPORTING
The Financial Statements have been prepared by management in accordance with IFRS and have been approved by the Company’s board of directors (the “Board”). The integrity and objectivity of the Financial Statements are the responsibility of management. In addition, management is responsible for ensuring that the information contained in the MD&A is consistent where appropriate, with the information contained in the Financial Statements.
The Financial Statements may contain certain amounts based on estimates and judgments. Management has determined such amounts on a reasonable basis to ensure that the Financial Statements are presented fairly in all material respects.
As the Company is a Venture Issuer (as defined under under National Instrument 52-109 Certification of Disclosure in Issuers’ Annual and Interim Filings) (“NI 52-109”), the Company and Management are not required to include representations relating to the evaluation, design, establishment and/or maintenance of disclosure controls and procedures (“DC&P”) and/or Internal Controls over Financial Reporting (“ICFR”), as defined in NI 52 -109, nor has it completed such an evaluation. Inherent limitations on the ability of the certifying officers to design and implement on a cost-effective basis DC&P and ICFR for the issuer may result in additional risks of quality, reliability, transparency and timeliness of interim and annual filings and other reports provided under securities legislation.
FORWARD-LOOKING STATEMENTS
This MD&A contains information and projections based on current expectations. Certain statements herein may constitute “forward-looking” statements which involve known and unknown risks, uncertainties and other factors which may cause the actual results, performance or achievements of the Company, or industry results, to be materially different from any future results, performance or achievements expressed or implied by such forward-looking statements. When used in this MD&A, such statements use such words as “will”, “may”, “could”, “intends”, “potential”, “plans”, “believes”, “expects”, “projects”, “estimates”, “anticipates”, “continue”, “potential”, “predicts” or “should” and other similar terminology. These statements reflect expectations regarding future events and performance but speak only as of the date of this MD&A. Forward-looking statements include statements with respect to planned acquisitions, strategic partnerships or other transactions and expansions not yet concluded, including the timing thereof; plans to market, sell and distribute products; market competition; plans to retain and recruit personnel; the ability to secure funding; and the ability to obtain regulatory and other approvals are all forward-looking information. These statements should not be read as guarantees of future performance or results. Such statements involve known and unknown risks, uncertainties and other factors that may cause actual results, performance, or achievements to be materially different from those implied by such statements.
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There can be no assurance that any intended or proposed activity or transaction will occur or that, if any such action or transaction is undertaken, it will be completed on terms currently intended by the Company. The Company assumes no responsibility to update or revise forward-looking information to reflect new events or circumstances unless required by law.
Although the Company believes that the expectations and assumptions on which the forward-looking statements are based are reasonable, undue reliance should not be placed on the forward-looking statements because the Company can give no assurance that they will prove to be correct. Since forward-looking statements address future events and conditions, by their very nature they involve inherent risks and uncertainties. The forward-looking statements herein speak only as of the date hereof. Actual results could differ materially from those anticipated due to a number of factors and risks including those described in this MD&A under “Risk Factors” and in section 17 of the Company’s Listing Statement dated November 15, 2018, which can be found under the Company’s profile on www.sedar.com.
DESCRIPTION OF BUSINESS
Grown Rogue, headquartered in Medford, Oregon, is a craft cannabis company focused on delighting customers with premium flower and flower-derived products at fair prices. Our roots are in Southern Oregon where we have demonstrated our capabilities in the highly competitive and discerning Oregon market by becoming the number one flower producer in Oregon in 2022, which we have maintained year-to-date in 2023, and we have successfully expanded our platform to Michigan, where we quickly became a top 5 indoor wholesaler in that state in 2022, which we have maintained year-to-date in 2023. We combine our passion for product and value with a disciplined approach to growth, prioritizing profitability and return on capital. Our strategy is to pursue capital efficient methods to expand into new markets, bringing our craft quality and value to more consumers. We also continue to make modest investments to improve our outdoor craft cultivation capabilities in preparation for eventual interstate commerce.
Grown Rogue’s mission is to bring low cost, high quality, craft cannabis from the amazing terroir and legacy of Oregon’s Rogue Valley to consumers nationwide. Grown Rogue’s strategy is built to win now and in the future, as we profitably deliver craft cannabis at appropriate scale while positioning our sungrown capacity to support eventual interstate commerce. Grown Rogue’s competitive advantage is efficiently cultivating and delivering craft cannabis at accessible prices, both indoor and sungrown. This advantage allows us to pursue high cash flow returning projects that augment growth and support our mission.
OREGON
Grown Rogue, through its wholly owned subsidiary, GR Gardens, operates four cultivation facilities in Oregon, comprising approximately 90,000 square feet of cultivation area, that currently service the Oregon recreational marijuana market: two outdoor, sungrown farms called “Foothill” and “Ross Lane,” and two state-of-the-art indoor facilities (“Rossanley” and “Airport”). GR Gardens currently holds five producer licenses in Oregon from the Oregon Liquor Control Commission (“OLCC”), two wholesaler licenses, and two processor licenses. During the three months ended January 31, 2023, we executed a two-year lease which includes an option to purchase Ross Lane, an Oregon property which includes 35 acres, 3 tax lots and an additional OLCC producer license
Grown Rogue’s Oregon business is headquartered in the world-renowned Emerald Triangle, which is known world-wide for the quality of its cannabis. The Emerald Triangle includes the southern part of Oregon and northern part of California. The company capitalizes on this ideal outdoor growing environment to produce high-quality, low-cost cannabis flower. The two sungrown farms produce one crop per year per farm, which is planted in June and harvested in October.
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GR Gardens is responsible for production of recreational marijuana using outdoor and indoor production methodologies. Foothill and Ross Lane are outdoor farms with 40,000 square feet of flowering canopy each, for a total of 80,000 square feet, sitting on a combined land package of approximately 135 acres. Our “Trail’s End” outdoor property will not be cultivated 2023, and we will transfer the Trail’s End license to Ross Lane for production in 2024 to streamline operational efficiencies by centralizing production facilities.
Rossanley, an approximately 17,000 square-foot indoor facility, with approximately 5,600 square feet of flowering bench space, produces high-quality indoor flower through controlled environment agriculture (“CEA”) operations. By carefully controlling temperature, humidity, carbon dioxide levels, and other criteria, we produce a year-round supply of high-quality cannabis flower with multiple harvests per month. Rossanley has eight dedicated flower rooms, which allows for an average of nearly four harvests per month resulting in approximately 4,000 pounds annually.
Airport is a 30,000 square-foot indoor growing facility, with 9,152 square feet of flowering bench space, purchased from High Street Capital Partners, LLC (“HSCP”). Under an agreement with HSCP, we acquired substantially all of the assets of Airport from HSCP for aggregate total consideration of $2,000,000. The transaction closed on April 14, 2022. Airport added 30,000 square feet of CEA indoor production space and we estimate production of approximately 7,300 pounds of high quality indoor whole flower, from this facility in calendar year 2023. Airport is a short distance from Rossanley, which is a benefit to operating efficiency, and it is equipped with state-of-the-art equipment which facilitates the implementation of best practices developed at Rossanley.
The total annual production capacity for Grown Rogue’s Oregon operations, based on the current constructed capacity, will range between 16,000 and 18,000 pounds, depending upon various factors including sungrown growing conditions and strain performance.
MICHIGAN
In May 2021, we acquired, through Canopy, a controlling 60% interest in our Michigan operation called Golden Harvests. The Golden Harvests facility is approximately 70% constructed, with approximately 55,000 square feet in operation, including approximately 16,350 square feet of flowering bench space, in addition to all the ancillary support space, including office and administration to support the operations. The facility produces high quality indoor flower through CEA, with fourteen individual flowering rooms in operation. Harvested pounds in Michigan in 2022 totaled approximately 8,500 pounds; approximately 10,000 pounds are expected in 2023. Golden Harvests produces bulk flower, packaged flower, and manufactures pre-rolls on site.
SERVICES
On May 25, 2023, we announced our independent contractor consulting agreement (the “Consulting Agreement”) with Goodness Growth Holdings, Inc. (CSE: GDNS; OTCQX: GDNSF) (“Goodness Growth”). Under the Consulting Agreement, we will support Goodness Growth in the optimization of its cannabis flower products, with a particular focus on improving the quality and yield of top-grade “A” cannabis flower across its various operating markets, starting with Maryland and Minnesota.
Under the terms of the Consulting Agreement, which expires on September 30, 2025, Goodness Growth will provide compensation to us for sustained consulting support, including input on systems and processes, and recommendations to improve Goodness Growth’s cultivation operations. We will be entitled to receive additional incentive compensation if our services result in improved cash flow performance as compared to Goodness Growth’s baseline expectations over the term of the agreement. Our cooperation in the agreement will be on an exclusive basis to Goodness Growth within the markets in which Goodness Growth operates. The agreement will automatically extend for up to two additional two-year terms, unless terminated by Goodness Growth. a termination fee of at least $5,000,000 is payable to us in the event that Goodness Growth is acquired, sells all or substantially all of its assets, or is merged into another entity and is not the surviving entity of such merger. In addition, a termination fee of at least $2,500,000 is payable to us in the event that Goodness Grown terminates the agreement for certain other conditions.
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In addition, Goodness Growth will issue 10,000,000 warrants to purchase 10,000,000 subordinate voting shares of Goodness Growth to us, with a strike price equal to CAD$0.317 (US$0.233), being a 25.0 percent premium to the 10-day volume weighted average price (“VWAP”) of Goodness Growth’s subordinate voting shares prior to the effective date of the Consulting Agreement. Similarly, we will issue 8,500,000 warrants to purchase 8,500,000 common shares of the Company to Goodness Growth, with a strike price equal to CAD$0.225 (US$0.166), being a 25.0 percent premium to the 10-day VWAP of Grown Rogue’s common shares prior to the effective date of the Consulting Agreement. The warrants exchanged under the terms of the Consulting Agreement will be issued with five-year terms to exercise, shall not be registered with the United States Securities & Exchange Commission or qualified by any Canadian provincial securities commission, and shall not be assignable except as set forth in the warrant certificates. The Parties intend to issue the warrants by the end of July 2023. The aforementioned warrants and shares underlying such warrants will be subject to a four-month and one-day hold period under applicable Canadian securities laws.
The Consulting Agreement provides for services revenue earned by us to be calculated from January 2023, and the services revenues we reported for the three months ended April 30, 2023, reflect earnings from January 2023 through April 30, 2023, based upon work performed in anticipation of execution of the Consulting Agreement. We reported revenues of $271,140 and costs of revenues of $125,424 for Q2 2023 earned under the Consulting Agreement.
PRODUCT
Grown Rogue produces a range of cultivars for consumers to enjoy, which are traditionally classified as indicas, sativas, and hybrids. Grown Rogue has a mix of “core” and “limited” strains to provide consumers with consistent and unique purchasing options at their local dispensary. Grown Rogue flower has won multiple awards in Oregon, which is one of the most competitive cannabis production environments in the world, including the prestigious Growers Cup competition on two occasions. Grown Rogue won 1^st^place for highest THC content, 1^st^ place for highest terpene content, and 3^rd^ place in the grower’s choice category. In addition, we believe we achieved an outdoor production potency record in the state of Oregon, when its Monkey Train cultivar tested at a THC potency of 35.13%. Consumers can enjoy bulk flower in both Oregon and Michigan. In the Michigan market we also offer our innovative nitrogen sealed 3.5 gram flower jars, our patented nitrogen sealed pre-rolls, 3.5 gram flower bags, and regularly packaged pre-rolls. We recently launched a new line of strain-specific prepackaged flower in Michigan, and will launch a new branded pre-roll pack product in Oregon in 2023. According to LeafLink’s MarketScape data, Grown Rogue was the #1 flower producer in Oregon and a top 5 indoor flower wholesaler in Michigan in 2022 and in the first two quarters of 2023.
GENETICS
We are committed to developing unique, proprietary genetics as long-term genetic diversity will be a major factor in establishing brand differentiation with consumers. We have allocated research and development space to develop new strains, while also phenotype hunting to identify new and exciting strain options that will delight consumers. Grown Rogue has developed a compelling mix of proprietary strains, along with a library of “fan favorites” to ensure that consumer and dispensary demand will remain strong for our flower and flower-derived products. All Grown Rogue genetics are rigorously tested to establish the genetic makeup of each strain in our portfolio. We continue to focus on bringing new unique genetics to ensure a steady flow of innovative flower and flower products to market. Currently we carry more than 50 unique cultivars in our genetic library, and we continue to develop our portfolio as we trial new genetics.
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DISTRIBUTION AND SALES
Grown Rogue uses a multi-channel distribution strategy that includes direct-to-retail delivery and third-party delivery (Michigan regulations mandate independent third-party delivery); wholesalers, who have their own distribution channels; and processors, who utilize Grown Rogue products (e.g., trim) to create retail-ready products. Regarding the direct-to-retail channel, Grown Rogue’s sales team works closely with dispensary owners and intake managers to provide consistent product, competitive prices, and personalized service using sales techniques from other industries such as pharmaceutical and liquor. Grown Rogue’s goal is to establish and maintain the client relationship as we continue to expand our footprint in the states in which we operate.
Grown Rogue has developed end user product marketing collateral and other educational information regarding Grown Rogue products as part of all sales with dispensaries that include strain type, testing results, information on the product and other necessary information to clearly articulate the product being provided. Each product is uniquely packaged while maintaining brand consistency across the product suite.
Grown Rogue works with dispensary owners to develop promotional opportunities for the retail customers and bud tenders. Grown Rogue provides detailed tutorials to the staff and owners of the dispensaries around the product and how it is grown, processed, cured and packaged so that they are intimately familiar with the Grown Rogue process. Grown Rogue also invites dispensary owners and operators to Grown Rogue’s operating facilities so they can see first-hand the methods and processes used to create the product.
Based upon information from MarketScape, which is part of the sales analytics tool utilized by LeafLink, which handles all of our sales and invoicing, we are the largest producer in Oregon and a top five indoor flower producer in Michigan.
BRANDING
Developing compelling branding that engages, inspires, and creates transparency and trust with consumers is one of the most important aspects of building a successful cannabis company. Cannabis product branding has been evolving from promising high-quality flower, to providing descriptions of the effect a consumer should expect from a particular product.
Grown Rogue was one of the first brands in the United States to go to market with this type of branding as part of the ROGUE Categorization: Relax, Optimize, Groove, Uplift and Energize. The focus was to provide consumers with “The Right Experience, Every time” made easier by a simple product description that was not cannabis based, such as “sativa” or “indica”.
While other brands have shifted into the “one word” product description, Grown Rogue has leveraged consumer insights and product feedback to evolve the messaging to provide significantly more detail so consumers can make a more informed choice about which Grown Rogue products will optimally enhance their experience.
Grown Rogue’s unique “Mind, Body & Mood” product descriptions provide a level of detail about the expected cannabis experience that is much more insightful and beneficial than competitors. Instead of one word, such as “Relax,” describing a product, Grown Rogue has six words across three categories, which is easy to understand, but much more informative.
In order to grow the Grown Rogue community and spread knowledge of its products, Grown Rogue leverages social media and other digital platforms. Grown Rogue aspires to eliminate the “dark mystery” historically associated with cannabis by empowering consumers to learn about the plant and then “enhance experiences” as they desire. The transition from prohibition to legal cannabis has provided the cannabis community with an opportunity to welcome a large group of new members and it is vital that product education is completed in an authentic and informative manner to ensure that everyone’s first cannabis experience is not only positive but also as expected.
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MARKETING AND ADVERTISING
Grown Rogue’s marketing channels include a comprehensive, fully responsive, interactive website (including mobile). The website has been search-engine optimized and includes calls to action that encourage consumers to become part of the Grown Rogue community by joining its newsletter list or following the company on social media. Grown Rogue is focused on providing education to new and existing consumers, which is available through its monthly newsletter or via the Blog section of its website. Consumers can find information about Grown Rogue, different types of cannabis products and general industry information.
We strategically leverage digital advertising, primarily on industry sites such as Leafly and Weedmaps, and have selectively advertised in endemic and non-endemic magazines including Grow, Northwest Leaf, Oregon Leaf, Dope, Portland Mercury, and Willamette Weekly.
Grown Rogue has established a social media presence that includes Facebook, Twitter, and Instagram. Grown Rogue’s social identity is defined by delivering fresh content and keeping interaction with followers/fans prompt and positive. Grown Rogue attracts existing cannabis industry participants as well as people not familiar with the industry by creating a positive, inclusive environment where dialogue is encouraged. The goal is to change existing stereotypes and overcome the stigmas associated with the cannabis industry.
TRADEMARKS AND PATENTS
Grown Rogue actively seeks to protect its brand and intellectual property. Grown Rogue currently has three registered U.S. trademarks:
| 1. | Grown Rogue was filed on September 22, 2017, and registered on August 7, 2018 under Registration No. 5537240. |
|---|---|
| 2. | The Right Experience Every Time was filed on September 29, 2017 and registered on August 7, 2018 under Registration No. 5537260. |
| --- | --- |
| 3. | Sizzleberry was filed on September 29, 2017, and registered on August 7, 2018, under Registration No. 5537259. |
| --- | --- |
Grown Rogue filed a patent for its nitrogen sealed glass containers on February 15, 2018, with the United States Patent and Trademark Office (“USPTO”). The nitrogen sealed glass containers preserve the freshness of the flower and essential terpenes to improve the “entourage effect.” The USPTO issued Grown Rogue United States Patent Number 10,358,282 on July 23, 2019. Several third parties have contacted us to request licensing information on this technology. We have introduced nitrogen sealed jars and pre-rolls in Michigan and plan on launching them as we enter additional new markets and may license the technology to third parties operating in markets in which Grown Rogue is not currently licensed.
SOCIAL AND ENVIRONMENTAL POLICIES
Grown Rogue employs sustainable business models in our operations. We maintain the highest standards of environmental stewardship in cultivation. This includes sustainable water sources with optimization of reclamation and recapture from runoff and recycling of water input. We use only natural and sustainable products in all applications, including nutrients and integrated pest management. We maintain the highest level of sustainable cannabis practices through our focus on sustainable and natural cultivation methods. Grown Rogue hires and pays a living wage to its team members and is very involved in each of the communities where we operate.
PLANS FOR EXPANSION & ECONOMIC OUTLOOK
Grown Rogue continues to focus on taking its learnings and experience from Oregon and Michigan into new markets across the US. During the last two years, Grown Rogue has established a platform that excels at licensing, compliance, high-quality and low-cost production, understanding consumer purchasing preferences, and product innovation. This platform places Grown Rogue in a superior position to capitalize on new markets compared to our competitors. Oregon is arguably the most competitive cannabis market in the world, and we have excelled by implementing standard business practices that make the Company well suited for entering and building successful brand presence in newly-legalized cannabis markets.
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The expansion into Airport (see “Description of the Business – Oregon”) and acquisition of a 60% interest in Golden Harvests (see “Description of the Business – Michigan”) represent execution of management’s strategy of growth through high quality, low-cost flower production. In addition, we have added a profitable services segment (see “Description of the Business – Services),” which leverages our cultivation expertise to generate margin and increase our presence to two new states at low financial risk. As other growth opportunities arise under favorable financial terms, management can activate known and repeatable systems into new assets.
We believe that the future of the cannabis industry is in branded products and that the leading brands are being developed on the west coast, which is well known for high quality cannabis. Unlike many current multi-state operators who prefer to obtain just a few licenses in a large volume of states, Grown Rogue is focused on establishing a larger number of licenses in fewer states to capitalize on the economies of scale we view as optimal to maximize profits. Over the next twelve months, we are focused on furthering our footprints and flower market shares in Oregon and Michigan markets, strengthening our brand presence in Minnesota and Maryland (by way of the Consulting Agreement), continuing to add new products to our portfolio, and exploring and executing on strategic opportunities in new states.
With the recent shift in political landscape, we have also begun analyzing the potential for federal de-regulation and the subsequent ability to export cannabis products across state lines. We believe Oregon will be a large export state. Being located in the Emerald Triangle provides a unique product differentiator due to the ability to produce high quality and low cost sungrown flower due to the environmental conditions that occur naturally in Southern Oregon. Our strategy to take advantage of what is projected to be a multi-billion dollar export business is developing, and we are excited to begin implementation of this business plan over the coming years.
GOING CONCERN
The Company’s ability to continue as a going concern is dependent upon, but not limited to, its ability to raise financing necessary to fund its development programs and general and administrative expenses, discharge its liabilities as they become due and generate positive cash flows from operations. There is no certainty that the Company will be successful in raising additional capital or generating positive cash flow from operations.
SELECTED ANNUAL INFORMATION
The following selected financial data for each of the three completed financial years are derived from the audited annual financial statements of the Company.
| Years ended October 31, | 2022 () | 2021 () | 2020 () | ||
|---|---|---|---|---|---|
| Total revenue | |||||
| Profit (loss) from operations | ) | ||||
| Net income (loss) | ) | ) | |||
| Net loss per share, basic and diluted | ) | ) | |||
| Comprehensive income (loss) | ) | ) | |||
| Comprehensive loss per share, basic & diluted | ) | ) | |||
| Total assets | |||||
| Total non-current liabilities | |||||
| Cash dividends |
All values are in US Dollars.
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RESULTS OF OPERATIONS
SELECTED FINANCIAL RESULTS
Three Months Ended April 30, 2023
Selected financial results of operations for the three months ended April 30, 2023, and 2022, are summarized below:
| Three months ended April 30, | 2023 () | 2022 () | Variance () | Variance % | |||||
|---|---|---|---|---|---|---|---|---|---|
| Revenue | 28 | % | |||||||
| Cost of goods and services,<br> excluding fair value adjustments | ) | ) | ) | 47 | % | ||||
| Gross profit before fair value adjustments | 11 | % | |||||||
| Net income | 185 | % |
All values are in US Dollars.
Significant items contributing to the generation of net income for the three months ended April 30, 2023, and 2022 are summarized in the table below.
| Three months ended April 30, | 2023 () | 2022 () | Variance | Variance % | |||
|---|---|---|---|---|---|---|---|
| Total revenues | 28 | % | |||||
| Cost of revenues, excluding fair value items | 47 | % | |||||
| Realized fair value amounts in inventory sold | ) | (35 | %) | ||||
| Unrealized fair value gain on growth<br> of biological assets | ) | (37 | %) | ||||
| Accretion expense | 45 | % | |||||
| General and administrative expenses | ) | (4 | %) | ||||
| Share-based compensation | 208 | % | |||||
| Interest expense | ) | (15 | %) | ||||
| Amortization of property and equipment | ) | (72 | %) | ||||
| Unrealized loss on derivative liability | n/a | ||||||
| Unrealized loss (gain) on marketable securities | ) | n/a |
All values are in US Dollars.
Six Months Ended April 30, 2023
Selected financial results of operations for the six months ended April 30, 2023, and 2022, are summarized below:
| Six months ended April 30, | 2023 () | 2022 () | Variance () | Variance % | |||||
|---|---|---|---|---|---|---|---|---|---|
| Revenue | 25 | % | |||||||
| Cost of goods and services sold,<br> excluding fair value adjustments | ) | ) | ) | 35 | % | ||||
| Gross profit before fair value adjustments | 16 | % | |||||||
| Net income | 235 | % |
All values are in US Dollars.
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Significant items contributing to the generation of net income for the six months ended April 30, 2023, and 2022 are summarized in the table below:
| Six months ended April 30, | 2023 () | 2022 () | Variance | Variance % | |||
|---|---|---|---|---|---|---|---|
| Total revenues | 25 | % | |||||
| Cost of revenues, excluding fair value items | 35 | % | |||||
| Realized fair value amounts in inventory sold | ) | (38 | %) | ||||
| Unrealized fair value gain on growth<br> of biological assets | ) | 46 | % | ||||
| Accretion expense | 26 | % | |||||
| General and administrative expenses | ) | (4 | %) | ||||
| Share-based compensation | 206 | % | |||||
| Interest expense | ) | (14 | %) | ||||
| Amortization of property and equipment | ) | (37 | %) | ||||
| Unrealized loss on derivative liability | n/a | ||||||
| Unrealized loss on marketable securities | ) | n/a |
All values are in US Dollars.
More detailed analysis of the components of results of operations are described in the following sections.
REVENUES
Revenues – Three Months Ended April 30, 2023, and 2022
| Three months ended April 30, | 2023 () | 2022 () | Variance () | Variance (%) | ||
|---|---|---|---|---|---|---|
| Revenue from Grown Rogue production | 22 | % | ||||
| Revenue from services | n/a | |||||
| Total revenue | 28 | % |
All values are in US Dollars.
Service revenues during the three months ended April 30, 2023, were derived from the Consulting Agreement (see Description of Business – Services); no service revenues were earned during the comparable period in 2022.
The following table summarizes revenues from Grown Rogue production for the three months ended April 30, 2023, and 2022:
| Three months ended April 30, | 2023 () | 2022 () | Variance () | Variance (%) | |||
|---|---|---|---|---|---|---|---|
| Indoor | 10 | % | |||||
| Outdoor | 641 | % | |||||
| Pre-rolls | 67 | % | |||||
| Trim & other | ) | (61 | %) | ||||
| Revenue from Grown Rogue production | 22 | % |
All values are in US Dollars.
Revenues during Q2 2023 were higher than the comparative period in Q2 2022, due primarily to an increase in total pounds sold. As detailed further below, we sold more pounds in Q2 2023 than Q2 2022, at lower average selling prices (“ASP”). Trim pricing also decreased by 40% in Q2 2023 as compared to Q2 2022.
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The following tables summarize pounds sold and average selling prices.
| Three months ended April 30, | 2023<br> Pounds sold | 2022<br> pounds sold | Pounds<br> variance | 2023 ASP () | 2022 ASP () | ASP<br> variance | |||||
|---|---|---|---|---|---|---|---|---|---|---|---|
| Indoor flower | 5,507 | 4,535 | 972 | (82 | ) | ||||||
| Outdoor flower | 2,751 | 331 | 2,420 | (44 | ) | ||||||
| Pre-rolls | 127 | 51 | 76 | (646 | ) | ||||||
| Total | 8,385 | 4,917 | 3,468 | (199 | ) |
All values are in US Dollars.
Revenues – Six Months Ended April 30, 2023
| Six months ended April 30, | 2023 () | 2022 () | Variance () | Variance (%) | ||
|---|---|---|---|---|---|---|
| Revenue from Grown Rogue production | 22 | % | ||||
| Revenue from services | n/a | |||||
| Total revenue | 25 | % |
All values are in US Dollars.
Service revenues during the six months ended April 30, 2023, were derived from the Consulting Agreement (see Description of Business– Services); no service revenues were earned during the comparable period in 2022. The following table summarizes revenues from Grown Rogue production for the six months ended April 30, 2023, and 2022:
| Six months ended April 30, | 2023 () | 2022 () | Variance () | Variance (%) | |||
|---|---|---|---|---|---|---|---|
| Indoor | 16 | % | |||||
| Outdoor | 396 | % | |||||
| Pre-rolls | 174 | % | |||||
| Trim & other | ) | (63 | %) | ||||
| Revenue from Grown Rogue production | 22 | % |
All values are in US Dollars.
Revenues during the six months ended April 30, 2023, were higher than the comparative period six months ended April 30, 2022, due primarily to an increase in total pounds sold. As detailed further below, we sold more pounds in the six months ended April 30, 2023, than the comparative period in 2022, at lower average selling prices (“ASP”). Further, sales pricing for trim decreased by approximately 59% during the six months ended April 30, 2023, as compared to the six months ended April 30, 2022.
The following tables summarize pounds sold and average selling prices:
| Six months ended April 30, | 2023 Pounds sold | 2022 pounds sold | Pounds variance | 2023 ASP () | 2022 ASP () | ASP variance | **** | ||||
|---|---|---|---|---|---|---|---|---|---|---|---|
| Indoor flower | 10,438 | 7,632 | 2,805 | (144 | ) | ||||||
| Outdoor flower | 3,507 | 669 | 2,838 | (19 | ) | ||||||
| Pre-rolls | 224 | 54 | 170 | (648 | ) | ||||||
| Total | 14,169 | 8,355 | 5,814 | (211 | ) |
All values are in US Dollars.
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COSTS OF GOODS AND SERVICES SOLD
Three Months Ended April 30, 2023
| Three months ended April 30, | 2023 () | 2022 () | Change () | Change (%) | ||
|---|---|---|---|---|---|---|
| Costs of goods sold | 42 | % | ||||
| Costs of service revenues | n/a | |||||
| Costs of goods sold, excl. fair value items | 20 | % |
All values are in US Dollars.
Cost of finished cannabis inventory sold during Q2 2023, increased by 42% over Q2 2022, while revenues for the same periods for Grown Rogue production increased 28%, which reflects the impact to costs of goods sold of operational and scale efficiencies and increased sales volume (pounds sold increased 71%), and the impact to sales revenues of increased sales volume and a 33% decrease in ASP.
Six Months Ended April 30, 2023
| Six months ended April 30, | 2023 () | 2022 () | Change () | Change (%) | ||
|---|---|---|---|---|---|---|
| Costs of goods sold | 32 | % | ||||
| Costs of service revenues | n/a | |||||
| Costs of goods sold, excl. fair value items | 35 | % |
All values are in US Dollars.
Cost of finished cannabis inventory sold during the six months ended April 30, 2023, increased by 32% over the comparative six months ended April 30, 2022, while revenues for the same periods increased 22%. Similar to the three months ended April 30, 2023, this reflects the impact to cost of goods sold of operational and scale efficiencies and increased sales volume (pounds sold increased 70%), and the impact to sales revenues of increased sales volume and a 33% decrease in ASP.
NET INCOME AND LOSS
Share-based Compensation
During the six months ended April 30, 2023, we granted, or committed to grant, common shares and stock options as compensation to employees and service providers. The common shares issuances and stock options (measured at fair value using the Black-Scholes pricing model) resulted in total expense recognition of $151,185 during the six months ended April 30, 2023 (2022 - $49,486).
General and Administrative Expenses
| Three months ended April 30, | Six months ended April 30, | |||
|---|---|---|---|---|
| 2023 () | 2022 () | 2023 () | 2022 () | |
| Office, banking, travel, and overheads | ||||
| Professional services | ||||
| Salaries and benefits | ||||
| Total |
All values are in US Dollars.
General and administrative costs were consistent in Q2 2023 and Q2 2022. We remain conservative in our approach to administrative and corporate expenditures, and the periods of consolidation include the same subsidiaries.
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Interest and Interest Accretion Expense
| Three months ended April 30, | 2023 () | 2022 () | Change () | Change (%) | **** | |
|---|---|---|---|---|---|---|
| Interest and accretion expense | 18 | % |
All values are in US Dollars.
| Six months ended April 30, | 2023 () | 2022 () | Change () | Change (%) | ||
|---|---|---|---|---|---|---|
| Interest and accretion expense | 8 | % |
All values are in US Dollars.
Interest and accretion expenses reflect the decrease in accretion as debt progresses towards maturity dates, offset in part by interest paid on facility lease rents.
SEGMENT REPORTING
We operate in the states of Oregon and Michigan in the United States, and we recently began providing consulting services. The following tables summarize performance by segment for the three and six months ended April 30, 2023.
| Segments | Oregon | Michigan | Services | Total |
|---|---|---|---|---|
| **** | ||||
| Non-current assets other than financial instruments: | ||||
| As at April 30, 2023 | ||||
| As at October 31, 2022 | ||||
| Six months ended April 30, 2023: | ||||
| Net revenue | ||||
| Gross profit (loss) | ||||
| Gross profit (loss) before fair value adjustments | ||||
| Six months ended April 30, 2022: | ||||
| Net revenue | ||||
| Gross profit (loss) | ||||
| Gross profit (loss) before fair value adjustments | ||||
| Three months ended April 30, 2023: | ||||
| Net revenue | ||||
| Gross profit (loss) | ||||
| Gross profit (loss) before fair value adjustments | ||||
| Three months ended April 30, 2022: | ||||
| Net revenue | ||||
| Gross profit (loss) | ||||
| Gross profit (loss) before fair value adjustments |
All values are in US Dollars.
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SUMMARY OF QUARTERLY RESULTS
The following table sets out selected quarterly results of the Company for the eight quarters ended on or before April 30, 2023. The information contained herein is drawn from the interim financial statements of the Company for each of the aforementioned eight quarters. The trend in revenues reflects the consolidation of Golden Harvests, following our acquisition of a 60% controlling interest, and its $3.9 million in revenues for the six months ended October 31, 2021, and its $8.9 million in revenues for the year ended October 31, 2022. Revenues in any period are subject to market sales pricing, which historically has fluctuated significantly. Management has observed that pricing and sales volumes tend to be lower seasonally during winter months, in the Company’s first fiscal quarter, although we do not have high confidence that this will persist. Net losses shifted to net income in Q3 2021 (with an exception of net loss in Q4 2022), the quarter in which we acquired a 60% interest in Golden Harvests. Net income and loss include the impact of significant non-cash expenses, such as losses on the fair valuation of derivative liabilities, marketable securities, share-based payments, and interest accretion. Expenses contributing to net loss do not have significant seasonal trends, except for costs of sales, which follow trends in revenues.
| Fiscal Year Quarter ended | 2023<br> Jan 31 | 2022<br> Oct 31 | 2022<br> Jul 31 | |||||
|---|---|---|---|---|---|---|---|---|
| Revenue () | 6,004,637 | 4,530,540 | 5,072,635 | 4,251,808 | ||||
| Net income (loss) () | 411,979 | 592,537 | (451,630 | ) | 571,406 | |||
| Net income/share, basic & diluted | 0.00 | 0.01 | (0.00 | ) | 0.00 |
All values are in US Dollars.
| Fiscal Year Quarter ended | 2022<br> Jan 31 | 2021<br> Oct 31 | 2021<br> Jul 31 | ||||
|---|---|---|---|---|---|---|---|
| Revenue () | 4,700,127 | 3,732,713 | 3,760,075 | 3,028,991 | |||
| Net income (loss) () | 144,734 | 155,441 | 1,102,542 | 240,294 | |||
| Net income (loss)/share, basic & diluted | 0.01 | 0.00 | 0.00 | 0.00 |
All values are in US Dollars.
LIQUIDITY
Our ability to generate cash in the short term is based upon sales from production and financing proceeds, and in the long term is based upon sales from production, including production from investments in production increases, or from growth by business acquisitions, or a combination thereof. Investments to increase production or acquire business may require further financing. The Company generates operating cash flows from sales of cannabis products which generate margin that contribute to coverage of other operating costs. We have generated net income for the seven of the eight most recent quarters preceding and ending April 30, 2023, and expect to continue generating net income consistently. We have raised financing historically through debt and equity, which has been and will be invested in the business in order to improve production yields and increase total productive capacity, as well as cover operating costs, and to strategically expand the business. We raised gross proceeds of $2,000,000 during the six months ended April 30, 2023, (2022 - $1,400,000).
We are typically able to sell finished goods shortly after inventory reaches its final state, and sales are primarily made on cash-on-delivery terms, or with short net terms. Our ability to fund operations, to plan capital expenditures, and to plan acquisitions, depends on future operating performance and cash flows and the availability of capital by way of debt or equity investment in the Company, which are subject to prevailing economic conditions and financial, business, and other factors, some of which are beyond the Company’s control.
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CASH FLOWS
The following table summarizes certain cash flow items for the six months ended April 30, 2023, and 2022.
| Six months ended April 30, | 2023 () | 2022 () | ||
|---|---|---|---|---|
| Net income | ||||
| Net cash provided by operating activities | ||||
| Net cash used in investing activities | ) | ) | ||
| Net cash provided by financing activities | ||||
| Net increase in cash and cash equivalents | ||||
| Effect of currency translation | ) | |||
| Cash and cash equivalents, beginning | ||||
| Cash and cash equivalents, ending |
All values are in US Dollars.
Operating Activities
During the six months ended April 30, 2023, cash provided by operating activities was $2,326,789 (2022 - $800,186). This number was derived by adding back non-cash items to net income, including the following significant adjustments:
| ● | $183,459 (2022 - $291,693) in amortization of property & equipment; |
|---|---|
| ● | $760,594 (2022 - $337,627) from depreciation expensed in costs of finished inventory sold; |
| --- | --- |
| ● | Deduction of $1,050,746 (2022 – $1,959,649) from the unrealized change in fair value of biological assets; |
| --- | --- |
| ● | $1,243,778 (2022 - $1,991,591) for changes in fair value in inventory sold; |
| --- | --- |
| ● | $151,185 (2022 - $96,403) in share-based compensation and stock option vesting expense, including expense for option grants under our stock option plan implemented during 2020, as well as shares issued directly as compensation for employees, directors, and service providers; |
| --- | --- |
| ● | $363,881 (2022 - $289,479) in accretion of interest expense on debt and convertible debentures outstanding; |
| --- | --- |
| ● | $Nil (2022 – $86,886) from the unrealized loss on our investment in Plant Based Investment Corp. (“PBIC”) shares, measured at PBIC’s publicly quoted share price; |
| --- | --- |
| ● | $206,352 (2022 - $Nil) from the loss on fair value of derivative liability. |
| --- | --- |
Changes in non-cash working capital are summarized in the following table.
| Six months ended April 30, | 2023 () | 2022 () | ||
|---|---|---|---|---|
| Accounts receivable | ) | ) | ||
| Inventory & biological assets | ) | ) | ||
| Prepaid expenses and other assets | ||||
| Accounts payable and accrued liabilities | ) | ) | ||
| Interest payable | ||||
| Income tax payable | ||||
| Unearned revenue | ) | |||
| Total | ) | ) |
All values are in US Dollars.
Changes in accounts receivable are due to the timing and collection of sales. Changes in inventory & biological assets reflect increases due to increased productive capacity, as well as the timing of harvests, the timing of the completion growth cycles, and the timing of sales of finished inventory. Changes in liabilities, including accounts payable and accrued liabilities reflect the use of credit terms and cash flow management based upon ongoing liquidity management.
Pg **16** of **37**
Investing Activities
During the six months ended April 30, 2023, we added $1,411,994 (2022 - $3,392,380) to property and equipment, including non-cash right-of-use asset additions. We expended cash flows of $465,333 (2022 - $480,690) for property and equipment additions.
Financing Activities
Net cash flows from financing activities during the six months ended April 30, 2023, were $344,975 (2022 –$385,519). Significant financing activities included the following:
| ● | Proceeds of $2,000,000 from issuance of convertible debentures; |
|---|---|
| ● | Repayments of $60,000 of convertible debentures; |
| --- | --- |
| ● | Repayments of $980,312 of lease principal; and |
| --- | --- |
| ● | Repayments of $614,713 of long-term debt. |
| --- | --- |
Financing activities during the comparable six months ended April 30, 2022, included the following:
| ● | Debt proceeds of $100,000 borrowed for general corporate uses; |
|---|---|
| ● | $1,300,000 raised through a private placement of common shares; |
| --- | --- |
| ● | Repayments of $622,042 of lease principal; and |
| --- | --- |
| ● | Repayments of $392,439 of long-term debt. |
| --- | --- |
TRENDS AND EXPECTED FLUCTUATIONS IN LIQUIDITY
| April 30, 2023 () | October 31, 2022 () | Variance () | Variance (%) | ||||||
|---|---|---|---|---|---|---|---|---|---|
| Current assets | 35 | % | |||||||
| Current liabilities | ) | ) | ) | 23 | % | ||||
| Working capital | 59 | % |
All values are in US Dollars.
Working capital varied from October 31, 2022, to April 30, 2023, due primarily to an increase in cash generated from operations and reductions, which was $2,326,789 in the six months ended April 30, 2023 versus $800,186 in the six months ended April 30, 2022.
We expect significant ongoing fluctuations in working capital over time, as we are in the early stages of growth. We have historically raised debt with principal due on maturity, and accordingly, we expect significant one-time payments as debt matures, as opposed to smooth cash outflows over time. We have historically been able to meet commitments, modify debt maturities, and raise new financing as required to respond to changes in our liquidity position, although there is no guarantee we will be able to do so in the future. We are exposed to market pricing for cannabis products, which materially impacts our liquidity and is out of our control. The market for cannabis products, including flower, which is our primary product, is relatively immature, having recently become legal to buy and sell in certain markets. We have observed some indications of seasonality, and in addition, we have observed that market conditions can change rapidly without apparent explanations or analyzable causes. We cannot control whether we will be able to raise financing when required or sell cannabis products at profitable prices in the future; however, part of our strategy is to produce flower at sustainable gross margins over a growing productive base, which, holding other factors constant, is expected to result in improved net loss or net income, as well as net cash flows.
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Commitments and Obligations
Set out below are undiscounted minimum future lease payments after April 30, 2023.
| Total future minimum lease payments () | |
|---|---|
| Less than one year | |
| Between one and five years | |
| Total |
All values are in US Dollars.
The Company has four lease contracts with extension options remaining after April 30, 2023, which were negotiated by management to provide flexibility in managing business needs. Set out below are the undiscounted potential rental payments related to periods following the date of exercise options that are not included in the lease term:
| Within<br> five years | More than<br> five years | |||
|---|---|---|---|---|
| Extension options available to be exercised | $ | 2,033,337 | $ | 5,036,781 |
The contractual maturities of the Company’s accounts payable and accrued liabilities, debt, leases, and unearned revenue occur over the next five years are as follows:
| Over<br> 1 Year | Over<br> 3 Years | ||
|---|---|---|---|
| Year<br> 1 | -<br> 3 Years | -<br> 5 Years | |
| **** | |||
| Accounts<br> payable and accrued liabilities | |||
| Lease<br> liabilities | |||
| Convertible<br> debentures | |||
| Debt | |||
| Business<br> acquisition consideration payable | |||
| Unearned<br> revenue | |||
| Derivative<br> liability | |||
| Income<br> tax | |||
| Total |
All values are in US Dollars.
CAPITAL RESOURCES
DEBT FINANCING
On December 5, 2022, the Company announced the closing of a non-brokered private placement of convertible debentures (the "Convertible Debentures") with an aggregate principal amount of $2,000,000. The Convertible Debentures bear an interest of 9% per year, paid quarterly, and mature 36 months from the date of issue. The Convertible Debentures are convertible into common shares of the Company at a conversion price of CAD$0.20 per common share. Additionally, on closing, the Company issued to the purchasers of the Convertible Debentures (the "Purchasers") an aggregate of 6,716,499 warrants (the "Warrants"), that represent 50% coverage of each purchaser’s Convertible Debenture investment. The Warrants are exercisable for a period of three years from issuance into common shares at an exercise price of $0.25 CAD per common share. The Company has the right to accelerate the warrants if the closing share price of the Common Shares on the Canadian Securities Exchange is CAD $0.40 or higher for a period of 10 consecutive trading days. The Convertible Debentures and Warrants issued pursuant to the private placement (and the underlying Common Shares) were subject to a statutory hold period of four months and one day from the closing date.
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TRENDS AND EXPECTED FLUCTUATIONS IN CAPITAL RESOURCES
We realized net cash flows from financing of approximately $0.3 million during the six months ended April 30, 2023, (2022 – $0.4 million), resulting from proceeds from debt financing of $2.0 million (2022 - $0.1 million from debt and $1.3 million from equity), less debt, debenture, & lease principal repayments of $1.7 million (2022 - $1.0 million).
Financing activities have been critical to our ability to continue operating, and significant portions of our financing have historically been raised from key management personnel. These individuals have not provided assurance that they will provide additional financing if we require financing but are unable to raise such financing from third parties; this highlights the importance of management’s strategy of scaling operations. Our business strategy contemplates growing cash flows from operations, which may contribute to reinvestment and growth; however, further financing may be required or utilized based upon our future capital position and future business opportunities.
OFF-BALANCE SHEET ARRANGEMENTS
The Company does not have any off-balance sheet arrangements.
TRANSACTIONS WITH RELATED PARTIES
TRANSACTIONS WITH KEY MANAGEMENT AND DIRECTORS
During the six months ended April 30, 2023, the Company completed the following related party transactions:
Through its wholly owned subsidiary, GRU Properties, the Company leased a property located in Trail, Oregon (“Trail”) owned by the Company’s President and CEO (“CEO”). The lease was extended during the year ended October 31, 2021, with a term through December 31, 2025. Lease charges of $36,000 were incurred for six months ended April 30, 2023 (2022 – 36,000). The lease liability balance for Trail at April 30, 2023, was $166,871 (October 31, 2022 - $193,312).
During the year ended October 31, 2021, the Company leased a property which is beneficially owned by the CEO and is located in Medford, Oregon (“Lars”) with a term through June 30, 2026. Lease charges for Lars of $95,554 (2022 - $91,800) were incurred for the six months ended April 30, 2023. The lease liability for Lars at April 30, 2023, was $541,127(October 31, 2022 - $607,900).
During the year ended October 31, 2021, the CEO leased equipment to the Company, which had a balance due of $Nil at April 30, 2023 (October 31, 2022 - $9,433). Lease payments of $9,433 were made against the equipment leases during the six months ended April 30, 2023 (2022 - $15,260).
Leases liabilities payable to the CEO were $707,998 in aggregate at April 30, 2023 (October 31, 2022 - $810,645).
The CEO earned a royalty of 2.5% of sales of flower produced at Trail through December 31, 2021, at which time the royalty terminated. The CEO earned royalties of $Nil during the six months ended April 30, 2023 (2022 - $305).
During the year ended October 31, 2022, the Company settled $62,900 in long-term liabilities due to the CEO as part of the CEO’s total $300,000 subscription to a non-brokered private placement of common shares on December 9, 2021. During the year ended October 31, 2021, the Company settled $162,899 in long-term accrued liabilities due to the CEO by way of a payment of $62,899 and $100,000 attributed to the CEO’s subscription to a non-brokered private placement on February 5, 2021.
During six months ended April 30, 2023, the Company incurred expenses of $48,077 (2022 - $30,000) for services provided by the spouse of the CEO, who is employed as our Community Relations manager. At April 30, 2023, accounts and accrued liabilities payable to this individual were $1,923 (October 31, 2022 - $1,154). The spouse of the CEO was granted 500,000 options during the six months ended April 30, 2023.
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During the six months ended April 30, 2023, the Company, through GR Unlimited, acquired 87% of the membership units of Canopy from the CEO. All payments necessary for GR Unlimited to exercise its option to acquire 87% of Canopy were equal to payments made by Canopy to purchase a controlling 60% interest of Golden Harvests.
Key management personnel consists of the President and CEO; the Senior Vice President (“SVP”); the former Chief Operating Officer (“COO”)*; and the Chief Financial Officer (“CFO”) of the Company. The compensation to key management is presented in the following table:
| Six months ended April 30, | 2023 | 2022 |
|---|---|---|
| Salaries and consulting fees | ||
| Share-based compensation | ||
| Stock option expense | ||
| Total |
All values are in US Dollars.
Stock options granted to key management personnel and close family members of key management personnel include the following. During the six months ended April 30, 2023, 1,500,000 options were granted to the CEO; 750,000 options were granted to the CFO; and 750,000 options were granted to the SVP. During the year ended October 31, 2022, no options were granted to key management personnel. During the year ended October 31, 2021: 500,000 options were granted to the COO, which expired following the COO’s resignation.
Compensation to directors during the six months ended April 30, 2023, was $9,000, (2022 – fees of $9,000 and common share issuances of 273,750 common shares with a fair value of $20,562).
Accounts payable, accrued liabilities, and lease liabilities due to key management at April 30, 2023, totaled $854,209 (October 31, 2022 $947,233).
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DEBT BALANCES AND MOVEMENTS WITH KEY MANAGEMENT AND DIRECTORS
The following table sets out the movements and balances of debt with related parties during year ended April 30, 2023, and the year ended October 31, 2022. Borrowings from related parties were executed at times because we could identify very limited other sources of financing. The borrowing from the COO was transacted to accelerate expansion of an indoor growing facility at a competitive rate of interest. The borrowings from other than the COO in the table below were transacted to accelerate construction and production in Michigan. The names of the related parties, by designation, are as follows: CEO – Obie Strickler; SVP – Adam August; Directors – Abhilash Patel; and former COO – Thomas Fortner.
| CEO | SVP | Director | COO | Total | ||||||
|---|---|---|---|---|---|---|---|---|---|---|
| **** | **** | **** | **** | **** | **** | |||||
| Balance - October 31, 2021 | ||||||||||
| Borrowed | ||||||||||
| Interest | ||||||||||
| Payments | ) | ) | ) | ) | ) | |||||
| Balance - October 31, 2022 | ||||||||||
| Borrowed | ||||||||||
| Interest | ||||||||||
| Payments | ) | ) | ) | ) | ||||||
| Balance – April 30, 2023 |
All values are in US Dollars.
Pursuant to the loan and related agreements transacted during the year ended October 31, 2020, the CEO, SVP, and a director obtained 5.5%; 1%; and 2.5% of GR Michigan, respectively; third parties obtained 4% as part of the agreements, such that GR Michigan has a 13% non-controlling interest. These parties, except the CEO, obtained the same interests in Canopy; the CEO obtained 92.5% of Canopy Management, of which 87% was acquired by the Company during the six months ended April 30, 2023; all payments necessary for the Company to exercise its option to acquire 87% of Canopy were equal to payments made by Canopy to purchase a controlling 60% interest of Golden Harvests.
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OTHER SELECTED FINANCIAL INFORMATION
EBITDA AND ADJUSTED EBITDA (NON-IFRS MEASURES)
The Company’s “Adjusted EBITDA,” or “aEBITDA,” is a non-IFRS measure used by management that does not have any prescribed meaning by IFRS and that may not be comparable to similar measures presented by other companies. Adjusted EBITDA is intended to provide a proxy for our operating cash flow before changes in non-cash working capital (“CNCWC”), which was $2,326,789 for the three six ended April 30, 2023 (2022 - $800,186). The Company defines “EBITDA” as the Company’s net income or loss for a period, as reported, before interest, taxes, depreciation and amortization, and is further adjusted to remove transaction costs, stock-based compensation expense, accretion expense, gain (loss) on derecognition of derivative liabilities, the effects of fair-value accounting for biological assets and inventory, as well as other non-cash items and items not representative of operational performance as reported in net income (loss). Adjusted EBITDA is defined as EBITDA adjusted for the impact of various significant or unusual transactions. The Company believes that this is a useful metric to evaluate its operating performance, as it allows analysts to compare us to our competitors and derive expectations of our future performance. Adjusted EBITDA increases comparability between comparative companies by adjusting for variability resulting from differences in capital structures, resource allocations and investments, the impact of fair value adjustments on biological assets and inventory and financial statements, which may be volatile and fluctuate significantly from period to period.
| Three months ended | Six months ended | |||||||
|---|---|---|---|---|---|---|---|---|
| April 30, | April 30, | |||||||
| Adjusted EBITDA Reconciliation | 2023 () | 2022 () | 2023 () | 2022 () | ||||
| Net income, as reported | ||||||||
| Add back realized fair value amounts included in inventory sold | ||||||||
| Deduct unrealized fair value gain on growth of biological assets | ) | ) | ) | ) | ||||
| Add back amortization of property and equipment included in cost of sales | ||||||||
| Add back interest and interest accretion expense, as reported | ||||||||
| Add back amortization of property and equipment, as reported | ||||||||
| Add back share-based compensation | ||||||||
| Add back unrealized loss on marketable securities, as reported | ||||||||
| Add back unrealized loss on derivative liability, as reported | ||||||||
| Add back income tax expense, as reported | ||||||||
| EBITDA | ||||||||
| Performance incentive bonus payment ^1^ | ||||||||
| Severance and inactive employee compensation ^2^ | ||||||||
| Business development incentive bonus ^3^ | ||||||||
| Compliance costs ^4^ | ||||||||
| Costs associated with acquisition of Golden Harvests ^5^ | ||||||||
| Adjusted EBITDA |
All values are in US Dollars.
| ^1^ | Payment to the minority owner and General Manager of Golden Harvests in recognition of outstanding business performance which was in excess of expected ongoing employment performance bonuses. |
|---|---|
| ^2^ | Payments to the COO as part of his transition and no longer being a paid member of the Company’s executive team, effectively a severance package. |
| --- | --- |
| ^3^ | Payments to the owners of Golden Harvests and Company’s CEO which were emplaced to incentivize business growth during the startup phase of Golden Harvests. These costs are non-recurring in nature and not reflective of operational efficiency during the quarter. Of the $153,825 payment, $100,000 was beneficially made to the CEO, a related party. |
| --- | --- |
| ^4^ | Costs for professional services pertaining to prior periods as a result of efforts to bring current our disclosures with the Securities & Exchange Commission. Our required disclosures were brought current, and over-the-counter trading resumed in the United States. |
| --- | --- |
| ^5^ | Costs associated with our acquisition of the Michigan assets. |
| --- | --- |
Pg **22** of **37**
Below we reconcile aEBITDA to cash flows from operations before changes in non-cash working capital, in order to present the efficiency with which aEBITDA is converted into cash flows.
| Three months ended | Six months ended | |||||||
|---|---|---|---|---|---|---|---|---|
| April 30, | April 30, | |||||||
| Reconciliation of aEBITDA to cash from operations before CNCWC | 2023 () | 2022 () | 2023 () | 2022 () | ||||
| aEBITDA | ||||||||
| Less: Interest expense | ) | ) | ) | ) | ||||
| Less: Income tax expense | ) | ) | ) | ) | ||||
| Add back: non-cash loss on asset disposal | ||||||||
| Impact of foreign exchange | ) | ) | ||||||
| Less: adjustments to EBITDA to arrive at aEBITDA: | ||||||||
| Performance incentive bonus payment | ) | |||||||
| Severance and inactive employee compensation | ) | |||||||
| Business development incentive bonus | ) | |||||||
| Compliance costs | ) | ) | ||||||
| Costs associated with acquisition of Golden Harvests | ) | ) | ||||||
| Cash flows from operations before CNCWC, as reported | ||||||||
| Cash flows from operations before CNCWC as % of aEBITDA | % | % | % | % |
All values are in US Dollars.
OUTSTANDING SHARE DATA
As of the date of this MD&A, the Company had 170,832,611 common shares outstanding.
As of the date of this MD&A, the Company has the following warrants outstanding, exercisable into common shares:
| Exercise price<br>(CAD) | Warrants<br><br>outstanding | Life (years) | Expiry date | ||
|---|---|---|---|---|---|
| 2,148,117 | 0.03 | June 28, 2023 | |||
| 6,716,499 | 2.46 | December 2, 2025 | |||
| 8,864,616 | 1.87 |
All values are in US Dollars.
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As of the date of this MD&A, the Company has the following stock options outstanding and exercisable into common shares:
| Exercise price (CAD) | Options<br> outstanding | Number<br> exercisable | Remaining<br> Contractual Life<br><br> <br>(years) | Expiry period | |||
|---|---|---|---|---|---|---|---|
| 1,970,000 | 1,827,500 | 1.0 | July 2024 | ||||
| 200,000 | 200,000 | 1.4 | November 2024 | ||||
| 1,000,000 | 850,000 | 1.8 | April 2025 | ||||
| 1,150,000 | 1,075,000 | 1.9 | May 2025 | ||||
| 85,000 | 75,000 | 2.4 | November 2025 | ||||
| 400,000 | 250,000 | 2.8 | April 2026 | ||||
| 6,400,000 | 400,000 | 3.5 | January 2027 | ||||
| 11,205,000 | 4,677,500 | 2.7 |
All values are in US Dollars.
As of the date of this MD&A, the Company has convertible debentures outstanding with an aggregate principal balance of $2,000,000 and accrued interest of approximately $30,000. The debentures mature December 2, 2025. Interest accrues at 9% per annum and is payable on the last business days of March, June, September, and December. Shares issuable upon conversion as of the date of this MD&A are presented in the table below.
| Debenture<br><br> <br>principal | Accruedinterest | /CAD exchange rate * | Exercise price (CAD) | Sharesissuable if converted | |||
|---|---|---|---|---|---|---|---|
| 2,000,000 | 30,000 | 13,484,275 |
All values are in US Dollars.
| * | Most recent exchange rate as published by the Bank of Canada. |
|---|
CRITICAL ACCOUNTING JUDGMENTS AND ESTIMATION UNCERTAINTIES
The preparation of the consolidated financial statements in conformity with IFRS requires that the Company’s management make critical judgments, estimates and assumptions about future events that affect the reported amounts of assets and liabilities and the disclosure of contingent assets and liabilities at the date of the consolidated financial statements and the reported amounts of income and expenses during the reporting period. The estimates and associated assumptions are based on historical experience and other factors that are considered to be relevant. Actual results may differ from these estimates. The estimates and underlying assumptions are reviewed on an ongoing basis. The most significant judgments include those related to the ability of the Company to continue as a going concern, the determination of when property and equipment are available for use, and impairment of its financial and non-financial assets. The most significant estimates and assumptions include those related to the valuation of biological assets, the collectability of accounts receivable, the useful lives of property and equipment, inputs used in accounting the determination of the discount rate used to estimate the fair value of the liability component of convertible debt instruments, the discount rates used to calculate present values of lease liabilities, the inputs used in the estimate of the fair value of equity based compensation, and the inputs used in the estimate of the fair value of equity instruments.
NEWLY ADOPTED ACCOUNTING PRONOUNCEMENTS
Amendments to IAS 41: Agriculture
As part of its 2018-2020 annual improvements to IFRS standards process, the IASB issued amendments to IAS 41. The amendment removes the requirement in paragraph 22 of IAS 41 for entities to exclude taxation cash flow when measuring the fair value of a biological asset using a present value technique. This will ensure consistency with the requirements in IFRS 13. The amendment is effective for annual reporting periods beginning on or after January 1, 2022. The Company adopted the Amendments to IAS 41 effective November 1, 2022, which did not have material impact to the Company’s financial statements.
Pg **24** of **37**
Amendments to IFRS 9: Financial Instruments
As part of its 2018-2020 annual improvements to IFRS standards process, the IASB issued amendments to IFRS 9. The amendment clarifies the fees that an entity includes when assessing whether the terms of a new or modified financial liability are substantially different from the terms of the original financial liability. These fees include only those paid or received between the borrower and the lender, including fees paid or received by either the borrower or lender on the other’s behalf. An entity applies the amendment to financial liabilities that are modified or exchanged on or after the beginning of the annual reporting period in which the entity first applies the amendment. The amendment is effective for annual reporting periods beginning on or after January 1, 2022 with earlier adoption permitted. The Company adopted the Amendments to IFRS 9 effective November 1, 2022, which did not have material impact to the Company’s financial statements.
Amendments to IAS 37: Onerous Contracts and the Cost of Fulfilling a Contract
The amendment specifies that the ‘cost of fulfilling’ a contract comprises the ‘costs that relate directly to the contract’. Costs that relate directly to a contract can either be incremental costs of fulfilling that contract or an allocation of other costs that relate directly to fulfilling contracts. The amendment is effective for annual periods beginning on or after January 1, 2022 with early application permitted. The Company adopted the Amendments to IAS 41 effective November 1, 2022, which did not have material impact to the Company’s financial statements.
FINANCIAL INSTRUMENTS AND OTHER RISK FACTORS
MARKET RISK
Market risk is the risk that the fair value or cash flows of a financial instrument will fluctuate due to changes in market prices. Market risk reflects interest rate risk, currency risk and other price risks.
Interest Rate Risk
At April 30, 2023 and October 31, 2022, the Company’s exposure to interest rate risk relates to long term debt, convertible promissory notes, and finance lease obligations, but its interest rate risk is limited as the aforementioned financial instruments are fixed interest rate instruments
Currency Risk
As at April 30, 2023, the Company had accounts payable and accrued liabilities of CAD$350,668. The Company is exposed to the risk of fluctuation in the rate of exchange between the Canadian Dollar and the United States Dollar.
CREDIT RISK
Credit risk is the risk that one party to a financial instrument will cause a loss for the other party by failing to pay for its obligation.
Credit risk to the Company is derived from cash and trade accounts receivable. The Company places its cash in deposit with United States financial institutions. The Company has established a policy to mitigate the risk of loss related to granting customer credit by primarily selling on a cash-on-delivery basis.
Pg **25** of **37**
The carrying amount of cash and trade accounts receivable represents the Company’s maximum exposure to credit risk; the balances of these accounts are summarized in the following table:
| **** | April 30, 2023 | October 31,<br> 2022 |
|---|---|---|
| **** | ||
| Cash | ||
| Accounts Receivable | ||
| Total |
All values are in US Dollars.
The allowance for doubtful accounts at April 30, 2023 was $277,182 (October 31, 2022 - $264,719).
LIQUIDITY RISK
Liquidity risk represents the risk that the Company will encounter difficulty in meeting the obligations associated with its financial liabilities. The Company’s approach to managing liquidity risk is to ensure that it will have sufficient liquidity to meet liabilities when they become due. At April 30, 2023, the Company’s working capital accounts were as follows:
| **** | April 30, 2023 | **** | October 31,<br> 2022 | **** |
|---|---|---|---|---|
| **** | **** | **** | ||
| Cash | ||||
| Current assets excluding cash | ||||
| Total current assets | ||||
| Current liabilities | ) | ) | ||
| Working capital |
All values are in US Dollars.
The Company faces risks inherent in an agricultural business.
Cannabis is an agricultural product. There are risks inherent in the agricultural business, such as insects, plant diseases, forest fire and similar agricultural risks. Although some of the Company’s cannabis flower is grown indoors under climate-controlled conditions, with conditions monitored, there can be no assurance that natural elements will not have a material adverse effect on the production of the Company’s products.
FAIR VALUES
A number of the Company’s accounting policies and disclosures require the measurement of fair valued for both financial and nonfinancial assets and liabilities. The Company has an established framework, which includes team members who have overall responsibility for overseeing all significant fair value measurements, including Level 3 fair values. When measuring the fair value of an asset or liability, the Company uses observable market data as far as possible. The Company regularly assesses significant unobservable inputs and valuation adjustments. Fair values are categorized into different levels in a fair value hierarchy based on the inputs used in the valuation techniques as follows:
Level 1: unadjusted quoted prices in active markets for identical assets or liabilities;
Level 2: inputs other than quoted prices included in Level 1 that are observable for the asset or liability, either directly or indirectly; or
Level 3: inputs for the asset or liability that are not based on observable market data (unobservable inputs).
The carrying values of the financial instruments at April 30, 2023 are summarized in the following table:
Pg **26** of **37**
| **** | Level in fair value hierarchy | Amortized Cost | FVTPL |
|---|---|---|---|
| **** | **** | ||
| Financial Assets | |||
| Cash | Level 1 | ||
| Accounts receivable | Level 2 | ||
| Financial Liabilities | |||
| Accounts payable and accrued liabilities | Level 2 | ||
| Debt | Level 2 | ||
| Convertible debentures | Level 2 | ||
| Business acquisition consideration payable | Level 2 | ||
| Derivative liability | Level 2 |
All values are in US Dollars.
During the year ended April 30, 2023, there were no transfers of amounts between levels.
See additional risk factors relating to the Company as described in section 17 of the Company’s Listing Statement dated November 15, 2018 which can be found under the Company’s profile on www.sedar.com.
SUBSEQUENT EVENTS
See Description of Business – Services for information about the Consulting Agreement with Goodness Growth which was announced May 25, 2023.
REGULATORY DISCLOSURE
Grown Rogue derives a substantial portion of its revenues from the cannabis industry in the United States, which industry is illegal under United States federal law. Grown Rogue is indirectly involved (through subsidiaries) in the cannabis industry in the United States where local state laws permit such activities. Currently, its subsidiaries are directly engaged in the manufacture, possession, use, sale or distribution of cannabis in the recreational cannabis marketplace in the State of Oregon and in the recreational and medical marketplaces in the State of Michigan.
The United States federal government regulates drugs through the Controlled Substances Act (the “CSA”), which places controlled substances, including cannabis, in a schedule. Cannabis is classified as a Schedule I drug. Under 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. The United States Food and Drug Administration has not approved marijuana as a safe and effective drug for any indication.
In the United States cannabis is largely regulated at the state level. Notwithstanding the permissive regulatory environment of medical cannabis at the state level, and the increasing number of states with legal recreational frameworks, cannabis continues to be categorized as a Schedule I controlled substance under the CSA and as such, violates federal law in the United States. Senators Elizabeth Warren and Cory Gardner have introduced a bipartisan Senate bill titled “Strengthening the Tenth Amendment Through Entrusting States (STATES) Act” that would lift the Controlled Substance Act’s restrictions on cannabis in states that have written their own laws. However, there can be no assurances as to when this bill will pass, or if it will pass at all. The Supremacy Clause of the United States Constitution and United States federal laws made pursuant to it are paramount and in case of conflict between federal and state law in the United States, the federal law shall apply.
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As a result of the conflicting views between state legislatures and the United States federal government regarding cannabis, investments in cannabis businesses in the United States are subject to inconsistent legislation and regulation. The response to this inconsistency was addressed in August 2013 when then Deputy Attorney General, James Cole, authored a memorandum (the “Cole Memorandum”) addressed to all United States district attorneys acknowledging that notwithstanding the designation of cannabis as a controlled substance at the federal level in the United States, several US states had enacted laws relating to cannabis for medical and recreational purposes. The Cole Memorandum outlined certain priorities for the Department of Justice relating to the prosecution of cannabis offenses. In particular, the Cole Memorandum noted that in jurisdictions that enacted laws legalizing cannabis in some form and that also implemented strong and effective regulatory and enforcement systems to control the cultivation, distribution, sale and possession of cannabis, conduct in compliance with those laws and regulations is less likely to be a priority at the federal level.
In March 2017, newly appointed Attorney General Jeff Sessions again noted limited federal resources and acknowledged that much of the Cole Memorandum had merit; however, he disagreed that it had been implemented effectively and, on January 4, 2018, Attorney General Jeff Sessions issued a memorandum (the “Sessions Memorandum”) that rescinded the Cole Memorandum. As a result of the Sessions Memorandum, federal prosecutors are no longer bound by the priorities in the Cole Memorandum relating to the prosecution of cannabis activities despite the existence of state-level laws that may be inconsistent with federal prohibitions.
There is no guarantee that state laws legalizing and regulating the sale and use of cannabis will not be repealed or overturned, or that local governmental authorities will not limit the applicability of state laws within their respective jurisdictions. Unless and until the United States Congress amends the Controlled Substances Act with respect to medical and/or adult-use cannabis (and as to the timing or scope of any such potential amendments there can be no assurance), there is a risk that federal authorities may enforce current federal law. If the federal government begins to enforce federal laws relating to cannabis in states where the sale and use of cannabis is currently legal, or if existing applicable state laws are repealed or curtailed, Grown Rogue’s business, results of operations, financial condition and prospects would be materially adversely affected. Until Congress amends the federal law with respect to marijuana use, there is a risk that federal authorities may enforce current federal law against companies such as Grown Rogue for violation of federal law or they may seek to bring an action or actions against Grown Rogue and/or its investors for violation of federal law or otherwise, including, but not limited to, a claim against investors for aiding and abetting another’s criminal activities.
In light of the uncertainty surrounding the treatment of United States cannabis-related activities, including the rescission of the Cole Memorandum, the Canadian Securities Administrators published a staff notice (Staff Notice 51-352 (Revised)) on February 8, 2018 setting out certain disclosure expectations for issuers with United States cannabis-related activities. Staff Notice 51-352 (Revised) includes additional disclosure expectations that apply to all issuers with United States cannabis-related activities, including those with direct and indirect involvement in the cultivation and distribution of cannabis, as well as issuers that provide goods and services to third parties involved in the United States cannabis industry.
In accordance with the Canadian Securities Administrators Staff Notice 51-352 (Revised) – Issuers with U.S. Marijuana-Related Activities (“Staff Notice 51-352”), below is a table of concordance that is intended to assist readers in identifying the disclosure expectations outlined in Staff Notice 51-352.
In accordance with Staff Notice 51-352, this section provides a discussion of the federal and state-level U.S. regulatory regimes in the jurisdictions where Grown Rogue is currently directly involved through its subsidiaries or is planning to be directly involved in the future. Certain Grown Rogue subsidiaries are directly engaged in the manufacture, possession, use, sale or distribution of cannabis in the recreational cannabis marketplace in the State of Oregon and in the medical and recreational marketplaces in the State of Michigan. In accordance with Staff Notice 51-352, Grown Rogue will evaluate, monitor and reassess this disclosure, and any related risks, on an ongoing basis and the same will be supplemented and amended to investors in public filings, including in the event of government policy changes or the introduction of new or amended guidance, laws or regulations regarding marijuana regulation. Any non-compliance, citations or notices of violation which may have an impact on Grown Rogue’s licenses, business activities or operations will be promptly disclosed by Grown Rogue.
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| All Issuers with US Marijuana-Related Activities | Response |
|---|---|
| Describe the nature of the issuer’s involvement in the U.S. marijuana industry and include the disclosures indicates for at least one of the direct, indirect and ancillary industry involvement types. | See above under “Description of Business”.<br><br> <br><br><br> <br>See below under “U.S. RegulatoryMatters” |
| Prominently state that marijuana is illegal under US federal law and that enforcement of relevant laws is a significant risk | See above |
| Discuss any statements and other available guidance made by federal authorities or prosecutors regarding the risk of enforcement action in any jurisdiction where the issuer conducts U.S. marijuana-related activities. | See below under “U.S. Regulatory Matters”<br><br> <br><br><br> <br>See the following risk factors included in the Company’s Listing Statement available on www.SEDAR.com:<br><br> <br><br><br> <br>Section 17 – Risk Factors – Grown Rogue’s Business is Illegal under U.S. Federal Law<br><br> <br><br><br> <br>Section 17 – Risk Factors –<br>Because marijuana is illegal under federal law, investing in cannabis business could be found to violate the US Federal CSA |
| Outline related risks including, among others, the risk that third party service providers could suspend or withdraw services and the risk that regulatory bodies could impose certain restrictions on the issuer’s ability to operate in the U.S. | See the following risk factors included in the Company’s Listing Statement available on www.SEDAR.com:<br><br> <br><br><br> <br>Section 17 – Risk Factors – Grown Rogue’s Business is Illegal under U.S. Federal Law<br><br> <br><br><br> <br>Section 17 – Risk Factors – Because marijuana is illegal under federal law, investing in cannabis business could be found to violate the US Federal CSA<br><br> <br><br><br> <br>Section 17 – Risk Factors – Risks Relating to Other Laws and Regulations<br><br> <br><br><br> <br>Section 17 – Risk Factors – Current and Future Consumer Protection Regulatory Requirements<br><br> <br><br><br> <br>Section 17 – Risk Factors – Operational Risks<br><br> <br><br><br> <br>Section 17 – Risk Factors – Grown Rogue will not be able to deduct many normal business expenses<br><br> <br><br><br> <br>Section 17 – Risk Factors – External Factors<br><br> <br><br><br> <br>Section 17 – Risk Factors –<br>Failure to Protect Intellectual Property |
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| All Issuers with US Marijuana-Related Activities | Response |
|---|---|
| Section 17 – Risk Factors – Agricultural Operations<br><br> <br><br><br> <br>Section 17 – Risk Factors – Liability, Enforcement Complaints etc.<br><br> <br><br><br> <br>Section 17 – Risk Factors – Grown Rogue’s business is highly regulated and it may not be issued necessary licenses, permits, and cards<br><br> <br><br><br> <br>Section 17 – Risk Factors – Licenses<br><br> <br><br><br> <br>Section 17 – Risk Factors – Local Laws and Ordinances<br><br> <br><br><br> <br>Section 17 – Risk Factors – Third party service providers to Grown Rogue may withdraw or suspend their service<br><br> <br><br><br> <br>Section 17 – Risk Factors – Grown Rogue may not be able to obtain or maintain a bank account<br><br> <br><br><br> <br>Section 17 – Risk Factors – Grown Rogue’s contracts may be unenforceable and property may be subject to seizure<br><br> <br><br><br> <br>Section 17 – Risk Factors – The protections of US bankruptcy law may be unavailable<br><br> <br><br><br> <br>Section 17 – Risk Factors – Grown Rogue may have a difficult time obtaining insurance which may expose Grown Rogue to additional risk and financial liabilities<br><br> <br><br><br> <br>Section 17 – Risk Factors – Grown Rogue’s websites are accessible in jurisdictions where medicinal or recreational use of marijuana is not permitted and, as a result Grown Rogue may be found to be violating the laws of those jurisdictions<br><br> <br><br><br> <br>Section 17 – Risk Factors –<br>The marijuana industry faces significant opposition in the United States | |
| Given the illegality of marijuana under US federal law, discuss the issuer’s ability to access both public and private capital and indicate what financing options are/are not available in order to support continuing operations. | See above under “Description of Business”.<br><br> <br><br><br> <br>See the following risk factor included in the Company’s Listing Statement available on www.SEDAR.com:<br><br> <br><br><br> <br>Section 17 – Risk Factors –<br>Grown Rogue may not be able to obtain or maintain a bank account |
| Quantify the issuer’s balance sheet and operating statement exposure to U.S. marijuana-related activities. | 100% of Grown Rogue’s balance sheet and operating statements are exposed to U.S. marijuana-related activities. |
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| All Issuers with US Marijuana-Related Activities | Response |
|---|---|
| Disclose if legal advice has not been obtained, either in the form of a legal opinion or otherwise, regarding (a) compliance with applicable state regulatory frameworks and (b) potential exposure and implications arising from U.S. federal law. | Grown Rogue has received legal advice from multiple attorneys regarding (a) compliance with applicable state regulatory frameworks and (b) potential exposure and implications arising from U.S. federal law. |
| CSA Requirement – US Marijuana Issuers with direct involvement in cultivation or distribution | Response |
| Outline the regulations for U.S. states in which the issuer operates and confirm how the issuer complies with applicable licensing requirements and the regulatory framework enacted by the applicable U.S. state. | See below under “U.S. RegulatoryMatters” |
| Discuss the issuer's program for monitoring compliance with U.S. state law on an ongoing basis, outline internal compliance procedures and provide a positive statement indicating that the issuer is in compliance with U.S. state law and the related licensing framework. Promptly disclose any non-compliance, citations or notices of violation which may have an impact on the issuer's licence, business activities or operations. | See below under “U.S. Regulatory Matters”<br><br> <br><br><br> <br>See the following risk factors included in the Company’s Listing Statement available on www.SEDAR.com:<br><br> <br><br><br> <br>Section 17 – Risk Factors – Grown Rogue’s Business is Illegal under U.S. Federal Law<br><br> <br><br><br> <br>Section 17 – Risk Factors – Risks Relating to Other Laws and Regulations<br><br> <br><br><br> <br>Section 17 – Risk Factors – Grown Rogue’s business is highly regulated and it may not be issued necessary licenses, permits, and cards<br><br> <br><br><br> <br>Section 17 – Risk Factors – Licenses<br><br> <br><br><br> <br>Section 17 – Risk Factors – Liability, Enforcement Complaints etc. |
| US Marijuana Issuers with indirect involvement in cultivation or distribution | Response |
| Outline the regulations for U.S. states in which the issuer's investee(s) operate. | N/A |
| Provide reasonable assurance, through either positive or negative statements, that the investee's business is in compliance with applicable licensing | N/A |
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| All Issuers with US Marijuana-Related Activities | Response |
|---|---|
| requirements and the regulatory framework enacted by the applicable U.S. state. Promptly disclose any non-compliance, citations or notices of violation, of which the issuer is aware, that may have an impact on the investee's licence, business activities or operations. | |
| US Marijuana Issuers with material ancillary involvement | Response |
| Provide reasonable assurance, through either positive or negative statements, that the applicable customer's or investee's business is in compliance with applicable licensing requirements and the regulatory framework enacted by the applicable U.S. state. | N/A |
U.S. REGULATORY MATTERS
Grown Rogue (through its subsidiaries) has direct involvement in the cultivation and distribution of marijuana in the United States. Grown Rogue and its subsidiaries are primarily involved in the U.S. marijuana industry as a seed to retail company with operations currently in Oregon (a state that has legalized recreational marijuana). Currently Grown Rogue through its subsidiaries produces recreational marijuana and distributes it to dispensaries throughout Oregon.
Producing, manufacturing, processing, possessing, distributing, selling, and using marijuana is a federal crime in the United States. The United States federal government regulates drugs through the Controlled Substances Act (the “Federal CSA”), which places controlled substances, including cannabis, on one of five schedules. Cannabis is currently classified as a Schedule I controlled substance, which is viewed as having a high potential for abuse and having no currently accepted medical use in treatment in the United States. No prescriptions may be written for Schedule I substances, and such substances are subject to production quotas imposed by the United States Drug Enforcement Administration (the “DEA”). Schedule I drugs are the most tightly restricted category of drugs under the Federal CSA.
State and territorial laws that allow the use of medical cannabis or legalize cannabis for adult recreational use are in conflict with the Federal CSA, which makes cannabis use and possession illegal at the federal level. Because cannabis is a Schedule I controlled substance, however, the development of a legal cannabis industry under the laws of these states is in conflict with the Federal CSA, which makes cannabis use and possession illegal on a federal level. Additionally, the Supremacy Clause of the United States Constitution establishes that the Constitution, federal laws made pursuant to the Constitution, and treaties made under the Constitution’s authority constitute the supreme law of the land. The Supremacy Clause provides that state courts are bound by the supreme law; in case of conflict between federal and state law, including Oregon and other state law legalizing certain cannabis uses, the federal law must be applied.
Until Congress amends the Federal CSA with respect to marijuana use, there is a risk that federal authorities may enforce current federal law against companies such as Grown Rogue for violation of federal law or they may seek to bring an action or actions against Grown Rogue and/or its investors for violation of federal law or otherwise, including, but not
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limited to, a claim against investors for aiding and abetting another’s criminal activities. The US federal aiding and abetting statute provides that anyone who commits an offense against the United States or aids, abets, counsels, commands, induces or procures its commission, is punishable as a principal. Additionally, even if the U.S. federal government does not prove a violation of the Federal CSA, the U.S. federal government may seize, through civil asset forfeiture proceedings, certain assets such as equipment, real estate, moneys and proceeds, or your assets as an investor in the Company, if the U.S. federal government can prove a substantial connection between these assets or your investment and marijuana distribution or cultivation.
Because many states in the United States have approved certain medical or recreational uses of cannabis, the U.S. Department of Justice, through the Cole Memorandum, had previously described a set of priorities for federal prosecutors operating in states that had legalized the medical or other adult use of cannabis. The Cole Memorandum represented a significant shift in U.S. federal government priorities away from strict enforcement of federal cannabis prohibition.
However, the Cole Memorandum was merely a directive regarding enforcement and did not overturn or invalidate the Federal CSA or any other federal law or regulation.
The Cole Memorandum was rescinded in January 2018 by Jeff Sessions, the former U.S. Attorney General, who deemed it “unnecessary”. This is based on Mr. Sessions’s belief, which was also expressed in the Cole Memorandum that each state’s federal prosecutor should “follow the well-established principles that govern all federal prosecutions. These principles require federal prosecutors deciding which cases to prosecute to weigh all relevant considerations, including federal law enforcement priorities set by the Attorney General, the seriousness of the crime, the deterrent effect of criminal prosecution, and the cumulative impact of particular crimes on the community.” The rescission of the Cole Memorandum, and comments made publicly by Mr. Sessions and other members of the Trump Administration, signal a significant shift by the U.S. federal government back to more strict enforcement of federal law.
On January 4, 2018, Billy J. Williams, the former United States Attorney for the District of Oregon and former Multnomah County (Oregon) Deputy District Attorney who handled major violent crimes and later served as a Chief of the Violent Crimes Unit and as the Indian Country AUSA/Tribal Liaison for the Department of Justice prior to being appointed as the federal prosecutor for Oregon, Mr. Williams provided the below statement on marijuana enforcement in the District of Oregon: “As noted by Attorney General Sessions, today’s memo on marijuana enforcement directs all U.S. Attorneys to use the reasoned exercise of discretion when pursuing prosecutions related to marijuana crimes. We will continue working with our federal, state, local and tribal law enforcement partners to pursue shared public safety objectives, with an emphasis on stemming the overproduction of marijuana and the diversion of marijuana out of state, dismantling criminal organizations and thwarting violent crime in our communities.”
In an editorial published on January 12, 2018, Mr. Williams wrote: “In sum, I have significant concerns about the state’s current regulatory framework and the resources allocated to policing marijuana in Oregon.”
At a meeting on February 2, 2018, Mr. Williams told Oregon’s top politicians and law enforcement officials that there’s more cannabis being produced in the state than can legally be consumed. “And make no mistake about it, we’re going to do something,” Williams told dozens of politicians, tribal leaders, sheriffs as well as representatives of the FBI and the U.S. Drug Enforcement Administration. “Here’s what I know, in terms of the landscape here in Oregon: We have an identifiable and formidable marijuana over-production and diversion problem,” Williams said. “That’s the fact. My responsibly is to work with our state partners to do something about it.”
Because producing, manufacturing, processing, possessing, distributing, selling, and using marijuana is illegal under U.S. federal law, investing in cannabis business could be found to violate the Federal CSA. As a result, individuals involved with cannabis business, including but not limited to investors and lenders, may be indicted under U.S. federal law. An investment in the Company may: (a) expose an investor personally to criminal liability under U.S. federal law, resulting in monetary fines and jail time; and (b) expose any real and personal property used in connection with Grown Rogue’s business to seizure and forfeiture to the U.S. federal government.
Active enforcement of the current federal law on cannabis may thus directly and adversely affect revenues and profits of Grown Rogue. The risk of strict enforcement of the Federal CSA remains uncertain.
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U.S. FEDERAL LAWS APPLICABLE TO BANKING
Because producing, manufacturing, processing, possessing, distributing, selling, and using marijuana is a crime under the Federal CSA, most U.S. banks and other financial institutions are unwilling to provide banking services to marijuana businesses due to concerns about criminal liability under the Federal CSA as well as concerns related to federal money laundering rules under the U.S. Bank Secrecy Act. Canadian banks are also hesitant to deal with cannabis companies, due to the uncertain legal and regulatory framework of the industry. Banks and other financial institutions could be prosecuted and possibly convicted of money laundering for providing services to cannabis businesses.
Under U.S. federal law, banks or other financial institutions that provide a cannabis business with a checking account, debit or credit card, small business loan, or any other service could be found guilty of money laundering or conspiracy. In both Canada and the United States transactions by cannabis businesses involving banks and other financial institutions are both difficult and unpredictable under the current legal and regulatory landscape. Though guidelines issued in past years allow financial institutions to provide bank accounts to certain cannabis businesses, few U.S. banks have taken advantage of those guidelines and many U. S. cannabis businesses still operate on an all-cash basis.
OREGON STATE REGULATION
The Oregon Medical Marijuana Program (“ OMMP ”) is a state registry program within the Public Health Division, Oregon Health Authority (“OHA”). The role of the OHA is to administer the Oregon Medical Marijuana Act. The OMMP allows individuals with a medical history of one or more qualifying illnesses and a doctor’s written statement to apply for registration with the OMMP. Qualified applicants are issued a medical marijuana card that entitles them to legally possess and cultivate cannabis, subject to certain limitations.
On November 4, 2014, Oregon voters passed Measure 91, known as the Control, Regulation, and Taxation of Marijuana and Industrial Hemp Act (the “Act”), effectively ending the state’s prohibition of recreational marijuana and legalizing the possession, use, and cultivation of marijuana within legal limits by adults 21 years and older. The Act did not amend or effect the Oregon Medical Marijuana Act and the OMMP. The Act empowered the Oregon Liquor Control Commission (“OLCC”) with regulating sales of recreational marijuana in Oregon. It is possible that the voters could potentially repeal the law that permits both the medical and recreational marijuana industry to operate under state law.
Under current Oregon law, possession and home cultivation by adults at least 21 years old is allowed within legal limits. Public sales of marijuana and marijuana products may be done only through licensed retailers. The OLCC has the authority to decide how many licenses to allow in a specific area or location and may refuse granting a license if there are reasonable grounds to believe there are sufficient licenses in the area or if the granting of a license is not demanded by public interest or convenience. The OLCC may disqualify applicants for a number of reasons, including for lacking a good moral character, for lacking sufficient financial resources or responsibility, for relevant past convictions, and for using marijuana, alcohol, or drugs “to excess.”
Grown Rogue has a comprehensive compliance program, which tracks all aspects of operations through the METRC program (an online software tool mandated through the State of Oregon that tracks seed to retail purchases), as well as compliance with all state and federal employment and other safety regulations.
Grown Rogue is periodically advised by various outside attorneys about the requirements for compliance with Oregon law.
Grown Rogue is in compliance with Oregon state law and its related licensing framework.
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MICHIGAN STATE REGULATION
In November 2008, Michigan residents approved the Michigan Medical Marihuana Act20 (the “MMMA ”) to provide a legal framework for a safe and effective medical marijuana program. In September 2016, the Michigan Senate passed the Medical Marihuana Facilities Licensing Act21 (the “MMFLA”) and the Marihuana Tracking Act (the “MTA” and together with the MMMA and the MMFLA, the “Michigan Cannabis Regulations”) to provide a comprehensive licensing and tracking scheme, respectively, for the medical marijuana program. Additionally, the Michigan Department of Licensing and Regulatory Affairs and its licensing board (“LARA”) has supplemented the Michigan Cannabis Regulations with “Emergency Rules” to further clarify the regulatory landscape surrounding the medical marijuana program. LARA is the main regulatory authority for the licensing of marijuana businesses.
Under the MMFLA, LARA administrates five types of “state operating licenses” for medical marijuana businesses: (a) a “grower” license, (b) a “processor” license, (c) a “secure transporter” license, (d) a “provisioning center” license and (e) a “safety compliance facility” license. There are no stated limits on the number of licenses that can be made available on a state level; however, LARA has discretion over the approval of applications and municipalities can pass additional restrictions.
On November 6, 2018, Michigan voters approved Proposal 1, to make marihuana legal under state and local law for adults 21 years of age or older and to control the commercial production and distribution of marihuana under a system that licenses, regulates, and taxes the businesses involved. The act will be known as the Michigan Regulation and Taxation of Marihuana Act24. According to Proposal 1, LARA is required to art accepting applications for retail (recreational) dispensaries within 12 months of the measure’s effective date.
Grown Rogue has a comprehensive compliance program, which tracks all aspects of operations through the METRC program (an online software tool mandated through the State of Michigan that tracks seed to retail purchases), as well as compliance with all state and federal employment and other safety regulations.
Grown Rogue is periodically advised by various outside attorneys about the requirements for compliance with Michigan law.
Grown Rogue is in compliance with Michigan state law and its related licensing framework.
MICHIGAN LICENSE
State operating licenses for marijuana businesses have a 1 year term and are annually renewable if certain conditions are met: (a) the renewal application is submitted prior to the date the license expires, or within sixty (60) days of expiration if all other conditions are met and a late fee is paid, (b) the licensee pays the regulatory assessment fee set by LARA and (c) the licensee continues to meet the requirements to be a licensee under the Michigan Cannabis Regulations. Each renewal application is reviewed by LARA, but there is no guarantee of a timely renewal. There is no ultimate expiry after which no renewals are permitted.
MICHIGAN REGULATIONS
Michigan Marijuana Products may be purchased in a retail setting from a provisioning center by a registered qualified patient or registered primary caregivers connected to a registered qualifying patient (“Michigan Qualified Purchaser”); in each case, Michigan Qualified Purchasers must present a valid registry identification card issued by LARA (a “Michigan Registry ID”). For a Michigan Qualified Purchaser to receive Michigan Marijuana Products, provision centers must deploy an inventory control and tracking system that is capable of interfacing with the statewide monitoring system to determine (a) whether a Michigan Qualified Purchaser holds a Michigan Registry ID and (b) whether the sale or transfer will exceed the then-current daily and monthly purchasing limit for the holder of the Michigan Registry ID.
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In order to receive a Michigan Registry ID, an applicant must provide: a completed application dated within one year of submission, a written certification from a physician with a bona-fide physician-patient relationship to the underlying patient, the application or renewal fee, contact information for the patient, caregiver (if applicable) and physician, as well as proof of Michigan residency.
For registered qualifying patients, the daily purchasing limit is 2.5 ounces, and for registered primary caregivers, the daily purchasing limit is 2.5 ounces per underlying registered qualifying patient that the registered primary caregiver is connected with through the registration process. Finally, the licensee shall verify in the statewide monitoring system that the sale or transfer does not exceed the monthly purchasing limit of ten (10) ounces of marihuana product per month to a qualifying patient, either directly or through the qualifying patient’s registered primary caregiver.
Allowable forms of medical marihuana includes smokable dried flower, dried flower for vaporizing and marihuana infused products, which are defined under the Act to include topical formulations, tinctures, beverages, edible substances or similar products containing usable marijuana that is intended for human consumption in a matter other than smoke inhalation. Under the Michigan Cannabis Regulations, marijuana-infused products shall not be considered food.
Qualifying conditions for the medical marijuana program in Michigan are the following:
| ● | Cancer, glaucoma, positive status for human immunodeficiency virus, acquired immune deficiency syndrome, hepatitis C, amyotrophic lateral sclerosis, Crohn’s disease, agitation of Alzheimer’s disease, nail patella or the treatment of these conditions; |
|---|---|
| ● | A chronic or debilitating disease or medical condition or its treatment that produces 1 or more of the following: cachexia or wasting syndrome; severe and chronic pain; severe nausea; seizures, including but not limited to those characteristic of epilepsy; or severe and persistent muscle spasms, including but not limited to those characteristic of multiple sclerosis; |
| --- | --- |
| ● | Post-Traumatic Stress Disorder (PTSD); and/or |
| --- | --- |
| ● | Any other medical condition or its treatment approved by the department under the Michigan Cannabis Regulations. |
| --- | --- |
REPORTING REQUIREMENTS
Pursuant to the requirements of the MTA, Michigan selected Franwell’s METRC software as the state’s third-party solution for integrated marijuana industry verification. Using METRC, regulators are able to track third party inventory, permissible sales and seed-to-sale information. Additionally, provisioning centers can use the METRC API to connect their own inventory management and/or point-of-sale systems to verify the identity as well as permissible sales for Michigan Qualified Purchasers.
STORAGE AND SECURITY
To ensure the safety and security of cannabis business premises and to maintain adequate controls against the diversion, theft, and loss of cannabis or cannabis products, a provisioning center is required to:
Maintain and submit a security operations plan that includes the following at a minimum:
| ● | Escorts for all non-employee personnel in limited access areas. |
|---|---|
| ● | Secure locks for all interior rooms, windows and points of entry and exits with commercial grade, nonresidential door locks. |
| --- | --- |
| ● | An alarm system. Licensees will make all information related to the alarm system including monitoring and alarm activity available to LARA. |
| --- | --- |
| ● | A video surveillance system that, at a minimum, consists of digital or network video recorders, cameras, video monitors, digital archiving devices and a color printer capable of delivering still photos. |
| --- | --- |
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| ● | 24-hour surveillance footage with fixed, mounted cameras, tamper/theft proof secured storage mediums and a notification system for interruption or failure of surveillance footage or storage of surveillance footage. All surveillance footage must be of sufficient resolution to identify individuals, have accurate time/date stamps and be stored for a minimum of 14 days unless state regulators notify that such recordings may be destroyed. |
|---|---|
| ● | State access to view and obtain copies of any surveillance footage through LARA or related investigators, agents, auditors and/or state police. A facility shall also provide copies of recordings to LARA upon request. |
| --- | --- |
| ● | Logs of the following: the identities of the employee or employees responsible for monitoring the video surveillance system, the identity of the employee who removed the recording from the video surveillance system storage device and the time and date removed and the identity of the employee who destroyed any recording. |
| --- | --- |
Maintain marijuana storage plan for provisioning centers that includes the following at a minimum:
| ● | A secured limited access area for inventories of Michigan Marijuana Products. |
|---|---|
| ● | Clearly labeled containers (a) marked, labeled or tagged, (b) enclosed on all sides and (c) latched or locked to keep all contents secured within. All such containers must be identified and tracked in accordance with the MTA. |
| --- | --- |
| ● | A locked area for chemical and solvents separate from Michigan Marijuana Products. |
| --- | --- |
| ● | Separation of marijuana-infused products from toxic or flammable materials. |
| --- | --- |
| ● | A sales or transfer counter or barrier separated from stock rooms to ensure registered qualifying patients or registered primary caregivers do not have direct access to Michigan Marijuana Products. |
| --- | --- |
There are significant risks associated with the business of the Company, as described above and in Section 17 – Risk Factors of the Company’s Listing Statement as filed on www.sedar.com. Readers are strongly encouraged to carefully read all of the risk factors contained in Section 17 – Risk Factors of the Company’s Listing Statement.
INTERNAL CONTROL OVER FINANCIAL REPORTING AND DISCLOSURE CONTROLS
Management, including the President and CEO and the CFO, is responsible for designing, establishing, and maintaining a system of internal controls over financial reporting (“ICFR”) to provide reasonable assurance that all information prepared by the Company for external purposes is reliable and timely. Internal control over financial reporting is designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of the consolidated financial statements for external purposes in accordance with IFRS.
The Company’s internal control over financial reporting includes those policies and procedures that (i) pertain to the maintenance of records that, in reasonable detail, accurately reflect the transactions of the Company; (ii) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with IFRS, and that receipts and expenditures of the Company are being made only in accordance with authorizations of management and directors of the Company; and (iii) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use or disposition of the Company’s assets that could have a material effect on the Company’s consolidated Financial Statements. Due to its inherent limitations, internal control over financial reporting and disclosure may not prevent or detect all misstatements.
The CEO and CFO have evaluated whether there were changes to the ICFR during the six months ended April 30, 2023, that have materially affected, or are reasonably likely to materially affect, the ICFR. As a result, no such significant changes were identified through their evaluation.
There have been no material changes in the Company’s internal control over financial reporting during the six months ended April 30, 2023, that have materially affected, or are reasonably likely to materially affect, internal control over financial reporting.
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Exhibit 6
Form52-109FV2
Certificationof Interim Filings – Venture Issuer Basic Certificate
I, J. Obie Strickler, President and Chief Executive Officer of Grown Rogue International Inc., certify the following:
1. Review: I have reviewed the interim financial report and interim MD&A (together, the “interim filings”) of Grown Rogue International Inc. (the “issuer”) for the interim period ended April 30, 2023.
2. No misrepresentations: Based on my knowledge, having exercised reasonable diligence, the interim filings do not contain any untrue statement of a material fact or omit to state a material fact required to be stated or that is necessary to make a statement not misleading in light of the circumstances under which it was made, with respect to the period covered by the interim filings.
3. Fair presentation: Based on my knowledge, having exercised reasonable diligence, the interim financial report together with the other financial information included in the interim filings fairly present in all material respects the financial condition, financial performance and cash flows of the issuer, as of the date of and for the periods presented in the interim filings.
Date: June 19, 2023.
| (signed) “J. Obie Strickler” | ||
|---|---|---|
| J. Obie Strickler | ||
| President and Chief Executive Officer | ||
| NOTE TO READER | ||
| --- | --- | --- |
| In<br> contrast to the certificate required for non-venture issuers under National Instrument 52-109<br> Certification of Disclosure in Issuers’ Annual and Interim Filings (NI 52-109),<br> this Venture Issuer Basic Certificate does not include representations relating to the establishment<br> and maintenance of disclosure controls and procedures (DC&P) and internal control over<br> financial reporting (ICFR), as defined in NI 52-109. In particular, the certifying officers<br> filing this certificate are not making any representations relating to the establishment<br> and maintenance of | ||
| i) | controls and other procedures designed to provide reasonable assurance that information required to be disclosed by the issuer in<br> its annual filings, interim filings or other reports filed or submitted under securities legislation is recorded, processed,<br> 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<br> statements for external purposes in accordance with the issuer’s GAAP. | |
| The<br> issuer’s certifying officers are responsible for ensuring that processes are in place<br> to provide them with sufficient knowledge to support the representations they are making<br> in this certificate. Investors should be aware that inherent limitations on the ability of<br> certifying officers of a venture issuer to design and implement on a cost effective basis<br> DC&P and ICFR as defined in NI 52-109 may result in additional risks to the quality,<br> reliability, transparency and timeliness of interim and annual filings and other reports<br> provided under securities legislation. |
Exhibit 7
Form52-109FV2
Certificationof Interim Filings – Venture Issuer Basic Certificate
I, Ryan Kee, Chief Financial Officer and Corporate Secretary of Grown Rogue International Inc., certify the following:
1. Review: I have reviewed the interim financial report and interim MD&A (together, the “interim filings”) of Grown Rogue International Inc. (the “issuer”) for the interim period ended April 30, 2023.
2. No misrepresentations: Based on my knowledge, having exercised reasonable diligence, the interim filings do not contain any untrue statement of a material fact or omit to state a material fact required to be stated or that is necessary to make a statement not misleading in light of the circumstances under which it was made, with respect to the period covered by the interim filings.
3. Fair presentation: Based on my knowledge, having exercised reasonable diligence, the interim financial report together with the other financial information included in the interim filings fairly present in all material respects the financial condition, financial performance and cash flows of the issuer, as of the date of and for the periods presented in the interim filings.
Date: June 19, 2023.
| (signed) “Ryan Kee” | ||
|---|---|---|
| Ryan Kee | ||
| Chief Financial Officer and Corporate Secretary | ||
| NOTE TO READER | ||
| --- | --- | --- |
| In<br> contrast to the certificate required for non-venture issuers under National Instrument 52-109<br> Certification of Disclosure in Issuers’ Annual and Interim Filings (NI 52-109),<br> this Venture Issuer Basic Certificate does not include representations relating to the establishment<br> and maintenance of disclosure controls and procedures (DC&P) and internal control over<br> financial reporting (ICFR), as defined in NI 52-109. In particular, the certifying officers<br> filing this certificate are not making any representations relating to the establishment<br> and maintenance of | ||
| i) | controls and other procedures designed to provide reasonable assurance that information required to be disclosed by the issuer in<br> its annual filings, interim filings or other reports filed or submitted under securities legislation is recorded, processed,<br> 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<br> statements for external purposes in accordance with the issuer’s GAAP. | |
| The<br> issuer’s certifying officers are responsible for ensuring that processes are in place<br> to provide them with sufficient knowledge to support the representations they are making<br> in this certificate. Investors should be aware that inherent limitations on the ability of<br> certifying officers of a venture issuer to design and implement on a cost effective basis<br> DC&P and ICFR as defined in NI 52-109 may result in additional risks to the quality,<br> reliability, transparency and timeliness of interim and annual filings and other reports<br> provided under securities legislation. |
Exhibit 8
GrownRogue Reports Second Quarter 2023 Results,Record Operating Cash Flow and Free Cash Flow
| ● | Revenue of $6.0M compared to $4.7M in Q2 2022, an increase of 28% |
|---|---|
| ● | Operating Cash Flow (OCF), before changes in working capital (BC WC), of $1.7M compared to $1.1M in Q2 2022, an increase of 62% |
| --- | --- |
| ● | Free Cash Flow^1^ (FCF) of $1.0M, after $0.7M in investments in WC and capital expenditures |
| --- | --- |
| ● | Ended quarter with $3.8M of cash on hand |
| --- | --- |
| ● | Subsequent to quarter-end, announced a strategic advisory agreement with Goodness Growth Holdings (OTC: GDNSF, CSE:GDNS) to focus on improving quality and efficiencies in Goodness’ Minnesota and Maryland operations |
| --- | --- |
Medford, Oregon, June 20, 2023 – Grown Rogue International Inc. (“Grown Rogue” or the “Company”) (CSE: GRIN) (OTC: GRUSF), a craft cannabis company operating in Oregon and Michigan, is pleased to report its fiscal second quarter 2023 results for the three months ended April 30, 2023. All financial information is provided in U.S. dollars unless otherwise indicated.
Second Quarter 2023 Financial Summary ($USD Millions)
| Second Quarter 2023 Summary | Q2 2023 | Q2 2022 | +/- % | |||||
|---|---|---|---|---|---|---|---|---|
| Revenue | 6.0 | 4.7 | +28% | |||||
| aEBITDA | 2.1 | 1.3 | +64% | |||||
| aEBITDA % | 35.1 | % | 26.7 | % | +8.4% | |||
| OCF (BC WC) | 1.7 | 1.1 | +62% | |||||
| OCF % | 29.1 | % | 22.9 | % | +6.1% |
Management Commentary
“This was another exciting quarter with record operating cash flow and free cash flow as we continue to see the tremendous execution exhibited by our team”, said Obie Strickler, CEO of Grown Rogue. “Our $6M+ of revenue was a new company record by more than 18%, highlighting our continued focus on producing high quality cannabis that delights our team and customers. We continue to generate substantial free cash flow margins and are focused on using that capital to bring our products to new markets and expand our consumer base. We are really excited about our recently announced agreement with Goodness Growth to expand our cultivation expertise into additional markets and are encouraged by the positive feedback we are seeing and hearing from those markets. In Q2, we recorded over $270k in revenue from this agreement, which was more than anticipated as the agreement was not definitive until after the quarter ended. I’m pleased with the success we are seeing so far in Q3 and anticipate strong growth both in Minnesota and from the launch of adult use sales in Maryland on July 1^st^,” continued Mr. Strickler. Our relentless focus on genetics continues to reap benefits in both Oregon and Michigan as we take pride in being tastemakers in the industry. We are proud to be launching new proprietary genetics combined with strain specific packaging in Michigan as well as craft pre-rolls in Oregon in the coming weeks. We believe that our philosophy and practice of constant iteration and improvement will engender more customer trust and deepen the relationship we have with our existing fans,” Mr. Strickler continued.
“Regarding capital allocation, we continue to focus on producing free cash flow to best position ourselves to meet our balance sheet obligations while being prepared for new market opportunities, using only a modest amount on increased working capital. With our internal cash generation and our cash position at the highest ever reported, we feel confident in our ability to take advantage of high-quality opportunities as they arise.
I want to thank the entire Grown Rogue team for their continued efforts and look forward to updating shareholders on our new market efforts in due course.”
Oregon Market Highlights ($USD Millions)
| Oregon | Q2 2023 | Q2 2022 | +/- % | |||||
|---|---|---|---|---|---|---|---|---|
| Revenue | 2.9 | 2.4 | +23% | |||||
| aEBITDA | 1.1 | 0.6 | +72% | |||||
| aEBITDA Margin % | 36.9 | % | 26.5 | % | +10.4% | |||
| ● | #1 Flower brand for eight consecutive quarters, accordingto LeafLink’s MarketScape data | |||||||
| --- | --- | |||||||
| ● | Focusing on increasing market share by launching craft pre-rollproducts in Q3 2023 | |||||||
| --- | --- | |||||||
| ● | Total Oregon state indoor wet weight harvested decreased8% year-over-year, according to the Oregon Liquor and Cannabis Commission while Grown Rogue indoor wet weight harvested increased by15% year over year | |||||||
| --- | --- |
Michigan Market Highlights ($USD Millions)
| Michigan | Q2 2023 | Q2 2022 | +/- % | ||||||
|---|---|---|---|---|---|---|---|---|---|
| Revenue | 2.8 | 2.3 | +21 | % | |||||
| aEBITDA | 1.3 | 1.2 | +12 | % | |||||
| aEBITDA Margin % | 45.8 | % | 49.5 | % | -3.7 | % | |||
| ● | Pricing per ounce of flower has increased for four straightmonths, according to the Michigan Cannabis Regulatory Agency | ||||||||
| --- | --- | ||||||||
| ● | Launching strain specific packaging in Q3 2023, and anticipateincreases in both pricing and product mix of our pre-packaged products | ||||||||
| --- | --- |
Michigan operations are through Golden Harvests, LLC.
2
Financial Statements and aEBITDA reconciliation
| CONSOLIDATED STATEMENTS OF FINANCIAL POSITION | April 30,<br>2023 | October 31,<br>2022 | ||
|---|---|---|---|---|
| ASSETS | ||||
| Current assets | ||||
| Cash and cash equivalents | ||||
| Accounts receivable (Note 18) | ||||
| Biological assets (Note 3) | ||||
| Inventory (Note 4) | ||||
| Prepaid expenses and other assets | ||||
| Total current assets | ||||
| Property and equipment (Note 8) | ||||
| Intangible assets and goodwill (Note 9) | ||||
| TOTAL ASSETS | ||||
| LIABILITIES | ||||
| Current liabilities | ||||
| Accounts payable and accrued liabilities | ||||
| Current portion of lease liabilities (Note 7) | ||||
| Current portion of long-term debt (Note 10) | ||||
| Current portion of convertible debentures (Note 11) | ||||
| Business acquisition consideration payable (Note 5) | ||||
| Unearned revenue | ||||
| Derivative liability (Note 11.1) | ||||
| Income tax | ||||
| Total current liabilities | ||||
| Lease liabilities (Note 7) | ||||
| Long-term debt (Note 10) | ||||
| Convertible debentures (Note 11) | ||||
| TOTAL LIABILITIES | ||||
| EQUITY | ||||
| Share capital (Note 12) | ||||
| Shares issuable (Note 12) | ||||
| Contributed surplus (Notes 13, 14) | ||||
| Accumulated other comprehensive loss | ) | ) | ||
| Accumulated deficit | ) | ) | ||
| Equity attributable to shareholders | ||||
| Non-controlling interests (Note 22) | ||||
| TOTAL EQUITY | ||||
| TOTAL LIABILITIES AND EQUITY |
All values are in US Dollars.
3
| CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME | Three months ended<br>April 30, | |||
|---|---|---|---|---|
| 2023 | 2022 | |||
| Revenue | ||||
| Product sales | ||||
| Service revenue | ||||
| Total revenue | ||||
| Cost of goods sold | ||||
| Cost of finished cannabis inventory sold | ) | ) | ||
| Costs of service revenue | ) | |||
| Gross profit, excluding fair value items | ||||
| Realized fair value amounts in inventory sold | ) | ) | ||
| Unrealized fair value gain on growth of biological assets | ||||
| Gross profit | ||||
| Expenses | ||||
| Accretion expense | ||||
| Amortization of property and equipment | ||||
| General and administrative | ||||
| Share-based compensation | ||||
| Total expenses | ||||
| Income from operations | ||||
| Other income and (expense) | ||||
| Interest expense | ) | ) | ||
| Other income (expense) | ) | |||
| Unrealized loss on marketable securities | ) | |||
| Unrealized loss on derivative liability | ) | |||
| Loss on disposal of property and equipment | ||||
| Gain from operations before taxes | ||||
| Income tax | ) | ) | ||
| Net income | ||||
| Other comprehensive income (items<br> that may be subsequently reclassified to profit & loss) | ||||
| Currency translation loss | ) | ) | ||
| Total comprehensive income | ||||
| Gain per share attributable to owners of the parent – basic and diluted | ||||
| Weighted average shares outstanding – basic | ||||
| Net income (loss) for the period attributable to: | ||||
| Non-controlling interest | ) | ) | ||
| Shareholders | ||||
| Net income | ||||
| Comprehensive income (loss) for the period attributable to: | ||||
| Non-controlling interest | ) | ) | ||
| Shareholders | ||||
| Total comprehensive income |
All values are in US Dollars.
4
| CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME | Six months ended April 30, | |||
|---|---|---|---|---|
| 2023 | 2022 | |||
| Operating activities | ||||
| Net income | ||||
| Adjustments for non-cash items in net income: | ||||
| Amortization of property and equipment | ||||
| Amortization of property and equipment included in costs of inventory sold | ||||
| Unrealized gain on changes in fair value of biological assets | ) | ) | ||
| Changes in fair value of inventory sold | ||||
| Share-based compensation | ||||
| Stock option expense | ||||
| Accretion expense | ||||
| Loss on disposal of property & equipment | ||||
| Unrealized loss on marketable securities | ||||
| Loss on fair value of derivative liability | ||||
| Effects of foreign exchange | ) | |||
| Changes in non-cash working capital (Note 15) | ) | ) | ||
| Net cash provided by operating activities | ||||
| Investing activities | ||||
| Purchase of property and equipment and intangibles | ) | ) | ||
| Payments of acquisition payable | ) | |||
| Net cash used in investing activities | ) | ) | ||
| Financing activities | ||||
| Proceeds from convertible debentures | ||||
| Proceeds from long-term debt | ||||
| Proceeds from private placement | ||||
| Repayment of long-term debt | ) | ) | ||
| Repayment of convertible debentures | ) | |||
| Payments of lease principal | ) | ) | ||
| Net cash provided by financing activities | ||||
| Change in cash | ||||
| Cash balance, beginning | ||||
| Cash balance, ending |
All values are in US Dollars.
5
SEGMENTED aEBITDA – THREE MONTHS ENDED APRIL 30, 2023
| Oregon | Michigan | Services | Corporate | Consolidated | |||||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
| Sales revenues | 2,908,715 | 2,824,782 | 271,140 | - | 6,004,637 | ||||||||||
| Costs of goods sold, excluding fair value (“FV”) adjustments | (1,777,512 | ) | (1,287,045 | ) | (125,424 | ) | - | (3,189,981 | ) | ||||||
| Gross profit before fair value adjustments | 1,131,203 | 1,537,737 | 145,716 | - | 2,814,656 | ||||||||||
| Net fair value adjustments | (90,291 | ) | (126,898 | ) | - | - | (217,189 | ) | |||||||
| Gross profit | 1,040,912 | 1,410,839 | 145,716 | - | 2,597,467 | ||||||||||
| Operating expenses: | |||||||||||||||
| General and administration | 536,892 | 419,454 | - | 451,175 | 1,407,521 | ||||||||||
| Depreciation and amortization | 24,501 | 19,237 | - | 24,082 | 67,820 | ||||||||||
| Share based compensation | - | - | - | 95,563 | 95,563 | ||||||||||
| Other income and expense: | |||||||||||||||
| Interest and accretion | (78,477 | ) | (52,578 | ) | - | (162,781 | ) | (293,836 | ) | ||||||
| Unrealized loss on derivative liability | - | - | - | (270,712 | ) | (270,712 | ) | ||||||||
| Other income and expense | 171,573 | - | - | (1,650 | ) | 169,923 | |||||||||
| Net income (loss) before income tax | 572,615 | 919,570 | 145,716 | (1,005,963 | ) | 631,938 | |||||||||
| Income tax | 9,000 | 210,959 | - | - | 219,959 | ||||||||||
| Net income after tax | 563,615 | 708,611 | 145,716 | (1,005,963 | ) | 411,979 | |||||||||
| Add back (deduct) from net income after tax: | |||||||||||||||
| Net FV adjustments in costs of goods sold | 90,291 | 126,898 | 217,189 | ||||||||||||
| Amortization of property &<br> equipment included in cost of sales | 308,481 | 175,551 | 484,032 | ||||||||||||
| Interest and accretion expense | 78,477 | 52,578 | 162,781 | 293,836 | |||||||||||
| Amortization of property and equipment | 24,501 | 19,237 | 24,082 | 67,820 | |||||||||||
| Share-based compensation | 95,563 | 95,563 | |||||||||||||
| Unrealized gain on derivative liability | 270,712 | 270,712 | |||||||||||||
| Income tax expense | 9,000 | 210,959 | 219,959 | ||||||||||||
| EBITDA | 1,074,365 | 1,293,834 | 145,716 | (452,825 | ) | 2,061,090 | |||||||||
| Add back to EBITDA: | |||||||||||||||
| Compliance costs | 18,784 | 18,784 | |||||||||||||
| Costs<br> associated with acquisition of Golden Harvests | 30,000 | 30,000 | |||||||||||||
| aEBITDA | 1,074,365 | 1,293,834 | 145,716 | (404,041 | ) | 2,109,874 | |||||||||
| aEBITDA margin % | 36.9 | % | 45.8 | % | 53.7 | % | 35.1 | % |
NOTES:
| 1. | The Company’s “Free cash flow” metric is defined<br>by cash flow from operations minus capital expenditures. |
|---|---|
| 2. | The Company’s “aEBITDA,” or “Adjusted<br>EBITDA,” is a non-IFRS measure used by management that does not have any prescribed meaning by IFRS and that may not be comparable<br>to similar measures presented by other companies. The Company defines “EBITDA” as the Company’s net income or loss<br>for a period, as reported, before interest, taxes, depreciation and amortization, and is further adjusted to remove transaction costs,<br>stock-based compensation expense, accretion expense, gain (loss) on derecognition of derivative liabilities, the effects of fair-value<br>accounting for biological assets and inventory, as well as other non-cash items and items not representative of operational performance<br>as reported in net income (loss). Adjusted EBITDA is defined as EBITDA adjusted for the impact of various significant or unusual transactions.<br>The Company believes that this is a useful metric to evaluate its operating performance. |
| --- | --- |
NON-IFRS FINANCIAL MEASURES
EBITDA and aEBITDA are non-IFRS measures and do not have standardized definitions under IFRS. The Company has provided the non-IFRS financial measures, which are not calculated or presented in accordance with IFRS, as supplemental information and in addition to the financial measures that are calculated and presented in accordance with IFRS. These supplemental non-IFRS financial measures are presented because management has evaluated the financial results both including and excluding the adjusted items and believe that the supplemental non-IFRS financial measures presented provide additional perspective and insights when analyzing the core operating performance of the business. These supplemental non-IFRS financial measures should not be considered superior to, as a substitute for or as an alternative to, and should only be considered in conjunction with, the IFRS financial measures presented herein. Accordingly, the following information provides reconciliations of the supplemental non-IFRS financial measures, presented herein to the most directly comparable financial measures calculated and presented in accordance with IFRS.
6
About Grown Rogue
Grown Rogue International (CSE: GRIN | OTC: GRUSF) is a craft cannabis company focused on delighting customers with premium flower and flower-derived products at fair prices. Our roots are in Southern Oregon where we have demonstrated our capabilities in the highly competitive and discerning Oregon market and, more recently, we successfully expanded our platform to Michigan. We combine our passion for product and value with a disciplined approach to growth, prioritizing profitability and return on capital. Our strategy is to pursue capital efficient methods to expand into new markets, bringing our craft quality and value to more consumers. We also continue to make modest investments to improve our outdoor craft cultivation capabilities in preparation for eventual interstate commerce.
FORWARD-LOOKING STATEMENTS
This press release contains statements which constitute “forward‐looking information” within the meaning of applicable securities laws, including statements regarding the plans, intentions, beliefs and current expectations of the Company with respect to future business activities. Forward‐ looking information is often identified by the words “may,” “would,” “could,” “should,” “will,” “intend,” “plan,” “anticipate,” “believe,” “estimate,” “expect” or similar expressions and include information regarding: (i) statements regarding the future direction of the Company (ii) the ability of the Company to successfully achieve its business and financial objectives, (iii) plans for expansion of the Company and securing applicable regulatory approvals, and (iv) expectations for other economic, business, and/or competitive factors. Investors are cautioned that forward‐looking information is not based on historical facts but instead reflect the Company’s management’s expectations, estimates or projections concerning the business of the Company’s future results or events based on the opinions, assumptions and estimates of management considered reasonable at the date the statements are made. Although the Company believes that the expectations reflected in such forward‐ looking information are reasonable, such information involves risks and uncertainties, and undue reliance should not be placed on such information, as unknown or unpredictable factors could have material adverse effects on future results, performance or achievements of the combined company. Among the key factors that could cause actual results to differ materially from those projected in the forward‐looking information are the following: changes in general economic, business and political conditions, including changes in the financial markets; and in particular in the ability of the Company to raise debt and equity capital in the amounts and at the costs that it expects; adverse changes in the public perception of cannabis; decreases in the prevailing prices for cannabis and cannabis products in the markets that the Company operates in; adverse changes in applicable laws; or adverse changes in the application or enforcement of current laws; compliance with extensive government regulation and related costs, and other risks described in the Company’s public disclosure documents filed on Sedar.
Should one or more of these risks or uncertainties materialize, or should assumptions underlying the forward‐looking information prove incorrect, actual results may vary materially from those described herein as intended, planned, anticipated, believed, estimated or expected. Although the Company has attempted to identify important risks, uncertainties and factors which could cause actual results to differ materially, there may be others that cause results not to be as anticipated, estimated or intended. The Company does not intend, and does not assume any obligation, to update this forward‐looking information except as otherwise required by applicable law.
The Company is indirectly involved in the manufacture, possession, use, sale and distribution of cannabis in the recreational cannabis marketplace in the United States through its indirect operating subsidiaries. Local state laws where its subsidiaries operate permit such activities however, these activities are currently illegal under United States federal law. Additional information regarding this and other risks and uncertainties relating to the Company’s business are disclosed in the Company’s Listing Statement filed on its issuer profile on SEDAR at www.sedar.com. Should one or more of these risks, uncertainties or other factors materialize, or should assumptions underlying the forward-looking information or forward-looking statements prove incorrect, actual results may vary materially from those described herein as intended, planned, anticipated, believed, estimated or expected.
No stock exchange, securities commission or other regulatory authority has approved or disapproved the information contained herein.
7
For further information on Grown Rogue International please visit www.grownrogue.com or contact:
Obie Strickler
Chief Executive Officer
Jakob Iotte
Director of Business
Development and IR
(458) 226-2100
8
Exhibit 9
NOT FOR DISTRIBUTIONTO U.S. NEWSWIRE SERVICES OR FOR DISSEMINATION IN THE U.S.
GrownRogue Announces Proposed Convertible Debenture Financing of up to US$5,000,000
Medford,Oregon, July 4, 2023 – Grown Rogue International Inc. (“Grown Rogue” or the “Company”) (CSE: GRIN) (OTC: GRUSF), a craft cannabis company operating in Oregon and Michigan, announces that it proposes to conduct a non-brokered private placement of unsecured convertible debentures (each, a “Debenture”) with an aggregate principal amount (the “Principal Amount”) of up to US$5,000,000 (the “Offering”). Each subscriber under the Offering (each a “Debentureholder”) shall receive one-half of one common share purchase warrant (the “Warrants”) for each C$0.24 of Principal Amount subscribed. The Company may, at its option, increase the Offering by an additional US$1,000,000 for gross proceeds of up to US$6,000,000.
The Debentures will mature four years from the Closing Date (as defined below) (the “Maturity Date”), bear interest at a rate equal to 9% per annum, payable in United States currency on the last business day of the month following the end of each calendar quarter and are convertible as set forth below into common shares of the Company (each, a “Share”).
Debentureholders will be entitled, at their option, to convert, at any time on or prior to the Maturity Date, the outstanding Principal Amount and accrued interest into Shares at a price per Share equal to C$0.24. The Company may elect to prepay the Principal Amount together with any interest thereon prior to the Maturity Date upon providing 30 days’ notice to the Debenture holder.
Each full Warrant will be exercisable into one Share (a “Warrant Share”) at an exercise price of C$0.28 for a period of three years from the Closing Date (the “Warrant Expiry Date”) and are subject to an acceleration clause that in the event that the Shares close at or above C$0.40 per share on the Canadian Securities Exchange for ten consecutive trading days (the “Acceleration Event”), the Warrant Expiry Date shall accelerate to 90 days following notice of the Acceleration Event.
The proceeds of the Offering will be used for the expansion of the Company's business and for general corporate purposes. The Offering is expected to close in multiple tranches within 30 days, with the first closing occurring on or about July 14, 2023 (the “Closing Date”). The Debentures, the Warrants as well as the underlying Shares, will be subject to a statutory hold period for a period of four months and one day from the Closing Date
This news release does not constitute an offer to sell or a solicitation of an offer to sell any of the securities in the United States. The securities have not been and will not be registered under the United States Securities Act of 1933, as amended (the “U.S.Securities Act”) or any state securities laws and may not be offered or sold within the United States or to U.S. Persons unless registered under the U.S. Securities Act and applicable state securities laws or an exemption from such registration is available.
About Grown Rogue
Grown Rogue International (CSE: GRIN | OTC: GRUSF) is a craft cannabis company focused on delighting customers with premium flower and flower-derived products at fair prices. Our roots are in Southern Oregon where we have demonstrated our capabilities in the highly competitive and discerning Oregon market and, more recently, we successfully expanded our platform to Michigan. We combine our passion for product and value with a disciplined approach to growth, prioritizing profitability and return on capital. Our strategy is to pursue capital efficient methods to expand into new markets, bringing our craft quality and value to more consumers. We also continue to make modest investments to improve our outdoor craft cultivation capabilities in preparation for eventual interstate commerce.
FORWARD-LOOKING STATEMENTS
Thispress release contains statements which constitute “forward-looking information” within the meaning of applicablesecurities laws, including statements regarding the plans, intentions, beliefs and current expectations of the Company with respectto future business activities. Forward-looking information is often identified by the words “may,” “would,”“could,” “should,” “will,” “intend,” “plan,” “anticipate,”“believe,” “estimate,” “expect” or similar expressions and include information regarding: (i)statements regarding the future direction of the Company (ii) the ability of the Company to successfully achieve its business andfinancial objectives, (iii) statements regarding the Offering, including the terms and completion of the Offering, the Closing Dateof the Offering and (iv) expectations for other economic, business, and/or competitive factors. Investors are cautioned thatforward-looking information is not based on historical facts but instead reflect the Company’s management’sexpectations, estimates or projections concerning the business of the Company’s future results or events based on theopinions, assumptions and estimates of management considered reasonable at the date the statements are made. Although the Companybelieves that the expectations reflected in such forward-looking information are reasonable, such information involves risks anduncertainties, and undue reliance should not be placed on such information, as unknown or unpredictable factors could have materialadverse effects on future results, performance or achievements of the combined company. Among the key factors that could causeactual results to differ materially from those projected in the forward-looking information are the following: changes in generaleconomic, business and political conditions, including changes in the financial markets; and in particular in the ability of theCompany to raise debt and equity capital in the amounts and at the costs that it expects; adverse changes in the public perceptionof cannabis; decreases in the prevailing prices for cannabis and cannabis products in the markets that the Company operates in;adverse changes in applicable laws; or adverse changes in the application or enforcement of current laws; compliance with extensivegovernment regulation and related costs, and other risks described in the Company’s public disclosure documents filed onwww.SEDAR.com.
Should one or more of these risks or uncertainties materialize, or should assumptions underlying the forward-looking information prove incorrect, actual results may vary materially from those described herein as intended, planned, anticipated, believed, estimated or expected. Although the Company has attempted to identify important risks, uncertainties and factors which could cause actual results to differ materially, there may be others that cause results not to be as anticipated, estimated or intended. The Company does not intend, and does not assume any obligation, to update this forward-looking information except as otherwise required by applicable law.
2
TheCompany is indirectly involved in the manufacture, possession, use, sale and distribution of cannabis in the recreational cannabis marketplacein the United States through its indirect operating subsidiaries. Local state laws where its subsidiaries operate permit such activitieshowever, these activities are currently illegal under United States federal law. Additional information regarding this and other risksand uncertainties relating to the Company’s business are disclosed in the Company’s Listing Statement filed on its issuerprofile on SEDAR at www.sedar.com. Should one or more of these risks, uncertaintiesor other factors materialize, or should assumptions underlying the forward-looking information or forward-looking statements prove incorrect,actual results may vary materially from those described herein as intended, planned, anticipated, believed, estimated or expected.
No stock exchange, securities commission or other regulatory authority has approved or disapproved the information contained herein.
For further information on Grown Rogue International please visit www.grownrogue.com or contact:
Jakob Iotte
Director of Business
Development and IR
Investor Relations Desk Inquiries
(458) 226-2100
3
Exhibit10
| July 6, 2023 | Filed Via SEDAR |
|---|
TOALL APPLICABLE EXCHANGES AND COMMISSIONS:
| Subject: | GROWN ROGUE INTERNATIONAL INC. |
|---|---|
| Confirmation of Notice of Record and Meeting Dates |
Dear Sirs:
We advise the following with respect to the upcoming Annual Special Meeting of Security Holders for the subject issuer:
| 1. | CUSIP<br> Number | ISIN<br> Number |
|---|---|---|
| 39986R106 | CA39986R1064 | |
| 2. | Meeting<br> Type: | Annual<br> Special |
| 3. | Record<br> Date: | July<br> 31, 2023 |
| 4. | Beneficial<br> Ownership Date: | July<br> 31, 2023 |
| 5. | Mail<br> Date: | August<br> 15, 2023 |
| 6. | Meeting<br> Date: | October<br> 24, 2023 |
| 7. | Classes<br> or Series of Securities that entitle | |
| the<br> holder to receive Notice of the Meeting: | COMMON | |
| 8. | Classes<br> or Series of Securities that entitle | |
| the<br> holder to vote at the meeting: | COMMON | |
| 9. | Business<br> to be conducted at the meeting: | Annual<br> Special |
| 10. | Notice-and-Access: | |
| Registered<br> Shareholders: | Yes | |
| Beneficial<br> Holders: | Yes | |
| Stratification<br> Level: | Not<br> Applicable | |
| E-Delivery | Yes | |
| 11. | Reporting<br> issuer is sending proxy-related Materials | |
| directly<br> to Non-Objecting Beneficial Owners: | No | |
| 12. | Issuer<br> paying for delivery to Objecting | |
| Beneficial<br> Owners: | Yes | |
| 13. | Issuer<br> paying for delivery to US Non-Objecting | |
| Beneficial<br> Owners: | No |
In accordance with applicable securities regulations we are filing this information with you in our capacity as agent of the Corporation.
Sincerely,
Agent for Grown Rogue International Inc.
390 Bay Street, Suite 920, Toronto, ON M5H 2Y2
Tel: 416-350-5007 Fax: 416-350-5008
Website: www.capitaltransferagency.com
email: [email protected]
Exhibit11
| July 6, 2023 | Filed Via SEDAR |
|---|
TOALL APPLICABLE EXCHANGES AND COMMISSIONS:
| Subject: | GROWN ROGUE INTERNATIONAL INC. |
|---|---|
| Confirmation of Notice of Record and Meeting Dates |
Dear Sirs:
We advise the following with respect to the upcoming Annual Special Meeting of Security Holders for the subject issuer:
| 1. | CUSIP<br> Number | ISIN<br> Number |
|---|---|---|
| 39986R106 | CA39986R1064 | |
| 2. | Meeting<br> Type: | Annual<br> Special |
| 3. | Record<br> Date: | July<br> 31, 2023 |
| 4. | Beneficial<br> Ownership Date: | July<br> 31, 2023 |
| 5. | Mail<br> Date: | August<br> 15, 2023 |
| 6. | Meeting<br> Date: | September 14, 2023 |
| 7. | Classes<br> or Series of Securities that entitle | |
| the<br> holder to receive Notice of the Meeting: | COMMON | |
| 8. | Classes<br> or Series of Securities that entitle | |
| the<br> holder to vote at the meeting: | COMMON | |
| 9. | Business<br> to be conducted at the meeting: | Annual<br> Special |
| 10. | Notice-and-Access: | |
| Registered<br> Shareholders: | Yes | |
| Beneficial<br> Holders: | Yes | |
| Stratification<br> Level: | Not<br> Applicable | |
| E-Delivery | Yes | |
| 11. | Reporting<br> issuer is sending proxy-related Materials | |
| directly<br> to Non-Objecting Beneficial Owners: | No | |
| 12. | Issuer<br> paying for delivery to Objecting | |
| Beneficial<br> Owners: | Yes | |
| 13. | Issuer<br> paying for delivery to US Non-Objecting | |
| Beneficial<br> Owners: | No |
In accordance with applicable securities regulations we are filing this information with you in our capacity as agent of the Corporation.
Sincerely,
Agent for Grown Rogue International Inc.
390 Bay Street, Suite 920, Toronto, ON M5H 2Y2
Tel: 416-350-5007 Fax: 416-350-5008
Website: www.capitaltransferagency.com
email: [email protected]
Exhibit 12
NOT FOR DISTRIBUTIONTO U.S. NEWSWIRE SERVICES OR FOR DISSEMINATION IN THE U.S.
Grown Rogue Closes Convertible Debenture Financing for Gross Proceeds of US$5,000,000
Medford, Oregon, July 13, 2023 – Grown Rogue International Inc. (“Grown Rogue” or the “Company”) (CSE: GRIN) (OTC: GRUSF), a craft cannabis company operating in Oregon and Michigan, announces that, further to its news release on July 4, 2023, it has closed the first tranche of a non-brokered private placement of unsecured convertible debentures (each, a “Debenture”) with an aggregate principal amount (the “Principal Amount”) of US$5,000,000 (the “Offering”). Additionally, on closing, the Company issued to the subscribers under the Offering (each a “Debentureholder”) an aggregate of 13,737,500 common share purchase warrants (the “Warrants”) representing one-half of one warrant for each C$0.24 of Principal Amount subscribed. The Company may, at its option, increase the Offering by an additional US$1,000,000 for gross proceeds of up to US$6,000,000.
The Debentures will mature four years from the date of issue (the “Maturity Date”), bear interest at a rate equal to 9% per annum, payable in United States currency on the last business day of the month following the end of each calendar quarter and are convertible as set forth below into common shares of the Company (each, a “Share”).
“This financing was led by Mindset Capital, a private investment firm focused on the cannabis industry, and its affiliates” said Obie Strickler, CEO of Grown Rogue. “Mindset participated and led the previous round of financing and is aligned with our strategy of becoming a leading craft cannabis producer. This financing allows us to accelerate our expansion efforts into additional markets,” continued Mr. Strickler.
“We are excited to invest more growth capital into Grown Rogue so the company can continue to accelerate its expansion” said Aaron Edelheit, CEO of Mindset Capital. “Grown Rogue has an incredible opportunity to bring its Oregon quality flower and cost structure to limited license markets and to expand when others are retrenching.”
Debentureholders will be entitled, at their option, to convert, at any time on or prior to the Maturity Date, the outstanding Principal Amount and accrued interest into Shares at a price per Share equal to C$0.24. The Company may elect to prepay the Principal Amount together with any interest thereon prior to the Maturity Date upon providing 30 days’ notice to the Debentureholder.
Each Warrant will be exercisable into one Share (a “Warrant Share”) at an exercise price of C$0.28 for a period of three years from the date of issue (the “Warrant Expiry Date”) and are subject to an acceleration clause that in the event that the Shares close at or above C$0.40 per share on the Canadian Securities Exchange for ten consecutive trading days (the “Acceleration Event”), the Warrant Expiry Date shall accelerate to 90 days following notice of the Acceleration Event.
The proceeds of the Offering will be used for the expansion of the Company’s business and for general corporate purposes. The Debentures, the Warrants as well as the underlying Shares, will be subject to a statutory hold period for a period of four months and one day pursuant to Canadian securities laws.
This news release does not constitute an offer to sell or a solicitation of an offer to sell any of the securities in the United States. The securities have not been and will not be registered under the United States Securities Act of 1933, as amended (the “U.S. Securities Act”) or any state securities laws and may not be offered or sold within the United States or to U.S. Persons unless registered under the U.S. Securities Act and applicable state securities laws or an exemption from such registration is available.
About Grown Rogue
Grown Rogue International Inc. (CSE: GRIN | OTC: GRUSF) is a craft cannabis company focused on delighting customers with premium flower and flower-derived products at fair prices. Our roots are in Southern Oregon where we have demonstrated our capabilities in the highly competitive and discerning Oregon market and, more recently, we successfully expanded our platform to Michigan. We combine our passion for product and value with a disciplined approach to growth, prioritizing profitability and return on capital. Our strategy is to pursue capital efficient methods to expand into new markets, bringing our craft quality and value to more consumers. We also continue to make modest investments to improve our outdoor craft cultivation capabilities in preparation for eventual interstate commerce.
FORWARD-LOOKING STATEMENTS
Thispress release contains statements which constitute “forward‐looking information” within the meaning of applicable securitieslaws, including statements regarding the plans, intentions, beliefs and current expectations of the Company with respect to future businessactivities. Forward‐ looking information is often identified by the words “may,” “would,” “could,”“should,” “will,” “intend,” “plan,” “anticipate,” “believe,”“estimate,” “expect” or similar expressions and include information regarding: (i) statements regarding the futuredirection of the Company (ii) the ability of the Company to successfully achieve its business and financial objectives, (iii) plans toincrease the Offering, and (iv) expectations for other economic, business, and/or competitive factors. Investors are cautioned that forward‐lookinginformation is not based on historical facts but instead reflect the Company’s management’s expectations, estimates or projectionsconcerning the business of the Company’s future results or events based on the opinions, assumptions and estimates of managementconsidered reasonable at the date the statements are made. Although the Company believes that the expectations reflected in such forward‐lookinginformation are reasonable, such information involves risks and uncertainties, and undue reliance should not be placed on such information,as unknown or unpredictable factors could have material adverse effects on future results, performance or achievements of the combinedcompany. Among the key factors that could cause actual results to differ materially from those projected in the forward‐lookinginformation are the following: changes in general economic, business and political conditions, including changes in the financial markets;and in particular in the ability of the Company to raise debt and equity capital in the amounts and at the costs that it expects; adversechanges in the public perception of cannabis; decreases in the prevailing prices for cannabis and cannabis products in the markets thatthe Company operates in; adverse changes in applicable laws; or adverse changes in the application or enforcement of current laws; compliancewith extensive government regulation and related costs, and other risks described in the Company’s public disclosure documentsfiled on www.SEDAR.com.
2
Shouldone or more of these risks or uncertainties materialize, or should assumptions underlying the forward‐looking information proveincorrect, actual results may vary materially from those described herein as intended, planned, anticipated, believed, estimated or expected.Although the Company has attempted to identify important risks, uncertainties and factors which could cause actual results to differmaterially, there may be others that cause results not to be as anticipated, estimated or intended. The Company does not intend, anddoes not assume any obligation, to update this forward‐looking information except as otherwise required by applicable law.
TheCompany is indirectly involved in the manufacture, possession, use, sale and distribution of cannabis in the recreational cannabis marketplacein the United States through its indirect operating subsidiaries. Local state laws where its subsidiaries operate permit such activitieshowever, these activities are currently illegal under United States federal law. Additional information regarding this and other risksand uncertainties relating to the Company’s business are disclosed in the Company’s Listing Statement filed on its issuerprofile on SEDAR at www.sedar.com. Should one or more of these risks, uncertaintiesor other factors materialize, or should assumptions underlying the forward-looking information or forward-looking statements prove incorrect,actual results may vary materially from those described herein as intended, planned, anticipated, believed, estimated or expected.
No stock exchange, securities commission or other regulatory authority has approved or disapproved the information contained herein.
For further information on Grown Rogue International please visit www.grownrogue.com or contact:
Obie Strickler
Chief Executive Officer
Jakob Iotte
Director of Business
Development and IR
(458) 226-2100
3
Exhibit13
Form 51-102F3
MaterialChange Report
| Item 1 | Name and Address of Company |
|---|
Grown Rogue International Inc (the “Company”)
550 Airport Road
Medford, Oregon
U.S.A. 97504
| Item 2 | Date of Material Change |
|---|
July 13, 2023.
| Item 3 | News Release |
|---|
The News Release was disseminated through the facilities of Cision, and filed under the Company’s profile on the System for Electronic Document Analysis and Retrieval (SEDAR).
| Item 4 | Summary of Material Change |
|---|
The Company announced that, on July 13, 2023, it closed the first tranche of a non-brokered private placement of unsecured convertible debentures with an aggregate principal amount of USD$5.0M.
| Item 5.1 | Full Description of Material Change |
|---|
The Company announced that, on July 13, 2023, it closed the first tranche of a non-brokered private placement of unsecured convertible debentures (each, a “Debenture”) with an aggregate principal amount (the “Principal Amount”) of USD$5.0M (the “Offering”).
Additionally, on closing, the Company issued to the subscribers under the Offering (each a “Debentureholder”) an aggregate of 13,737,500 common share purchase warrants (the “Warrants”) representing one-half of one warrant for each C$0.24 of Principal Amount subscribed. The Company may, at its option, increase the Offering by an additional US$1,000,000 for gross proceeds of up to US$6,000,000.
The Debentures will mature four years from the date of issue (the “Maturity Date”), bear interest at a rate equal to 9% per annum, payable in United States currency on the last business day of the month following the end of each calendar quarter and are convertible as set forth below into common shares of the Company (each, a “Share”).
Debentureholders will be entitled, at their option, to convert, at any time on or prior to the Maturity Date, the outstanding Principal Amount and accrued interest into Shares at a price per Share equal to C$0.24. The Company may elect to prepay the Principal Amount together with any interest thereon prior to the Maturity Date upon providing 30 days’ notice to the Debentureholder.
Each Warrant will be exercisable into one Share (a “Warrant Share”) at an exercise price of C$0.28 for a period of three years from the date of issue (the “Warrant Expiry Date”) and are subject to an acceleration clause that in the event that the Shares close at or above C$0.40 per share on the Canadian Securities Exchange for ten consecutive trading days (the “Acceleration Event”), the Warrant Expiry Date shall accelerate to 90 days following notice of the Acceleration Event.
The proceeds of the Offering will be used for the expansion of the Company’s business and for general corporate purposes. The Debentures, the Warrants as well as the underlying Shares, will be subject to a statutory hold period for a period of four months and one day pursuant to Canadian securities laws.
| Item 6 | Reliance on Subsection 7.1(2) of National Instrument 51-102 |
|---|
Not applicable.
| Item 7 | Omitted Information |
|---|
Not applicable.
| Item 8 | Executive Officer |
|---|
Obie Strickler
Chief Executive Officer
Tel: +1 458 226 2100
Email: [email protected]
| Item 9 | Date of Report |
|---|
July 18, 2023.
FORWARD-LOOKINGSTATEMENTS
This material change report contains statements which constitute “forward-looking information” within the meaning of applicable securities laws, including statements regarding the plans, intentions, beliefs and current expectations of the Company with respect to future business activities. Forward-looking information is often identified by the words “may,” “would,” “could,” “should,” “will,” “intend,” “plan,” “anticipate,” “believe,” “estimate,” “expect” or similar expressions and include information regarding: (i) statements regarding the future direction of the Company (ii) the ability of the Company to successfully achieve its business and financial objectives, (iii) plans to increase the Offering, and (iv) expectations for other economic, business, and/or competitive factors. Investors are cautioned that forward-looking information is not based on historical facts but instead reflect the Company’s management’s expectations, estimates or projections concerning the business of the Company’s future results or events based on the opinions, assumptions and estimates of management considered reasonable at the date the statements are made. Although the Company believes that the expectations reflected in such forward-looking information are reasonable, such information involves risks and uncertainties, and undue reliance should not be placed on such information, as unknown or unpredictable factors could have material adverse effects on future results, performance or achievements of the combined company. Among the key factors that could cause actual results to differ materially from those projected in the forward-looking information are the following: changes in general economic, business and political conditions, including changes in the financial markets; and in particular in the ability of the Company to raise debt and equity capital in the amounts and at the costs that it expects; adverse changes in the public perception of cannabis; decreases in the prevailing prices for cannabis and cannabis products in the markets that the Company operates in; adverse changes in applicable laws; or adverse changes in the application or enforcement of current laws; compliance with extensive government regulation and related costs, and other risks described in the Company’s public disclosure documents filed on SEDAR at www.sedar.com.
Should one or more of these risks or uncertainties materialize, or should assumptions underlying the forward-looking information prove incorrect, actual results may vary materially from those described herein as intended, planned, anticipated, believed, estimated or expected. Although the Company has attempted to identify important risks, uncertainties and factors which could cause actual results to differ materially, there may be others that cause results not to be as anticipated, estimated or intended. The Company does not intend, and does not assume any obligation, to update this forward-looking information except as otherwise required by applicable law.
Exhibit14
GROWNROGUE INTERNATIONAL INC.
Requestfor Financial Statements
FiscalYear: 2022
In accordance with National Instrument 51-102 – Continuous Disclosure Obligations, registered and beneficial shareholder may elect annually to receive interim (quarterly) financial statements and corresponding management discussion and analysis (“MD&A”) and/or annual financial statements and MD&A.
If you wish to receive these documents by mail or email, please return this completed form to:
CAPITALTRANSFER AGENCY ULC
390BAY ST., SUITE 920
TORONTO,ON M5H 2Y2
Rather than receiving financial statements by mail, you may choose to view these documents on the SEDAR website at www.sedar.com.
I HEREBY CERTIFY that I am a registered and/or beneficial holder of the Corporation, and as such, request that my name be placed on the Corporation’s Mailing List in respect to its annual and/or interim financial statements and the corresponding MD&A for the current financial year.
| SHAREHOLDER REGISTRATION (PLEASE PRINT CLEAR IN BLOCK LETTERS) | ||
|---|---|---|
| STREET ADDRESS | ||
| CITY | PROV/STATE | POSTAL/ZIP CODE |
| COUNTRY (IF NOT CANADA OR USA) | ||
| IF THIS IS AN ADDRESS CHANGE, PLEASE CHECK THE BOX AND PROVIDE YOUR FORMER ADDRESS BELOW | ||
| ☐ | ||
| PLEASE SEND ME THE FOLLOWING: | ||
| ☐ | Annual Financial Statements with MD&A | |
| ☐ | Interim Financial Statements with MD&A | |
| SIGNED: | DATE: | |
| --- | --- | --- |
| (Signature of Shareholder) |
Exhibit15
NOTICEOF ANNUAL AND SPECIAL MEETING OF SHAREHOLDERS
NOTICEIS HEREBY GIVEN that Grown Rogue International Inc. (the “Corporation”) will hold its annual and special meeting of shareholders (the “Meeting”) on September 14, 2023, at 11:00am (Eastern Daylight Time) at the offices of Miller Thomson LLP, Scotia Plaza, 40 King Street West, Suite 5800, Toronto, Ontario, M5H 3S1, for the following purposes:
| 1. | to<br> present the audited consolidated financial statements of the Corporation for its prior years<br> ended October 31, 2022 and 2021, and the independent auditor’s report thereon; |
|---|---|
| 2. | to<br> elect the directors of the Corporation for the ensuing year; |
| --- | --- |
| 3. | to<br> appoint Turner, Stone & Company, L.L.P. as the independent auditors of the Corporation<br> until the next annual meeting of shareholders and authorize the directors to fix the auditors’<br> remuneration; |
| --- | --- |
| 4. | to<br> consider and, if deemed advisable, to pass, with or without variation, an ordinary resolution<br> re-approving the Corporation’s long-term equity based incentive plan; and |
| --- | --- |
| 5. | to<br> transact any other business properly brought before the Meeting. |
| --- | --- |
Shareholders of record as at the close of business on July 31, 2023 will be entitled to notice of and to vote at the Meeting. A detailed description of the matters to be acted upon at the Meeting is set forth in the Corporation’s Management Information Circular for the Meeting (the “Information Circular”). The Corporation has elected to use the notice-and-access provisions under National Instrument 54-101 – Communication with Beneficial Owners of Securities of a Reporting Issuer and National Instrument 51-102 – Continuous Disclosure Obligations (the “Notice-and-Access Provisions”) of the Canadian Securities Administrators for the Meeting. The Notice-and-Access Provisions are a set of rules developed by the Canadian Securities Administrators that reduce the volume of materials that must be physically mailed to Shareholders of the Corporation by allowing the Corporation to post its Information Circular and any additional materials online. Shareholders who would like more information about the Notice-and-Access Provisions may contact the Corporation’s transfer agent, Capital Transfer Agency, ULC, toll-free at 1-844-499-4482. Please see “Notice-and-Access” in the accompanying Information Circular. We strongly encourage shareholders to vote their Common Shares of the Corporation priorto the Meeting by any of the means described in the Information Circular.
The Information Circular and all additional materials have been posted in full online at www.capitaltransferagency.ca and under the Corporation’s SEDAR profile at www.sedar.com. Shareholders are reminded to carefully review the Information Circular and any additional materials prior to voting on the matters being transacted at the Meeting. All Shareholders of record as of July 31, 2023, the record date, will receive a notice and access notification containing instructions on how to access the Corporation’s Information Circular and all additional materials. Copies of: (a) this notice of annual and special meeting of shareholders; (b) the Information Circular; (c) a management form of proxy and instructions in relation thereto (the “Management Proxy”); and (d) the audited consolidated financial statements of the Corporation for its years ended October 31, 2022 and 2021, and the independent auditor’s report thereon may be obtained free of charge by contacting Capital Transfer Agency, ULC at 390 Bay Street, Suite 920, Toronto, Ontario M5H 2Y2 or by phone at 1-844-499-4482. In order to ensure that a paper copy of the Information Circular and additional materials can be delivered to a Shareholder in time for such Shareholder to review the Information Circular and return a Management Proxy or voting instruction form prior to the deadline to receive proxies, it is strongly suggested that Shareholders ensure their request is received no later than September 5, 2023.
Registered shareholders and duly appointed proxyholders will be able to attend, participate and vote at the Meeting or may be represented by proxy. Shareholders are requested to: (i) sign, date and deliver the Management Proxy to the Corporation’s registrar and transfer agent, Capital Transfer Agency, ULC, 390 Bay Street, Suite 920, Toronto, Ontario M5H 2Y2 Canada or visit www.capitaltransferagency.com/voteproxy, so it is received at least 48 hours (excluding Saturdays, Sundays and holidays) before the time of the Meeting or any adjournment thereof; or (ii) return your voting instructions as specified in the request for voting instructions delivered to you, as applicable.
DATEDthis 4th day of August, 2023
| BY ORDER OF THE BOARD OF DIRECTORS |
|---|
| (signed)<br> “J. Obie Strickler” |
| J.<br> Obie Strickler |
| Director,<br> President and Chief Executive Officer |
Exhibit16
GROWNROGUE INTERNATIONAL INC.
For use at the Annual and Special Meeting of Shareholders
to be held on September 14, 2023
This Proxy is solicited by the management of Grown Rogue International Inc. (the “Corporation”) in connection with the notice of annual and special meeting of the shareholders to be held on the 14^th^ day of September, 2023 (the “Notice of Meeting”). The undersigned shareholder of the Corporation hereby appoints Stephen Gledhill, a director of the Corporation, or failing him, Ryan Kee, the Chief Financial Officer and Corporate Secretary of the Corporation, or instead of any of them the following appointee ________, as proxyholder for the undersigned, with power of substitution, to attend, act and vote for and on behalf of the undersigned at the meeting of shareholders of the Corporation (the “Meeting”) to be held at the offices of Miller Thomson LLP, Scotia Plaza, 40 King Street West, Suite 5800, Toronto, Ontario M5H 3S1 on the 14^th^ day of September, 2023, at the hour of 11:00 a.m. (Eastern Daylight Time), and at any adjournment or adjournments thereof. Without limiting the general authorization and power hereby given, all the common shares in the capital of the Corporation (collectively, the “Shares”) registered in the name of the undersigned are to be voted as indicated below and may be voted in the discretion of such proxy with respect to amendments or variations to the matters identified in the Notice of Meeting or other matters that may properly come before the Meeting or any adjournment or adjournments thereof in such manner as the person above named may see fit. If no choice is specified, the proxy shall vote in favour of the motions proposed to be made at the Meeting.
| 1. | FOR | ☐ | THE ELECTION OF J. OBIE STRICKLER AS A DIRECTOR<br>OF THE CORPORATION. |
|---|---|---|---|
| WITHHOLD | ☐ | ||
| 2. | FOR | ☐ | THE ELECTION OF ABHILASH PATEL AS A DIRECTOR<br>OF THE CORPORATION. |
| WITHHOLD | ☐ | ||
| 3. | FOR | ☐ | THE ELECTION OF STEPHEN GLEDHILL AS A DIRECTOR<br>OF THE CORPORATION. |
| WITHHOLD | ☐ | ||
| 4. | FOR | ☐ | THE ELECTION OF SEAN CONACHER AS A DIRECTOR<br>OF THE CORPORATION. |
| WITHHOLD | ☐ | ||
| 5. | FOR | ☐ | THE ELECTION OF RYAN KEE AS A DIRECTOR OF<br>THE CORPORATION. |
| WITHHOLD | ☐ | ||
| 6. | FOR | ☐ | TO APPOINT TURNER, STONE & COMPANY, L.L.P. AS THE INDEPENDENT AUDITORS OF THE CORPORATION UNTIL THE NEXT ANNUAL MEETING OF SHAREHOLDERS AND AUTHORIZE THE DIRECTORS TO FIX THE AUDITORS’ REMUNERATION. |
| WITHHOLD | ☐ | ||
| 7. | FOR | ☐ | TO CONSIDER AND, IF DEEMED ADVISABLE, TO PASS, WITH OR WITHOUT VARIATION, AN ORDINARY RESOLUTION RE-APPROVING THE CORPORATION’S LONG-TERM EQUITY BASED INCENTIVE PLAN. |
| AGAINST | ☐ |
If any amendments or variations to the matters referred to above or to any other matters identified in the notice of meeting are proposed at the Meeting or any adjournment or adjournments thereof, or if any other matters which are not now known to management should properly come before the Meeting or any adjournment or adjournments thereof, this proxy confers discretionary authority on the person voting the proxy to vote on such amendments or variations or such other matters in accordance with the best judgment of such person.
Tobe valid, this proxy must be received by the Corporation’s transfer agent, Capital Transfer Agency ULC, 390 Bay Street, Suite 920,Toronto, Ontario, M5H 2Y2, Fax Number: 416.350.5008, not later than 48 hours, excluding Saturdays, Sundays and statutory holidays inthe City of Toronto, Ontario, prior to the Meeting or any adjournment thereof. Late proxies may be accepted or rejected by the Chairmanof the Meeting in his discretion, and the Chairman is under no obligation to accept or reject any particular late proxy.
This proxy revokes and supersedes all proxies of earlier date.
| DATED this | day of | , 2023. |
|---|
Tovote online, please go to: www.capitaltransferagency.com/voteproxy
| SIGNATURE OF SHAREHOLDER | |
|---|---|
| Proxy Control Number: | * SPECIMEN * |
| NAME OF SHAREHOLDER | |
| * SPECIMEN *<br><br> <br>1 MAIN STREET ANYWHERE PA 99999-9999 UNITED STATES | |
| NUMBER OF SHARES HELD |
2
NOTESAND INSTRUCTIONS
THISPROXY IS SOLICITED BY MANAGEMENT OF THE CORPORATION.
| 1. | The<br> shares represented by this proxy will be voted. Where a choice is specified, the proxy will<br> be voted as directed. Where no choice is specified, this proxy will be voted in favour of<br> the matters listed on the proxy. The proxy confers discretionary authority on the above named<br> person to vote in his or her discretion with respect to amendments or variations to the matters<br> identified in the notice of meeting accompanying the proxy or such other matters which may<br> properly come before the Meeting. |
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| 2. | Each<br> shareholder has the right to appoint a person other than management designees specified above<br> to represent them at the Meeting. Such right may be exercised by inserting in the space provided<br> the name of the person to be appointed, who need not be a shareholder of the Corporation. |
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| 3. | Each<br> shareholder must sign this proxy. Please date the proxy. If the shareholder is a corporation,<br> the proxy must be executed by an officer or attorney thereof duly authorized. |
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| 4. | If<br> the proxy is not dated in the space provided, it is deemed to bear the date of its mailing<br> to the shareholders of the Corporation. |
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| 5. | If<br> the shareholder appoints any of the persons designated above, including persons other than<br> the management designees, as proxy to attend and act at the Meeting: |
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| (a) | the<br> shares represented by the proxy will be voted in accordance with the instructions of the<br> shareholder on any ballot that may be called for; |
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| (b) | where<br> the shareholder specifies a choice in the proxy with respect to any matter to be acted upon,<br> the shares represented by the proxy shall be voted accordingly; and. |
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| (c) | IF<br> NO CHOICE IS SPECIFIED WITH RESPECT TO THE MATTERS LISTED ABOVE, THE PROXY WILL BE VOTED<br> FOR SUCH MATTERS. |
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NOTICEAND ACCESS
The Canadian Securities Regulators have adopted new rules effective for meetings held after March 1, 2013, which permit the use of notice-and-access for proxy solicitation instead of traditional physical delivery of proxy material. This new process provides the option to post meeting related materials including management information circulars as well as annual financial statements and management’s discussion and analysis (“MD&A”), on a website in addition to SEDAR. Under notice-and-access, meeting related materials will be available for viewing up to one year from the date of posting and a paper copy of the materials can be requested at any time during this period.
Disclosure regarding each matter or group of matters to be voted on at the Meeting is in the Information Circular under the heading “Matters to be Acted Upon at the Meeting”. You should review the Information Circular before voting.
TheCorporation has elected to utilize notice-and-access and provide you with the Meeting materials which are available electronically onwww.sedar.com and also on the website of the Corporation’s transfer agent, Capital Transfer Agency: www.capitaltransferagency.ca
Ifyou wish to receive a paper copy of the Meeting materials or have any questions about notice-and-access, please call 1.844.499.4482.In order to receive a paper copy in time for voting before the Meeting, your request should be received by September 5, 2023.
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Exhibit 17
GROWN ROGUE INTERNATIONAL INC.
MANAGEMENT INFORMATION CIRCULAR
SOLICITATION OF PROXIES
This management information circular (the “Information Circular”) is furnished in connection with the solicitation by management (“Management”) of Grown Rogue International Inc. (the “Corporation”), of proxies to be used at the annual and special meeting of shareholders (the “Meeting”) of the Corporation to be held on Monday, September 14, 2023, at the time and place and for the purposes set forth in the accompanying notice of annual and special meeting (the “Notice”). The costs associated with this proxy solicitation will be borne by the Corporation.
Except as otherwise indicated, information herein is given as at August 4, 2023. In this Information Circular, all references to dollar amounts are to Canadian dollars, unless otherwise specified. All references to US$ indicate dollar amounts in the lawful currency of the United States. All references herein to the Corporation shall include its subsidiaries as the context may require.
The board of directors of the Corporation (the “Board” or “Board of Directors”) has by resolution fixed the close of business on July 31, 2023, as the record date (the “Record Date”) for the Meeting. Only holders of common shares (the “Common Shares”) of the Corporation (each, a “Shareholder” and collectively, the “Shareholders”) of record as at 5:00 pm (Eastern Daylight Time) as at the Record Date will be entitled to receive the Notice and related documents and to vote at the Meeting or at any adjournment thereof, but failure to receive such Notice does not deprive Shareholders of their right to vote their Common Shares at the Meeting.
If any person entitled to vote at an annual and special meeting of the Shareholders wishes to propose any matter for consideration at the next annual and special meeting, in order for such proposal to be considered for inclusion in the materials mailed to Shareholders in respect of such meeting, such proposal must be received by the Corporation no later than 90 days before the anniversary date of the Notice.
The Corporation will use the Notice-and-Access Provisions (as defined below) to conduct the solicitation of proxies in connection with this Information Circular. Proxies may also be solicited by telephone, facsimile, email or in person by directors, officers and employees of the Corporation who will not be additionally compensated therefor. Arrangements have been made with brokerage houses and other intermediaries, clearing agencies, custodians, nominees and fiduciaries to forward solicitation materials to the beneficial owners of the Common Shares held of record by such persons.
NOTICE-AND-ACCESS
The Corporation has elected to deliver the materials in respect of the Meeting pursuant to the notice-and-access provisions (“Notice-and-Access Provisions”) concerning the delivery of proxy-related materials to shareholders found in section 9.1.1 of National Instrument 51-102 – Continuous Disclosure Obligations (“NI 51-102”), in the case of registered shareholders, and section 2.7.1 of National Instrument 54-101 – Communication with Beneficial Owners of Securities of a Reporting Issuer (“NI 54-101”), in the case of beneficial shareholders. The Notice-and-Access Provisions are a set of rules that reduce the volume of proxy-related materials that must be physically mailed to shareholders by allowing issuers to deliver meeting materials to shareholders electronically by providing shareholders with access to these materials online.
The use of the Notice-and-Access Provisions reduces paper waste and mailing costs to the Corporation. In order for the Corporation to utilize the Notice-and-Access Provisions to deliver proxy-related materials by posting the Information Circular (and if applicable, other materials) electronically on a website that is not SEDAR, the Corporation must send a notice to Shareholders, including beneficial Shareholders, indicating that the proxy-related materials have been posted and explaining how a Shareholder can access them or obtain a paper copy of those materials from the Corporation.
In accordance with the Notice-and-Access Provisions, a notice and a form of proxy or voting instruction form has been sent to all Shareholders informing them that this Information Circular is available online and explaining how this Information Circular may be accessed, in addition to outlining relevant dates and matters to be discussed at the Meeting. This Information Circular has been posted in full on www.capitaltransferagency.ca and under the Corporation’s SEDAR profile at www.sedar.com.
The Corporation will cause its agent to deliver copies of the proxy-related materials to the clearing agencies and Intermediaries (as hereinafter defined) for onward distribution to Non-Registered Holders (as hereinafter defined). The Corporation intends to pay for the Intermediaries to deliver to objecting Non-Registered Holders the proxy-related materials and Form 54-101F7 – Request for Voting Instructions Made by Intermediary of NI 54-101.
Any Shareholder who wishes to receive a paper copy of this Information Circular free of charge must contact Capital Transfer Agency, ULC at 390 Bay Street, Suite 920, Toronto, Ontario M5H 2Y2, toll free telephone number 1-844- 499-4482. In order to ensure that a paper copy of the Information Circular can be delivered to a requesting Shareholder in time for such Shareholder to review the Information Circular and return a form of proxy or voting instruction form prior to the deadline to receive proxies, it is strongly suggested that Shareholders ensure their request is received no later than September 5, 2023.
APPOINTMENT AND REVOCATION OF PROXIES
The persons named in the enclosed management form of proxy and instructions in relation thereto (the “Management Proxy”) are officers and/or directors of the Corporation. Each Shareholder has the right to appoint a person or company, who need not be a Shareholder, other than the persons named in the enclosed form of proxy, to represent such Shareholder at the Meeting or any adjournment(s) thereof. Such right may be exercised by inserting such person’s name in the blank space provided and striking out the names of Management’s nominees in the Management Proxy or by completing another proper form of proxy. All proxies must be executed by the Shareholder or his or her attorney duly authorized in writing or, if the Shareholder is a corporation, by an officer or attorney thereof duly authorized. The completed form of proxy must be deposited at the office of the Corporation’s transfer agent, Capital Transfer Agency, ULC, 390 Bay Street, Suite 920, Toronto, Ontario M5H 2Y2 Canada, no later than 48 hours (excluding Saturdays, Sundays and holidays) before the time of the Meeting or any adjournment(s) thereof.
A Shareholder forwarding the enclosed Management Proxy may indicate the manner in which the appropriate appointee is to vote with respect to any specific item by checking the appropriate space. If the Shareholder giving the proxy wishes to confer a discretionary authority with respect to any item of business, then the space opposite the item is to be left blank. The Common Shares represented by the proxy submitted by a Shareholder will be voted in accordance with the directions, if any, given in the proxy.
In addition to revocation in any other manner permitted by law, a Management Proxy or other form of proxy may be revoked if it is received not later than 11:00 am (Eastern Daylight Time) on September 12, 2023 or, if the Meeting is adjourned, not later than 48 hours (excluding Saturdays, Sundays and holidays) before the Meeting, by completing and signing a proxy bearing a later date and depositing it with Capital Transfer Agency, ULC on behalf of the Corporation.
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If you are a registered Shareholder of the Corporation, whether or not you are able to attend the Meeting, you are requested to complete, execute and deliver the enclosed Management Proxy in accordance with the instructions set forth on the form to the Corporation, c/o Capital Transfer Agency, ULC, 390 Bay Street, Suite 920, Toronto, Ontario M5H 2Y2, not less than 48 hours (excluding Saturdays, Sundays and holidays) prior to the Meeting or any adjournment(s) or postponement(s) thereof. The time limit for the deposit of proxies may be waived by the Board at its discretion without notice.
EXERCISE OF DISCRETION BY PROXIES
Common Shares represented by properly executed proxies in favour of the persons named in the enclosed Management Proxy will be either voted or withheld from voting, as applicable, in accordance with the instructions given by the Shareholder on any ballot that may be called for and, if the Shareholder specifies a choice with respect to any matter to be acted upon, the Common Shares will be voted accordingly. Where Shareholders have properly executed proxies in favour of the persons named in the enclosed Management Proxy and have not specified in the Management Proxy the manner in which the named proxies are required to vote the Common Shares represented thereby, such Common Shares will be voted in favour of the passing of the matters set forth in the Notice. The enclosed Management Proxy confers discretionary authority with respect to amendments or variations to the matters identified in the Notice and with respect to other matters that may properly come before the Meeting. At the date hereof, neither Management nor the directors of the Corporation (each, a “Director” and collectively, the “Directors”) are aware of any such amendments, variations or others matters to come before the Meeting. If any other matters which at present are not known to Management should properly come before the Meeting, the proxy will be voted on such matters in accordance with the best judgement of the named proxies.
INFORMATION FOR BENEFICIAL HOLDERS OF SECURITIES
Registered holders of Common Shares or the persons they validly appoint as their proxies are permitted to vote at the Meeting. However, in many cases, Common Shares beneficially owned by a person (a “Non-Registered Holder”) are registered either: (i) in the name of an intermediary (an “Intermediary”) (including banks, trust companies, securities dealers or brokers and trustees or administrators of self-administered RRSPs, RRIFs, RESPs and similar plans) that the Non-Registered Holder deals with in respect of the Common Shares; or (ii) in the name of a clearing agency (such as the Canadian Depository for Securities Limited) of which the Intermediary is a participant.
Distribution to Beneficial Owners
The Corporation will have caused its agent to deliver copies of the proxy-related materials to the clearing agencies and Intermediaries for onward distribution to Non-Registered Holders.
Intermediaries are required to forward the meeting materials to Non-Registered Holders unless a Non-Registered Holder has waived his or her right to receive them. Intermediaries often use service companies such as Broadridge Financial Solutions, Inc. to forward the meeting materials to Non-Registered Holders. Generally, those Non-Registered Holders who have not waived the right to receive meeting materials will either:
| 6. | be given a form of proxy which has already been signed by the Intermediary (typically<br> by a facsimile stamped signature), which is restricted as to the number of shares<br> beneficially owned by the Non-Registered Holder, but which is otherwise uncompleted.<br> This form of proxy need not be signed by the Non-Registered Holder. In this case,<br> the Non-Registered Holder who wishes to submit a proxy should properly complete the form of proxy and deposit it with Capital<br> Transfer Agency in the manner set out above in this Information Circular, with respect to the<br> Common Shares beneficially owned by such Non-Registered Holder; or |
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| 7. | more typically, be given a voting registration form which is not signed by the Intermediary and which, when properly<br> completed and signed by the Non-Registered Holder and returned to the Intermediary<br> or its service company, will constitute authority and instructions (often called a<br> “Voting Instruction Form”) which the Intermediary must follow. Typically, the Voting Instruction Form will<br> consist of a one-page pre-printed form. The purpose of this procedure is to permit<br> the Non-Registered Holder to direct the voting of the shares he or she beneficially owns. |
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Should a Non-Registered Holder who receives one of the above forms wish to vote at the Meeting in person, the Non-Registered Holder should strike out the names of the persons named in the form and insert the Non-Registered Holder’s name in the blank space provided. In either case, Non-Registered Holders should carefully follow the instructions, including those regarding when and where the proxy or voting instruction form is to be delivered.
Non-Registered Holders (other than Non-Registered Holders who are duly appointed proxyholders) will not be admitted to the Meeting. Non-Registered Holders are urged to vote their Common Shares in advance of the Meeting in accordance with the procedures and instructions received from Broadridge Financial Solutions, Inc. or other applicable intermediary. Non-Registered Holders may listen to the Meeting using the live audioconferencing facilities described in this Information Circular.
INTEREST OF CERTAIN PERSONS IN MATTERS TO BE ACTED UPON
Except as disclosed herein, no: (i) Director or executive officer (an “Officer”) of the Corporation who has held such position at any time since November 1, 2021; (ii) proposed nominee for election as a director of the Corporation; or (iii) associate or affiliate of a person in (i) or (ii) has any material interest, direct or indirect, by way of beneficial ownership of securities or otherwise, in any matter to be acted upon at the Meeting other than the election of Directors.
VOTING SHARES AND PRINCIPAL HOLDERS OF VOTING SHARES
The Corporation is authorized to issue an unlimited number of Common Shares without nominal or par value of which, as at the date hereof, 170,832,611 Common Shares are issued and outstanding as fully paid and non-assessable Common Shares. Each issued and outstanding Common Share entitles its holder to one vote.
To the knowledge of the Directors and Officers, as at the Record Date, no person beneficially owns, directly and indirectly, or exercises control or direction over, voting securities of the Corporation carrying more than 10% of the voting rights, except as follows:
| Name | Number of Common Shares | Percentage of Class |
|---|---|---|
| J. Obie Strickler | 34,194,416 | 20.01% |
| Bengal Catalyst Fund, LP | 24,365,000 | 14.26% |
The Officers and Directors of the Corporation own, as a group, a total of 40,831,773 Common Shares, representing 23.9% of the issued and outstanding Common Shares.
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MATTERS TO BE ACTED UPON AT THE MEETING
| 1. | PRESENTATION OF FINANCIAL STATEMENTS FOR 2022 AND 2021 |
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A copy of the audited consolidated financial statements of the Corporation for its prior years ended October 31, 2022 and 2021 can be found on the Corporation’s SEDAR profile at www.sedar.com. Copies can also be obtained on request by contacting the Corporation: Grown Rogue International Inc. c/o Miller Thomson LLP, Scotia Plaza, 40 King St. W., Suite 5800, PO Box 1011, Toronto, Ontario, M5H 3S1, Attention to: Ryan Kee, CFO and Corporate Secretary.
| 2. | ELECTION OF DIRECTORS |
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The articles of the Corporation provide that the Corporation shall not have more than ten (10) Directors. At the annual and special meeting of the shareholders of the Corporation held on July 15, 2019, the Shareholders voted in favour of a special resolution empowering the directors of the Corporation to determine from time to time the number of directors of the Corporation to be elected at any future annual meeting of Shareholders in accordance with the provisions of the Business Corporations Act (Ontario). The directors of the Corporation have determined that the number of directors of the Corporation to be elected at the Meeting shall be five (5). The nominees are, in the opinion of the Board, well qualified to act as Directors for the coming year. Each nominee has established his eligibility and willingness to serve as a Director, if elected. Each duly elected Director will hold office until the next annual meeting of Shareholders or until a successor is duly elected, unless his office is earlier vacated in accordance with the articles of the Corporation. The following table sets out the names of the persons nominated by management for election, any offices with the Corporation currently held by them, their principal occupations, the period or periods of service as directors of the Corporation and the approximate number of voting securities of the Corporation beneficially owned, directly or indirectly, or over which control or direction is exercised as of the date hereof.
| Name, province or state<br> and country of<br> residence | Office Held | Principal Occupation | Director<br> Since | Number of Common<br> Shares Beneficially<br> Owned or Controlled or<br> Directed^(1)^ |
|---|---|---|---|---|
| J. Obie Strickler^(2)^<br> Oregon, United States | President, Chief<br> Executive Officer<br> and Director | President,<br> Chief Executive Officer and Director of the Corporation | November<br> 15, 2018 | 34,194,416 |
| Abhilash Patel^(2)^<br><br>California, United States | Director | Consultant | November<br><br>15, 2018 | 754,971 |
| Stephen Gledhill^(2)^<br><br>Ontario, Canada | Director | Accountant | November<br><br>15, 2018 | 44,386 |
| Sean Conacher<br><br> Ontario, Canada | Director | Chief Executive Officer<br><br>of Global Cannabis Innovators Corp. | August 27,<br><br>2020 | 485,000 |
| Ryan Kee<br><br> Washington, United<br><br> States | Director | Chief Financial Officer | N/A | 97,500 |
Notes:
| ^(1)^ | The information as to the number of Common Shares beneficially owned, or over which<br> control or direction is exercised, directly or indirectly, not being within the direct<br> knowledge of the Corporation, has been furnished by the respective Director nominees. |
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| ^(2)^ | Member of the Audit Committee and Compensation Committee. Stephen Gledhill is the chairman of the Audit Committee and the Compensation Committee. |
| ^(3)^ | J. Obie Strickler, being an executive officer of the Corporation, is not “independent”<br> as defined in NI 52-110 – Audit Committees (“NI 52- 110”). The Corporation is relying on the exemption provided by section 6.1 of NI 52-110 pursuant to which the Corporation, as a venture issuer, is not required to comply with Part 3<br> (Composition of the Audit Committee) and Part 5 (Reporting Obligations) of NI 52-110. |
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Director Biographies
Mr. J. Obie Strickler
Mr. Strickler is the CEO, President and founder of the Corporation. He founded Canopy Management, LLC in 2015 to consolidate the three medical facilities he had operated since 2006 within one company. Mr. Strickler formed the Corporation in late 2016 and entered the Oregon recreational cannabis market with a plan to build a multi-national cannabis brand. Mr. Strickler was successful in building a profitable medical cannabis company and used that foundation to build Grown Rogue where he has led a team that now has operations in two states with a management contract in two additional states. Mr. Strickler has a BS in Geology from Southern Oregon University and is also an Oregon Professional Geologist. During the time he was financing and overseeing Canopy’s growth he was also the regional manager for a large multi-service natural resource company before starting his own business in 2011 to provide management services to large natural resource companies primarily in the mining sector. In this role, he was responsible for building and integrating complex technical teams to advance large, world-class, multi-billion-dollar mining projects from exploration through feasibility primarily in base and precious metals. In 2014, Mr. Strickler teamed with aerospace engineers to form HyperSciences, Inc a platform technology company focused on commercializing hypervelocity technology into a variety of industrial applications. Mr. Strickler helped secure a large contract with one of the world’s larger oil and gas providers to solve deep drilling challenges and moved this project through proof of concept before departing to focus on the opportunities in cannabis full time. Mr. Strickler is taking his production and product innovation experience in the cannabis industry and his integration and execution experience from the natural resource industry to build Grown Rogue into a premier cannabis company. Mr. Strickler is 44 years old and devotes 100% of his professional time to the Corporation.
Mr. Abhilash Patel
Mr. Patel is a serial entrepreneur, venture investor, speaker, and philanthropist. He is currently Founder & CEO of Thermal.co, a venture studio in Santa Monica, CA with a portfolio of stage-agnostic and category-agnostic investments along with a number of operating ventures. Previously, Abhilash was founder and CEO at Ranklab, a digital marketing agency and Co-Founder of Recovery Brands, a digital publisher with assets including Rehabs.com, Recovery.org and others. Both companies were listed in Inc. Magazine’s fastest growing private companies in 2015. Later in 2015, both companies were acquired by AAC Holdings, then listed on the NYSE. He is on the Board of Directors for several non-profit organizations in Southern California, including the LA Regional Food Bank, Junior Achievement of Southern California, Clare|Matrix and 10,000 Beds, and serves on the board of several privately-held startups as well.
Abhilash holds a BA in Economics and Philosophy from Columbia University, and an MBA from the UCLA Anderson School of Management. Abhilash’s work has been featured in several major publications, including Inc., Huffington Post, Forbes, and Entrepreneur, USA Today, among others. Dr. Drew., Inc. named Abhilash “One of 20 Inspiring Entrepreneurs Improving Health for All” and Forbes highlights him in an interview entitled “How Web Publishing is Saving Lives”. When he’s not helping businesses grow, Abhilash is spending time with his wife and their three beautiful sons, or training for his next triathlon. Mr. Patel is 43 years old and intends to devote the time necessary to serve as a director of the Corporation.
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Mr. Stephen Gledhill
Mr. Gledhill is the founder and President of Keshill Consulting Associates Inc., a boutique management consulting practice. Mr. Gledhill has over 25 years of financial-control experience and acts as CFO and Corporate Secretary for multiple publicly-traded companies, several of which he was instrumental in scaling-up and taking public. He currently serves as the CFO of CO2 Gro Inc. (TSXV:GROW), Bhang Inc. (CSE: BHNG), DelphX Capital Markets Inc (TSXV:DELX) and POSaBIT Systems Corporation (CSE: PBIT), as well as the Corporate Secretary of Tombill Mines Limited (TSXV: TBLL). Mr. Gledhill has also served as the Senior Vice President and CFO of Borealis Capital Corporation, a Toronto-based merchant bank as well as Vice President of Finance of OMERS Realty Corporation (ORC), the real estate entity of the Ontario Municipal Employees Retirement System. Mr. Gledhill is a Chartered Public Accountant and Certified Management Accountant and holds a Bachelor of Math Degree from the University of Waterloo. Mr. Gledhill is 62 years old and intends to devote the time necessary to serve as a director of the Corporation.
Mr. Sean Conacher
Sean is an experienced executive with a demonstrated history of working in the financial services, cannabis, and marketing sectors. He is skilled in entrepreneurship, venture capital, public and private equity, foreign exchange, options and asset management. He has held senior executive and board roles in both public and private companies. Mr. Conacher is 53 years old and intends to devote the time necessary to serve as a director of the Corporation.
Mr. Ryan Kee
Mr. Kee is an experienced accounting professional with a history of working in mining in various global jurisdictions. He is skilled in financial reporting, IT integrations, and team building & development. He is currently Chief Accounting Officer of the Corporation. Mr. Kee has a BS in Accounting and Spanish from the University of Idaho, and is a Certified Public Accountant, licensed in Washington state. He has developed financial models to quantitatively describe the cost profiles of operating mines, optimize grade cutoffs, and drive cost reductions. Most recently, he led accounting, supply chain, and IT teams for an operating gold mine in South America, and will apply the best practices learned & developed in mining to cannabis production. Mr. Kee is 40 years old and intends to devote 100% of his professional time to the Corporation.
Corporate Cease Trade Orders, Bankruptcy Proceedings and Penalties and Sanctions
Other than disclosed below, to the knowledge of the Corporation, no Director or proposed Director of the Corporation is, as at the date of this Information Circular, or was within 10 years before the date of this Information Circular, a director or chief executive officer or chief financial officer of any company (including the Corporation) that: (a) was the subject of an order (as defined in Form 51-102F5 under National Instrument 51-102 Continuous Disclosure Obligations) that was issued while the Director or proposed Director was acting in the capacity as director, chief executive officer or chief financial officer; or (b) was subject to an order that was issued after the Director or proposed Director ceased to be a director, chief executive officer or chief financial officer, and which resulted from an event that occurred while that person was acting in the capacity as a director, chief executive officer or chief financial officer. For the purposes of this paragraph, “order” means a cease trade order, an order similar to a cease trade order or an order that denied the relevant Corporation access to any exemption under securities legislation, in each case that was in effect for a period of more than 30 consecutive days.
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No Director or proposed Director of the Corporation: (a) is, or within 10 years before the date hereof has been a director or executive officer of a corporation (including the Corporation) that while that person was acting in that capacity, or within a year of that person ceasing to act in that capacity, became bankrupt, made a proposal under any legislation relating to bankruptcy or insolvency or was subject to or instituted any proceedings, arrangement or compromise with creditors or had a receiver, receiver manager or trustee appointed to hold its assets; or (b) has within the 10 years before the date hereof, become bankrupt, made a proposal under any legislation relating to bankruptcy or insolvency, or become subject to or instituted any proceedings, arrangement or compromise with creditors, or had a receiver, receiver manager or trustee appointed to hold the assets of the Director or proposed Director.
Other than disclosed below, no Director or proposed Director of the Corporation has been subject to any: (a) penalties or sanctions imposed by a court relating to Canadian securities legislation or by a Canadian securities regulatory authority or has entered into a settlement agreement with a Canadian securities regulatory authority; or (b) other penalties or sanctions imposed by a court or regulatory body that would be likely to be considered important to a reasonable security holder in deciding whether to vote for the Director or proposed Director.
In 2013, Sean Conacher was a trader and designated person at a firm regulated by The Investment Industry Regulatory Organization of Canada (“IIROC”). It was determined that between June 2013 and October 2013, Mr. Conacher allowed a U.S. based client to enter orders directly on an IIROC-regulated marketplace through a firm inventory account, and therefore permitted trades to be executed that Mr. Conacher knew, or ought to have reasonably have known, would not comply with applicable regulatory requirements. Mr. Conacher and IIROC subsequently entered into a settlement agreement, resulting in: (i) a fine of $15,000; (ii) a suspension of access to IIROC-regulated marketplaces for three months effective from October 2013; and (iii) costs of $2,000.
On January 12, 2016 (further to a TSX Venture Exchange Bulletin dated January 11, 2016), Gemoscan Canada, Inc.’s (“GES”) shares were suspended from trading on the TSX Venture Exchange for failing to maintain exchange requirements, GES having made assignment into bankruptcy. Effective January 13, 2016, GES’s listing was transferred to the NEX. Stephen Gledhill served as CFO of GES from August 2010 to November 2015.
On April 25, 2016, CO2 Gro Inc. (formerly BlueOcean NutraSciences Inc.) (“BOC”) applied to the applicable Canadian securities regulatory authorities pursuant to Policy 12-203 for a MCTO, which precluded members of management (including Stephen Gledhill, CFO) from trading BOC common shares until such time as the MCTO is no longer in effect. The MCTO was sought by BOC as it would not be filing its audited annual financial statements, related management discussion and analysis and applicable officer certifications (the “Annual Materials”) by the deadline date of April 29, 2016. On May 9, 2016, the OSC granted a temporary MCTO, effective until May 16, 2016. On May 16, 2016, the OSC issued a permanent MCTO in effect until 2 days following BOC filing its Annual Materials with the applicable regulatory authorities. On July 19, 2016, BOC filed its Annual Materials and on July 21, 2016, the MCTO was lifted.
On May 3, 2021, Bhang Inc. (“Bhang”) was granted a management cease trade order (“MCTO”) by the applicable Canadian securities regulatory authorities pursuant to National Policy 12-203 – Management Cease Trade Orders (“Policy 12-203”), which precluded members of management (including Stephen Gledhill, CFO) from trading Bhang shares until such time as the MCTO was no longer in effect. The MCTO was sought by Bhang as it would not be filing its audited annual financial statements, related management discussion and analysis and applicable officer certifications (the “Bhang 2021 Annual Materials”) by the deadline date of April 30, 2021. On June 23, 2021, Bhang filed the Bhang 2021 Annual Materials and the MCTO lapsed on July 5, 2021.
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On May 3, 2022, Bhang was granted a MCTO by the applicable Canadian securities regulatory authorities pursuant to NP 12-203 which precluded members of management (including Stephen Gledhill, CFO) from trading Bhang shares until such time as the MCTO is no longer in effect. The MCTO was sought by Bhang as it would not be filing its audited annual financial statements, related management discussion and analysis and applicable officer certifications (the “Bhang 2022 Annual Materials”) by the deadline date of May 2, 2022. On May 31, 2022, Bhang filed the Bhang 2022 Annual Materials and the MCTO lapsed on June 8, 2022.
On May 5, 2023, Bhang was issued a failure to file cease trade order in respect of the Company’s securities by the applicable Canadian securities regulatory authorities pursuant to Multilateral Instrument 11-103 - Failure-to-File Cease Trade Orders in Multiple Jurisdictions (the “FFCTO”), which precludes trading in the company’s securities, as a result of Bhang’s failure to file its audited annual financial statements, related management discussion and analysis and applicable officer certifications for the year ended December 31, 2022. As of the date of this Information Circular, the FFCTO remains in effect.
The Corporation’s common shares are quoted for trading on the OTC Markets under the symbol “GRUSF” and listed on the Canadian Securities Exchange (“CSE”), under the symbol “GRIN”. During the past three years, there have been two suspensions of trading for failure to timely file financial reports: trading of the Corporation’s common shares ceased over the OTC Markets and CSE in March 2020, both associated with the same filing delay. On March 24, 2020, the Company rectified the default situation that gave rise to the suspension of trading, and trading on the CSE and OTC Markets resumed. The Securities and Exchange Commission’s amendments to Rule 15c2-11 went into effect September 28, 2021, and on that date, quotations on the OTC Markets were no longer publishable due to lack of current information about the Corporation. As of the date of this Information Circular, this issue has been resolved and the quotations are available on the OTC Markets.
If you complete and return the proxy for the Meeting, the persons designated in the proxy for the Meeting intend to vote at the Meeting, or any adjournment thereof, FOR the election of J. Obie Strickler, Abhilash Patel, Stephen Gledhill, Sean Conacher and Ryan Kee as Directors, unless you specifically direct that your vote be withheld.
| 3. | APPOINTMENT AND REMUNERATION OF AUDITORS |
|---|
At the Meeting, Shareholders will be asked to approve a resolution re-appointing Turner, Stone & Company, L.L.P., of Dallas, Texas, as auditors for the Corporation, to hold office until the next annual meeting of Shareholders, and to authorize the Directors to fix their remuneration. Turner, Stone & Company, L.L.P., Charter Professional Accountants were appointed as auditors of the Corporation effective November December 6, 2021.
THE BOARD OF DIRECTORS RECOMMENDS THAT SHAREHOLDERS VOTE IN FAVOUR OF THE APPOINTMENT OF TURNER, STONE & COMPANY, L.L.P., CHARTERED PROFESSIONAL ACCOUNTANTS, AS AUDITORS OF THE CORPORATION AND THE AUTHORIZING OF THE DIRECTORS TO FIX THEIR REMUNERATION.
If you complete and return the Management Proxy, the persons designated in the Management Proxy intend to vote at the Meeting, or any adjournment thereof, FOR the appointment of Turner, Stone & Company, L.L.P. as auditors of the Corporation and to authorize the Board to fix the auditors’ remuneration, unless you specifically direct that your vote be withheld.
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| 4. | RE-APPROVAL OF EQUITY INCENTIVE PLAN |
|---|
The Corporation has an omnibus equity incentive plan that was last approved by shareholders on August 27, 2020 (the “Equity Incentive Plan”). The maximum number of Common Shares that may be issued under the Equity Incentive Plan is 20% of the number of Common Shares then outstanding. Notwithstanding the forgoing, the total number of Common Shares issued under ISOs (as defined below) cannot exceed 20,000,000 Common Shares, subject to adjustment as provided in the Equity Incentive Plan.
CSE policies require that rolling security based compensation arrangements, such as the Equity Incentive Plan, receive shareholder approval every three years at the Corporation’s annual shareholders meeting. As such, shareholders are being asked to consider and, if thought appropriate, adopt an ordinary resolution, authorizing and approving Corporation’s Equity Incentive Plan (the “Equity Incentive Plan Resolution”). A summary of the material terms of the Equity Incentive Plan is set out below. The proposed Equity Incentive Plan is identical to the one approved by shareholders on August 27, 2020. The full text of the Equity Incentive Plan is attached to the Corporation’s management information circular dated July 20, 2020 and is available under the Corporation’s profile on sedar.com.
Summary of the Equity Incentive Plan
The principal features of the Equity Incentive Plan are summarized below.
Purpose
The purpose of the Equity Incentive Plan is to enable the Corporation and its affiliated companies to: (i) promote and retain employees, officers, consultants, and directors capable of assuring the future success of the Corporation, (ii) to offer such persons incentives to put forth maximum efforts, and (iii) to compensate such persons through various share and cash-based arrangements and provide them with opportunities for share ownership, thereby aligning the interests of such persons and Shareholders.
The Equity Incentive Plan permits the grant of (i) nonqualified stock options (“NQSOs”) and incentive stock options (“ISOs”) (collectively, “Options”), (ii) restricted stock awards, (iii) restricted stock units (“RSUs”), (iv) stock appreciation rights (“SARs”), and (v) performance compensation awards (“PCAs”), which are referred to herein collectively as “Awards,” as more fully described below.
Eligibility
Any of the Corporation’s employees, officers, directors, consultants (who are natural persons) are eligible to participate in the Equity Incentive Plan (the “Participants”). The basis of participation of an individual under the Equity Incentive Plan, and the type and amount of any Award that an individual will be entitled to receive under the Equity Incentive Plan, will be determined by the Board or Compensation Committee based on its judgment as to the best interests of the Corporation.
The maximum number of Common Shares that may be issued under the Equity Incentive Plan shall be determined by the Board from time to time, but in no case shall exceed, in the aggregate, 20% of the number of Common Shares then outstanding. Notwithstanding the above, the total number of Common Shares issued under ISOs cannot exceed 20,000,000 Common Shares, subject to adjustment as provided in the Equity Incentive Plan.
Any shares subject to an Award under the Equity Incentive Plan that are forfeited, cancelled, expire unexercised, are settled in cash, or are used or withheld to satisfy tax withholding obligations of a Participant shall again be available for Awards under the Equity Incentive Plan. In the event of any dividend, recapitalization, forward or reverse stock split, reorganization, merger, amalgamation,
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consolidation, split-up, split-off, combination, repurchase or exchange of Common Shares or other securities of the Corporation, issuance of warrants or other rights to acquire Common Shares or other securities of the Corporation, or other similar corporate transaction or event, which affects the Common Shares, or unusual or nonrecurring events affecting the Corporation, or the financial statements of the Corporation, or changes in applicable rules, rulings, regulations or other requirements of any governmental body or securities exchange or inter-dealer quotation system, accounting principles or law, the Compensation Committee or Board may make such adjustment, which is appropriate in order to prevent dilution or enlargement of the rights of Participants under the Equity Incentive Plan, to (i) the number and kind of shares which may thereafter be issued in connection with Awards, (ii) the number and kind of shares issuable in respect of outstanding Awards, (iii) the purchase price or exercise price relating to any Award or, if deemed appropriate, make provision for a cash payment with respect to any outstanding Award, and (iv) any share limit set forth in the Equity Incentive Plan.
Awards
Options
The Compensation Committee is authorized to grant Options to purchase Common Shares that are either ISOs meaning they are intended to satisfy the requirements of Section 422 of the Code, or NQSOs, meaning they are not intended to satisfy the requirements of Section 422 of the Code. Options granted under the Equity Incentive Plan will be subject to the terms and conditions established by the Board or Compensation Committee. Under the terms of the Equity Incentive Plan, unless the Compensation Committee or Board determines otherwise in the case of an Option substituted for another Option in connection with a corporate transaction, the exercise price of the Options will not be lower than the greater of the closing market prices of the Common Shares on (a) the trading day prior to the date of grant of the stock options, and (b) the date of grant of the stock options. Options granted under the Equity Incentive Plan will be subject to such terms, including the exercise price and the conditions and timing of exercise, as may be determined by the Compensation Committee or Board and specified in the applicable award agreement. The maximum term of an option granted under the Equity Incentive Plan will be ten years from the date of grant (or five years in the case of an ISO granted to a 10% shareholder). Payment in respect of the exercise of an Option may be made in cash or by cheque, by surrender of unrestricted shares (at their fair market value on the date of exercise) or by such other method as the Compensation Committee may determine to be appropriate.
Restricted Stock
A restricted stock award is a grant of Common Shares, which are subject to forfeiture restrictions during a restriction period. The Compensation Committee or Board will determine the price, if any, to be paid by the Participant for each Common Shares subject to a restricted stock award, but in any event the price may not be lower than the greater of the closing market prices of the Common Shares on (a) the trading day prior to the date of grant of the restricted stock, and (b) the date of grant of the restricted stock. The Compensation Committee or Board may condition the expiration of the restriction period, if any, upon: (a) the Participant’s continued service over a period of time with the Corporation or its affiliates; (b) the achievement by the Participant, the Corporation or its affiliates of any other performance goals set by the Compensation Committee; or (c) any combination of the above conditions as specified in the applicable award agreement. If the specified conditions are not attained, the Participant will forfeit the portion of the restricted stock award with respect to which those conditions are not attained, and the underlying Common Shares will be forfeited. At the end of the restriction period, if the conditions, if any, have been satisfied, the restrictions imposed will lapse with respect to the applicable number of Common Shares. During the restriction period, unless otherwise provided in the applicable award agreement, a Participant will have the right to vote the shares underlying the restricted stock; however, all dividends will remain subject to restriction until the stock with respect to which the dividend was issued lapses. The Compensation Committee may, in its discretion, accelerate the vesting and delivery of shares of restricted stock. Unless otherwise provided in the applicable award agreement or as may be determined by the Compensation Committee, upon a Participant’s termination of service with the Corporation, the unvested portion of a restricted stock award will be forfeited.
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RSUs
RSUs are granted in reference to a specified number of Common Shares and entitle the holder to receive, on achievement of specific performance goals established by the Compensation Committee or Board or after a period of continued service with the Corporation or its affiliates or any combination of the above as set forth in the applicable award agreement, one Common Share for each such Common Share covered by the RSU; provided, that the Compensation Committee may elect to pay cash, or part cash and part Common Shares in lieu of delivering only Common Shares. The Compensation Committee or Board may, in its discretion, accelerate the vesting of RSUs. Unless otherwise provided in the applicable award agreement or as may be determined by the Compensation Committee, upon a Participant’s termination of service with the Corporation, the unvested portion of the RSUs will be forfeited. The value ascribed to the Common Shares covered by the RSU may not be lower than the greater of the closing market prices of the Common Shares on (a) the trading day prior to the date of grant of the RSUs, and (b) the date of grant of the RSUs.
Stock Appreciation Rights
A SAR entitles the recipient to receive, upon exercise of the SAR, the increase in the fair market value of a specified number of Common Shares from the date of the grant of the SAR and the date of exercise payable in Common Shares. Any grant may specify a vesting period or periods before the SAR may become exercisable and permissible dates or periods on or during which the SAR shall be exercisable. No SAR may be exercised more than ten years from the grant date. Unless otherwise provided in the applicable award agreement or as may be determined by the Compensation Committee or Board, upon a Participant’s termination of service with the Corporation, the unvested portion of a SAR will be forfeited. The value ascribed to the Common Shares covered by the SARs may not be lower than the greater of the closing market prices of the Common Shares on (a) the trading day prior to the date of grant of the SAR, and (b) the date of grant of the SAR.
Performance Compensation Awards
PCAs may be granted under the Equity Incentive Plan, which (i) may be denominated or payable in cash, Common Shares, or other securities, awards or other property (including, without limitation, restricted stock and RSUs), and (ii) confer on the holder thereof the right to receive payments, in whole or in part, upon the achievement of one or more objective performance goals during such performance periods as the Compensation Committee or Board shall establish. Notwithstanding the foregoing, pursuant to the rules of the CSE, the value ascribed to the Common Shares covered by the PCAs may not be lower than the greater of the closing market prices of the Common Shares on (a) the trading day prior to the date of grant of the PCA, and (b) the date of grant of the PCA. Subject to the terms of the Equity Incentive Plan and the policies of the CSE, the performance goals to be achieved during any performance period, the length of any performance period, the amount of any PCA granted, the amount of any payment or transfer to be made pursuant to any PCA and any other terms and conditions shall be determined by the Compensation Committee or Board. Unless otherwise provided in the applicable award agreement or as may be determined by the Compensation Committee or Board, upon a Participant’s termination of service with the Corporation, the unvested portion of a PCA will be forfeited.
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General
The Compensation Committee or Board may impose restrictions on the grant, exercise or payment of an Award as it determines appropriate. Generally, Awards granted under the Equity Incentive Plan shall be non-transferable except by will or by the laws of descent and distribution. No Participant shall have any rights as a shareholder with respect to Common Shares covered by any Awards, unless and until such Awards are settled in Common Shares.
No Option (or, if applicable, SARs) shall be exercisable, no Common Shares shall be issued, no certificates for Common Shares shall be delivered and no payment shall be made under the Equity Incentive Plan except in compliance with all applicable laws. The Board may amend, alter, suspend, discontinue or terminate the Equity Incentive Plan and the Compensation Committee or Board may amend any outstanding Award at any time; provided that (i) such amendment, alteration, suspension, discontinuation, or termination shall be subject to the approval of the Corporation’s shareholders if such approval is necessary to comply with any tax or regulatory requirement applicable to the Equity Incentive Plan (including, without limitation, as necessary to comply with any rules or requirements of applicable securities exchange), and (ii) no such amendment or termination may adversely affect Awards then outstanding without the Award holder’s permission.
In the event of any reorganization, merger, consolidation, split-up, spin-off, combination, plan of arrangement, take-over bid or tender offer, repurchase or exchange of Common Shares or other securities of the Corporation or any other similar corporate transaction or event involving the Corporation (or the Corporation shall enter into a written agreement to undergo such a transaction or event), the Compensation Committee or the Board may, in its sole discretion, provide for any (or a combination) of the following to be effective upon the consummation of the event (or effective immediately prior to the consummation of the event, provided that the consummation of the event subsequently occurs):
| ● | termination of the Award, whether or not vested, in exchange<br>for cash and/or other property, if any, equal to the amount that would have been attained upon the exercise of the vested portion of<br>the Award or realization of the Participant’s vested rights, |
|---|---|
| ● | the replacement of the Award with other rights or property selected<br>by the Compensation Committee or the Board, in its sole discretion, |
| --- | --- |
| ● | assumption of the Award by the successor or survivor corporation,<br>or a parent or subsidiary thereof, or shall be substituted for by similar options, rights or awards covering the stock of the successor<br>or survivor corporation, or a parent or subsidiary thereof, with appropriate adjustments as to the number and kind of shares and prices, |
| --- | --- |
| ● | that the Award shall be exercisable or payable or fully vested<br>with respect to all Common Shares covered thereby, notwithstanding anything to the contrary in the applicable award agreement, or |
| --- | --- |
| ● | that the Award cannot vest, be exercised or become payable after<br>a date certain in the future, which may be the effective date of the event. |
| --- | --- |
Tax Withholding
The Corporation may take such action as it deems appropriate to ensure that all applicable federal, state, local and/or foreign payroll, withholding, income or other taxes, which are the sole and absolute responsibility of a Participant, are withheld or collected from such Participant.
Shareholders will be asked at the Meeting to consider and, if thought advisable, pass the Equity Incentive Plan Resolution, substantially in the following form:
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“BE IT RESOLVED AS AN ORDINARY RESOLUTION THAT:
| 1. | the equity incentive plan (the “Equity Incentive Plan”) of Grown Rogue International Inc. (the “Corporation”), in the form attached to the Corporation’s management information circular dated July 20, 2020, and all grants of Awards (as defined in the Equity Incentive Plan) thereunder,<br> be and the same are hereby ratified, confirmed and approved; |
|---|---|
| 2. | the unallocated Awards available for grant under the Equity Incentive Plan are hereby<br> approved; |
| --- | --- |
| 3. | the directors of the Corporation or any such committee of the Corporation are hereby<br> authorized to grant Awards pursuant to the Equity Incentive Plan to those eligible<br> to receive Awards thereunder; and |
| --- | --- |
| 4. | any one or more of the directors or officers of the Corporation is hereby authorized<br> and directed, acting for, in the name of and on behalf of the Corporation, to execute<br> or cause to be executed, under the seal of the Corporation or otherwise, and to deliver<br> or cause to be delivered, such other documents and instruments, and to do or cause<br> to be done all such other acts and things, as may in the opinion of such director<br> or officer of the Corporation be necessary or desirable to carry out the intent of<br> the foregoing resolution, the execution of any such document or the doing of any such other<br> act or thing by any director or officer of the Corporation being conclusive evidence<br> of such determination.” |
| --- | --- |
THE BOARD OF DIRECTORS RECOMMENDS THAT SHAREHOLDERS VOTE IN FAVOUR OF THE EQUITY INCENTIVE PLAN RESOLUTION.
If you complete and return the Management Proxy, the persons designated in the Management Proxy intend to vote at the Meeting, or any adjournment thereof, FOR the Equity Incentive Plan Resolution, unless you specifically direct that your vote be voted against the Equity Incentive Plan Resolution.
OTHER MATTERS
The Corporation knows of no other matters to be brought before the Meeting. If any amendment, variation or other business is properly brought before the Meeting, the form of Management Proxy and voting instruction confers discretion on the persons named on the form of Management Proxy to vote on such matters in accordance with their best judgment.
EXECUTIVE COMPENSATION
For purposes of this Information Circular, a “Named Executive Officer” of the Corporation means an individual who, at any time during the year, was:
| (a) | the Corporation’s chief executive officer (“CEO”); |
|---|---|
| (b) | the Corporation’s chief financial officer (“CFO”); |
| --- | --- |
| (c) | each of the Corporation’s three most highly compensated executive officers, or the three most highly compensated<br> individuals acting in a similar capacity, other than the CEO and CFO, at the end of<br> the most recently completed financial year and whose total compensation was, individually,<br> more than $150,000 during the Corporation’s most recently completed financial year; and |
| --- | --- |
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| (d) | each individual who would be a Named Executive Officer under paragraph (c) but for<br> the fact that the individual was neither an executive officer of the Corporation,<br> nor acting in a similar capacity, at the end of the most recently completed financial<br> year. |
|---|
Based on the foregoing definition, during the last completed financial year of the Corporation, there were three (3) Named Executive Officers, being J. Obie Strickler, Ryan Kee and Adam August.
There were five (5) Directors during the last completed financial year of the Corporation, being J. Obie Strickler, Abhilash Patel, Stephen Gledhill, Sean Conacher and Ryan Kee.
COMPENSATION DISCUSSION AND ANALYSIS
Compensation Committee
The Corporation has constituted a committee of the Board to serve as a compensation committee (the “Compensation Committee”). The Compensation Committee is appointed by the Board to establish policies and procedures with respect to the compensation of the Corporation’s Directors and Officers. The Compensation Committee has overall responsibility for approving and evaluating compensation plans, policies and programs of the Corporation. The Compensation Committee members may be replaced by the Board.
The Compensation Committee is comprised of a majority of independent Directors. The current Compensation Committee is comprised of J. Obie Strickler (not independent), Abhilash Patel (independent) and Stephen Gledhill (independent). Under the proposed slate of the directors, the current members of the Compensation Committee will be re-appointed. Recognizing the importance of an independent dialogue, in determining the appropriate level of compensation payable to Mr. J. Obie Strickler, the independent members of the Compensation Committee subjectively and quantitatively analyze his performance using the criteria discussed in this section below. In addition, the Compensation Committee reviews the adequacy and form of compensation in comparison to other companies of similar size and stage of development as described further below.
Compensation Committee Mandate
The Compensation Committee is appointed by the Board of Directors to assist the Board in carrying out its responsibilities by:
| ● | Reviewing compensation and human resources issues in support<br>of the achievement of the Corporation’s business strategy and making recommendations to the Board as appropriate. |
|---|---|
| ● | Reviewing and approving corporate goals and objectives relevant<br>to executive officer compensation. |
| --- | --- |
| ● | Evaluating executive officer performance against those goals<br>and objectives. |
| --- | --- |
| ● | Making recommendations to the Board with respect to executive<br>officer’s compensation. |
| --- | --- |
| ● | Reviewing issues and overseeing the investment management of<br>the Corporation’s savings and investment plans, if applicable. |
| --- | --- |
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Compensation Philosophy
Compensation of executive officers of the Corporation is recommended to the Board of Directors by the Compensation Committee. In its review process, the Compensation Committee relies on input from management on the assessment of executives and Corporation performance.
The Compensation Committee establishes management compensation policies and oversees their general implementation. All members of the Compensation Committee have direct experience which is relevant to their responsibilities as Compensation Committee members. All members are or have held senior executive or director roles within significant businesses. Mr. Gledhill has public company experience, and all have a good financial understanding which allows them to assess the costs versus benefits of compensation plans. The members combined experience in the Corporation’s sector provides them with the understanding of the Corporation’s success factors and risks, which is very important when determining metrics for measuring success.
Risk management is a primary consideration of the Compensation Committee when implementing its compensation program. The Compensation Committee does not believe that the Corporation’s current compensation program results in unnecessary or inappropriate risk-taking, including risks that are likely to have a material adverse effect on the Corporation. Payments of bonuses, if any, are not made until performance goals have been met.
Executive compensation is generally based on pay for performance and to be competitive with other firms of comparable size in similar fields. The Chief Executive Officer makes recommendations to the Compensation Committee as to the compensation of managers, other than himself, for approval by the Board. The Compensation Committee makes recommendations to the Board as to the compensation of the Chief Executive Officer, for approval, in accordance with the same criteria upon which the compensation of other managers are based.
Executive compensation is comprised of a base salary and variable components in the form of an annual bonus opportunity and stock options. The annual bonus provides an opportunity for management and executive employees to earn an annual cash incentive based on various pre-set criteria and the degree of achievement of objectives sets by the Compensation Committee. These performance goals will therefore take into account (1) the compliance with budgeted results, (2) the Corporation’s share performance during the last completed financial year, and (3) the business development and personal achievement fulfilled by each executive employee, as the case may be. Generally, new stock option grants do not take into account previous grants of options when considering new grants.
The President and Chief Executive Officer’s salary is based on comparable market consideration and the Compensation Committee’s assessment of his performance, with regard to the Corporation’s financial performance and progress in achieving strategic performance.
The Corporation’s executive compensation program is intended to attract, motivate and retain high performing senior executives, encourage and reward superior performance and align the executives’ interests with those of the Corporation. The Corporation aims to achieve these objectives by: (i) providing executive compensation which is competitive with what is offered by comparable companies; (ii) ensuring that the achievement of annual objectives is rewarded through the payment of bonuses; and (iii) providing executives with long-term incentive through the grant of stock options.
The compensation paid to the Named Executive Officers will be based on comparisons to compensation paid to officers of companies in a similar business, size and stage of development and will reflect the need to provide incentives and compensation for the time and effort expended by the Named Executive Officers, while taking into account the financial and other resources of the Corporation, as well as increasing short and long-term shareholder value.
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Compensation Elements
Compensation of Named Executive Officers is revised each year and has been structured to encourage and reward the executive officers on the bases of short-term and long-term corporate performance. In the context of the analysis of the compensation for the financial years ended October 31, 2022 and 2021, the following components were examined:
| (e) | base salary; |
|---|---|
| (f) | annual performance incentive relative to base compensation consisting of cash and<br> stock options; |
| --- | --- |
| (g) | grant of share-based Awards; and |
| --- | --- |
| (h) | other elements of compensation which may include shares of the Corporation. |
| --- | --- |
Base Salary
The compensation of the Corporation’s executive officers is determined by the Board upon recommendations made by the Compensation Committee. Executive compensation is generally based on performance and what is being offered by other firms of comparable size in similar fields.
Annual Incentive Plan
The Corporation has a bonus plan for its executive officers, representing a percentage of their base annual salary. The grant of bonuses for performance is left at the discretion of the Board of Directors upon the recommendation of the Compensation Committee, based on the financial results of the Corporation and the degree of achievement of objectives set by the Board of Directors, as more fully described above.
Share-based Awards
The Corporation believes that encouraging its Officers and employees to become Shareholders is the best way of aligning their interests with those of its Shareholders. Equity participation is currently accomplished through the Corporation’s Equity Inventive Plan. Under the Equity Incentive Plan, Awards will be granted to management and employees taking into account a number of factors, including, base salary and bonuses, and competitive factors.
The Awards component of compensation provided by the Corporation under the Equity Incentive Plan is intended to advance the interests of the Corporation by encouraging the Directors, Officers, employees and consultants of the Corporation to acquire Common Shares, thereby increasing their proprietary interest in the Corporation, encouraging them to remain associated with the Corporation and furnishing them with additional incentive in their efforts on behalf of the Corporation in the conduct of its affairs. Grants under the Equity Incentive Plan are intended to provide long term awards linked directly to the market value performance of the Corporation’s Common Shares. Under the Equity Incentive Plan, the Board will review the Compensation Committee’s recommendations for the granting of Awards to management, Directors, Officers, other employees, and consultants of the Corporation and its subsidiaries. Awards will be granted according to the specific level of responsibility of the particular Director, Officer, employee or consultant. The number of outstanding Awards will also be considered by the Board when determining the number of Awards to be granted in any particular year due to the limited number of Awards that are available for grant under the Equity Incentive Plan.
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Equity Incentive Plan
The Equity Incentive Plan was previously approved by the Shareholders at the annual and special meeting of the shareholders of the Corporation held on August 27, 2020 and shareholders will be asked to re-approve the Equity Incentive Plan at the Meeting. A summary of the Equity Incentive Plan is available above under the heading “Matters to be acted upon at the Meeting – 4. Re-Approval of the Equity Incentive Plan”.
Purchase of Financial Instruments
The Corporation has not adopted any policies or imposed any contractual obligations to restrict the ability of a Named Executive Officer or a Director to purchase financial instruments, including for greater certainty, prepaid variable forward contracts, equity swaps, collars, or units of exchange funds, that are designed to hedge or offset a decrease in market value of equity securities granted as compensation by the Corporation or held, directly or indirectly, by the Named Executive Officer or Director. The Board discourages the practice of purchasing the securities described above.
Summary Compensation Table
The following table is a summary of compensation paid to the Named Executive Officers and Directors for the two most recently completed financial periods ended October 31, 2022 and 2021:
Table of Compensation excluding Compensation Securities
| Name | Year | Salary,consultingfee, retaineror commission(US$) | Bonus<br><br> <br>(US$) | Committee ormeetingfees<br><br> <br>(US$) | Value ofperquisites | Value of allothercompensation(US$) | Totalcompensation(US$) |
|---|---|---|---|---|---|---|---|
| J. Obie Strickler, President, CEO, and Director | 2022 | 240,000 | Nil | 3,755^(2)^ | Nil | 285,676^(1)^ | 529,431 |
| 2021 | 205,000 | Nil | 3,224^(2)^ | Nil | 169,837^(1)^ | 378,062 | |
| Adam August, Senior VP Grown Rogue Unlimited LLC | 2022 | 150,000 | Nil | Nil | Nil | Nil | 150,000 |
| 2021 | 161,543^(5)^ | Nil | Nil | Nil | 14,570^(3)^ | 176,113 | |
| Ryan Kee, Chief Financial Officer, Corporate Secretary and Director | 2022 | 180,000 | Nil | 1,788 | Nil | 5,281 | 187,069 |
| 2021 | 184,840 | Nil | Nil | Nil | 10,359^(3)^ | 195,199 | |
| Abhilash Patel, Director | 2022 | Nil | Nil | 3,755^(2)^ | Nil | Nil | 3,755 |
| 2021 | Nil | Nil | 3,296^(2)^ | Nil | Nil | 3,296 | |
| Stephen Gledhill, Director | 2022 | Nil | Nil | 21,755^(2)(6)^ | Nil | Nil | 21,755 |
| 2021 | Nil | Nil | 21,296^(2)(6)^ | Nil | Nil | 21,296 |
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| Name | Year | Salary, consulting fee, retainer or commission (US$) | Bonus<br><br> <br>(US$) | Committeeormeeting fees<br><br> <br>(US$) | Value of perquisites | Value of all other compensation (US$) | Total compensation (US$) |
|---|---|---|---|---|---|---|---|
| Sean<br>Conacher, Director | 2022 | Nil | Nil | 3,755^(2)^ | Nil | Nil | 3,755 |
| 2021 | Nil | Nil | 4,371^(2)^ | Nil | Nil | 4,371 | |
| Michael<br> Johnston, Former CFO and Corporate Secretary^(4)^ | 2022 | Nil | Nil | Nil | Nil | Nil | Nil |
| 2021 | 18,075^(7)^ | Nil | Nil | Nil | Nil | 18,075 |
Notes:
| ^(1)^ | Represents rent charged by a company owned by Mr. Strickler,<br>payments for equipment and property under lease option financing provided by Mr. Strickler to the Corporation, and royalty payments<br>made to Mr. Strickler. |
|---|---|
| ^(2)^ | Includes director and committee fees paid in Common Shares. |
| ^(3)^ | Represents the value of stock option vesting. |
| ^(4)^ | Mr. Johnston resigned on August 18, 2021. |
| ^(5)^ | Inclusive of the $19,500 paid to Mr. August in Common Shares<br>in 2021. |
| ^(6)^ | Mr. Gledhill was paid an additional $18,000 in fees in<br>his role as chair of the Audit Committee and Compensation Committee. |
| ^(7)^ | Fees were incurred to an accounting firm in which Mr. Johnston<br>is a partner. |
Stock options and other compensation securities
Set forth in the table below is a summary of all compensation securities granted or issued to each Director and Named Executive Officer by the Corporation or one of its subsidiaries in the financial year ended October 31, 2022 for services provided or to be provided, directly or indirectly, to the Corporation or any of its subsidiaries.
| Name | Type of compensation security | Number ofcompensationsecurities,number ofunderlyingsecurities, andpercentage ofclass | Date of issueor grant | Issue, conversionor exerciseprice ($) | Closingprice ofsecurity orunderlyingsecurity ondate ofgrant ($) | Closingprice ofsecurity orunderlyingsecurity atyear end ($) | Expiry<br><br> <br>Date |
|---|---|---|---|---|---|---|---|
| J. Obie Strickler, President, CEO and Director | Common<br><br> <br>Shares | 18,750 | November 5,<br><br>2021 | 0.16 | 0.125 | 0.105 | N/A |
| Abhilash Patel, Director | Common<br><br> <br>Shares | 18,750 | November 5,<br><br>2021 | 0.16 | 0.125 | 0.105 | N/A |
| Stephen Gledhill, Director | Common<br><br> <br>Shares | 18,750 | November 5,<br><br>2021 | 0.16 | 0.125 | 0.105 | N/A |
| Sean Conacher, Director | Common<br><br> <br>Shares | 18,750 | November 5,<br><br>2021 | 0.16 | 0.125 | 0.105 | N/A |
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Exercise of Compensation Securities by Directors and NEOs
During the financial year ended October 31, 2022, no director or Named Executive Officer of the Corporation exercised any compensation securities.
Management and Employment Agreements
On December 4, 2018, Grown Rogue Unlimited, LLC (“GRU”) entered into an employment agreement with Adam August as Senior Vice-President for GRU, which was amended and restated on March 1, 2019, again on February 1, 2020, and on February 1, 2021. Pursuant to the employment agreement, annual salary of $150,000 is paid in semi-monthly instalments by GRU. Effective January 1, 2023 Mr. August’s annual salary was increased to $190,000. Mr. August can be awarded bonuses by GRU from time to time, including a profitability bonus of 30% of base salary.
On August 1, 2020, GRU entered into an employment agreement with Ryan Kee as Chief Accounting Officer for GRU, which was amended and restated on May 1, 2022. Pursuant to the employment agreement, Mr. Kee is paid an annual salary of $200,000 in semi-monthly instalments. Mr. Kee may be awarded bonuses by GRU at GRU’s sole discretion. Mr. Kee’s appointment as Chief Financial Officer and Corporate Secretary was approved by the board of directors on August 18, 2021. Mr. Kee’s agreement includes a change of control provision, triggered by termination, or a constructive dismissal within six months of a change in control event. If triggered, a payment equal to 50% of the Mr. Kee’s compensation for the twelve months prior to the change in control event would be due within sixty calendar days after the effective date of the triggering event.
Termination and Change of Control Benefits
See summary of employment agreements above.
PENSION PLAN BENEFITS
No benefits were paid, and no benefits are proposed to be paid to any Directors or Named Executive Officers under any pension or retirement plan.
The Corporation does not have any plans, other than the Stock Option Plan, pursuant to which cash or non-cash compensation is paid or distributed to the Directors and Named Executive Officers.
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SECURITIES AUTHORIZED FOR ISSUANCE UNDER EQUITY COMPENSATION PLANS
Set forth below is a summary of securities issued and issuable under all equity compensation plans for the Corporation as at October 31, 2022. As at October 31, 2022, the Corporation’s Equity Incentive Plan was the only equity compensation plan of the Corporation.
| Plan Category | Number of securities tobe issued upon exerciseof outstanding options,warrants and rights (a) | Weighted-averageexercise price ofoutstanding options,warrants and rights (b) | Number of securitiesremaining available forfuture issuance under equitycompensation plans(excluding securitiesreflected in column (a)) |
|---|---|---|---|
| Equity compensation plans approved by security holders | 4,910,000 | $0.18 | 29,216,522 |
| Equity compensation plans not approved by security holders | Nil | N/A | Nil |
| Total | 4,910,000 | $0.18 | 29,216,522 |
INDEBTEDNESS OF DIRECTORS AND EXECUTIVE OFFICERS
No individual who is, or at any time during the most recently completed financial year was, a director or executive officer of the Corporation, a proposed nominee for election as a director of the Corporation, and each associate of any such director, executive officer or proposed nominee: (a) is, or at any time since the beginning of the most recently completed financial year of the Corporation has been, indebted to the Corporation or any of its subsidiaries or (b) has indebtedness to another entity that is, or at any time since the beginning of the most recently completed financial year has been, the subject of a guarantee, support agreement, letter of credit or other similar arrangement or understanding provided by the Corporation or any of its subsidiaries.
INTEREST OF INFORMED PERSONS IN MATERIAL TRANSACTIONS
Other than as disclosed in this Information Circular, none of the informed persons of the Corporation (as defined in National Instrument 51-102 Continuous Disclosure Obligations), nor any proposed nominee for election as a Director of the Corporation, nor any person who beneficially owns, directly or indirectly, shares carrying more than 10% of the voting rights attached to the issued shares of the Corporation, nor any associate or affiliate of the foregoing persons has any material interest, direct or indirect, in any transaction since the commencement of the Corporation’s most recently completed financial year or in any proposed transaction which, in either case, has or will materially affect the Corporation and that none of such persons has any material interest in any transaction proposed to be undertaken by the Corporation and will materially affect the Corporation.
CORPORATE GOVERNANCE
Effective June 30, 2006, the securities regulatory authorities in Canada adopted National Instrument 58-101 Disclosure of Corporate Governance Practices (“NI 58-101”) and National Policy 58-201 Corporate Governance Guidelines (“NP 58-201”). NP 58-201 contains a series of guidelines for effective corporate governance. The guidelines deal with such matters as the constitution and independence of corporate boards, their functions, the experience and education of board members and other items dealing with sound corporate governance.
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Corporate governance refers to the way the business and affairs of a reporting issuer are managed and relates to the activities of the board, the members of who are elected by and are accountable to the Shareholders. Corporate governance takes into account the role of the individual members of management who are appointed by the Board and who are charged with the day-to-day management of the Corporation. The Board is committed to sound corporate governance practices which are both in the interest of its Shareholders and contribute to effective and efficient decision-making. Pursuant to NI 58-101 the Corporation has established its corporate governance practices.
Board of Directors
Directors are considered to be independent if they have no direct or indirect material relationship with the Corporation. A material relationship is a relationship which could, in the view of the Board, be reasonably expected to interfere with the exercise of a Director’s independent judgment.
The independent members of the Board at present are Mr. Abhilash Patel, Mr. Stephen Gledhill and Mr. Sean Conacher. The non-independent Directors are Mr. J. Obie Strickler and Mr. Ryan Kee. The proposed slate of Directors will be comprised of three (3) independent Directors (Mr. Abhilash Patel, Mr. Stephen Gledhill and Mr. Sean Conacher) and two (2) non-independent Director (Mr. J. Obie Strickler and Mr. Ryan Kee).
The Board facilitates its independent supervision over management by having regular Board meetings and by establishing and implementing prudent corporate governance policies and procedures.
The Board has adopted policies to provide leadership for the independent Directors.
All Directors have attended all Board meetings held since the beginning of the Corporation’s most recently completed financial year.
Board of Directors Mandate
The Board approved and adopted its Directors’ mandate. Roles and responsibilities of the Board are those typically assumed by a board of directors.
GENERAL
The fundamental responsibility of the Board is to appoint a competent senior management team and to oversee the management of the business, with a view to maximizing shareholder value and ensuring corporate conduct in an ethical and legal manner via an appropriate system of corporate governance and internal controls.
SPECIFIC
Senior Management Responsibility
| ● | Appoint the CEO and senior officers, approve their compensation,<br>and monitor the CEO’s performance against a set of mutually agreed corporate objectives directed at maximizing shareholder value. |
|---|
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| ● | In conjunction with the CEO, develop a clear mandate for the<br>CEO, which includes a delineation of senior management’s responsibilities. |
|---|---|
| ● | Ensure that a process is established that adequately provides<br>for succession planning, including the appointing, training and monitoring of senior management. |
| --- | --- |
| ● | Establish limits of authority delegated to senior management. |
| --- | --- |
Operational Effectiveness and Financial Reporting
| ● | Annual review and adoption of a strategic planning process and<br>approval of the corporate strategic plan, which takes into account, among other things, the opportunities and risks of the business. |
|---|---|
| ● | Ensure that a system is in place to identify the principal risks<br>to the Corporation and that the best practical procedures are in place to monitor and mitigate the risks. |
| --- | --- |
| ● | Ensure that processes are in place to address applicable regulatory,<br>corporate, securities and other compliance matters. |
| --- | --- |
| ● | Ensure that an adequate system of internal control exists. |
| --- | --- |
| ● | Ensure that due diligence processes and appropriate controls<br>are in place with respect to applicable certification requirements regarding the Corporation’s financial and other disclosure. |
| --- | --- |
| ● | Review and approve the Corporation’s financial statements<br>and oversee the Corporation’s compliance with applicable audit, accounting and reporting requirements. |
| --- | --- |
| ● | Approve annual operating and capital budgets. |
| --- | --- |
| ● | Review and consider for approval all amendments or departures<br>proposed by senior management from established strategy, capital and operating budgets or matters of policy which diverge from the ordinary<br>course of business. |
| --- | --- |
| ● | Review operating and financial performance results relative<br>to established strategy, budgets and objectives. |
| --- | --- |
Ethics, Integrity and Code of Conduct
| ● | Approve a communications policy or policies to ensure that a<br>system for corporate communications to all stakeholders exists, including processes for consistent, transparent, regular and timely public<br>disclosure, and to facilitate feedback from stakeholders. |
|---|---|
| ● | Approve a Business Code of Conduct for Directors, Officers,<br>employees, contractors and consultants and monitor compliance with the Business Code of Conduct and approve any waivers of the Business<br>Code of Conduct for officers and directors. |
| --- | --- |
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Board Process/Effectiveness
| ● | Ensure that Board materials are distributed to Directors<br>in advance of regularly scheduled meetings to allow for sufficient review of the materials prior to the meeting. Directors are expected<br>to attend all meetings. |
|---|---|
| ● | Approve the nomination of Directors. |
| --- | --- |
| ● | Provide a comprehensive orientation to each new Director. |
| --- | --- |
| ● | Establish an appropriate system of corporate governance including<br>practices to ensure the Board functions independently of management. |
| --- | --- |
| ● | Establish appropriate practices for the regular evaluation of<br>the effectiveness of the Board, its committees and its members. |
| --- | --- |
| ● | Establish committees and approve their respective mandates and<br>the limits of authority delegated to each committee. |
| --- | --- |
| ● | Review and re-assess the adequacy of the Audit Committee Mandate<br>on a regular basis, but not less frequently than on an annual basis. |
| --- | --- |
| ● | Review the adequacy and form of the Directors’ compensation<br>to ensure it realistically reflects the responsibilities and risks involved in being a Director. |
| --- | --- |
| ● | Each member of the Board is expected to understand the nature<br>and operations of the Corporation’s business, and have an awareness of the political, economic and social trends prevailing in<br>all countries or regions in which the Corporation invests or is contemplating potential investment. |
| --- | --- |
| ● | Directors shall meet regularly, and in no case less frequently<br>than quarterly, without senior management participation. |
| --- | --- |
| ● | In addition to the above, adherence to all other Board responsibilities<br>as set forth in the Corporation’s By-Laws, applicable policies and practices and other statutory and regulatory obligations, such<br>as approval of dividends, issuance of securities, etc., is expected. |
| --- | --- |
POSITION DESCRIPTIONS
How the Board Delineates the Role and Responsibilities of the Chair
A written description has been developed for the Chair of the Board. The fundamental responsibility of the Chair of the Board of Directors of the Corporation is to effectively manage the affairs of the Board.
How the Board Delineates the Role and Responsibilities of the Chief Executive Officer
The Board has developed a written position description of the CEO. The CEO’s objectives are discussed and decided during the Compensation Committee meetings following the CEO’s presentation of the annual plan. These objectives include the mandate to maximize shareholder value. The Board approves the CEO objectives for the Corporation on an annual basis.
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Orientation and Continuing Education
When new Directors are appointed they receive orientation, commensurate with their previous experience, on the Corporation’s business, assets, industry, and on the responsibilities of Directors. Board meetings may also include presentations by the Corporation’s management and employees to give the Directors additional insight into the Corporation’s business.
Ethical Business Conduct
The Board of Directors adopted a Code of Conduct for its Directors, Officers, and employees. Since its adoption by the Board, any breach of the Code of Conduct must be brought to the attention of the Board by the CEO or other senior executive of the Corporation. No material change report has ever been filed which pertains to any conduct of a Director or executive officer that constitutes a departure from the Code of Conduct.
Steps Taken to Ensure Directors Exercise Independent Judgement
Since the adoption of the Code of Conduct, the Board actively monitors compliance with the Code of Conduct and promotes a business environment where employees are encouraged to report malfeasance, irregularities and other concerns. The Code of Conduct has specific procedures for reporting non-compliance practices in a manner which, in the opinion of the Board of Directors, encourages and promotes a culture of ethical business conduct.
In addition, a Director of the Corporation must immediately disclose to the Board any situation that may place him or her in a conflict of interest. Any such declaration of interest is recorded in the minutes of the meeting. The Director abstains, except if required, from the discussion and voting on the question. In addition, an interested Director will excuse himself or herself from the decision-making process pertaining to a contract or transaction in which he or she has an interest.
Nomination of Directors
The Board will consider its size each year when it considers the number of Directors to recommend to the Shareholders for election at the annual meeting of Shareholders, taking into account the number required to carry out the Board’s duties effectively and to maintain a diversity of views and experience.
The selection of the nominees of the Board is made by the other members of the Board, based on the needs of the Corporation and the qualities required to sit on the Board, including ethical character, integrity and maturity of judgement, the level of experience, their ideas regarding the material aspects of the business, the expertise of the candidates in the fields relevant to the Corporation, the will and ability of the candidates to devote the necessary time to their duties, the Board and its committees, the will of the candidates to serve the Board for numerous consecutive financial periods, and finally, the will of the candidates to refrain from engaging in activities which conflict with the responsibilities and duties of the Director of the Corporation and its Shareholders.
The Corporation may use various sources in order to identify the candidates for the Board, including its own contacts and references from other Directors, Officers, advisors of the Corporation, and executive placement agencies.
The Board does not have a nominating committee, and these functions are currently performed by the Board as a whole. However, if there is a change in the number of Directors required by the Corporation, this policy will be reviewed.
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Compensation Committee
The Compensation Committee has the responsibility of evaluating governance, compensation, performance incentives as well as benefits granted to the Corporation’s upper management in accordance with their responsibilities and performance as well as to recommend the necessary adjustments to the Board. This committee also reviews the amount and method of compensation granted to the Directors. The Compensation Committee may mandate an external firm in order to assist it during the execution of its mandate. The Compensation Committee considers time commitment, comparative fees and responsibility in determining compensation. The Compensation Committee is also in charge of establishing the procedure which must be followed by the Corporation in order for it to comply with the guidelines of the Exchange regarding corporate governance. See “Executive Compensation – Compensation Committee” for additional details.
The current Compensation Committee is comprised of J. Obie Strickler, Abhilash Patel and Stephen Gledhill. The Compensation Committee will be comprised of the same individual Directors under the proposed slate of the Directors.
Directorships
Other than Sean Conacher and Stephen Gledhill, no Director or proposed Director of the Corporation is presently a director of any other issuer that is a reporting issuer (or the equivalent) in a jurisdiction or a foreign jurisdiction. Sean Conacher is a director of Plant-Based Investment Corporation and Stephen Gledhill is a director of Bhang Inc.
AUDIT COMMITTEE CHARTER
The Audit Committee is appointed by the Board of Directors to assist the Board in fulfilling its oversight responsibilities.
The Audit Committee’s primary duties and responsibilities are to:
| ● | Review management’s identification of principal financial<br>risks and monitor the process to manage such risks. |
|---|---|
| ● | Oversee and monitor the Corporation’s compliance with<br>legal and regulatory requirements. |
| --- | --- |
| ● | Receive and review the reports of the Audit Committee of<br>any subsidiary with public securities. |
| --- | --- |
| ● | Oversee and monitor the Corporation’s accounting and<br>financial reporting processes, financial statements and system of internal controls regarding accounting and financial reporting and<br>accounting compliance. |
| --- | --- |
| ● | Oversee audits of the Corporation’s financial statements. |
| --- | --- |
| ● | Oversee and monitor the qualifications, independence and<br>performance of the Corporation’s external auditors and internal auditing department. |
| --- | --- |
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| ● | Provide an avenue of communication among the external auditors,<br>management, the internal auditing department; and the Board. |
|---|---|
| ● | Report to the Board regularly. |
| --- | --- |
The Audit Committee has the authority to conduct any review or investigation appropriate to fulfilling its responsibilities. The Audit Committee shall have unrestricted access to personnel and information, and any resources necessary to carry out its responsibility.
The Corporation’s Audit Committee is comprised of J. Obie Strickler (not independent), Abhilash Patel (independent) and Stephen Gledhill (independent). Stephen Gledhill is the chairman of the Audit Committee. Under the proposed slate of Directors, the Audit Committee will be comprised of the same individuals. Based on the experience of the Audit Committee members described below, the Corporation believes that these persons have sufficient knowledge and background to actively participate on the Audit Committee.
Under the proposed slate of Directors, the Audit Committee will consist of two independent members and one non-independent member. A member of the Audit Committee is independent if the member has no direct or indirect material relationship with the Corporation. A material relationship means a relationship which could, in the view of the Board, reasonably interfere with the exercise of a member’s independent judgment.
All the proposed Audit Committee members are financially literate. A member of the Audit Committee is considered financially literate if he or she has the ability to read and understand a set of financial statements that present a breadth and level of complexity of accounting issues that are generally comparable to the breadth and complexity of the issues that can reasonably be expected to be raised by the Corporation. From the experience described above, the Corporation believes that these persons have sufficient knowledge and background to actively participate on the Audit Committee.
Relevant Education and Experience
As set out below, each member of the Corporation’s present Audit Committee has adequate education and experience that is relevant to his performance as an Audit Committee member and, in particular, the requisite education and experience that have provided the member with:
| (i) | an understanding of the accounting principles used by the Corporation to prepare its<br> financial statements and the ability to assess the general application of such principles<br> in connection with the accounting for estimates, accruals and provisions; |
|---|---|
| (j) | experience preparing, auditing, analyzing or evaluating financial statements that<br> present a breadth and level of complexity of accounting issues that are generally<br> comparable to the breadth and complexity of issues that can reasonably be expected<br> to be raised by the Corporation’s financial statements or experience actively supervising individuals engaged in such<br> activities; and |
| --- | --- |
| (k) | an understanding of internal controls and procedures for financial reporting. |
| --- | --- |
Audit Committee Oversight
The Audit Committee has not made any recommendations to the Board to nominate or compensate any external auditor that was not adopted by the Board.
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Reliance on Certain Exemptions
Since the commencement of the Corporation’s most recently completed financial year ended October 31, 2019, the Corporation has not relied on the exemption in Section 2.4 (De Minimis Non-Audit Services) of National Instrument 52-110 Audit Committees (“NI 52-110”) or an exemption from NI 52-110, in whole or in part, granted under Part 8 of NI 52-110. The Corporation is relying upon the exemption in Section 6.1 (Venture Issuers) of NI 52-110.
Pre-Approval Policies and Procedures
The Audit Committee has not adopted specific policies and procedures for the engagement of non-audit services.
External Auditor Service Fees
The aggregate fees billed by the Corporation’s external auditors in each of the last three fiscal years for audit fees are as follows:
| Financial Year | Audit Fees ($) | AuditRelated<br><br> <br>Fees($) | Tax Fees^(1)^ | All OtherFees ($) |
|---|---|---|---|---|
| Ended October 31, 2022 | $102,857 | $Nil | $85,105 | $Nil |
| Ended October 31, 2021 | $76,850 | $Nil | $20,335 | $Nil |
Notes:
| ^(1)^ | Tax Fees include fees for all tax services other than those<br>included in “Audit Fees” and “Audit-Related Fees”. This category includes fees for tax compliance, tax planning<br>and tax advice. Tax planning and tax advice includes assistance with tax audits and appeals, tax advice related to mergers and acquisitions,<br>and requests for rulings or technical advice from tax authorities. |
|---|
Other Board Committees
The Board has no committees other than the Audit Committee, and the Compensation Committee.
Assessments
The Board monitors the adequacy of information given to Directors, communication between the Board and management and the strategic direction and processes of the Board and committees. The Board of Directors does not consider that formal assessments would be useful at this stage of the Corporation’s development. The Board conducts informal annual assessments of the Board’s effectiveness, the individual Directors, the Audit Committee and the Compensation Committee. As part of the assessments, the Board may review its mandate and conduct reviews of applicable corporate policies.
ADDITIONAL INFORMATION
Financial information regarding the Corporation is provided in the Corporation’s audited annual consolidated financial statements for the financial years ended October 31, 2022 and 2021 and the accompanying management’s discussion and analysis. Written requests for a copy of the above documents should be directed to the Corporation: c/o Miller Thomson LLP, Scotia Plaza, 40 King St. W., Suite 5800, PO Box 1011, Toronto, Ontario, M5H 3S1, Attention to Grown Rogue International Inc.: Ryan Kee, CFO and Corporate Secretary.
Additional information concerning the Corporation is also available online at www.sedar.com.
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DIRECTORS’ APPROVAL OF INFORMATION CIRCULAR
The contents and the sending of this Information Circular to the Shareholders have been approved by the Board.
DATED at Toronto, Ontario this 4th day of August, 2023
| BY ORDER OF THE BOARD OF DIRECTORS |
|---|
| (signed) “J. Obie Strickler” |
| J. Obie Strickler |
| Director, President and Chief Executive Officer |
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Exhibit 18
NOT FOR DISTRIBUTIONTO U.S. NEWSWIRE SERVICES OR FOR DISSEMINATION IN THE U.S.
GrownRogue Closes Second and Final Tranche of ConvertibleDebenture Financing For Total Proceeds of US$6,000,000
Medford, Oregon, August17, 2023 – Grown Rogue International Inc. (“Grown Rogue” or the “Company”) (CSE: GRIN) (OTC: GRUSF), a craft cannabis company operating in Oregon and Michigan, announces that, further to its news releases on July 4, 2023 and July 13, 2023, it has closed the second and final tranche of a non‐brokered private placement of unsecured convertible debentures (each, a “Debenture”) for gross proceeds of US$1,000,000, for a total aggregate principal amount under both tranches (the “Principal Amount”) of US$6,000,000 (the “Offering”). Additionally, on closing, the Company issued to subscribers under the second tranche of the Offering (each a “Debentureholder”) an aggregate of 2,816,250 common share purchase warrants (the “Warrants”), representing one‐half of one warrant for each C$0.24 of Principal Amount subscribed.
The Debentures will mature four years from the Closing Date (the “Maturity Date”), bear interest at a rate equal to 9% per annum, payable in United States currency on the last business day of the month following the end of each calendar quarter and are convertible as set forth below into common shares of the Company (each, a “Share”).
“This second tranche was committed when the first tranche of the financing was announced in July but was delayed slightly in closing due to cannabis banking issues for transferring the capital” said Obie Strickler, CEO of Grown Rogue. “We are excited to close the final tranche of the convertible financing, strengthening our balance sheet as we continue to look at opportunities in new markets,” continued Mr. Strickler.
Debentureholders will be entitled, at their option, to convert, at any time on or prior to the Maturity Date, the outstanding Principal Amount and accrued interest into Shares at a price per Share equal to C$0.24. The Company may elect to prepay the Principal Amount together with any interest thereon prior to the Maturity Date upon providing 30 days’ notice to the Debenture holder.
Each full Warrant will be exercisable into one Share (a “Warrant Share”) at an exercise price of C$0.28 for a period of three years from the Closing Date (the “Warrant Expiry Date”) and are subject to an acceleration clause that in the event that the Shares close at or above C$0.40 per share on the Canadian Securities Exchange for ten consecutive trading days (the “Acceleration Event”), the Warrant Expiry Date shall accelerate to 90 days following notice of the Acceleration Event.
The proceeds of the Offering will be used for the expansion of the Company’s business and for general corporate purposes. The Debentures, the Warrants as well as the underlying Shares, will be subject to a statutory hold period for a period of four months and one day from the Closing Date pursuant to Canadian securities laws.
This news release does not constitute an offer to sell or a solicitation of an offer to sell any of the securities in the United States. The securities have not been and will not be registered under the United States Securities Act of 1933, as amended (the “U.S. Securities Act”) or any state securities laws and may not be offered or sold within the United States or to U.S. Persons unless registered under the U.S. Securities Act and applicable state securities laws or an exemption from such registration is available.
About Grown Rogue
Grown Rogue International (CSE: GRIN | OTC: GRUSF) is a craft cannabis company operating in Oregon and Michigan. Grown Rogue’s strategy is built to win now and in the future, as we profitably deliver craft cannabis at appropriate scale while continually scaling our sungrown capabilities to support eventual interstate commerce. Our mission is to bring low cost, high quality, craft cannabis from the amazing terroir and legacy of Oregon’s Rogue Valley to consumers nationwide.
FORWARD‐LOOKINGSTATEMENTS
This press release containsstatements which constitute “forward‐looking information” within the meaning of applicable securities laws, includingstatements regarding the plans, intentions, beliefs and current expectations of the Company with respect to future business activities.Forward‐ looking information is often identified by the words “may,” “would,” “could,” “should,”“will,” “intend,” “plan,” “anticipate,” “believe,” “estimate,”“expect” or similar expressions and include information regarding: (i) statements regarding the future direction of the Company(ii) the ability of the Company to successfully achieve its business and financial objectives, (iii) plans for expansion of the Companyinto Michigan and securing applicable regulatory approvals, and (iv) expectations for other economic, business, and/or competitive factors.Investors are cautioned that forward‐looking information is not based on historical facts but instead reflect the Company’smanagement’s expectations, estimates or projections concerning the business of the Company’s future results or events basedon the opinions, assumptions and estimates of management considered reasonable at the date the statements are made. Although the Companybelieves that the expectations reflected in such forward‐looking information are reasonable, such information involves risks anduncertainties, and undue reliance should not be placed on such information, as unknown or unpredictable factors could have material adverseeffects on future results, performance or achievements of the combined company. Among the key factors that could cause actual resultsto differ materially from those projected in the forward‐looking information are the following: changes in general economic, businessand political conditions, including changes in the financial markets; and in particular in the ability of the Company to raise debt andequity capital in the amounts and at the costs that it expects; adverse changes in the public perception of cannabis; decreases in theprevailing prices for cannabis and cannabis products in the markets that the Company operates in; adverse changes in applicable laws;or adverse changes in the application or enforcement of current laws; compliance with extensive government regulation and related costs,and other risks described in the Company’s public disclosure documents filed on www.SEDAR.com.
Shouldone or more of these risks or uncertainties materialize, or should assumptions underlying the forward‐looking information proveincorrect, actual results may vary materially from those described herein as intended, planned, anticipated, believed, estimated or expected.Although the Company has attempted to identify important risks, uncertainties and factors which could cause actual results to differmaterially, there may be others that cause results not to be as anticipated, estimated or intended. The Company does not intend, anddoes not assume any obligation, to update this forward‐looking information except as otherwise required by applicable law.
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TheCompany is indirectly involved in the manufacture, possession, use, sale and distribution of cannabis in the recreational cannabis marketplacein the United States through its indirect operating subsidiaries. Local state laws where its subsidiaries operate permit such activitieshowever, these activities are currently illegal under United States federal law. Additional information regarding this and other risksand uncertainties relating to the Company’s business are disclosed in the Company’s Listing Statement filed on its issuerprofile on SEDAR at www.sedar.com. Should one or more of these risks, uncertaintiesor other factors materialize, or should assumptions underlying the forward-looking information or forward-looking statements prove incorrect,actual results may vary materially from those described herein as intended, planned, anticipated, believed, estimated or expected.
No stock exchange, securities commission or other regulatory authority has approved or disapproved the information contained herein.
For further information on Grown Rogue International please visit www.grownrogue.com or contact:
Obie Strickler
Chief Executive Officer
Jakob Iotte
Director of Business
Development and IR
(458) 226-2100
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Exhibit 19
FORM72-503F REPORT OF DISTRIBUTIONS OUTSIDE CANADA 1. Full name, address and telephone number of the Issuer. a) Full name of issuer Grown Rogue International Inc. / Grown Rogue International Inc. b) Head office address Street address 550 Airport Rd. Province/State Oregon Municipality Medford Postal code/Zip code Country United States of America Telephone number 1 (503) 765-8108
e of an Acceleration Event. The Debentures will bear interest at a rate equal to 9% per annum, payable in United States currency on the last business day of the month following the end of each calendar quarter and are convertible as set forth below into CVD CMS $0.2400 $0.2400 2027-08-17 common shares of the Issuer. Debentureholders will be entitled, at their option, to convert, at any time on orprior to the Maturity Date, the outstanding principal amount and accrued interest into common shares at a price per common share equal to C$0.24. 3. Date of distribution(s). Distribution date State the distribution start and end dates. If the report is being filedfor securities distributed on only one distribution date, provide the distribution date as both the start and end dates. If the reportis being filed for securities distribued on a continuous basis, include the start and end dates for the distribution period covered bythe report. Start date Start date 2023 08 17 End date 2023 08 17 YYYY MM DD YYYY MM DD
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4. State the name and address of any person acting as dealer or underwriter (including an underwriter that is acting as agent) inconnection with the distribution(s) of the securities. Dealer or underwriter information Full legal name Street address Municipality Province/State Country Postal code/Zip code (if applicable) Telephone number Website
3
**5.**Certification Certification Provide the following certification and business contact information of an officer, director or agentof the issuer. If the issuer is not a company, an individual who performs functions similar to that of a director or officer may certifythe report. For example, if the issuer is a trust, the report may be certified by the issuer's trustee. If the issuer is an investmentfund, a director or officer of the investment fund manager (or, if the investment fund manager is not a company, an individual who performssimilar functions) may certify the report if the director or officer has been authorized to do so by the investment fund. The certificationmay be delegated, but only to an agent that has been authorized by an officer or director of the issuer to prepare and certify the reporton behalf of the issuer. If the report is being certified by an agent on behalf of the issuer, provide the applicable information forthe agent in the boxes below. The signature on the report must be in typed form rather than handwritten form. The report may includean electronic signature provided the name of the signatory is also in typed form. Securities legislation requires an issuer that makesa distribution of securities under certain prospectus exemptions to file a completed report of exempt distribution. By completing theinformation below, I certify, on behalf of the issuer/investment fund manager, to the securities regulatory authority or regulator, asapplicable, that I have reviewed this report and to my knowledge, having exercised reasonable diligence, the information provided inthis report is true and, to the extent required, complete. Name of Issuer/ investment fund manager/agent Grown Rogue International Inc. Full legal name STRICKLER Jesse Obadiah Family name First given name Secondary given names Title Chief Executive Officer Telephone number +1 (458) 226-2100 Email address [email protected] Signature Jesse Strickler Date 2023 08 21 YYYY MM DD
4
Exhibit 20
Form51-102F3
MaterialChange Report
| Item 1 | Name and Address of Company |
|---|
Grown Rogue International Inc. (the “Company”)
550 Airport Road
Medford, Oregon
United States 97504
| Item 2 | Date of Material Change |
|---|
August 17, 2023.
| Item 3 | News Release |
|---|
The News Release was disseminated through the facilities of Cision, and filed under the Company’s profile on SEDAR+.
| Item 4 | Summary of Material Change |
|---|
The Company announced that, on August 17, 2023, it closed the second and final tranche of a non-brokered private placement of unsecured convertible debentures for gross proceeds of USD$1.0M in the second tranche.
| Item 5.1 | Full Description of Material Change |
|---|
The Company announced that, on August 17, 2023, it closed the second and final tranche of a non-brokered private placement of unsecured convertible debentures (each, a “Debenture”) for gross proceeds of US$1,000,000, for a total aggregate principal amount under both tranches (the “Principal Amount”) of US$6,000,000 (the “Offering”).
Additionally, on closing, the Company issued to the subscribers under the second tranche of the Offering (each a “Debentureholder”) an aggregate of 2,816,250 common share purchase warrants (the “Warrants”) representing one-half of one warrant for each C$0.24 of Principal Amount subscribed.
The Debentures will mature four years from the date of issue (the “Maturity Date”), bear interest at a rate equal to 9% per annum, payable in United States currency on the last business day of the month following the end of each calendar quarter and are convertible as set forth below into common shares of the Company (each, a “Share”).
Debentureholders will be entitled, at their option, to convert, at any time on or prior to the Maturity Date, the outstanding Principal Amount and accrued interest into Shares at a price per Share equal to C$0.24. The Company may elect to prepay the Principal Amount together with any interest thereon prior to the Maturity Date upon providing 30 days’ notice to the Debentureholder.
Each Warrant will be exercisable into one Share (a “Warrant Share”) at an exercise price of C$0.28 for a period of three years from the date of issue (the “Warrant Expiry Date”) and are subject to an acceleration clause that in the event that the Shares close at or above C$0.40 per share on the Canadian Securities Exchange for ten consecutive trading days (the “Acceleration Event”), the Warrant Expiry Date shall accelerate to 90 days following notice of the Acceleration Event.
The proceeds of the Offering will be used for the expansion of the Company’s business and for general corporate purposes. The Debentures, the Warrants as well as the underlying Shares are subject to a statutory hold period for a period of four months and one day pursuant to Canadian securities laws.
| Item 6 | Reliance on Subsection 7.1(2) of National Instrument 51-102 |
|---|
Not applicable.
| Item 7 | Omitted Information |
|---|
Not applicable.
| Item 8 | Executive Officer |
|---|
Obie Strickler
Chief Executive Officer
Tel: +1 458 226 2100
Email: [email protected]
| Item 9 | Date of Report |
|---|
August 25, 2023.
FORWARD-LOOKINGSTATEMENTS
Thismaterial change report contains statements which constitute “forward-looking information” within the meaning of applicablesecurities laws, including statements regarding the plans, intentions, beliefs and current expectations of the Company with respect tofuture business activities. Forward-looking information is often identified by the words “may,” “would,” “could,”“should,” “will,” “intend,” “plan,” “anticipate,” “believe,”“estimate,” “expect” or similar expressions and include information regarding: (i) statements regarding the futuredirection of the Company (ii) the ability of the Company to successfully achieve its business and financial objectives, and (iii) expectationsfor other economic, business, and/or competitive factors. Investors are cautioned that forward-looking information is not based on historicalfacts but instead reflect the Company’s management’s expectations, estimates or projections concerning the business of theCompany’s future results or events based on the opinions, assumptions and estimates of management considered reasonable at thedate the statements are made. Although the Company believes that the expectations reflected in such forward-looking information are reasonable,such information involves risks and uncertainties, and undue reliance should not be placed on such information, as unknown or unpredictablefactors could have material adverse effects on future results, performance or achievements of the combined company. Among the key factorsthat could cause actual results to differ materially from those projected in the forward-looking information are the following: changesin general economic, business and political conditions, including changes in the financial markets; and in particular in the abilityof the Company to raise debt and equity capital in the amounts and at the costs that it expects; adverse changes in the public perceptionof cannabis; decreases in the prevailing prices for cannabis and cannabis products in the markets that the Company operates in; adversechanges in applicable laws; or adverse changes in the application or enforcement of current laws; compliance with extensive governmentregulation and related costs, and other risks described in the Company’s public disclosure documents filed on SEDAR+ at www.sedarplus.ca.
Shouldone or more of these risks or uncertainties materialize, or should assumptions underlying the forward-looking information prove incorrect,actual results may vary materially from those described herein as intended, planned, anticipated, believed, estimated or expected. Althoughthe Company has attempted to identify important risks, uncertainties and factors which could cause actual results to differ materially,there may be others that cause results not to be as anticipated, estimated or intended. The Company does not intend, and does not assumeany obligation, to update this forward-looking information except as otherwise required by applicable law.
Exhibit21
GrownRogue Announces Partial Conversion of US$2,000,000
Debenture Financing
Medford,Oregon, September 1, 2023 – Grown Rogue International Inc. (“Grown Rogue” or the “Company”) (CSE: GRIN) (OTC: GRUSF), a craft cannabis company operating in Oregon and Michigan, announces that, further to its news release on December 5, 2022, a debentureholder has converted an aggregate of US$1,500,000 of the US$2,000,000 debentures that mature on December 5, 2025 (“December Debentures”). The early retirement of the debt will save the Company over US$300,000 in interest payments over the length of the term.
The conversion results in the issuance of 10,151,250 common shares of the Company at a price of CAD$0.20 per share in accordance with the terms of the December Debentures. After the conversion, the Company’s common shares outstanding increased from 170,832,611 to 180,983,861.
“The partial conversion of our December Debentures shows the strong shareholder confidence in Grown Rogue all while providing us extra financial flexibility as we navigate through a tough cannabis environment” said Obie Strickler, CEO of Grown Rogue. “The conversion was completed by Mindset Capital, who remains a large debenture holder and supporter of the Company’s long-term strategy” continued Mr. Strickler.
“Mindset Capital believes that Grown Rogue can accelerate their growth, and that’s easier to accomplish with less debt and less interest payments” said Aaron Edelheit, CEO of Mindset Capital. “We believe the company has a long runway of growth opportunities to bring Oregon quality flower, at Oregon costs, to limited license markets. Converting our debt into equity in such a well-run company was an easy decision.”
AboutGrown Rogue
Grown Rogue International (CSE: GRIN | OTC: GRUSF) is a craft cannabis company operating in Oregon and Michigan. Grown Rogue’s strategy is built to win now and in the future, as we profitably deliver craft cannabis at appropriate scale while continually scaling our sungrown capabilities to support eventual interstate commerce. Our mission is to bring low cost, high quality, craft cannabis from the amazing terroir and legacy of Oregon’s Rogue Valley to consumers nationwide.
FORWARD-LOOKINGSTATEMENTS
Thispress release contains statements which constitute “forward-looking information” within the meaning of applicable securitieslaws, including statements regarding the plans, intentions, beliefs and current expectations of the Company with respect to future businessactivities. Forward-looking information is often identified by the words “may,” “would,” “could,”“should,” “will,” “intend,” “plan,” “anticipate,” “believe,”“estimate,” “expect” or similar expressions and include information regarding: (i) statements regarding the futuredirection of the Company (ii) the ability of the Company to successfully achieve its business and financial objectives, (iii) plans forexpansion of the Company into Michigan and securing applicable regulatory approvals, and (iv) expectations for other economic, business,and/or competitive factors. Investors are cautioned that forward-looking information is not based on historical facts but instead reflectthe Company’s management’s expectations, estimates or projections concerning
thebusiness of the Company’s future results or events based on the opinions, assumptions and estimates of management considered reasonableat the date the statements are made. Although the Company believes that the expectations reflected in such forward-looking informationare reasonable, such information involves risks and uncertainties, and undue reliance should not be placed on such information, as unknownor unpredictable factors could have material adverse effects on future results, performance or achievements of the combined company.Among the key factors that could cause actual results to differ materially from those projected in the forward-looking information arethe following: changes in general economic, business and political conditions, including changes in the financial markets; and in particularin the ability of the Company to raise debt and equity capital in the amounts and at the costs that it expects; adverse changes in thepublic perception of cannabis; decreases in the prevailing prices for cannabis and cannabis products in the markets that the Companyoperates in; adverse changes in applicable laws; or adverse changes in the application or enforcement of current laws; compliance withextensive government regulation and related costs, and other risks described in the Company’s public disclosure documents filedon www.sedarplus.ca.
Shouldone or more of these risks or uncertainties materialize, or should assumptions underlying the forward-looking information prove incorrect,actual results may vary materially from those described herein as intended, planned, anticipated, believed, estimated or expected. Althoughthe Company has attempted to identify important risks, uncertainties and factors which could cause actual results to differ materially,there may be others that cause results not to be as anticipated, estimated or intended. The Company does not intend, and does not assumeany obligation, to update this forward-looking information except as otherwise required by applicable law.
TheCompany is indirectly involved in the manufacture, possession, use, sale and distribution of cannabis in the recreational cannabis marketplacein the United States through its indirect operating subsidiaries. Local state laws where its subsidiaries operate permit such activitieshowever, these activities are currently illegal under United States federal law. Additional information regarding this and other risksand uncertainties relating to the Company’s business are disclosed in the Company’s Listing Statement filed on its issuerprofile on SEDAR+ at www.sedarplus.ca. Should one or more of these risks, uncertainties or other factors materialize, or shouldassumptions underlying the forward-looking information or forward-looking statements prove incorrect, actual results may vary materiallyfrom those described herein as intended, planned, anticipated, believed, estimated or expected.
Nostock exchange, securities commission or other regulatory authority has approved or disapproved the information contained herein.
Forfurther information on Grown Rogue International please visit www.grownrogue.com or contact:
Obie Strickler
Chief Executive Officer
Jakob Iotte
Director of Business
Development and IR
(458) 226-2100
Exhibit 22
GROWNROGUE INTERNATIONAL INC.
NOTICE OF ANNUAL AND SPECIAL MEETING OF SHAREHOLDERS
TO BE HELD ON SEPTEMBER 14, 2023
MANAGEMENT INFORMATION CIRCULAR
AUGUST 4, 2023
NOTICE OF ANNUAL AND SPECIAL MEETING OF SHAREHOLDERS
NOTICE IS HEREBY GIVEN that Grown Rogue International Inc. (the “Corporation”) will hold its annual and special meeting of shareholders (the “Meeting”) on September 14, 2023, at 11:00am (Eastern Daylight Time) at the offices of Miller Thomson LLP, Scotia Plaza, 40 King Street West, Suite 5800, Toronto, Ontario, M5H 3S1, for the following purposes:
| 1. | to present the audited consolidated financial statements of the Corporation for its prior years ended October 31, 2022 and 2021, and the independent auditor’s report thereon; |
|---|---|
| 2. | to elect the directors of the Corporation for the ensuing year; |
| --- | --- |
| 3. | to appoint Turner, Stone & Company, L.L.P. as the independent auditors of the Corporation until the next annual meeting of shareholders and authorize the directors to fix the auditors’ remuneration; |
| --- | --- |
| 4. | to consider and, if deemed advisable, to pass, with or without variation, an ordinary resolution re-approving the Corporation’s long-term equity based incentive plan; and |
| --- | --- |
| 5. | to transact any other business properly brought before the Meeting. |
| --- | --- |
Shareholders of record as at the close of business on July 31, 2023 will be entitled to notice of and to vote at the Meeting. A detailed description of the matters to be acted upon at the Meeting is set forth in the Corporation’s Management Information Circular for the Meeting (the “Information Circular”). The Corporation has elected to use the notice-and-access provisions under National Instrument 54-101 – Communication with Beneficial Owners of Securities of a Reporting Issuer and National Instrument 51-102 – Continuous Disclosure Obligations (the “Notice-and-Access Provisions”) of the Canadian Securities Administrators for the Meeting. The Notice-and-Access Provisions are a set of rules developed by the Canadian Securities Administrators that reduce the volume of materials that must be physically mailed to Shareholders of the Corporation by allowing the Corporation to post its Information Circular and any additional materials online. Shareholders who would like more information about the Notice-and-Access Provisions may contact the Corporation’s transfer agent, Capital Transfer Agency, ULC, toll-free at 1-844-499-4482. Please see “Notice-and-Access” in the accompanying Information Circular. We strongly encourage shareholders to vote their Common Shares of the Corporation prior to the Meeting by any of the means described in the Information Circular.
The Information Circular and all additional materials have been posted in full online at www.capitaltransferagency.ca and under the Corporation’s SEDAR profile at www.sedar.com. Shareholders are reminded to carefully review the Information Circular and any additional materials prior to voting on the matters being transacted at the Meeting. All Shareholders of record as of July 31, 2023, the record date, will receive a notice and access notification containing instructions on how to access the Corporation’s Information Circular and all additional materials. Copies of: (a) this notice of annual and special meeting of shareholders; (b) the Information Circular; (c) a management form of proxy and instructions in relation thereto (the “Management Proxy”); and (d) the audited consolidated financial statements of the Corporation for its years ended October 31, 2022 and 2021, and the independent auditor’s report thereon may be obtained free of charge by contacting Capital Transfer Agency, ULC at 390 Bay Street, Suite 920, Toronto, Ontario M5H 2Y2 or by phone at 1-844-499-4482. In order to ensure that a paper copy of the Information Circular and additional materials can be delivered to a Shareholder in time for such Shareholder to review the Information Circular and return a Management Proxy or voting instruction form prior to the deadline to receive proxies, it is strongly suggested that Shareholders ensure their request is received no later than September 5, 2023.
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Registered shareholders and duly appointed proxyholders will be able to attend, participate and vote at the Meeting or may be represented by proxy. Shareholders are requested to: (i) sign, date and deliver the Management Proxy to the Corporation’s registrar and transfer agent, Capital Transfer Agency, ULC, 390 Bay Street, Suite 920, Toronto, Ontario M5H 2Y2 Canada or visit www.capitaltransferagency.com/voteproxy, so it is received at least 48 hours (excluding Saturdays, Sundays and holidays) before the time of the Meeting or any adjournment thereof; or (ii) return your voting instructions as specified in the request for voting instructions delivered to you, as applicable.
DATED this 4th day of August, 2023
| BY ORDER OF THE BOARD OF DIRECTORS |
|---|
| (signed) “J. Obie Strickler” |
| J. Obie Strickler |
| Director, President and Chief Executive Officer |
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GROWN ROGUE INTERNATIONAL INC.
MANAGEMENT INFORMATION CIRCULAR
SOLICITATION OF PROXIES
This management information circular (the “Information Circular”) is furnished in connection with the solicitation by management (“Management”) of Grown Rogue International Inc. (the “Corporation”), of proxies to be used at the annual and special meeting of shareholders (the “Meeting”) of the Corporation to be held on Monday, September 14, 2023, at the time and place and for the purposes set forth in the accompanying notice of annual and special meeting (the “Notice”). The costs associated with this proxy solicitation will be borne by the Corporation.
Except as otherwise indicated, information herein is given as at August 4, 2023. In this Information Circular, all references to dollar amounts are to Canadian dollars, unless otherwise specified. All references to US$ indicate dollar amounts in the lawful currency of the United States. All references herein to the Corporation shall include its subsidiaries as the context may require.
The board of directors of the Corporation (the “Board” or “Board of Directors”) has by resolution fixed the close of business on July 31, 2023, as the record date (the “Record Date”) for the Meeting. Only holders of common shares (the “Common Shares”) of the Corporation (each, a “Shareholder” and collectively, the “Shareholders”) of record as at 5:00 pm (Eastern Daylight Time) as at the Record Date will be entitled to receive the Notice and related documents and to vote at the Meeting or at any adjournment thereof, but failure to receive such Notice does not deprive Shareholders of their right to vote their Common Shares at the Meeting.
If any person entitled to vote at an annual and special meeting of the Shareholders wishes to propose any matter for consideration at the next annual and special meeting, in order for such proposal to be considered for inclusion in the materials mailed to Shareholders in respect of such meeting, such proposal must be received by the Corporation no later than 90 days before the anniversary date of the Notice.
The Corporation will use the Notice-and-Access Provisions (as defined below) to conduct the solicitation of proxies in connection with this Information Circular. Proxies may also be solicited by telephone, facsimile, email or in person by directors, officers and employees of the Corporation who will not be additionally compensated therefor. Arrangements have been made with brokerage houses and other intermediaries, clearing agencies, custodians, nominees and fiduciaries to forward solicitation materials to the beneficial owners of the Common Shares held of record by such persons.
NOTICE-AND-ACCESS
The Corporation has elected to deliver the materials in respect of the Meeting pursuant to the notice-and-access provisions (“Notice-and-Access Provisions”) concerning the delivery of proxy-related materials to shareholders found in section 9.1.1 of National Instrument 51-102 – Continuous Disclosure Obligations (“NI 51-102”), in the case of registered shareholders, and section 2.7.1 of National Instrument 54-101 – Communication with Beneficial Owners of Securities of a Reporting Issuer (“NI 54-101”), in the case of beneficial shareholders. The Notice-and-Access Provisions are a set of rules that reduce the volume of proxy-related materials that must be physically mailed to shareholders by allowing issuers to deliver meeting materials to shareholders electronically by providing shareholders with access to these materials online.
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The use of the Notice-and-Access Provisions reduces paper waste and mailing costs to the Corporation. In order for the Corporation to utilize the Notice-and-Access Provisions to deliver proxy-related materials by posting the Information Circular (and if applicable, other materials) electronically on a website that is not SEDAR, the Corporation must send a notice to Shareholders, including beneficial Shareholders, indicating that the proxy-related materials have been posted and explaining how a Shareholder can access them or obtain a paper copy of those materials from the Corporation.
In accordance with the Notice-and-Access Provisions, a notice and a form of proxy or voting instruction form has been sent to all Shareholders informing them that this Information Circular is available online and explaining how this Information Circular may be accessed, in addition to outlining relevant dates and matters to be discussed at the Meeting. This Information Circular has been posted in full on www.capitaltransferagency.ca and under the Corporation’s SEDAR profile at www.sedar.com.
The Corporation will cause its agent to deliver copies of the proxy-related materials to the clearing agencies and Intermediaries (as hereinafter defined) for onward distribution to Non-Registered Holders (as hereinafter defined). The Corporation intends to pay for the Intermediaries to deliver to objecting Non-Registered Holders the proxy-related materials and Form 54-101F7 – Request for Voting Instructions Made by Intermediary of NI 54-101.
Any Shareholder who wishes to receive a paper copy of this Information Circular free of charge must contact Capital Transfer Agency, ULC at 390 Bay Street, Suite 920, Toronto, Ontario M5H 2Y2, toll free telephone number 1-844-499-4482. In order to ensure that a paper copy of the Information Circular can be delivered to a requesting Shareholder in time for such Shareholder to review the Information Circular and return a form of proxy or voting instruction form prior to the deadline to receive proxies, it is strongly suggested that Shareholders ensure their request is received no later than September 5, 2023.
APPOINTMENT AND REVOCATION OF PROXIES
The persons named in the enclosed management form of proxy and instructions in relation thereto (the “Management Proxy”) are officers and/or directors of the Corporation. Each Shareholder has the right to appoint a person or company, who need not be a Shareholder, other than the persons named in the enclosed form of proxy, to represent such Shareholder at the Meeting or any adjournment(s) thereof. Such right may be exercised by inserting such person’s name in the blank space provided and striking out the names of Management’s nominees in the Management Proxy or by completing another proper form of proxy. All proxies must be executed by the Shareholder or his or her attorney duly authorized in writing or, if the Shareholder is a corporation, by an officer or attorney thereof duly authorized. The completed form of proxy must be deposited at the office of the Corporation’s transfer agent, Capital Transfer Agency, ULC, 390 Bay Street, Suite 920, Toronto, Ontario M5H 2Y2 Canada, no later than 48 hours (excluding Saturdays, Sundays and holidays) before the time of the Meeting or any adjournment(s) thereof.
A Shareholder forwarding the enclosed Management Proxy may indicate the manner in which the appropriate appointee is to vote with respect to any specific item by checking the appropriate space. If the Shareholder giving the proxy wishes to confer a discretionary authority with respect to any item of business, then the space opposite the item is to be left blank. The Common Shares represented by the proxy submitted by a Shareholder will be voted in accordance with the directions, if any, given in the proxy.
In addition to revocation in any other manner permitted by law, a Management Proxy or other form of proxy may be revoked if it is received not later than 11:00 am (Eastern Daylight Time) on September 12, 2023 or, if the Meeting is adjourned, not later than 48 hours (excluding Saturdays, Sundays and holidays) before the Meeting, by completing and signing a proxy bearing a later date and depositing it with Capital Transfer Agency, ULC on behalf of the Corporation.
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If you are a registered Shareholder of the Corporation, whether or not you are able to attend the Meeting, you are requested to complete, execute and deliver the enclosed Management Proxy in accordance with the instructions set forth on the form to the Corporation, c/o Capital Transfer Agency, ULC, 390 Bay Street, Suite 920, Toronto, Ontario M5H 2Y2, not less than 48 hours (excluding Saturdays, Sundays and holidays) prior to the Meeting or any adjournment(s) or postponement(s) thereof. The time limit for the deposit of proxies may be waived by the Board at its discretion without notice.
EXERCISE OF DISCRETION BY PROXIES
Common Shares represented by properly executed proxies in favour of the persons named in the enclosed Management Proxy will be either voted or withheld from voting, as applicable, in accordance with the instructions given by the Shareholder on any ballot that may be called for and, if the Shareholder specifies a choice with respect to any matter to be acted upon, the Common Shares will be voted accordingly. Where Shareholders have properly executed proxies in favour of the persons named in the enclosed Management Proxy and have not specifiedin the Management Proxy the manner in which the named proxies are required to vote the Common Shares represented thereby, such CommonShares will be voted in favour of the passing of the matters set forth in the Notice. The enclosed Management Proxy confers discretionary authority with respect to amendments or variations to the matters identified in the Notice and with respect to other matters that may properly come before the Meeting. At the date hereof, neither Management nor the directors of the Corporation (each, a “Director” and collectively, the “Directors”) are aware of any such amendments, variations or others matters to come before the Meeting. If any other matters which at present are not known to Management should properly come before the Meeting, the proxy will be voted on such matters in accordance with the best judgement of the named proxies.
INFORMATION FOR BENEFICIAL HOLDERS OF SECURITIES
Registered holders of Common Shares or the persons they validly appoint as their proxies are permitted to vote at the Meeting. However, in many cases, Common Shares beneficially owned by a person (a “Non-Registered Holder”) are registered either: (i) in the name of an intermediary (an “Intermediary”) (including banks, trust companies, securities dealers or brokers and trustees or administrators of self-administered RRSPs, RRIFs, RESPs and similar plans) that the Non-Registered Holder deals with in respect of the Common Shares; or (ii) in the name of a clearing agency (such as the Canadian Depository for Securities Limited) of which the Intermediary is a participant.
Distribution to Beneficial Owners
The Corporation will have caused its agent to deliver copies of the proxy-related materials to the clearing agencies and Intermediaries for onward distribution to Non-Registered Holders.
Intermediaries are required to forward the meeting materials to Non-Registered Holders unless a Non-Registered Holder has waived his or her right to receive them. Intermediaries often use service companies such as Broadridge Financial Solutions, Inc. to forward the meeting materials to Non-Registered Holders. Generally, those Non-Registered Holders who have not waived the right to receive meeting materials will either:
| 6. | be given a form of proxy which has already been signed by the Intermediary (typically by a facsimile stamped signature), which is restricted as to the number of shares beneficially owned by the Non-Registered Holder, but which is otherwise uncompleted. This form of proxy need not be signed by the Non-Registered Holder. In this case, the Non-Registered Holder who wishes to submit a proxy should properly complete the form of proxy and deposit it with Capital Transfer Agency in the manner set out above in this Information Circular, with respect to the Common Shares beneficially owned by such Non-Registered Holder; or |
|---|
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| 7. | more typically, be given a voting registration form which is not signed by the Intermediary and which, when properly completed and signed by the Non-Registered Holder and returned to the Intermediary or its service company, will constitute authority and instructions (often called a “Voting Instruction Form”) which the Intermediary must follow. Typically, the Voting Instruction Form will consist of a one-page pre-printed form. The purpose of this procedure is to permit the Non-Registered Holder to direct the voting of the shares he or she beneficially owns. |
|---|
Should a Non-Registered Holder who receives one of the above forms wish to vote at the Meeting in person, the Non-Registered Holder should strike out the names of the persons named in the form and insert the Non-Registered Holder’s name in the blank space provided. In either case, Non-Registered Holders should carefully follow the instructions, including those regarding when and where the proxy or voting instruction form is to be delivered.
Non-Registered Holders (other than Non-Registered Holders who are duly appointed proxyholders) will not be admitted to the Meeting. Non-Registered Holders are urged to vote their Common Shares in advance of the Meeting in accordance with the procedures and instructions received from Broadridge Financial Solutions, Inc. or other applicable intermediary. Non-Registered Holders may listen to the Meeting using the live audioconferencing facilities described in this Information Circular.
INTEREST OF CERTAIN PERSONS IN MATTERS TO BE ACTED UPON
Except as disclosed herein, no: (i) Director or executive officer (an “Officer”) of the Corporation who has held such position at any time since November 1, 2021; (ii) proposed nominee for election as a director of the Corporation; or (iii) associate or affiliate of a person in (i) or (ii) has any material interest, direct or indirect, by way of beneficial ownership of securities or otherwise, in any matter to be acted upon at the Meeting other than the election of Directors.
VOTING SHARES AND PRINCIPAL HOLDERS OF VOTING SHARES
The Corporation is authorized to issue an unlimited number of Common Shares without nominal or par value of which, as at the date hereof, 170,832,611 Common Shares are issued and outstanding as fully paid and non-assessable Common Shares. Each issued and outstanding Common Share entitles its holder to one vote.
To the knowledge of the Directors and Officers, as at the Record Date, no person beneficially owns, directly and indirectly, or exercises control or direction over, voting securities of the Corporation carrying more than 10% of the voting rights, except as follows:
| Name | Number of Common Shares | Percentage of Class |
|---|---|---|
| J. Obie Strickler | 34,194,416 | 20.01% |
| Bengal Catalyst Fund, LP | 24,365,000 | 14.26% |
The Officers and Directors of the Corporation own, as a group, a total of 40,831,773 Common Shares, representing 23.9% of the issued and outstanding Common Shares.
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MATTERS TO BE ACTED UPON AT THE MEETING
| 1. | PRESENTATION OF FINANCIAL STATEMENTS FOR 2022 AND 2021 |
|---|
A copy of the audited consolidated financial statements of the Corporation for its prior years ended October 31, 2022 and 2021 can be found on the Corporation’s SEDAR profile at www.sedar.com. Copies can also be obtained on request by contacting the Corporation: Grown Rogue International Inc. c/o Miller Thomson LLP, Scotia Plaza, 40 King St. W., Suite 5800, PO Box 1011, Toronto, Ontario, M5H 3S1, Attention to: Ryan Kee, CFO and Corporate Secretary.
| 2. | ELECTION OF DIRECTORS |
|---|
The articles of the Corporation provide that the Corporation shall not have more than ten (10) Directors. At the annual and special meeting of the shareholders of the Corporation held on July 15, 2019, the Shareholders voted in favour of a special resolution empowering the directors of the Corporation to determine from time to time the number of directors of the Corporation to be elected at any future annual meeting of Shareholders in accordance with the provisions of the Business Corporations Act (Ontario). The directors of the Corporation have determined that the number of directors of the Corporation to be elected at the Meeting shall be five (5). The nominees are, in the opinion of the Board, well qualified to act as Directors for the coming year. Each nominee has established his eligibility and willingness to serve as a Director, if elected. Each duly elected Director will hold office until the next annual meeting of Shareholders or until a successor is duly elected, unless his office is earlier vacated in accordance with the articles of the Corporation. The following table sets out the names of the persons nominated by management for election, any offices with the Corporation currently held by them, their principal occupations, the period or periods of service as directors of the Corporation and the approximate number of voting securities of the Corporation beneficially owned, directly or indirectly, or over which control or direction is exercised as of the date hereof.
| Name, province or state and country of residence | Office Held | Principal Occupation | Director Since | Number of<br><br> <br>Common Shares Beneficially Owned or Controlled or Directed^(1)^ |
|---|---|---|---|---|
| J. Obie Strickler^(2)^<br> Oregon, United States | President, Chief Executive Officer and Director | President, Chief Executive Officer and Director of the Corporation | November 15,<br><br>2018 | 34,194,416 |
| Abhilash Patel^(2)^<br><br> <br>California, United States | Director | Consultant | November 15,<br><br>2018 | 754,971 |
| Stephen Gledhill^(2)^<br> Ontario, Canada | Director | Accountant | November 15,<br><br>2018 | 44,386 |
| Sean Conacher<br> Ontario, Canada | Director | Chief Executive Officer of Global Cannabis Innovators Corp. | August 27,<br><br>2020 | 485,000 |
| Ryan Kee<br> Washington, United States | Director | Chief Financial Officer | N/A | 97,500 |
Notes:
| ^(1)^ | The information as to the number of Common Shares beneficially owned, or over which control or direction is exercised, directly or indirectly, not being within the direct knowledge of the Corporation, has been furnished by the respective Director nominees. |
|---|---|
| ^(2)^ | Member of the Audit Committee and Compensation Committee. Stephen Gledhill is the chairman of the Audit Committee and the Compensation Committee. |
| --- | --- |
| ^(3)^ | J. Obie Strickler, being an executive officer of the Corporation, is not “independent” as defined in NI 52-110 – Audit Committees (“NI 52- 110”). The Corporation is relying on the exemption provided by section 6.1 of NI 52-110 pursuant to which the Corporation, as a venture issuer, is not required to comply with Part 3 (Composition of the Audit Committee) and Part 5 (Reporting Obligations) of NI 52-110. |
| --- | --- |
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Director Biographies
Mr. J. Obie Strickler
Mr. Strickler is the CEO, President and founder of the Corporation. He founded Canopy Management, LLC in 2015 to consolidate the three medical facilities he had operated since 2006 within one company. Mr. Strickler formed the Corporation in late 2016 and entered the Oregon recreational cannabis market with a plan to build a multi-national cannabis brand. Mr. Strickler was successful in building a profitable medical cannabis company and used that foundation to build Grown Rogue where he has led a team that now has operations in two states with a management contract in two additional states. Mr. Strickler has a BS in Geology from Southern Oregon University and is also an Oregon Professional Geologist. During the time he was financing and overseeing Canopy’s growth he was also the regional manager for a large multi-service natural resource company before starting his own business in 2011 to provide management services to large natural resource companies primarily in the mining sector. In this role, he was responsible for building and integrating complex technical teams to advance large, world-class, multi-billion-dollar mining projects from exploration through feasibility primarily in base and precious metals. In 2014, Mr. Strickler teamed with aerospace engineers to form HyperSciences, Inc a platform technology company focused on commercializing hypervelocity technology into a variety of industrial applications. Mr. Strickler helped secure a large contract with one of the world’s larger oil and gas providers to solve deep drilling challenges and moved this project through proof of concept before departing to focus on the opportunities in cannabis full time. Mr. Strickler is taking his production and product innovation experience in the cannabis industry and his integration and execution experience from the natural resource industry to build Grown Rogue into a premier cannabis company. Mr. Strickler is 44 years old and devotes 100% of his professional time to the Corporation.
Mr. Abhilash Patel
Mr. Patel is a serial entrepreneur, venture investor, speaker, and philanthropist. He is currently Founder & CEO of Thermal.co, a venture studio in Santa Monica, CA with a portfolio of stage-agnostic and category-agnostic investments along with a number of operating ventures. Previously, Abhilash was founder and CEO at Ranklab, a digital marketing agency and Co-Founder of Recovery Brands, a digital publisher with assets including Rehabs.com, Recovery.org and others. Both companies were listed in Inc. Magazine’s fastest growing private companies in 2015. Later in 2015, both companies were acquired by AAC Holdings, then listed on the NYSE. He is on the Board of Directors for several non-profit organizations in Southern California, including the LA Regional Food Bank, Junior Achievement of Southern California, Clare|Matrix and 10,000 Beds, and serves on the board of several privately-held startups as well.
Abhilash holds a BA in Economics and Philosophy from Columbia University, and an MBA from the UCLA Anderson School of Management. Abhilash’s work has been featured in several major publications, including Inc., Huffington Post, Forbes, and Entrepreneur, USA Today, among others. Dr. Drew., Inc. named Abhilash “One of 20 Inspiring Entrepreneurs Improving Health for All” and Forbes highlights him in an interview entitled “How Web Publishing is Saving Lives”. When he’s not helping businesses grow, Abhilash is spending time with his wife and their three beautiful sons, or training for his next triathlon. Mr. Patel is 43 years old and intends to devote the time necessary to serve as a director of the Corporation.
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Mr. Stephen Gledhill
Mr. Gledhill is the founder and President of Keshill Consulting Associates Inc., a boutique management consulting practice. Mr. Gledhill has over 25 years of financial-control experience and acts as CFO and Corporate Secretary for multiple publicly-traded companies, several of which he was instrumental in scaling-up and taking public. He currently serves as the CFO of CO2 Gro Inc. (TSXV:GROW), Bhang Inc. (CSE: BHNG), DelphX Capital Markets Inc (TSXV:DELX) and POSaBIT Systems Corporation (CSE: PBIT), as well as the Corporate Secretary of Tombill Mines Limited (TSXV: TBLL). Mr. Gledhill has also served as the Senior Vice President and CFO of Borealis Capital Corporation, a Toronto-based merchant bank as well as Vice President of Finance of OMERS Realty Corporation (ORC), the real estate entity of the Ontario Municipal Employees Retirement System. Mr. Gledhill is a Chartered Public Accountant and Certified Management Accountant and holds a Bachelor of Math Degree from the University of Waterloo. Mr. Gledhill is 62 years old and intends to devote the time necessary to serve as a director of the Corporation.
Mr. Sean Conacher
Sean is an experienced executive with a demonstrated history of working in the financial services, cannabis, and marketing sectors. He is skilled in entrepreneurship, venture capital, public and private equity, foreign exchange, options and asset management. He has held senior executive and board roles in both public and private companies. Mr. Conacher is 53 years old and intends to devote the time necessary to serve as a director of the Corporation.
Mr. Ryan Kee
Mr. Kee is an experienced accounting professional with a history of working in mining in various global jurisdictions. He is skilled in financial reporting, IT integrations, and team building & development. He is currently Chief Accounting Officer of the Corporation. Mr. Kee has a BS in Accounting and Spanish from the University of Idaho, and is a Certified Public Accountant, licensed in Washington state. He has developed financial models to quantitatively describe the cost profiles of operating mines, optimize grade cutoffs, and drive cost reductions. Most recently, he led accounting, supply chain, and IT teams for an operating gold mine in South America, and will apply the best practices learned & developed in mining to cannabis production. Mr. Kee is 40 years old and intends to devote 100% of his professional time to the Corporation.
Corporate Cease Trade Orders, Bankruptcy Proceedings and Penalties and Sanctions
Other than disclosed below, to the knowledge of the Corporation, no Director or proposed Director of the Corporation is, as at the date of this Information Circular, or was within 10 years before the date of this Information Circular, a director or chief executive officer or chief financial officer of any company (including the Corporation) that: (a) was the subject of an order (as defined in Form 51-102F5 under National Instrument 51-102 Continuous Disclosure Obligations) that was issued while the Director or proposed Director was acting in the capacity as director, chief executive officer or chief financial officer; or (b) was subject to an order that was issued after the Director or proposed Director ceased to be a director, chief executive officer or chief financial officer, and which resulted from an event that occurred while that person was acting in the capacity as a director, chief executive officer or chief financial officer. For the purposes of this paragraph, “order” means a cease trade order, an order similar to a cease trade order or an order that denied the relevant Corporation access to any exemption under securities legislation, in each case that was in effect for a period of more than 30 consecutive days.
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No Director or proposed Director of the Corporation: (a) is, or within 10 years before the date hereof has been a director or executive officer of a corporation (including the Corporation) that while that person was acting in that capacity, or within a year of that person ceasing to act in that capacity, became bankrupt, made a proposal under any legislation relating to bankruptcy or insolvency or was subject to or instituted any proceedings, arrangement or compromise with creditors or had a receiver, receiver manager or trustee appointed to hold its assets; or (b) has within the 10 years before the date hereof, become bankrupt, made a proposal under any legislation relating to bankruptcy or insolvency, or become subject to or instituted any proceedings, arrangement or compromise with creditors, or had a receiver, receiver manager or trustee appointed to hold the assets of the Director or proposed Director.
Other than disclosed below, no Director or proposed Director of the Corporation has been subject to any: (a) penalties or sanctions imposed by a court relating to Canadian securities legislation or by a Canadian securities regulatory authority or has entered into a settlement agreement with a Canadian securities regulatory authority; or (b) other penalties or sanctions imposed by a court or regulatory body that would be likely to be considered important to a reasonable security holder in deciding whether to vote for the Director or proposed Director.
In 2013, Sean Conacher was a trader and designated person at a firm regulated by The Investment Industry Regulatory Organization of Canada (“IIROC”). It was determined that between June 2013 and October 2013, Mr. Conacher allowed a U.S. based client to enter orders directly on an IIROC-regulated marketplace through a firm inventory account, and therefore permitted trades to be executed that Mr. Conacher knew, or ought to have reasonably have known, would not comply with applicable regulatory requirements. Mr. Conacher and IIROC subsequently entered into a settlement agreement, resulting in: (i) a fine of $15,000; (ii) a suspension of access to IIROC-regulated marketplaces for three months effective from October 2013; and (iii) costs of $2,000.
On January 12, 2016 (further to a TSX Venture Exchange Bulletin dated January 11, 2016), Gemoscan Canada, Inc.’s (“GES”) shares were suspended from trading on the TSX Venture Exchange for failing to maintain exchange requirements, GES having made assignment into bankruptcy. Effective January 13, 2016, GES’s listing was transferred to the NEX. Stephen Gledhill served as CFO of GES from August 2010 to November 2015.
On April 25, 2016, CO2 Gro Inc. (formerly BlueOcean NutraSciences Inc.) (“BOC”) applied to the applicable Canadian securities regulatory authorities pursuant to Policy 12-203 for a MCTO, which precluded members of management (including Stephen Gledhill, CFO) from trading BOC common shares until such time as the MCTO is no longer in effect. The MCTO was sought by BOC as it would not be filing its audited annual financial statements, related management discussion and analysis and applicable officer certifications (the “Annual Materials”) by the deadline date of April 29, 2016. On May 9, 2016, the OSC granted a temporary MCTO, effective until May 16, 2016. On May 16, 2016, the OSC issued a permanent MCTO in effect until 2 days following BOC filing its Annual Materials with the applicable regulatory authorities. On July 19, 2016, BOC filed its Annual Materials and on July 21, 2016, the MCTO was lifted.
On May 3, 2021, Bhang Inc. (“Bhang”) was granted a management cease trade order (“MCTO”) by the applicable Canadian securities regulatory authorities pursuant to National Policy 12-203 – Management Cease Trade Orders (“Policy 12-203”), which precluded members of management (including Stephen Gledhill, CFO) from trading Bhang shares until such time as the MCTO was no longer in effect. The MCTO was sought by Bhang as it would not be filing its audited annual financial statements, related management discussion and analysis and applicable officer certifications (the “Bhang 2021 Annual Materials”) by the deadline date of April 30, 2021. On June 23, 2021, Bhang filed the Bhang 2021 Annual Materials and the MCTO lapsed on July 5, 2021.
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On May 3, 2022, Bhang was granted a MCTO by the applicable Canadian securities regulatory authorities pursuant to NP 12-203 which precluded members of management (including Stephen Gledhill, CFO) from trading Bhang shares until such time as the MCTO is no longer in effect. The MCTO was sought by Bhang as it would not be filing its audited annual financial statements, related management discussion and analysis and applicable officer certifications (the “Bhang 2022 Annual Materials”) by the deadline date of May 2, 2022. On May 31, 2022, Bhang filed the Bhang 2022 Annual Materials and the MCTO lapsed on June 8, 2022.
On May 5, 2023, Bhang was issued a failure to file cease trade order in respect of the Company’s securities by the applicable Canadian securities regulatory authorities pursuant to Multilateral Instrument 11-103 - Failure-to-File Cease Trade Orders in Multiple Jurisdictions (the “FFCTO”), which precludes trading in the company’s securities, as a result of Bhang’s failure to file its audited annual financial statements, related management discussion and analysis and applicable officer certifications for the year ended December 31, 2022. As of the date of this Information Circular, the FFCTO remains in effect.
The Corporation’s common shares are quoted for trading on the OTC Markets under the symbol “GRUSF” and listed on the Canadian Securities Exchange (“CSE”), under the symbol “GRIN”. During the past three years, there have been two suspensions of trading for failure to timely file financial reports: trading of the Corporation’s common shares ceased over the OTC Markets and CSE in March 2020, both associated with the same filing delay. On March 24, 2020, the Company rectified the default situation that gave rise to the suspension of trading, and trading on the CSE and OTC Markets resumed. The Securities and Exchange Commission’s amendments to Rule 15c2-11 went into effect September 28, 2021, and on that date, quotations on the OTC Markets were no longer publishable due to lack of current information about the Corporation. As of the date of this Information Circular, this issue has been resolved and the quotations are available on the OTC Markets.
If you complete and return the proxy for the Meeting, the persons designated in the proxy for the Meeting intend to vote at the Meeting, or any adjournment thereof, FOR the election of J. Obie Strickler, Abhilash Patel, Stephen Gledhill, Sean Conacher and Ryan Kee as Directors, unless you specifically direct that your vote be withheld.
| 3. | APPOINTMENT AND REMUNERATION OF AUDITORS |
|---|
At the Meeting, Shareholders will be asked to approve a resolution re-appointing Turner, Stone & Company, L.L.P., of Dallas, Texas, as auditors for the Corporation, to hold office until the next annual meeting of Shareholders, and to authorize the Directors to fix their remuneration. Turner, Stone & Company, L.L.P., Charter Professional Accountants were appointed as auditors of the Corporation effective November December 6, 2021.
THE BOARD OF DIRECTORS RECOMMENDS THAT SHAREHOLDERS VOTE IN FAVOUR OF THE APPOINTMENT OF TURNER, STONE & COMPANY, L.L.P., CHARTERED PROFESSIONAL ACCOUNTANTS, AS AUDITORS OF THE CORPORATION AND THE AUTHORIZING OF THE DIRECTORS TO FIX THEIR REMUNERATION.
If you complete and return the Management Proxy, the persons designated in the Management Proxy intend to vote at the Meeting, or any adjournment thereof, FOR the appointment of Turner, Stone & Company, L.L.P. as auditors of the Corporation and to authorize the Board to fix the auditors’ remuneration, unless you specifically direct that your vote be withheld.
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| 4. | RE-APPROVAL OF EQUITY INCENTIVE PLAN |
|---|
The Corporation has an omnibus equity incentive plan that was last approved by shareholders on August 27, 2020 (the “Equity Incentive Plan”). The maximum number of Common Shares that may be issued under the Equity Incentive Plan is 20% of the number of Common Shares then outstanding. Notwithstanding the forgoing, the total number of Common Shares issued under ISOs (as defined below) cannot exceed 20,000,000 Common Shares, subject to adjustment as provided in the Equity Incentive Plan.
CSE policies require that rolling security based compensation arrangements, such as the Equity Incentive Plan, receive shareholder approval every three years at the Corporation’s annual shareholders meeting. As such, shareholders are being asked to consider and, if thought appropriate, adopt an ordinary resolution, authorizing and approving Corporation’s Equity Incentive Plan (the “Equity Incentive Plan Resolution”). A summary of the material terms of the Equity Incentive Plan is set out below. The proposed Equity Incentive Plan is identical to the one approved by shareholders on August 27, 2020. The full text of the Equity Incentive Plan is attached to the Corporation’s management information circular dated July 20, 2020 and is available under the Corporation’s profile on sedar.com.
Summary of the Equity Incentive Plan
The principal features of the Equity Incentive Plan are summarized below.
Purpose
The purpose of the Equity Incentive Plan is to enable the Corporation and its affiliated companies to: (i) promote and retain employees, officers, consultants, and directors capable of assuring the future success of the Corporation, (ii) to offer such persons incentives to put forth maximum efforts, and (iii) to compensate such persons through various share and cash-based arrangements and provide them with opportunities for share ownership, thereby aligning the interests of such persons and Shareholders.
The Equity Incentive Plan permits the grant of (i) nonqualified stock options (“NQSOs”) and incentive stock options (“ISOs”) (collectively, “Options”), (ii) restricted stock awards, (iii) restricted stock units (“RSUs”), (iv) stock appreciation rights (“SARs”), and (v) performance compensation awards (“PCAs”), which are referred to herein collectively as “Awards,” as more fully described below.
Eligibility
Any of the Corporation’s employees, officers, directors, consultants (who are natural persons) are eligible to participate in the Equity Incentive Plan (the “Participants”). The basis of participation of an individual under the Equity Incentive Plan, and the type and amount of any Award that an individual will be entitled to receive under the Equity Incentive Plan, will be determined by the Board or Compensation Committee based on its judgment as to the best interests of the Corporation.
The maximum number of Common Shares that may be issued under the Equity Incentive Plan shall be determined by the Board from time to time, but in no case shall exceed, in the aggregate, 20% of the number of Common Shares then outstanding. Notwithstanding the above, the total number of Common Shares issued under ISOs cannot exceed 20,000,000 Common Shares, subject to adjustment as provided in the Equity Incentive Plan.
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Any shares subject to an Award under the Equity Incentive Plan that are forfeited, cancelled, expire unexercised, are settled in cash, or are used or withheld to satisfy tax withholding obligations of a Participant shall again be available for Awards under the Equity Incentive Plan. In the event of any dividend, recapitalization, forward or reverse stock split, reorganization, merger, amalgamation, consolidation, split-up, split-off, combination, repurchase or exchange of Common Shares or other securities of the Corporation, issuance of warrants or other rights to acquire Common Shares or other securities of the Corporation, or other similar corporate transaction or event, which affects the Common Shares, or unusual or nonrecurring events affecting the Corporation, or the financial statements of the Corporation, or changes in applicable rules, rulings, regulations or other requirements of any governmental body or securities exchange or inter-dealer quotation system, accounting principles or law, the Compensation Committee or Board may make such adjustment, which is appropriate in order to prevent dilution or enlargement of the rights of Participants under the Equity Incentive Plan, to (i) the number and kind of shares which may thereafter be issued in connection with Awards, (ii) the number and kind of shares issuable in respect of outstanding Awards, (iii) the purchase price or exercise price relating to any Award or, if deemed appropriate, make provision for a cash payment with respect to any outstanding Award, and (iv) any share limit set forth in the Equity Incentive Plan.
Awards
Options
The Compensation Committee is authorized to grant Options to purchase Common Shares that are either ISOs meaning they are intended to satisfy the requirements of Section 422 of the Code, or NQSOs, meaning they are not intended to satisfy the requirements of Section 422 of the Code. Options granted under the Equity Incentive Plan will be subject to the terms and conditions established by the Board or Compensation Committee. Under the terms of the Equity Incentive Plan, unless the Compensation Committee or Board determines otherwise in the case of an Option substituted for another Option in connection with a corporate transaction, the exercise price of the Options will not be lower than the greater of the closing market prices of the Common Shares on (a) the trading day prior to the date of grant of the stock options, and (b) the date of grant of the stock options. Options granted under the Equity Incentive Plan will be subject to such terms, including the exercise price and the conditions and timing of exercise, as may be determined by the Compensation Committee or Board and specified in the applicable award agreement. The maximum term of an option granted under the Equity Incentive Plan will be ten years from the date of grant (or five years in the case of an ISO granted to a 10% shareholder). Payment in respect of the exercise of an Option may be made in cash or by cheque, by surrender of unrestricted shares (at their fair market value on the date of exercise) or by such other method as the Compensation Committee may determine to be appropriate.
Restricted Stock
A restricted stock award is a grant of Common Shares, which are subject to forfeiture restrictions during a restriction period. The Compensation Committee or Board will determine the price, if any, to be paid by the Participant for each Common Shares subject to a restricted stock award, but in any event the price may not be lower than the greater of the closing market prices of the Common Shares on (a) the trading day prior to the date of grant of the restricted stock, and (b) the date of grant of the restricted stock. The Compensation Committee or Board may condition the expiration of the restriction period, if any, upon: (a) the Participant’s continued service over a period of time with the Corporation or its affiliates; (b) the achievement by the Participant, the Corporation or its affiliates of any other performance goals set by the Compensation Committee; or (c) any combination of the above conditions as specified in the applicable award agreement. If the specified conditions are not attained, the Participant will forfeit the portion of the restricted stock award with respect to which those conditions are not attained, and the underlying Common Shares will be forfeited. At the end of the restriction period, if the conditions, if any, have been satisfied, the restrictions imposed will lapse with respect to the applicable number of Common Shares. During the restriction period, unless otherwise provided in the applicable award agreement, a Participant will have the right to vote the shares underlying the restricted stock; however, all dividends will remain subject to restriction until the stock with respect to which the dividend was issued lapses. The Compensation Committee may, in its discretion, accelerate the vesting and delivery of shares of restricted stock. Unless otherwise provided in the applicable award agreement or as may be determined by the Compensation Committee, upon a Participant’s termination of service with the Corporation, the unvested portion of a restricted stock award will be forfeited.
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RSUs
RSUs are granted in reference to a specified number of Common Shares and entitle the holder to receive, on achievement of specific performance goals established by the Compensation Committee or Board or after a period of continued service with the Corporation or its affiliates or any combination of the above as set forth in the applicable award agreement, one Common Share for each such Common Share covered by the RSU; provided, that the Compensation Committee may elect to pay cash, or part cash and part Common Shares in lieu of delivering only Common Shares. The Compensation Committee or Board may, in its discretion, accelerate the vesting of RSUs. Unless otherwise provided in the applicable award agreement or as may be determined by the Compensation Committee, upon a Participant’s termination of service with the Corporation, the unvested portion of the RSUs will be forfeited. The value ascribed to the Common Shares covered by the RSU may not be lower than the greater of the closing market prices of the Common Shares on (a) the trading day prior to the date of grant of the RSUs, and (b) the date of grant of the RSUs.
Stock Appreciation Rights
A SAR entitles the recipient to receive, upon exercise of the SAR, the increase in the fair market value of a specified number of Common Shares from the date of the grant of the SAR and the date of exercise payable in Common Shares. Any grant may specify a vesting period or periods before the SAR may become exercisable and permissible dates or periods on or during which the SAR shall be exercisable. No SAR may be exercised more than ten years from the grant date. Unless otherwise provided in the applicable award agreement or as may be determined by the Compensation Committee or Board, upon a Participant’s termination of service with the Corporation, the unvested portion of a SAR will be forfeited. The value ascribed to the Common Shares covered by the SARs may not be lower than the greater of the closing market prices of the Common Shares on (a) the trading day prior to the date of grant of the SAR, and (b) the date of grant of the SAR.
Performance Compensation Awards
PCAs may be granted under the Equity Incentive Plan, which (i) may be denominated or payable in cash, Common Shares, or other securities, awards or other property (including, without limitation, restricted stock and RSUs), and (ii) confer on the holder thereof the right to receive payments, in whole or in part, upon the achievement of one or more objective performance goals during such performance periods as the Compensation Committee or Board shall establish. Notwithstanding the foregoing, pursuant to the rules of the CSE, the value ascribed to the Common Shares covered by the PCAs may not be lower than the greater of the closing market prices of the Common Shares on (a) the trading day prior to the date of grant of the PCA, and (b) the date of grant of the PCA. Subject to the terms of the Equity Incentive Plan and the policies of the CSE, the performance goals to be achieved during any performance period, the length of any performance period, the amount of any PCA granted, the amount of any payment or transfer to be made pursuant to any PCA and any other terms and conditions shall be determined by the Compensation Committee or Board. Unless otherwise provided in the applicable award agreement or as may be determined by the Compensation Committee or Board, upon a Participant’s termination of service with the Corporation, the unvested portion of a PCA will be forfeited.
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General
The Compensation Committee or Board may impose restrictions on the grant, exercise or payment of an Award as it determines appropriate. Generally, Awards granted under the Equity Incentive Plan shall be non-transferable except by will or by the laws of descent and distribution. No Participant shall have any rights as a shareholder with respect to Common Shares covered by any Awards, unless and until such Awards are settled in Common Shares.
No Option (or, if applicable, SARs) shall be exercisable, no Common Shares shall be issued, no certificates for Common Shares shall be delivered and no payment shall be made under the Equity Incentive Plan except in compliance with all applicable laws. The Board may amend, alter, suspend, discontinue or terminate the Equity Incentive Plan and the Compensation Committee or Board may amend any outstanding Award at any time; provided that (i) such amendment, alteration, suspension, discontinuation, or termination shall be subject to the approval of the Corporation’s shareholders if such approval is necessary to comply with any tax or regulatory requirement applicable to the Equity Incentive Plan (including, without limitation, as necessary to comply with any rules or requirements of applicable securities exchange), and (ii) no such amendment or termination may adversely affect Awards then outstanding without the Award holder’s permission.
In the event of any reorganization, merger, consolidation, split-up, spin-off, combination, plan of arrangement, take-over bid or tender offer, repurchase or exchange of Common Shares or other securities of the Corporation or any other similar corporate transaction or event involving the Corporation (or the Corporation shall enter into a written agreement to undergo such a transaction or event), the Compensation Committee or the Board may, in its sole discretion, provide for any (or a combination) of the following to be effective upon the consummation of the event (or effective immediately prior to the consummation of the event, provided that the consummation of the event subsequently occurs):
| ● | termination of the Award, whether or not vested, in exchange for cash and/or other property, if any, equal to the amount that would have been attained upon the exercise of the vested portion of the Award or realization of the Participant’s vested rights, |
|---|---|
| ● | the replacement of the Award with other rights or property selected by the Compensation Committee or the Board, in its sole discretion, |
| --- | --- |
| ● | assumption of the Award by the successor or survivor corporation, or a parent or subsidiary thereof, or shall be substituted for by similar options, rights or awards covering the stock of the successor or survivor corporation, or a parent or subsidiary thereof, with appropriate adjustments as to the number and kind of shares and prices, |
| --- | --- |
| ● | that the Award shall be exercisable or payable or fully vested with respect to all Common Shares covered thereby, notwithstanding anything to the contrary in the applicable award agreement, or |
| --- | --- |
| ● | that the Award cannot vest, be exercised or become payable after a date certain in the future, which may be the effective date of the event. |
| --- | --- |
Tax Withholding
The Corporation may take such action as it deems appropriate to ensure that all applicable federal, state, local and/or foreign payroll, withholding, income or other taxes, which are the sole and absolute responsibility of a Participant, are withheld or collected from such Participant.
Shareholders will be asked at the Meeting to consider and, if thought advisable, pass the Equity Incentive Plan Resolution, substantially in the following form:
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“BE IT RESOLVED AS AN ORDINARY RESOLUTION THAT:
| 1. | the equity incentive plan (the “Equity Incentive Plan”) of Grown Rogue International Inc. (the “Corporation”), in the form attached to the Corporation’s management information circular dated July 20, 2020, and all grants of Awards (as defined in the Equity Incentive Plan) thereunder, be and the same are hereby ratified, confirmed and approved; |
|---|---|
| 2. | the unallocated Awards available for grant under the Equity Incentive Plan are hereby approved; |
| --- | --- |
| 3. | the directors of the Corporation or any such committee of the Corporation are hereby authorized to grant Awards pursuant to the Equity Incentive Plan to those eligible to receive Awards thereunder; and |
| --- | --- |
| 4. | any one or more of the directors or officers of the Corporation is hereby authorized and directed, acting for, in the name of and on behalf of the Corporation, to execute or cause to be executed, under the seal of the Corporation or otherwise, and to deliver or cause to be delivered, such other documents and instruments, and to do or cause to be done all such other acts and things, as may in the opinion of such director or officer of the Corporation be necessary or desirable to carry out the intent of the foregoing resolution, the execution of any such document or the doing of any such other act or thing by any director or officer of the Corporation being conclusive evidence of such determination.” |
| --- | --- |
THE BOARD OF DIRECTORS RECOMMENDS THAT SHAREHOLDERS VOTE IN FAVOUR OF THE EQUITY INCENTIVE PLAN RESOLUTION.
If you complete and return the Management Proxy, the persons designated in the Management Proxy intend to vote at the Meeting, or any adjournment thereof, FOR the Equity Incentive Plan Resolution, unless you specifically direct that your vote be voted against the Equity Incentive Plan Resolution.
OTHER MATTERS
The Corporation knows of no other matters to be brought before the Meeting. If any amendment, variation or other business is properly brought before the Meeting, the form of Management Proxy and voting instruction confers discretion on the persons named on the form of Management Proxy to vote on such matters in accordance with their best judgment.
EXECUTIVE COMPENSATION
For purposes of this Information Circular, a “Named Executive Officer” of the Corporation means an individual who, at any time during the year, was:
| (a) | the Corporation’s chief executive officer (“CEO”); |
|---|---|
| (b) | the Corporation’s chief financial officer (“CFO”); |
| --- | --- |
| (c) | each of the Corporation’s three most highly compensated executive officers, or the three most highly compensated individuals acting in a similar capacity, other than the CEO and CFO, at the end of the most recently completed financial year and whose total compensation was, individually, more than $150,000 during the Corporation’s most recently completed financial year; and |
| --- | --- |
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| (d) | each individual who would be a Named Executive Officer under paragraph (c) but for the fact that the individual was neither an executive officer of the Corporation, nor acting in a similar capacity, at the end of the most recently completed financial year. |
|---|
Based on the foregoing definition, during the last completed financial year of the Corporation, there were three (3) Named Executive Officers, being J. Obie Strickler, Ryan Kee and Adam August.
There were five (5) Directors during the last completed financial year of the Corporation, being J. Obie Strickler, Abhilash Patel, Stephen Gledhill, Sean Conacher and Ryan Kee.
COMPENSATION DISCUSSION AND ANALYSIS
Compensation Committee
The Corporation has constituted a committee of the Board to serve as a compensation committee (the “CompensationCommittee”). The Compensation Committee is appointed by the Board to establish policies and procedures with respect to the compensation of the Corporation’s Directors and Officers. The Compensation Committee has overall responsibility for approving and evaluating compensation plans, policies and programs of the Corporation. The Compensation Committee members may be replaced by the Board.
The Compensation Committee is comprised of a majority of independent Directors. The current Compensation Committee is comprised of J. Obie Strickler (not independent), Abhilash Patel (independent) and Stephen Gledhill (independent). Under the proposed slate of the directors, the current members of the Compensation Committee will be re-appointed. Recognizing the importance of an independent dialogue, in determining the appropriate level of compensation payable to Mr. J. Obie Strickler, the independent members of the Compensation Committee subjectively and quantitatively analyze his performance using the criteria discussed in this section below. In addition, the Compensation Committee reviews the adequacy and form of compensation in comparison to other companies of similar size and stage of development as described further below.
Compensation Committee Mandate
The Compensation Committee is appointed by the Board of Directors to assist the Board in carrying out its responsibilities by:
| ● | Reviewing compensation and human resources issues in support of the achievement of the Corporation’s business strategy and making recommendations to the Board as appropriate. |
|---|---|
| ● | Reviewing and approving corporate goals and objectives relevant to executive officer compensation. |
| --- | --- |
| ● | Evaluating executive officer performance against those goals and objectives. |
| --- | --- |
| ● | Making recommendations to the Board with respect to executive officer’s compensation. |
| --- | --- |
| ● | Reviewing issues and overseeing the investment management of the Corporation’s savings and investment plans, if applicable. |
| --- | --- |
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Compensation Philosophy
Compensation of executive officers of the Corporation is recommended to the Board of Directors by the Compensation Committee. In its review process, the Compensation Committee relies on input from management on the assessment of executives and Corporation performance.
The Compensation Committee establishes management compensation policies and oversees their general implementation. All members of the Compensation Committee have direct experience which is relevant to their responsibilities as Compensation Committee members. All members are or have held senior executive or director roles within significant businesses. Mr. Gledhill has public company experience, and all have a good financial understanding which allows them to assess the costs versus benefits of compensation plans. The members combined experience in the Corporation’s sector provides them with the understanding of the Corporation’s success factors and risks, which is very important when determining metrics for measuring success.
Risk management is a primary consideration of the Compensation Committee when implementing its compensation program. The Compensation Committee does not believe that the Corporation’s current compensation program results in unnecessary or inappropriate risk-taking, including risks that are likely to have a material adverse effect on the Corporation. Payments of bonuses, if any, are not made until performance goals have been met.
Executive compensation is generally based on pay for performance and to be competitive with other firms of comparable size in similar fields. The Chief Executive Officer makes recommendations to the Compensation Committee as to the compensation of managers, other than himself, for approval by the Board. The Compensation Committee makes recommendations to the Board as to the compensation of the Chief Executive Officer, for approval, in accordance with the same criteria upon which the compensation of other managers are based.
Executive compensation is comprised of a base salary and variable components in the form of an annual bonus opportunity and stock options. The annual bonus provides an opportunity for management and executive employees to earn an annual cash incentive based on various pre-set criteria and the degree of achievement of objectives sets by the Compensation Committee. These performance goals will therefore take into account (1) the compliance with budgeted results, (2) the Corporation’s share performance during the last completed financial year, and (3) the business development and personal achievement fulfilled by each executive employee, as the case may be. Generally, new stock option grants do not take into account previous grants of options when considering new grants.
The President and Chief Executive Officer’s salary is based on comparable market consideration and the Compensation Committee’s assessment of his performance, with regard to the Corporation’s financial performance and progress in achieving strategic performance.
The Corporation’s executive compensation program is intended to attract, motivate and retain high performing senior executives, encourage and reward superior performance and align the executives’ interests with those of the Corporation. The Corporation aims to achieve these objectives by: (i) providing executive compensation which is competitive with what is offered by comparable companies; (ii) ensuring that the achievement of annual objectives is rewarded through the payment of bonuses; and (iii) providing executives with long-term incentive through the grant of stock options.
The compensation paid to the Named Executive Officers will be based on comparisons to compensation paid to officers of companies in a similar business, size and stage of development and will reflect the need to provide incentives and compensation for the time and effort expended by the Named Executive Officers, while taking into account the financial and other resources of the Corporation, as well as increasing short and long-term shareholder value.
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Compensation Elements
Compensation of Named Executive Officers is revised each year and has been structured to encourage and reward the executive officers on the bases of short-term and long-term corporate performance. In the context of the analysis of the compensation for the financial years ended October 31, 2022 and 2021, the following components were examined:
| (e) | base salary; |
|---|---|
| (f) | annual performance incentive relative to base compensation consisting of cash and stock options; |
| --- | --- |
| (g) | grant of share-based Awards; and |
| --- | --- |
| (h) | other elements of compensation which may include shares of the Corporation. |
| --- | --- |
Base Salary
The compensation of the Corporation’s executive officers is determined by the Board upon recommendations made by the Compensation Committee. Executive compensation is generally based on performance and what is being offered by other firms of comparable size in similar fields.
Annual Incentive Plan
The Corporation has a bonus plan for its executive officers, representing a percentage of their base annual salary. The grant of bonuses for performance is left at the discretion of the Board of Directors upon the recommendation of the Compensation Committee, based on the financial results of the Corporation and the degree of achievement of objectives set by the Board of Directors, as more fully described above.
Share-based Awards
The Corporation believes that encouraging its Officers and employees to become Shareholders is the best way of aligning their interests with those of its Shareholders. Equity participation is currently accomplished through the Corporation’s Equity Inventive Plan. Under the Equity Incentive Plan, Awards will be granted to management and employees taking into account a number of factors, including, base salary and bonuses, and competitive factors.
The Awards component of compensation provided by the Corporation under the Equity Incentive Plan is intended to advance the interests of the Corporation by encouraging the Directors, Officers, employees and consultants of the Corporation to acquire Common Shares, thereby increasing their proprietary interest in the Corporation, encouraging them to remain associated with the Corporation and furnishing them with additional incentive in their efforts on behalf of the Corporation in the conduct of its affairs. Grants under the Equity Incentive Plan are intended to provide long term awards linked directly to the market value performance of the Corporation’s Common Shares. Under the Equity Incentive Plan, the Board will review the Compensation Committee’s recommendations for the granting of Awards to management, Directors, Officers, other employees, and consultants of the Corporation and its subsidiaries. Awards will be granted according to the specific level of responsibility of the particular Director, Officer, employee or consultant. The number of outstanding Awards will also be considered by the Board when determining the number of Awards to be granted in any particular year due to the limited number of Awards that are available for grant under the Equity Incentive Plan.
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Equity Incentive Plan
The Equity Incentive Plan was previously approved by the Shareholders at the annual and special meeting of the shareholders of the Corporation held on August 27, 2020 and shareholders will be asked to re-approve the Equity Incentive Plan at the Meeting. A summary of the Equity Incentive Plan is available above under the heading “Matters to be acted upon at the Meeting – 4. Re-Approval of the Equity Incentive Plan”.
Purchase of Financial Instruments
The Corporation has not adopted any policies or imposed any contractual obligations to restrict the ability of a Named Executive Officer or a Director to purchase financial instruments, including for greater certainty, prepaid variable forward contracts, equity swaps, collars, or units of exchange funds, that are designed to hedge or offset a decrease in market value of equity securities granted as compensation by the Corporation or held, directly or indirectly, by the Named Executive Officer or Director. The Board discourages the practice of purchasing the securities described above.
Summary Compensation Table
The following table is a summary of compensation paid to the Named Executive Officers and Directors for the two most recently completed financial periods ended October 31, 2022 and 2021:
Table of Compensation excluding Compensation Securities
| Name | Year | Salary,<br><br> <br>consulting<br><br> <br>fee, retainer<br><br> <br>or commission<br><br> <br>(US$) | Bonus<br><br> <br>(US$) | Committee ormeeting fees<br><br> <br>(US$) | Value of<br><br> <br>perquisites | Value of all<br><br> <br>other<br><br> <br>compensation<br><br> <br>(US$) | Total<br><br> <br>compensation<br><br> <br>(US$) |
|---|---|---|---|---|---|---|---|
| J. Obie Strickler,<br><br> <br>President, CEO,<br><br> <br>and Director | 2022 | 240,000 | Nil | 3,755^(2)^ | Nil | 285,676^(1)^ | 529,431 |
| 2021 | 205,000 | Nil | 3,224^(2)^ | Nil | 169,837^(1)^ | 378,062 | |
| Adam August,<br><br> <br>Senior VP Grown<br><br> <br>Rogue Unlimited<br><br> <br>LLC | 2022 | 150,000 | Nil | Nil | Nil | Nil | 150,000 |
| 2021 | 161,543^(5)^ | Nil | Nil | Nil | 14,570^(3)^ | 176,113 | |
| Ryan Kee, Chief<br><br> <br>Financial Officer,<br><br> <br>Corporate<br><br> <br>Secretary and<br><br> <br>Director | 2022 | 180,000 | Nil | 1,788 | Nil | 5,281 | 187,069 |
| 2021 | 184,840 | Nil | Nil | Nil | 10,359^(3)^ | 195,199 | |
| Abhilash Patel,<br><br> <br>Director | 2022 | Nil | Nil | 3,755^(2)^ | Nil | Nil | 3,755 |
| 2021 | Nil | Nil | 3,296^(2)^ | Nil | Nil | 3,296 | |
| Stephen Gledhill,<br><br> <br>Director | 2022 | Nil | Nil | 21,755^(2)(6)^ | Nil | Nil | 21,755 |
| 2021 | Nil | Nil | 21,296^(2)(6)^ | Nil | Nil | 21,296 |
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| Name | Year | Salary,<br><br> <br>consulting<br><br> <br>fee, retainer<br><br> <br>or commission<br><br> <br>(US$) | Bonus<br><br> <br>(US$) | Committeeormeeting fees<br><br> <br>(US$) | Value of<br><br> <br>perquisites | Value of all<br><br> <br>other<br><br> <br>compensation<br><br> <br>(US$) | Total<br><br> <br>compensation<br><br> <br>(US$) |
|---|---|---|---|---|---|---|---|
| Sean<br> Conacher,<br><br> <br>Director | 2022 | Nil | Nil | 3,755^(2)^ | Nil | Nil | 3,755 |
| 2021 | Nil | Nil | 4,371^(2)^ | Nil | Nil | 4,371 | |
| Michael<br> Johnston,<br><br> <br>Former<br> CFO and<br><br> <br>Corporate<br><br> <br>Secretary^(4)^ | 2022 | Nil | Nil | Nil | Nil | Nil | Nil |
| 2021 | 18,075^(7)^ | Nil | Nil | Nil | Nil | 18,075 |
Notes:
| ^(1)^ | Represents rent charged by a company owned by Mr. Strickler, payments for equipment and property under lease option financing provided by Mr. Strickler to the Corporation, and royalty payments made to Mr. Strickler. |
|---|---|
| ^(2)^ | Includes director and committee fees paid in Common Shares. |
| --- | --- |
| ^(3)^ | Represents the value of stock option vesting. |
| --- | --- |
| ^(4)^ | Mr. Johnston resigned on August 18, 2021. |
| --- | --- |
| ^(5)^ | Inclusive of the $19,500 paid to Mr. August in Common Shares in 2021. |
| --- | --- |
| ^(6)^ | Mr. Gledhill was paid an additional $18,000 in fees in his role as chair of the Audit Committee and Compensation Committee. |
| --- | --- |
| ^(7)^ | Fees were incurred to an accounting firm in which Mr. Johnston is a partner. |
| --- | --- |
Stock options and other compensation securities
Set forth in the table below is a summary of all compensation securities granted or issued to each Director and Named Executive Officer by the Corporation or one of its subsidiaries in the financial year ended October 31, 2022 for services provided or to be provided, directly or indirectly, to the Corporation or any of its subsidiaries.
| Name | Type of<br> compensation<br> security | Number of<br> compensation<br> securities,<br> number of<br> underlying<br> securities, and<br> percentage of<br> class | Date of<br> issue or<br> grant | Issue,<br> conversion<br> or exercise<br> price<br> ($) | Closing<br> price of<br> security or<br> underlying<br> security on<br> date of grant<br> ($) | Closing<br> price of<br> security or<br> underlying<br> security at<br> year end<br> ($) | Expiry<br> Date |
|---|---|---|---|---|---|---|---|
| J.<br> Obie Strickler,<br> President, CEO<br> and Director | Common<br> Shares | 18,750 | November<br> 5, 2021 | 0.16 | 0.125 | 0.105 | N/A |
| Abhilash Patel,<br> Director | Common<br> Shares | 18,750 | November<br> 5, 2021 | 0.16 | 0.125 | 0.105 | N/A |
| Stephen<br> Gledhill,<br> Director | Common<br> Shares | 18,750 | November 5, 2021 | 0.16 | 0.125 | 0.105 | N/A |
| Sean Conacher,<br> Director | Common<br> Shares | 18,750 | November<br> 5, 2021 | 0.16 | 0.125 | 0.105 | N/A |
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Exercise of Compensation Securities by Directors and NEOs
During the financial year ended October 31, 2022, no director or Named Executive Officer of the Corporation exercised any compensation securities.
Management and Employment Agreements
On December 4, 2018, Grown Rogue Unlimited, LLC (“GRU”) entered into an employment agreement with Adam August as Senior Vice-President for GRU, which was amended and restated on March 1, 2019, again on February 1, 2020, and on February 1, 2021. Pursuant to the employment agreement, annual salary of $150,000 is paid in semi-monthly instalments by GRU. Effective January 1, 2023 Mr. August’s annual salary was increased to $190,000. Mr. August can be awarded bonuses by GRU from time to time, including a profitability bonus of 30% of base salary.
On August 1, 2020, GRU entered into an employment agreement with Ryan Kee as Chief Accounting Officer for GRU, which was amended and restated on May 1, 2022. Pursuant to the employment agreement, Mr. Kee is paid an annual salary of $200,000 in semi-monthly instalments. Mr. Kee may be awarded bonuses by GRU at GRU’s sole discretion. Mr. Kee’s appointment as Chief Financial Officer and Corporate Secretary was approved by the board of directors on August 18, 2021. Mr. Kee’s agreement includes a change of control provision, triggered by termination, or a constructive dismissal within six months of a change in control event. If triggered, a payment equal to 50% of the Mr. Kee’s compensation for the twelve months prior to the change in control event would be due within sixty calendar days after the effective date of the triggering event.
Termination and Change of Control Benefits
See summary of employment agreements above.
PENSION PLAN BENEFITS
No benefits were paid, and no benefits are proposed to be paid to any Directors or Named Executive Officers under any pension or retirement plan.
The Corporation does not have any plans, other than the Stock Option Plan, pursuant to which cash or non-cash compensation is paid or distributed to the Directors and Named Executive Officers.
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SECURITIES AUTHORIZED FOR ISSUANCE UNDER EQUITY COMPENSATION PLANS
Set forth below is a summary of securities issued and issuable under all equity compensation plans for the Corporation as at October 31, 2022. As at October 31, 2022, the Corporation’s Equity Incentive Plan was the only equity compensation plan of the Corporation.
| Plan Category | Number of securities to<br> be issued upon exercise<br> of outstanding options,<br> warrants and rights (a) | Weighted-average<br> exercise price of<br> outstanding options,<br> warrants and rights (b) | Number of securities<br> remaining available for<br> future issuance under equity<br> compensation plans<br> (excluding securities<br> reflected in column (a)) |
|---|---|---|---|
| Equity compensation plans approved by security holders | 4,910,000 | $0.18 | 29,216,522 |
| Equity compensation plans not approved by security holders | Nil | N/A | Nil |
| Total | 4,910,000 | $0.18 | 29,216,522 |
INDEBTEDNESS OF DIRECTORS AND EXECUTIVE OFFICERS
No individual who is, or at any time during the most recently completed financial year was, a director or executive officer of the Corporation, a proposed nominee for election as a director of the Corporation, and each associate of any such director, executive officer or proposed nominee: (a) is, or at any time since the beginning of the most recently completed financial year of the Corporation has been, indebted to the Corporation or any of its subsidiaries or (b) has indebtedness to another entity that is, or at any time since the beginning of the most recently completed financial year has been, the subject of a guarantee, support agreement, letter of credit or other similar arrangement or understanding provided by the Corporation or any of its subsidiaries.
INTEREST OF INFORMED PERSONS IN MATERIAL TRANSACTIONS
Other than as disclosed in this Information Circular, none of the informed persons of the Corporation (as defined in National Instrument 51-102 Continuous Disclosure Obligations), nor any proposed nominee for election as a Director of the Corporation, nor any person who beneficially owns, directly or indirectly, shares carrying more than 10% of the voting rights attached to the issued shares of the Corporation, nor any associate or affiliate of the foregoing persons has any material interest, direct or indirect, in any transaction since the commencement of the Corporation’s most recently completed financial year or in any proposed transaction which, in either case, has or will materially affect the Corporation and that none of such persons has any material interest in any transaction proposed to be undertaken by the Corporation and will materially affect the Corporation.
CORPORATE GOVERNANCE
Effective June 30, 2006, the securities regulatory authorities in Canada adopted National Instrument 58-101 Disclosure of Corporate Governance Practices (“NI 58-101”) and National Policy 58-201 Corporate Governance Guidelines (“NP 58-201”). NP 58-201 contains a series of guidelines for effective corporate governance. The guidelines deal with such matters as the constitution and independence of corporate boards, their functions, the experience and education of board members and other items dealing with sound corporate governance.
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Corporate governance refers to the way the business and affairs of a reporting issuer are managed and relates to the activities of the board, the members of who are elected by and are accountable to the Shareholders. Corporate governance takes into account the role of the individual members of management who are appointed by the Board and who are charged with the day-to-day management of the Corporation. The Board is committed to sound corporate governance practices which are both in the interest of its Shareholders and contribute to effective and efficient decision-making. Pursuant to NI 58-101 the Corporation has established its corporate governance practices.
Board of Directors
Directors are considered to be independent if they have no direct or indirect material relationship with the Corporation. A material relationship is a relationship which could, in the view of the Board, be reasonably expected to interfere with the exercise of a Director’s independent judgment.
The independent members of the Board at present are Mr. Abhilash Patel, Mr. Stephen Gledhill and Mr. Sean Conacher. The non-independent Directors are Mr. J. Obie Strickler and Mr. Ryan Kee. The proposed slate of Directors will be comprised of three (3) independent Directors (Mr. Abhilash Patel, Mr. Stephen Gledhill and Mr. Sean Conacher) and two (2) non-independent Director (Mr. J. Obie Strickler and Mr. Ryan Kee).
The Board facilitates its independent supervision over management by having regular Board meetings and by establishing and implementing prudent corporate governance policies and procedures.
The Board has adopted policies to provide leadership for the independent Directors.
All Directors have attended all Board meetings held since the beginning of the Corporation’s most recently completed financial year.
Board of Directors Mandate
The Board approved and adopted its Directors’ mandate. Roles and responsibilities of the Board are those typically assumed by a board of directors.
GENERAL
The fundamental responsibility of the Board is to appoint a competent senior management team and to oversee the management of the business, with a view to maximizing shareholder value and ensuring corporate conduct in an ethical and legal manner via an appropriate system of corporate governance and internal controls.
SPECIFIC
Senior Management Responsibility
| ● | Appoint the CEO and senior officers, approve their compensation, and monitor the CEO’s performance against a set of mutually agreed corporate objectives directed at maximizing shareholder value. |
|---|
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| ● | In conjunction with the CEO, develop a clear mandate for the CEO, which includes a delineation of senior management’s responsibilities. |
|---|---|
| ● | Ensure that a process is established that adequately provides for succession planning, including the appointing, training and monitoring of senior management. |
| --- | --- |
| ● | Establish limits of authority delegated to senior management. |
| --- | --- |
Operational Effectiveness and Financial Reporting
| ● | Annual review and adoption of a strategic planning process and approval of the corporate strategic plan, which takes into account, among other things, the opportunities and risks of the business. |
|---|---|
| ● | Ensure that a system is in place to identify the principal risks to the Corporation and that the best practical procedures are in place to monitor and mitigate the risks. |
| --- | --- |
| ● | Ensure that processes are in place to address applicable regulatory, corporate, securities and other compliance matters. |
| --- | --- |
| ● | Ensure that an adequate system of internal control exists. |
| --- | --- |
| ● | Ensure that due diligence processes and appropriate controls are in place with respect to applicable certification requirements regarding the Corporation’s financial and other disclosure. |
| --- | --- |
| ● | Review and approve the Corporation’s financial statements and oversee the Corporation’s compliance with applicable audit, accounting and reporting requirements. |
| --- | --- |
| ● | Approve annual operating and capital budgets. |
| --- | --- |
| ● | Review and consider for approval all amendments or departures proposed by senior management from established strategy, capital and operating budgets or matters of policy which diverge from the ordinary course of business. |
| --- | --- |
| ● | Review operating and financial performance results relative to established strategy, budgets and objectives. |
| --- | --- |
Ethics, Integrity and Code of Conduct
| ● | Approve a communications policy or policies to ensure that a system for corporate communications to all stakeholders exists, including processes for consistent, transparent, regular and timely public disclosure, and to facilitate feedback from stakeholders. |
|---|---|
| ● | Approve a Business Code of Conduct for Directors, Officers, employees, contractors and consultants and monitor compliance with the Business Code of Conduct and approve any waivers of the Business Code of Conduct for officers and directors. |
| --- | --- |
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Board Process/Effectiveness
| ● | Ensure that Board materials are distributed to Directors in advance of regularly scheduled meetings to allow for sufficient review of the materials prior to the meeting. Directors are expected to attend all meetings. |
|---|---|
| ● | Approve the nomination of Directors. |
| --- | --- |
| ● | Provide a comprehensive orientation to each new Director. |
| --- | --- |
| ● | Establish an appropriate system of corporate governance including practices to ensure the Board functions independently of management. |
| --- | --- |
| ● | Establish appropriate practices for the regular evaluation of the effectiveness of the Board, its committees and its members. |
| --- | --- |
| ● | Establish committees and approve their respective mandates and the limits of authority delegated to each committee. |
| --- | --- |
| ● | Review and re-assess the adequacy of the Audit Committee Mandate on a regular basis, but not less frequently than on an annual basis. |
| --- | --- |
| ● | Review the adequacy and form of the Directors’ compensation to ensure it realistically reflects the responsibilities and risks involved in being a Director. |
| --- | --- |
| ● | Each member of the Board is expected to understand the nature and operations of the Corporation’s business, and have an awareness of the political, economic and social trends prevailing in all countries or regions in which the Corporation invests or is contemplating potential investment. |
| --- | --- |
| ● | Directors shall meet regularly, and in no case less frequently than quarterly, without senior management participation. |
| --- | --- |
| ● | In addition to the above, adherence to all other Board responsibilities as set forth in the Corporation’s By-Laws, applicable policies and practices and other statutory and regulatory obligations, such as approval of dividends, issuance of securities, etc., is expected. |
| --- | --- |
POSITION DESCRIPTIONS
How the Board Delineates the Role and Responsibilities of the Chair
A written description has been developed for the Chair of the Board. The fundamental responsibility of the Chair of the Board of Directors of the Corporation is to effectively manage the affairs of the Board.
How the Board Delineates the Role and Responsibilities of the Chief Executive Officer
The Board has developed a written position description of the CEO. The CEO’s objectives are discussed and decided during the Compensation Committee meetings following the CEO’s presentation of the annual plan. These objectives include the mandate to maximize shareholder value. The Board approves the CEO objectives for the Corporation on an annual basis.
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Orientation and Continuing Education
When new Directors are appointed they receive orientation, commensurate with their previous experience, on the Corporation’s business, assets, industry, and on the responsibilities of Directors. Board meetings may also include presentations by the Corporation’s management and employees to give the Directors additional insight into the Corporation’s business.
Ethical Business Conduct
The Board of Directors adopted a Code of Conduct for its Directors, Officers, and employees. Since its adoption by the Board, any breach of the Code of Conduct must be brought to the attention of the Board by the CEO or other senior executive of the Corporation. No material change report has ever been filed which pertains to any conduct of a Director or executive officer that constitutes a departure from the Code of Conduct.
Steps Taken to Ensure Directors Exercise Independent Judgement
Since the adoption of the Code of Conduct, the Board actively monitors compliance with the Code of Conduct and promotes a business environment where employees are encouraged to report malfeasance, irregularities and other concerns. The Code of Conduct has specific procedures for reporting non-compliance practices in a manner which, in the opinion of the Board of Directors, encourages and promotes a culture of ethical business conduct.
In addition, a Director of the Corporation must immediately disclose to the Board any situation that may place him or her in a conflict of interest. Any such declaration of interest is recorded in the minutes of the meeting. The Director abstains, except if required, from the discussion and voting on the question. In addition, an interested Director will excuse himself or herself from the decision-making process pertaining to a contract or transaction in which he or she has an interest.
Nomination of Directors
The Board will consider its size each year when it considers the number of Directors to recommend to the Shareholders for election at the annual meeting of Shareholders, taking into account the number required to carry out the Board’s duties effectively and to maintain a diversity of views and experience.
The selection of the nominees of the Board is made by the other members of the Board, based on the needs of the Corporation and the qualities required to sit on the Board, including ethical character, integrity and maturity of judgement, the level of experience, their ideas regarding the material aspects of the business, the expertise of the candidates in the fields relevant to the Corporation, the will and ability of the candidates to devote the necessary time to their duties, the Board and its committees, the will of the candidates to serve the Board for numerous consecutive financial periods, and finally, the will of the candidates to refrain from engaging in activities which conflict with the responsibilities and duties of the Director of the Corporation and its Shareholders.
The Corporation may use various sources in order to identify the candidates for the Board, including its own contacts and references from other Directors, Officers, advisors of the Corporation, and executive placement agencies.
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The Board does not have a nominating committee, and these functions are currently performed by the Board as a whole. However, if there is a change in the number of Directors required by the Corporation, this policy will be reviewed.
Compensation Committee
The Compensation Committee has the responsibility of evaluating governance, compensation, performance incentives as well as benefits granted to the Corporation’s upper management in accordance with their responsibilities and performance as well as to recommend the necessary adjustments to the Board. This committee also reviews the amount and method of compensation granted to the Directors. The Compensation Committee may mandate an external firm in order to assist it during the execution of its mandate. The Compensation Committee considers time commitment, comparative fees and responsibility in determining compensation. The Compensation Committee is also in charge of establishing the procedure which must be followed by the Corporation in order for it to comply with the guidelines of the Exchange regarding corporate governance. See “Executive Compensation – Compensation Committee” for additional details.
The current Compensation Committee is comprised of J. Obie Strickler, Abhilash Patel and Stephen Gledhill. The Compensation Committee will be comprised of the same individual Directors under the proposed slate of the Directors.
Directorships
Other than Sean Conacher and Stephen Gledhill, no Director or proposed Director of the Corporation is presently a director of any other issuer that is a reporting issuer (or the equivalent) in a jurisdiction or a foreign jurisdiction. Sean Conacher is a director of Plant-Based Investment Corporation and Stephen Gledhill is a director of Bhang Inc.
AUDIT COMMITTEE CHARTER
The Audit Committee is appointed by the Board of Directors to assist the Board in fulfilling its oversight responsibilities.
The Audit Committee’s primary duties and responsibilities are to:
| ● | Review management’s identification of principal financial risks and monitor the process to manage such risks. |
|---|---|
| ● | Oversee and monitor the Corporation’s compliance with legal and regulatory requirements. |
| --- | --- |
| ● | Receive and review the reports of the Audit Committee of any subsidiary with public securities. |
| --- | --- |
| ● | Oversee and monitor the Corporation’s accounting and financial reporting processes, financial statements and system of internal controls regarding accounting and financial reporting and accounting compliance. |
| --- | --- |
| ● | Oversee audits of the Corporation’s financial statements. |
| --- | --- |
| ● | Oversee and monitor the qualifications, independence and performance of the Corporation’s external auditors and internal auditing department. |
| --- | --- |
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| ● | Provide an avenue of communication among the external auditors, management, the internal auditing department; and the Board. |
|---|---|
| ● | Report to the Board regularly. |
| --- | --- |
The Audit Committee has the authority to conduct any review or investigation appropriate to fulfilling its responsibilities. The Audit Committee shall have unrestricted access to personnel and information, and any resources necessary to carry out its responsibility.
The Corporation’s Audit Committee is comprised of J. Obie Strickler (not independent), Abhilash Patel (independent) and Stephen Gledhill (independent). Stephen Gledhill is the chairman of the Audit Committee. Under the proposed slate of Directors, the Audit Committee will be comprised of the same individuals. Based on the experience of the Audit Committee members described below, the Corporation believes that these persons have sufficient knowledge and background to actively participate on the Audit Committee.
Under the proposed slate of Directors, the Audit Committee will consist of two independent members and one non-independent member. A member of the Audit Committee is independent if the member has no direct or indirect material relationship with the Corporation. A material relationship means a relationship which could, in the view of the Board, reasonably interfere with the exercise of a member’s independent judgment.
All the proposed Audit Committee members are financially literate. A member of the Audit Committee is considered financially literate if he or she has the ability to read and understand a set of financial statements that present a breadth and level of complexity of accounting issues that are generally comparable to the breadth and complexity of the issues that can reasonably be expected to be raised by the Corporation. From the experience described above, the Corporation believes that these persons have sufficient knowledge and background to actively participate on the Audit Committee.
Relevant Education and Experience
As set out below, each member of the Corporation’s present Audit Committee has adequate education and experience that is relevant to his performance as an Audit Committee member and, in particular, the requisite education and experience that have provided the member with:
| (i) | an understanding of the accounting principles used by the Corporation to prepare its financial statements and the ability to assess the general application of such principles in connection with the accounting for estimates, accruals and provisions; |
|---|---|
| (j) | experience<br> preparing, auditing, analyzing or evaluating financial statements that present a breadth and level of complexity of accounting<br> issues that are generally comparable to the breadth and complexity of issues that can reasonably be expected to be raised by the Corporation’s financial statements or experience actively supervising individuals engaged in such activities; and |
| --- | --- |
| (k) | an understanding of internal controls and procedures for financial reporting. |
| --- | --- |
Audit Committee Oversight
The Audit Committee has not made any recommendations to the Board to nominate or compensate any external auditor that was not adopted by the Board.
- 30 -
Reliance on Certain Exemptions
Since the commencement of the Corporation’s most recently completed financial year ended October 31, 2019, the Corporation has not relied on the exemption in Section 2.4 (De Minimis Non-Audit Services) of National Instrument 52-110 Audit Committees (“NI 52-110”) or an exemption from NI 52-110, in whole or in part, granted under Part 8 of NI 52-110. The Corporation is relying upon the exemption in Section 6.1 (Venture Issuers) of NI 52-110.
Pre-Approval Policies and Procedures
The Audit Committee has not adopted specific policies and procedures for the engagement of non-audit services.
External Auditor Service Fees
The aggregate fees billed by the Corporation’s external auditors in each of the last three fiscal years for audit fees are as follows:
| Financial Year | Audit Fees ($) | Audit Related<br> Fees ($) | Tax Fees^(1)^ | All Other<br> Fees ($) |
|---|---|---|---|---|
| Ended October 31, 2022 | $102,857 | $Nil | $85,105 | $Nil |
| Ended October 31, 2021 | $76,850 | $Nil | $20,335 | $Nil |
Notes:
| ^(1)^ | Tax Fees include fees for all tax services other than those included in “Audit Fees” and “Audit-Related Fees”. This category includes fees for tax compliance, tax planning and tax advice. Tax planning and tax advice includes assistance with tax audits and appeals, tax advice related to mergers and acquisitions, and requests for rulings or technical advice from tax authorities. |
|---|
Other Board Committees
The Board has no committees other than the Audit Committee, and the Compensation Committee.
Assessments
The Board monitors the adequacy of information given to Directors, communication between the Board and management and the strategic direction and processes of the Board and committees. The Board of Directors does not consider that formal assessments would be useful at this stage of the Corporation’s development. The Board conducts informal annual assessments of the Board’s effectiveness, the individual Directors, the Audit Committee and the Compensation Committee. As part of the assessments, the Board may review its mandate and conduct reviews of applicable corporate policies.
ADDITIONAL INFORMATION
Financial information regarding the Corporation is provided in the Corporation’s audited annual consolidated financial statements for the financial years ended October 31, 2022 and 2021 and the accompanying management’s discussion and analysis. Written requests for a copy of the above documents should be directed to the Corporation: c/o Miller Thomson LLP, Scotia Plaza, 40 King St. W., Suite 5800, PO Box 1011, Toronto, Ontario, M5H 3S1, Attention to Grown Rogue International Inc.: Ryan Kee, CFO and Corporate Secretary.
Additional information concerning the Corporation is also available online at www.sedar.com.
- 31 -
DIRECTORS’ APPROVAL OF INFORMATION CIRCULAR
The contents and the sending of this Information Circular to the Shareholders have been approved by the Board.
DATED at Toronto, Ontario this 4th day of August, 2023
| BY ORDER OF THE BOARD OF DIRECTORS |
|---|
| (signed) “J. Obie Strickler” |
| J. Obie Strickler |
| Director, President and Chief Executive Officer |
- 32 -
Exhibit23
GROWNROGUE INTERNATIONAL INC.
Requestfor Financial Statements
FiscalYear: 2022
In accordance with National Instrument 51-102 – Continuous Disclosure Obligations, registered and beneficial shareholder may elect annually to receive interim (quarterly) financial statements and corresponding management discussion and analysis (“MD&A”) and/or annual financial statements and MD&A.
If you wish to receive these documents by mail or email, please return this completed form to:
CAPITALTRANSFER AGENCY ULC
390BAY ST., SUITE 920
TORONTO,ON M5H 2Y2
Rather than receiving financial statements by mail, you may choose to view these documents on the SEDAR website at www.sedar.com.
I HEREBY CERTIFY that I am a registered and/or beneficial holder of the Corporation, and as such, request that my name be placed on the Corporation’s Mailing List in respect to its annual and/or interim financial statements and the corresponding MD&A for the current financial year.
| SHAREHOLDER REGISTRATION (PLEASE PRINT CLEAR IN BLOCK LETTERS) | ||
|---|---|---|
| STREET ADDRESS | ||
| CITY | PROV/STATE | POSTAL/ZIP CODE |
| COUNTRY (IF NOT CANADA OR USA) | ||
| IF THIS IS AN ADDRESS CHANGE, PLEASE CHECK THE BOX AND PROVIDE YOUR FORMER ADDRESS BELOW | ||
| ☐ | ||
| PLEASE SEND ME THE FOLLOWING: | ||
| ☐ | Annual Financial Statements with MD&A | |
| ☐ | Interim Financial Statements with MD&A | |
| SIGNED: | DATE: | |
| --- | --- | --- |
| (Signature of Shareholder) |
Exhibit24
GROWNROGUE INTERNATIONAL INC.
For use at the Annual and Special Meeting of Shareholders
to be held on September 14, 2023
This Proxy is solicited by the management of Grown Rogue International Inc. (the “Corporation”) in connection with the notice of annual and special meeting of the shareholders to be held on the 14^th^ day of September, 2023 (the “Notice of Meeting”). The undersigned shareholder of the Corporation hereby appoints Stephen Gledhill, a director of the Corporation, or failing him, Ryan Kee, the Chief Financial Officer and Corporate Secretary of the Corporation, or instead of any of them the following appointee ________, as proxyholder for the undersigned, with power of substitution, to attend, act and vote for and on behalf of the undersigned at the meeting of shareholders of the Corporation (the “Meeting”) to be held at the offices of Miller Thomson LLP, Scotia Plaza, 40 King Street West, Suite 5800, Toronto, Ontario M5H 3S1 on the 14^th^day of September, 2023, at the hour of 11:00 a.m. (Eastern Daylight Time), and at any adjournment or adjournments thereof. Without limiting the general authorization and power hereby given, all the common shares in the capital of the Corporation (collectively, the “Shares”) registered in the name of the undersigned are to be voted as indicated below and may be voted in the discretion of such proxy with respect to amendments or variations to the matters identified in the Notice of Meeting or other matters that may properly come before the Meeting or any adjournment or adjournments thereof in such manner as the person above named may see fit. If no choice is specified, the proxy shall vote in favour of the motions proposed to be made at the Meeting.
| 1. | FOR | ☐ | THE ELECTION OF J. OBIE STRICKLER AS A DIRECTOR<br>OF THE CORPORATION. |
|---|---|---|---|
| WITHHOLD | ☐ | ||
| 2. | FOR | ☐ | THE ELECTION OF ABHILASH PATEL AS A DIRECTOR<br>OF THE CORPORATION. |
| WITHHOLD | ☐ | ||
| 3. | FOR | ☐ | THE ELECTION OF STEPHEN GLEDHILL AS A DIRECTOR<br>OF THE CORPORATION. |
| WITHHOLD | ☐ | ||
| 4. | FOR | ☐ | THE ELECTION OF SEAN CONACHER AS A DIRECTOR OF<br> THE CORPORATION. |
| WITHHOLD | ☐ | ||
| 5. | FOR | ☐ | THE ELECTION OF RYAN KEE AS A DIRECTOR OF<br>THE CORPORATION. |
| WITHHOLD | ☐ | ||
| 6. | FOR | ☐ | TO APPOINT TURNER, STONE & COMPANY, L.L.P. AS THE INDEPENDENT AUDITORS OF THE CORPORATION UNTIL THE NEXT ANNUAL MEETING OF SHAREHOLDERS AND AUTHORIZE THE DIRECTORS TO FIX THE AUDITORS’ REMUNERATION. |
| WITHHOLD | ☐ | ||
| 7. | FOR | ☐ | TO CONSIDER AND, IF DEEMED ADVISABLE, TO PASS, WITH OR WITHOUT VARIATION, AN ORDINARY RESOLUTION RE-APPROVING THE CORPORATION’S LONG-TERM EQUITY BASED INCENTIVE PLAN. |
| AGAINST | ☐ |
If any amendments or variations to the matters referred to above or to any other matters identified in the notice of meeting are proposed at the Meeting or any adjournment or adjournments thereof, or if any other matters which are not now known to management should properly come before the Meeting or any adjournment or adjournments thereof, this proxy confers discretionary authority on the person voting the proxy to vote on such amendments or variations or such other matters in accordance with the best judgment of such person.
Tobe valid, this proxy must be received by the Corporation’s transfer agent, Capital Transfer Agency ULC, 390 Bay Street, Suite 920,Toronto, Ontario, M5H 2Y2, Fax Number: 416.350.5008, not later than 48 hours, excluding Saturdays, Sundays and statutory holidays inthe City of Toronto, Ontario, prior to the Meeting or any adjournment thereof. Late proxies may be accepted or rejected by the Chairmanof the Meeting in his discretion, and the Chairman is under no obligation to accept or reject any particular late proxy.
This proxy revokes and supersedes all proxies of earlier date.
| DATED this | day of | , 2023. |
|---|
Tovote online, please go to: www.capitaltransferagency.com/voteproxy
| SIGNATURE<br> OF SHAREHOLDER | |
|---|---|
| Proxy<br> Control Number: | *<br> SPECIMEN * |
| NAME<br> OF SHAREHOLDER | |
| * SPECIMEN *<br><br> <br>1 MAIN STREET<br><br> <br>ANYWHERE PA 99999-9999<br><br> <br>UNITED STATES | |
| NUMBER<br> OF SHARES HELD |
2
NOTESAND INSTRUCTIONS
THISPROXY IS SOLICITED BY MANAGEMENT OF THE CORPORATION.
| 1. | The<br> shares represented by this proxy will be voted. Where a choice is specified, the proxy will<br> be voted as directed. Where no choice is specified, this proxy will be voted in favour of<br> the matters listed on the proxy. The proxy confers discretionary authority on the above named<br> person to vote in his or her discretion with respect to amendments or variations to the matters<br> identified in the notice of meeting accompanying the proxy or such other matters which may<br> properly come before the Meeting. |
|---|---|
| 2. | Each<br> shareholder has the right to appoint a person other than management designees specified above<br> to represent them at the Meeting. Such right may be exercised by inserting in the space provided<br> the name of the person to be appointed, who need not be a shareholder of the Corporation. |
| --- | --- |
| 3. | Each<br> shareholder must sign this proxy. Please date the proxy. If the shareholder is a corporation,<br> the proxy must be executed by an officer or attorney thereof duly authorized. |
| --- | --- |
| 4. | If<br> the proxy is not dated in the space provided, it is deemed to bear the date of its mailing<br> to the shareholders of the Corporation. |
| --- | --- |
| 5. | If<br> the shareholder appoints any of the persons designated above, including persons other than<br> the management designees, as proxy to attend and act at the Meeting: |
| --- | --- |
| (a) | the<br> shares represented by the proxy will be voted in accordance with the instructions of the<br> shareholder on any ballot that may be called for; |
| --- | --- |
| (b) | where<br> the shareholder specifies a choice in the proxy with respect to any matter to be acted upon,<br> the shares represented by the proxy shall be voted accordingly; and. |
| --- | --- |
| (c) | IF<br> NO CHOICE IS SPECIFIED WITH RESPECT TO THE MATTERS LISTED ABOVE, THE PROXY WILL BE VOTED<br> FOR SUCH MATTERS. |
| --- | --- |
NOTICEAND ACCESS
The Canadian Securities Regulators have adopted new rules effective for meetings held after March 1, 2013, which permit the use of notice-and-access for proxy solicitation instead of traditional physical delivery of proxy material. This new process provides the option to post meeting related materials including management information circulars as well as annual financial statements and management’s discussion and analysis (“MD&A”), on a website in addition to SEDAR. Under notice-and-access, meeting related materials will be available for viewing up to one year from the date of posting and a paper copy of the materials can be requested at any time during this period.
Disclosure regarding each matter or group of matters to be voted on at the Meeting is in the Information Circular under the heading “Matters to be Acted Upon at the Meeting”. You should review the Information Circular before voting.
TheCorporation has elected to utilize notice-and-access and provide you with the Meeting materials which are available electronically onwww.sedar.com and also on the website of the Corporation’s transfer agent, Capital Transfer Agency: www.capitaltransferagency.ca
Ifyou wish to receive a paper copy of the Meeting materials or have any questions about notice-and-access, please call 1.844.499.4482.In order to receive a paper copy in time for voting before the Meeting, your request should be received by September 5, 2023.
3
Exhibit25
NOTICEOF ANNUAL AND SPECIAL MEETING OF SHAREHOLDERS
NOTICEIS HEREBY GIVEN that Grown Rogue International Inc. (the “Corporation”) will hold its annual and special meeting of shareholders (the “Meeting”) on September 14, 2023, at 11:00am (Eastern Daylight Time) at the offices of Miller Thomson LLP, Scotia Plaza, 40 King Street West, Suite 5800, Toronto, Ontario, M5H 3S1, for the following purposes:
| 1. | to<br> present the audited consolidated financial statements of the Corporation for its prior years<br> ended October 31, 2022 and 2021, and the independent auditor’s report thereon; |
|---|---|
| 2. | to<br> elect the directors of the Corporation for the ensuing year; |
| --- | --- |
| 3. | to<br> appoint Turner, Stone & Company, L.L.P. as the independent auditors of the Corporation<br> until the next annual meeting of shareholders and authorize the directors to fix the auditors’<br> remuneration; |
| --- | --- |
| 4. | to<br> consider and, if deemed advisable, to pass, with or without variation, an ordinary resolution<br> re-approving the Corporation’s long-term equity based incentive plan; and |
| --- | --- |
| 5. | to<br> transact any other business properly brought before the Meeting. |
| --- | --- |
Shareholders of record as at the close of business on July 31, 2023 will be entitled to notice of and to vote at the Meeting. A detailed description of the matters to be acted upon at the Meeting is set forth in the Corporation’s Management Information Circular for the Meeting (the “Information Circular”). The Corporation has elected to use the notice-and-access provisions under National Instrument 54-101 – Communication with Beneficial Owners of Securities of a Reporting Issuer and National Instrument 51-102 – Continuous Disclosure Obligations (the “Notice-and-Access Provisions”) of the Canadian Securities Administrators for the Meeting. The Notice-and-Access Provisions are a set of rules developed by the Canadian Securities Administrators that reduce the volume of materials that must be physically mailed to Shareholders of the Corporation by allowing the Corporation to post its Information Circular and any additional materials online. Shareholders who would like more information about the Notice-and-Access Provisions may contact the Corporation’s transfer agent, Capital Transfer Agency, ULC, toll-free at 1-844-499-4482. Please see “Notice-and-Access” in the accompanying Information Circular. We strongly encourage shareholders to vote their Common Shares of the Corporation priorto the Meeting by any of the means described in the Information Circular.
The Information Circular and all additional materials have been posted in full online at www.capitaltransferagency.ca and under the Corporation’s SEDAR profile at www.sedar.com. Shareholders are reminded to carefully review the Information Circular and any additional materials prior to voting on the matters being transacted at the Meeting. All Shareholders of record as of July 31, 2023, the record date, will receive a notice and access notification containing instructions on how to access the Corporation’s Information Circular and all additional materials. Copies of: (a) this notice of annual and special meeting of shareholders; (b) the Information Circular; (c) a management form of proxy and instructions in relation thereto (the “Management Proxy”); and (d) the audited consolidated financial statements of the Corporation for its years ended October 31, 2022 and 2021, and the independent auditor’s report thereon may be obtained free of charge by contacting Capital Transfer Agency, ULC at 390 Bay Street, Suite 920, Toronto, Ontario M5H 2Y2 or by phone at 1-844-499-4482. In order to ensure that a paper copy of the Information Circular and additional materials can be delivered to a Shareholder in time for such Shareholder to review the Information Circular and return a Management Proxy or voting instruction form prior to the deadline to receive proxies, it is strongly suggested that Shareholders ensure their request is received no later than September 5, 2023.
Registered shareholders and duly appointed proxyholders will be able to attend, participate and vote at the Meeting or may be represented by proxy. Shareholders are requested to: (i) sign, date and deliver the Management Proxy to the Corporation’s registrar and transfer agent, Capital Transfer Agency, ULC, 390 Bay Street, Suite 920, Toronto, Ontario M5H 2Y2 Canada or visit www.capitaltransferagency.com/voteproxy, so it is received at least 48 hours (excluding Saturdays, Sundays and holidays) before the time of the Meeting or any adjournment thereof; or (ii) return your voting instructions as specified in the request for voting instructions delivered to you, as applicable.
DATEDthis 4th day of August, 2023
| BY ORDER OF THE BOARD OF DIRECTORS |
|---|
| (signed)<br> “J. Obie Strickler” |
| J. Obie Strickler |
| Director, President and Chief<br> Executive Officer |
Exhibit 26
GROWN ROGUE INTERNATIONAL INC.
Unaudited Condensed InterimConsolidated Financial Statements
For the Three and Nine Monthsended July 31, 2023, and 2022
Expressed in United States Dollars
NOTICE TO READER
The accompanying unaudited condensed consolidated interim financial statements have been prepared by the Company’s
management and the Company’s independent auditors have not performed a review of these interim financial statements.
Table of Contents
| Consolidated Statements of Financial Position | 3 |
|---|---|
| Consolidated Statements of Comprehensive Income | 4 |
| Consolidated Statements of Changes in Equity | 5 |
| Consolidated Statements of Cash Flows | 6 |
Notes to the Consolidated Financial Statements
| 1. | Corporate Information and Defined Terms | 7 |
|---|---|---|
| 2. | Significant Accounting Policies and Judgments and Defined Terms | 9 |
| 3. | Biological Assets | 13 |
| 4. | Inventory | 13 |
| 5. | Business combinations | 14 |
| 6. | Other investments and purchase deposits | 15 |
| 7. | Leases | 16 |
| 8. | Property and Equipment | 16 |
| 9. | Intangible assets and goodwill | 17 |
| 10. | Long-term Debt | 17 |
| 11. | Convertible Debentures | 20 |
| 12. | Share Capital and Shares Issuable | 21 |
| 13. | Warrants | 22 |
| 14. | Stock Options | 24 |
| 15. | Changes in Non-Cash Working Capital | 25 |
| 16. | Supplemental Cash Flow Disclosure | 25 |
| 17. | Related Party Transactions | 26 |
| 18. | Financial Instruments | 28 |
| 19. | General and Administrative Expenses | 31 |
| 20. | Capital Disclosures | 31 |
| 21. | Segment Reporting | 32 |
| 22. | Non-controlling Interests | 33 |
| 23. | Legal Matters | 34 |
| 24. | Subsequent events | 34 |
i
Grown Rogue International Inc.
Condensed Interim Consolidated Statements of Financial Position
Unaudited - Expressed in United States Dollars
| July 31,<br>2023 | October 31,<br>2022 | |||
|---|---|---|---|---|
| ASSETS | ||||
| Current assets | ||||
| Cash and cash equivalents | ||||
| Accounts receivable (Note 18) | ||||
| Warrants receivable (Note 13.2) | ||||
| Biological assets (Note 3) | ||||
| Inventory (Note 4) | ||||
| Prepaid expenses and other assets | ||||
| Total current assets | ||||
| Property and equipment (Note 8) | ||||
| Other investments and purchase deposits | ||||
| Intangible assets and goodwill (Note 9) | ||||
| TOTAL ASSETS | ||||
| LIABILITIES | ||||
| Current liabilities | ||||
| Accounts payable and accrued liabilities | ||||
| Current portion of lease liabilities (Note 7) | ||||
| Current portion of long-term debt (Note 10) | ||||
| Business acquisition consideration payable (Note 5) | ||||
| Warrants payable (Note 13.2) | ||||
| Unearned revenue | ||||
| Derivative liability (Note 11.1 and Note 11.2) | ||||
| Income tax | ||||
| Total current liabilities | ||||
| Lease liabilities (Note 7) | ||||
| Long-term debt (Note 10) | ||||
| Convertible debentures (Note 11.1 and Note 11.2) | ||||
| TOTAL LIABILITIES | ||||
| EQUITY | ||||
| Share capital (Note 12) | ||||
| Shares issuable (Note 12) | ||||
| Contributed surplus (Notes 13, 14) | ||||
| Accumulated other comprehensive loss | ) | ) | ||
| Accumulated deficit | ) | ) | ||
| Equity attributable to shareholders | ||||
| Non-controlling interests (Note 22) | ||||
| TOTAL EQUITY | ||||
| TOTAL LIABILITIES AND EQUITY |
All values are in US Dollars.
Going Concern (Note 2)
Approved on behalf of the Board of Directors:
| Signed<br> “J. Obie Strickler”, Director | Signed<br> “Stephen Gledhill”, Director |
|---|
The accompanying notes form an integral part of these condensed interim consolidated financial statements.
Pg 3 of 35
Grown Rogue International Inc.
Condensed Interim Consolidated Statements of Comprehensive Income
Unaudited - Expressed in United States Dollars
| Three months ended<br>July 31, | Nine months ended<br>July 31, | |||||||
|---|---|---|---|---|---|---|---|---|
| 2023 | 2022 | 2023 | 2022 | |||||
| Revenue | ||||||||
| Product sales | ||||||||
| Service revenue (Note 2.5) | ||||||||
| Total revenue | ||||||||
| Cost of goods sold | ||||||||
| Cost of finished cannabis inventory sold | ) | ) | ) | ) | ||||
| Costs of service revenue | ) | ) | ||||||
| Gross profit, excluding fair value items | ||||||||
| Realized fair value amounts in inventory sold | ) | ) | ) | ) | ||||
| Unrealized fair value gain on growth of biological assets | ||||||||
| Gross profit | ||||||||
| Expenses | ||||||||
| Accretion expense | ||||||||
| Amortization of property and equipment | ||||||||
| General and administrative | ||||||||
| Share-based compensation | ||||||||
| Total expenses | ||||||||
| Income from operations | ||||||||
| Other income and (expense) | ||||||||
| Interest expense | ) | ) | ) | ) | ||||
| Other income (expense) | ) | ) | ||||||
| Gain on debt settlement | ||||||||
| Unrealized loss on marketable securities | ) | ) | ||||||
| Unrealized loss on derivative liability | ) | ) | ||||||
| Loss on disposal of property and equipment | ) | ) | ||||||
| Gain from operations before taxes | ||||||||
| Income tax | ) | ) | ) | ) | ||||
| Net income | ||||||||
| Other comprehensive income (items that may be subsequently reclassified to profit & loss) | ||||||||
| Currency translation gain (loss) | ) | ) | ||||||
| Total comprehensive income | ||||||||
| Gain per share attributable to owners of the parent – basic and diluted | ||||||||
| Weighted average shares outstanding – basic and diluted | ||||||||
| Net income (loss) for the period attributable to: | ||||||||
| Non-controlling interest | ) | ) | ||||||
| Shareholders | ||||||||
| Net income | ||||||||
| Comprehensive income (loss) for the period attributable to: | ||||||||
| Non-controlling interest | ) | ) | ||||||
| Shareholders | ||||||||
| Total comprehensive income |
All values are in US Dollars.
The accompanying notes form an integral part of these condensed interim consolidated financial statements.
Pg 4 of 35
Grown Rogue International Inc.
Condensed Interim Consolidated Statements of Changes in Equity
Unaudited - Expressed in United States Dollars
| Number<br> of<br><br> common shares | Share<br> capital | Shares<br> issuable | Contributed<br> surplus | Currency<br> translation<br> reserve | Accumulated<br> deficit | Non-controlling<br> interests | Total<br> equity | ||||||
|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
| # | |||||||||||||
| Balance<br> - October 31, 2022 | 170,632,611 | ) | ) | ||||||||||
| Issuance<br> of shares underlying shares issuable (Note 12.1) | 200,000 | ) | |||||||||||
| Stock<br> option vesting expense | - | ||||||||||||
| Currency<br> translation adjustment | - | ||||||||||||
| Exercise<br> of option to acquire 87% of Canopy membership units | ) | ||||||||||||
| Net<br> income (loss) | - | ) | |||||||||||
| Balance<br> – July 31, 2023 | 170,832,611 | ) | ) |
All values are in US Dollars.
| Number<br> of<br><br> common shares | Share<br> capital | Shares<br> issuable | Contributed<br> surplus | Currency<br> translation<br> reserve | Accumulated<br> deficit | Non-controlling<br> interests | Total<br> equity | |||||||
|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
| # | ||||||||||||||
| Balance<br> - October 31, 2021 | 156,936,876 | ) | ) | |||||||||||
| Shares<br> issued for employment, director, & consulting services (Note 12.2) | 529,335 | ) | ||||||||||||
| Private<br> placement of shares (Note 12.3) | 13,166,400 | |||||||||||||
| Stock<br> option vesting | - | |||||||||||||
| Currency<br> translation adjustment | - | ) | ) | |||||||||||
| Net income<br> (loss) | - | ) | ||||||||||||
| Balance<br> – July 31, 2022 | 170,632,611 | ) | ) |
All values are in US Dollars.
The accompanying notes form an integral part of these condensed interim consolidated financial statements.
Pg 5 of 35
Grown Rogue International Inc.
Condensed Interim Consolidated Cash Flow Statements
Unaudited - Expressed in United States Dollars
| Nine months ended<br>July 31, | ||||
|---|---|---|---|---|
| 2023 | 2022 | |||
| Operating activities | ||||
| Net income | ||||
| Adjustments for non-cash items in net income: | ||||
| Amortization of property and equipment | ||||
| Amortization of property and equipment included in costs of inventory sold | ||||
| Unrealized gain on changes in fair value of biological assets | ) | ) | ||
| Changes in fair value of inventory sold | ||||
| Share-based compensation | ||||
| Stock option expense | ||||
| Accretion expense | ||||
| Loss on disposal of property & equipment | ||||
| Gain on debt settlement | ) | |||
| Unrealized loss on marketable securities | ||||
| Loss on fair value of derivative liability | ||||
| Effects of foreign exchange | ||||
| Changes in non-cash working capital (Note 15) | ) | ) | ||
| Net cash provided by operating activities | ||||
| Investing activities | ||||
| Purchase of property and equipment and intangibles | ) | ) | ||
| Other investment | ) | |||
| Payments of acquisition payable | ) | |||
| Net cash used in investing activities | ) | ) | ||
| Financing activities | ||||
| Proceeds from convertible debentures | ||||
| Proceeds from long-term debt | ||||
| Proceeds from private placement | ||||
| Repayment of long-term debt | ) | |||
| Repayment of convertible debentures | ) | |||
| Payments of lease principal | ) | ) | ||
| Net cash provided by financing activities | ) | |||
| Change in cash | ||||
| Cash balance, beginning | ||||
| Cash balance, ending |
All values are in US Dollars.
Supplemental cash flow disclosures (Note 16)
The accompanying notes form an integral part of these condensed interim consolidated financial statements.
Pg 6 of 35
Grown Rogue International Inc.
Notes to the CondensedInterim Consolidated Financial Statements
For the Three and NineMonths Ended July 31, 2023, and 2022
Unaudited - Expressed in United States Dollars, unless otherwise indicated
| 1. | Corporate Informationand Defined Terms |
|---|---|
| 1.1 | Corporate Information |
| --- | --- |
These unaudited condensed interim consolidated financial statements for the three and nine months ended July 31, 2023, and 2022, include the accounts of Grown Rogue International Inc. and its subsidiaries. The registered office is located at 40 King St W Suite 5800, Toronto, ON M5H 3S1.
Grown Rogue International Inc.’s subsidiaries and ownership thereof are summarized in the table below.
| Company | Ownership | Defined Term |
|---|---|---|
| Grown Rogue International Inc. | 100% owner of GR Unlimited | The “Company” |
| Grown Rogue Unlimited, LLC | 100% by the Company | “GR Unlimited” |
| Grown Rogue Gardens, LLC | 100% by Grown Rogue Unlimited, LLC | “GR Gardens” |
| GRU Properties, LLC | 100% by Grown Rogue Unlimited, LLC | “GRU Properties” |
| GRIP, LLC | 100% by Grown Rogue Unlimited, LLC | “GRIP” |
| Grown Rogue Distribution, LLC | 100% by Grown Rogue Unlimited, LLC | “GR Distribution” |
| GR Michigan, LLC | 87% by Grown Rogue Unlimited, LLC | “GR Michigan” |
| Idalia, LLC | 60% by Grown Rogue Unlimited, LLC | “Idalia” |
| Canopy Management, LLC | 87% by Grown Rogue Unlimited, LLC | “Canopy” |
| Golden Harvests, LLC | 60% by Canopy Management, LLC | “Golden Harvests” |
The Company is primarily engaged in the business of growing and selling cannabis products. The primary cannabis product produced and sold is cannabis flower.
| 1.2 | Defined Terms |
|---|
Following are certain defined terms used herein:
| Term | Defined Term | Reference |
|---|---|---|
| General terms: | ||
| International Financial Reporting Standards | “IFRS” | |
| International Accounting Standards | “IAS” | |
| International Accounting Standards Board | “IASB” | |
| United States dollar | “U.S. dollar” | |
| Fair value less costs to sell | “FVLCTS” | |
| Terms related to the Company’s locations: | ||
| Outdoor grow property located in Trail, Oregon leased from CEO | “Trail” | |
| Outdoor post-harvest facility located in Medford, Oregon leased from CEO | “Lars” | |
| Terms related to officers and directors of the Company: | ||
| President & Chief Executive Officer | “CEO” | |
| Chief Financial Officer | “CFO” | |
| Senior Vice President of GR Unlimited | “SVP” | |
| Chief Operating Officer (position eliminated in December 2021) | “COO” |
Pg 7 of 35
Grown Rogue International Inc.
Notes to the CondensedInterim Consolidated Financial Statements
For the Three and NineMonths Ended July 31, 2023, and 2022
Unaudited - Expressed in United States Dollars, unless otherwise indicated
| Term | Defined Term | Reference |
|---|---|---|
| Terms related to transactions with High Street Capital Partners, LLC: | ||
| High Street Capital Partners, LLC | “HSCP” | Note 6.1 |
| Agreement of the Company to acquire substantially all of the assets of the growing<br> and retail operations of HSCP | “HSCP Transaction” | Note 6.1 |
| Management Services Agreement with HSCP | “HSCP MSA” | Note 6.1 |
| Principal Payment of $500,000 due to HSCP on May 1, 2023 | “First Principal Payment” | Note 10.1 |
| Terms related to transactions with Plant-Based Investment Corp.: | ||
| Plant-Based Investment Corp., formerly related party | “PBIC” | |
| Unsecured promissory note agreement with PBIC of September 9, 2021 | “PBIC Note” | Note 10.2 |
| The Company’s sun-grown A-flower 2021 harvest, defined in the PBIC Note | “Harvest” | Note 10.2 |
| The Company’s former ownership of 2,362,204 shares of PBIC | “PBIC Shares” | Note 10.2 |
| 2766923 Ontario Inc., receiver of PBIC Shares from the Company as part of the settlement of the PBIC Note | “Creditor” | Note 10.2 |
| Terms related to Convertible Debentures issued in December 2022: | ||
| Convertible debentures with aggregate principal amount of $2,000,000 issued in December 2022 | “December Convertible Debentures” | Note 11.1 |
| Purchasers of Convertible Debentures | “Purchasers” | Note 11.1 |
| 6,716,499 warrants issued to the Purchasers | “December Warrants” | Note 11.1 |
| Terms related to Convertible Debentures issued in July 2023: | ||
| Convertible debentures with aggregate principal amount of $5,000,000 issued in July 2023 | “July Convertible Debentures” | Note 11.2 |
| Subscribers of Convertible Debentures | “Subscribers” | Note 11.2 |
| 13,737,500 warrants issued to the Subscribers | “July Warrants” | Note 11.2 |
| Terms related to December 2021 non-brokered private placement of common shares: | ||
| Non-brokered private placement of common shares (“Private Placement”) for total gross<br> proceeds of $1,300,000 | “Private Placement” | Note 12.3 |
| Terms related to March 2021 brokered private placement of special warrants: | ||
| Agent for March 2021 brokered private placement of special warrants | “Agent” | Note 13.1 |
| March 2021 brokered private placement of special warrants | “Offering” | |
| An aggregate of 1,127,758 broker warrants of the Company | “Broker Warrants” | Note 13.1 |
| Compensation options, resulting from exercise of Broker Warrants | “Compensation Options” | Note 13.1 |
| Warrants for consideration of advisory services issued to the Agent | “Advisory Warrants” | Note 13.1 |
Pg 8 of 35
Grown Rogue International Inc.
Notes to the CondensedInterim Consolidated Financial Statements
For the Three and NineMonths Ended July 31, 2023, and 2022
Unaudited - Expressed in United States Dollars, unless otherwise indicated
| Term | Defined Term | Reference |
|---|---|---|
| The Broker Warrants and Advisory Warrants referred to collectively | “Agent Warrants” | Note 13.1 |
| One unit of the Company resulting from exercise of a Compensation Option, comprised<br> of one common share and one common share purchase warrant | “Compensation Unit” | Note 13.1 |
| Warrant resulting from Compensation Option | “Compensation Warrant” | Note 13.1 |
| Terms related to consulting agreement with Goodness Growth | ||
| Goodness Growth Holdings, Inc. (CSE: GDNS; OTCQX: GDNSF) | “Goodness Growth” | Note 13.2 |
| The consulting agreement under which the Company provides services to Goodness Growth | “Consulting Agreement” | Note 13.2 |
| Volume weighted average price | “VWAP” | Note 13.2 |
| 2. | Significant AccountingPolicies and Judgments and Defined Terms | |
| --- | --- | |
| 2.1 | Statement of Compliance and Going Concern | |
| --- | --- |
The financial statements have been prepared in accordance with IAS 34 - Interim Financial Reporting, applicable to a going concern, which contemplates the realization of assets and liabilities in the normal course of business as they become due.
The Company’s ability to continue as a going concern is dependent upon, but not limited to, its ability to raise financing necessary to discharge its liabilities as they become due and generate positive cash flows from operations. Although during the nine months ended July 31, 2023, the Company generated net income of approximately $1.4 million, it has historically incurred net losses, and as of that date, the Company’s accumulated deficit was approximately $18.9 million. These conditions have resulted in material uncertainties that may cast significant doubt about the Company’s ability to continue as a going concern. The ability of the Company to continue as a going concern and to meet its obligations will be dependent upon successful sales of product and generating positive cash flows from operations as well as obtaining suitable financing, if required. The accompanying financial statements do not reflect any adjustment that might result from the outcome of this uncertainty. If the going concern assumption is not used, then the adjustments required to report the Company’s assets and liabilities at liquidation values could be material to these financial statements.
These financial statements do not include all disclosures required by IFRS for annual audited consolidated financial statements and accordingly should be read in conjunction with our annual consolidated financial statements for the year ended October 31, 2022. These unaudited condensed interim financial statements were authorized for issuance by the Board of Directors on September 27, 2023.
Pg 9 of 35
Grown Rogue International Inc.
Notes to the CondensedInterim Consolidated Financial Statements
For the Three and NineMonths Ended July 31, 2023, and 2022
Unaudited - Expressed in United States Dollars, unless otherwise indicated
| 2.2 | Basis of Consolidation |
|---|
The subsidiaries are those companies controlled by the Company, as the Company is exposed, or has rights, to variable returns from its involvement with the subsidiaries and has the ability to affect those returns through its power over the subsidiaries by way of its ownership and rights pertaining to the subsidiaries. The financial statements of subsidiaries are included in these financial statements from the date that control commences until the date control ceases. All intercompany balances and transactions have been eliminated upon consolidation.
| 2.3 | Basis of Measurement |
|---|
These financial statements have been prepared on a historical cost basis except for certain financial instruments and biological assets, which are measured at fair value, as described herein.
| 2.4 | Functional and Presentation Currency |
|---|
The Company’s functional currency is the Canadian dollar, and the functional currency of its subsidiaries is the United States dollar. These financial statements are presented in U.S. dollars.
Transactions denominated in foreign currencies are initially recorded in the functional currency using exchange rates in effect at the dates of the transactions. Monetary assets and liabilities denominated in foreign currencies are translated into the functional currency using exchange rates prevailing at the end of the reporting period. All exchange gains and losses are included in the statements of loss and comprehensive loss.
For the purpose of presenting consolidated financial statements, the assets and liabilities of the Company are expressed in U.S. Dollars using exchange rates prevailing at the end of the reporting period. Income and expense items are translated at the average exchange rates for the period, unless exchange rates fluctuated significantly during that period, in which case the exchange rates at the dates of the transactions are used. Exchange differences arising, if any, are recognized in other comprehensive loss and reported as currency translation reserve in shareholders’ equity.
Foreign exchange gains or losses arising from a monetary item receivable from or payable to a foreign operation, the settlement of which is neither planned nor likely to occur in the foreseeable future and which, in substance, is considered to form part of the net investment in the foreign operation, are recognized in other comprehensive loss.
The preparation of these financial statements requires management to make judgments, estimates, and assumptions that affect the application of policies and reported amounts of assets, liabilities, and expenses. Areas that have the most significant effect on the amounts recognized in the financial statements are disclosed in Note 3 of the Company’s consolidated financial statements for the year ended October 31, 2022. The accounting policies applied in these financial statements are consistent with those used in the Company’s consolidated financial statements for the year ended October 31, 2022, except for the adoption of new accounting policies (Note 2.5).
Pg 10 of 35
Grown Rogue International Inc.
Notes to the CondensedInterim Consolidated Financial Statements
For the Three and NineMonths Ended July 31, 2023, and 2022
Unaudited - Expressed in United States Dollars, unless otherwise indicated
| 2.5 | Service Revenue |
|---|
On May 24, 2023, GR Unlimited entered into the Consulting Agreement with Goodness Growth. Under the Consulting Agreement, GR Unlimited will support Goodness Growth in the optimization of its cannabis flower products, with a particular focus on improving the quality and yield of top-grade “A” cannabis flower across its various operating markets, starting with Maryland and Minnesota.
Under the initial term of the Consulting Agreement, which expires on June 30, 2025, Goodness Growth will provide compensation to GR Unlimited for sustained consulting support, including input on systems and processes, and recommendations to improve Goodness Growth’s cultivation operations. GR Unlimited will be entitled to receive additional incentive compensation if the services provided result in improved cash flow performance as compared to Goodness Growth’s baseline expectations over the term of the agreement.
The Consulting Agreement provides for service revenue earned to be calculated beginning January 2023, and the service revenue reported for the three months ended July 31, 2023, reflect earnings from May 1, 2023 through July 31, 2023. The Company reported service revenue of $219, 065 and cost of service revenue of $99,212 for Q3 2023. Also see Note 13.2 for further discussion of the terms of the Consulting Agreement.
| 2.6 | Adoption of New Accounting Pronouncements |
|---|
Amendments to IAS 41: Agriculture
As part of its 2018-2020 annual improvements to the standards process of IFRS, the IASB issued amendments to IAS 41 - Agriculture. The amendment removes the requirement in paragraph 22 of IAS 41 for entities to exclude taxation cash flow when measuring the fair value of a biological asset using a present value technique. This will ensure consistency with the requirements in IFRS 13 - Fair Value Measurement. The amendment is effective for annual reporting periods beginning on or after January 1, 2022. The Company adopted the Amendments to IAS 41 effective November 1, 2022, which did not have material impact to the Company’s financial statements.
Amendments to IFRS 9: Financial Instruments
As part of its 2018-2020 annual improvements to the standards process of IFRS, the IASB issued amendments to IFRS 9 - Financial Instruments. The amendment clarifies the fees that an entity includes when assessing whether the terms of a new or modified financial liability are substantially different from the terms of the original financial liability. These fees include only those paid or received between the borrower and the lender, including fees paid or received by either the borrower or lender on the other’s behalf. An entity applies the amendment to financial liabilities that are modified or exchanged on or after the beginning of the annual reporting period in which the entity first applies the amendment. The amendment is effective for annual reporting periods beginning on or after January 1, 2022 with earlier adoption permitted. The Company adopted the Amendments to IFRS 9 effective November 1, 2022, which did not have material impact to the Company’s financial statements.
Pg 11 of 35
Grown Rogue International Inc.
Notes to the CondensedInterim Consolidated Financial Statements
For the Three and NineMonths Ended July 31, 2023, and 2022
Unaudited - Expressed in United States Dollars, unless otherwise indicated
Amendments to IAS 37: Onerous Contracts and the Cost of Fulfilling a Contract
The amendment specifies that the ‘cost of fulfilling’ a contract comprises the ‘costs that relate directly to the contract’. Costs that relate directly to a contract can either be incremental costs of fulfilling that contract or an allocation of other costs that relate directly to fulfilling contracts. The amendment is effective for annual periods beginning on or after January 1, 2022 with early application permitted. The Company adopted the Amendments to IAS 37 – Onerous Contracts and the Cost of Fulfilling a Contract effective November 1, 2022, which did not have material impact to the Company’s financial statements.
| 2.7 | New Accounting Pronouncements |
|---|
Amendments to IAS 1: Classification of Liabilities as Current or Non-current
The amendment clarifies the requirements relating to determining if a liability should be presented as current or non-current in the statement of financial position. Under the new requirement, the assessment of whether a liability is presented as current or non-current is based on the contractual arrangements in place as at the reporting date and does not impact the amount or timing of recognition. The amendment applies retrospectively for annual reporting periods beginning on or after January 1, 2024. The Company is currently evaluating the potential impact of these amendments on the Company’s consolidated financial statements.
IFRS 17 – Insurance Contracts
IFRS 17 - Insurance Contracts establishes the principles for the recognition, measurement, presentation and disclosure of insurance contracts within the scope of the standard. The objective of IFRS 17 is to ensure that an entity provides relevant information that faithfully represents those contracts. The standard is effective for annual periods beginning on or after January 1, 2023. The Company is currently evaluating the potential impact of this standard on the Company’s consolidated financial statements.
Pg 12 of 35
Grown Rogue International Inc.
Notes to the CondensedInterim Consolidated Financial Statements
For the Three and NineMonths Ended July 31, 2023, and 2022
Unaudited - Expressed in United States Dollars, unless otherwise indicated
| 3. | Biological Assets |
|---|
Biological assets consist of cannabis plants, which reflect measurement at FVLCTS. Changes in the carrying amounts of biological assets for the nine months ended July 31, 2023, are as follows:
| July 31,<br>2023 | October 31,<br>2022 | |||
|---|---|---|---|---|
| **** | **** | **** | ||
| Beginning balance | ||||
| Increase in biological assets due to capitalized costs | ||||
| Change in FVLCTS due to biological transformation | ||||
| Transferred to inventory upon harvest | ) | ) | ||
| Ending balance |
All values are in US Dollars.
FVLCTS is determined using a model which estimates the expected harvest yield for plants currently being cultivated, and then adjusts that amount for the expected selling price and also for any additional costs to be incurred, such as post-harvest costs.
The following significant unobservable inputs, all of which are classified as level 3 on the fair value hierarchy, were used by management as part of this model:
| - | Expected costs required to grow the cannabis up to the point<br>of harvest | |||||||||
|---|---|---|---|---|---|---|---|---|---|---|
| - | Estimated selling price per pound | |||||||||
| --- | --- | |||||||||
| - | Expected yield from the cannabis plants | |||||||||
| --- | --- | |||||||||
| - | Estimated stage of growth – the Company applied a weighted<br>average number of days out of the approximately 62-day growing cycle that biological assets have reached as of the measurement date based<br>on historical evidence. The Company assigns fair value according to the stage of growth and estimated costs to complete cultivation. | |||||||||
| --- | --- | |||||||||
| Impact of 20% change | ||||||||||
| --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- |
| July 31,<br><br>2023 | October 31,<br><br>2022 | July 31,<br><br>2023 | October 31,<br><br> <br>2022 | |||||||
| Estimated selling price per (pound) | $ | 960 | $ | 817 | $ | 350,278 | $ | 246,397 | ||
| Estimated stage of growth | 54 | % | 49 | % | $ | 286,733 | $ | 204,814 | ||
| Estimated flower yield per harvest (pound) | 3,397 | 2,638 | $ | 286,733 | $ | 204,814 | ||||
| 4. | Inventory | |||||||||
| --- | --- |
The Company’s inventory composition is as follows:
| July 31,<br>2023 | October 31,<br>2022 | |
|---|---|---|
| **** | ||
| Raw materials | ||
| Work in process | ||
| Finished goods | ||
| Ending balance |
All values are in US Dollars.
The cost of inventories, excluding changes in fair value, included as an expense and included in cost of goods sold for the nine months ended July 31, 2023, was $8,149,809 (2022 - $6,091,066). The cost of inventories, excluding changes in fair value, included as an expense and included in cost of goods sold for the three months ended July 31, 2023, was $3,047,971 (2022 - $2,226,593).
Pg 13 of 35
Grown Rogue International Inc.
Notes to the CondensedInterim Consolidated Financial Statements
For the Three and NineMonths Ended July 31, 2023, and 2022
Unaudited - Expressed in United States Dollars, unless otherwise indicated
| 5. | Business combinations |
|---|---|
| 5.1 | Golden Harvests |
| --- | --- |
On May 1, 2021, the Company acquired a controlling 60% interest in Golden Harvests for aggregate consideration of $1,007,719 comprised of 1,025,000 common shares of the Company with a fair value of $158,181 and cash payments of $849,536. Consideration remaining to be paid at the date of these financial statements included cash payments of $360,000. During the nine months ended July 31, 2023, 200,000 common shares issuable since May 1, 2021, with an aggregate fair value of $35,806, were issued.
On December 1, 2021, the Company and the seller of the 60% controlling interest in Golden Harvests agreed to extend the due date of the cash portion of business acquisition consideration payable until December 31, 2024, in exchange for monthly payments at a rate of 18% per annum. The Company may pay all or part of the cash portion of the business acquisition consideration payable prior to December 31, 2024. The following table summarizes the movement in business acquisition consideration payable.
| Business acquisition consideration payable | ||
|---|---|---|
| Acquisition date fair value | ||
| Payments | ) | |
| Application of prepayments | ) | |
| Accretion | ||
| Balance – October 31, 2022 and July 31, 2023 |
All values are in US Dollars.
Pg 14 of 35
Grown Rogue International Inc.
Notes to the CondensedInterim Consolidated Financial Statements
For the Three and NineMonths Ended July 31, 2023, and 2022
Unaudited - Expressed in United States Dollars, unless otherwise indicated
| 6. | Other investmentsand purchase deposits |
|---|---|
| 6.1 | Investment in assets sold by HSCP |
| --- | --- |
On February 5, 2021, the Company agreed to acquire substantially all of the assets of the growing and retail operations pursuant to the HSCP Transaction, for an aggregate total of $3,000,000 in consideration, payable in a series of tranches, subject to receipt of all necessary regulatory and other approvals. A payment of $250,000 was to be due at closing and the payment of the remaining purchase price was to depend on the timing of the closing. If the closing were to take place before the 12-month anniversary date of the February 5, 2021, effective date, the remaining balance of $2,000,000 would be paid by a promissory note payable. If the closing were to take place after the 12-month anniversary date but before the 18-month anniversary date, the remaining balance would be paid $750,000 in cash and $1,250,000 by a promissory note payable. If the closing were to take place later than the 18-month anniversary date, the remaining $2,000,000 would be paid in cash. The Company also executed the HSCP MSA, a management services agreement, pursuant to which the Company agreed to pay $21,500 per month as consideration for services rendered thereunder, until the completion of the HSCP Transaction. In accordance with the MSA, the Company owned all production from the growing assets derived from the growing operations of HSCP, and the Company operated the growing facility of HSCP under the MSA until receipt of the necessary regulatory approvals relating to the acquisition by the Company of HSCP’s growing assets. The Company had no involvement with the retail operations contemplated in the agreement until the HSCP Transaction was completed.
On April 14, 2022, the HSCP Transaction closed with modifications to the original terms: the retail purchase was mutually terminated, and total consideration for the acquisition was reduced to $2,000,000. Upon closing, the Company had paid $750,000 towards the acquisition, and owed a promissory note payable with a principal sum of $1,250,000, of which $500,000 was on August 1, 2022, and $750,000 was on May 1, 2023. The agreement was amended August 1, 2022, as described at Note 10.1.
Pg 15 of 35
Grown Rogue International Inc.
Notes to the CondensedInterim Consolidated Financial Statements
For the Three and NineMonths Ended July 31, 2023, and 2022
Unaudited - Expressed in United States Dollars, unless otherwise indicated
| 7. | Leases |
|---|
The following is a continuity schedule of lease liabilities.
| July 31,<br> 2023 | October 31,<br>2022 | |||
|---|---|---|---|---|
| Balance - beginning | ||||
| Additions | ||||
| Disposals | ||||
| Interest expense on lease liabilities | ||||
| Payments | ) | ) | ||
| Balance - ending | ||||
| Current portion | ||||
| Non-current portion |
All values are in US Dollars.
| 8. | Property and Equipment | ||||||||
|---|---|---|---|---|---|---|---|---|---|
| Computer<br>and Office<br>Equipment | Production<br>Equipment<br>and Other | Leasehold<br>Improvements | Right-of-<br>use Assets | Total | |||||
| --- | --- | --- | --- | --- | --- | --- | --- | --- | --- |
| **** | **** | **** | **** | **** | |||||
| COST | |||||||||
| Balance - October 31, 2021 | |||||||||
| Additions | |||||||||
| Disposals | ) | ) | ) | ||||||
| Balance - October 31, 2022 | |||||||||
| Additions | |||||||||
| Disposals | ) | ) | ) | ) | |||||
| Balance – July 31, 2023 | |||||||||
| ACCUMULATED AMORTIZATION | |||||||||
| Balance - October 31, 2021 | |||||||||
| Amortization for the period | |||||||||
| Disposals | ) | ) | ) | ||||||
| Balance - October 31, 2022 | |||||||||
| Amortization for the period | |||||||||
| Disposals | ) | ) | ) | ) | |||||
| Balance – July 31, 2023 | |||||||||
| NET BOOK VALUE | |||||||||
| Balance - October 31, 2022 | |||||||||
| Balance – July 31, 2023 |
All values are in US Dollars.
For the nine months ended July 31, 2023, amortization capitalized was $1,452,094 (2022 - $848,378) and expensed amortization was $379,822 (2022 - $530,190).
Pg 16 of 35
Grown Rogue International Inc.
Notes to the CondensedInterim Consolidated Financial Statements
For the Three and NineMonths Ended July 31, 2023, and 2022
Unaudited - Expressed in United States Dollars, unless otherwise indicated
| 9. | Intangible assetsand goodwill | |
|---|---|---|
| July 31,<br>2023 | October 31,<br>2022 | |
| --- | --- | --- |
| Indefinite lived intangible assets and goodwill | ||
| Balance – beginning | ||
| Additions – grower licenses | ||
| Balance – ending |
All values are in US Dollars.
Additions during the year ended October 31, 2022, resulted from the HSCP Transaction (Note 6.1).
| 10. | Long-term Debt |
|---|
Transactions related to the Company’s long-term debt for the nine months ended July 31, 2023, include the following:
| Note | |||||||||||||||||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
| Movement in long-term debt | 10.1 | 10.2 | 10.3 | 10.4 | 10.5 | 10.6 | 10.7 | Total | |||||||||||||||
| Balance - October 31, 2021 | - | 600,572 | 249,064 | 280,567 | 150,000 | 142,997 | 786,461 | ||||||||||||||||
| Additions to debt | 1,250,000 | 100,000 | - | - | - | - | - | ||||||||||||||||
| Settlement of debt | - | (706,352 | ) | - | - | - | - | - | ) | ||||||||||||||
| Interest accretion | - | 5,780 | 79,046 | 71,443 | - | 36,594 | 295,453 | ||||||||||||||||
| Debt payments | - | - | (25,000 | ) | (25,000 | ) | (150,000 | ) | (12,500 | ) | (520,303 | ) | ) | ||||||||||
| Balance - October 31, 2022 | 1,250,000 | - | 303,110 | 327,010 | - | 167,091 | 561,611 | ||||||||||||||||
| Interest accretion | - | - | 70,550 | 61,315 | - | 31,474 | 162,865 | ||||||||||||||||
| Debt payments | (750,000 | ) | - | (18,750 | ) | (18,750 | ) | - | (9,375 | ) | (493,710 | ) | |||||||||||
| Balance – July 31, 2023 | 500,000 | - | 354,910 | 369,575 | - | 189,190 | 230,766 | ||||||||||||||||
| Current portion | 500,000 | - | 276,345 | 288,685 | - | 149,254 | 230,766 | ||||||||||||||||
| Non-current portion | - | - | 78,565 | 80,890 | - | 39,936 | - |
All values are in US Dollars.
| Note | |||||||||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
| Undiscounted future payments at: | 10.1 | 10.2 | 10.3 | 10.4 | 10.5 | 10.6 | 10.7 | Total | |||||||
| October 31, 2022 | 1,250,000 | - | 456,250 | 457,991 | - | 225,799 | 754,150 | ||||||||
| July 31, 2023 | 500,000 | - | 437,500 | 439,241 | - | 216,424 | 260,440 | ||||||||
| Current portion | 500,000 | 350,000 | 350,870 | 172,795 | 260,440 | ||||||||||
| Non-current portion | 87,500 | 88,371 | 43,629 |
All values are in US Dollars.
| 10.1 | 12.5% note payable owed by GR Distribution to HSCP with original principal amount of $1,250,000 |
|---|
On April 14, 2022, the Company purchased indoor growing assets from HSCP (Note 6.1). Purchase consideration included a secured promissory note payable with a principal sum of $1,250,000, of which $500,000 was due on August 1, 2022 and $750,000 was due on May 1, 2023, before amendment of the agreement, which is described below. Collateral for the secured promissory note payable is comprised of the assets purchased.
Pg 17 of 35
Grown Rogue International Inc.
Notes to the CondensedInterim Consolidated Financial Statements
For the Three and NineMonths Ended July 31, 2023, and 2022
Unaudited - Expressed in United States Dollars, unless otherwise indicated
On August 1, 2022, the terms of the Secured Promissory Note between GR Distribution and HSCP, were amended. As amended, the Secured Promissory Note will be fully settled by two principal amounts of $500,000 (the First Principal Payment) and $750,000 due on May 1, 2023. Beginning on August 1, 2022, and continuing until repaid in full, the unpaid portion of the First Principal Amount will accrue simple interest at a rate per annum of 12.5%, payable monthly. In the event the Company raises capital, principal payments shall be made as follows. If the capital raise is less than or equal to $2 million, then 25% of the capital raise shall be paid against the First Principal Payment; if the capital raise is greater than $2 million and less than or equal to $3 million, then $250,000 shall be paid against the First Principal Payment; and if the capital raise is greater than $3 million, then $500,000 shall be paid against the First Principal Payment. The Company paid $750,000 during the nine months ended July 31, 2023.
| 10.2 | 0% stated rate note payable to PBIC with original principal amount of $800,000 and Harvest-based payments (settled) |
|---|
On September 9, 2021, the Company entered into the PBIC Note, an unsecured promissory note agreement with PBIC, a formerly related party, in the amount of $800,000, which was to be fully advanced by September 30, 2021. During the year ended October 31, 2022, $100,000 was received (through October 31, 2021 - $600,000). The PBIC Note was to mature on December 15, 2022, with payments commencing January 15, 2022, and continuing through and including December 15, 2022. The terms required the Company to make certain participation payments to the lender based on a percentage monthly sales of cannabis flower sold from the Company’s Harvest (sun-grown A-flower 2021 harvest), less 15% of such amount to account for costs of sales. The percentage was determined by dividing 2,000 by the total volume of pounds of the Harvest, proportionate to principal proceeds. A portion of these payments were to be used to pay down the outstanding principal on a monthly basis. The PBIC Note would have automatically terminated when the full amount of any outstanding principal plus the applicable participation payments were paid prior to the maturity date. Should the participation payments have fully repaid the principal amount prior to the maturity date then the PBIC Note would have automatically terminated. The PBIC Note bore no stated rate of interest, and in the event of default, would have born interest at 15% per annum. The PBIC Note was reported at amortized cost using an effective interest rate of approximately 1.9%.
On June 20, 2022, the Company announced the settlement of the PBIC Note, which had a principal balance owing of $700,000. The Company agreed to transfer its PBIC Shares (the Company’s ownership of 2,362,204 common shares of PBIC), to the Creditor (2766923 Ontario Inc.), to which PBIC sold and assigned the PBIC Note. In exchange, the Creditor provided forgiveness and settlement of all amounts owing in connection with the PBIC Note. The Company reported a gain on debt settlement of $449,684 as a result of the settlement.
| 10.3 | 10% note payable owed by Golden Harvests with original principal amount of $250,000 |
|---|
On May 1, 2021, the Company assumed a note payable owed by Golden Harvests (Note 5) with a carrying value of $227,056. The note is for a principal amount of $250,000, interest paid monthly at 10% per annum, and a maturity date of January 14, 2024. After the maturity date, additional interest payments are due quarterly, at amounts that cause total interest paid over the life of the debt to equal $250,000. The note is reported at amortized cost using an effective interest rate of approximately 33%.
Pg 18 of 35
Grown Rogue International Inc.
Notes to the CondensedInterim Consolidated Financial Statements
For the Three and NineMonths Ended July 31, 2023, and 2022
Unaudited - Expressed in United States Dollars, unless otherwise indicated
| 10.4 | 10% note payable owed by GR Distribution with original principal amount of $250,000 |
|---|
On January 27, 2021, debt was issued by GR Distribution with a principal amount of $250,000, interest paid monthly at 10% per annum, and a maturity date of January 27, 2024. After the maturity date, additional interest payments are due quarterly, at amounts that cause total interest paid over the life of the debt to equal $250,000. The note is reported at amortized cost using an effective interest rate of approximately 27%.
| 10.5 | 10% note payable owed by GR Gardens with original principal amount of $150,000 (settled) |
|---|
On December 2, 2020, debt was issued by GR Gardens with a principal amount of $150,000, interest accrued at 10% per annum, and a maturity date of December 31, 2021. Interest and principal are payable upon maturity. The maturity date was extended by six-months for a fee of $1,000 per $10,000 of principal extended, which was $75,000.
| 10.6 | 10% note payable owed by GR Distribution with original principal amount of $125,000 |
|---|
On November 23, 2020, debt was issued by GR Distribution with a principal amount of $125,000, interest paid monthly at 10% per annum, and a maturity date of November 23, 2023. After the maturity date, additional interest payments are due quarterly, at amounts that cause total interest paid over the life of the debt to equal $125,000. The note is reported at amortized cost using an effective interest rate of approximately 27%.
| 10.7 | 0% stated rate note payable by Canopy with original principal amount of $600,000 and royalty payments to lenders |
|---|
On March 20, 2020, debt with a principal amount of $600,000 was received under a secured debt investment of $600,000). It carries a two-year term, with monthly payments of principal commencing June 15, 2020, and with payments calculated at 1% of cash sales receipts of Golden Harvests. Once the principal is repaid, each investor receives a monthly royalty of 1% per $100,000 invested of cash receipts for sales by Golden Harvests. The royalty commenced in December 2021, at which time principal was repaid, and is payable monthly a period of two years. The royalty maximum is two times the amount of principal invested, and the royalty minimum is equal to the principal loaned. The Company has the right, but not the obligation, to purchase terminate royalty payments from any lender by paying an amount equal to the original principal invested by such lender. The debt is reported at the carrying value of the probability-weighted estimated future cash flows of all payments under the agreement at amortized cost using the effective interest method, at an effective interest rate of approximately 73%. A portion of this debt is due to related parties (Note 17.4).
| 10.8 | Accrued interest payable |
|---|
Accrued interest payable on long-term debt at July 31, 2023 was $Nil (October 31, 2022 - $Nil).
Pg 19 of 35
Grown Rogue International Inc.
Notes to the CondensedInterim Consolidated Financial Statements
For the Three and NineMonths Ended July 31, 2023, and 2022
Unaudited - Expressed in United States Dollars, unless otherwise indicated
| 11. | Convertible Debentures |
|---|
Transactions relating to the Company’s convertible debentures for the nine months ended July 31, 2023, include the following:
| Note | ||||||||
|---|---|---|---|---|---|---|---|---|
| Movement in convertible debt | 11.1 | 11.2 | Total | |||||
| Balance - October 31, 2022 | - | - | ||||||
| Additions to debt | 2,000,000 | 5,000,000 | ||||||
| Derivative liability recognition | (783,856 | ) | (3,242,663 | ) | ) | |||
| Interest accretion | 235,066 | 36,641 | ||||||
| Debt payments | (105,000 | ) | - | ) | ||||
| Balance - July 31, 2023 | $ | 1,346,210 | 1,793,978 | |||||
| Current portion | - | - | ||||||
| Non-current portion | 1,346,210 | 1,793,978 |
All values are in US Dollars.
| 11.1 | 9% convertible debentures with original principal amount of $2,000,000 |
|---|
On December 5, 2022, the Company announced the closing of a non-brokered private placement of the December Convertible Debentures with an aggregate principal amount of $2,000,000. The December Convertible Debentures accrue interest at 9% per year, paid quarterly, and mature 36 months from the date of issue. The December Convertible Debentures are convertible into common shares of the Company at a conversion price of CAD$0.20 per common share. Additionally, on closing, the Company issued to the Purchasers of the December Convertible Debentures an aggregate of 6,716,499 Warrants, that represents 50% coverage of each Purchaser’s Convertible Debenture investment. The December Warrants are exercisable for a period of three years from issuance into common shares at an exercise price of $0.25 CAD per common share. The Company has the right to accelerate the warrants if the closing share price of the common shares on the Canadian Securities Exchange is CAD$0.40 or higher for a period of 10 consecutive trading days. The December Convertible Debentures and December Warrants issued pursuant to the private placement (and the underlying common shares) were subject to a statutory hold period of four months and one day from the closing date.
The conversion feature of the December Convertible Debentures gives rise to the derivative liability reported on the statement of financial position at July 31, 2023. The derivative liability is remeasured at fair value through profit and loss at each reporting period using the Black-Scholes pricing model. The fair value of the derivative liability at July 31, 2023, was estimated to be $1,390,654 (October 31, 2022 - $Nil) using the following assumptions:
| Expected dividend yield | Nil |
|---|---|
| Risk-free interest rate | 4.4% |
| Expected life | 2.3 years |
| Expected volatility | 99% |
Pg 20 of 35
Grown Rogue International Inc.
Notes to the CondensedInterim Consolidated Financial Statements
For the Three and NineMonths Ended July 31, 2023, and 2022
Unaudited - Expressed in United States Dollars, unless otherwise indicated
| 11.2 | 9% convertible debentures with original principal amount of $5,000,000 |
|---|
On July 13, 2023, the Company announced the closing of a non-brokered private placement of unsecured the July Convertible Debentures with an aggregate principal amount of $5,000,0000. The Convertible Debentures accrue interest at 9% per year, paid quarterly, and mature 48 months from the date of issue. The July Convertible Debentures are convertible into common shares of the Company at a conversion price of CAD$0.24 per common share, at any time on or prior to the maturity date. Additionally, on closing, the Company issued to the Subscribers of the July Convertible Debentures an aggregate of 13,737,500 July Warrants, that represents one-half of one warrant for each CAD$0.24 of Principal amount subscribed. The July Warrants are exercisable for a period of three years from issuance into common shares at an exercise price of CAD$0.28 per common share. The Company has the right to accelerate the warrants if the closing share price of the common shares on the Canadian Securities Exchange is CAD$0.40 or higher for a period of 10 consecutive trading days. The July Warrant expiry date will be accelerated to 90 days following notice of the acceleration.
The conversion feature of the July Convertible Debentures gives rise to the derivative liability reported on the statement of financial position at July 31, 2023. The derivative liability is remeasured at fair value through profit and loss at each reporting period using the Black-Scholes pricing model. The fair value of the derivative liability at July 31, 2023, was estimated to be $3,317,540 (October 31, 2022 - $Nil) using the following assumptions:
| Expected dividend yield | Nil |
|---|---|
| Risk-free interest rate | 4.0% |
| Expected life | 3.95 years |
| Expected volatility | 99% |
| 12. | Share Capitaland Shares Issuable |
| --- | --- |
The Company is authorized to issue an unlimited number of common shares at no par value and an unlimited number of preferred shares issuable in series.
During the nine months ended July 31, 2023, the following share transactions occurred:
| 12.1 | 200,000 common shares issued to settle shares issuable |
|---|
On January 10, 2023, the Company issued 200,000 common shares with an aggregate fair value of $35,806, which was reported as issuable as at October 31, 2022, which represented a portion of consideration for the acquisition of Golden Harvests (Note 5).
During the nine months ended July 31, 2022, the following share transactions occurred:
| 12.2 | 529,335 common shares issued to employees, directors, and/or consultants |
|---|
The Company issued 529,335 common shares with a fair value of $59,796 for employment compensation, director services and consulting services.
Pg 21 of 35
Grown Rogue International Inc.
Notes to the CondensedInterim Consolidated Financial Statements
For the Three and NineMonths Ended July 31, 2023, and 2022
Unaudited - Expressed in United States Dollars, unless otherwise indicated
| 12.3 | 13,166,400 common shares issued in Private Placement for proceeds of $1,300,000 |
|---|
On December 9, 2021, the Company closed the Private Placement, a non-brokered private placement of common shares, for total gross proceeds of $1,300,000 (CDN$1,645,800). The Private Placement resulted in the issuance of 13,166,400 common shares of Grown Rogue at a purchase price of CAD$0.125 per share. All common shares issued pursuant to the Private Placement were subject to a hold period of four months and one day. The CEO of Grown Rogue invested $300,000 in the Private Placement and received 3,038,400 common shares of the Company.
| 13. | Warrants |
|---|
The following table summarizes the warrant activities for the nine months ended July 31, 2023:
| Number | Weighted<br> Average<br>Exercise Price<br>(CAD) | |||
|---|---|---|---|---|
| Balance - October 31, 2021 | 56,919,787 | |||
| Expiration of warrants pursuant to convertible debt deemed re-issuance | (8,409,091 | ) | ||
| Expiration of warrants issued pursuant to private placement to CGOC | (15,000,000 | ) | ||
| Balance – October 31, 2022 | 33,510,696 | |||
| Issuance pursuant to the December Convertible Debentures (Note 11.1) | 6,716,499 | |||
| Issuance pursuant to the July Convertible Debentures (Note 11.2) | 13,737,500 | |||
| Expiration of warrants pursuant to Feb 2021 subscriptions | (8,200,000 | ) | ||
| Expiration of warrants pursuant to the Offering (Special warrant issue) | (23,162,579 | ) | ||
| Expiration of warrants pursuant to terminate purchase agreement | (2,148,117 | ) | ||
| Balance – July 31, 2023 | 20,453,999 |
All values are in US Dollars.
As at July 31, 2023, the following warrants were issued and outstanding:
| Exercise price (CAD) | Warrants outstanding | Life (years) | Expiry date | ||
|---|---|---|---|---|---|
| 6,716,499 | 2.34 | December 2, 2025 | |||
| 13,737,500 | 2.95 | July 13, 2026 | |||
| 20,453,999 | 2.75 |
All values are in US Dollars.
| 13.1 | Agent Warrant |
|---|
On March 5, 2021, as consideration for the services rendered the Agent to the Offering (a brokered private placement of special warrants), the Company issued to the Agent an aggregate of 1,127,758 Broker Warrants of the Company exercisable to acquire 1,127,758 Compensation Options for no additional consideration. As consideration for certain advisory services provided in connection with the Offering, the Company issued to the Agent an aggregate of 113,500 Advisory Warrants exercisable to acquire 113,500 Compensation Options for no additional consideration. The Broker Warrants and Advisory Warrants are collectively referred to as the Agent Warrants.
Pg 22 of 35
Grown Rogue International Inc.
Notes to the CondensedInterim Consolidated Financial Statements
For the Three and NineMonths Ended July 31, 2023, and 2022
Unaudited - Expressed in United States Dollars, unless otherwise indicated
Each Compensation Option entitled the holder thereof to purchase one Compensation Unit of the Company at the Issue Price of CAD$0.225 for a period of twenty-four (24) months. Each Compensation Unit was comprised of one common share and one Compensation Warrant. Each Compensation Warrant entitled the holder thereof to purchase one common share in the capital of the Company at a price of CAD$0.30 for twenty-four (24) months. The Agent Warrants expired on March 5, 2023.
| 13.2 | Goodness Growth Consulting Agreement |
|---|
The Consulting Agreement with Goodness Growth was executed as of May 24, 2023, whereby GR Unlimited will support Goodness Growth in the optimization of its cannabis flower products, with a particular focus on improving the quality and yield of top-grade “A” cannabis flower across its various operating markets, starting with Maryland and Minnesota (Note 2.5).
As part of this strategic agreement, Goodness Growth is obligated to issue 10,000,000 warrants to purchase 10,000,000 subordinate voting shares of Goodness Growth to the Company, with a strike price equal to CAD$0.317 (US$0.233), being a 25.0 percent premium to the 10-day VWAP of Goodness Growth’s subordinate voting shares prior to the effective date of the Consulting Agreement. Similarly, the Company will issue 8,500,000 warrants to purchase 8,500,000 common shares of the Company to Goodness Growth, with a strike price equal to CAD$0.225 (US$0.166), being a 25.0 percent premium to the 10-day VWAP of the Company’s common shares prior to the effective date of the Consulting Agreement. These warrants have not been granted as of July 31, 2023, but were considered to be accrued as warrants receivable of $1,232,253 and warrants payable of $1,232,253.
The Company measured these warrants at fair value of the Goodness Growth warrants on the effective date, May 24, 2023, using the Black-Scholes pricing model with the following inputs.
| Exercise (strike) price | 0.328 |
|---|---|
| Risk-free interest rate | 3.57% |
| Expected life | 5 years |
| Expected volatility | 99% |
As these warrants have not been exchanged, the warrants receivable and warrants payable have not been remeasured as at July 31, 2023. Upon issuance, management will remeasure these instruments at each reporting date.
Pg 23 of 35
Grown Rogue International Inc.
Notes to the CondensedInterim Consolidated Financial Statements
For the Three and NineMonths Ended July 31, 2023, and 2022
Unaudited - Expressed in United States Dollars, unless otherwise indicated
| 14. | Stock Options |
|---|
The following table summarizes the stock option movements for the nine months ended July 31, 2023:
| Number | Exercise price<br>(CAD) | |||
|---|---|---|---|---|
| Balance - October 31, 2021 | 5,765,000 | |||
| Granted to employees | 605,000 | |||
| Forfeitures by service provider | (500,000 | ) | ||
| Forfeitures by employees | (960,000 | ) | ||
| Balance – October 31, 2022 | 4,910,000 | |||
| Granted to employees | 3,650,000 | |||
| Granted to service providers | 2,750,000 | |||
| Expiration of options to employees | (155,000 | ) | ||
| Expiration of options to employees | (75,000 | ) | ||
| Balance – July 31, 2023 | 11,080,000 |
All values are in US Dollars.
| 14.1 | Stock options granted |
|---|
During the nine months ended July 31, 2023, 6,400,000 options were granted (2022 – 605,000) to employees.
The fair value of the options granted during the nine months ended July 31, 2023, was approximately $401,410 (CAD$535,642) which was estimated at the grant dates based on the Black-Scholes pricing model, using the following assumptions:
| Expected dividend yield | Nil% |
|---|---|
| Risk-free interest rate | 3.89% |
| Expected life | 4.0 years |
| Expected volatility | 86% |
The vesting terms of options granted during the nine months ended July 31, 2023, are set out in the table below:
| Number granted | Vesting terms | |
|---|---|---|
| 400,000 | Fully vested on grant date | |
| 6,000,000 | Vest on one year anniversary of grant date | |
| 6,400,000 |
Pg 24 of 35
Grown Rogue International Inc.
Notes to the CondensedInterim Consolidated Financial Statements
For the Three and NineMonths Ended July 31, 2023, and 2022
Unaudited - Expressed in United States Dollars, unless otherwise indicated
| 14.2 | Stock options issued and outstanding |
|---|
As at July 31, 2023, the following stock options were issued and outstanding:
| Exercise price<br>(CAD) | Options<br><br> <br>outstanding | Number<br><br>exercisable | Remaining<br><br>Contractual<br><br>Life (years) | Expiry period | |||
|---|---|---|---|---|---|---|---|
| 1,945,000 | 1,882,500 | 0.9 | July 2024 | ||||
| 200,000 | 200,000 | 1.3 | November 2024 | ||||
| 1,000,000 | 850,000 | 1.8 | April 2025 | ||||
| 1,150,000 | 1,150,000 | 1.8 | May 2025 | ||||
| 85,000 | 85,000 | 2.3 | November 2025 | ||||
| 300,000 | 150,000 | 2.7 | April 2026 | ||||
| 6,400,000 | 400,000 | 3.4 | January 2027 | ||||
| 11,080,000 | 4,717,500 | 2.6 |
All values are in US Dollars.
| 15. | Changes in Non-CashWorking Capital |
|---|
The changes to the Company’s non-cash working capital for the nine months ended July 31, 2023, and 2022 are as follows:
| Nine months ended July 31, | 2023 | 2022 | ||
|---|---|---|---|---|
| **** | **** | **** | ||
| Accounts receivable | ) | ) | ||
| Inventory & biological assets | ) | ) | ||
| Prepaid expenses and other assets | ) | ) | ||
| Accounts payable and accrued liabilities | ) | ) | ||
| Interest payable | ) | |||
| Income tax payable | ||||
| Unearned revenue | ) | |||
| Total | ) | ) |
All values are in US Dollars.
| 16. | Supplemental CashFlow Disclosure | |
|---|---|---|
| Nine months ended July 31, | 2023 | 2022 |
| --- | --- | --- |
| **** | ||
| Interest paid | ||
| Fair value of common shares issued & issuable for services | ||
| Right-of-use assets acquired through leases (Note 7) | ||
| Note payable to HSCP used to acquire assets (Note 6.1) |
All values are in US Dollars.
Pg 25 of 35
Grown Rogue International Inc.
Notes to the CondensedInterim Consolidated Financial Statements
For the Three and NineMonths Ended July 31, 2023, and 2022
Unaudited - Expressed in United States Dollars, unless otherwise indicated
| 17. | Related PartyTransactions |
|---|
During the nine months ended July 31, 2023, the Company incurred the following related party transactions.
| 17.1 | Transactions with CEO |
|---|
Through its wholly owned subsidiary, GRU Properties, the Company leases Trail, owned by the Company’s President and CEO. The lease was extended during the year ended October 31, 2021, with a term through December 31, 2025. Lease charges of $54,000 were incurred for nine months ended July 31, 2023. The lease liability for Trail at July 31, 2023, was 153,125 (October 31, 2022 - $193,312).
During the year ended October 31, 2021, the Company leased Lars, a facility which is beneficially owned by the CEO, and is located in Medford, Oregon with a term through June 30, 2026. Lease charges for Lars of $142,295 (2022 - $138,150) were incurred for the nine months ended July 31, 2023. The lease liability for Lars at July 31, 2023, was $506,053 (October 31, 2022 - $607,900).
During the year ended October 31, 2021, the CEO leased equipment to the Company, which had a balance due of $Nil at July 31, 2023 (October 31, 2022 - $9,433). Lease payments of $9,971 were made against the equipment leases during the nine months ended July 31, 2023 (2022 - $22,889).
Leases liabilities payable to the CEO were $659,178 in aggregate at July 31, 2023 (October 31, 2022 - $810,645).
The CEO earned a royalty of 2.5% of sales of flower produced at Trail through December 31, 2021, at which time the royalty terminated. The CEO earned royalties of $Nil during the nine months ended July 31, 2023 (2022 - $305).
During the year ended October 31, 2022, the Company settled $62,900 in long-term liabilities due to the CEO as part of the CEO’s total $300,000 subscription to a non-brokered private placement of common shares (Note 12.3). During the year ended October 31, 2021, the Company settled $162,899 in long-term accrued liabilities due to the CEO by way of a payment of $62,899 and $100,000 attributed to the CEO’s subscription to a non-brokered private placement on February 5, 2021.
| 17.2 | Transactions with spouse of CEO |
|---|
During the nine months ended July 31, 2023, the Company incurred expenses of $73,077 (2022 - $45,000) for services provided by the spouse of the CEO. At July 31, 2023, accounts and accrued liabilities payable to this individual were $3,846 (October 31, 2022 - $1,154). The spouse of the CEO was granted 500,000 options during the nine months ended July 31, 2023.
Pg 26 of 35
Grown Rogue International Inc.
Notes to the CondensedInterim Consolidated Financial Statements
For the Three and NineMonths Ended July 31, 2023, and 2022
Unaudited - Expressed in United States Dollars, unless otherwise indicated
| 17.3 | Transactions with key management personnel |
|---|
Key management personnel consists of the President and CEO; the CFO, the COO, and the SVP of the Company. The compensation to key management is presented in the following table:
| Nine months ended July 31, | 2023 | 2022 |
|---|---|---|
| **** | ||
| Salaries and consulting fees | ||
| Share-based compensation | ||
| Stock option expense | ||
| Total |
All values are in US Dollars.
Stock options granted to key management personnel and close family members of key management personnel include the following. During the nine months ended July 31, 2023, 1,500,000 options were granted to the CEO; 750,000 options were granted to the CFO; and 750,000 options were granted to the SVP. During the year ended October 31, 2022, no options were granted to key management personnel. During the year ended October 31, 2021: 500,000 options were granted to the COO, which expired following the COO’s resignation.
Compensation to directors during the nine months ended July 31, 2023, was $13,500, (2022 – fees of $13,500 and common share issuances of 273,750 common shares with a fair value of $20,562).
Accounts payable, accrued liabilities, and lease liabilities due to key management at July 31, 2023, totaled $804,403 (October 31, 2022 - $947,233).
| 17.4 | Debt balances and movements with related parties |
|---|
The following table sets out portions of debt pertaining to related parties:
| CEO | SVP | Director | COO | Total | ||||||
|---|---|---|---|---|---|---|---|---|---|---|
| **** | **** | **** | **** | **** | **** | |||||
| Balance - October 31, 2021 | ||||||||||
| Borrowed | ||||||||||
| Interest | ||||||||||
| Payments | ) | ) | ) | ) | ) | |||||
| Balance - October 31, 2022 | ||||||||||
| Borrowed | ||||||||||
| Interest | ||||||||||
| Payments | ) | ) | ) | ) | ||||||
| Balance – July 31, 2023 |
All values are in US Dollars.
Pursuant to the loan and related agreements transacted during the year ended October 31, 2020, the CEO, SVP, and a director obtained 5.5%; 1%; and 2.5% of GR Michigan, respectively; third parties obtained 4% as part of the agreements, such that GR Michigan has a 13% non-controlling interest (Note 22.2). These parties, except the CEO, obtained the same interests in Canopy; the CEO obtained 92.5% of Canopy Management, of which 87% was acquired by the Company in January 2023 (Note 22.3); all payments necessary for the Company to exercise its option to acquire 87% of Canopy were equal to payments made by Canopy to purchase a controlling 60% interest of Golden Harvests.
Pg 27 of 35
Grown Rogue International Inc.
Notes to the CondensedInterim Consolidated Financial Statements
For the Three and NineMonths Ended July 31, 2023, and 2022
Unaudited - Expressed in United States Dollars, unless otherwise indicated
| 18. | Financial Instruments |
|---|---|
| 18.1 | Market Risk (including interest rate risk and currency risk) |
| --- | --- |
Market risk is the risk that the fair value or cash flows of a financial instrument will fluctuate due to changes in market prices. Market risk reflects interest rate risk, currency risk and other price risks.
| 18.1.1 | Interest Rate Risk |
|---|
At July 31, 2023, the Company’s exposure to interest rate risk relates to long-term debt and finance lease obligations; each of these items bears interest at a fixed rate.
| 18.1.2 | Currency Risk |
|---|
As at July 31 2023, the Company had accounts payable and accrued liabilities of CAD$348,684. The Company is exposed to the risk of fluctuation in the rate of exchange between the Canadian Dollar and the United States Dollar.
| 18.2 | Credit Risk |
|---|
Credit risk is the risk that one party to a financial instrument will cause a loss for the other party by failing to pay for its obligation.
Credit risk to the Company is derived from cash and trade accounts receivable. The Company places its cash in deposit with United States financial institutions. The Company has established a policy to mitigate the risk of loss related to granting customer credit by primarily selling on a cash-on-delivery basis.
Accounts receivable primarily consist of trade accounts receivable and sales tax receivable. The Company provides credit to certain customers in the normal course of business and has established credit evaluation and monitoring processes to mitigate credit risk. Credit risk is assessed on a case-by-case basis and a provision is recorded where required.
The carrying amount of cash, accounts receivable, and other receivables represent the Company’s maximum exposure to credit risk; the balances of these accounts are summarized in the following table:
| July 31,<br>2023 | October 31,<br>2022 | |
|---|---|---|
| **** | ||
| Cash | ||
| Accounts Receivable | ||
| Total |
All values are in US Dollars.
The allowance for doubtful accounts at July 31, 2023, was $337,039 (October 31, 2022 - $264,719).
Pg 28 of 35
Grown Rogue International Inc.
Notes to the CondensedInterim Consolidated Financial Statements
For the Three and NineMonths Ended July 31, 2023, and 2022
Unaudited - Expressed in United States Dollars, unless otherwise indicated
As at July 31, 2023 and October 31, 2022, the Company’s trade accounts receivable and other receivable were aged as follows:
| July 31,<br>2023 | October 31,<br>2022 | |||
|---|---|---|---|---|
| **** | **** | **** | ||
| Current | ||||
| 1-30 days | ||||
| 31 days-older | ||||
| Total trade accounts receivable | ||||
| Other receivables | ||||
| Provision for bad debt | ) | ) | ||
| Total accounts receivable |
All values are in US Dollars.
| 18.3 | Liquidity Risk |
|---|
Liquidity risk is the risk that an entity will have difficulties in paying its financial liabilities.
The Company’s approach to managing liquidity risk is to ensure that it will have sufficient liquidity to meet liabilities when they become due. At July 31, 2023, the Company’s working capital accounts were as follows:
| July 31,<br>2023 | October 31,<br>2022 | |||
|---|---|---|---|---|
| **** | **** | **** | ||
| Cash | ||||
| Current assets excluding cash | ||||
| Total current assets | ||||
| Current liabilities | ) | ) | ||
| Working capital |
All values are in US Dollars.
The contractual maturities of the Company’s liabilities occur over the next five years are as follows:
| Year 1 | Over 1 Year<br>- 3 Years | Over 3 Years<br>- 5 Years | |
|---|---|---|---|
| **** | |||
| Accounts payable and accrued liabilities | |||
| Lease liabilities | |||
| Convertible debentures | |||
| Debt | |||
| Business acquisition consideration payable | |||
| Unearned revenue | |||
| Derivative liability | |||
| Warrants payable | |||
| Income tax | |||
| Total |
All values are in US Dollars.
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Grown Rogue International Inc.
Notes to the CondensedInterim Consolidated Financial Statements
For the Three and NineMonths Ended July 31, 2023, and 2022
Unaudited - Expressed in United States Dollars, unless otherwise indicated
| 18.4 | Fair Values |
|---|
The carrying amounts for the Company’s cash, accounts receivable, prepaid and other assets, accounts payable and accrued liabilities, current portions of debt and debentures payable, unearned revenue, and interest payable approximate their fair values because of the short-term nature of these items.
| 18.5 | Fair Value Hierarchy |
|---|
A number of the Company’s accounting policies and disclosures require the measurement of fair valued for both financial and nonfinancial assets and liabilities. The Company has an established framework, which includes team members who have overall responsibility for overseeing all significant fair value measurements, including Level 3 fair values. When measuring the fair value of an asset or liability, the Company uses observable market data as far as possible. The Company regularly assesses significant unobservable inputs and valuation adjustments. Fair values are categorized into different levels in a fair value hierarchy based on the inputs used in the valuation techniques as follows:
Level 1: unadjusted quoted prices in active markets for identical assets or liabilities;
Level 2: inputs other than quoted prices included in Level 1 that are observable for the asset or liability, either directly or indirectly; or
Level 3: inputs for the asset or liability that are not based on observable market data (unobservable inputs).
The carrying values of the financial instruments at July 31, 2023, are summarized in the following table:
| Level in<br><br>fair value<br><br>hierarchy | Amortized<br>Cost | FVTPL | |
|---|---|---|---|
| **** | **** | ||
| Financial Assets | |||
| Cash | Level 1 | ||
| Accounts receivable | Level 2 | ||
| Warrants receivable | Level 2 | ||
| Financial Liabilities | |||
| Accounts payable and accrued liabilities | Level 2 | ||
| Debt | Level 2 | ||
| Convertible debentures | Level 2 | ||
| Business acquisition consideration payable | Level 2 | ||
| Warrants payable | Level 2 | ||
| Derivative liabilities | Level 2 |
All values are in US Dollars.
During the nine months ended July 31, 2023, there were no transfers of amounts between levels.
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Grown Rogue International Inc.
Notes to the CondensedInterim Consolidated Financial Statements
For the Three and NineMonths Ended July 31, 2023, and 2022
Unaudited - Expressed in United States Dollars, unless otherwise indicated
| 19. | General and AdministrativeExpenses |
|---|
General and administrative expenses for the three and nine months ended July 31, 2023, and 2022 are as follows:
| Three months ended<br><br> <br>July 31, | Nine months ended<br><br>July 31, | |||||||
|---|---|---|---|---|---|---|---|---|
| 2023 | 2022 | 2023 | 2022 | |||||
| Office, banking, travel, and overheads | $ | 563,787 | $ | 451,334 | $ | 1,530,868 | $ | 1,423,526 |
| Professional services | 153,111 | 26,443 | 377,474 | 274,687 | ||||
| Salaries and benefits | 924,827 | 730,115 | 2,676,146 | 2,583,138 | ||||
| Total | $ | 1,641,725 | $ | 1,207,892 | $ | 4,584,488 | $ | 4,281,351 |
| 20. | Capital Disclosures | |||||||
| --- | --- |
The Company includes equity, comprised of share capital, contributed surplus (including the fair value of equity instruments to be issued), equity component of convertible promissory notes and deficit, in the definition of capital.
The Company’s objectives when managing capital are as follows:
| - | to safeguard the Company’s assets and ensure the Company’s<br>ability to continue as a going concern. |
|---|---|
| - | to raise sufficient capital to finance the construction of its<br>production facility and obtain license to produce recreational marijuana; and |
| --- | --- |
| - | to raise sufficient capital to meet its general and administrative<br>expenditures. |
| --- | --- |
The Company manages its capital structure and makes adjustments to, based on the general economic conditions, the Company’s short-term working capital requirements, and its planned capital requirements and strategic growth initiatives.
The Company’s principal source of capital is from the issuance of common shares and debt. In order to achieve its objectives, the Company expects to spend its working capital, when applicable, and raise additional funds as required.
The Company does not have any externally imposed capital requirements.
Pg 31 of 35
Grown Rogue International Inc.
Notes to the CondensedInterim Consolidated Financial Statements
For the Three and NineMonths Ended July 31, 2023, and 2022
Unaudited - Expressed in United States Dollars, unless otherwise indicated
| 21. | Segment Reporting |
|---|
Geographical information relating to the Company’s activities is as follows:
| Segments | Oregon | Michigan | Services | Total |
|---|---|---|---|---|
| **** | ||||
| Non-current assets other than financial instruments: | ||||
| As at July 31, 2023 | ||||
| As at October 31, 2022 | ||||
| Nine months ended July 31, 2023: | ||||
| Net revenue | ||||
| Gross profit (loss) | ||||
| Gross profit (loss) before fair value adjustments | ||||
| Nine months ended July 31, 2022: | ||||
| Net revenue | ||||
| Gross profit (loss) | ||||
| Gross profit (loss) before fair value adjustments | ||||
| Three months ended July 31, 2023: | ||||
| Net revenue | ||||
| Gross profit (loss) | ||||
| Gross profit (loss) before fair value adjustments | ||||
| Three months ended July 31, 2022: | ||||
| Net revenue | ||||
| Gross profit (loss) | ||||
| Gross profit (loss) before fair value adjustments |
All values are in US Dollars.
Major customers are defined as customers that each individually account for greater than 10% of the Company’s annual revenues. During the three months ended July 31, 2023, no customer accounted for more than 10% of revenues (Q3 2022 – one major customer accounted for 17% of annual revenues). During the nine months ended July 31, 2023, one major customer accounted for 10% of revenues (2022 – two major customers accounted for 25% of revenues).
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Grown Rogue International Inc.
Notes to the CondensedInterim Consolidated Financial Statements
For the Three and NineMonths Ended July 31, 2023, and 2022
Unaudited - Expressed in United States Dollars, unless otherwise indicated
| 22. | Non-controllingInterests |
|---|
The changes to the non-controlling interest for the nine months ended July 31, 2023, and the year ended October 31, 2022 are as follows:
| July 31,<br>2023 | October 31,<br> 2022 | |||
|---|---|---|---|---|
| **** | **** | **** | ||
| Balance, beginning of period | ||||
| Non-controlling interest’s 40% share of Idalia | ||||
| Non-controlling interest’s 13% share of GR Michigan | ||||
| Non-controlling interest’s 100% share of Canopy | ) | ) | ||
| Acquisition of 87% of Canopy | ) | |||
| Balance, end of period |
All values are in US Dollars.
| 22.1 | Non-controlling interest in Idalia |
|---|
The following is summarized financial information for Idalia:
| July 31,<br>2023 | October 31,<br> 2022 | |
|---|---|---|
| **** | ||
| Net loss for the period |
All values are in US Dollars.
| 22.2 | Non-controlling interest in GR Michigan: | |
|---|---|---|
| July 31,<br>2023 | October 31,<br> 2022 | |
| --- | --- | --- |
| **** | ||
| Current assets | ||
| Net loss for the period |
All values are in US Dollars.
Nine percent (9%) of GR Michigan is owned by officers and directors of the Company; this ownership is pursuant to an agreement that included their loans made to GR Michigan (Note 17.4), and 4% of GR Michigan owned by a third party. The total non-controlling ownership, including ownership by officers and directors, is 13%.
| 22.3 | Non-controlling interest in Canopy | |||
|---|---|---|---|---|
| July 31,<br>2023 | October 31,<br>2022 | |||
| --- | --- | --- | --- | --- |
| **** | **** | **** | ||
| Current assets | ||||
| Non-current assets | ||||
| Current liabilities | ||||
| Non-current liabilities | ||||
| Net loss for the period attributed to non-controlling interest | ) | ) |
All values are in US Dollars.
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Grown Rogue International Inc.
Notes to the CondensedInterim Consolidated Financial Statements
For the Three and NineMonths Ended July 31, 2023, and 2022
Unaudited - Expressed in United States Dollars, unless otherwise indicated
In January of 2023, GR Unlimited exercised its option to acquire 87% of the membership units of Canopy from the CEO. Prior to this, ninety-six percent (96%) of Canopy was owned by officers and directors of the Company, and four percent (4%) was owned by a third party. Ownership by officers and directors, excluding the CEO, was pursuant to agreements which caused their ownership of Canopy to be equal to their ownership in GR Michigan (Note 22.2), which total 3.5%. The CEO owned 92.5% of Canopy, which was analogous to the CEO’s 5.5% ownership of GR Michigan, and an additional 87% of Canopy, which was and is equal to the Company’s 87% ownership of GR Michigan. Following GR Unlimited’s acquisition of 87% of the membership units of Canopy in January of 2023, Canopy became owned 87% by GR Unlimited; 7.5% by officers and directors; and 5.5% by the CEO.
| 23. | Legal Matters |
|---|
On September 22, 2022, the U.S. Securities and Exchange Commission issued an Order Instituting Proceedings pursuant to Section 12(j) of the Securities Exchange Act of 1934, against the Company alleging violations of the Securities Exchange Act of 1934, as amended, and the rules promulgated thereunder, by failing to timely file periodic reports. Section 12(j) authorizes the U.S. Securities and Exchange Commission as it deems necessary or appropriate for the protection of investors to suspend for a period not exceeding 12 months, or to revoke, the registration of a security if the U.S. Securities and Exchange Commission finds, on the record after notice and opportunity for hearing, that the issuer of such security has failed to comply with any provision of the Securities Exchange Act of 1934, as amended, or the rules promulgated thereunder. The Company has filed an answer to the Order Instituting Proceedings and is seeking a hearing in the matter. The Company is currently fully compliant with all of their filings, is vigorously defending itself in the matter, and is preparing to re-register its security if necessary.
| 24. | Subsequent events |
|---|---|
| 24.1 | Second and final tranche of the July Convertible Debentures |
| --- | --- |
On August 17, 2023, the Company announced that it had closed the second and final tranche of a non-brokered private placement of unsecured convertible debentures for gross proceeds of US$1,000,000, for a total aggregate principal amount under both tranches of $6,000,000 of the July Convertible Debentures. Additionally, on closing, the Company issued to Subscribers under the second tranche an aggregate of 2,816,250 common share purchase warrants. The terms of the convertible debentures and warrants issued as part of this second tranche are the same as those issued in the July Convertible Debentures and July Warrants (Note 11.2).
| 24.2 | Partial conversion of the December Convertible Debentures |
|---|
On September 1, 2023, the Company announced that a debenture holder converted an aggregate of $1,500,000 of the $2,000,000 convertible debentures that mature on December 5, 2025 (Note 11.1). The conversion resulted in the issuance of 10,151,250 common shares of the Company at a price of CAD$0.20 per share in accordance with the terms of the December Convertible Debentures. The early retirement of the debt will save the Company over $300,000 in interest payments over the length of the term.
Pg 34 of 35
Grown Rogue International Inc.
Notes to the CondensedInterim Consolidated Financial Statements
For the Three and NineMonths Ended July 31, 2023, and 2022
Unaudited - Expressed in United States Dollars, unless otherwise indicated
On September 6, 2023, a debenture holder converted an aggregate of $150,000 of the convertible debentures that mature on December 5, 2025 (Note 11.1). The conversion resulted in the issuance of 1,022,025 common shares of the Company at a price of CAD$0.20 per share in accordance with the terms of the December Convertible Debentures. The early retirement of the debt will save the Company over $30,000 in interest payments over the length of the term.
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Exhibit 27
GROWN ROGUE INTERNATIONAL INC.
FORM 51-102F1
MANAGEMENT DISCUSSION & ANALYSIS
FOR THE THREE AND NINE MONTHS ENDED JULY 31, 2023
TABLE OF CONTENTS
| Management’s Responsibilities for Financial Reporting | 3 |
|---|---|
| Forward-Looking Statements | 4 |
| Description of Business | 4 |
| Selected Annual Information | 11 |
| Results of Operations | 11 |
| Summary of Quarterly Results | 17 |
| Liquidity | 17 |
| Capital Resources | 21 |
| Off-Balance Sheet Arrangements | 22 |
| Transactions with Related Parties | 22 |
| Other Selected Financial Information | 24 |
| Outstanding Share Data | 26 |
| Critical Accounting Judgments and Estimation Uncertainties | 27 |
| Newly Adopted Accounting Pronouncements | 27 |
| Financial Instruments and Other Risk Factors | 28 |
| Subsequent events | 30 |
| Regulatory Disclosure | 31 |
| Internal Control over Financial Reporting and Disclosure Controls | 42 |
i
This Management Discussion and Analysis (“MD&A”) made as of September 27, 2023, should be read in conjunction with the unaudited condensed consolidated financial statements of Grown Rogue International Inc. (the “Company”, “Grown Rogue”, (“we”, “our”, or “us”) for the three and nine months ended July 31, 2023, and 2022 (the “Reporting Period”), and the related notes thereto (the “Financial Statements”). The Company’s Financial Statements are presented on a consolidated basis with its wholly-owned subsidiaries: Grown Rogue Unlimited, LLC (“GR Unlimited”) and GR Unlimited’s wholly-owned subsidiaries Grown Rogue Gardens, LLC (“GR Gardens”) GRU Properties, LLC (“GRU Properties”), GRIP, LLC (“GRIP”), and Grown Rogue Distribution, LLC (“GR Distribution”); as well as GR Unlimited’s 87% interest in GR Michigan, LLC (“GR Michigan”), GR Unlimited’s 87% interest in Canopy Management, LLC (“Canopy”), which owns 60% of Golden Harvests, LLC (“Golden Harvests”), and GR Unlimited’s 60% interest in Idalia, LLC (“Idalia”). During the nine months ended July 31, 2023, the Company announced that it had exercised its option to obtain 87% of the membership units of Canopy (through GR Unlimited). Grown Rogue’s reporting currency is the United States dollar and all amounts in this MD&A are expressed in United States dollars unless otherwise noted. The use of “CAD$” refers to Canadian dollars.
The three months ended July 31, 2023, and 2022 are referred to herein as “Q3 2023” and “Q3 2022” respectively.
The Company’s comparative information included in this MD&A has been prepared in accordance with International Financial Reporting Standards (“IFRS”).
Additional information relating to the Company is also available on the System for Electronic Document Analysis and Retrieval (SEDAR+) at www.sedarplus.ca. The common shares of GRIN are listed on the Canadian Securities Exchange under the symbol “GRIN”.
Management’s Responsibilities for Financial Reporting
The Financial Statements have been prepared by management in accordance with IFRS and have been approved by the Company’s board of directors (the “Board”). The integrity and objectivity of the Financial Statements are the responsibility of management. In addition, management is responsible for ensuring that the information contained in the MD&A is consistent where appropriate, with the information contained in the Financial Statements.
The Financial Statements may contain certain amounts based on estimates and judgments. Management has determined such amounts on a reasonable basis to ensure that the Financial Statements are presented fairly in all material respects.
As the Company is a Venture Issuer (as defined under under National Instrument 52-109 Certification of Disclosure in Issuers’ Annual and Interim Filings) (“NI 52-109”), the Company and Management are not required to include representations relating to the evaluation, design, establishment and/or maintenance of disclosure controls and procedures (“DC&P”) and/or Internal Controls over Financial Reporting (“ICFR”), as defined in NI 52-109, nor has it completed such an evaluation. Inherent limitations on the ability of the certifying officers to design and implement on a cost-effective basis DC&P and ICFR for the issuer may result in additional risks of quality, reliability, transparency and timeliness of interim and annual filings and other reports provided under securities legislation.
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Forward-Looking Statements
This MD&A contains information and projections based on current expectations. Certain statements herein may constitute “forward-looking” statements which involve known and unknown risks, uncertainties and other factors which may cause the actual results, performance or achievements of the Company, or industry results, to be materially different from any future results, performance or achievements expressed or implied by such forward-looking statements. When used in this MD&A, such statements use such words as “will”, “may”, “could”, “intends”, “potential”, “plans”, “believes”, “expects”, “projects”, “estimates”, “anticipates”, “continue”, “potential”, “predicts” or “should” and other similar terminology. These statements reflect expectations regarding future events and performance but speak only as of the date of this MD&A. Forward-looking statements include statements with respect to planned acquisitions, strategic partnerships or other transactions and expansions not yet concluded, including the timing thereof; plans to market, sell and distribute products; market competition; plans to retain and recruit personnel; the ability to secure funding; and the ability to obtain regulatory and other approvals are all forward-looking information.
These statements should not be read as guarantees of future performance or results. Such statements involve known and unknown risks, uncertainties and other factors that may cause actual results, performance, or achievements to be materially different from those implied by such statements.
There can be no assurance that any intended or proposed activity or transaction will occur or that, if any such action or transaction is undertaken, it will be completed on terms currently intended by the Company. The Company assumes no responsibility to update or revise forward-looking information to reflect new events or circumstances unless required by law.
Although the Company believes that the expectations and assumptions on which the forward-looking statements are based are reasonable, undue reliance should not be placed on the forward-looking statements because the Company can give no assurance that they will prove to be correct. Since forward-looking statements address future events and conditions, by their very nature they involve inherent risks and uncertainties. The forward-looking statements herein speak only as of the date hereof. Actual results could differ materially from those anticipated due to a number of factors and risks including those described in this MD&A under “Risk Factors” and in section 17 of the Company’s Listing Statement dated November 15, 2018, which can be found under the Company’s profile on www.sedarplus.ca.
Description of Business
Grown Rogue, headquartered in Medford, Oregon, is a craft cannabis company focused on delighting customers with premium flower and flower-derived products at fair prices. Our roots are in Southern Oregon where we have demonstrated our capabilities in the highly competitive and discerning Oregon market by becoming the number one flower producer in Oregon in 2022, which we have maintained year-to-date in 2023, and we have successfully expanded our platform to Michigan, where we quickly became a top 5 indoor wholesaler in that state in 2022, which we have maintained year-to-date in 2023. We combine our passion for product and value with a disciplined approach to growth, prioritizing profitability and return on capital. Our strategy is to pursue capital efficient methods to expand into new markets, bringing our craft quality and value to more consumers. We also continue to make modest investments to improve our outdoor craft cultivation capabilities in preparation for eventual interstate commerce.
Pg **4** of **42**
Grown Rogue’s mission is to bring low cost, high quality, craft cannabis from the amazing terroir and legacy of Oregon’s Rogue Valley to consumers nationwide. Grown Rogue’s strategy is built to win now and in the future, as we profitably deliver craft cannabis at appropriate scale while positioning our sungrown capacity to support eventual interstate commerce. Grown Rogue’s competitive advantage is efficiently cultivating and delivering craft cannabis at accessible prices, both indoor and sungrown. This advantage allows us to pursue high cash flow returning projects that augment growth and support our mission.
Oregon
Grown Rogue, through its wholly owned subsidiary, GR Gardens, operates four cultivation facilities in Oregon, comprising approximately 90,000 square feet of cultivation area, that currently service the Oregon recreational marijuana market: two outdoor, sungrown farms called “Foothill” and “Ross Lane,” and two state-of-the-art indoor facilities (“Rossanley” and “Airport”). GR Gardens currently holds five producer licenses in Oregon from the Oregon Liquor Control Commission (“OLCC”), two wholesaler licenses, and two processor licenses.
During the three months ended January 31, 2023, we executed a two-year lease which includes an option to purchase Ross Lane, an Oregon property which includes 35 acres, 3 tax lots and an additional OLCC producer license.
Grown Rogue’s Oregon business is headquartered in the world-renowned Emerald Triangle, which is known world-wide for the quality of its cannabis. The Emerald Triangle includes the southern part of Oregon and northern part of California. The company capitalizes on this ideal outdoor growing environment to produce high-quality, low-cost cannabis flower. The two sungrown farms produce one crop per year per farm, which is planted in June and harvested in October.
GR Gardens is responsible for production of recreational marijuana using outdoor and indoor production methodologies. Foothill and Ross Lane are outdoor farms with 40,000 square feet of flowering canopy each, for a total of 80,000 square feet, sitting on a combined land package of approximately 135 acres. Our “Trail’s End” outdoor property will not be cultivated in 2023, and we will transfer the Trail’s End license to Ross Lane for production in 2024 to streamline operational efficiencies by centralizing production facilities.
Rossanley, an approximately 17,000 square-foot indoor facility, with approximately 5,600 square feet of flowering bench space, produces high-quality indoor flower through controlled environment agriculture (“CEA”) operations. By carefully controlling temperature, humidity, carbon dioxide levels, and other criteria, we produce a year-round supply of high-quality cannabis flower with multiple harvests per month. Rossanley has eight dedicated flower rooms, which allows for an average of nearly four harvests per month resulting in approximately 4,000 pounds annually.
Airport is a 30,000 square-foot indoor growing facility, with 9,152 square feet of flowering bench space, purchased from High Street Capital Partners, LLC (“HSCP”). Under an agreement with HSCP, we acquired substantially all of the assets of Airport from HSCP for aggregate total consideration of $2,000,000. The transaction closed on April 14, 2022. Airport added 30,000 square feet of CEA indoor production space and we estimate production of approximately 7,300 pounds of high quality indoor whole flower, from this facility in calendar year 2023. Airport is a short distance from Rossanley, which is a benefit to operating efficiency, and it is equipped with state-of-the-art equipment which facilitates the implementation of best practices developed at Rossanley.
The total annual production capacity for Grown Rogue’s Oregon operations, based on the current constructed capacity, will range between 16,000 and 18,000 pounds, depending upon various factors including sungrown growing conditions and strain performance.
Pg **5** of **42**
Michigan
In May 2021, we acquired, through Canopy, a controlling 60% interest in our Michigan operation called Golden Harvests. The Golden Harvests facility is approximately 70% constructed, with approximately 55,000 square feet in operation, including approximately 16,350 square feet of flowering bench space, in addition to all the ancillary support space, including office and administration to support the operations. The facility produces high quality indoor flower through CEA, with fourteen individual flowering rooms in operation. Harvested pounds in Michigan in 2022 totaled approximately 8,500 pounds; approximately 10,000 pounds are expected in 2023. Golden Harvests produces bulk flower, packaged flower, and manufactures pre-rolls on site.
Services
On May 24, 2023, we entered into an independent contractor consulting agreement (the “Consulting Agreement”) with Goodness Growth Holdings, Inc. (CSE: GDNS; OTCQX: GDNSF) (“Goodness Growth”). Under the Consulting Agreement, we will support Goodness Growth in the optimization of its cannabis flower products, with a particular focus on improving the quality and yield of top-grade “A” cannabis flower across its various operating markets, starting with Maryland and Minnesota.
Under the initial term of the Consulting Agreement, which expires on June 30, 2025, Goodness Growth will provide compensation to us for sustained consulting support, including input on systems and processes, and recommendations to improve Goodness Growth’s cultivation operations. We will be entitled to receive additional incentive compensation if our services result in improved cash flow performance as compared to Goodness Growth’s baseline expectations over the term of the agreement. Our cooperation in the agreement will be on an exclusive basis to Goodness Growth within the markets in which Goodness Growth operates. The agreement will automatically extend for up to two additional two-year terms, unless terminated by Goodness Growth or the Company.
A termination fee of at least $5,000,000 is payable to us in the event that Goodness Growth is acquired, sells all or substantially all of its assets, or is merged into another entity and is not the surviving entity of such merger. In addition, a termination fee of at least $2,500,000 is payable to us in the event that the Consulting Agreement terminates for certain other conditions.
As part of this strategic agreement, Goodness Growth is obligated to issue 10,000,000 warrants to purchase 10,000,000 subordinate voting shares of Goodness Growth to the Company, with a strike price equal to CAD$0.317 (US$0.233), being a 25.0 percent premium to the 10-day volume weighted average price (“VWAP”) of Goodness Growth’s subordinate voting shares prior to the effective date of the Consulting Agreement. Similarly, the Company will issue 8,500,000 warrants to purchase 8,500,000 common shares of the Company to Goodness Growth, with a strike price equal to CAD$0.225 (US$0.166), being a 25.0 percent premium to the 10-day VWAP of the Company’s common shares prior to the effective date of the Consulting Agreement. These warrants have not been granted as of July 31, 2023, but were considered to be accrued as warrants receivable of $1,232,253 and warrants payable of $1,232,253 as of the effective date of the Consulting Agreement.
The Consulting Agreement provides for service revenue earned by us to be calculated beginning January 2023, and the service revenue we reported for the three months ended July 31, 2023, reflect earnings from May 1, 2023 through July 31, 2023. We reported service revenue of $219, 065 and of service revenue of $99,212 for Q3 2023 earned under the Consulting Agreement.
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Product
Grown Rogue produces a range of cultivars for consumers to enjoy, which are traditionally classified as indicas, sativas, and hybrids. Grown Rogue has a mix of “core” and “limited” strains to provide consumers with consistent and unique purchasing options at their local dispensary. Grown Rogue flower has won multiple awards in Oregon, which is one of the most competitive cannabis production environments in the world, including the prestigious Growers Cup competition on two occasions. Grown Rogue won 1^st^ place for highest THC content, 1^st^ place for highest terpene content, and 3^rd^ place in the grower’s choice category. In addition, we believe we achieved an outdoor production potency record in the state of Oregon, when its Monkey Train cultivar tested at a THC potency of 35.13%. Consumers can enjoy bulk flower in both Oregon and Michigan. In the Michigan market we also offer our innovative nitrogen sealed 3.5 gram flower jars, our patented nitrogen sealed pre-rolls, 3.5 gram flower bags, and regularly packaged pre-rolls. We recently launched a new line of strain-specific prepackaged flower in Michigan, and will launch a new branded pre-roll pack product in Oregon in 2023. According to LeafLink’s MarketScape data, Grown Rogue was the #1 flower producer in Oregon and a top 5 indoor flower wholesaler in Michigan in 2022 and in the first three quarters of 2023.
Genetics
We are committed to developing unique, proprietary genetics as long-term genetic diversity will be a major factor in establishing brand differentiation with consumers. We have allocated research and development space to develop new strains, while also phenotype hunting to identify new and exciting strain options that will delight consumers. Grown Rogue has developed a compelling mix of proprietary strains, along with a library of “fan favorites” to ensure that consumer and dispensary demand will remain strong for our flower and flower-derived products. All Grown Rogue genetics are rigorously tested to establish the genetic makeup of each strain in our portfolio. We continue to focus on bringing new unique genetics to ensure a steady flow of innovative flower and flower products to market. Currently we carry more than 50 unique cultivars in our genetic library, and we continue to develop our portfolio as we trial new genetics.
Distribution and Sales
Grown Rogue uses a multi-channel distribution strategy that includes direct-to-retail delivery and third-party delivery (Michigan regulations mandate independent third-party delivery); wholesalers, who have their own distribution channels; and processors, who utilize Grown Rogue products (e.g., trim) to create retail-ready products.
Regarding the direct-to-retail channel, Grown Rogue’s sales team works closely with dispensary owners and intake managers to provide consistent product, competitive prices, and personalized service using sales techniques from other industries such as pharmaceutical and liquor. Grown Rogue’s goal is to establish and maintain the client relationship as we continue to expand our footprint in the states in which we operate.
Grown Rogue has developed end user product marketing collateral and other educational information regarding Grown Rogue products as part of all sales with dispensaries that include strain type, testing results, information on the product and other necessary information to clearly articulate the product being provided. Each product is uniquely packaged while maintaining brand consistency across the product suite.
Grown Rogue works with dispensary owners to develop promotional opportunities for retail customers and bud tenders. Grown Rogue provides detailed tutorials to the staff and owners of the dispensaries around the product and how it is grown, processed, cured and packaged so that they are intimately familiar with the Grown Rogue process. Grown Rogue also invites dispensary owners and operators to Grown Rogue’s operating facilities so they can see first-hand the methods and processes used to create the product.
Based upon information from MarketScape, which is part of the sales analytics tool utilized by LeafLink, which handles all of our sales and invoicing, we are the largest producer in Oregon and a top five indoor flower producer in Michigan.
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Branding
Developing compelling branding that engages, inspires, and creates transparency and trust with consumers is one of the most important aspects of building a successful cannabis company. Cannabis product branding has been evolving from promising high-quality flower, to providing descriptions of the effect a consumer should expect from a particular product.
Grown Rogue was one of the first brands in the United States to go to market with this type of branding as part of the ROGUE Categorization: Relax, Optimize, Groove, Uplift and Energize. The focus was to provide consumers with “The Right Experience, Every time” made easier by a simple product description that was not cannabis based, such as “sativa” or “indica”.
While other brands have shifted into the “one word” product description, Grown Rogue has leveraged consumer insights and product feedback to evolve the messaging to provide significantly more detail so consumers can make a more informed choice about which Grown Rogue products will optimally enhance their experience.
Grown Rogue’s unique “Mind, Body & Mood” product descriptions provide a level of detail about the expected cannabis experience that is much more insightful and beneficial than competitors. Instead of one word, such as “Relax,” describing a product, Grown Rogue has six words across three categories, which is easy to understand, but much more informative.
In order to grow the Grown Rogue community and spread knowledge of its products, Grown Rogue leverages social media and other digital platforms. Grown Rogue aspires to eliminate the “dark mystery” historically associated with cannabis by empowering consumers to learn about the plant and then “enhance experiences” as they desire. The transition from prohibition to legal cannabis has provided the cannabis community with an opportunity to welcome a large group of new members and it is vital that product education is completed in an authentic and informative manner to ensure that everyone’s first cannabis experience is not only positive but also as expected.
Marketing and Advertising
Grown Rogue’s marketing channels include a comprehensive, fully responsive, interactive website (including mobile). The website has been search-engine optimized and includes calls to action that encourage consumers to become part of the Grown Rogue community by joining its newsletter list or following the company on social media.
Grown Rogue is focused on providing education to new and existing consumers, which is available through its monthly newsletter or via the Blog section of its website. Consumers can find information about Grown Rogue, different types of cannabis products and general industry information.
We strategically leverage digital advertising, primarily on industry sites such as Leafly and Weedmaps, and have selectively advertised in endemic and non-endemic magazines including Grow, Northwest Leaf, Oregon Leaf, Dope, Portland Mercury, and Willamette Weekly.
Grown Rogue has established a social media presence that includes Facebook, Twitter, and Instagram. Grown Rogue’s social identity is defined by delivering fresh content and keeping interaction with followers/fans prompt and positive. Grown Rogue attracts existing cannabis industry participants as well as people not familiar with the industry by creating a positive, inclusive environment where dialogue is encouraged. The goal is to change existing stereotypes and overcome the stigmas associated with the cannabis industry.
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Trademarks and Patents
Grown Rogue actively seeks to protect its brand and intellectual property. Grown Rogue currently has three registered U.S. trademarks:
| 1. | Grown Rogue was filed on September 22, 2017, and registered on August 7, 2018 under Registration No. 5537240. |
|---|---|
| 2. | The Right Experience Every Time was filed on September 29, 2017 and registered on August 7, 2018 under Registration No. 5537260. |
| --- | --- |
| 3. | Sizzleberry was filed on September 29, 2017, and registered on August 7, 2018, under Registration No. 5537259. |
| --- | --- |
Grown Rogue filed a patent for its nitrogen sealed glass containers on February 15, 2018, with the United States Patent and Trademark Office (“USPTO”). The nitrogen sealed glass containers preserve the freshness of the flower and essential terpenes to improve the “entourage effect.” The USPTO issued Grown Rogue United States Patent Number 10,358,282 on July 23, 2019. Several third parties have contacted us to request licensing information on this technology. We have introduced nitrogen sealed jars and pre-rolls in Michigan and plan on launching them as we enter additional new markets and may license the technology to third parties operating in markets in which Grown Rogue is not currently licensed.
Social and Environmental Policies
Grown Rogue employs sustainable business models in our operations. We maintain the highest standards of environmental stewardship in cultivation. This includes sustainable water sources with optimization of reclamation and recapture from runoff and recycling of water input. We use only natural and sustainable products in all applications, including nutrients and integrated pest management. We maintain the highest level of sustainable cannabis practices through our focus on sustainable and natural cultivation methods. Grown Rogue hires and pays a living wage to its team members and is very involved in each of the communities where we operate.
Plans for Expansion & Economic Outlook
Grown Rogue continues to focus on taking its learnings and experience from Oregon and Michigan into new markets across the United States. During the last two years, Grown Rogue has established a platform that excels at licensing, compliance, high-quality and low-cost production, understanding consumer purchasing preferences, and product innovation. This platform places Grown Rogue in a superior position to capitalize on new markets compared to our competitors. Oregon is arguably the most competitive cannabis market in the world, and we have excelled by implementing standard business practices that make the Company well suited for entering and building successful brand presence in newly-legalized cannabis markets.
The expansion into Airport (see “Description of the Business – Oregon”) and acquisition of a 60% interest in Golden Harvests (see “Description of the Business – Michigan”) represent execution of management’s strategy of growth through high quality, low-cost flower production. In addition, we have added a profitable services segment (see “Description of the Business – Services),” which leverages our cultivation expertise to generate margin and increase our presence to two new states at low financial risk. As other growth opportunities arise under favorable financial terms, management can activate known and repeatable systems into new assets.
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We believe that the future of the cannabis industry is in branded products and that the leading brands are being developed on the west coast, which is well known for high quality cannabis. Unlike many current multi-state operators who prefer to obtain just a few licenses in a large volume of states, Grown Rogue is focused on establishing a larger number of licenses in fewer states to capitalize on the economies of scale we view as optimal to maximize profits. Over the next twelve months, we are focused on furthering our footprints and flower market shares in Oregon and Michigan markets, strengthening our brand presence in Minnesota and Maryland (by way of the Consulting Agreement), continuing to add new products to our portfolio, and exploring and executing on strategic opportunities in new states.
With the recent shift in political landscape, we have also begun analyzing the potential for federal de-regulation and the subsequent ability to export cannabis products across state lines. We believe Oregon will be a large export state. Being located in the Emerald Triangle provides a unique product differentiator due to the ability to produce high quality and low cost sungrown flower due to the environmental conditions that occur naturally in Southern Oregon. Our strategy to take advantage of what is projected to be a multi-billion dollar export business is developing, and we are excited to begin implementation of this business plan over the coming years.
Legal Matters
On September 22, 2022, the United States Securities and Exchange Commission (the “Commission”) issued an Order Instituting Proceedings (“OIP”) pursuant to Section 12(j) of the Securities Exchange Act of 1934, against the Company alleging violations of the Securities Exchange Act of 1934, as amended, and the rules promulgated thereunder, by failing to timely file periodic reports. Section 12(j) authorizes the Commission as it deems necessary or appropriate for the protection of investors to suspend for a period not exceeding 12 months, or to revoke, the registration of a security if the Commission finds, on the record after notice and opportunity for hearing, that the issuer of such security has failed to comply with any provision of the Securities Exchange Act of 1934, as amended, or the rules promulgated thereunder. The Company has filed an answer to the OIP and is seeking a hearing in the matter. The Company is currently fully compliant with all of their filings, is vigorously defending itself in the matter, and is preparing to re-register its security if necessary.
Going Concern
The Company’s ability to continue as a going concern is dependent upon, but not limited to, its ability to raise financing necessary to fund its development programs and general and administrative expenses, discharge its liabilities as they become due and generate positive cash flows from operations. There is no certainty that the Company will be successful in raising additional capital or generating positive cash flow from operations.
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Selected Annual Information
The following selected financial data for each of the three completed financial years are derived from the audited annual financial statements of the Company.
| Years ended October 31, | 2022 () | 2021 () | 2020 () | ||
|---|---|---|---|---|---|
| Total revenue | |||||
| Profit (loss) from operations | ) | ||||
| Net income (loss) | ) | ) | |||
| Net loss per share, basic and diluted | ) | ) | |||
| Comprehensive income (loss) | ) | ) | |||
| Comprehensive loss per share, basic & diluted | ) | ) | |||
| Total assets | |||||
| Total non-current liabilities | |||||
| Cash dividends |
All values are in US Dollars.
Results of Operations
Selected Financial Results
Three Months Ended July 31, 2023
Selected financial results of operations for the three months ended July 31, 2023, and 2022, are summarized below:
| Three months ended July 31, | 2023 () | 2022 () | Variance () | Variance % | |||||
|---|---|---|---|---|---|---|---|---|---|
| Revenue | 48 | % | |||||||
| Cost of goods and services, excluding fair value adjustments | ) | ) | ) | 41 | % | ||||
| Gross profit before fair value adjustments | 55 | % | |||||||
| Net income | ) | (40 | %) |
All values are in US Dollars.
Significant items contributing to the generation of net income for the three months ended July 31, 2023, and 2022 are summarized in the table below.
| Three months ended July 31, | 2023 () | 2022 () | Variance | Variance % | |||||
|---|---|---|---|---|---|---|---|---|---|
| Total revenues | 48 | % | |||||||
| Cost of revenues, excluding fair value items | 41 | % | |||||||
| Realized fair value amounts in inventory sold | ) | (26 | %) | ||||||
| Unrealized fair value gain on growth of biological assets | ) | ) | (17 | %) | |||||
| Accretion expense | 240 | % | |||||||
| General and administrative expenses | 36 | % | |||||||
| Share-based compensation | 701 | % | |||||||
| Interest expense | ) | (7 | %) | ||||||
| Amortization of property and equipment | ) | (18 | %) | ||||||
| Unrealized loss on derivative liability | n/a | ||||||||
| Unrealized loss (gain) on marketable securities | ) | n/a |
All values are in US Dollars.
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Nine Months Ended July 31, 2023
Selected financial results of operations for the nine months ended July 31, 2023, and 2022, are summarized below:
| Nine months ended July 31, | 2023 () | 2022 () | Variance () | Variance % | |||||
|---|---|---|---|---|---|---|---|---|---|
| Revenue | 33 | % | |||||||
| Cost of goods and services sold, excluding fair value adjustments | ) | ) | ) | 37 | % | ||||
| Gross profit before fair value adjustments | 28 | % | |||||||
| Net income | 55 | % | |||||||
| Cash flow from operations before NCWC | 99 | % |
All values are in US Dollars.
Significant items contributing to the generation of net income for the nine months ended July 31, 2023, and 2022 are summarized in the table below:
| Nine months ended July 31, | 2023 () | 2022 () | Variance | Variance % | |||||
|---|---|---|---|---|---|---|---|---|---|
| Total revenues | 33 | % | |||||||
| Cost of revenues, excluding fair value items | 37 | % | |||||||
| Realized fair value amounts in inventory sold | ) | (34 | %) | ||||||
| Unrealized fair value gain on growth of biological assets | ) | ) | (39 | %) | |||||
| Accretion expense | 67 | % | |||||||
| General and administrative expenses | 7 | % | |||||||
| Share-based compensation | 303 | % | |||||||
| Interest expense | ) | (12 | %) | ||||||
| Amortization of property and equipment | ) | (28 | %) | ||||||
| Unrealized loss on derivative liability | n/a | ||||||||
| Unrealized loss on marketable securities | ) | n/a |
All values are in US Dollars.
More detailed analysis of the components of results of operations are described in the following sections.
Revenues
Revenues – Three Months Ended July 31, 2023, and 2022
| Three months ended July 31, | 2023 () | 2022 () | Variance () | Variance (%) | |||
|---|---|---|---|---|---|---|---|
| Revenue from third-party products | ) | n/a | |||||
| Revenue from Grown Rogue production | 43 | % | |||||
| Revenue from services | n/a | ||||||
| Total revenue | 48 | % |
All values are in US Dollars.
Service revenues during the three months ended July 31, 2023, were derived from the Consulting Agreement (see Description of Business – Services); no service revenues were earned during the comparable period in 2022.
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The following table summarizes revenues from Grown Rogue production for the three months ended July 31, 2023, and 2022:
| Three months ended July 31, | 2023 () | 2022 () | Variance () | Variance (%) | ||
|---|---|---|---|---|---|---|
| Indoor | 24 | % | ||||
| Outdoor | 222 | % | ||||
| Pre-rolls | 100 | % | ||||
| Trim & other | 561 | % | ||||
| Revenue from Grown Rogue production | 43 | % |
All values are in US Dollars.
Revenues during Q3 2023 were higher than the comparative period in Q3 2022, due primarily to an increase in total pounds sold. As detailed further below, we sold more pounds in Q3 2023 than Q3 2022, at lower average selling prices (“ASP”).
The following tables summarize pounds sold and average selling prices.
| Three months ended July 31, | 2023<br> Pounds sold | 2022<br> pounds sold | Pounds<br> variance | 2023 ASP () | 2022 ASP () | ASP<br> variance | |||||
|---|---|---|---|---|---|---|---|---|---|---|---|
| Indoor flower | 5,079 | 4,776 | 303 | 131 | |||||||
| Outdoor flower | 2,005 | 827 | 1,178 | 90 | |||||||
| Pre-rolls | 146 | 65 | 81 | (496 | ) | ||||||
| Total | 7,230 | 5,668 | 1,562 | 47 |
All values are in US Dollars.
Revenues – Nine Months Ended July 31, 2023
| Nine months ended July 31, | 2023 () | 2022 () | Variance () | Variance (%) | |||
|---|---|---|---|---|---|---|---|
| Revenue from third-party products | ) | n/a | |||||
| Revenue from Grown Rogue production | 29 | % | |||||
| Revenue from services | n/a | ||||||
| Total revenue | 33 | % |
All values are in US Dollars.
Service revenues during the nine months ended July 31, 2023, were derived from the Consulting Agreement (see Description of Business – Services); no service revenues were earned during the comparable period in 2022. The following table summarizes revenues from Grown Rogue production for the nine months ended July 31, 2023, and 2022:
| Nine months ended July 31, | 2023 () | 2022 () | Variance () | Variance (%) | |||
|---|---|---|---|---|---|---|---|
| Indoor | 19 | % | |||||
| Outdoor | 312 | % | |||||
| Pre-rolls | 100 | % | |||||
| Trim & other | ) | (19 | %) | ||||
| Revenue from Grown Rogue production | 29 | % |
All values are in US Dollars.
Revenues during the nine months ended July 31, 2023, were higher than the comparative period in 2022, due primarily to an increase in total pounds sold.
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As detailed further below, we sold more pounds in the nine months ended July 31, 2023, than the comparative period in 2022, at lower ASP. Further, sales pricing for trim decreased by approximately 19% during the nine months ended July 31, 2023, as compared to the nine months ended July 31, 2022.
The following tables summarize pounds sold and average selling prices:
| Nine months ended July 31, | 2023 <br> Pounds sold | 2022<br> pounds sold | Pounds<br> variance | 2023 ASP () | 2022 ASP () | ASP<br> variance | |||||
|---|---|---|---|---|---|---|---|---|---|---|---|
| Indoor flower | 15,517 | 12,408 | 3,110 | (45 | ) | ||||||
| Outdoor flower | 5,512 | 1,496 | 4,016 | 38 | |||||||
| Pre-rolls | 369 | 119 | 250 | (577 | ) | ||||||
| Total | 21,398 | 14,023 | 7,375 | (112 | ) |
All values are in US Dollars.
Costs of goods and services sold
Three Months Ended July 31, 2023
| Three months ended July 31, | 2023 () | 2022 () | Change () | Change (%) | ||
|---|---|---|---|---|---|---|
| Costs of goods sold | 37 | % | ||||
| Costs of service revenues | n/a | |||||
| Costs of goods sold, excl. fair value items | 41 | % |
All values are in US Dollars.
Cost of finished cannabis inventory sold during Q3 2023, increased by 41% over Q3 2022, while revenues for the same periods for Grown Rogue production increased 43%, which reflects the impact to costs of goods sold of operational and scale efficiencies and increased sales volume (pounds sold increased 28%), and the impact to sales revenues of increased sales volume and a 6% increase in ASP.
Nine Months Ended July 31, 2023
| Nine months ended July 31, | 2023 () | 2022 () | Change () | Change (%) | ||
|---|---|---|---|---|---|---|
| Costs of goods sold | 34 | % | ||||
| Costs of service revenues | n/a | |||||
| Costs of goods sold, excl. fair value items | 37 | % |
All values are in US Dollars.
Cost of finished cannabis inventory sold during the nine months ended July 31, 2023, increased by 34% over the comparative nine months ended July 31, 2023, while revenues for the same periods increased 29%. Similar to the three months ended July 31, 2023, this reflects the impact to cost of goods sold of operational and scale efficiencies and increased sales volume (pounds sold increased 53%), and the impact to sales revenues of increased sales volume and a 13% decrease in ASP.
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Net income and loss
Share-based Compensation
During the nine months ended July 31, 2023, we granted, or committed to grant, common shares and stock options as compensation to employees and service providers. The common shares issuances and stock options (measured at fair value using the Black-Scholes pricing model) resulted in total expense recognition of $248,857 during the nine months ended July 31, 2023 (2022 - $61,680).
General and Administrative Expenses
| Three months ended July 31, | Nine months ended July 31, | |||
|---|---|---|---|---|
| 2023 () | 2022 () | 2023 () | 2022 () | |
| Office, banking, travel, and overheads | ||||
| Professional services | ||||
| Salaries and benefits | ||||
| Total |
All values are in US Dollars.
General and administrative costs increased in Q3 2023 as compared to Q3 2022 in support of the Company’s growth and increased sales volumes.
Interest and Interest Accretion Expense
| Three months ended July 31, | 2023 () | 2022 () | Change () | Change (%) | ||
|---|---|---|---|---|---|---|
| Interest and accretion expense | 95 | % |
All values are in US Dollars.
| Nine months ended July 31, | 2023 () | 2022 () | Change () | Change (%) | ||
|---|---|---|---|---|---|---|
| Interest and accretion expense | 30 | % |
All values are in US Dollars.
Interest and accretion expenses reflect the increase in accretion due to the new convertible debentures (“July Convertible Debentures”) issued during the nine months ended July 31, 2023.
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Segment reporting
We operate in the states of Oregon and Michigan in the United States, and we recently began providing consulting services. The following tables summarize performance by segment for the three and nine months ended July 31, 2023.
| Segments | Oregon | Michigan | Services | Total |
|---|---|---|---|---|
| **** | ||||
| Non-current assets other than financial instruments: | ||||
| As at July 31, 2023 | ||||
| As at October 31, 2022 | ||||
| Nine months ended July 31, 2023: | ||||
| Net revenue | ||||
| Gross profit (loss) | ||||
| Gross profit (loss) before fair value adjustments | ||||
| Nine months ended July 31, 2022: | ||||
| Net revenue | ||||
| Gross profit (loss) | ||||
| Gross profit (loss) before fair value adjustments | ||||
| Three months ended July 31, 2023: | ||||
| Net revenue | ||||
| Gross profit (loss) | ||||
| Gross profit (loss) before fair value adjustments | ||||
| Three months ended July 31, 2022: | ||||
| Net revenue | ||||
| Gross profit (loss) | ||||
| Gross profit (loss) before fair value adjustments |
All values are in US Dollars.
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Summary of Quarterly Results
The following table sets out selected quarterly results of the Company for the eight quarters ended on or before July 31, 2023. The information contained herein is drawn from the interim financial statements of the Company for each of the aforementioned eight quarters. The trend in revenues reflects the consolidation of Golden Harvests, following our acquisition of a 60% controlling interest, and its $3.9 million in revenues for the six months ended October 31, 2021, and its $8.9 million in revenues for the year ended October 31, 2022. Revenues in any period are subject to market sales pricing, which historically has fluctuated significantly. Management has observed that pricing and sales volumes tend to be lower seasonally during winter months, in the Company’s first fiscal quarter, although we do not have high confidence that this will persist. Net losses shifted to net income in Q3 2021 (with an exception of net loss in Q4 2022), the quarter in which we acquired a 60% interest in Golden Harvests. Net income and loss include the impact of significant non-cash expenses, such as losses on the fair valuation of derivative liabilities, marketable securities, share-based payments, and interest accretion. Expenses contributing to net loss do not have significant seasonal trends, except for costs of sales, which follow trends in revenues.
| Fiscal Year Quarter ended | 2023<br> Apr 30 | 2023<br> Jan 31 | 2022<br> Oct 31 | |||||
|---|---|---|---|---|---|---|---|---|
| Revenue () | 6,295,717 | 6,004,637 | 4,530,540 | 5,072,635 | ||||
| Net income (loss) () | 345,488 | 411,979 | 592,537 | (451,630 | ) | |||
| Net income/share, basic & diluted | 0.00 | 0.00 | 0.01 | (0.00 | ) |
All values are in US Dollars.
| Fiscal Year Quarter ended | 2022<br> Apr 30 | 2022<br> Apr 30 | 2022<br> Jan 31 | ||||
|---|---|---|---|---|---|---|---|
| Revenue () | 4,251,808 | 4,700,127 | 4,700,127 | 3,732,713 | |||
| Net income (loss) () | 571,406 | 144,734 | 144,734 | 155,441 | |||
| Net income (loss)/share, basic & diluted | 0.00 | 0.01 | 0.01 | 0.00 |
All values are in US Dollars.
Liquidity
Our ability to generate cash in the short term is based upon sales from production and financing proceeds, and in the long term is based upon sales from production, including production from investments in production increases, or from growth by business acquisitions, or a combination thereof. Investments to increase production or acquire business may require further financing. The Company generates operating cash flows from sales of cannabis products which generate margin that contribute to coverage of other operating costs. We have generated net income for the seven of the eight most recent quarters preceding and ending July 31, 2023, and expect to continue generating net income consistently. We have raised financing historically through debt and equity, which has been and will be invested in the business in order to improve production yields and increase total productive capacity, as well as cover operating costs, and to strategically expand the business. We raised gross proceeds of $7,000,000 during the nine months ended July 31, 2023, (2022 - $1,400,000).
We are typically able to sell finished goods shortly after inventory reaches its final state, and sales are primarily made on cash-on-delivery terms, or with short net terms. Our ability to fund operations, to plan capital expenditures, and to plan acquisitions, depends on future operating performance and cash flows and the availability of capital by way of debt or equity investment in the Company, which are subject to prevailing economic conditions and financial, business, and other factors, some of which are beyond the Company’s control.
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Cash flows
The following table summarizes certain cash flow items for the nine months ended July 31, 2023, and 2022.
| Nine months ended July 31, | 2023 () | 2022 () | ||
|---|---|---|---|---|
| Net income | ||||
| Net cash provided by operating activities | ||||
| Net cash used in investing activities | ) | ) | ||
| Net cash provided / (used) by financing activities | ) | |||
| Net increase in cash and cash equivalents | ||||
| Effect of currency translation | ||||
| Cash and cash equivalents, beginning | ||||
| Cash and cash equivalents, ending |
All values are in US Dollars.
Operating Activities
During the nine months ended July 31, 2023, cash provided by operating activities was $3,685,949 (2022 - $1,323,198). This number was derived by adding back non-cash items to net income, including the following significant adjustments:
| ● | $379,822 (2022 - $530,190) in amortization of property & equipment; |
|---|---|
| ● | $1,268,928 (2022 - $589,884) from depreciation expensed in costs of finished inventory sold; |
| --- | --- |
| ● | Deduction of $1,634,625 (2022 – $2,667,102) from the unrealized change in fair value of biological assets; |
| --- | --- |
| ● | $1,829,170 (2022 - $2,779,674) for changes in fair value in inventory sold; |
| --- | --- |
| ● | $247,337 (2022 - $108,597) in share-based compensation and stock option vesting expense, including expense for option grants under our stock option plan implemented during 2020, as well as shares issued directly as compensation for employees, directors, and service providers; |
| --- | --- |
| ● | $597,909 (2022 - $328,215) in accretion of interest expense on debt and convertible debentures outstanding; |
| --- | --- |
| ● | $Nil (2022 – $333,777) from the unrealized loss on our investment in Plant Based Investment Corp. (“PBIC”) shares, measured at PBIC’s publicly quoted share price; |
| --- | --- |
| ● | $679,322 (2022 - $Nil) from the loss on fair value of derivative liability. |
| --- | --- |
Changes in non-cash working capital are summarized in the following table.
| Nine months ended July 31, | 2023 () | 2022 () | ||
|---|---|---|---|---|
| Accounts receivable | ) | ) | ||
| Inventory & biological assets | ) | ) | ||
| Prepaid expenses and other assets | ) | ) | ||
| Accounts payable and accrued liabilities | ) | ) | ||
| Interest payable | ) | |||
| Income tax payable | ||||
| Unearned revenue | ) | |||
| Total | ) | ) |
All values are in US Dollars.
Changes in accounts receivable are due to the timing and collection of sales. Changes in inventory & biological assets reflect increases due to increased productive capacity, as well as the timing of harvests, the timing of the completion growth cycles, and the timing of sales of finished inventory. Changes in liabilities, including accounts payable and accrued liabilities reflect the use of credit terms and cash flow management based upon ongoing liquidity management. Investing Activities
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General and Administrative Expenses
During the nine months ended July 31, 2023, we added $3,383,710 (2022 - $3,694,699) to property and equipment, including non-cash right-of-use asset additions. We expended cash flows of $735,718 (2022 - $822,982) for property and equipment additions. During the nine months ended July 31, 2023, we expended $211,041 towards the acquisition of ABCO.
Financing Activities
Net cash flows from financing activities during the nine months ended July 31, 2023, were $4,161,194 (2022 – deduction of $81,538). Significant financing activities included the following:
| ● | Proceeds of $7,000,000 from issuance of convertible debentures; |
|---|---|
| ● | Repayments of $105,000 of convertible debentures; |
| --- | --- |
| ● | Repayments of $1,443,221 of lease principal; and |
| --- | --- |
| ● | Repayments of $1,290,585 of long-term debt. |
| --- | --- |
Financing activities during the comparable nine months ended July 31, 2022, included the following:
| ● | Debt proceeds of $100,000 borrowed for general corporate uses; |
|---|---|
| ● | $1,300,000 raised through a private placement of common shares; |
| --- | --- |
| ● | Repayments of $880,378 of lease principal; and |
| --- | --- |
| ● | Repayments of $601,160 of long-term debt. |
| --- | --- |
Trends and expected fluctuations in liquidity
| July 31, 2023 () | October 31, 2022 () | Variance () | Variance (%) | ||||||
|---|---|---|---|---|---|---|---|---|---|
| Current assets | 117 | % | |||||||
| Current liabilities | ) | ) | ) | 104 | % | ||||
| Working capital | 143 | % |
All values are in US Dollars.
Working capital varied from October 31, 2022, to July 31, 2023, due primarily to an increase in cash provided by financing activities, which was $4,161,194 in the nine months ended July 31, 2023 versus cash used by financing activities of $81,538 in the nine months ended July 31, 2022.
We expect significant ongoing fluctuations in working capital over time, as we are in the early stages of growth. We have historically raised debt with principal due on maturity, and accordingly, we expect significant one-time payments as debt matures, as opposed to smooth cash outflows over time. We have historically been able to meet commitments, modify debt maturities, and raise new financing as required to respond to changes in our liquidity position, although there is no guarantee we will be able to do so in the future. We are exposed to market pricing for cannabis products, which materially impacts our liquidity and is out of our control. The market for cannabis products, including flower, which is our primary product, is relatively immature, having recently become legal to buy and sell in certain markets. We have observed some indications of seasonality, and in addition, we have observed that market conditions can change rapidly without apparent explanations or analyzable causes. We cannot control whether we will be able to raise financing when required or sell cannabis products at profitable prices in the future; however, part of our strategy is to produce flower at sustainable gross margins over a growing productive base, which, holding other factors constant, is expected to result in improved net loss or net income, as well as net cash flows.
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Commitments and Obligations
Set out below are undiscounted minimum future lease payments after July 31, 2023.
| Total future minimum lease payments () | |
|---|---|
| Less than one year | |
| Between one and five years | |
| Total |
All values are in US Dollars.
The Company has three lease contracts with extension options remaining after July 31, 2023, which were negotiated by management to provide flexibility in managing business needs. Set out below are the undiscounted potential rental payments related to periods following the date of exercise options that are not included in the lease term:
| Within <br> five years | More than<br> five years | |||
|---|---|---|---|---|
| Extension options available to be exercised | $ | 850,639 | $ | 4,352,123 |
The contractual maturities of the Company’s accounts payable and accrued liabilities, debt, leases, and unearned revenue occur over the next five years are as follows:
| Year 1 | Over 1 Year - 3 Years | Over 3 Years - 5 Years | |
|---|---|---|---|
| **** | |||
| Accounts payable and accrued liabilities | |||
| Lease liabilities | |||
| Convertible debentures | |||
| Debt | |||
| Business acquisition consideration payable | |||
| Unearned revenue | |||
| Derivative liability | |||
| Warrants payable | |||
| Income tax | |||
| Total |
All values are in US Dollars.
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Capital Resources
Debt financing
On December 5, 2022, the Company announced the closing of a non-brokered private placement of convertible debentures ("December Convertible Debentures") with an aggregate principal amount of $2,000,000. The Convertible Debentures bear an interest of 9% per year, paid quarterly, and mature 36 months from the date of issue. The Convertible Debentures are convertible into common shares of the Company at a conversion price of CAD$0.20 per common share. Additionally, on closing, the Company issued to the purchasers of the December Convertible Debentures an aggregate of 6,716,499 warrants (the "December Warrants"), that represent 50% coverage of each purchaser’s December Convertible Debenture investment. The December Warrants are exercisable for a period of three years from issuance into common shares at an exercise price of $0.25 CAD per common share. The Company has the right to accelerate the warrants if the closing share price of the Common Shares on the Canadian Securities Exchange is CAD$0.40 or higher for a period of 10 consecutive trading days. The December Convertible Debentures and December Warrants issued pursuant to the private placement (and the underlying common shares) were subject to a statutory hold period of four months and one day from the closing date.
On July 13, 2023, the Company announced the closing of the first tranche of a non-brokered private placement of unsecured convertible debentures (July Convertible Debentures) with an aggregate principal amount of $5,000,0000. The July Convertible Debentures accrue interest at 9% per year, paid quarterly, and mature 48 months from the date of issue. The July Convertible Debentures are convertible into common shares of the Company at a conversion price of CAD$0.24 per common share, at any time on or prior to the maturity date. Additionally, on closing, the Company issued to the Subscribers of the July Convertible Debentures an aggregate of 13,737,500 warrants (the “July Warrants”), that represents one-half of one warrant for each CAD$0.24 of principal amount subscribed. The July Warrants are exercisable for a period of three years from issuance into common shares at an exercise price of CAD$0.28 per common share. The Company has the right to accelerate the warrants if the closing share price of the common shares on the Canadian Securities Exchange is CAD$0.40 or higher for a period of 10 consecutive trading days. The July Warrants’ expiry date will be accelerated to 90 days following notice of the acceleration.
On August 17, 2023, the Company closed the second and final tranche of a non-brokered private placement of the July Convertible Debentures for gross proceeds of $1,000,000, for a total aggregate principal amount under both tranches of $6,000,000. The Company also issued to subscribers under the second tranche an aggregate of 2,816,250 common share purchase warrants. This second tranche was committed when the first tranche of the July Convertible Debentures was announced but was delayed slightly in closing.
Trends and expected fluctuations in capital resources
We realized net cash flows from financing of approximately $4.2 million during the nine months ended July 31, 2023, (2022 – $0.1 million outflow), resulting from proceeds from debt financing of $7.0 million (2022 - $0.1 million from debt and $1.3 million from equity), less debt, debenture, & lease principal repayments of $2.8 million (2022 - $1.5 million).
Financing activities have been critical to our ability to continue operating, and significant portions of our financing have historically been raised from key management personnel. These individuals have not provided assurance that they will provide additional financing if we require financing but are unable to raise such financing from third parties; this highlights the importance of management’s strategy of scaling operations. Our business strategy contemplates growing cash flows from operations, which may contribute to reinvestment and growth; however, further financing may be required or utilized based upon our future capital position and future business opportunities.
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Off-Balance Sheet Arrangements
The Company does not have any off-balance sheet arrangements.
Transactions with Related Parties
Transactions with key management and directors
During the nine months ended July 31, 2023, the Company completed the following related party transactions:
Through its wholly owned subsidiary, GRU Properties, the Company leased a property located in Trail, Oregon (“Trail”) owned by the Company’s President and CEO (“CEO”). The lease was extended during the year ended October 31, 2021, with a term through December 31, 2025. Lease charges of $54,000 were incurred for nine months ended July 31, 2023 (2022 – 54,000). The lease liability balance for Trail at July 31, 2023, was $153,125 (October 31, 2022 - $193,312).
During the year ended October 31, 2021, the Company leased a property which is beneficially owned by the CEO and is located in Medford, Oregon (“Lars”) with a term through June 30, 2026. Lease charges for Lars of $142,295 (2022 - $138,150) were incurred for the nine months ended July 31, 2023. The lease liability for Lars at July 31, 2023, was $506,053 (October 31, 2022 - $607,900).
During the year ended October 31, 2021, the CEO leased equipment to the Company, which had a balance due of $Nil at July 31, 2023 (October 31, 2022 - $9,433). Lease payments of $9,971 were made against the equipment leases during the nine months ended July 31, 2023 (2022 - $15,260).
Leases liabilities payable to the CEO were $659,178 in aggregate at July 31, 2023 (October 31, 2022 - $810,645).
The CEO earned a royalty of 2.5% of sales of flower produced at Trail through December 31, 2021, at which time the royalty terminated. The CEO earned royalties of $Nil during the nine months ended July 31, 2023 (2022 - $305).
During the year ended October 31, 2022, the Company settled $62,900 in long-term liabilities due to the CEO as part of the CEO’s total $300,000 subscription to a non-brokered private placement of common shares on December 9, 2021. During the year ended October 31, 2021, the Company settled $162,899 in long-term accrued liabilities due to the CEO by way of a payment of $62,899 and $100,000 attributed to the CEO’s subscription to a non-brokered private placement on February 5, 2021.
During nine months ended July 31, 2023, the Company incurred expenses of $73,077 (2022 - $45,000) for services provided by the spouse of the CEO, who is employed as our Community Relations manager. At July 31, 2023, accounts and accrued liabilities payable to this individual were $3,846 (October 31, 2022 - $1,154). The spouse of the CEO was granted 500,000 options during the nine months ended July 31, 2023.
During the nine months ended July 31, 2023, the Company, through GR Unlimited, acquired 87% of the membership units of Canopy from the CEO. All payments necessary for GR Unlimited to exercise its option to acquire 87% of Canopy were equal to payments made by Canopy to purchase a controlling 60% interest of Golden Harvests.
Key management personnel consists of the President and CEO; the Senior Vice President (“SVP”); the former Chief Operating Officer (“COO”); and the Chief Financial Officer (“CFO”) of the Company. The compensation to key management is presented in the following table:
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| Nine months ended July 31, | 2023 | 2022 |
|---|---|---|
| Salaries and consulting fees | ||
| Share-based compensation | ||
| Stock option expense | ||
| Total |
All values are in US Dollars.
Stock options granted to key management personnel and close family members of key management personnel include the following. During the nine months ended July 31, 2023, 1,500,000 options were granted to the CEO; 750,000 options were granted to the CFO; and 750,000 options were granted to the SVP. During the year ended October 31, 2022, no options were granted to key management personnel. During the year ended October 31, 2021: 500,000 options were granted to the COO, which expired following the COO’s resignation.
Compensation to directors during the nine months ended July 31, 2023, was $13,500, (2022 – fees of $13,500 and common share issuances of 273,750 common shares with a fair value of $20,562).
Accounts payable, accrued liabilities, and lease liabilities due to key management at July 31, 2023, totaled $804,403 (October 31, 2022 $947,233).
Debt balances and movements with key management and directors
The following table sets out the movements and balances of debt with related parties during the nine months ended July 31, 2023, and the year ended October 31, 2022. Borrowings from related parties were executed at times because we could identify very limited other sources of financing. The borrowing from the COO was transacted to accelerate expansion of an indoor growing facility at a competitive rate of interest. The borrowings from other than the COO in the table below were transacted to accelerate construction and production in Michigan. The names of the related parties, by designation, are as follows: CEO – Obie Strickler; SVP – Adam August; Directors – Abhilash Patel; and former COO – Thomas Fortner.
| CEO | SVP | Director | COO | Total | ||||||
|---|---|---|---|---|---|---|---|---|---|---|
| **** | **** | **** | **** | **** | **** | |||||
| Balance - October 31, 2021 | ||||||||||
| Borrowed | ||||||||||
| Interest | ||||||||||
| Payments | ) | ) | ) | ) | ) | |||||
| Balance - October 31, 2022 | ||||||||||
| Borrowed | ||||||||||
| Interest | ||||||||||
| Payments | ) | ) | ) | ) | ||||||
| Balance – July 31, 2023 |
All values are in US Dollars.
Pursuant to the loan and related agreements transacted during the year ended October 31, 2020, the CEO, SVP, and a director obtained 5.5%; 1%; and 2.5% of GR Michigan, respectively; third parties obtained 4% as part of the agreements, such that GR Michigan has a 13% non-controlling interest. These parties, except the CEO, obtained the same interests in Canopy; the CEO obtained 92.5% of Canopy Management, of which 87% was acquired by the Company during the nine months ended July 31, 2023; all payments necessary for the Company to exercise its option to acquire 87% of Canopy were equal to payments made by Canopy to purchase a controlling 60% interest of Golden Harvests.
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Other Selected Financial Information
EBITDA and Adjusted EBITDA (non-IFRS measures)
The Company’s “Adjusted EBITDA,” or “aEBITDA,” is a non-IFRS measure used by management that does not have any prescribed meaning by IFRS and that may not be comparable to similar measures presented by other companies. Adjusted EBITDA is intended to provide a proxy for our operating cash flow before changes in non-cash working capital (“CNCWC”), which was $5,539,575 for the nine months ended July 31, 2023 (2022 - $3,448,720). The Company defines “EBITDA” as the Company’s net income or loss for a period, as reported, before interest, taxes, depreciation and amortization, and is further adjusted to remove transaction costs, stock-based compensation expense, accretion expense, gain (loss) on derecognition of derivative liabilities, the effects of fair-value accounting for biological assets and inventory, as well as other non-cash items and items not representative of operational performance as reported in net income (loss). Adjusted EBITDA is defined as EBITDA adjusted for the impact of various significant or unusual transactions. The Company believes that this is a useful metric to evaluate its operating performance, as it allows analysts to compare us to our competitors and derive expectations of our future performance. Adjusted EBITDA increases comparability between comparative companies by adjusting for variability resulting from differences in capital structures, resource allocations and investments, the impact of fair value adjustments on biological assets and inventory and financial statements, which may be volatile and fluctuate significantly from period to period.
| Three months ended | Nine months ended | |||||||
|---|---|---|---|---|---|---|---|---|
| July 31, | July 31, | |||||||
| Adjusted EBITDA Reconciliation | 2023 () | 2022 () | 2023 () | 2022 () | ||||
| Net income, as reported | ||||||||
| Add back realized fair value amounts included in inventory sold | ||||||||
| Deduct unrealized fair value gain on growth of biological assets | ) | ) | ) | ) | ||||
| Add back amortization of property and equipment included in cost of sales | ||||||||
| Add back interest and interest accretion expense, as reported | ||||||||
| Add back amortization of property and equipment, as reported | ||||||||
| Add back share-based compensation | ||||||||
| Add back unrealized loss on marketable securities, as reported | ||||||||
| Add back unrealized loss on derivative liability, as reported | ||||||||
| Add back income tax expense, as reported | ||||||||
| EBITDA | ||||||||
| Performance incentive bonus payment^1^ | ||||||||
| Severance and inactive employee compensation^2^ | ||||||||
| Business development incentive bonus^3^ | ||||||||
| Compliance costs^4^ | ||||||||
| Costs associated with acquisition of Golden Harvests^5^ | ||||||||
| Deduct gain on debt settlement with marketable securities^6^ | ) | ) | ||||||
| Adjusted EBITDA |
All values are in US Dollars.
| ^1^ | Payment to the minority owner and General Manager of Golden Harvests in recognition of outstanding business performance which was in excess of expected ongoing employment performance bonuses. |
|---|
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| ^2^ | Payments to the COO as part of his transition and no longer being a paid member of the Company’s executive team, effectively a severance package. |
|---|---|
| ^3^ | Payments to the owners of Golden Harvests and Company’s CEO which were emplaced to incentivize business growth during the startup phase of Golden Harvests. These costs are non-recurring in nature and not reflective of operational efficiency during the quarter. Of the $153,825 payment, $100,000 was beneficially made to the CEO, a related party. |
| ^4^ | Costs for professional services pertaining to prior periods as a result of efforts to bring current our disclosures with the Securities & Exchange Commission. Our required disclosures were brought current, and over-the-counter trading resumed in the United States. |
| ^5^ | Costs associated with our acquisition of the Michigan assets. |
| ^6^ | During the three months ended July 31, 2022, we settled a note payable to PBIC by paying our 2,362,204 share ownership in PBIC, which generated a gain on settlement of debt of $449,684. |
Below we reconcile aEBITDA to cash flows from operations before changes in non-cash working capital, in order to present the efficiency with which aEBITDA is converted into cash flows.
| Three months ended | Nine months ended | |||||||
|---|---|---|---|---|---|---|---|---|
| July 31, | July 31, | |||||||
| Reconciliation of aEBITDA to cash from operations before CNCWC | 2023 () | 2022 () | 2023 () | 2022 () | ||||
| aEBITDA | ||||||||
| Less: Interest expense | ) | ) | ) | ) | ||||
| Less: Income tax expense | ) | ) | ) | ) | ||||
| Less: non-cash gain on debt settlement | ) | ) | ||||||
| Add back: non-cash loss on asset disposal | ||||||||
| Impact of foreign exchange | ) | |||||||
| Less: adjustments to EBITDA to arrive at aEBITDA: | ||||||||
| Performance incentive bonus payment | ) | |||||||
| Severance and inactive employee compensation | ) | |||||||
| Business development incentive bonus | ) | |||||||
| Gain on debt settlement for marketable securities | ||||||||
| Compliance costs | ) | ) | ) | ) | ||||
| Costs associated with acquisition of Golden Harvests | ) | ) | ) | ) | ||||
| Cash flows from operations before CNCWC, as reported | ||||||||
| Cash flows from operations before CNCWC as % of aEBITDA | % | % | % | % |
All values are in US Dollars.
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Outstanding Share Data
As of the date of this MD&A, the Company had 182,005,886 common shares outstanding.
As of the date of this MD&A, the Company has the following warrants outstanding, exercisable into common shares:
| Exercise price (CAD) | Warrants outstanding | Life (years) | Expiry date | ||
|---|---|---|---|---|---|
| 6,716,499 | 2.18 | December 2, 2025 | |||
| 13,737,500 | 2.80 | July 13, 2026 | |||
| 2,816,250 | 2.80 | July 13, 2026 | |||
| 23,270,249 | 2.62 |
All values are in US Dollars.
As of the date of this MD&A, the Company has the following stock options outstanding and exercisable into common shares:
| Exercise price (CAD) | Options<br> outstanding | Number<br> exercisable | Remaining<br> Contractual<br> Life (years) | Expiry period | |||
|---|---|---|---|---|---|---|---|
| 1,845,000 | 1,782,500 | 0.76 | July 2024 | ||||
| 200,000 | 200,000 | 1.10 | November 2024 | ||||
| 1,000,000 | 850,000 | 1.51 | April 2025 | ||||
| 1,150,000 | 1,150,000 | 1.59 | May 2025 | ||||
| 85,000 | 85,000 | 2.10 | November 2025 | ||||
| 300,000 | 150,000 | 2.51 | April 2026 | ||||
| 6,225,000 | 400,000 | 3.27 | January 2027 | ||||
| 200,000 | - | 3.97 | September 2027 | ||||
| 11,005,000 | 4,617,500 | 2.46 |
All values are in US Dollars.
As of the date of this MD&A, the Company has December Convertible Debentures outstanding with an aggregate principal balance of $350,000 and accrued interest of approximately $29,000 (see “Subsequent Events”). The debentures mature on December 2, 2025. Interest accrues at 9% per annum and is payable on the last business days of March, June, September, and December.
Shares issuable upon conversion of the December Convertible Debentures as of the date of this MD&A are presented in the table below.
| Debenture principal | Accrued interest | /CAD exchange rate* | Exercise price (CAD) | Shares issuable<br> if converted | |||
|---|---|---|---|---|---|---|---|
| 350,000 | 29,000 | 2,259,723 |
All values are in US Dollars.
| * | Most recent exchange rate as published by the Bank of Canada. |
|---|
As of date of this MD&A, the Company also has July Convertible Debentures outstanding with an aggregate principal balance of $6,000,000 and accrued interest of approximately $75,200. The debentures mature on July 13, 2026. Interest accrues at 9% per annum and is payable on the last business days of March, June, September, and December.
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Shares issuable upon conversion of the July Convertible Debentures as of the date of this MD&A are presented in the table below:
| Debenture principal | Accrued interest | /CAD exchange rate* | Exercise price (CAD) | Shares issuable<br> if converted | |||
|---|---|---|---|---|---|---|---|
| 6,000,000 | 75,200 | 40,413,000 |
All values are in US Dollars.
| * | Most recent exchange rate as published by the Bank of Canada. |
|---|
Critical Accounting Judgments and Estimation Uncertainties
The preparation of the consolidated financial statements in conformity with IFRS requires that the Company’s management make critical judgments, estimates and assumptions about future events that affect the reported amounts of assets and liabilities and the disclosure of contingent assets and liabilities at the date of the consolidated financial statements and the reported amounts of income and expenses during the reporting period. The estimates and associated assumptions are based on historical experience and other factors that are considered to be relevant. Actual results may differ from these estimates. The estimates and underlying assumptions are reviewed on an ongoing basis. The most significant judgments include those related to the ability of the Company to continue as a going concern, the determination of when property and equipment are available for use, and impairment of its financial and non-financial assets. The most significant estimates and assumptions include those related to the valuation of biological assets, the collectability of accounts receivable, the useful lives of property and equipment, inputs used in accounting the determination of the discount rate used to estimate the fair value of the liability component of convertible debt instruments, the discount rates used to calculate present values of lease liabilities, the inputs used in the estimate of the fair value of equity based compensation, and the inputs used in the estimate of the fair value of equity instruments.
Newly Adopted Accounting Pronouncements
Amendments to IAS 41: Agriculture
As part of its 2018-2020 annual improvements to the standards process of IFRS, the IASB issued amendments to IAS 41 - Agriculture. The amendment removes the requirement in paragraph 22 of IAS 41 for entities to exclude taxation cash flow when measuring the fair value of a biological asset using a present value technique. This will ensure consistency with the requirements in IFRS 13 - Fair Value Measurement. The amendment is effective for annual reporting periods beginning on or after January 1, 2022. The Company adopted the Amendments to IAS 41 - Agriculture effective November 1, 2022, which did not have material impact to the Company’s financial statements.
Amendments to IFRS 9: Financial Instruments
As part of its 2018-2020 annual improvements to IFRS standards process, the IASB issued amendments to IFRS 9 - Financial Instruments. The amendment clarifies the fees that an entity includes when assessing whether the terms of a new or modified financial liability are substantially different from the terms of the original financial liability. These fees include only those paid or received between the borrower and the lender, including fees paid or received by either the borrower or lender on the other’s behalf. An entity applies the amendment to financial liabilities that are modified or exchanged on or after the beginning of the annual reporting period in which the entity first applies the amendment. The amendment is effective for annual reporting periods beginning on or after January 1, 2022 with earlier adoption permitted. The Company adopted the Amendments to IFRS 9 – Financial instruments effective November 1, 2022, which did not have material impact to the Company’s financial statements.
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Amendments to IAS 37: Onerous Contracts and the Cost of Fulfilling a Contract
The amendment specifies that the ‘cost of fulfilling’ a contract comprises the ‘costs that relate directly to the contract’. Costs that relate directly to a contract can either be incremental costs of fulfilling that contract or an allocation of other costs that relate directly to fulfilling contracts. The amendment is effective for annual periods beginning on or after January 1, 2022 with early application permitted. The Company adopted the Amendments to IAS 37- Onerous Contracts and the Cost of Fulfilling a Contract effective November 1, 2022, which did not have material impact to the Company’s financial statements.
Financial Instruments and Other Risk Factors
Market Risk
Market risk is the risk that the fair value or cash flows of a financial instrument will fluctuate due to changes in market prices. Market risk reflects interest rate risk, currency risk and other price risks.
Interest Rate Risk
At July 31, 2023 and October 31, 2022, the Company’s exposure to interest rate risk relates to long term debt, convertible promissory notes, and finance lease obligations, but its interest rate risk is limited as the aforementioned financial instruments are fixed interest rate instruments.
Currency Risk
As at July 31, 2023, the Company had accounts payable and accrued liabilities of CAD$348,684. The Company is exposed to the risk of fluctuation in the rate of exchange between the Canadian Dollar and the United States Dollar.
Credit Risk
Credit risk is the risk that one party to a financial instrument will cause a loss for the other party by failing to pay for its obligation.
Credit risk to the Company is derived from cash and trade accounts receivable. The Company places its cash in deposit with United States financial institutions. The Company has established a policy to mitigate the risk of loss related to granting customer credit by primarily selling on a cash-on-delivery basis.
The carrying amount of cash and trade accounts receivable represents the Company’s maximum exposure to credit risk; the balances of these accounts are summarized in the following table:
| July 31, 2023 | October 31, 2022 | |
|---|---|---|
| **** | ||
| Cash | ||
| Accounts Receivable | ||
| Total |
All values are in US Dollars.
The allowance for doubtful accounts at July 31, 2023 was $337,039 (October 31, 2022 - $264,719).
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Liquidity Risk
Liquidity risk represents the risk that the Company will encounter difficulty in meeting the obligations associated with its financial liabilities. The Company’s approach to managing liquidity risk is to ensure that it will have sufficient liquidity to meet liabilities when they become due. At July 31, 2023, the Company’s working capital accounts were as follows:
| July 31, 2023 | October 31, 2022 | |||
|---|---|---|---|---|
| **** | **** | **** | ||
| Cash | ||||
| Current assets excluding cash | ||||
| Total current assets | ||||
| Current liabilities | ) | ) | ||
| Working capital |
All values are in US Dollars.
The Company faces risks inherent in an agricultural business.
Cannabis is an agricultural product. There are risks inherent in the agricultural business, such as insects, plant diseases, forest fire and similar agricultural risks. Although some of the Company’s cannabis flower is grown indoors under climate-controlled conditions, with conditions monitored, there can be no assurance that natural elements will not have a material adverse effect on the production of the Company’s products.
Fair Values
A number of the Company’s accounting policies and disclosures require the measurement of fair valued for both financial and nonfinancial assets and liabilities. The Company has an established framework, which includes team members who have overall responsibility for overseeing all significant fair value measurements, including Level 3 fair values. When measuring the fair value of an asset or liability, the Company uses observable market data as far as possible. The Company regularly assesses significant unobservable inputs and valuation adjustments. Fair values are categorized into different levels in a fair value hierarchy based on the inputs used in the valuation techniques as follows:
Level 1: unadjusted quoted prices in active markets for identical assets or liabilities;
Level 2: inputs other than quoted prices included in Level 1 that are observable for the asset or liability, either directly or indirectly; or
Level 3: inputs for the asset or liability that are not based on observable market data (unobservable inputs).
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The carrying values of the financial instruments at July 31, 2023 are summarized in the following table:
| Level in<br> fair value<br> hierarchy | Amortized Cost | FVTPL | |
|---|---|---|---|
| **** | **** | ||
| Financial Assets | |||
| Cash | Level 1 | ||
| Accounts receivable | Level 2 | ||
| Warrants receivable | Level 2 | ||
| Financial Liabilities | |||
| Accounts payable and accrued liabilities | Level 2 | ||
| Debt | Level 2 | ||
| Convertible debentures | Level 2 | ||
| Business acquisition consideration payable | Level 2 | ||
| Warrants payable | Level 2 | ||
| Derivative liability | Level 2 |
All values are in US Dollars.
During the year ended July 31, 2023, there were no transfers of amounts between levels.
See additional risk factors relating to the Company as described in section 17 of the Company’s Listing Statement dated November 15, 2018 which can be found under the Company’s profile on www.sedarplus.ca.
Subsequent events
On August 17, 2023, the Company announced that it closed the second and final tranche of a non-brokered private placement of unsecured convertible debentures for gross proceeds of US$1,000,000, for a total aggregate principal amount under both tranches of $6,000,000. Additionally, on closing, the Company issued to subscribers under the second tranche of the July Convertible Debentures, an aggregate of 2,816,250 common share purchase warrants. The terms of the convertible debentures and warrants issued as part of this second tranche are the same as those issued for the first tranche of the July Convertible Debentures.
On September 1, 2023, the Company announced that a debenture holder converted an aggregate of $1,500,000 of the $2,000,000 debentures that mature on December 5, 2025. The conversion results in the issuance of 10,151,250 common shares of the Company at a price of CAD$0.20 per share in accordance with the terms of the December Convertible Debentures. The early retirement of the debt will save the Company over $300,000 in interest payments over the length of the term.
On September 6, 2023, a debenture holder converted an aggregate of $150,000 of the convertible debentures that mature on December 5, 2025. The conversion results in the issuance of 1,022,025 common shares of the Company at a price of CAD$0.20 per share in accordance with the terms of the December Convertible Debentures. The early retirement of the debt will save the Company over $30,000 in interest payments over the length of the term.
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Regulatory Disclosure
Grown Rogue derives a substantial portion of its revenues from the cannabis industry in the United States, which industry is illegal under United States federal law. Grown Rogue is indirectly involved (through subsidiaries) in the cannabis industry in the United States where local state laws permit such activities. Currently, its subsidiaries are directly engaged in the manufacture, possession, use, sale or distribution of cannabis in the recreational cannabis marketplace in the State of Oregon and in the recreational and medical marketplaces in the State of Michigan.
The United States federal government regulates drugs through the Controlled Substances Act (the “Federal CSA”), which places controlled substances, including cannabis, in a schedule. Cannabis is classified as a Schedule I drug. Under 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. The United States Food and Drug Administration has not approved marijuana as a safe and effective drug for any indication.
In the United States cannabis is largely regulated at the state level. Notwithstanding the permissive regulatory environment of medical cannabis at the state level, and the increasing number of states with legal recreational frameworks, cannabis continues to be categorized as a Schedule I controlled substance under the CSA and as such, violates federal law in the United States. Senators Elizabeth Warren and Cory Gardner have introduced a bipartisan Senate bill titled “Strengthening the Tenth Amendment Through Entrusting States (STATES) Act” that would lift the Controlled Substance Act’s restrictions on cannabis in states that have written their own laws. However, there can be no assurances as to when this bill will pass, or if it will pass at all. The Supremacy Clause of the United States Constitution and United States federal laws made pursuant to it are paramount and in case of conflict between federal and state law in the United States, the federal law shall apply.
As a result of the conflicting views between state legislatures and the United States federal government regarding cannabis, investments in cannabis businesses in the United States are subject to inconsistent legislation and regulation. The response to this inconsistency was addressed in August 2013 when then Deputy Attorney General, James Cole, authored a memorandum (the “Cole Memorandum”) addressed to all United States district attorneys acknowledging that notwithstanding the designation of cannabis as a controlled substance at the federal level in the United States, several US states had enacted laws relating to cannabis for medical and recreational purposes. The Cole Memorandum outlined certain priorities for the Department of Justice relating to the prosecution of cannabis offenses. In particular, the Cole Memorandum noted that in jurisdictions that enacted laws legalizing cannabis in some form and that also implemented strong and effective regulatory and enforcement systems to control the cultivation, distribution, sale and possession of cannabis, conduct in compliance with those laws and regulations is less likely to be a priority at the federal level.
In March 2017, newly appointed Attorney General Jeff Sessions again noted limited federal resources and acknowledged that much of the Cole Memorandum had merit; however, he disagreed that it had been implemented effectively and, on January 4, 2018, Attorney General Jeff Sessions issued a memorandum (the “Sessions Memorandum”) that rescinded the Cole Memorandum. As a result of the Sessions Memorandum, federal prosecutors are no longer bound by the priorities in the Cole Memorandum relating to the prosecution of cannabis activities despite the existence of state-level laws that may be inconsistent with federal prohibitions.
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There is no guarantee that state laws legalizing and regulating the sale and use of cannabis will not be repealed or overturned, or that local governmental authorities will not limit the applicability of state laws within their respective jurisdictions. Unless and until the United States Congress amends the Controlled Substances Act with respect to medical and/or adult-use cannabis (and as to the timing or scope of any such potential amendments there can be no assurance), there is a risk that federal authorities may enforce current federal law. If the federal government begins to enforce federal laws relating to cannabis in states where the sale and use of cannabis is currently legal, or if existing applicable state laws are repealed or curtailed, Grown Rogue’s business, results of operations, financial condition and prospects would be materially adversely affected. Until Congress amends the federal law with respect to marijuana use, there is a risk that federal authorities may enforce current federal law against companies such as Grown Rogue for violation of federal law or they may seek to bring an action or actions against Grown Rogue and/or its investors for violation of federal law or otherwise, including, but not limited to, a claim against investors for aiding and abetting another’s criminal activities.
In light of the uncertainty surrounding the treatment of United States cannabis-related activities, including the rescission of the Cole Memorandum, the Canadian Securities Administrators published a staff notice (Staff Notice 51-352 (Revised)) on February 8, 2018 setting out certain disclosure expectations for issuers with United States cannabis-related activities. Staff Notice 51-352 (Revised) includes additional disclosure expectations that apply to all issuers with United States cannabis-related activities, including those with direct and indirect involvement in the cultivation and distribution of cannabis, as well as issuers that provide goods and services to third parties involved in the United States cannabis industry.
In accordance with the Canadian Securities Administrators Staff Notice 51-352 (Revised) – Issuers with U.S. Marijuana-Related Activities (“Staff Notice 51-352”), below is a table of concordance that is intended to assist readers in identifying the disclosure expectations outlined in Staff Notice 51-352.
In accordance with Staff Notice 51-352, this section provides a discussion of the federal and state-level U.S. regulatory regimes in the jurisdictions where Grown Rogue is currently directly involved through its subsidiaries or is planning to be directly involved in the future. Certain Grown Rogue subsidiaries are directly engaged in the manufacture, possession, use, sale or distribution of cannabis in the recreational cannabis marketplace in the State of Oregon and in the medical and recreational marketplaces in the State of Michigan. In accordance with Staff Notice 51-352, Grown Rogue will evaluate, monitor and reassess this disclosure, and any related risks, on an ongoing basis and the same will be supplemented and amended to investors in public filings, including in the event of government policy changes or the introduction of new or amended guidance, laws or regulations regarding marijuana regulation. Any non-compliance, citations or notices of violation which may have an impact on Grown Rogue’s licenses, business activities or operations will be promptly disclosed by Grown Rogue.
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| All Issuers with US Marijuana-Related Activities | Response |
|---|---|
| Describe the nature of the issuer’s involvement in the U.S. marijuana industry and include the disclosures indicates for at least one of the direct, indirect and ancillary industry involvement types. | See above under “Description of Business”.<br><br> <br><br><br> <br>See below under “U.S. Regulatory Matters” |
| Prominently state that marijuana is illegal under US federal law and that enforcement of relevant laws is a significant risk | See above |
| Discuss any statements and other available guidance made by federal authorities or prosecutors regarding the risk of enforcement action in any jurisdiction where the issuer conducts U.S. marijuana-related activities. | See below under “U.S. Regulatory Matters”<br><br> <br><br><br> <br>See the following risk factors included in the Company’s Listing Statement available on www.sedarplus.ca:<br><br> <br><br><br> <br>Section 17 – Risk Factors – Grown Rogue’s Business is Illegal under U.S. Federal Law<br><br> <br><br><br> <br>Section 17 – Risk Factors – Because marijuana is illegal under federal law, investing in cannabis business could be found to violate the US Federal CSA |
| Outline related risks including, among others, the risk that third party service providers could suspend or withdraw services and the risk that regulatory bodies could impose certain restrictions on the issuer’s ability to operate in the U.S. | See the following risk factors included in the Company’s Listing Statement available on www.sedarplus.ca:<br><br> <br><br><br> <br>Section 17 – Risk Factors – Grown Rogue’s Business is Illegal under U.S. Federal Law<br><br> <br><br><br> <br>Section 17 – Risk Factors – Because marijuana is illegal under federal law, investing in cannabis business could be found to violate the US Federal CSA<br><br> <br><br><br> <br>Section 17 – Risk Factors – Risks Relating to Other Laws and Regulations<br><br> <br><br><br> <br>Section 17 – Risk Factors – Current and Future Consumer Protection Regulatory Requirements<br><br> <br><br><br> <br>Section 17 – Risk Factors – Operational Risks<br><br> <br><br><br> <br>Section 17 – Risk Factors – Grown Rogue will not be able to deduct many normal business expenses<br><br> <br><br><br> <br>Section 17 – Risk Factors – External Factors |
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| All Issuers with US Marijuana-Related Activities | Response |
|---|---|
| Section 17 – Risk Factors – Failure to Protect Intellectual Property<br><br> <br><br><br> <br>Section 17 – Risk Factors – Agricultural Operations<br><br> <br><br><br> <br>Section 17 – Risk Factors – Liability, Enforcement Complaints etc.<br><br> <br><br><br> <br>Section 17 – Risk Factors – Grown Rogue’s business is highly regulated and it may not be issued necessary licenses, permits, and cards<br><br> <br><br><br> <br>Section 17 – Risk Factors – Licenses<br><br> <br><br><br> <br>Section 17 – Risk Factors – Local Laws and Ordinances<br><br> <br><br><br> <br>Section 17 – Risk Factors – Third party service providers to Grown Rogue may withdraw or suspend their service<br><br> <br><br><br> <br>Section 17 – Risk Factors – Grown Rogue may not be able to obtain or maintain a bank account<br><br> <br><br><br> <br>Section 17 – Risk Factors – Grown Rogue’s contracts may be unenforceable and property may be subject to seizure<br><br> <br><br><br> <br>Section 17 – Risk Factors – The protections of US bankruptcy law may be unavailable<br><br> <br><br><br> <br>Section 17 – Risk Factors – Grown Rogue may have a difficult time obtaining insurance which may expose Grown Rogue to additional risk and financial liabilities<br><br> <br><br><br> <br>Section 17 – Risk Factors – Grown Rogue’s websites are accessible in jurisdictions where medicinal or recreational use of marijuana is not permitted and, as a result Grown Rogue may be found to be violating the laws of those jurisdictions<br><br> <br><br><br> <br>Section 17 – Risk Factors – The marijuana industry faces significant opposition in the United States | |
| Given the illegality of marijuana under US federal law, discuss the issuer’s ability to access both public and private capital and indicate what financing options are/are not available in order to support continuing operations. | See above under “Description of Business”.<br><br> <br><br><br> <br>See the following risk factor included in the Company’s Listing Statement available on www.sedarplus.ca:<br><br> <br><br><br> <br>Section 17 – Risk Factors – Grown Rogue may not be able to obtain or maintain a bank account |
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| All Issuers with US Marijuana-Related Activities | Response |
|---|---|
| Quantify the issuer’s balance sheet and operating statement exposure to U.S. marijuana-related activities. | 100% of Grown Rogue’s balance sheet and operating statements are exposed to U.S. marijuana-related activities. |
| Disclose if legal advice has not been obtained, either in the form of a legal opinion or otherwise, regarding (a) compliance with applicable state regulatory frameworks and (b) potential exposure and implications arising from U.S. federal law. | Grown Rogue has received legal advice from multiple attorneys regarding (a) compliance with applicable state regulatory frameworks and (b) potential exposure and implications arising from U.S. federal law. |
| CSA Requirement – US Marijuana Issuers with direct involvement in cultivation or distribution | Response |
| Outline the regulations for U.S. states in which the issuer operates and confirm how the issuer complies with applicable licensing requirements and the regulatory framework enacted by the applicable U.S. state. | See<br>below under “U.S. Regulatory Matters” |
| Discuss the issuer's program for monitoring compliance with U.S. state law on an ongoing basis, outline internal compliance procedures and provide a positive statement indicating that the issuer is in compliance with U.S. state law and the related licensing framework. Promptly disclose any non-compliance, citations or notices of violation which may have an impact on the issuer's licence, business activities or operations. | See below under “U.S. Regulatory Matters”<br><br> <br><br><br> <br>See the following risk factors included in the Company’s Listing Statement available on www.sedarplus.ca:<br><br> <br><br><br> <br>Section 17 – Risk Factors – Grown Rogue’s Business is Illegal under U.S. Federal Law<br><br> <br><br><br> <br>Section 17 – Risk Factors – Risks Relating to Other Laws and Regulations<br><br> <br><br><br> <br>Section 17 – Risk Factors – Grown Rogue’s business is highly regulated and it may not be issued necessary licenses, permits, and cards<br><br> <br><br><br> <br>Section 17 – Risk Factors – Licenses<br><br> <br><br><br> <br>Section<br>17 – Risk Factors – Liability, Enforcement Complaints etc. |
| US Marijuana Issuers with indirect involvement in cultivation or distribution | Response |
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| All Issuers with US Marijuana-Related Activities | Response |
|---|---|
| Outline the regulations for U.S. states in which the issuer's investee(s) operate. | N/A |
| Provide reasonable assurance, through either positive or negative statements, that the investee's business is in compliance with applicable licensing requirements and the regulatory framework enacted by the applicable U.S. state. Promptly disclose any non-compliance, citations or notices of violation, of which the issuer is aware, that may have an impact on the investee's licence, business activities or operations. | N/A |
| US Marijuana Issuers with material ancillary involvement | Response |
| Provide reasonable assurance, through either positive or negative statements, that the applicable customer's or investee's business is in compliance with applicable licensing requirements and the regulatory framework enacted by the applicable U.S. state. | N/A |
U.S. Regulatory Matters
Grown Rogue (through its subsidiaries) has direct involvement in the cultivation and distribution of marijuana in the United States. Grown Rogue and its subsidiaries are primarily involved in the U.S. marijuana industry as a seed to retail company with operations currently in Oregon (a state that has legalized recreational marijuana). Currently Grown Rogue through its subsidiaries produces recreational marijuana and distributes it to dispensaries throughout Oregon.
Producing, manufacturing, processing, possessing, distributing, selling, and using marijuana is a federal crime in the United States. The United States federal government regulates drugs through the Federal CSA, which places controlled substances, including cannabis, on one of five schedules. Cannabis is currently classified as a Schedule I controlled substance, which is viewed as having a high potential for abuse and having no currently accepted medical use in treatment in the United States. No prescriptions may be written for Schedule I substances, and such substances are subject to production quotas imposed by the United States Drug Enforcement Administration (the “DEA”). Schedule I drugs are the most tightly restricted category of drugs under the Federal CSA.
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State and territorial laws that allow the use of medical cannabis or legalize cannabis for adult recreational use are in conflict with the Federal CSA, which makes cannabis use and possession illegal at the federal level. Because cannabis is a Schedule I controlled substance, however, the development of a legal cannabis industry under the laws of these states is in conflict with the Federal CSA, which makes cannabis use and possession illegal on a federal level. Additionally, the Supremacy Clause of the United States Constitution establishes that the Constitution, federal laws made pursuant to the Constitution, and treaties made under the Constitution’s authority constitute the supreme law of the land. The Supremacy Clause provides that state courts are bound by the supreme law; in case of conflict between federal and state law, including Oregon and other state law legalizing certain cannabis uses, the federal law must be applied.
Until Congress amends the Federal CSA with respect to marijuana use, there is a risk that federal authorities may enforce current federal law against companies such as Grown Rogue for violation of federal law or they may seek to bring an action or actions against Grown Rogue and/or its investors for violation of federal law or otherwise, including, but not limited to, a claim against investors for aiding and abetting another’s criminal activities. The US federal aiding and abetting statute provides that anyone who commits an offense against the United States or aids, abets, counsels, commands, induces or procures its commission, is punishable as a principal. Additionally, even if the U.S. federal government does not prove a violation of the Federal CSA, the U.S. federal government may seize, through civil asset forfeiture proceedings, certain assets such as equipment, real estate, moneys and proceeds, or your assets as an investor in the Company, if the U.S. federal government can prove a substantial connection between these assets or your investment and marijuana distribution or cultivation.
Because many states in the United States have approved certain medical or recreational uses of cannabis, the U.S. Department of Justice, through the Cole Memorandum, had previously described a set of priorities for federal prosecutors operating in states that had legalized the medical or other adult use of cannabis. The Cole Memorandum represented a significant shift in U.S. federal government priorities away from strict enforcement of federal cannabis prohibition.
However, the Cole Memorandum was merely a directive regarding enforcement and did not overturn or invalidate the Federal CSA or any other federal law or regulation.
The Cole Memorandum was rescinded in January 2018 by Jeff Sessions, the former U.S. Attorney General, who deemed it “unnecessary”. This is based on Mr. Sessions’s belief, which was also expressed in the Cole Memorandum that each state’s federal prosecutor should “follow the well-established principles that govern all federal prosecutions. These principles require federal prosecutors deciding which cases to prosecute to weigh all relevant considerations, including federal law enforcement priorities set by the Attorney General, the seriousness of the crime, the deterrent effect of criminal prosecution, and the cumulative impact of particular crimes on the community.” The rescission of the Cole Memorandum, and comments made publicly by Mr. Sessions and other members of the Trump Administration, signal a significant shift by the U.S. federal government back to more strict enforcement of federal law.
On January 4, 2018, Billy J. Williams, the former United States Attorney for the District of Oregon and former Multnomah County (Oregon) Deputy District Attorney who handled major violent crimes and later served as a Chief of the Violent Crimes Unit and as the Indian Country AUSA/Tribal Liaison for the Department of Justice prior to being appointed as the federal prosecutor for Oregon, Mr. Williams provided the below statement on marijuana enforcement in the District of Oregon: “As noted by Attorney General Sessions, today’s memo on marijuana enforcement directs all U.S. Attorneys to use the reasoned exercise of discretion when pursuing prosecutions related to marijuana crimes. We will continue working with our federal, state, local and tribal law enforcement partners to pursue shared public safety objectives, with an emphasis on stemming the overproduction of marijuana and the diversion of marijuana out of state, dismantling criminal organizations and thwarting violent crime in our communities.”
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In an editorial published on January 12, 2018, Mr. Williams wrote: “In sum, I have significant concerns about the state’s current regulatory framework and the resources allocated to policing marijuana in Oregon.”
At a meeting on February 2, 2018, Mr. Williams told Oregon’s top politicians and law enforcement officials that there’s more cannabis being produced in the state than can legally be consumed. “And make no mistake about it, we’re going to do something,” Williams told dozens of politicians, tribal leaders, sheriffs as well as representatives of the FBI and the U.S. Drug Enforcement Administration. “Here’s what I know, in terms of the landscape here in Oregon: We have an identifiable and formidable marijuana over-production and diversion problem,” Williams said. “That’s the fact. My responsibly is to work with our state partners to do something about it.”
Because producing, manufacturing, processing, possessing, distributing, selling, and using marijuana is illegal under U.S. federal law, investing in cannabis business could be found to violate the Federal CSA. As a result, individuals involved with cannabis business, including but not limited to investors and lenders, may be indicted under U.S. federal law. An investment in the Company may: (a) expose an investor personally to criminal liability under U.S. federal law, resulting in monetary fines and jail time; and (b) expose any real and personal property used in connection with Grown Rogue’s business to seizure and forfeiture to the U.S. federal government.
Active enforcement of the current federal law on cannabis may thus directly and adversely affect revenues and profits of Grown Rogue. The risk of strict enforcement of the Federal CSA remains uncertain.
U.S. Federal Laws Applicable to Banking
Because producing, manufacturing, processing, possessing, distributing, selling, and using marijuana is a crime under the Federal CSA, most U.S. banks and other financial institutions are unwilling to provide banking services to marijuana businesses due to concerns about criminal liability under the Federal CSA as well as concerns related to federal money laundering rules under the U.S. Bank Secrecy Act. Canadian banks are also hesitant to deal with cannabis companies, due to the uncertain legal and regulatory framework of the industry. Banks and other financial institutions could be prosecuted and possibly convicted of money laundering for providing services to cannabis businesses.
Under U.S. federal law, banks or other financial institutions that provide a cannabis business with a checking account, debit or credit card, small business loan, or any other service could be found guilty of money laundering or conspiracy. In both Canada and the United States transactions by cannabis businesses involving banks and other financial institutions are both difficult and unpredictable under the current legal and regulatory landscape. Though guidelines issued in past years allow financial institutions to provide bank accounts to certain cannabis businesses, few U.S. banks have taken advantage of those guidelines and many U. S. cannabis businesses still operate on an all-cash basis.
Oregon State Regulation
The Oregon Medical Marijuana Program (“OMMP”) is a state registry program within the Public Health Division, Oregon Health Authority (“OHA”). The role of the OHA is to administer the Oregon Medical Marijuana Act. The OMMP allows individuals with a medical history of one or more qualifying illnesses and a doctor’s written statement to apply for registration with the OMMP. Qualified applicants are issued a medical marijuana card that entitles them to legally possess and cultivate cannabis, subject to certain limitations.
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On November 4, 2014, Oregon voters passed Measure 91, known as the Control, Regulation, and Taxation of Marijuana and Industrial Hemp Act (the “Act”), effectively ending the state’s prohibition of recreational marijuana and legalizing the possession, use, and cultivation of marijuana within legal limits by adults 21 years and older. The Act did not amend or effect the Oregon Medical Marijuana Act and the OMMP. The Act empowered the Oregon Liquor Control Commission (“OLCC”) with regulating sales of recreational marijuana in Oregon. It is possible that the voters could potentially repeal the law that permits both the medical and recreational marijuana industry to operate under state law.
Under current Oregon law, possession and home cultivation by adults at least 21 years old is allowed within legal limits. Public sales of marijuana and marijuana products may be done only through licensed retailers. The OLCC has the authority to decide how many licenses to allow in a specific area or location and may refuse granting a license if there are reasonable grounds to believe there are sufficient licenses in the area or if the granting of a license is not demanded by public interest or convenience. The OLCC may disqualify applicants for a number of reasons, including for lacking a good moral character, for lacking sufficient financial resources or responsibility, for relevant past convictions, and for using marijuana, alcohol, or drugs “to excess.”
Grown Rogue has a comprehensive compliance program, which tracks all aspects of operations through the METRC program (an online software tool mandated through the State of Oregon that tracks seed to retail purchases), as well as compliance with all state and federal employment and other safety regulations.
Grown Rogue is periodically advised by various outside attorneys about the requirements for compliance with Oregon law.
Grown Rogue is in compliance with Oregon state law and its related licensing framework.
Michigan State Regulation
In November 2008, Michigan residents approved the Michigan Medical Marihuana Act (the “MMMA”) to provide a legal framework for a safe and effective medical marijuana program. In September 2016, the Michigan Senate passed the Medical Marihuana Facilities Licensing Act (the “MMFLA”) and the Marihuana Tracking Act (the “MTA” and together with the MMMA and the MMFLA, the “Michigan Cannabis Regulations”) to provide a comprehensive licensing and tracking scheme, respectively, for the medical marijuana program. Additionally, the Michigan Department of Licensing and Regulatory Affairs and its licensing board (“LARA”) has supplemented the Michigan Cannabis Regulations with “Emergency Rules” to further clarify the regulatory landscape surrounding the medical marijuana program. LARA is the main regulatory authority for the licensing of marijuana businesses.
Under the MMFLA, LARA administrates five types of “state operating licenses” for medical marijuana businesses: (a) a “grower” license, (b) a “processor” license, (c) a “secure transporter” license, (d) a “provisioning center” license and (e) a “safety compliance facility” license. There are no stated limits on the number of licenses that can be made available on a state level; however, LARA has discretion over the approval of applications and municipalities can pass additional restrictions.
On November 6, 2018, Michigan voters approved Proposal 1, to make marihuana legal under state and local law for adults 21 years of age or older and to control the commercial production and distribution of marihuana under a system that licenses, regulates, and taxes the businesses involved. The act will be known as the Michigan Regulation and Taxation of Marihuana Act24. According to Proposal 1, LARA is required to art accepting applications for retail (recreational) dispensaries within 12 months of the measure’s effective date.
Grown Rogue has a comprehensive compliance program, which tracks all aspects of operations through the METRC program (an online software tool mandated through the State of Michigan that tracks seed to retail purchases), as well as compliance with all state and federal employment and other safety regulations.
Grown Rogue is periodically advised by various outside attorneys about the requirements for compliance with Michigan law.
Grown Rogue is in compliance with Michigan state law and its related licensing framework.
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Michigan License
State operating licenses for marijuana businesses have a 1 year term and are annually renewable if certain conditions are met: (a) the renewal application is submitted prior to the date the license expires, or within sixty (60) days of expiration if all other conditions are met and a late fee is paid, (b) the licensee pays the regulatory assessment fee set by LARA and (c) the licensee continues to meet the requirements to be a licensee under the Michigan Cannabis Regulations. Each renewal application is reviewed by LARA, but there is no guarantee of a timely renewal. There is no ultimate expiry after which no renewals are permitted.
Michigan Regulations
Michigan Marijuana Products may be purchased in a retail setting from a provisioning center by a registered qualified patient or registered primary caregivers connected to a registered qualifying patient (“Michigan Qualified Purchaser”); in each case, Michigan Qualified Purchasers must present a valid registry identification card issued by LARA (a “Michigan Registry ID”). For a Michigan Qualified Purchaser to receive Michigan Marijuana Products, provision centers must deploy an inventory control and tracking system that is capable of interfacing with the statewide monitoring system to determine (a) whether a Michigan Qualified Purchaser holds a Michigan Registry ID and (b) whether the sale or transfer will exceed the then-current daily and monthly purchasing limit for the holder of the Michigan Registry ID.
In order to receive a Michigan Registry ID, an applicant must provide: a completed application dated within one year of submission, a written certification from a physician with a bona-fide physician-patient relationship to the underlying patient, the application or renewal fee, contact information for the patient, caregiver (if applicable) and physician, as well as proof of Michigan residency.
For registered qualifying patients, the daily purchasing limit is 2.5 ounces, and for registered primary caregivers, the daily purchasing limit is 2.5 ounces per underlying registered qualifying patient that the registered primary caregiver is connected with through the registration process. Finally, the licensee shall verify in the statewide monitoring system that the sale or transfer does not exceed the monthly purchasing limit of ten (10) ounces of marihuana product per month to a qualifying patient, either directly or through the qualifying patient’s registered primary caregiver.
Allowable forms of medical marihuana includes smokable dried flower, dried flower for vaporizing and marihuana infused products, which are defined under the Act to include topical formulations, tinctures, beverages, edible substances or similar products containing usable marijuana that is intended for human consumption in a matter other than smoke inhalation. Under the Michigan Cannabis Regulations, marijuana-infused products shall not be considered food.
Qualifying conditions for the medical marijuana program in Michigan are the following:
| ● | Cancer, glaucoma, positive status for human immunodeficiency virus, acquired immune deficiency syndrome, hepatitis C, amyotrophic lateral sclerosis, Crohn’s disease, agitation of Alzheimer’s disease, nail patella or the treatment of these conditions; |
|---|---|
| ● | A chronic or debilitating disease or medical condition or its treatment that produces 1 or more of the following: cachexia or wasting syndrome; severe and chronic pain; severe nausea; seizures, including but not limited to those characteristic of epilepsy; or severe and persistent muscle spasms, including but not limited to those characteristic of multiple sclerosis; |
| --- | --- |
| ● | Post-Traumatic Stress Disorder (PTSD); and/or |
| --- | --- |
| ● | Any other medical condition or its treatment approved by the department under the Michigan Cannabis Regulations. |
| --- | --- |
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Reporting Requirements
Pursuant to the requirements of the MTA, Michigan selected Franwell’s METRC software as the state’s third-party solution for integrated marijuana industry verification. Using METRC, regulators are able to track third party inventory, permissible sales and seed-to-sale information. Additionally, provisioning centers can use the METRC API to connect their own inventory management and/or point-of-sale systems to verify the identity as well as permissible sales for Michigan Qualified Purchasers.
Storage and Security
To ensure the safety and security of cannabis business premises and to maintain adequate controls against the diversion, theft, and loss of cannabis or cannabis products, a provisioning center is required to:
Maintain and submit a security operations plan that includes the following at a minimum:
| ● | Escorts for all non-employee personnel in limited access areas. |
|---|---|
| ● | Secure locks for all interior rooms, windows and points of entry and exits with commercial grade, nonresidential door locks. |
| --- | --- |
| ● | An alarm system. Licensees will make all information related to the alarm system including monitoring and alarm activity available to LARA. |
| --- | --- |
| ● | A video surveillance system that, at a minimum, consists of digital or network video recorders, cameras, video monitors, digital archiving devices and a color printer capable of delivering still photos. |
| --- | --- |
| ● | 24-hour surveillance footage with fixed, mounted cameras, tamper/theft proof secured storage mediums and a notification system for interruption or failure of surveillance footage or storage of surveillance footage. All surveillance footage must be of sufficient resolution to identify individuals, have accurate time/date stamps and be stored for a minimum of 14 days unless state regulators notify that such recordings may be destroyed. |
| --- | --- |
| ● | State access to view and obtain copies of any surveillance footage through LARA or related investigators, agents, auditors and/or state police. A facility shall also provide copies of recordings to LARA upon request. |
| --- | --- |
| ● | Logs of the following: the identities of the employee or employees responsible for monitoring the video surveillance system, the identity of the employee who removed the recording from the video surveillance system storage device and the time and date removed and the identity of the employee who destroyed any recording. |
| --- | --- |
Maintain marijuana storage plan for provisioning centers that includes the following at a minimum:
| ● | A secured limited access area for inventories of Michigan Marijuana Products. |
|---|---|
| ● | Clearly labeled containers (a) marked, labeled or tagged, (b) enclosed on all sides and (c) latched or locked to keep all contents secured within. All such containers must be identified and tracked in accordance with the MTA. |
| --- | --- |
| ● | A locked area for chemical and solvents separate from Michigan Marijuana Products. |
| --- | --- |
| ● | Separation of marijuana-infused products from toxic or flammable materials. |
| --- | --- |
| ● | A sales or transfer counter or barrier separated from stock rooms to ensure registered qualifying patients or registered primary caregivers do not have direct access to Michigan Marijuana Products. |
| --- | --- |
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There are significant risks associated with the business of the Company, as described above and in Section 17 – Risk Factors of the Company’s Listing Statement as filed on www.sedarplus.ca. Readers are strongly encouraged to carefully read all of the risk factors contained in Section 17 – Risk Factors of the Company’s Listing Statement.
Internal Control over Financial Reporting and Disclosure Controls
Management, including the President and CEO and the CFO, is responsible for designing, establishing, and maintaining a system of ICFR to provide reasonable assurance that all information prepared by the Company for external purposes is reliable and timely. Internal control over financial reporting is designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of the consolidated financial statements for external purposes in accordance with IFRS.
The Company’s internal control over financial reporting includes those policies and procedures that (i) pertain to the maintenance of records that, in reasonable detail, accurately reflect the transactions of the Company; (ii) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with IFRS, and that receipts and expenditures of the Company are being made only in accordance with authorizations of management and directors of the Company; and (iii) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use or disposition of the Company’s assets that could have a material effect on the Company’s consolidated Financial Statements. Due to its inherent limitations, internal control over financial reporting and disclosure may not prevent or detect all misstatements.
The CEO and CFO have evaluated whether there were changes to the ICFR during the nine months ended July 31, 2023, that have materially affected, or are reasonably likely to materially affect, the ICFR. As a result, no such significant changes were identified through their evaluation.
There have been no material changes in the Company’s internal control over financial reporting during the nine months ended July 31, 2023, that have materially affected, or are reasonably likely to materially affect, internal control over financial reporting.
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Exhibit 28
Form52-109FV2
Certificationof Interim Filings – Venture Issuer Basic Certificate
I, J. Obie Strickler, President and Chief Executive Officer of Grown Rogue International Inc., certify the following:
1. Review: I have reviewed the interim financial report and interim MD&A (together, the “interim filings”) of Grown Rogue International Inc. (the “issuer”) for the interim period ended July 31, 2023.
2. No misrepresentations: Based on my knowledge, having exercised reasonable diligence, the interim filings do not contain any untrue statement of a material fact or omit to state a material fact required to be stated or that is necessary to make a statement not misleading in light of the circumstances under which it was made, with respect to the period covered by the interim filings.
3. Fair presentation: Based on my knowledge, having exercised reasonable diligence, the interim financial report together with the other financial information included in the interim filings fairly present in all material respects the financial condition, financial performance and cash flows of the issuer, as of the date of and for the periods presented in the interim filings.
Date: September 27, 2023.
| (signed) “J. Obie Strickler” | |
|---|---|
| J. Obie Strickler | |
| President and Chief Executive Officer | |
| NOTE TO READER | |
| --- | --- |
| In<br> contrast to the certificate required for non-venture issuers under National Instrument 52-109<br> Certification of Disclosure in Issuers’ Annual and Interim Filings (NI 52-109),<br> this Venture Issuer Basic Certificate does not include representations relating to the establishment<br> and maintenance of disclosure controls and procedures (DC&P) and internal control over<br> financial reporting (ICFR), as defined in NI 52-109. In particular, the certifying officers<br> filing this certificate are not making any representations relating to the establishment<br> and maintenance of | |
| i) controls and other procedures designed to provide reasonable assurance that information required to be disclosed by the issuer<br> in its annual filings, interim filings or other reports filed or submitted under securities legislation is recorded, processed,<br> 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<br> statements for external purposes in accordance with the issuer’s GAAP. | |
| The<br> issuer’s certifying officers are responsible for ensuring that processes are in place<br> to provide them with sufficient knowledge to support the representations they are making<br> in this certificate. Investors should be aware that inherent limitations on the ability of<br> certifying officers of a venture issuer to design and implement on a cost effective basis<br> DC&P and ICFR as defined in NI 52-109 may result in additional risks to the quality,<br> reliability, transparency and timeliness of interim and annual filings and other reports<br> provided under securities legislation. |
Exhibit 29
Form52-109FV2
Certificationof Interim Filings – Venture Issuer Basic Certificate
I, Ryan Kee, Chief Financial Officer and Corporate Secretary of Grown Rogue International Inc., certify the following:
1. Review: I have reviewed the interim financial report and interim MD&A (together, the “interim filings”) of Grown Rogue International Inc. (the “issuer”) for the interim period ended July 31, 2023.
2. No misrepresentations: Based on my knowledge, having exercised reasonable diligence, the interim filings do not contain any untrue statement of a material fact or omit to state a material fact required to be stated or that is necessary to make a statement not misleading in light of the circumstances under which it was made, with respect to the period covered by the interim filings.
3. Fair presentation: Based on my knowledge, having exercised reasonable diligence, the interim financial report together with the other financial information included in the interim filings fairly present in all material respects the financial condition, financial performance and cash flows of the issuer, as of the date of and for the periods presented in the interim filings.
Date: September 27, 2023.
| (signed) “Ryan Kee” | |
|---|---|
| Ryan Kee | |
| Chief Financial Officer and Corporate<br> Secretary | |
| NOTE TO READER | |
| --- | --- |
| In<br> contrast to the certificate required for non-venture issuers under National Instrument 52-109<br> Certification of Disclosure in Issuers’ Annual and Interim Filings (NI 52-109),<br> this Venture Issuer Basic Certificate does not include representations relating to the establishment<br> and maintenance of disclosure controls and procedures (DC&P) and internal control over<br> financial reporting (ICFR), as defined in NI 52-109. In particular, the certifying officers<br> filing this certificate are not making any representations relating to the establishment<br> and maintenance of | |
| i) controls and other procedures designed to provide reasonable assurance that information required to be disclosed by the issuer in<br> its annual filings, interim filings or other reports filed or submitted under securities legislation is recorded, processed,<br> 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<br> statements for external purposes in accordance with the issuer’s GAAP. | |
| The<br> issuer’s certifying officers are responsible for ensuring that processes are in place<br> to provide them with sufficient knowledge to support the representations they are making<br> in this certificate. Investors should be aware that inherent limitations on the ability of<br> certifying officers of a venture issuer to design and implement on a cost effective basis<br> DC&P and ICFR as defined in NI 52-109 may result in additional risks to the quality,<br> reliability, transparency and timeliness of interim and annual filings and other reports<br> provided under securities legislation. |
Exhibit30
Grown Rogue Reports Third Quarter 2023 Results,
Record Revenue with 48% Year-over-Year Growth
| ● | Revenue of $6.3M compared to $4.3M in Q3 2022, an increase of 48% |
|---|---|
| ● | Operating Cash Flow (OCF), before changes in working capital (BC WC), of $1.9M compared to $0.9M in Q3 2022, an increase of 94% |
| --- | --- |
| ● | Free Cash Flow^1^ (FCF) of $1.1M, after $0.8M spend on WC and capital expenditures |
| --- | --- |
| ● | Announced a strategic advisory agreement with Goodness Growth Holdings to focus on improving quality and efficiencies in their Minnesota and Maryland operations |
| --- | --- |
| ● | Closed a convertible debenture financing for gross proceeds of US$5,000,000 and subsequent to quarter-end, closed a second and final tranche of convertible debenture financing for total gross proceeds of US$6,000,000 |
| --- | --- |
| ● | Subsequent<br>to quarter-end, US$1,650,000 of the Company’s existing convertible debentures have been converted, leaving the Company with US$6,350,000<br>in total convertible debt as of the date of the release |
| --- | --- |
Medford, Oregon, September 28, 2023 – Grown Rogue International Inc. (“Grown Rogue” or the “Company”) (CSE: GRIN) (OTC: GRUSF), a craft cannabis company operating in Oregon and Michigan, and in Minnesota and Maryland through an advisory agreement with Goodness Growth Holdings, Inc., is pleased to report its fiscal third quarter 2023 results for the three months ended July 31, 2023. All financial information is provided in U.S. dollars unless otherwise indicated.
ThirdQuarter 2023 Financial Summary ($USD Millions)
| Third Quarter 2023 Summary | Q3 2023 | **** | Q3 2022 | **** | +/- % | **** | |||
|---|---|---|---|---|---|---|---|---|---|
| Revenue | 6.3 | 4.3 | +48 | % | |||||
| aEBITDA | 2.1 | 1.2 | +79 | % | |||||
| aEBITDA % | 33.2 | % | 27.5 | % | +570 bps | ||||
| OCF (BC WC) | 1.9 | 0.9 | +103 | % | |||||
| OCF % | 29.5 | % | 21.5 | % | +800 bps |
ManagementCommentary “We are pleased to announce another quarter with record revenue, operating cash flow and free cash flow. Our $6.3M in revenue continues an upward trajectory with a sequential increase of 5%, after last quarter’s 18% increase over our previous record quarter”, said Obie Strickler, CEO of Grown Rogue.
“Our year-over-year revenue and EBITDA growth of 48% and 79%, respectively, shows our commitment to controlling costs and our focus on producing high quality cannabis products that delight our team and customers. We are proud to recently launch new strain specific packaging in Michigan and craft pre-rolls in Oregon and are pleased with the initial traction in both, led by our improvements in our genetic quality and quantity over the past twelve months.
We believe our focus on genetics, and our strength in branding and distribution will allow us the opportunity to be market share leaders in new categories as we engender more customer trust and deepen the relationship we have with our existing fans,” continued Mr. Strickler.
“Our team continues to lean into our partnership with Goodness Growth and we have been very pleased with our progress, particularly how quickly our team is expanding their abilities and improving processes. An important 2023 objective for us was mapping our talent against more assets and this partnership has done nothing but show the readiness of our team.
Finally, it was especially rewarding to complete the convertible debenture financing in July to further strengthen our balance sheet, particularly in such a challenging credit market. The trust and commitment from our existing and new shareholders show the belief they have in our business plan and their excitement around new opportunities that are available to us. I want to thank the entire Grown Rogue team for their continued efforts and look forward to updating investors on our new market efforts shortly.”
OregonMarket Highlights ($USD Millions)
| Oregon | Q3 2023 | **** | Q3 2022 | **** | +/- % | **** | |||
|---|---|---|---|---|---|---|---|---|---|
| Revenue | 3.2 | 2.4 | +35 | % | |||||
| aEBITDA | 1.1 | 0.6 | +100 | % | |||||
| aEBITDA Margin % | 34.6 | % | 23.8 | % | +1080 bps | ||||
| ● | #1 Flower brand for nine consecutive quarters, according to LeafLink’s MarketScape data | ||||||||
| --- | --- | ||||||||
| ● | Launched a 10-pack craft pre-roll product during the quarter and are pleased with the initial traction | ||||||||
| --- | --- | ||||||||
| ● | September to date moved up to #2 total wholesaler in the state from #3, according to MarketScape | ||||||||
| --- | --- | ||||||||
| ● | Indoor wet weight harvested in the state of Oregon YTD through August decreased 3.5% year-over-year and outdoor wet weight YTD decreased 43% year-over-year, according to the Oregon Liquor and Cannabis Commission | ||||||||
| --- | --- |
MichiganMarket Highlights ($USD Millions)
| Michigan | Q3 2023 | Q3 2022 | +/- % | ||||||
|---|---|---|---|---|---|---|---|---|---|
| Revenue | 2.8 | 1.9 | +53 | % | |||||
| aEBITDA | 1.3 | 0.8 | +59 | % | |||||
| aEBITDA Margin % | 47.1 | % | 45.2 | % | +180 bps | ||||
| ● | Launched strain specific packaging during the quarter, and have seen an increase in both pricing and higher product mix of our pre-packaged products | ||||||||
| --- | --- | ||||||||
| ● | Sales in Michigan in July was a new record at $277M, making it the second largest market in the U.S | ||||||||
| --- | --- | ||||||||
| ● | Pricing per ounce of flower in Michigan in July was the highest since October 2022, according to the Michigan Cannabis Regulatory Agency | ||||||||
| --- | --- |
Michigan operations are through Golden Harvests, LLC.
2
FinancialStatements and aEBITDA reconciliation
| CONSOLIDATED STATEMENTS OF FINANCIAL POSITION | July 31,<br>2023 | October 31,<br>2022 | ||
|---|---|---|---|---|
| ASSETS | ||||
| Current assets | ||||
| Cash and cash equivalents | ||||
| Accounts receivable (Note 18) | ||||
| Warrants receivable (Note 13.2) | ||||
| Biological assets (Note 3) | ||||
| Inventory (Note 4) | ||||
| Prepaid expenses and other assets | ||||
| Total current assets | ||||
| Property and equipment (Note 8) | ||||
| Other investments and purchase deposits | ||||
| Intangible assets and goodwill (Note 9) | ||||
| TOTAL ASSETS | ||||
| LIABILITIES | ||||
| Current liabilities | ||||
| Accounts payable and accrued liabilities | ||||
| Current portion of lease liabilities (Note 7) | ||||
| Current portion of long-term debt (Note 10) | ||||
| Business acquisition consideration payable (Note 5) | ||||
| Warrants payable (Note 13.2) | ||||
| Unearned revenue | ||||
| Derivative liability (Note 11.1 and Note 11.2) | ||||
| Income tax | ||||
| Total current liabilities | ||||
| Lease liabilities (Note 7) | ||||
| Long-term debt (Note 10) | ||||
| Convertible debentures (Note 11.1 and Note 11.2) | ||||
| TOTAL LIABILITIES | ||||
| EQUITY | ||||
| Share capital (Note 12) | ||||
| Shares issuable (Note 12) | ||||
| Contributed surplus (Notes 13, 14) | ||||
| Accumulated other comprehensive loss | ) | ) | ||
| Accumulated deficit | ) | ) | ||
| Equity attributable to shareholders | ||||
| Non-controlling interests (Note 22) | ||||
| TOTAL EQUITY | ||||
| TOTAL LIABILITIES AND EQUITY |
All values are in US Dollars.
3
| Condensed Consolidated Statements of Comprehensive Income | Three months ended<br>July 31, | |||
|---|---|---|---|---|
| 2023 | 2022 | |||
| Revenue | ||||
| Product sales | ||||
| Service revenue | ||||
| Total revenue | ||||
| Cost of goods sold | ||||
| Cost of finished cannabis inventory sold | ) | ) | ||
| Costs of service revenue | ) | |||
| Gross profit, excluding fair value items | ||||
| Realized fair value amounts in inventory sold | ) | ) | ||
| Unrealized fair value gain on growth of biological assets | ||||
| Gross profit | ||||
| Expenses | ||||
| Accretion expense | ||||
| Amortization of property and equipment | ||||
| General and administrative | ||||
| Share-based compensation | ||||
| Total expenses | ||||
| Income from operations | ||||
| Other income and (expense) | ||||
| Interest expense | ) | ) | ||
| Other income (expense) | ) | |||
| Gain on debt settlement | ||||
| Unrealized loss on marketable securities | ) | |||
| Unrealized loss on derivative liability | ) | |||
| Loss on disposal of property and equipment | ||||
| Gain from operations before taxes | ||||
| Income tax | ) | ) | ||
| Net income | ||||
| Other comprehensive income (items that may be subsequently reclassified to profit & loss) | ||||
| Currency translation gain (loss) | ) | |||
| Total comprehensive income | ||||
| Gain per share attributable to owners of the parent – basic and diluted | ||||
| Weighted average shares outstanding – basic and diluted | ||||
| Net income (loss) for the period attributable to: | ||||
| Non-controlling interest | ||||
| Shareholders | ||||
| Net income | ||||
| Comprehensive income (loss) for the period attributable to: | ||||
| Non-controlling interest | ||||
| Shareholders | ||||
| Total comprehensive income |
All values are in US Dollars.
4
| CONSOLIDATED CASH FLOW STATEMENTS | Nine months ended<br>July 31, | |||
|---|---|---|---|---|
| 2023 | 2022 | |||
| Operating activities | ||||
| Net income | ||||
| Adjustments for non-cash items in net income: | ||||
| Amortization of property and equipment | ||||
| Amortization of property and equipment included in costs of inventory sold | ||||
| Unrealized gain on changes in fair value of biological assets | ) | ) | ||
| Changes in fair value of inventory sold | ||||
| Share-based compensation | ||||
| Stock option expense | ||||
| Accretion expense | ||||
| Loss on disposal of property & equipment | ||||
| Gain on debt settlement | ) | |||
| Unrealized loss on marketable securities | ||||
| Loss on fair value of derivative liability | ||||
| Effects of foreign exchange | ||||
| Changes in non-cash working capital (Note 15) | ) | ) | ||
| Net cash provided by operating activities | ||||
| Investing activities | ||||
| Purchase of property and equipment and intangibles | ) | ) | ||
| Other investment | ) | |||
| Payments of acquisition payable | ) | |||
| Net cash used in investing activities | ) | ) | ||
| Financing activities | ||||
| Proceeds from convertible debentures | ||||
| Proceeds from long-term debt | ||||
| Proceeds from private placement | ||||
| Repayment of long-term debt | ) | |||
| Repayment of convertible debentures | ) | |||
| Payments of lease principal | ) | ) | ||
| Net cash provided by financing activities | ) | |||
| Change in cash |
All values are in US Dollars.
5
SEGMENTEDaEBITDA – THREE MONTHS ENDED JULY 31, 2023
| Oregon | Michigan | Services | Corporate | Consolidated | |||||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
| Sales Revenue | 3,240,946 | 2,835,706 | 219,065 | - | 6,295,717 | ||||||||||
| Costs<br>of goods sold, excluding fair value (“FV”) adjustments | (1,902,582 | ) | (1,145,389 | ) | (99,212 | ) | - | (3,147,183 | ) | ||||||
| Gross profit before fair value adjustments | 1,338,364 | 1,690,317 | 119,853 | - | 3,148,534 | ||||||||||
| Net fair value adjustments | (238,228 | ) | 236,715 | - | - | (1,153 | ) | ||||||||
| Gross profit | 1,100,136 | 1,927,032 | 119,853 | - | 3,147,021 | ||||||||||
| Operating expenses: | |||||||||||||||
| General and administration | 559,045 | 538,057 | - | 544,623 | 1,641,725 | ||||||||||
| Depreciation and amortization | 26,577 | 145,386 | - | 24,400 | 196,363 | ||||||||||
| Share based compensation | - | - | - | 97,672 | 97,672 | ||||||||||
| Other income and expense: | |||||||||||||||
| Loss on sale of assets | - | - | - | - | - | ||||||||||
| Interest and accretion | (85,199 | ) | (47,802 | ) | - | (192,650 | ) | (325,651 | ) | ||||||
| Unrealized loss on derivative liability | - | - | - | (472,970 | ) | (472,970 | ) | ||||||||
| Other income and expense | 16,961 | 910 | - | (4,305 | ) | 13,566 | |||||||||
| Net income (loss) before income tax | 446,276 | 1,196,697 | 119,853 | (1,336,620 | ) | 426,206 | |||||||||
| Income tax | - | 77,718 | - | 9,000 | 80,718 | ||||||||||
| Net income after tax | 446,276 | 1,124,979 | 119,853 | (1,345,620 | ) | 345,488 | |||||||||
| Add back (deduct) from net income after tax: | |||||||||||||||
| Net FV adjustments in costs of goods sold | 238,228 | (236,715 | ) | - | - | 1,513 | |||||||||
| Amortization of property & equipment included in cost of sales | 325,534 | 182,800 | - | - | 508,334 | ||||||||||
| Interest and accretion expense | 85,199 | 47,802 | - | 192,650 | 325,651 | ||||||||||
| Amortization of property and equipment | 26,577 | 145,386 | - | 24,400 | 196,363 | ||||||||||
| Share-based compensation | - | - | - | 97,672 | 97,672 | ||||||||||
| Unrealized loss on derivative liability | - | - | - | 472,970 | 472,970 | ||||||||||
| Income tax expense | - | 71,718 | - | 9,000 | 80,718 | ||||||||||
| EBITDA | 1,121,814 | 1,335,970 | 119,853 | (548,928 | ) | 2,028,709 | |||||||||
| Add back to EBITDA: | |||||||||||||||
| Compliance costs | - | - | - | 22,946 | 22,946 | ||||||||||
| Costs associated with acquisition of Golden Harvests | - | - | - | 40,000 | 40,000 | ||||||||||
| aEBITDA | 1,121,814 | 1,335,970 | 119,853 | (485,982 | ) | 2,091,655 | |||||||||
| aEBITDA margin % | 34.6 | % | 47.1 | % | 54.7 | % | - | 33.2 | % |
NOTES:
| 1. | The<br>Company’s “Free cash flow” metric is defined by cash flow from operations minus capital expenditures. |
|---|---|
| 2. | The<br>Company’s “aEBITDA,” or “Adjusted EBITDA,” is a non-IFRS measure used by management that does not have<br>any prescribed meaning by IFRS and that may not be comparable to similar measures presented by other companies. The Company defines “EBITDA”<br>as the Company’s net income or loss for a period, as reported, before interest, taxes, depreciation and amortization, and is further<br>adjusted to remove transaction costs, stock-based compensation expense, accretion expense, gain (loss) on derecognition of derivative<br>liabilities, the effects of fair-value accounting for biological assets and inventory, as well as other non-cash items and items not<br>representative of operational performance as reported in net income (loss). Adjusted EBITDA is defined as EBITDA adjusted for the impact<br>of various significant or unusual transactions. The Company believes that this is a useful metric to evaluate its operating performance. |
| --- | --- |
NON-IFRS FINANCIAL MEASURES
EBITDAand aEBITDA are non-IFRS measures and do not have standardized definitions under IFRS. The Company has provided the non-IFRS financialmeasures, which are not calculated or presented in accordance with IFRS, as supplemental information and in addition to the financialmeasures that are calculated and presented in accordance with IFRS. These supplemental non-IFRS
6
financial measures are presented becausemanagement has evaluated the financial results both including and excluding the adjusted items and believe that the supplemental non-IFRSfinancial measures presented provide additional perspective and insights when analyzing the core operating performance of the business.These supplemental non-IFRS financial measures should not be considered superior to, as a substitute for or as an alternative to, andshould only be considered in conjunction with, the IFRS financial measures presented herein. Accordingly, the following information providesreconciliations of the supplemental non-IFRS financial measures, presented herein to the most directly comparable financial measurescalculated and presented in accordance with IFRS.
AboutGrown Rogue
Grown Rogue International (CSE: GRIN | OTC: GRUSF) is a craft cannabis company operating in Oregon and Michigan, and in Minnesota and Maryland through an advisory agreement with Goodness Growth Holdings, Inc., is focused on delighting customers with premium flower and flower-derived products at fair prices. Our roots are in Southern Oregon where we have demonstrated our capabilities in the highly competitive and discerning Oregon market and, more recently, we successfully expanded our platform to Michigan. We combine our passion for product and value with a disciplined approach to growth, prioritizing profitability and return on capital. Our strategy is to pursue capital efficient methods to expand into new markets, bringing our craft quality and value to more consumers. We also continue to make modest investments to improve our outdoor craft cultivation capabilities in preparation for eventual interstate commerce.
FORWARD-LOOKINGSTATEMENTS
Thispress release contains statements which constitute “forward-looking information” within the meaning of applicable securitieslaws, including statements regarding the plans, intentions, beliefs and current expectations of the Company with respect to future businessactivities. Forward- looking information is often identified by the words “may,” “would,” “could,”“should,” “will,” “intend,” “plan,” “anticipate,” “believe,”“estimate,” “expect” or similar expressions and include information regarding: (i) statements regarding the futuredirection of the Company (ii) the ability of the Company to successfully achieve its business and financial objectives, (iii) plans forexpansion of the Company and securing applicable regulatory approvals, and (iv) expectations for other economic, business, and/or competitivefactors. Investors are cautioned that forward-looking information is not based on historical facts but instead reflect the Company’smanagement’s expectations, estimates or projections concerning the business of the Company’s future results or events basedon the opinions, assumptions and estimates of management considered reasonable at the date the statements are made. Although the Companybelieves that the expectations reflected in such forward-looking information are reasonable, such information involves risks and uncertainties,and undue reliance should not be placed on such information, as unknown or unpredictable factors could have material adverse effectson future results, performance or achievements of the combined company. Among the key factors that could cause actual results to differmaterially from those projected in the forward-looking information are the following: changes in general economic, business and politicalconditions, including changes in the financial markets; and in particular in the ability of the Company to raise debt and equity capitalin the amounts and at the costs that it expects; adverse changes in the public perception of cannabis; decreases in the prevailing pricesfor cannabis and cannabis products in the markets that the Company operates in; adverse changes in applicable laws; or adverse changesin the application or enforcement of current laws; compliance with extensive government regulation and related costs, and other risksdescribed in the Company’s public disclosure documents filed on Sedar.
Shouldone or more of these risks or uncertainties materialize, or should assumptions underlying the forward-looking information prove incorrect,actual results may vary materially from those described herein as intended, planned, anticipated, believed, estimated or expected. Althoughthe Company has attempted to identify important risks, uncertainties and factors which could cause actual results to differ materially,there may be others that cause results not to be as anticipated, estimated or intended. The Company does not intend, and does not assumeany obligation, to update this forward-looking information except as otherwise required by applicable law.
7
TheCompany is indirectly involved in the manufacture, possession, use, sale and distribution of cannabis in the recreational cannabis marketplacein the United States through its indirect operating subsidiaries. Local state laws where its subsidiaries operate permit such activitieshowever, these activities are currently illegal under United States federal law. Additional information regarding this and other risksand uncertainties relating to the Company’s business are disclosed in the Company’s Listing Statement filed on its issuerprofile on SEDAR+ at www.sedarplus.ca. Should one or more of these risks, uncertaintiesor other factors materialize, or should assumptions underlying the forward-looking information or forward-looking statements prove incorrect,actual results may vary materially from those described herein as intended, planned, anticipated, believed, estimated or expected.
Nostock exchange, securities commission or other regulatory authority has approved or disapproved the information contained herein.
Forfurther information on Grown Rogue International please visit www.grownrogue.com or contact:
Obie Strickler
Chief Executive Officer
Jakob Iotte
Director of Business
Development and IR
(458) 226-2100
8
Exhibit31
GrownRogue Announces Entry into New Jersey
| ● | Signeda definitive agreement with an option to acquire 70% of ABCO Garden State, LLC (“ABCO”) in two tranches, pending regulatoryapproval |
|---|---|
| ● | ABCOhas a conditional cultivation license with the New Jersey Cannabis Regulatory Commission and is expected to receive its annual licensein October |
| --- | --- |
| ● | ABCOhas all local zoning and planning approvals and has secured a long-term lease of a ~50,000 square foot facility ready to build with sufficientpower supply |
| --- | --- |
Medford,Oregon, October 4, 2023 – Grown Rogue International Inc. (“Grown Rogue” or the “Company”) (CSE: GRIN) (OTC: GRUSF), a craft cannabis company operating in Oregon and Michigan, and in Minnesota and Maryland through an advisory agreement with Goodness Growth Holdings, Inc., announces that it has signed a definitive agreement with an option to acquire 70% of ABCO Garden State, LLC (“ABCO”), pending regulatory approval from the New Jersey Cannabis Regulatory Commission (“CRC”). ABCO has a conditional cultivation and manufacturing license already issued by the CRC and anticipates receiving its annual cultivation license shortly.
The key deal terms are as follows:
| ● | GrownRogue has an option to acquire 70% of ABCO in two tranches, 49% in the first tranche (“Tranche 1”) and 21% in the second(“Tranche 2”), pending regulatory approval |
|---|---|
| ● | GrownRogue anticipates exercising its Tranche 1 option upon receiving licensing approval from the CRC with its Tranche 2 option, pending regulatoryapproval, 2 years after the commencement of operations. Grown Rogue has also secured the right to purchase the remaining 30% of ABCO. |
| --- | --- |
| ● | GrownRogue is paying US$10,000 per option. At the exercise of its Tranche 1 option, Grown Rogue has the option to pay US$1,390,000 (“Tranche1 Price”) at closing or execute a 12.5% interest only note for 2 years at which time the Tranche 1 Price is due and payable. Atthe exercise of its Tranche 2 option, Grown Rogue will pay US$590,000 (“Tranche 2 Price”) at closing. |
| --- | --- |
| ● | Exceptfor $100,000 going to the current members of ABCO, the remainder of the Tranche 1 Price and Tranche 2 Price will be used to fund tenantimprovements or for general working capital at the ~50,000 square foot facility (“Facility”) leased by ABCO. In addition,pending regulatory approval and construction needs, Grown Rogue has agreed to loan up to US$4,000,000 for improvements at the Facility(“Drawdown Loan”). |
| --- | --- |
| ● | Theexercise of the Tranche 1 and Tranche 2 options and the Drawdown Loan are all subject to regulatory approval. |
| --- | --- |
“We are extremely excited to announce our partnership with ABCO, accelerating our ability to bring the quality and value of Grown Rogue products to the consumers in New Jersey,” said Obie Strickler, CEO of Grown Rogue. “Over the past two years we have analyzed many expansion opportunities, and none had the risk and reward profile that New Jersey, and specifically this Facility, offers. To put this investment in perspective, Grown Rogue invested US$4,000,000 in capital expenditures in a similar size facility in Michigan and that asset is
currently on a run rate of generating nearly $4,000,000 in after tax operating cash flow. To add, the current average selling price of flower in New Jersey is nearly triple the average price of Michigan. We can’t wait to bring Grown Rogue’s Oregon quality flower and top-notch genetics to New Jersey. We believe we can delight NJ cannabis consumers and reward shareholders due to our battle-tested experience competing in Oregon as the #1 flower producer, and in Michigan as a top 5 indoor flower wholesaler. All expenditures in New Jersey are expected to be done with cash on hand and cash generated from current operations,” continued Mr. Strickler.
The retrofit of the Facility is anticipated to start in October 2023, and will likely be constructed in two phases. Construction of Phase 1 is estimated to be completed in Q2 2024 with the first harvest completed in Q3 2024 and will include the construction of ~10,000 square feet of flowering bench space and is estimated to yield ~600 pounds of whole flower per month. The remaining construction is estimated to be completed by the end of 2024 with the first harvest completed in Q1 2025, consisting of total flowering bench space of ~17,000 square feet and ~1,000 pounds of whole flower per month.
The New Jersey cannabis market reported more than US$191,000,000 in sales in the three months ended June 30, 2023. According to MJBizDaily, this market is expected to grow to US$2,400,000,000 by 2026, representing a 40% compound annual growth rate.
AboutGrown Rogue
Grown Rogue International (CSE: GRIN | OTC: GRUSF) is a craft cannabis company operating in Oregon and Michigan, and in Minnesota and Maryland through an advisory agreement with Goodness Growth Holdings, Inc., is focused on delighting customers with premium flower and flower-derived products at fair prices. Our roots are in Southern Oregon where we have demonstrated our capabilities in the highly competitive and discerning Oregon market and, more recently, we successfully expanded our platform to Michigan. We combine our passion for product and value with a disciplined approach to growth, prioritizing profitability and return on capital. Our strategy is to pursue capital efficient methods to expand into new markets, bringing our craft quality and value to more consumers. We also continue to make modest investments to improve our outdoor craft cultivation capabilities in preparation for eventual interstate commerce.
FORWARD-LOOKINGSTATEMENTS
Thispress release contains statements which constitute “forward-looking information” within the meaning of applicable securitieslaws, including statements regarding the plans, intentions, beliefs and current expectations of the Company with respect to future businessactivities. Forward- looking information is often identified by the words “may,” “would,” “could,”“should,” “will,” “intend,” “plan,” “anticipate,” “believe,”“estimate,” “expect” or similar expressions and include information regarding: (i) statements regarding the futuredirection of the Company (ii) the ability of the Company to successfully achieve its business and financial objectives, (iii) plans forexpansion of the Company into Michigan and securing applicable regulatory approvals, and (iv) expectations for other economic, business,and/or competitive factors. Investors are cautioned that forward-looking information is not based on historical facts but instead reflectthe Company’s management’s expectations, estimates or projections concerning the business of the Company’s future resultsor events based on the opinions, assumptions and estimates of management considered reasonable at the date the statements are made. Althoughthe Company believes that the expectations reflected in
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suchforward-looking information are reasonable, such information involves risks and uncertainties, and undue reliance should not be placedon such information, as unknown or unpredictable factors could have material adverse effects on future results, performance or achievementsof the combined company. Among the key factors that could cause actual results to differ materially from those projected in the forward-lookinginformation are the following: changes in general economic, business and political conditions, including changes in the financial markets;and in particular in the ability of the Company to raise debt and equity capital in the amounts and at the costs that it expects; adversechanges in the public perception of cannabis; decreases in the prevailing prices for cannabis and cannabis products in the markets thatthe Company operates in; adverse changes in applicable laws; or adverse changes in the application or enforcement of current laws; compliancewith extensive government regulation and related costs, and other risks described in the Company’s public disclosure documentsfiled on Sedar.
Shouldone or more of these risks or uncertainties materialize, or should assumptions underlying the forward-looking information prove incorrect,actual results may vary materially from those described herein as intended, planned, anticipated, believed, estimated or expected. Althoughthe Company has attempted to identify important risks, uncertainties and factors which could cause actual results to differ materially,there may be others that cause results not to be as anticipated, estimated or intended. The Company does not intend, and does not assumeany obligation, to update this forward-looking information except as otherwise required by applicable law.
SAFEHARBOR STATEMENT
Thispress release may contain forward-looking information within the meaning of Section 21E of the Securities Exchange Act of 1934, as amended(the “Exchange Act”), including all statements that are not statements of historical fact regarding the intent, belief orcurrent expectations of the Company, its directors or its officers with respect to, among other things: (i) the Company’s financingplans; (ii) trends affecting the Company’s financial condition or results of operations; (iii) the Company’s growth strategyand operating strategy; and (iv) the declaration and payment of dividends. The words “may,” “would,” “will,”“expect,” “estimate,” “anticipate,” “believe,” “intend” and similar expressionsand variations thereof are intended to identify forward-looking statements. Also, forward-looking statements represent our management’sbeliefs and assumptions only as of the date hereof. Except as required by law, we assume no obligation to update these forward-lookingstatements publicly, or to update the reasons actual results could differ materially from those anticipated in these forward-lookingstatements, even if new information becomes available in the future. Investors are cautioned that any such forward-looking statementsare not guarantees of future performance and involve risks and uncertainties, many of which are beyond the Company’s ability tocontrol, and that actual results may differ materially from those projected in the forward-looking statements as a result of variousfactors including the risk disclosed in the Company’s Form 20-F and 6-K filings with the Securities and Exchange Commission.
TheCompany is indirectly involved in the manufacture, possession, use, sale and distribution of cannabis in the recreational cannabis marketplacein the United States through its indirect operating subsidiaries. Local state laws where its subsidiaries operate permit such activitieshowever, these activities are currently illegal under United States federal law. Additional information regarding this and other risksand uncertainties relating to the Company’s business are disclosed in the Company’s Listing Statement filed on its issuerprofile on SEDAR at www.sedar.com. Should one or more of these risks, uncertainties or other factors materialize, or should assumptionsunderlying the forward-looking information or forward-looking statements prove incorrect, actual results may vary materially from thosedescribed herein as intended, planned, anticipated, believed, estimated or expected.
Nostock exchange, securities commission or other regulatory authority has approved or disapproved the information contained herein.
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Forfurther information on Grown Rogue International please visit www.grownrogue.com or contact:
Obie Strickler
Chief Executive Officer
Jakob Iotte
Director of Business
Development and IR
(458) 226-2100
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Exhibit32
GoodnessGrowth Holdings and Grown Rogue InternationalAnnounce the Completed Issuance of Warrants
–Goodness Growth and Grown Rogue each issued warrants to the other to purchase listed shares –
–Issuances were announced in May at the same time as a strategic agreement between the Parties –
MINNEAPOLIS,MN and MEDFORD, OR – Oct. 6, 2023 – Goodness Growth Holdings, Inc. (“Goodness Growth”) (CSE: GDNS; OTCQX: GDNSF), and Grown Rogue International, Inc. (“Grown Rogue”) (CSE: GRIN; OTC: GRUSF) (collectively the “Parties” or the “Companies”), today announced that they have completed the issuance of warrants to purchase listed shares as previously announced on May 25, 2023.
In May, the Companies announced their intention to issue warrants (as described herein) at the same time the Companies announced a strategic agreement (the “Agreement”) whereby Grown Rogue supports Goodness Growth in the optimization of its cannabis flower products, with a particular focus on improving the quality and yield of top-grade “A” cannabis flower in Minnesota and Maryland. The issuance of those warrants has now been completed.
On October 5, 2023, Goodness Growth issued 10,000,000 warrants to purchase subordinate voting shares of Goodness Growth to Grown Rogue, with a strike price equal to C$0.317 (US$0.233), which represented a 25.0 percent premium to the 10-day volume weighted average price (“VWAP”) of Goodness Growth’s subordinate voting shares on the trading day immediately prior to the effective date of the Agreement. Similarly, Grown Rogue issued 8,500,000 warrants to purchase shares of Grown Rogue to Goodness Growth, with a strike price equal to C$0.225 (US$0.166), which represented a 25.0 percent premium to the 10-day VWAP of Grown Rogue’s subordinate voting shares on the trading day immediately prior to the effective date of the Agreement. The warrants exchanged in the agreement were issued with five-year terms to exercise (provided that the Grown Rogue warrants may terminate earlier on an insolvency event relating to Goodness Growth), may not be registered with the United States Securities & Exchange Commission or qualified by any Canadian provincial securities commission, and are not assignable except as set forth in the warrant certificates, as more particularly described in the May 25, 2023 announcement.
The aforementioned warrants and shares underlying such warrants are subject to a four-month and one-day hold period from the date of issuance under applicable Canadian securities laws.
AboutGoodness Growth Holdings, Inc.
Goodness Growth Holdings, Inc. (CSE: GDNS; OTCQX: GDNSF) is a cannabis company whose mission is to provide safe access, quality products and value to its customers while supporting its local communities through active participation and restorative justice programs. The Company is evolving with the industry and is in the midst of a transformation to being significantly more customer-centric across its operations, which include cultivation, manufacturing, wholesale and retail business lines. Today, the Company is licensed to grow, process, and/or distribute cannabis in four markets and operates 14 dispensaries in three states. For more information about Goodness Growth Holdings, please visit www.goodnessgrowth.com.
AboutGrown Rogue International, Inc.
Grown Rogue International, Inc. (CSE: GRIN; OTC: GRUSF), is a craft cannabis company focused on delighting customers with premium flower and flower-derived products at fair prices. The Company’s roots are in Southern Oregon where it has demonstrated its capabilities in the highly competitive and discerning Oregon market and, more recently, successfully expanded its platform to Michigan. The Company combines its passion for product and value with a disciplined approach to growth, prioritizing profitability and return on capital. Its strategy is to pursue capital efficient methods to expand into new markets, bringing craft quality and value to more consumers. The Company also continues to make modest investments to improve its outdoor craft cultivation capabilities in preparation for eventual interstate commerce. For more information about Grown Rogue, please visit www.grownrogue.com.
ContactInformation:
Goodness Growth Holdings, Inc.:
Amanda Hutcheson
SeniorManager, Communications
(919) 815-1476
Grown Rogue International, Inc.:
Investor Relations Desk
(458) 226-2100
Forward-LookingStatement Disclosure
This press release contains “forward-looking information” within the meaning of applicable United States and Canadian securities legislation. To the extent any forward-looking information in this press release constitutes “financial outlooks” within the meaning of applicable United States or Canadian securities laws, such information is being provided as preliminary financial results and the reader is cautioned that this information may not be appropriate for any other purpose and the reader should not place undue reliance on such financial outlooks. Forward-looking information contained in this press release may be identified by the use of words such as “should,” “believe,” “could,” “looking forward,” “may,” “continue,” “expect,” “will,” “subject to,” and variations of such words and phrases, or any verbs in the future tense. These statements should not be read as guarantees of future performance or results. Forward-looking information includes both known and unknown risks, uncertainties, and other factors which may cause the actual results, performance, or achievements of Goodness Growth and Grown Rogue or their subsidiaries to be materially different from any future results, performance, or achievements expressed or implied by the forward-looking statements or information contained in this press release. Forward-looking information is based upon a number of estimates and assumptions of Goodness Growth’s and Grown Rogue’s management teams, believed but not certain to be reasonable, in light of management’s experience and perception of trends, current conditions, and expected developments, as well as other factors relevant in the circumstances, including assumptions in respect of current and future market conditions, the current and future regulatory environment, and the availability of licenses, approvals and permits.
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Although Goodness Growth and Grown Rogue believe that the expectations and assumptions on which such forward-looking information is based are reasonable, undue reliance should not be placed on the forward-looking information because Goodness Growth and Grown Rogue can give no assurance that they will prove to be correct. Actual results and developments may differ materially from those contemplated by these statements. Forward-looking information is subject to a variety of risks and uncertainties that could cause actual events or results to differ materially from those projected in the forward-looking information. Such risks and uncertainties include, but are not limited to, risks related to the timing of adult-use legislation in markets where the Company currently operates; current and future market conditions, including the market price of the subordinate voting shares Goodness Growth and Grown Rogue; risks related to epidemics and pandemics, federal, state, local, and foreign government laws, rules, and regulations, including federal and state laws and regulations in the United States relating to cannabis operations in the United States and any changes to such laws or regulations; operational, regulatory and other risks; execution of business strategy; management of growth; difficulties inherent in forecasting future events; conflicts of interest; risks inherent in an agricultural business; risks inherent in a manufacturing business; liquidity risks and other risk factors set out in Goodness Growth and Grown Rogue’s Annual Reports for the year ended December 31, 2022, which are available, if applicable, on EDGAR with the U.S. Securities and Exchange Commission and filed with the Canadian securities regulators and available under the Goodness Growth’s and Grown Rogue’s company profiles on SEDAR at www.sedar.com.
The statements in this press release are made as of the date of this release. Except as required by law, Goodness Growth and Grown Rogue undertake no obligation to update any forward-looking statements or forward-looking information to reflect events or circumstances after the date of such statements.
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Exhibit33
Form51-102F3
MaterialChange Report
| Item 1 | Name and Address of Company |
|---|
Grown Rogue International Inc. (“Grown Rogue” or the “Company”)
550 Airport Road
Medford, Oregon
United States 97504
| Item 2 | Date of Material Change |
|---|
October 4, 2023 and October 5, 2023
| Item 3 | News Release |
|---|
A news release was issued by the Company on October 4, 2023 through the facilities of Cision, and a joint news release was issued by Goodness Growth on October 6, 2023 through the facilities of GlobeNewsWire. Both press releases were filed under the Company’s profile on SEDAR+.
| Item 4 | Summary of Material Change |
|---|
On October 4, 2023, the Company announced that it has signed a definitive agreement (the “Definitive Agreement”) with an option to acquire 70% of ABCO Garden State, LLC (“ABCO”), pending regulatory approval from the New Jersey Cannabis Regulatory Commission (“CRC”). ABCO has a conditional cultivation and manufacturing license already issued by the CRC and anticipates receiving its annual cultivation license shortly.
Additionally, on October 5, 2023, the Company, pursuant to an advisory agreement (the “Advisory Agreement”) with Goodness Growth Holdings, Inc. (“Goodness Growth”), issued to Goodness Growth of 8,500,000 warrants to purchase common shares in exchange for 10,000,000 warrants of Goodness Growth, as previously announced on May 25, 2023. The Company supports Goodness Growth in the optimization of its cannabis flower products, with a particular focus on improving the quality and yield of top-grade “A” cannabis flower in Minnesota and Maryland.
| Item 5.1 | Full Description of Material Change |
|---|
NewJersey Expansion
The key deal terms under the Definitive Agreement are as follows:
| ● | Grown<br>Rogue has an option to acquire 70% of ABCO in two tranches, 49% in the first tranche (“Tranche 1”) and 21% in the<br>second (“Tranche 2”), pending regulatory approval. |
|---|---|
| ● | Grown<br>Rogue anticipates exercising its Tranche 1 option upon receiving licensing approval from the CRC with its Tranche 2 option, pending regulatory<br>approval, 2 years after the commencement of operations. |
| --- | --- |
| ● | Grown<br>Rogue has also secured the right to purchase the remaining 30% of ABCO as follows: at any time after the second anniversary of the date<br>Grown Rogue has exercised its option to purchase an additional twenty-one percent (21%) of the equity of ABCO and therefore holds no<br>less than seventy percent (70%) of the issued and outstanding stock of ABCO, then Grown Rogue shall have the right, but not the obligation,<br>to deliver to the other stockholders of ABCO (the “Selling Stockholders”) a written notice (the “Notice”)<br>to purchase the Selling Stockholders’ entire stock of ABCO for a purchase price equal to the fair market value of the stock (the<br>“Call Price”) as determined by the parties pursuant to ABCO’s then-current stockholder agreement (the “StockholderAgreement”).Thereafter,<br>the parties shall have no later than sixty (60) business days following receipt by the Selling Stockholders of the Notice to complete<br>such transaction. Grown Rogue shall have sole discretion as to its preferred method to pay the Call Price, inclusive of 100% cash, or<br>cash and the issuance of shares of the Issuer, as detailed in the Stockholder Agreement. |
| --- | --- |
| ● | Grown<br>Rogue is paying US$10,000 per option. At the exercise of its Tranche 1 option, Grown Rogue has the option to pay US$1,390,000 (“Tranche1 Price”) at closing or execute a 12.5% interest only note for 2 years at which time the Tranche 1 Price is due and payable.<br>At the exercise of its Tranche 2 option, Grown Rogue will pay US$590,000 (“Tranche 2 Price”) at closing. |
| --- | --- |
| ● | Except<br>for $100,000 going to the current members of ABCO, the remainder of the Tranche 1 Price and Tranche 2 Price will be used to fund tenant<br>improvements or for general working capital at the ~50,000 square foot facility (“Facility”) leased by ABCO. In addition,<br>pending regulatory approval and construction needs, Grown Rogue has agreed to loan up to US$4,000,000 for improvements at the Facility<br>(“Drawdown Loan”). |
| --- | --- |
| ● | The<br>exercise of the Tranche 1 and Tranche 2 options and the Drawdown Loan are all subject to regulatory approval. |
| --- | --- |
WarrantIssuance
On October 5, 2023, Goodness Growth issued 10,000,000 warrants to purchase subordinate voting shares of Goodness Growth to Grown Rogue, with a strike price equal to C$0.317 (US$0.233), which represented a 25.0 percent premium to the 10-day volume weighted average price (“VWAP”) of Goodness Growth’s subordinate voting shares on the trading day immediately prior to the effective date of the Advisory Agreement. Similarly, Grown Rogue issued 8,500,000 warrants to purchase shares of Grown Rogue to Goodness Growth, with a strike price equal to C$0.225 (US$0.166), which represented a 25.0 percent premium to the 10-day VWAP of Grown Rogue’s subordinate voting shares on the trading day immediately prior to the effective date of the Advisory Agreement. The warrants exchanged in the Advisory Agreement were issued with five-year terms to exercise (provided that the Grown Rogue warrants may terminate earlier on an insolvency event relating to Goodness Growth).
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| Item 6 | Reliance on Subsection 7.1(2) of National Instrument 51-102 |
|---|
Not applicable.
| Item 7 | Omitted Information |
|---|
Not applicable.
| Item 8 | Executive Officer |
|---|
J. Obie Strickler
Chief Executive Officer
Tel: +1 458 226 2100
Email: [email protected]
| Item 9 | Date of Report |
|---|
October 13, 2023.
CautionaryNote Regarding Forward Looking Information
Thisreport contains statements which constitute “forward-looking information” within the meaning of applicable securities laws,including statements regarding the plans, intentions, beliefs and current expectations of the Company with respect to future businessactivities. Forward- looking information is often identified by the words “may,” “would,” “could,”“should,” “will,” “intend,” “plan,” “anticipate,” “believe,”“estimate,” “expect” or similar expressions and include information regarding: (i) statements regarding the futuredirection of the Company (ii) the ability of the Company to successfully achieve its business and financial objectives, and (iii) expectationsfor other economic, business, and/or competitive factors. Investors are cautioned that forward-looking information is not based on historicalfacts but instead reflect the Company’s management’s expectations, estimates or projections concerning the business of theCompany’s future results or events based on the opinions, assumptions and estimates of management considered reasonable at thedate the statements are made. Although the Company believes that the expectations reflected in such forward-looking information are reasonable,such information involves risks and uncertainties, and undue reliance should not be placed on such information, as unknown or unpredictablefactors could have material adverse effects on future results, performance or achievements of the combined company. Among the key factorsthat could cause actual results to differ materially from those projected in the forward-looking information are the following: changesin general economic, business and political conditions, including changes in the financial markets; and in particular in the abilityof the Company to raise debt and equity capital in the amounts and at the costs that it expects; adverse changes in the public perceptionof cannabis; decreases in the prevailing prices for cannabis and cannabis products in the markets that the Company operates in; adversechanges in applicable laws; or adverse changes in the application or enforcement of current laws; compliance with extensive governmentregulation and related costs, and other risks described in the Company’s public disclosure documents filed on SEDAR+ at www.sedarplus.ca.
Shouldone or more of these risks or uncertainties materialize, or should assumptions underlying the forward-looking information prove incorrect,actual results may vary materially from those described herein as intended, planned, anticipated, believed, estimated or expected. Althoughthe Company has attempted to identify important risks, uncertainties and factors which could cause actual results to differ materially,there may be others that cause results not to be as anticipated, estimated or intended. The Company does not intend, and does not assumeany obligation, to update this forward-looking information except as otherwise required by applicable law.
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Exhibit 34
Form45-106F1 Report of Exempt Distribution ITEM 1 - REPORT TYPE New report Amended report If amended, provide filing date of report that is being amended. (YYYY-MM-DD) ITEM 2 - PARTY CERTIFYING THE REPORT Indicate the party certifying the report (select onlyone). For guidance regarding whether an issuer is an investment fund, refer to section 1.1 of National Instrument 81-106 Investment FundContinuous Disclosure and the companion policy to NI 81-106 (in Québec, Regulation 81-106 respecting Investment Fund ContinuousDisclosure and Policy Statement to Regulation 81-106 respecting Investment Fund Continuous Disclosure). **Investment fund issuerIssuer (other than an investment fund) Underwriter I3 - ISSUER NAME AND OTHER IDENTIFIERS Provide the following information aboutthe issuer, or if the issuer is an investment fund, about the fund. Full legal name Grown Rogue International Inc. / Grown RogueInternational Inc. Previous full legal name NOVICIUS CORP. If the issuer’s name changed in the last 12 months, provide mostrecent previous legal name. Website www.grownrogue.com (if applicable) If the issuer has a legal entity identifier, provide below.Refer to Part B of the Instructions for the definition of “legal entity identifier”. Legal entity identifier If twoor more issuers distributed a single security, provide the full legal name(s) of the co-issuer(s) other than the issuer named above.Full legal name(s) of co-issuer(s) (if applicable)
ITEM5 - ISSUER INFORMATION If the issuer is an investment fund, do not complete Item 5. Proceed to Item 6. a) Primary industry Provide the issuer’s North American Industry Classification Standard (NAICS) code (6 digits only) that in your reasonable judgmentmost closely corresponds to the issuer’s primary business activity. NAICS industry code 000000 f the issuer is in the miningindustry, indicate the stage of operations. This does not apply to issuers that provide services to issuers operating in the miningindustry. Select the category that best describes the issuer’s stage of operations. Exploration Development Production Isthe issuer’s primary business to invest all or substantially all of its assets in any of the following? If yes, select all thatapply. Mortgages Real estate Commercial/business debt Consumer debt Private companies Cryptoassets b) Number of employees Number of employees: 0 - 49 50 - 99 100 - 499 500 or more c) SEDAR+ profile number Provide the issuer’s SEDAR+ profile number 000008380 ITEM 6 - INVESTMENT FUND ISSUER INFORMATION If the issuer is an investment fund, provide the following information. a) Investment fund manager information Full legal name Firm NRD number (if applicable) SEDAR+ profile number b) Type of investment fund Type of investment fund that most accurately identifies the issuer (select only one). Money market Equity Fixed income Balanced Alternative strategies Cryptoasset Other (describe)
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Indicate whether one or both of the following apply to the investment fund. Invest primarily in other investment fund issuers Is a UCITs Fund ^1 1^ Undertaking for the Collective Investment of Transferable Securities funds (UCITs Funds) are investment fundsregulated by the European Union (EU) directives that allow collective investment schemes to operate throughout the EU on a passport basison authorization from one member state. c) Net asset value (NAV) of the investment fund Select the NAV range of the investmentfund as of the date of the most recent NAV calculation (Canadian $). Under $5M $5M to under $25M $25M to under $100M Date of NAV calculation: $100M to under $500M $500M to under $1B $1B or over YYYY MM DD ITEM 7 - INFORMATION ABOUT THE DISTRIBUTION If anissuer located outside of Canada completes a distribution in a jurisdiction of Canada, include in Item 7 and Schedule 1 information aboutpurchasers resident in that jurisdiction of Canada only. Do not include in Item 7 securities issued as payment of commissions or finder'sfees, in connection with the distribution, which must be disclosed in Item 8. The information provided in Item 7 must reconcile withthe information provided in Schedule 1 of the report. a) Currency Select the currency or currencies in which the distributionwas made. All dollar amounts provided in the report must be in Canadian dollars. Canadian dollar US dollar Euro Other (describe) b) Distribution dates State the distribution start and end dates. If the report is being filed for securities distributed on onlyone distribution date, provide the distribution date as both the start and end dates. If the report is being filed for securities distribuedon a continuous basis, include the start and end dates for the distribution period covered by the report. Start date 2023 10 05 End date 2023 10 05 YYYY MM DD YYYY MM DD c) Detailed purchaser information Complete Schedule 1 of this form for each purchaser andattach the schedule to the completed report. d) Types of securities distributed Provide the following information for alldistributions reported on a per security basis. Refer to Part A(12) of the Instructions for how to indicate the security code. If providingthe CUSIP number, indicate the full 9-digit CUSIP number assigned to the security being distributed. Canadian $ Security CUSIPNumber of Single or Highest number (if Description of security Total amount code applicable) securities lowest price price WNT 399861064 Warrants 8,500,000.0000 0.0588 0.0588 500,000.0000
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e) Details of rights and convertible/exchangeable securities If any rights (e.g. warrants, options) were distributed, provide the exerciseprice and expiry date for each right. If any convertible/exchangeable securities were distributed, provide the conversion ratio and describeany other terms for each convertible/exchangeable security. Convertible / Underlying Exercise price Expiry date (YYYY-MM- Describeother terms (if (Canadian $) exchangeable Conversion ratio security code DD) applicable) security code Lowest Highest WNT CMS 0.2250 0.2250 2028-10-05 1:1 Expiry upon insolvency of h older. f) Summary of the distribution by jurisdiction and exemption *State the totaldollar amount of securities distributed and the number of purchasers for each jurisdiction of Canada and foreign jurisdiction where apurchaser resides and for each exemption relied on in Canada for that distribution. However, if an issuer located outside of Canada completesa distribution in a jurisdiction of Canada, include distributions to purchasers resident in that jurisdiction of Canada only. This tablerequires a separate line item for: (i) each jurisdiction where a purchaser resides, (ii) each exemption relied on in the jurisdictionwhere a purchaser resides, if a purchaser resides in a jurisdiction of Canada, and (iii) each exemption relied on in Canada, if a purchaserresides in a foreign jurisdiction. For jurisdictions within Canada, state the province or territory, otherwise state the country.Provinceor country Exemption relied on Number of unique purchasers^2a^ Total amount (Canadian $) British Columbia NI 45-106 2.3[Accredited investor] 1 500,000.0000 Total dollar amount of securities distributed $500,000.0000 **Total number of unique purchasers^2b^*1 ^2a^ In calculating the number of unique purchasers per row, count each purchaser only once. Joint purchasers maybe counted as one purchaser. ^2b^In calculating the total number of unique purchasers to which the issuer distributed securities,count each purchaser only once, regardless of whether the issuer distributed multiple types of securities to, and relied on multipleexemptions for, that purchaser. g) Net proceeds to the investment fund by jurisdiction If the issuer is an investment fund, provide thenet proceeds to the investment fund for each jurisdiction of Canada and foreign jurisdiction where a purchaser resides.^3^Ifan issuer located outside of Canada completes a distribution in a jurisdiction of Canada, include net proceeds for that jurisdictionof Canada only. For jurisdictions within Canada, state the province or territory, otherwise state the country. Province or countryNet proceeds (Canadian $) Total net proceeds to the investment fund ^3^"Net proceeds" means the gross proceedsrealized in the jurisdiction from the distributions for which the report is being filed, less the gross redemptions that occurred duringthe distribution period covered by the report.
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ITEM 8 - COMPENSATION INFORMATION Provide information for each person (as defined in NI 45-106) (in Québec, Regulation 45-106 respectingProspectus Exemptions) to whom the issuer directly provides, or will provide, any compensation in connection with the distribution. Completeadditional copies of this page if more than one person was, or will be, compensated. Indicate whether any compensation was paid,or will be paid, in connection with the distribution. No Yes If yes, indicate number of persons compensated. a) Name of person compensated and registration status Indicate whether the person compensated is a registrant. Yes If the person compensated is an individual,provide the name of the individual. Full legal name of individual Family name First given name Secondary given names If the personcompensated is not an individual, provide the following information. Full legal name of non-individual Firm NRD number (if applicable) Indicate whether the person compensated facilitated the distribution through a funding portal or an internet-based portal No Yes b) Business contact information If a firm NRD number is not provided in Item 8(a), provide the business contact information of theperson being compensated. Street address Municipality Province/State Country Postal code/Zip code Email address Telephone number c) Relationship to issuer or investment fund manager Indicate the person’s relationship with the issuer or investment fund manager(select all that apply). Refer to the meaning of ‘connected’ in Part B(2) of the Instructions and the meaning of ‘control’in section 1.4 of NI 45-106 (in Québec, Regulation 45-106 respecting Prospectus Exemptions) for the purposes of completing thissection. Connected with the issuer or investment fund manager Insider of the issuer (other than an investment fund) Director or officer of the investment fund or investment fund manager Employee of the issuer or investment fund manager None of the above d) Compensation details
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Providedetails of all compensation paid, or to be paid, to the person identified in Item 8(a) in connection with the distribution. Provide allamounts in Canadian dollars. Include cash commissions, securities-based compensation, gifts, discounts or other compensation. Do notreport payments for services incidental to the distribution, such as clerical, printing, legal or accounting services. An issuer is notrequired to ask for details about, or report on, internal allocation arrangements with the directors, officers or employees of a non-individualcompensated by the issuer. Cash commissions paid Value of all securities distributed as compensation ^4^ Security code1 Security code 2 Security code 3 Security codes Describe terms of warrants, options or other rights Other compensation ^5^ Describe Total compensation paid Check box if the person will or may receive any deferred compensation (describe the terms below) ^4^Providethe aggregate value of all securities distributed as compensation, excluding options, warrants or other rights exercisable toacquire additional securities of the issuer. Indicate the security codes for all securities distributed as compensation, includingoptions, warrants or other rights exercisable to acquire additional securities of the issuer. ^5^Do not include deferredcompensation. ITEM 9 – DIRECTORS, EXECUTIVE OFFICERS AND PROMOTERS OF THE ISSUER If the issuer is an investment fund,do not complete Item 9. Proceed to Item 10. Indicate whether the issuer is any of the following (select the one that applies– if more than one applies, select only one). Reporting issuer in a jurisdiction of Canada Foreign public issuer Wholly owned subsidiary of a reporting issuer in any jurisdiction of Canada ^6^ Provide name of reporting issuer Wholly owned subsidiary of a foreign public issuer ^6^ Provide name of foreign public issuer Issuer distributing only eligible foreign securities and the distribution is to permitted clients only ^7^. If the issuer is at least one of the above, do not complete Item9(a) – (c). Proceed to Item 10. 6 An issuer is a wholly owned subsidiary of a reporting issuer or a foreign public issuer if all of the issuer’s outstanding voting securities, other than securities that are required by law to be owned by its directors, are beneficially owned by the reporting issuer or the foreign public issuer, respectively.
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7Check this box if it applies to the current distribution even if the issuer made previous distributions of other types of securitiesto non-permitted clients. Refer to the definitions of “eligible foreign security” and “permitted client” in PartB(1) of the Instructions. If the issuer is none of the above, check this box and complete Item 9(a) – (c). a) Directors, executive officers and promoters of the issuer Provide the following information for each director, executive officer and promoterof the issuer. For locations within Canada, state the province or territory, otherwise state the country. For “Relationship toissuer”, “D” – Director, “O” – Executive Officer, “P” – Promoter. FirstBusiness location of non-individual Relationship to issuer Organization or Family Secondary or residential jurisdiction of (select allthat apply) given individual company name name given names name Province or country D O P b) Promoter information If the promoterlisted above is not an individual, provide the following information for each director and executive officer of the promoter. For locationswithin Canada, state the province or territory, otherwise state the country. For “Relationship to promoter”, “D”– Director, “O” – Executive Officer. Organization or Family First given Secondary given Residential jurisdictionRelationship to promoter (select of individual one or both if applicable) company name name name names Province or country D O c) Residential address of each individual **Complete Schedule 2 of this form providing the full residential address for each individuallisted in Item 9(a) and (b) and attach to the completed report. Schedule 2 also requires information to be provided about control persons.ITEM 10 - CERTIFICATION Provide the following certification and business contact information of an officer, director or agentof the issuer or underwriter. If the issuer or underwriter is not a company, an individual who performs functions similar to that ofa director or officer may certify the report. For example, if the issuer is a trust, the report may be certified by the issuer's trustee.If the issuer is an investment fund, a director or officer of the investment fund manager (or, if the investment fund manager is nota company, an individual who performs similar functions) may certify the report if the director or officer has been authorized to doso by the investment fund. The certification may be delegated, but only to an agent that has been authorized by an officer or directorof the issuer or underwriter to prepare and certify the report on behalf of the issuer or underwriter. If the report is being certifiedby an agent on behalf of the issuer or underwriter, provide the applicable information for the agent in the boxes below. If the individualcompleting and filing the report is different from the individual certifying the report, provide the name and contact details for theindividual completing and filing the report in Item 11. The signature on the report must be in typed form rather than handwritten form.The report may include an electronic signature provided the name of the signatory is also in typed form. Securities legislation requiresan issuer or underwriter that makes a distribution of securities under certain prospectus exemptions
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to file a completed report of exempt distribution. By completing the information below, I certify, on behalf of the issuer/underwriter/investment fund manager, to the securities regulatory authority or regulator, as applicable, that I have reviewed this report and to my knowledge, having exercised reasonable diligence, the information provided in this report is true and, to the extent required, complete. Name of Issuer/ investment fund Grown Rogue International Inc. manager/agent Full legal name STRICKLER Obadiah Jesse Family name First given name Secondary given names Title President and Chief Executive Officer Telephone number +1 (541) 613-7173 Email address [email protected] Signature (signed) "Obie Strickler" Date 2023 10 16 YYYY MM DD ITEM 11 - CONTACT PERSON Provide the following businesscontact information for the individual that the securities regulatory authority or regulator may contact with any questions regardingthe contents of this report, if different than the individual certifying the report in Item 10. Same as individual certifying the report Full legal name LALKA Alexander Family name First given name Secondary given names Title Partner Name of company Miller Thomson LLP Telephone number +1 (416) 597-4391 Email address [email protected] NOTICE – COLLECTION AND USE OF PERSONAL INFORMATIONThe personal information required under this form is collected on behalf of and used by the securities regulatory authority orregulator under the authority granted in securities legislation for the purposes of the administration and enforcement of the securitieslegislation. If you have any questions about the collection and use of this information, contact the securities regulatory authorityor regulator in the local jurisdiction(s) where the report is filed, at the address(es) listed at the end of this form. Schedules 1 and2 may contain personal information of individuals and details of the distribution(s). The information in Schedules 1 and 2 will not beplaced on the public file of any securities regulatory authority or regulator. However, freedom of information legislation may requirethe securities regulatory authority or regulator to make this information available if requested. By signing this report, the issuer/underwriter confirms that each individual listed in Schedule 1 or 2 of the report who is resident in a jurisdiction of Canada:
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a) has been notified by the issuer/underwriter of the delivery to the securities regulatory authority or regulator of the information pertaining to the individual as set out in Schedule 1 or 2, that this information is being collected by the securities regulatory authority or regulator under the authority granted in securities legislation, that this information is being collected for the purposes of the administration and enforcement of the securities legislation of the local jurisdiction, and of the title, business address and business telephone number of the public official in the local jurisdiction, as set out in this form, who can answer questions about the security regulatory authority’s or regulator’s indirect collection of the information, and b) has authorized the indirect collection of the information by the securities regulatory authority or regulator.
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Exhibit35
GrownRogue Reports Fourth Quarter 2023 Results,Third Consecutive Quarter of Record Revenue
| ● | Revenue of $6.5M compared to $5.0M in Q4 2022, an increase of 29% |
|---|---|
| ● | Operating Cash Flow (OCF), before changes in working capital (BC WC), of $1.8M compared to $0.7M in Q4 2022, an increase of 156% |
| ● | Announced entry into the attractive New Jersey market, with construction underway and on track to be completed in Q2 2024, with sales expected in Q3 2024 |
| ● | Free Cash Flow^1^ (FCF) of $0.1M, after $0.5M spend on Oregon + Michigan CapEx and WC and $1.2M on other CapEx |
| ● | Closed the second and final tranche of US$1,000,000 as part of our 2023 convertible debenture for total gross proceeds of US$6,000,000 |
| ● | US$1,650,000 of the Company’s existing 2022 convertible debentures have been converted, leaving the Company with US$6,350,000 in total convertible debt |
Medford, Oregon, December 19, 2023 – Grown Rogue International Inc. (“Grown Rogue” or the “Company”) (CSE: GRIN) (OTC: GRUSF), a craft cannabis company operating in Oregon and Michigan, and in Minnesota and Maryland through an advisory agreement with Goodness Growth Holdings, Inc., is pleased to report its unaudited fiscal fourth quarter 2023 results for the three months ended October 31, 2023. All financial information is provided in U.S. dollars unless otherwise indicated.
FourthQuarter 2023 Financial Summary ($USD Millions)
| Fourth Quarter 2023 Summary | Q4 2023 | Q4 2022 | +/- % | ||||||
|---|---|---|---|---|---|---|---|---|---|
| Revenue | 6.5 | 5.0 | +29 | % | |||||
| aEBITDA | 2.1 | 1.7 | +25 | % | |||||
| aEBITDA % | 32.1 | % | 32.8 | % | -70<br>bps | ||||
| OCF (BC WC) | 1.8 | 0.7 | +156 | % | |||||
| OCF % | 28.1 | % | 14.1 | % | +1400<br>bps |
ManagementCommentary
“We are pleased to announce another strong quarter, highlighted by our third consecutive quarter of record revenue. Our $6.5M in revenue continues our upward trajectory with a sequential increase of 3%, despite the cyclicality of our Oregon outdoor business, where sales were down $0.2M from the previous quarter and $0.5M from Q2 2023,” said Obie Strickler, CEO of Grown Rogue.
“We were free cash flow positive for the sixth consecutive quarter, despite a large increase in CapEx this quarter as we accelerate our growth in new and existing markets. We are particularly pleased with the construction progress in New Jersey by our partner and believe it to be one of, if not the highest return on investment in the cannabis space currently and are extremely excited to soon be bringing Oregon quality cannabis to the great people of New Jersey.
We also just completed a great outdoor season where a small capital investment into a new property earlier this year resulted in final harvest numbers expected to be in excess of 9,500 pounds of whole flower, beating both our projections and previous record harvest by nearly 40%. A big thanks to our outdoor team as this record harvest, in addition to what appears to be stable or slightly better pricing than we saw last year, is expected to drive additional revenue and cash flow for our business throughout fiscal 2024.
Our year-over-year revenue and OCF growth of 28% and 156%, respectively, shows our commitment to controlling costs and our focus on producing high quality cannabis products that delight our consumers. We continue to add headcount to our business as we prepare for New Jersey and other new opportunities, building our talent base within the organization to support the next stage of growth. Our recently released strain specific packaging in Michigan has pushed our pre-packaged product mix to ~40% of sales, a new Company record, and has led to an increase in pricing and brand awareness. We are pleased with the initial traction in our Oregon outdoor craft pre-roll product and subsequent to the quarter the Company released our Yeti branded pre-roll, consisting of our premium indoor flower” continued Mr. Strickler.
“We believe our focus on genetics, and our strength in branding and distribution will allow us the opportunity to be market share leaders in new categories as we engender more customer trust and deepen the relationship we have with our existing fans.
Finally, it’s time to look forward to our corporate objectives for 2024. We plan to continue to improve our production, genetics and efficiencies in core markets, gain market share in our new product categories and release additional new products, complete construction in New Jersey and have multiple harvests from phase 1, and finalize expansion into at least one additional market. I want to thank the entire Grown Rogue team for their continued efforts and look forward to updating investors on our new market efforts shortly.”
OregonMarket Highlights ($USD Millions)
| Oregon | Q4 2023 | Q4 2022 | +/- % | ||||||
|---|---|---|---|---|---|---|---|---|---|
| Revenue | 2.9 | 2.7 | +7 | % | |||||
| aEBITDA | 0.9 | 0.9 | -8 | % | |||||
| aEBITDA Margin<br> % | 30.8 | % | 35.6 | % | -480 bps | ||||
| ● | #1Flower brand for ten consecutive quarters, according to LeafLink’s MarketScape data | ||||||||
| --- | --- | ||||||||
| ● | The10-pack craft outdoor pre-roll product has continued to gain market share and subsequent to the quarter the Company released our Yetibranded pre-roll, consisting of premium indoor flower | ||||||||
| ● | Indoorwet weight harvested in the state of Oregon YTD through November decreased 1.4% year-over-year, mixed wet weight YTD decreased 4.8%,and outdoor decreased 0.0% year-over-year, according to the Oregon Liquor and Cannabis Commission |
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Michigan Market Highlights($USD Millions)
| Michigan | Q4 2023 | Q4 2022 | +/- % | ||||||
|---|---|---|---|---|---|---|---|---|---|
| Revenue | 3.2 | 2.4 | +53 | % | |||||
| aEBITDA | 1.3 | 0.9 | +44 | % | |||||
| aEBITDA Margin % | 40.8 | % | 37.4 | % | +340 bps | ||||
| ● | Ourrecently released strain specific packaging has pushed pre-packaged product mix to ~40% of sales, a new Company record, and has led toan increase in pricing and brand awareness | ||||||||
| --- | --- | ||||||||
| ● | Salesin Michigan in Q4 was a new record at $814M and YTD sales through October was $2.52B, on pace to be the second market in the U.S to reach$3B in a year | ||||||||
| ● | Pricingper ounce of flower in Michigan in Q4 was the highest quarter in 2023, according to the Michigan Cannabis Regulatory Agency |
Michigan operations are through Golden Harvests, LLC.
aEBITDAreconciliation
SEGMENTEDaEBITDA – THREE MONTHS ENDED OCTOBER 31, 2023
| Oregon | Michigan | Services | Corporate | Consolidated | |||||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
| Sales Revenue | 2,895,880 | 3,187,600 | 438,811 | - | 6,522,291 | ||||||||||
| Costs of goods sold, excluding fair<br> value (“FV”) adjustments | (1,767,745 | ) | (1,236,045 | ) | (84,005 | ) | - | (3,087,795 | ) | ||||||
| Gross profit before fair value adjustments | 1,128,135 | 1,951,555 | 354,806 | - | 3,434,496 | ||||||||||
| Net fair value adjustments | 1,052,386 | (73,521 | ) | - | - | 978,865 | |||||||||
| Gross profit | 2,180,521 | 1,878,034 | 354,806 | - | 4,413,361 | ||||||||||
| Operating expenses: | |||||||||||||||
| General and administration | 539,808 | 837,628 | - | 504,313 | 1,881,389 | ||||||||||
| Depreciation and amortization | 27,654 | 146,657 | - | 24,508 | 198,819 | ||||||||||
| Share based compensation | - | - | - | 97,256 | 97,256 | ||||||||||
| Other income and expense: | |||||||||||||||
| Loss on sale of assets | - | (13,881 | ) | - | - | - | |||||||||
| Interest and accretion | (83,397 | ) | (46,235 | ) | - | (384,618 | ) | (514,250 | ) | ||||||
| Unrealized loss on derivative liability | - | - | - | (3,884,176 | ) | (3,884,176 | ) | ||||||||
| Other income and expense | 13,133 | - | 21,091 | 34,224 | |||||||||||
| Net income (loss) before income tax | 1,529,662 | 847,126 | 354,806 | (4,744,667 | ) | (2,013,073 | ) | ||||||||
| Income tax | - | 139,853 | - | 13,543 | 153,396 | ||||||||||
| Net income after tax | 1,529,662 | 707,273 | 354,806 | (4,758,210 | ) | (2,166,469 | ) | ||||||||
| Add back (deduct) from net income after tax: | |||||||||||||||
| Net FV adjustments in costs of goods sold | (1,052,386 | ) | 73,521 | - | - | (978,865 | ) | ||||||||
| Amortization of property &<br> equipment included in cost of sales | 302,295 | 185,922 | - | - | 488,217 | ||||||||||
| Interest and accretion expense | 83,397 | 46,235 | - | 384,618 | 514,250 | ||||||||||
| Amortization of property and equipment | 27,654 | 146,657 | - | 24,508 | 198,819 | ||||||||||
| Share-based compensation | - | - | - | 97,256 | 97,256 | ||||||||||
| Unrealized loss on derivative liability | - | - | - | 3,884,176 | 3,884,176 | ||||||||||
| Income tax expense | - | 139,853 | - | 13,543 | 153,396 | ||||||||||
| EBITDA | 890,622 | 1,299,461 | 354,806 | (483,222 | ) | 2,061,667 | |||||||||
| Add back to EBITDA: | |||||||||||||||
| Compliance costs | - | - | - | 24,020 | 24,020 | ||||||||||
| Costs associated with acquisition of Golden Harvests | - | - | - | 10,000 | 10,000 | ||||||||||
| aEBITDA | 890,622 | 1,299,461 | 354,806 | (449,202 | ) | 2,095,687 | |||||||||
| aEBITDA margin % | 30.8 | % | 40.8 | % | 80.9 | % | - | 32.1 | % |
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NOTES:
| 1. | The<br>Company’s “Free cash flow” metric is defined by cash flow from operations minus capital expenditures and expansion<br>related advances. |
|---|---|
| 2. | The<br>Company’s “aEBITDA,” or “Adjusted EBITDA,” is a non-IFRS measure used by management that does not have<br>any prescribed meaning by IFRS and that may not be comparable to similar measures presented by other companies. The Company defines “EBITDA”<br>as the Company’s net income or loss for a period, as reported, before interest, taxes, depreciation and amortization, and is further<br>adjusted to remove transaction costs, stock-based compensation expense, accretion expense, gain (loss) on derecognition of derivative<br>liabilities, the effects of fair-value accounting for biological assets and inventory, as well as other non-cash items and items not<br>representative of operational performance as reported in net income (loss). Adjusted EBITDA is defined as EBITDA adjusted for the impact<br>of various significant or unusual transactions. The Company believes that this is a useful metric to evaluate its operating performance. |
NON-IFRS FINANCIAL MEASURES
EBITDAand aEBITDA are non-IFRS measures and do not have standardized definitions under IFRS. The Company has provided the non-IFRS financialmeasures, which are not calculated or presented in accordance with IFRS, as supplemental information and in addition to the financialmeasures that are calculated and presented in accordance with IFRS. These supplemental non-IFRS financial measures are presented becausemanagement has evaluated the financial results both including and excluding the adjusted items and believe that the supplemental non-IFRSfinancial measures presented provide additional perspective and insights when analyzing the core operating performance of the business.These supplemental non-IFRS financial measures should not be considered superior to, as a substitute for or as an alternative to, andshould only be considered in conjunction with, the IFRS financial measures presented herein. Accordingly, the following information providesreconciliations of the supplemental non-IFRS financial measures, presented herein to the most directly comparable financial measurescalculated and presented in accordance with IFRS.
AboutGrown Rogue
Grown Rogue International (CSE: GRIN | OTC: GRUSF) is a craft cannabis company operating in Oregon and Michigan, and in Minnesota and Maryland through an advisory agreement with Goodness Growth Holdings, Inc., focused on delighting customers with premium flower and flower-derived products at fair prices. The Company’s roots are in Southern Oregon where it has proven its capabilities in the highly competitive and discerning Oregon market. More recently, the Company successfully expanded our platform to Michigan. The Company’s passion for quality product and value, combined with a disciplined approach to growth, prioritizing profitability and return on capital without sacrificing quality. The Company’s strategy is to pursue capital efficient methods to expand into new markets, bringing craft quality product at fir prices to more consumers. The Company also continues to make modest investments to improve outdoor craft cultivation capabilities in preparation for eventual interstate commerce.
FORWARD-LOOKINGSTATEMENTS
Thispress release contains statements which constitute “forward-looking information” within the meaning of applicable securitieslaws, including statements regarding the plans, intentions, beliefs and current expectations of the Company with respect to future businessactivities. Forward- looking information is often identified by the words “may,” “would,” “could,”“should,” “will,” “intend,” “plan,” “anticipate,” “believe,”“estimate,” “expect” or similar expressions and include information regarding: (i) statements regarding the futuredirection of the Company (ii) the ability of the Company to successfully achieve its business and
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financialobjectives, (iii) plans for expansion of the Company and securing applicable regulatory approvals, and (iv) expectations for other economic,business, and/or competitive factors. Investors are cautioned that forward-looking information is not based on historical facts but insteadreflect the Company’s management’s expectations, estimates or projections concerning the business of the Company’sfuture results or events based on the opinions, assumptions and estimates of management considered reasonable at the date the statementsare made. Although the Company believes that the expectations reflected in such forward- looking information are reasonable, such informationinvolves risks and uncertainties, and undue reliance should not be placed on such information, as unknown or unpredictable factors couldhave material adverse effects on future results, performance or achievements of the combined company. Among the key factors that couldcause actual results to differ materially from those projected in the forward-looking information are the following: changes in generaleconomic, business and political conditions, including changes in the financial markets; and in particular in the ability of the Companyto raise debt and equity capital in the amounts and at the costs that it expects; adverse changes in the public perception of cannabis;decreases in the prevailing prices for cannabis and cannabis products in the markets that the Company operates in; adverse changes inapplicable laws; or adverse changes in the application or enforcement of current laws; compliance with extensive government regulationand related costs, and other risks described in the Company’s public disclosure documents filed on Sedar.
Shouldone or more of these risks or uncertainties materialize, or should assumptions underlying the forward-looking information prove incorrect,actual results may vary materially from those described herein as intended, planned, anticipated, believed, estimated or expected. Althoughthe Company has attempted to identify important risks, uncertainties and factors which could cause actual results to differ materially,there may be others that cause results not to be as anticipated, estimated or intended. The Company does not intend, and does not assumeany obligation, to update this forward-looking information except as otherwise required by applicable law.
TheCompany is indirectly involved in the manufacture, possession, use, sale and distribution of cannabis in the recreational cannabis marketplacein the United States through its indirect operating subsidiaries. Local state laws where its subsidiaries operate permit such activitieshowever, these activities are currently illegal under United States federal law. Additional information regarding this and other risksand uncertainties relating to the Company’s business are disclosed in the Company’s Listing Statement filed on its issuerprofile on SEDAR+ at www.sedarplus.ca. Should one or more of these risks, uncertainties or other factors materialize, or shouldassumptions underlying the forward-looking information or forward-looking statements prove incorrect, actual results may vary materiallyfrom those described herein as intended, planned, anticipated, believed, estimated or expected.
Nostock exchange, securities commission or other regulatory authority has approved or disapproved the information contained herein.
Forfurther information on Grown Rogue International please visit www.grownrogue.com or contact:
Obie Strickler
Chief Executive Officer
Jakob Iotte
Director of Business
Development and IR
(458) 226-2100
5
Exhibit36
GrownRogue Announces Management Team Update
Medford, Oregon, January 4, 2024 – Grown Rogue International Inc. (“Grown Rogue” or the “Company”) (CSE: GRIN) (OTC: GRUSF), a craft cannabis company operating in Oregon and Michigan, and in Minnesota and Maryland through an advisory agreement with Goodness Growth Holdings, Inc., is pleased to announce changes to its management team to lead the Company on its next phase of growth.
“With the addition of the Goodness Growth assets in Minnesota and Maryland that the Company is now overseeing production for, plus the exciting opportunity in New Jersey, it is critical for us to have the right team to execute upon these opportunities and the additional growth in front of us,” said Obie Strickler, CEO of Grown Rogue. “We have been bolstering our team across cultivation, post-harvest, finance and accounting; to be prepared to deliver the excellence in quality and consistency that made us a premier craft cannabis company and the #1 flower brand in Oregon, into new markets. Our most important asset is our team and the excellence they deliver every day to drive the best products at the best price to our customers and fans across the United States. I am super excited about the promotions to our newly formed national team and new hires we have brought in recently that will ensure the ‘Grown Rogue Way’ is able to successfully scale nationally.”
Christian Stiers has been promoted to National Cultivation Director, a new role created to facilitate consistency and excellence in replicating the Company’s cultivation operations across all markets. Prior to the promotion, Christian was the Company’s Oregon Director of Cultivation responsible for taking Grown Rogue from ~200 pounds per month of whole flower to ~1,000 pounds per month of whole flower over the last three years. This resulted in Grown Rogue becoming the #1 flower producer in the state according to LeafLink’s MarketScape.
Seann Igoe has been promoted to National Post-Harvest Director, another new role created to support the Company’s growth as it continues to refine and systematize its cultivation processes at scale. Seann was one of the first team members at Grown Rogue and has matured alongside the Company tremendously over the last seven years. In this new role, Seann will oversee all post-harvest responsibilities in the Company’s markets.
Cameron Correia was hired as our newly established VP of Business Analytics to provide integration between our technical and finance team to ensure Grown Rogue’s robust data systems ensure disciplined decision making. Cameron has a Bachelor of Science from Azusa Pacific University, a Master of Accountancy Degree from University of Denver Daniels College of Business and has many years of experience working in a variety of industries, including over ten years of direct experience in the cannabis industry- most recently as the VP of Finance & Operations at Good Day Farms.
Kala Bernhardt joins Grown Rogue as Corporate Controller. Kala has a law degree from the University of Oregon with an emphasis in business and tax law, and a Public Accounting Degree from Southern Oregon University. With 15 years of experience working in a variety of industries, Kala brings her Big 4 accounting background and her direct experience in the cannabis industry at C21 Investments and Chalice Brands.
In addition, Adam August will be stepping down from Senior Vice President to pursue other endeavors. He will continue to support the team in an advisory capacity ensuring his long-standing institutional knowledge continues with the Company.
“After five amazing years, Adam has decided it’s time to step back from the day to day demands of Grown Rogue,” said Obie Strickler, CEO of Grown Rogue. “Adam joined us very shortly after going public and has been instrumental in our growth, helping manage our shift from a small, early-stage company into a premier craft cannabis company. I want to thank Adam for all his hard work and dedication to our team over the last five years.”
“The past five years have been the most rewarding years of my professional career,” said Adam August. “I am proud of what we have accomplished, and I feel confident in the foundation we’ve built across systems, processes, and team. While I look forward to providing ongoing support and guidance, I have complete faith that the team is prepared to take the company to the next level, driving continued profitable growth and building shareholder value.”
AboutGrown Rogue
Grown Rogue International (CSE: GRIN | OTC: GRUSF) is a craft cannabis company operating in Oregon and Michigan, and in Minnesota and Maryland through an advisory agreement with Goodness Growth Holdings, Inc., focused on delighting customers with premium flower and flower-derived products at fair prices. The Company’s roots are in Southern Oregon, where it has proven its capabilities in the highly competitive and discerning Oregon market. More recently, the Company successfully expanded its platform to Michigan. The Company’s passion for quality product and value, combined with a disciplined approach to growth, prioritizes profitability and return on capital without sacrificing quality. The Company’s strategy is to pursue capital efficient methods to expand into new markets, bringing craft-quality product at fair prices to more consumers. The Company also continues to make modest investments to improve outdoor craft cultivation capabilities in preparation for eventual interstate commerce. For more information, visit https://www.grownrogue.com/.
2
FORWARD-LOOKINGSTATEMENTS
Thispress release contains statements which constitute “forward-looking information” within the meaning of applicable securitieslaws, including statements regarding the plans, intentions, beliefs and current expectations of the Company with respect to future businessactivities. Forward- looking information is often identified by the words “may,” “would,” “could,”“should,” “will,” “intend,” “plan,” “anticipate,” “believe,”“estimate,” “expect” or similar expressions and include information regarding: (i) statements regarding the futuredirection of the Company (ii) the ability of the Company to successfully achieve its business and financial objectives, (iii) plans forexpansion of the Company and securing applicable regulatory approvals, and (iv) expectations for other economic, business, and/or competitivefactors. Investors are cautioned that forward-looking information is not based on historical facts but instead reflect the Company’smanagement’s expectations, estimates or projections concerning the business of the Company’s future results or events basedon the opinions, assumptions and estimates of management considered reasonable at the date the statements are made. Although the Companybelieves that the expectations reflected in such forward- looking information are reasonable, such information involves risks and uncertainties,and undue reliance should not be placed on such information, as unknown or unpredictable factors could have material adverse effectson future results, performance or achievements of the combined company. Among the key factors that could cause actual results to differmaterially from those projected in the forward-looking information are the following: changes in general economic, business and politicalconditions, including changes in the financial markets; and in particular in the ability of the Company to raise debt and equity capitalin the amounts and at the costs that it expects; adverse changes in the public perception of cannabis; decreases in the prevailing pricesfor cannabis and cannabis products in the markets that the Company operates in; adverse changes in applicable laws; or adverse changesin the application or enforcement of current laws; compliance with extensive government regulation and related costs, and other risksdescribed in the Company’s public disclosure documents filed on Sedar.
Shouldone or more of these risks or uncertainties materialize, or should assumptions underlying the forward-looking information proveincorrect, actual results may vary materially from those described herein as intended, planned, anticipated, believed, estimated orexpected. Although the Company has attempted to identify important risks, uncertainties and factors which could cause actual resultsto differ materially, there may be others that cause results not to be as anticipated, estimated or intended. The Company does notintend, and does not assume any obligation, to update this forward-looking information except as otherwise required by applicablelaw.
TheCompany is indirectly involved in the manufacture, possession, use, sale and distribution of cannabis in the recreational cannabis marketplacein the United States through its indirect operating subsidiaries. Local state laws where its subsidiaries operate permit such activitieshowever, these activities are currently illegal under United States federal law. Additional information regarding this and other risksand uncertainties relating to the Company’s business are disclosed in the Company’s Listing Statement filed on its issuerprofile on SEDAR+ at www.sedarplus.ca. Should one or more of these risks, uncertainties or other factors materialize, or shouldassumptions underlying the forward-looking information or forward-looking statements prove incorrect, actual results may vary materiallyfrom those described herein as intended, planned, anticipated, believed, estimated or expected.
Nostock exchange, securities commission or other regulatory authority has approved or disapproved the information contained herein.
3
Forfurther information on Grown Rogue International please visit www.grownrogue.com or contact:
Obie Strickler
Chief Executive Officer
Jakob Iotte
Director of Business
Development and IR
(458) 226-2100
4
Exhibit 37
GrownRogue Augments New Jersey Presence with Retail Investment
| ● | FormedGrown Rogue Retail Ventures (“GRRV”) in collaboration with Bengal Capital and signed a definitive agreement to invest inand support the operations of an adult-use dispensary in West New York, New Jersey |
|---|---|
| ● | Theinvestment is a secured convertible note, and the operations will be supported with product from Grown Rogue’s cultivation facilityunder development with first sales expected in Q3 2024 |
| ● | GRRVis evaluating additional retail locations for similar investment and support, with the goal of amplifying the benefits of introducingGrown Rogue’s craft flower and related products to New Jersey customers |
Medford, Oregon, January 17, 2024 – Grown Rogue International Inc. (“Grown Rogue” or the “Company”) (CSE: GRIN) (OTC: GRUSF), a craft cannabis company born from the amazing terroir of Oregon’s Rogue Valley, announces that it formed Grown Rogue Retail Ventures LLC (“GRRV”) and signed a definitive agreement on January 16, 2024 to invest in and support Nile of NJ LLC (“Nile”), a Company that is developing an adult-use dispensary in West New York, New Jersey. Despite the anticipated highly accretive nature of the investment, the capital required from Grown Rogue is immaterial to the Company’s current cash position and management expects the time and attention required to be relatively minimal.
ManagementCommentary
“We are extremely excited to move forward with our partnership with Nile and Bengal to support what we hope are multiple adult-use dispensaries in New Jersey, allowing Grown Rogue to expand outside its core competency without taking too much internal capital or bandwidth. Having a protected, passive stake and in partnership with those that have more retail experience, allows us access to shelf space for our branded flower products and earn additional profits within the highly attractive, yet nascent New Jersey market, while continuing to focus on our core capabilities in producing affordable, craft-quality flower. We expect the opening of this dispensary within the next 120 days,” said Obie Strickler, CEO of Grown Rogue.
“The West New York dispensary is in a tremendous location, situated in one of the most densely populated communities in the country, just across the Hudson River from Manhattan; our team is particularly excited to produce our craft flower for this metropolitan area.”
“We at Nile share Grown Rogue’s and Bengal’s excitement about the West New York location and the New Jersey market,” said Leland O’Connor, CEO of Nile. “Having an aligned partnership with one of the premier growers of craft cannabis and a leading private investment firm enhances our offering capabilities and adds to our ability to execute on our vision.”
The New Jersey cannabis market reported more than US$206,000,000 in sales in the three months ended September 30, 2023. According to MJBizDaily, this market is expected to grow to US$2,400,000,000 by 2026, representing a 40% compound annual growth rate.
About Grown Rogue
Grown Rogue International (CSE: GRIN | OTC: GRUSF) is a craft cannabis company operating in Oregon, Michigan, Minnesota, Maryland, and New Jersey, focused on delighting customers with premium flower and flower-derived products at fair prices. The Company’s roots are in Southern Oregon, where it has proven its capabilities in the highly competitive and discerning Oregon market. The Company’s passion for quality product and value, combined with a disciplined approach to growth, prioritizes profitability and return on capital without sacrificing quality. The Company’s strategy is to pursue capital efficient methods to expand into new markets, bringing craft-quality product at fair prices to more consumers. The Company also continues to make modest investments to improve outdoor craft cultivation capabilities in preparation for eventual interstate commerce. For more information, visit https://www.grownrogue.com/.
FORWARD-LOOKINGSTATEMENTS
Thispress release contains statements which constitute “forward-looking information” within the meaning of applicable securitieslaws, including statements regarding the plans, intentions, beliefs and current expectations of the Company with respect to future businessactivities. Forward-looking information is often identified by the words “may,” “would,” “could,”“should,” “will,” “intend,” “plan,” “anticipate,” “believe,”“estimate,” “expect” or similar expressions and include information regarding: (i) statements regarding the futuredirection of the Company (ii) the ability of the Company to successfully achieve its business and financial objectives, (iii) plans forexpansion of the Company and securing applicable regulatory approvals, and (iv) expectations for other economic, business, and/or competitivefactors. Investors are cautioned that forward-looking information is not based on historical facts but instead reflect the Company’smanagement’s expectations, estimates or projections concerning the business of the Company’s future results or events basedon the opinions, assumptions and estimates of management considered reasonable at the date the statements are made. Although the Companybelieves that the expectations reflected in such forward- looking information are reasonable, such information involves risks and uncertainties,and undue reliance should not be placed on such information, as unknown or unpredictable factors could have material adverse effectson future results, performance or achievements of the combined company. Among the key factors that could cause actual results to differmaterially from those projected in the forward-looking information are the following: changes in general economic, business and politicalconditions, including changes in the financial markets; and in particular in the ability of the Company to raise debt and equity capitalin the amounts and at the costs that it expects; adverse changes in the public perception of cannabis; decreases in the prevailing pricesfor cannabis and cannabis products in the markets that the Company operates in; adverse changes in applicable laws; or adverse changesin the application or enforcement of current laws; compliance with extensive government regulation and related costs, and other risksdescribed in the Company’s public disclosure documents filed on Sedar.
Shouldone or more of these risks or uncertainties materialize, or should assumptions underlying the forward-looking information prove incorrect,actual results may vary materially from those described herein as intended, planned, anticipated, believed, estimated or expected. Althoughthe Company has attempted to identify important risks, uncertainties and factors which could cause actual results to differ materially,there may be others that cause results not to be as anticipated, estimated or intended.
TheCompany does not intend, and does not assume any obligation, to update this forward-looking information except as otherwise requiredby applicable law.
TheCompany is indirectly involved in the manufacture, possession, use, sale and distribution of cannabis in the recreational cannabis marketplacein the United States through its indirect operating subsidiaries. Local state laws where its subsidiaries operate permit such activitieshowever, these activities are currently illegal under United States federal law. Additional information regarding this and other risksand uncertainties relating to the Company’s business are disclosed in the Company’s Listing Statement filed on its issuerprofile on SEDAR+ at www.sedarplus.ca. Should one or more of these risks, uncertainties or other factors materialize, or shouldassumptions underlying the forward-looking information or forward-looking statements prove incorrect, actual results may vary materiallyfrom those described herein as intended, planned, anticipated, believed, estimated or expected.
Nostock exchange, securities commission or other regulatory authority has approved or disapproved the information contained herein.
2
Forfurther information on Grown Rogue International please visit www.grownrogue.com or contact:
Obie Strickler
Chief Executive Officer
Jakob Iotte
Director of Business
Development and IR
(458) 226-2100
3
Exhibit 38
GrownRogue Announces Change of Financial Year End
Medford, Oregon, January 29, 2024 – Grown Rogue International Inc. (“Grown Rogue” or the “Company”) (CSE: GRIN) (OTC: GRUSF), a craft cannabis company born from the amazing terroir of Oregon’s Rogue Valley, announces that it has changed its financial year end to December 31, from its current financial year end of October 31. The Company will report audited financial statements for the 12 months ended October 31, 2023, within 120 days from October 31. The Company will then report audited financial statements for the 2 months ended December 31, 2023, within 120 days from December 31. Subsequently, the Company will be on a normal calendar reporting cycle.
Grown Rogue believes this change of financial year end will better align the Company’s financial reporting periods with the business planning cycle, particularly the outdoor harvest cycle.
For details regarding the length and ending dates of the financial periods, reference is made to the Notice of Change of Financial Year End filed by the Company on SEDAR+ pursuant to Section 4.8 of National Instrument 51-102 – Continuous Disclosure Obligations, a copy of which is available at www.sedarplus.ca.
About Grown Rogue
Grown Rogue International Inc. (CSE: GRIN | OTC: GRUSF) is a craft cannabis company operating in Oregon, Michigan, Minnesota, Maryland, and New Jersey, focused on delighting customers with premium flower and flower-derived products at fair prices. The Company’s roots are in Southern Oregon, where it has proven its capabilities in the highly competitive and discerning Oregon market. The Company’s passion for quality product and value, combined with a disciplined approach to growth, prioritizes profitability and return on capital without sacrificing quality. The Company’s strategy is to pursue capital efficient methods to expand into new markets, bringing craft-quality product at fair prices to more consumers. The Company also continues to make modest investments to improve outdoor craft cultivation capabilities in preparation for eventual interstate commerce. For more information, visit www.grownrogue.com.
FORWARD-LOOKING STATEMENTS
This press release contains statements whichconstitute “forward-looking information” within the meaning of applicable securities laws, including statements regardingthe plans, intentions, beliefs and current expectations of the Company with respect to future business activities. Forward-looking informationis often identified by the words “may,” “would,” “could,” “should,” “will,”“intend,” “plan,” “anticipate,” “believe,” “estimate,” “expect”or similar expressions and include information regarding: (i) statements regarding the future direction of the Company (ii) the abilityof the Company to successfully achieve its business and financial objectives, (iii) plans for expansion of the Company and securing applicableregulatory approvals, and (iv) expectations for other economic, business, and/or competitive factors.
Investors are cautioned that forward-lookinginformation is not based on historical facts but instead reflect the Company’s management’s expectations, estimates or projectionsconcerning the business of the Company’s future results or events based on the opinions, assumptions and estimates of managementconsidered reasonable at the date the statements are made. Although the Company believes that the expectations reflected in such forward-lookinginformation are reasonable, such information involves risks and uncertainties, and undue reliance should not be placed on such information,as unknown or unpredictable factors could have material adverse effects on future results, performance or achievements of the combinedcompany. Among the key factors that could cause actual results to differ materially from those projected in the forward-looking informationare the following: changes in general economic, business and political conditions, including changes in the financial markets; and inparticular in the ability of the Company to raise debt and equity capital in the amounts and at the costs that it expects; adverse changesin the public perception of cannabis; decreases in the prevailing prices for cannabis and cannabis products in the markets that the Companyoperates in; adverse changes in applicable laws; or adverse changes in the application or enforcement of current laws; compliance withextensive government regulation and related costs, and other risks described in the Company’s public disclosure documents filedon Sedar.
Should one or more of these risks or uncertaintiesmaterialize, or should assumptions underlying the forward-looking information prove incorrect, actual results may vary materially fromthose described herein as intended, planned, anticipated, believed, estimated or expected. Although the Company has attempted to identifyimportant risks, uncertainties and factors which could cause actual results to differ materially, there may be others that cause resultsnot to be as anticipated, estimated or intended. The Company does not intend, and does not assume any obligation, to update this forward-lookinginformation except as otherwise required by applicable law.
The Company is indirectly involved in themanufacture, possession, use, sale and distribution of cannabis in the recreational cannabis marketplace in the United States throughits indirect operating subsidiaries. Local state laws where its subsidiaries operate permit such activities however, these activitiesare currently illegal under United States federal law. Additional information regarding this and other risks and uncertainties relatingto the Company’s business are disclosed in the Company’s Listing Statement filed on its issuer profile on SEDAR+ at www.sedarplus.ca.Should one or more of these risks, uncertainties or other factors materialize, or should assumptions underlying the forward-looking informationor forward-looking statements prove incorrect, actual results may vary materially from those described herein as intended, planned, anticipated,believed, estimated or expected.
No stock exchange, securities commission or other regulatory authorityhas approved or disapproved the information contained herein.
2
For further information on Grown Rogue, please visit www.grownrogue.comor contact:
Obie Strickler
Chief Executive Officer
Jakob Iotte
Director of Business
Development and IR
(458) 226-2100
3
Exhibit39
NOTICEOF CHANGE IN YEAR END
Pursuantto Section 4.8 of
NationalInstrument 51-102 - Continuous Disclosure Obligations
| 1. | Change of Financial Year End |
|---|
Pursuant to section 4.8 of National Instrument 51-102 - Continuous Disclosure Obligations, Grown Rogue International Inc. (the “Company”) has determined to change its year end from October 31 to December 31.
| 2. | Reason for the Change |
|---|
The change in financial year end from October 31 to December 31 is being made by the Company to better align the Company’s financial reporting periods with its industry peer group in the cannabis sector, which will allow investors to more easily compare quarterly and annual financial results.
| 3. | Old Financial Year End |
|---|
The date of the Company’s old financial year end is October 31.
| 4. | New Financial Year End |
|---|
The date of the Company’s new financial year end is December 31.
| 5. | The length and ending date of the periods, including the comparative periods, of each interim financial report and the annual financial statements to be filed for the reporting issuer’s Transition Year and its New Financial Year are as follows: | ||||||
|---|---|---|---|---|---|---|---|
| TransitionYear | ComparativeAnnual FinancialStatementsto Transition<br><br> <br>Year | New Financial<br><br> <br>Year | ComparativeAnnual Financial<br><br> <br>Statements<br><br> <br>toNew Financial<br><br> <br>Year | InterimPeriods<br><br> <br>forTransitionYear | ComparativeInterim PeriodstoInterim Periodsin TransitionYear | Interim Periods<br><br> <br>forNew FinancialYear | ComparativeInterim PeriodstoInterim PeriodsinNew FinancialYear |
| --- | --- | --- | --- | --- | --- | --- | --- |
| 2 months<br><br> <br>ended<br><br> <br>12/31/2023 | 12 months<br><br> <br>ended<br><br> <br>10/31/2023 | 12/31/2024 | 2 months<br><br> <br>ended<br><br> <br>12/31/2023 and<br><br>12<br> months ended<br><br> <br>10/31/2023 | Not<br><br> <br>applicable | Not<br><br> <br>applicable | 3 months<br><br> <br>ended<br><br> <br>03/31/2024<br><br> <br>6 months<br><br> <br>ended<br><br> <br>06/30/2024<br><br> <br>9 months<br><br> <br>ended<br><br> <br>09/30/2024 | 3 months<br><br> <br>ended<br><br> <br>04/30/2023<br><br> <br>6 months<br><br> <br>ended<br><br> <br>07/31/2023<br><br> <br>9 months<br><br> <br>ended<br><br> <br>10/31/2023 |
| 6. | Thefiling deadlines, prescribed under sections 4.2 and 4.4, for the annual financial statements and interim financial reports for the reportingissuer’s Transition Year | ||||||
| --- | --- |
| Interimand Annual Periods in Transition Year | FilingDeadline |
|---|---|
| Interim<br> financial reports for the 9 months ended 07/31/2023 | 09/29/2023 (filed) |
| Annual<br> financial reports for the 2 months ended 12/31/2023 | 04/29/2024 |
Exhibit40
NOTICEOF CHANGE IN YEAR END
Pursuantto Section 4.8 of
NationalInstrument 51-102 - Continuous Disclosure Obligations
| 1. | Change of Financial Year End |
|---|
Pursuant to section 4.8 of National Instrument 51-102 - Continuous Disclosure Obligations, Grown Rogue International Inc. (the “Company”) has determined, effective on January 29, 2024, to change its year end from October 31 to December 31.
| 2. | Reason for the Change |
|---|
The change in financial year end from October 31 to December 31 is being made by the Company to better align the Company’s financial reporting periods with its industry peer group in the cannabis sector, which will allow investors to more easily compare quarterly and annual financial results.
| 3. | Old Financial Year End |
|---|
The date of the Company’s old financial year end is October 31.
| 4. | New Financial Year End |
|---|
The date of the Company’s new financial year end is December 31.
| 5. | The length and ending date of the periods, including the comparative periods, of each interim financial report and the annual financial statements to be filed for the reporting issuer’s Transition Year and its New Financial Year are as follows: | ||||||
|---|---|---|---|---|---|---|---|
| TransitionYear | ComparativeAnnual FinancialStatementsto Transition<br><br> <br>Year | New Financial<br><br> <br>Year | ComparativeAnnual Financial<br><br> <br>Statements<br><br> <br>toNew Financial<br><br> <br>Year | InterimPeriods<br><br> <br>forTransitionYear | ComparativeInterim PeriodstoInterim Periodsin TransitionYear | Interim Periods<br><br> <br>forNew FinancialYear | ComparativeInterim PeriodstoInterim PeriodsinNew FinancialYear |
| --- | --- | --- | --- | --- | --- | --- | --- |
| 2 months<br><br> <br>ended<br><br> <br>12/31/2023 | 12 months<br><br> <br>ended<br><br> <br>10/31/2023 | 12/31/2024 | 2 months<br><br> <br>ended<br><br> <br>12/31/2023 and<br><br>12 months<br>ended<br><br> <br>10/31/2023 | Not<br><br> <br>applicable | Not<br><br> <br>applicable | 3 months<br><br> <br>ended<br><br> <br>03/31/2024<br><br> <br>6 months<br><br> <br>ended<br><br> <br>06/30/2024<br><br> <br>9 months<br><br> <br>ended<br><br> <br>09/30/2024 | 3 months<br><br> <br>ended<br><br> <br>04/30/2023<br><br> <br>6 months<br><br> <br>ended<br><br> <br>07/31/2023<br><br> <br>9 months<br><br> <br>ended<br><br> <br>10/31/2023 |
| 6. | Thefiling deadlines, prescribed under sections 4.2 and 4.4, for the annual financial statements and interim financial reports for the reportingissuer’s Transition Year | ||||||
| --- | --- |
| Interimand Annual Periods in Transition Year | FilingDeadline |
|---|---|
| Interim<br> financial reports for the 9 months ended 07/31/2023 | 09/29/2023 (filed) |
| Annual financial reports for the 12 months ended 10/31/2023 | 02/28/2024 |
| Annual<br> financial reports for the 2 months ended 12/31/2023 | 04/29/2024 |
Exhibit 41
GROWN ROGUE INTERNATIONAL INC.
Consolidated Financial Statements
For the Years Ended October 31,2023 and 2022
Expressed in United States Dollars
Table of Contents
| Consolidated Statement of Financial Position | 7 |
|---|---|
| Consolidated Statement of Comprehensive Income (Loss) | 8 |
| Consolidated Statement of Changes in Equity | 9 |
| Consolidated Statement of Cash Flows | 10 |
Notes to the Consolidated Financial Statements
| 1. | Corporate Information and Defined Terms | 11 |
|---|---|---|
| 2. | Significant Accounting Policies and Judgments and Defined Terms | 13 |
| 3. | Biological Assets | 23 |
| 4. | Inventory | 24 |
| 5. | Business Combinations | 24 |
| 6. | Other Investments, Purchase Deposits and Notes Receivable | 25 |
| 7. | Leases | 27 |
| 8. | Property and Equipment | 27 |
| 9. | Intangible Assets and Goodwill | 28 |
| 10. | Long-term Debt | 28 |
| 11. | Convertible Debentures | 31 |
| 12. | Share Capital and Shares Issuable | 33 |
| 13. | Warrants | 34 |
| 14. | Stock Options | 36 |
| 15. | Changes in Non-Cash Working Capital | 37 |
| 16. | Supplemental Cash Flow Disclosure | 37 |
| 17. | Related Party Transactions | 38 |
| 18. | Financial Instruments | 40 |
| 19. | General and Administrative Expenses | 43 |
| 20. | Income Taxes | 43 |
| 21. | Capital Disclosures | 45 |
| 22. | Segment Reporting | 46 |
| 23. | Non-controlling Interests | 46 |
| 24. | Legal Matters | 47 |
| 25. | Subsequent Events | 48 |
i
Report of Independent Auditors
To the Shareholders and Directors
Grown Rogue International, Inc.
Toronto, Ontario
Opinion
We have audited the consolidated financial statements of Grown Rogue International, Inc. (the “Company”), which comprise the consolidated statements of financial position at October 31, 2023 and 2022, and the consolidated statements of comprehensive income (loss), changes in equity and cash flows for the years then ended, and notes to the consolidated financial statements, including a summary of significant accounting policies (collectively referred to as the “consolidated financial statements”).
In our opinion, the accompanying consolidated financial statements present fairly, in all material respects, the consolidated financial position of the Company at October 31, 2023 and 2022, and its consolidated financial performance and its cash flows for the years then ended in accordance with International Financial Reporting Standards.
Basis for Opinion
We conducted our audits in accordance with Canadian generally accepted auditing standards. Our responsibilities under those standards are further described in the Auditors’ Responsibilities for the Audit of the Consolidated Financial Statements section of our report. We are independent of the Company in accordance with the ethical requirements that are relevant to our audits of the consolidated financial statements in Canada, and we have fulfilled our other ethical responsibilities in accordance with these requirements. We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our opinion.
Key Audit Matters
Key audit matters are those matters that, in our professional judgment, were of most significance in our audit of the consolidated financial statements of the current period. These matters were addressed in the context of our audit of the consolidated financial statements as a whole, and in forming our opinion thereon, and we do not provide a separate opinion on these matters.
| ● | Measurement of fair value of biological assets – as discussed in Note 4 of the notes to the consolidated financial statements, the Company measures biological assets at fair<br> value less costs to sell in accordance with IAS 41, Agriculture, which we identified<br> as a key audit matter. The Company uses an income approach to determine the fair value<br> less costs to sell at a specific measurement date, based on the existing cannabis<br> plant’s stage of completion up to the point of harvest. |
|---|---|
| Turner, Stone & Company, L.L.P.<br><br> <br>Accountants and Consultants | |
| --- |
Key Audit Matters (continued)
The following are the primary procedures we performed to address this key audit matter. We evaluated the design and tested calculations, including the assumptions used, to determine the fair value of the biological assets. We tested allocation of indirect costs, which formed part of standard cost per unit to complete production, by assessing the allocation method, recalculating the allocations and on a selection basis comparing the underlying allocation to source documents.
Other Information
Management is responsible for the other information. The other information comprises the information included in Management’s Discussion and Analysis.
Our opinion on the consolidated financial statements does not cover the other information and we do not express any form of assurance conclusion thereon.
In connection with our audits of the consolidated financial statements, our responsibility is to read the other information identified above and, in doing so, consider whether the other information is materially inconsistent with the consolidated financial statements, or our knowledge obtained in the audits, or otherwise appears to be materially misstated.
We obtained Managements’ Discussion and Analysis prior to the date of this auditors’ report. If, based on the work we have performed, we conclude that there is a material misstatement of this other information, we are required to report that fact. We have nothing to report in this regard.
Responsibilities of Management and Those Charged with Governance for the Consolidated Financial Statements
Management is responsible for the preparation and fair presentation of the consolidated financial statements in accordance with International Financial Reporting Standards, and for such internal control as management determines is necessary to enable the preparation of consolidated financial statements that are free from material misstatement, whether due to fraud or error.
In preparing the consolidated financial statements, management is responsible for assessing the Company’s ability to continue as a going concern, disclosing, as applicable, matters related to going concern and using the going concern basis of accounting unless management either intends to liquidate the Company or to cease operations, or has no realistic alternative but to do so.
Those charged with governance are responsible for overseeing the Company’s financial reporting process.
Auditors’ Responsibilities for the Audit of the Consolidated Financial Statements
Our objectives are to obtain reasonable assurance about whether the consolidated financial statements as a whole are free from material misstatement, whether due to fraud or error, and to issue an auditors’ report that includes our opinion. Reasonable assurance is a high level of assurance but is not a guarantee that an audit conducted in accordance with Canadian generally accepted auditing standards will always detect a material misstatement when it exists. Misstatements can arise from fraud or error and are considered material if, individually or in the aggregate, they could reasonably be expected to influence the economic decisions of users taken on the basis of these consolidated financial statements.
A further description of our responsibilities for the audit of the consolidated financial statements is included in Appendix A to this independent auditors’ report. Those descriptions form a part of our independent auditors’ report.
The engagement partner on the audit resulting in this independent auditors’ report is Ricky L. McBride.
Certified Public Accountants
February 28, 2023
Appendix A
to
Report of Independent Auditors
As part of an audit in accordance with Canadian generally accepted auditing standards, we exercise professional judgment and maintain professional skepticism throughout the audit. We also:
| ○ | Identify and assess the risks of material misstatement of the consolidated financial<br> statements, whether due to fraud or error; to design and perform audit procedures<br> responsive to those risks; and to obtain audit evidence that is sufficient and appropriate<br> to provide a basis for our opinion. The risk of not detecting a material misstatement<br> resulting from fraud is higher than for one resulting from error, as fraud may involve<br> collusion, forgery, intentional omissions, misrepresentations, or the override of internal control. |
|---|---|
| ○ | Obtain an understanding of internal control relevant to the audit in order to design<br> audit procedures that are appropriate in the circumstances, but not for the purpose<br> of expressing an opinion on the effectiveness of the Company’s internal control. |
| --- | --- |
| ○ | Evaluate the appropriateness of accounting policies used and the reasonableness of<br> accounting estimates and related disclosures made by management. |
| --- | --- |
| ○ | Conclude on the appropriateness of management’s use of the going concern basis of accounting and, based on the audit evidence obtained,<br> whether a material uncertainty exists related to events or conditions that may cast<br> significant doubt on the Company’s ability to continue as a going concern. If we conclude that a material uncertainty<br> exists, we are required to draw attention in our auditors’ report to the related disclosures in the consolidated financial statements or, if<br> such disclosures are inadequate, to modify our opinion. Our conclusions are based<br> on the audit evidence obtained up to the date of our report. However, future events<br> or conditions may cause an entity to cease to continue as a going concern. |
| --- | --- |
| ○ | Evaluate the overall presentation, structure and content of the consolidated financial<br> statements, including the disclosures, and whether the consolidated financial statements<br> represent the underlying transactions and events in a manner that achieves fair presentation. |
| --- | --- |
| ○ | Obtain sufficient appropriate audit evidence regarding the financial information of<br> the entities or business activities within the Company to express an opinion on the<br> consolidated financial statements. We are responsible for the direction, supervision<br> and performance of the Company’s consolidated group audit. We remain solely responsible for our audit opinion. |
| --- | --- |
We communicate with those charged with governance regarding, among other matters, the planned scope and timing of the audit and significant audit findings, including any significant deficiencies in internal control that we identify during the audit.
We also provide those charged with governance with a statement that we have complied with relevant ethical requirements regarding independence, and to communicate with them all relationships and other matters that may reasonably be thought to bear on our independence, and where applicable, related safeguards.
From the matters communicated with those charged with governance, we determine those matters that were of most significance in the audit of the consolidated financial statements of the current period and are therefore the key audit matters. We describe these matters in our auditors’ report unless law or regulation precludes public disclosure about the matter or when, in extremely rare circumstances, we determine that a matter should not be communicated in our report because the adverse consequences of doing so would reasonably be expected to outweigh the public interest benefits of such communication.
A-1
Grown Rogue International Inc.
Consolidated Statement of Financial Position
Expressed in United States Dollars
| October 31,<br>2023 | October 31,<br>2022 | |||
|---|---|---|---|---|
| ASSETS | ||||
| Current assets | ||||
| Cash and cash equivalents | ||||
| Accounts receivable (Note 18) | ||||
| Biological assets (Note 3) | ||||
| Inventory (Note 4) | ||||
| Prepaid expenses and other assets | ||||
| Total current assets | ||||
| Property and equipment (Note 8) | ||||
| Notes receivable (Notes 6.2.1 and 6.2.2) | ||||
| Warrants asset (Note 13.2) | ||||
| Intangible assets and goodwill (Note 9) | ||||
| Deferred tax asset (Note 20) | ||||
| TOTAL ASSETS | ||||
| LIABILITIES | ||||
| Current liabilities | ||||
| Accounts payable and accrued liabilities | ||||
| Current portion of lease liabilities (Note 7) | ||||
| Current portion of long-term debt (Note 10) | ||||
| Business acquisition consideration payable (Note 5) | ||||
| Unearned revenue | ||||
| Derivative liability (Notes 11.1.1, 11.2 and 11.2.1) | ||||
| Income tax payable | ||||
| Total current liabilities | ||||
| Lease liabilities (Note 7) | ||||
| Long-term debt (Note 10) | ||||
| Convertible debentures (Notes 11.1, 11.2 and 11.2.1) | ||||
| TOTAL LIABILITIES | ||||
| EQUITY | ||||
| Share capital (Note 12) | ||||
| Shares issuable (Note 12) | ||||
| Contributed surplus (Notes 13 and 14) | ||||
| Accumulated other comprehensive loss | ) | ) | ||
| Accumulated deficit | ) | ) | ||
| Equity attributable to shareholders | ||||
| Non-controlling interests (Note 23) | ||||
| TOTAL EQUITY | ||||
| TOTAL LIABILITIES AND EQUITY |
All values are in US Dollars.
Commitments and contingencies (Note 24)
Subsequent events (Note 25)
Approved on behalf of the Board of Directors:
| Signed “J. Obie Strickler”, Director | Signed “Stephen Gledhill”, Director |
|---|
The accompanying notes form an integral part of these consolidated financial statements.
Pg 7 of 48
Grown Rogue International Inc.
Consolidated Statement of ComprehensiveIncome (Loss)
Expressed in United States Dollars
| Years ended<br>October 31, | ||||
|---|---|---|---|---|
| 2023 | 2022 | |||
| Revenue | ||||
| Product sales (Note 2.5) | ||||
| Service revenue (Note 2.5.1) | ||||
| Total revenue | ||||
| Cost of goods sold | ||||
| Cost of finished cannabis inventory sold | ) | ) | ||
| Costs of service revenue | ) | |||
| Gross profit, excluding fair value items | ||||
| Realized fair value amounts in inventory sold | ) | ) | ||
| Unrealized fair value gain on growth of biological assets | ||||
| Gross profit | ||||
| Expenses | ||||
| Accretion expense | ||||
| Amortization of property and equipment | ||||
| General and administrative | ||||
| Share-based compensation | ||||
| Total expenses | ||||
| Income from operations | ||||
| Other income and (expense) | ||||
| Interest expense | ) | ) | ||
| Other income (expense) | ) | |||
| Gain on debt settlement | ||||
| Unrealized loss on marketable securities | ) | |||
| Unrealized loss on derivative liability | ) | |||
| Unrealized gain on warrants asset | ||||
| Loss on disposal of property and equipment | ) | ) | ||
| Total other expense, net | ) | ) | ||
| Gain (loss) from operations before taxes | ) | |||
| Income tax (Note 20) | ) | ) | ||
| Net income (loss) | ) | |||
| Other comprehensive income (items<br> that may be subsequently reclassified to profit & loss) | ||||
| Currency translation loss | ) | ) | ||
| Total comprehensive income (loss) | ) | |||
| Gain (loss) per share attributable to owners of the parent – basic and diluted | ) | |||
| Weighted average shares outstanding – basic and diluted | ||||
| Net income (loss) for the period attributable to: | ||||
| Non-controlling interest | ) | ) | ||
| Shareholders | ) | |||
| Net income (loss) | ) | |||
| Comprehensive income (loss) for the period attributable to: | ||||
| Non-controlling interest | ) | ) | ||
| Shareholders | ) | |||
| Total comprehensive income (loss) | ) |
All values are in US Dollars.
The accompanying notes form an integral part of these consolidated financial statements.
Pg 8 of 48
Grown Rogue International Inc.
Consolidated Statement of Changes in Equity
Expressed in United States Dollars
| **** | Number of common shares | Share<br> capital | Shares<br> issuable | **** | Contributed<br> surplus | Currency<br> translation reserve | **** | Accumulated<br> deficit | **** | Non-<br> controlling interests | **** | Total<br> equity | **** | |
|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
| **** | # | **** | **** | **** | **** | **** | ||||||||
| Balance<br> - October 31, 2022 | 170,632,611 | ) | ) | |||||||||||
| Issuance<br> of shares underlying shares issuable (Note 12.1) | 200,000 | ) | ||||||||||||
| Stock<br> option vesting expense | - | |||||||||||||
| Currency<br> translation adjustment | - | ) | ) | |||||||||||
| Exercise<br> of option to acquire 87% of Canopy membership units | - | ) | ||||||||||||
| Goodness<br> Growth warrants swap | - | |||||||||||||
| Settlement<br> of convertible debentures for common shares (Note 11.1.1) | 11,173,275 | |||||||||||||
| Net<br> loss | - | ) | ) | ) | ||||||||||
| Balance<br> – October 31, 2023 | 182,005,886 | ) | ) |
All values are in US Dollars.
| Number<br> of<br> common<br> shares | Share<br> capital | Shares<br> issuable | Contributed<br> surplus | Currency<br> translation reserve | Accumulated<br> deficit | Non-<br> controlling interests | Total<br> equity | |||||||
|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
| # | ||||||||||||||
| Balance<br> - October 31, 2021 | 156,936,876 | ) | ) | |||||||||||
| Shares<br> issued for employment, director, & consulting services (Note 12.2) | 529,335 | ) | ||||||||||||
| Private<br> placement of shares (Note 12.3) | 13,166,400 | |||||||||||||
| Stock<br> option vesting | - | |||||||||||||
| Currency<br> translation adjustment | - | ) | ) | |||||||||||
| Net<br> income (loss) | - | ) | ||||||||||||
| Balance<br> – October 31, 2022 | 170,632,611 | ) | ) |
All values are in US Dollars.
The accompanying notes form an integral part of these consolidated financial statements.
Pg 9 of 48
Grown Rogue International Inc.
Consolidated Statement of Cash Flow
Expressed in United States Dollars
| Years ended<br>October 31, | ||||
|---|---|---|---|---|
| 2023 | 2022 | |||
| Operating activities | ||||
| Net income (loss) | ) | |||
| Adjustments for non-cash items in net income (loss): | ||||
| Amortization of property and equipment | ||||
| Amortization of property and equipment included in costs of inventory sold | ||||
| Unrealized gain on changes in fair value of biological assets | ) | ) | ||
| Changes in fair value of inventory sold | ||||
| Deferred income taxes | ) | |||
| Share-based compensation | ||||
| Stock option expense | ||||
| Accretion expense | ||||
| Loss on disposal of property and equipment | ||||
| Gain on debt settlement | ) | |||
| Unrealized loss on marketable securities | ||||
| Loss on fair value of derivative liability | ||||
| Gain on warrants asset | ) | |||
| Effects of foreign exchange | ) | |||
| Changes in non-cash working capital (Note 15) | ) | ) | ||
| Net cash provided by operating activities | ||||
| Investing activities | ||||
| Purchase of property and equipment and intangibles | ) | ) | ||
| Cash advances and loans made to other parties | ) | |||
| Payments of acquisition payable | ) | |||
| Net cash used in investing activities | ) | ) | ||
| Financing activities | ||||
| Proceeds from convertible debentures | ||||
| Proceeds from long-term debt | ||||
| Proceeds from private placement | ||||
| Repayment of long-term debt | ) | ) | ||
| Repayment of convertible debentures | ) | |||
| Payments of lease principal | ) | ) | ||
| Net cash provided by (used in) financing activities | ) | |||
| Change in cash and cash equivalents | ||||
| Cash and cash equivalents, beginning | ||||
| Cash and cash equivalents, ending |
All values are in US Dollars.
Supplemental cash flow disclosures (Note 16)
The accompanying notes form an integral part of these consolidated financial statements.
Pg 10 of 48
Grown Rogue International Inc.
Notes to the Consolidated Financial Statements
For the Years Ended October 31, 2023and 2022
Expressed in United States Dollars, unless otherwise indicated
| 1. | CORPORATE INFORMATION AND DEFINED TERMS |
|---|---|
| 1.1 | Corporate Information |
| --- | --- |
These consolidated financial statements for the years ended October 31, 2023, and 2022, include the accounts of Grown Rogue International Inc. and its subsidiaries. The registered office is located at 40 King St W Suite 5800, Toronto, ON M5H 3S1.
Grown Rogue International Inc.’s subsidiaries and ownership thereof are summarized in the table below.
| Company | Ownership | Defined Term |
|---|---|---|
| Grown Rogue International Inc. | 100% owner of GR Unlimited | The “Company” |
| Grown Rogue Unlimited, LLC | 100% by the Company | “GR Unlimited” |
| Grown Rogue Gardens, LLC | 100% by Grown Rogue Unlimited, LLC | “GR Gardens” |
| GRU Properties, LLC | 100% by Grown Rogue Unlimited, LLC | “GRU Properties” |
| GRIP, LLC | 100% by Grown Rogue Unlimited, LLC | “GRIP” |
| Grown Rogue Distribution, LLC | 100% by Grown Rogue Unlimited, LLC | “GR Distribution” |
| GR Michigan, LLC | 87% by Grown Rogue Unlimited, LLC | “GR Michigan” |
| Canopy Management, LLC | 87% by Grown Rogue Unlimited, LLC | “Canopy” |
| Golden Harvests LLC | 60% by Canopy Management, LLC | “Golden Harvests” |
The Company is primarily engaged in the business of growing and selling cannabis products. The primary cannabis product produced and sold is cannabis flower.
| 1.2 | Defined Terms |
|---|
Following are certain defined terms used herein:
| Term | Defined Term | Reference |
|---|---|---|
| General terms: | ||
| International Financial Reporting Standards | “IFRS” | |
| International Accounting Standards | “IAS” | |
| International Accounting Standards Board | “IASB” | |
| International Financial Reporting Interpretations Committee | “IFRIC” | |
| United States | “U.S.” | |
| United States dollar | “U.S. dollar” | |
| Fair value less costs to sell | “FVLCTS” | |
| Fair value through profit or loss | “FVTPL” | |
| Fair value through other comprehensive income | “FVOCI” | |
| Other comprehensive income | “OCI” | |
| Solely payments of principal and interest | “SPPI” | |
| Expected credit loss | “ECL” | |
| Cash generating unit | “CGU” | |
| Internal Revenue Code | “IRC” | |
| U.S. Securities and Exchange Commission | “SEC” | |
| Securities Exchange Act of 1934 | “1934 Act” | |
| Federal Deposit Insurance Corporation | “FDIC” |
Pg 11 of 48
Grown Rogue International Inc.
Notes to the Consolidated Financial Statements
For the Years Ended October 31, 2023and 2022
Expressed in United States Dollars, unless otherwise indicated
| Term | Defined Term | Reference |
|---|---|---|
| Terms related to the Company’s locations: | ||
| Outdoor grow property located in Trail, Oregon leased from CEO | “Trail” | |
| Outdoor post-harvest facility located in<br> Medford, Oregon leased from CEO | “Lars” | |
| Terms related to officers and directors of the Company: | ||
| President & Chief Executive Officer | “CEO” | |
| Chief Financial Officer | “CFO” | |
| Senior Vice President of GR Unlimited | “SVP” | |
| Chief Operating Officer (position eliminated in December 2021) | “COO” | |
| Michigan General Manager | “GM” | |
| Terms related to transactions with High Street Capital Partners, LLC: | ||
| High Street Capital Partners, LLC | “HSCP” | Note 6.1 |
| Agreement of the Company to acquire<br> substantially all of the assets of the growing and retail operations of HSCP | “HSCP Transaction” | Note 6.1 |
| Management Services Agreement with HSCP | “HSCP MSA” | Note 6.1 |
| Secured promissory note payable with a<br> principal sum of $1,250,000 | “Secured Promissory Note” | Notes 6.1, 10.1 |
| Principal Payment of $500,000 due to HSCP on May 1, 2023 | “First Principal Payment” | Note 10.1 |
| Terms related to transactions with Plant-Based Investment Corp.: | ||
| Plant-Based Investment Corp., formerly related party | “PBIC” | |
| Unsecured promissory note agreement with PBIC of September 9, 2021 | “PBIC Note” | Note 10.2 |
| The Company’s sun-grown A-flower<br> 2021 harvest, defined in the PBIC Note | “Harvest” | Note 10.2 |
| The Company’s former ownership of 2,362,204 shares of PBIC | “PBIC Shares” | Note 10.2 |
| 2766923 Ontario Inc., receiver of PBIC<br> Shares from the Company as part of the settlement of the PBIC Note | “Creditor” | Note 10.2 |
| Terms related to Convertible Debentures issued in December 2022: | ||
| Convertible debentures with aggregate<br> principal amount of $2,000,000 issued in December 2022 | “December Convertible Debentures” | Note 11.1 |
| Purchasers of Convertible Debentures | “Purchasers” | Note 11.1 |
| 6,716,499 warrants issued to the Purchasers | “December Warrants” | Note 11.1 |
| Terms related to Convertible Debentures issued in July 2023: | ||
| Convertible debentures with aggregate<br> principal amount of $5,000,000 issued in July 2023 | “July Convertible Debentures” | Note 11.2 |
| Subscribers of Convertible Debentures | “Subscribers” | Note 11.2 |
| 13,737,500 warrants issued to the Subscribers | “July Warrants” | Note 11.2 |
| Terms related to Convertible Debentures issued in August 2023: | ||
| Convertible debentures with aggregate<br> principal amount of $1,000,000 issued in July 2023 | “August Convertible Debentures” | Note 11.2.1 |
| Subscribers of Convertible Debentures | “Subscribers” | Note 11.2.1 |
Pg 12 of 48
Grown Rogue International Inc.
Notes to the Consolidated Financial Statements
For the Years Ended October 31, 2023and 2022
Expressed in United States Dollars, unless otherwise indicated
| Term | Defined Term | Reference |
|---|---|---|
| Terms related to December 2021 non-brokered private placement of common shares: | ||
| Non-brokered private placement of common<br> shares (“Private Placement”) for total gross proceeds of $1,300,000 | “Private Placement” | Note 12.3 |
| Terms related to March 2021 brokered private placement of special warrants: | ||
| Agent for March 2021 brokered<br> private placement of special warrants | “Agent” | Note 13.1 |
| March 2021 brokered private placement of special warrants | “Offering” | |
| An aggregate of 1,127,758 broker warrants of the Company | “Broker Warrants” | Note 13.1 |
| Compensation options, resulting from<br> exercise of Broker Warrants | “Compensation Options” | Note 13.1 |
| Warrants for consideration of advisory<br> services issued to the Agent | “Advisory Warrants” | Note 13.1 |
| The Broker Warrants and Advisory<br> Warrants referred to collectively | “Agent Warrants” | Note 13.1 |
| One unit of the Company resulting from<br> exercise of a Compensation Option, comprised of one common share and one common share purchase warrant | “Compensation Unit” | Note 13.1 |
| Warrant resulting from Compensation Option | “Compensation Warrant” | Note 13.1 |
| Terms related to consulting agreement with Goodness Growth | ||
| Goodness Growth Holdings, Inc. (CSE: GDNS; OTCQX: GDNSF) | “Goodness Growth” | Note 13.2 |
| The consulting agreement under which the<br> Company provides services to Goodness Growth | “Consulting Agreement” | Note 13.2 |
| Volume weighted average price | “VWAP” | Note 13.2 |
| Terms related to ABCO Garden State, LLC secured draw down promissory note | ||
| ABCO Garden State, LLC | “ABCO” | Note 6.2.1 |
| New Jersey Cannabis Regulatory Commission | “CRC” | Note 6.2.1 |
| Secured draw down promissory note | “ABCO Promissory Note” | Note 6.2.1 |
| 2. | SIGNIFICANT ACCOUNTING POLICIES AND JUDGMENTS AND DEFINED TERMS | |
| --- | --- | |
| 2.1 | Statement of Compliance | |
| --- | --- |
The Company’s consolidated financial statements have been prepared in accordance with IFRS as issued by the IASB and interpretations of the IFRIC. These consolidated financials are filed on the system for electronic document analysis and retrieval (SEDAR+).
The Board of Directors authorized the issuance of these consolidated financial statements on February 27, 2024.
The principal accounting policies adopted in the preparation of these consolidated financial statements are set forth below.
Pg 13 of 48
Grown Rogue International Inc.
Notes to the Consolidated Financial Statements
For the Years Ended October 31, 2023and 2022
Expressed in United States Dollars, unless otherwise indicated
| 2.2 | Basis of Consolidation |
|---|
The subsidiaries are those companies controlled by the Company, as the Company is exposed, or has rights, to variable returns from its involvement with the subsidiaries and has the ability to affect those returns through its power over the subsidiaries by way of its ownership and rights pertaining to the subsidiaries. The financial statements of subsidiaries are included in these consolidated financial statements from the date that control commences until the date control ceases. All intercompany balances and transactions have been eliminated upon consolidation.
| 2.3 | Basis of Measurement |
|---|
These consolidated financial statements have been prepared on a historical cost basis except for certain financial instruments and biological assets, which are measured at fair value, as described herein.
| 2.4 | Functional and Presentation Currency |
|---|
The Company’s functional currency is the Canadian dollar, and the functional currency of its subsidiaries is the United States dollar. These consolidated financial statements are presented in U.S. dollars.
Transactions denominated in foreign currencies are initially recorded in the functional currency using exchange rates in effect at the dates of the transactions. Monetary assets and liabilities denominated in foreign currencies are translated into the functional currency using exchange rates prevailing at the end of the reporting period. All exchange gains and losses are included in the consolidated statement of comprehensive income (loss).
For the purpose of presenting consolidated financial statements, the assets and liabilities of the Company are expressed in U.S. Dollars using exchange rates prevailing at the end of the reporting period. Income and expense items are translated at the average exchange rates for the period, unless exchange rates fluctuated significantly during that period, in which case the exchange rates at the dates of the transactions are used. Exchange differences arising, if any, are recognized in other comprehensive income (loss) and reported as currency translation reserve in shareholders’ equity.
Foreign exchange gains or losses arising from a monetary item receivable from or payable to a foreign operation, the settlement of which is neither planned nor likely to occur in the foreseeable future and which, in substance, is considered to form part of the net investment in the foreign operation, are recognized in other comprehensive income (loss).
| 2.5 | Revenue |
|---|
Revenue is recognized when performance obligations under the terms of a contract with a customer are satisfied, which is upon the transfer of control of the contracted goods or provision of contracted services. Control of goods is transferred when title and physical possession of the contracted goods have been transferred to the customer, which is determined by the shipping terms and certain additional considerations. The Company does not have performance obligations subsequent to the transfer of title and physical possession of the contracted goods. Revenues from sales of goods are recognized when the transfer of ownership to the customer has occurred and the customer has accepted the product. Revenues from services are recognized when services have been provided, the income is determinable, and collectability is reasonably assured. The Company’s contract terms do not include a provision for significant post-service delivery obligations.
Pg 14 of 48
Grown Rogue International Inc.
Notes to the Consolidated Financial Statements
For the Years Ended October 31, 2023and 2022
Expressed in United States Dollars, unless otherwise indicated
| 2.5.1 | Service Revenue |
|---|
On May 24, 2023, GR Unlimited entered into the Consulting Agreement with Goodness Growth. Under the Consulting Agreement, GR Unlimited supports Goodness Growth in the optimization of its cannabis flower products, with a particular focus on improving the quality and yield of top-grade “A” cannabis flower across its various operating markets, starting with Maryland and Minnesota. The Consulting Agreement and amendments to the Consulting Agreement provide for service revenue earned to be calculated beginning January 2023. Also see Note 13.2 for further discussion on the terms of the Consulting Agreement.
| 2.6 | Inventory |
|---|
Inventory is valued at the lower of cost and net realizable value. The capitalized cost for produced inventory includes the direct and indirect costs initially capitalized to biological assets before the transfer to inventory. The capitalized cost also includes subsequent costs such as materials, labor, depreciation and amortization expense on equipment involved in packaging, labelling and inspection. The total cost of inventory also includes the fair value adjustment which represents the fair value of the biological asset at the time of harvest and which is transferred from biological asset costs to inventory upon harvest. All direct and indirect costs related to inventory are capitalized as they are incurred; these costs are recorded ‘Cost of finished cannabis inventory sold’ on the consolidated statement of comprehensive income (loss) at the time cannabis is sold. The realized fair value amounts included in inventory sold are recorded as a separate line on the consolidated statement of comprehensive income (loss).
| 2.7 | Cost of Finished Cannabis Inventory Sold |
|---|
Cost of finished cannabis inventory sold includes the value of inventory sold, excluding the fair value adjustment carried from biological assets into inventory. Cost of finished cannabis inventory sold also includes the value of inventory write downs.
| 2.8 | Biological Assets |
|---|
Biological assets are measured at fair value. The Company’s biological assets consist of cannabis plants. The Company capitalizes all the direct and indirect costs as incurred related to the biological transformation of the biological assets between the point of initial recognition and the point of harvest, including direct costs, indirect costs, allocated fixed and variable overheads, and depreciation and amortization of equipment used to grow plants through the harvest of the plants. Before planting, the capitalized costs approximate fair value. After planting, fair value is estimated at the fair value of the market sales price of the finished product less costs to complete. Subsequent to harvest, the recognized biological asset amount becomes the cost basis of finished goods inventory. Unrealized gains or losses arising from changes in fair value less costs to sell during the period are included in the consolidated statement of comprehensive income (loss) as ‘Unrealized fair value gain on growth of biological assets’. After sale, the amount of ‘Unrealized fair value gain on growth of biological assets’ sold is recognized as ‘Realized fair value amounts in inventory sold’.
Pg 15 of 48
Grown Rogue International Inc.
Notes to the Consolidated Financial Statements
For the Years Ended October 31, 2023and 2022
Expressed in United States Dollars, unless otherwise indicated
| 2.9 | Income (Loss) per Share |
|---|
Basic income (loss) per share is calculated by dividing the income (loss) attributable to common shareholders by the weighted average number of common shares outstanding in the period. For all periods presented, the income (loss) attributable to common shareholders equals the reported income (loss) attributable to owners of the Company. Diluted income (loss) per share is calculated by the treasury stock method. Under the treasury stock method, the weighted average number of common shares outstanding for the calculation of diluted loss per share assumes that the proceeds to be received on the exercise of dilutive share options and warrants are used to repurchase common shares at the average market price during the period.
| 2.10 | Accounts Payable and Accrued Liabilities |
|---|
Liabilities are recognized for amounts to be paid in the future for goods or services received, whether billed by the supplier or not. Provisions are recognized when the Company has an obligation (legal or constructive) arising from a past event, and the costs to settle this obligation are both probable and able to be reliably measured.
| 2.11 | Related Party Transactions |
|---|
Parties are considered to be related if one party has the ability, directly or indirectly, to control the other party or exercise significant influence over the other party in making financial and operating decisions. Parties are also considered to be related if they are members of key management, subject to common control, or can exert significant influence over the Company. Related parties may be individuals or corporate entities. A transaction is considered to be a related party transaction when there is a transfer of resources or obligations between related parties.
| 2.12 | Property and Equipment |
|---|
Property and equipment are stated at cost less accumulated amortization and accumulated impairment losses, if any. Costs include borrowing costs for assets that require a substantial period of time to become ready for use.
Amortization is recognized so as to recognize the cost of assets less their residual values over their useful lives, using the straight-line method. Amortization begins when an asset is available for use, meaning that it is in the location and condition necessary for it to be used in the manner intended by management. The estimated useful lives, residual values and method of amortization are reviewed at each period end, with the effect of any changes in estimated useful lives and residual values accounted for on a prospective basis.
The Company capitalizes costs incurred to construct assets; when such assets are not available for use as intended by management, amortization expense is not recorded until constructed assets are placed into service.
Amortization is calculated applying the following useful lives:
| Furniture and fixtures | 7-10 | years on a straight-line basis |
|---|---|---|
| Computer and office equipment | 3-5 | years on a straight-line basis |
| Production equipment and other | 5-10 | years on a straight-line basis |
| Leasehold improvements | 1-40 | years on a straight-line basis |
Pg 16 of 48
Grown Rogue International Inc.
Notes to the Consolidated Financial Statements
For the Years Ended October 31, 2023and 2022
Expressed in United States Dollars, unless otherwise indicated
The carrying values of property and equipment are reviewed for impairment when events or changes in circumstances indicate that the carrying value may not be recoverable. If any such indication exists, and where the carrying values exceed the estimated recoverable amount, the assets are written down to their recoverable amount, being the higher of their fair value less costs of disposal and their value in use. Fair value is the price at which the asset could be bought or sold in an orderly transaction between market participants. In assessing value in use, the estimated cash flows are discounted to their present value using a pre-tax discount rate that reflects the current market assessments of the time value of money and the risks specific to the asset.
Right-of-use leased assets are measured at cost, which is calculated as the amount of the initial measurement of lease liability plus any lease payments made at or before the commencement date, any initial direct costs and related restoration costs. The right-of-use assets are depreciated on a straight-line basis over the shorter of the lease term and the useful life of the underlying asset. Depreciation is recognized from the commencement date of the lease.
| 2.13 | Impairment of Long-lived Assets |
|---|
For all long-lived assets, except for intangible assets with indefinite useful lives and intangible assets not yet available for use, the Company reviews its carrying amount at the end of each reporting period to determine whether there is any indication that those assets have suffered an impairment loss. Where such impairment exists, the recoverable amount of the asset is estimated in order to determine the extent of the impairment loss.
An impairment loss is recognized for the amount by which the asset’s carrying amount exceeds its recoverable amount. The recoverable amount is the greater of fair value less costs of disposal and value in use. In assessing value in use, estimated future cash flows are discounted to their present value using a pretax discount rate that reflects current market assessments of the time value of money and the risks specific to the asset. Impairment losses are recognized in profit or loss.
Impairment losses may be reversed in a subsequent period where the impairment no longer exists or has decreased. The carrying amount after a reversal must not exceed the carrying amount (net of depreciation) that would have been determined had no impairment loss been recognized. A reversal of impairment loss is recognized in profit or loss.
| 2.14 | Share-based Compensation |
|---|---|
| 2.14.1 | Share-based Payment Transactions |
| --- | --- |
Transactions with non-employees that are settled in equity instruments of the Company are measured at the fair value of the goods or services rendered. In situations where the fair value of the goods or services received by the entity as consideration cannot be reliably measured, transactions are measured at fair value of the equity instruments granted. The fair value of the share-based payments is recognized together with a corresponding increase in equity over a period that services are provided, or goods are received.
Pg 17 of 48
Grown Rogue International Inc.
Notes to the Consolidated Financial Statements
For the Years Ended October 31, 2023and 2022
Expressed in United States Dollars, unless otherwise indicated
| 2.14.2 | Equity Settled Transactions |
|---|
The costs of equity settled transactions with employees are measured by reference to the fair value of the equity instruments at the date on which they are granted, using the Black Scholes option pricing model.
The costs of equity settled transactions are recognized, together with a corresponding increase in equity, over the period in which the performance and/or service conditions are fulfilled, ending on the date on which the relevant employees become fully entitled to the award (“the vesting date”). The cumulative cost is recognized for equity settled transactions at each reporting date until the vesting date reflects the Company’s best estimate of the number of equity instruments that will ultimately vest. The profit or loss charge or credit for a period represents the movement in cumulative expense recognized as at the beginning and end of that period and the corresponding amount is represented in contributed surplus. No expense is recognized for awards that do not ultimately vest.
| 2.14.3 | Share Issuance Costs |
|---|
Costs incurred in connection with the issuance of equity are netted against the proceeds received net of tax. Costs related to the issuance of equity and incurred prior to issuance are recorded as deferred equity issuance costs and subsequently netted against proceeds when they are received.
| 2.15 | Income Taxes |
|---|
Tax expense includes current and deferred tax. This expense is recognized in profit or loss, except for income tax related to the components of other comprehensive income (loss) or equity, in which case the tax expense is recognized in other comprehensive income (loss) or equity respectively.
Current tax assets and liabilities are obligations or claims for the current and prior periods to be recovered from (or paid to) taxation authorities that are still outstanding at the end of the reporting period. Current tax is computed on the basis of tax profit which differs from net profit. Income taxes are calculated using tax rates and laws enacted or substantively enacted at the end of the reporting period.
Deferred tax is recognized based on temporary differences between the carrying amount and the tax basis of the assets and liabilities. Any change in the net amount of deferred tax assets and liabilities is included in profit or loss. Deferred tax assets and liabilities are determined based on enacted or substantively enacted tax rates and laws that are expected to apply to taxable profit for the periods in which the assets and liabilities will be recovered or settled. Deferred tax assets are recognized when it is likely they will be realized. Deferred tax assets and liabilities are not discounted.
The Company recognizes a deferred tax asset or liability for all deductible temporary differences arising from equity securities of subsidiaries, unless it is probable that the temporary difference will not reverse in the foreseeable future and the Company is able to control the timing of the reversal.
Pg 18 of 48
Grown Rogue International Inc.
Notes to the Consolidated Financial Statements
For the Years Ended October 31, 2023and 2022
Expressed in United States Dollars, unless otherwise indicated
| 2.16 | Financial Instruments |
|---|---|
| 2.16.1 | Financial Assets |
| --- | --- |
Initial Recognition
The Company initially recognizes financial assets at fair value on the date that the Company becomes a party to the contractual provisions of the instrument. The Company derecognizes a financial asset when the contractual rights to the cash flows from the asset expire, or it transfers the rights to receive the contractual cash flows on the financial asset in a transaction in which substantially all the risks and rewards of ownership of the financial asset are transferred.
Classification and Measurement
Under IFRS 9 Financial Instruments, financial assets are initially measured at fair value. In the case of a financial asset not categorized as FVTPL, transaction costs are included. Transaction costs of financial assets carried at FVTPL are expensed in net income (loss).
Subsequent classification and measurement of financial assets depends on the Company’s business objective for managing the asset and the cash flow characteristics of the asset:
| - | Amortized cost – Financial assets held for collection of contractual cash flows that<br> meet the SPPI test are measured at amortized cost. Interest income or expense is recognized<br> as other income (expense) in the consolidated financial statements, and gains/losses<br> are recognized in net income (loss) when the asset is derecognized or impaired. |
|---|---|
| - | FVOCI – Financial assets held to achieve a particular business objective other than<br> short term trading are designated at FVOCI. IFRS 9 also provides the ability to make<br> an irrevocable election at initial recognition of a financial asset, on an instrument<br> by instrument basis, to designate an equity investment that would otherwise be classified<br> as FVTPL and that is neither held for trading nor contingent consideration arising<br> from a business combination to be classified as FVOCI. There is no recycling of gains or losses through net income (loss). Upon derecognition of the asset, accumulated<br> gains or losses are transferred from OCI directly to Deficit. |
| --- | --- |
| - | FVTPL – Financial assets that do not meet the criteria for amortized cost or FVOCI<br> are measured at FVTPL. |
| --- | --- |
| 2.16.2 | Financial Liabilities |
| --- | --- |
The Company initially recognizes financial liabilities at fair value on the date at which the Company becomes a party to the contractual provisions of the instrument. The Company derecognizes a financial liability when its contractual obligations are discharged or cancelled or expire. The subsequent measurement of financial liabilities is determined based on their classification as follows:
| - | FVTPL – Derivative financial instruments entered into by the Company that do not meet<br> hedge accounting criteria are classified as FVTPL. Gains or losses on these types<br> of financial liabilities are recognized in net income (loss). |
|---|
Pg 19 of 48
Grown Rogue International Inc.
Notes to the Consolidated Financial Statements
For the Years Ended October 31, 2023and 2022
Expressed in United States Dollars, unless otherwise indicated
| - | Amortized cost – All other financial liabilities are classified as amortized cost<br> using the effective interest method. Gains and losses are recognized in net income<br> (loss) when the liabilities are derecognized as well as through the amortization process. |
|---|
The following table summarizes the original measurement categories for each class of the Company’s financial assets and financial liabilities:
| Asset/Liability | Classification |
|---|---|
| Accounts receivable | Amortized cost |
| Cash and cash equivalents | Amortized cost |
| Marketable securities | FVTPL |
| Warrants Asset | FVTPL |
| Accounts payable and accrued liabilities | Amortized cost |
| Long-term debt | Amortized cost |
| Interest payable | Amortized cost |
| Convertible debentures | Amortized cost |
| Derivative liabilities | FVTPL |
Impairment
IFRS 9 introduces a three-stage ECL model for determining impairment of financial assets. The expected credit loss model does not require the occurrence of a triggering event before an entity recognizes credit losses. IFRS 9 requires an entity to recognize expected credit losses upon initial recognition of a financial asset and to update the quantum of expected credit losses at the end of each reporting period to reflect changes to credit risk of the financial asset. The adoption of the ECL model did not have a material impact on the Company’s consolidated financial statements.
The Company recognizes a loss allowance for expected credit losses on financial assets that are measured at amortized cost. At each reporting date, the loss allowance for the financial asset is measured at an amount equal to the lifetime expected credit losses if the credit risk on the financial asset has increased significantly since initial recognition. If at the reporting date, the financial asset has not increased significantly since initial recognition, the loss allowance is measured for the financial asset at an amount equal to twelve month expected credit losses. For trade receivables the Company applies the simplified approach to providing for expected credit losses, which allows the use of a lifetime expected loss provision. Impairment losses on financial assets carried at amortized cost are reversed in subsequent periods if the amount of the loss decreases and the decrease can be objectively related to an event occurring after the impairment was recognized.
| 2.17 | Business Combinations |
|---|
A business combination is a transaction or event in which the acquirer obtains control of one or more businesses and is accounted for using the acquisition method. The total consideration paid for the acquisition is the aggregate of the fair values of assets acquired, liabilities assumed, and equity instruments issued in exchange for control of the acquiree at the acquisition date. The acquisition date is the date when the Company obtains control of the acquiree. The identifiable assets acquired and liabilities assumed are recognized at their acquisition date fair values, except for deferred taxes and share-based payment awards where IFRS provides exceptions to recording the amounts at fair values. Goodwill represents the difference between total consideration paid and the fair value of the net identifiable assets acquired. Acquisition costs incurred are expensed within the consolidated statement of comprehensive income (loss).
Pg 20 of 48
Grown Rogue International Inc.
Notes to the Consolidated Financial Statements
For the Years Ended October 31, 2023and 2022
Expressed in United States Dollars, unless otherwise indicated
Contingent consideration is measured at its acquisition date fair value and is included as part of the consideration transferred in a business combination, subject to the applicable terms and conditions. Contingent consideration that is classified as equity is not remeasured at subsequent reporting dates and its subsequent settlement is accounted for within equity. Contingent consideration that is classified as an asset or a liability is remeasured at subsequent reporting dates in accordance with IFRS 9 with the corresponding gain or loss recognized in profit or loss.
Based on the facts and circumstances that existed at the acquisition date, management will perform a valuation analysis to allocate the purchase price based on the fair values of the identifiable assets acquired and liabilities assumed on the acquisition date. Management has one year from the acquisition date to confirm and finalize the facts and circumstances that support the finalized fair value analysis and related purchase price allocation. Until such time, these values are provisionally reported and are subject to changed. Changes to fair values and allocations are retrospectively adjusted in subsequent periods.
In determining the fair value of all identifiable assets acquired and liabilities assumed, the most significant estimates generally relate to contingent consideration and intangible assets. Management exercises judgment in estimating the probability and timing of when earn-out milestones are expected to be achieved, which is used as the basis for estimating fair value. Identified intangible assets are fair valued using appropriate valuation techniques which are generally based on a forecast of the total expected future net cash flows of the acquiree. Valuations are highly dependent on the inputs used and assumptions made by management regarding the future performance of these assets and any changes in the discount rate applied.
Acquisitions that do not meet the definition of a business combination are accounted for as asset acquisitions. Consideration paid for an asset acquisition is allocated to the individual identifiable assets acquired and liabilities assumed based on their relative fair values. Asset acquisitions do not give rise to goodwill.
Management exercises judgment in determining the entities that it controls for consolidation and associated non-controlling interests. For financial reporting purposes, an entity is considered controlled when the Company has power over an entity and its ability to affect its economic return from the entity. The Company has power over an entity when it has existing rights that give it the ability to direct the relevant activities which can significantly affect the investee’s returns. Such power can result from contractual arrangements. However, certain contractual arrangements contain rights that are designed to protect the Company’s interest, without direct equity ownership in the entity, in which case non-controlling interests are recognized.
| 2.18 | Intangible Assets and Goodwill |
|---|
Intangible assets are recorded at cost less accumulated amortization and any impairment losses. Intangible assets acquired in a business combination are measured at fair value at the acquisition date. Amortization of definite life intangibles is calculated on a straight-line basis over their estimated useful lives.
Goodwill represents the excess of the purchase price paid for the acquisition of an entity over the fair value of the net tangible and intangible assets acquired. Goodwill is allocated to the CGU or group of CGUs which are expected to benefit from the synergies of the combination. Goodwill is not subject to amortization.
Goodwill and intangible assets with an indefinite life or not yet available for use are tested for impairment annually at year-end, and whenever events or circumstances that make it more likely than not that an impairment may have occurred, such as a significant adverse change in the business climate or a decision to sell or dispose all or a portion of a reporting unit. Finite life intangible assets are tested whenever there is an indication of impairment.
Pg 21 of 48
Grown Rogue International Inc.
Notes to the Consolidated Financial Statements
For the Years Ended October 31, 2023and 2022
Expressed in United States Dollars, unless otherwise indicated
Goodwill and indefinite life intangible assets are tested for impairment by comparing the carrying value of each CGU containing the assets to its recoverable amount. Indefinite life intangible assets are tested for impairment by comparing the carrying value of each CGU containing the assets to its recoverable amount. Goodwill is tested for impairment based on the level at which it is monitored by management, and not at a level higher than an operating segment. The Company’s goodwill is allocated to the cannabis operating segment and the U.S. cannabis and hemp-derived market CGU. The allocation of goodwill to the CGUs or group of CGUs requires the use of judgment.
An impairment loss is recognized for the amount by which the CGU’s carrying amount exceeds its recoverable amount. The recoverable amounts of the CGUs’ assets are determined based on either fair value less costs of disposal or value-in-use method. There is a material degree of uncertainty with respect to the estimates of the recoverable amounts of the CGU, given the necessity of making key economic assumptions about the future. Impairment losses recognized in respect of a CGU are first allocated to the carrying value of goodwill, and any excess is allocated to the carrying value of assets in the CGU. Any impairment is recorded in profit and loss in the period in which the impairment is identified. A reversal of an asset impairment loss is allocated to the assets of the CGU on a pro rata basis. In allocating a reversal of an impairment loss, the carrying amount of an asset shall not be increased above the lower of its recoverable amount and the carrying amount that would have been determined had no impairment loss been recognized for the asset in the prior period. Impairment losses on goodwill are not subsequently reversed.
| 2.19 | Adoption of New Accounting Pronouncements |
|---|
Amendments to IAS 41: Agriculture
As part of its 2018-2020 annual improvements to the standards process of IFRS, the IASB issued amendments to IAS 41 Agriculture. The amendment removes the requirement in paragraph 22 of IAS 41 for entities to exclude taxation cash flow when measuring the fair value of a biological asset using a present value technique. This will ensure consistency with the requirements in IFRS 13 Fair Value Measurement. The amendment is effective for annual reporting periods beginning on or after January 1, 2022. The Company adopted the amendments to IAS 41 effective November 1, 2022, which did not have material impact to the Company’s consolidated financial statements.
Amendments to IFRS 9: Financial Instruments
As part of its 2018-2020 annual improvements to the standards process of IFRS, the IASB issued amendments to IFRS 9 Financial Instruments. The amendment clarifies the fees that an entity includes when assessing whether the terms of a new or modified financial liability are substantially different from the terms of the original financial liability. These fees include only those paid or received between the borrower and the lender, including fees paid or received by either the borrower or lender on the other’s behalf. An entity applies the amendment to financial liabilities that are modified or exchanged on or after the beginning of the annual reporting period in which the entity first applies the amendment. The amendment is effective for annual reporting periods beginning on or after January 1, 2022 with earlier adoption permitted. The Company adopted the Amendments to IFRS 9 effective November 1, 2022, which did not have material impact to the Company’s consolidated financial statements.
Pg 22 of 48
Grown Rogue International Inc.
Notes to the Consolidated Financial Statements
For the Years Ended October 31, 2023and 2022
Expressed in United States Dollars, unless otherwise indicated
Amendments to IAS 37: Onerous Contracts — Cost of Fulfilling a Contract
The amendment specifies that the ‘cost of fulfilling’ a contract comprises the ‘costs that relate directly to the contract’. Costs that relate directly to a contract can either be incremental costs of fulfilling that contract or an allocation of other costs that relate directly to fulfilling contracts. The amendment is effective for annual periods beginning on or after January 1, 2022 with early application permitted. The Company adopted the amendments to IAS 37 effective November 1, 2022, which did not have material impact to the Company’s consolidated financial statements.
| 2.20 | New Accounting Pronouncements |
|---|
Amendments to IAS 1: Classification of Liabilities as Current or Non-current
The amendment clarifies the requirements relating to determining if a liability should be presented as current or non-current in the statement of financial position. Under the new requirement, the assessment of whether a liability is presented as current or non-current is based on the contractual arrangements in place as at the reporting date and does not impact the amount or timing of recognition. The amendment applies retrospectively for annual reporting periods beginning on or after January 1, 2024. The Company is evaluating the potential impact of these amendments on the Company’s consolidated financial statements.
IFRS 17 – Insurance Contracts
IFRS 17 Insurance Contracts establishes the principles for the recognition, measurement, presentation and disclosure of insurance contracts within the scope of the standard. The objective of IFRS 17 is to ensure that an entity provides relevant information that faithfully represents those contracts. The standard is effective for annual periods beginning on or after January 1, 2023. The Company is evaluating the potential impact of this standard on the Company’s consolidated financial statements.
| 3. | BIOLOGICAL ASSETS |
|---|
Biological assets consist of cannabis plants, which reflect measurement at FVLCTS. Changes in the carrying amounts of biological assets for the years ended October 31, 2023 and 2022, are as follows:
| **** | October 31,<br>2023 | **** | October 31,<br>2022 | **** |
|---|---|---|---|---|
| **** | **** | **** | ||
| Beginning balance | ||||
| Increase in biological assets due to capitalized costs | ||||
| Change in FVLCTS due to biological transformation | ||||
| Transferred to inventory upon harvest | ) | ) | ||
| Ending balance |
All values are in US Dollars.
Pg 23 of 48
Grown Rogue International Inc.
Notes to the Consolidated Financial Statements
For the Years Ended October 31, 2023and 2022
Expressed in United States Dollars, unless otherwise indicated
FVLCTS is determined using a model which estimates the expected harvest yield for plants currently being cultivated, and then adjusts that amount for the expected selling price and also for any additional costs to be incurred, such as post-harvest costs.
The following significant unobservable inputs, all of which are classified as level 3 on the fair value hierarchy, were used by management as part of this model:
| - | Expected costs required to grow the cannabis up to the point<br>of harvest | |||||||||
|---|---|---|---|---|---|---|---|---|---|---|
| - | Estimated selling price per pound | |||||||||
| --- | --- | |||||||||
| - | Expected yield from the cannabis plants | |||||||||
| --- | --- | |||||||||
| - | Estimated stage of growth – the Company applied a weighted<br>average number of days out of the approximately 62-day growing cycle that biological assets have reached as of the measurement date based<br>on historical evidence. The Company assigns fair value according to the stage of growth and estimated costs to complete cultivation. | |||||||||
| --- | --- | |||||||||
| Impact of 20% change | ||||||||||
| --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- |
| October 31,<br><br>2023 | October 31,<br><br>2022 | October 31,<br><br> <br>2023 | October 31,<br><br>2022 | |||||||
| Estimated selling price per (pound) | $ | 945 | $ | 817 | $ | 340,390 | $ | 246,397 | ||
| Estimated stage of growth | 51 | % | 49 | % | $ | 280,663 | $ | 204,814 | ||
| Estimated flower yield per harvest (pound) | 3,283 | 2,638 | $ | 280,663 | $ | 204,814 | ||||
| 4. | INVENTORY | |||||||||
| --- | --- |
The Company’s inventory composition is as follows:
| **** | October 31,<br>2023 | October 31,<br> 2022 |
|---|---|---|
| **** | ||
| Raw materials | ||
| Work in process | ||
| Finished goods | ||
| Ending balance |
All values are in US Dollars.
The cost of inventories, excluding changes in fair value, included as an expense and included in cost of goods sold for the years ended October 31, 2023, was $11,155,676 (2022 $9,227,439).
| 5. | BUSINESS COMBINATIONS |
|---|---|
| 5.1 | Golden Harvests |
| --- | --- |
On May 1, 2021, the Company acquired a controlling 60% interest in Golden Harvests for aggregate consideration of $1,007,719 comprised of 1,025,000 common shares of the Company with a fair value of $158,181 and cash payments of $849,536. Consideration remaining to be paid at the date of these consolidated financial statements included cash payments of $360,000. During the year ended October 31, 2023, 200,000 common shares issuable since May 1, 2021, with an aggregate fair value of $35,806, were issued.
Pg 24 of 48
Grown Rogue International Inc.
Notes to the Consolidated Financial Statements
For the Years Ended October 31, 2023and 2022
Expressed in United States Dollars, unless otherwise indicated
On December 1, 2021, the Company and the seller of the 60% controlling interest in Golden Harvests agreed to extend the due date of the cash portion of business acquisition consideration payable until December 31, 2024, in exchange for monthly payments at a rate of 18% per annum. The Company may pay all or part of the cash portion of the business acquisition consideration payable prior to December 31, 2024. The following table summarizes the movement in business acquisition consideration payable.
| Business acquisition consideration payable | ||
|---|---|---|
| Acquisition date fair value | ||
| Payments | ) | |
| Application of prepayments | ) | |
| Accretion | ||
| Balance – October 31, 2022 and 2023 |
All values are in US Dollars.
| 6. | OTHER INVESTMENTS, PURCHASE DEPOSITS AND NOTES RECEIVABLE |
|---|---|
| 6.1 | Investment in Assets Sold by HSCP |
| --- | --- |
On February 5, 2021, the Company agreed to acquire substantially all of the assets of the growing and retail operations pursuant to the HSCP Transaction, for an aggregate total of $3,000,000 in consideration, payable in a series of tranches, subject to receipt of all necessary regulatory and other approvals. A payment of $250,000 was to be due at closing and the payment of the remaining purchase price was to depend on the timing of the closing. The Company also executed the HSCP MSA, a management services agreement, pursuant to which the Company agreed to pay $21,500 per month as consideration for services rendered thereunder, until the completion of the HSCP Transaction. In accordance with the MSA, the Company owned all production from the growing assets derived from the growing operations of HSCP, and the Company operated the growing facility of HSCP under the MSA until receipt of the necessary regulatory approvals relating to the acquisition by the Company of HSCP’s growing assets. The Company had no involvement with the retail operations contemplated in the agreement until the HSCP Transaction was completed.
On April 14, 2022, the HSCP Transaction closed with modifications to the original terms: the retail purchase was mutually terminated, and total consideration for the acquisition was reduced to $2,000,000. Upon closing, the Company had paid $750,000 towards the acquisition, and owed a principal sum of $1,250,000 as a Secured Promissory Note, which was fully paid on December 31, 2023 subsequent to the consolidated statement of financial position dated October 31, 2023, as described in Note 10.1.
Pg 25 of 48
Grown Rogue International Inc.
Notes to the Consolidated Financial Statements
For the Years Ended October 31, 2023and 2022
Expressed in United States Dollars, unless otherwise indicated
| 6.2 | Notes Receivable |
|---|---|
| 6.2.1 | ABCO Garden State, LLC Draw Down Promissory Note |
| --- | --- |
On October 4, 2023, the Company announced that it signed a definitive agreement with an option to acquire 70% of ABCO, pending regulatory approval from the CRC. ABCO was granted a conditional cultivation and manufacturing license by the CRC and will receive its annual cultivation license soon. GR Unlimited executed the ABCO Promissory Note with ABCO’s affiliate, Iron Flag, LLC, to fund tenant improvements and for general working capital at the 50,000 square foot facility leased by ABCO for use in ABCO’s cannabis cultivation operations under construction and estimated to be completed in the second quarter of 2024.
Pursuant to the ABCO Promissory Note, GR Unlimited shall make the maximum amount available to Iron Flag, LLC in one or more advances in an aggregate amount not to exceed $4,000,000. Interest on the outstanding principal borrowed shall accrue at a rate of 12.5% per annum commencing with respect to each advance and accruing until the date the standing advances and all accrued interest is paid in full.
As at October 31, 2023, the outstanding balance of the ABCO Promissory Note was $1,170,101, and the accrued interest receivable was $8,758.
| 6.2.2 | New Jersey Retail Promissory Note |
|---|
On October 3, 2023, GR Unlimited executed a promissory note and advanced $250,000 to an individual representing the principal amount of the note. Pursuant to the promissory note agreement, interest on the outstanding principal borrowed shall accrue at a rate of 12% per annum provided that, if the extended maturity date of the note is triggered, interest shall accrue on the outstanding balance commencing on the maturity date and ending on the extended maturity date of the promissory note.
As at October 31, 2023, the outstanding balance of the promissory note was $250,000, and the accrued interest receivable was $1,667.
Subsequent to the consolidated statement of financial position dated October 31, 2023, the Company signed a related definitive agreement on January 16, 2024 to invest in the development of an adult-use dispensary in West New York, New Jersey. Also see subsequent event in note 25.2.
Pg 26 of 48
Grown Rogue International Inc.
Notes to the Consolidated Financial Statements
For the Years Ended October 31, 2023and 2022
Expressed in United States Dollars, unless otherwise indicated
| 7. | LEASES |
|---|
The following is a continuity schedule of lease liabilities.
| October 31,<br>2023 | October 31,<br> 2022 | |||
|---|---|---|---|---|
| Balance - beginning | ||||
| Additions | ||||
| Disposals | ) | |||
| Interest expense on lease liabilities | ||||
| Payments | ) | ) | ||
| Balance - ending | ||||
| Current portion | ||||
| Non-current portion |
All values are in US Dollars.
Set out below are undiscounted minimum future lease payments after October 31, 2023.
| Total future<br> minimum lease<br>payments () | |
|---|---|
| Less than one year | |
| Between one and five years | |
| Total |
All values are in US Dollars.
| 8. | PROPERTY AND EQUIPMENT | ||||||||
|---|---|---|---|---|---|---|---|---|---|
| **** | Computer and Office Equipment | Production Equipment and Other | **** | Leasehold Improvements | **** | Right-of- use Assets | **** | Total | **** |
| --- | --- | --- | --- | --- | --- | --- | --- | --- | --- |
| **** | **** | **** | **** | ||||||
| COST | |||||||||
| Balance - October 31, 2021 | |||||||||
| Additions | |||||||||
| Disposals | ) | ) | ) | ||||||
| Balance - October 31, 2022 | |||||||||
| Additions | |||||||||
| Disposals | ) | ) | ) | ) | |||||
| Balance - October 31, 2023 | |||||||||
| ACCUMULATED AMORTIZATION | |||||||||
| Balance - October 31, 2021 | |||||||||
| Amortization for the period | |||||||||
| Disposals | ) | ) | ) | ||||||
| Balance - October 31, 2022 | |||||||||
| Amortization for the period | |||||||||
| Disposals | ) | ) | ) | ) | |||||
| Balance - October 31, 2023 | |||||||||
| NET BOOK VALUE | |||||||||
| Balance - October 31, 2022 | |||||||||
| Balance – October 31, 2023 |
All values are in US Dollars.
Pg 27 of 48
Grown Rogue International Inc.
Notes to the Consolidated Financial Statements
For the Years Ended October 31, 2023and 2022
Expressed in United States Dollars, unless otherwise indicated
For the years ended October 31, 2023, amortization capitalized was $1,937,073 (2022 - $1,251,391) and expensed amortization was $578,641 (2022 - $750,916).
| 9. | INTANGIBLE ASSETS AND GOODWILL | |
|---|---|---|
| Indefinite lived intangible assets and goodwill | October 31,<br>2023 | October 31,<br>2022 |
| --- | --- | --- |
| Balance – beginning | ||
| Additions – grower licenses | ||
| Balance – ending |
All values are in US Dollars.
Additions during the year ended October 31, 2022, resulted from the HSCP Transaction (Note 6.1).
| 10. | LONG-TERM DEBT |
|---|
Transactions related to the Company’s long-term debt for the years ended October 31, 2023 and 2022, include the following:
| Note | |||||||||||||||||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
| Movement<br> in long-term debt | 10.1 | 10.2 | 10.3 | 10.4 | 10.5 | 10.6 | 10.7 | Total | |||||||||||||||
| Balance<br> - October 31, 2021 | - | 600,572 | 249,064 | 280,567 | 150,000 | 142,997 | 786,461 | ||||||||||||||||
| Additions<br> to debt | 1,250,000 | 100,000 | - | - | - | - | - | ||||||||||||||||
| Settlement<br> of debt | - | (706,352 | ) | - | - | - | - | - | ) | ||||||||||||||
| Interest<br> accretion | - | 5,780 | 79,046 | 71,443 | - | 36,594 | 295,453 | ||||||||||||||||
| Debt<br> payments | - | - | (25,000 | ) | (25,000 | ) | (150,000 | ) | (12,500 | ) | (520,303 | ) | ) | ||||||||||
| Balance<br> - October 31, 2022 | 1,250,000 | - | 303,110 | 327,010 | - | 167,091 | 561,611 | ||||||||||||||||
| Interest<br> accretion | - | - | 96,985 | 83,752 | - | 43,006 | 187,782 | ||||||||||||||||
| Debt<br> payments | (900,000 | ) | - | (25,000 | ) | (25,000 | ) | - | (12,500 | ) | (669,330 | ) | ) | ||||||||||
| Balance<br> – October 31, 2023 | 350,000 | - | 375,095 | 385,762 | - | 197,597 | 80,063 | ||||||||||||||||
| Current<br> portion | 350,000 | - | 334,395 | 344,118 | - | 177,028 | 80,063 | ||||||||||||||||
| Non-current<br> portion | - | - | 40,700 | 41,644 | - | 20,569 | - |
All values are in US Dollars.
| Note | |||||||||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
| Undiscounted<br> future payments at: | 10.1 | 10.2 | 10.3 | 10.4 | 10.5 | 10.6 | 10.7 | Total | |||||||
| October<br> 31, 2022 | 1,250,000 | - | 456,250 | 457,991 | - | 225,799 | 754,150 | ||||||||
| October<br> 31, 2023 | 350,000 | - | 431,250 | 432,991 | - | 213,298 | 84,820 | ||||||||
| Current<br> portion | 350,000 | 387,500 | 388,806 | 191,484 | 84,820 | ||||||||||
| Non-current<br> portion | 43,750 | 44,185 | 21,814 |
All values are in US Dollars.
| 10.1 | 12.5% Note Payable Owed by GR Distribution to HSCP with Original Principal Amount of $1,250,000 |
|---|
On April 14, 2022, the Company purchased indoor growing assets from HSCP (Note 6.1). Purchase consideration included a secured promissory note payable with a principal sum of $1,250,000, of which $500,000 was due on August 1, 2022 and $750,000 was due on May 1, 2023, before amendment of the agreement, which is described below. Collateral for the secured promissory note payable is comprised of the assets purchased.
Pg 28 of 48
Grown Rogue International Inc.
Notes to the Consolidated Financial Statements
For the Years Ended October 31, 2023and 2022
Expressed in United States Dollars, unless otherwise indicated
On August 1, 2022, the terms of the Secured Promissory Note between GR Distribution and HSCP, were amended. As amended, the Secured Promissory Note will be fully settled by two principal amounts of $500,000 and $750,000 due on May 1, 2023. Beginning on August 1, 2022, and continuing until repaid in full, the unpaid portion of the First Principal Amount will accrue simple interest at a rate per annum of 12.5%, payable monthly. In the event the Company raises capital, principal payments shall be made as follows. If the capital raise is less than or equal to $2 million, then 25% of the capital raise shall be paid against the First Principal Payment; if the capital raise is greater than $2 million and less than or equal to $3 million, then $250,000 shall be paid against the First Principal Payment; and if the capital raise is greater than $3 million, then $500,000 shall be paid against the First Principal Payment.
On May 1, 2023, the terms of the Secured Promissory Note were amended for a second. Under the second amendment, the Secured Promissory Note will be fully settled in two principal amounts. On May 1, 2023, the $500,000 principal payment plus all accrued but unpaid interest under the first amendment was due and payable. The remaining principal balance of $500,000, which bears no interest, is due and payable as follows: $150,000 due and payable on August 1, 2023; $150,000 due and payable on November 1, 2023; and $200,000 due and payable on December 31, 2023. The Company paid $900,000 during the year ended October 31, 2023.
| 10.2 | 0% Stated Rate Note Payable to PBIC with Original Principal Amount of $800,000 and Harvest-based Payments (settled) |
|---|
On September 9, 2021, the Company entered into the PBIC Note, an unsecured promissory note agreement with PBIC, a formerly related party, in the amount of $800,000, which was to be fully advanced by September 30, 2021. During the year ended October 31, 2022, $100,000 was received (through October 31, 2021 - $600,000). The PBIC Note was to mature on December 15, 2022, with payments commencing January 15, 2022, and continuing through and including December 15, 2022. The terms required the Company to make certain participation payments to the lender based on a percentage monthly sales of cannabis flower sold from the Company’s Harvest (sun-grown A-flower 2021 harvest), less 15% of such amount to account for costs of sales. The percentage was determined by dividing 2,000 by the total volume of pounds of the Harvest, proportionate to principal proceeds. A portion of these payments were to be used to pay down the outstanding principal on a monthly basis. The PBIC Note would have automatically terminated when the full amount of any outstanding principal plus the applicable participation payments were paid prior to the maturity date. Should the participation payments have fully repaid the principal amount prior to the maturity date then the PBIC Note would have automatically terminated. The PBIC Note bore no stated rate of interest, and in the event of default, would have born interest at 15% per annum. The PBIC Note was reported at amortized cost using an effective interest rate of approximately 1.9%.
On June 20, 2022, the Company announced the settlement of the PBIC Note, which had a principal balance owing of $700,000. The Company agreed to transfer its PBIC Shares (the Company’s ownership of 2,362,204 common shares of PBIC), to the Creditor (2766923 Ontario Inc.), to which PBIC sold and assigned the PBIC Note. In exchange, the Creditor provided forgiveness and settlement of all amounts owing in connection with the PBIC Note. The Company reported a gain on debt settlement of $449,684 as a result of the settlement.
Pg 29 of 48
Grown Rogue International Inc.
Notes to the Consolidated Financial Statements
For the Years Ended October 31, 2023and 2022
Expressed in United States Dollars, unless otherwise indicated
| 10.3 | 10% Note Payable Owed by Golden Harvests with Original Principal Amount of $250,000 |
|---|
On May 1, 2021, the Company assumed a note payable owed by Golden Harvests (Note 5) with a carrying value of $227,056. The note is for a principal amount of $250,000, interest paid monthly at 10% per annum, and a maturity date of January 14, 2024. After the maturity date, additional interest payments are due quarterly, at amounts that cause total interest paid over the life of the debt to equal $250,000. The note is reported at amortized cost using an effective interest rate of approximately 33%. During each of the years ended October 31, 2023 and 2022, the Company made principal payments of $25,000.
| 10.4 | 10% Note Payable Owed by GR Distribution with Original Principal Amount of $250,000 |
|---|
On January 27, 2021, debt was issued by GR Distribution with a principal amount of $250,000, interest paid monthly at 10% per annum, and a maturity date of January 27, 2024. After the maturity date, additional interest payments are due quarterly, at amounts that cause total interest paid over the life of the debt to equal $250,000. The note is reported at amortized cost using an effective interest rate of approximately 27%. During each of the years ended October 31, 2023 and 2022, the Company made principal payments of $25,000.
| 10.5 | 10% Note Payable Owed by GR Gardens with Original Principal Amount of $150,000 (settled) |
|---|
On December 2, 2020, debt was issued by GR Gardens with a principal amount of $150,000, interest accrued at 10% per annum, and a maturity date of December 31, 2021. Interest and principal are payable upon maturity. The maturity date was extended by six-months for a fee of $1,000 per $10,000 of principal extended, which was $75,000. The balance was fully paid during the year ending October 31, 2022.
| 10.6 | 10% Note Payable Owed by GR Distribution with Original Principal Amount of $125,000 |
|---|
On November 23, 2020, debt was issued by GR Distribution with a principal amount of $125,000, interest paid monthly at 10% per annum, and a maturity date of November 23, 2023. After the maturity date, additional interest payments are due quarterly, at amounts that cause total interest paid over the life of the debt to equal $125,000. The note is reported at amortized cost using an effective interest rate of approximately 27%. During each of the years ended October 31, 2023 and 2022, the Company made principal payments of $12,500.
| 10.7 | 0% Stated Rate Note Payable by Canopy with Original Principal Amount of $600,000 and Royalty Payments to Lenders |
|---|
On March 20, 2020, debt with a principal amount of $600,000 was received under a secured debt investment of $600,000. It carries a two-year term, with monthly payments of principal commencing June 15, 2020, and with payments calculated at 1% of cash sales receipts of Golden Harvests. Once the principal is repaid, each investor receives a monthly royalty of 1% per $100,000 invested of cash receipts for sales by Golden Harvests. The royalty commenced in December 2021, at which time principal was repaid, and is payable monthly a period of two years. The royalty maximum is two times the amount of principal invested, and the royalty minimum is equal to the principal loaned. The Company has the right, but not the obligation, to terminate royalty payments from any lender by paying an amount equal to the original principal invested by such lender. The debt is reported at the carrying value of the probability-weighted estimated future cash flows of all payments under the agreement at amortized cost using the effective interest method, at an effective interest rate of approximately 73%. A portion of this debt is due to related parties (Note 17.4). During the years ended October 31, 2023 and 2022, the Company made principal payments of $669,330 and $520,303, respectively.
Pg 30 of 48
Grown Rogue International Inc.
Notes to the Consolidated Financial Statements
For the Years Ended October 31, 2023and 2022
Expressed in United States Dollars, unless otherwise indicated
| 10.8 | Accrued Interest Payable |
|---|
Accrued interest payable on long-term debt at October 31, 2023 was $Nil (October 31, 2022 - $Nil).
| 11. | CONVERTIBLE DEBENTURES |
|---|
Transactions relating to the Company’s convertible debentures for the year ended October 31, 2023, include the following:
| Note | ||||||||
|---|---|---|---|---|---|---|---|---|
| Movement in convertible debt | 11.1 | 11.2 | Total | |||||
| Balance - October 31, 2022 | - | - | ||||||
| Additions to debt | 2,000,000 | 6,000,000 | ||||||
| Derivative liability recognition | (783,856 | ) | (3,982,944 | ) | ) | |||
| Debt settlement through conversion of shares (Note 11.1.1) | (1,174,639 | ) | - | ) | ||||
| Interest accretion | 343,556 | 271,651 | ||||||
| Debt payments | (137,745 | ) | (123,261 | ) | ) | |||
| Balance - October 31, 2023 | $ | 247,316 | 2,165,446 | |||||
| Current portion | - | - | ||||||
| Non-current portion | 247,316 | 2,165,446 |
All values are in US Dollars.
| 11.1 | 9% Convertible Debentures with Original Principal Amount of $2,000,000 |
|---|
On December 5, 2022, the Company announced the closing of a non-brokered private placement of the December Convertible Debentures with an aggregate principal amount of $2,000,000. The December Convertible Debentures accrue interest at 9% per year, paid quarterly, and mature 36 months from the date of issue. The December Convertible Debentures are convertible into common shares of the Company at a conversion price of CAD$0.20 per common share. Additionally, on closing, the Company issued to the Purchasers of the December Convertible Debentures an aggregate of 6,716,499 warrants, that represents 50% coverage of each Purchaser’s Convertible Debenture investment. The December Warrants are exercisable for a period of three years from issuance into common shares at an exercise price of $0.25 CAD per common share. The Company has the right to accelerate the warrants if the closing share price of the common shares on the Canadian Securities Exchange is CAD$0.40 or higher for a period of 10 consecutive trading days. The December Convertible Debentures and December Warrants issued pursuant to the private placement (and the underlying common shares) were subject to a statutory hold period of four months and one day from the closing date.
| 11.1.1 | Debt Settlement Through Conversion of Shares |
|---|
During the year ended October 31, 2023, Purchasers of the December Convertible Debentures converted an aggregate total of convertible debenture principal of $1,040,662 and $133,977 at CAD$0.20 per share into 10,151,250 and 1,022,025 common shares respectively.
Pg 31 of 48
Grown Rogue International Inc.
Notes to the Consolidated Financial Statements
For the Years Ended October 31, 2023and 2022
Expressed in United States Dollars, unless otherwise indicated
The conversion feature of the December Convertible Debentures gives rise to the derivative liability reported on the consolidated statement of financial position at October 31, 2023. The derivative liability is remeasured at fair value through profit and loss at each reporting period using the Black-Scholes option pricing model. The fair value of the derivative liability at October 31, 2023, was estimated to be $490,195 (October 31, 2022 - $Nil) using the following assumptions:
| Expected dividend yield | Nil |
|---|---|
| Risk-free interest rate | 4.67% |
| Expected life | 2.09 years |
| Expected volatility | 99% |
| 11.2 | 9% Convertible Debentures with Original Principal Amount of $5,000,000 |
| --- | --- |
On July 13, 2023, the Company announced the closing of a non-brokered private placement of unsecured the July Convertible Debentures with an aggregate principal amount of $5,000,000. The Convertible Debentures accrue interest at 9% per year, paid quarterly, and mature 48 months from the date of issue. The July Convertible Debentures are convertible into common shares of the Company at a conversion price of CAD$0.24 per common share, at any time on or prior to the maturity date. Additionally, on closing, the Company issued to the Subscribers of the July Convertible Debentures an aggregate of 13,737,500 July Warrants, that represents one-half of one warrant for each CAD$0.24 of Principal amount subscribed. The July Warrants are exercisable for a period of three years from issuance into common shares at an exercise price of CAD$0.28 per common share. The Company has the right to accelerate the warrants if the closing share price of the common shares on the Canadian Securities Exchange is CAD$0.40 or higher for a period of 10 consecutive trading days. The July Warrant expiry date will be accelerated to 90 days following notice of the acceleration.
The conversion feature of the July Convertible Debentures gives rise to the derivative liability reported on the consolidated statement of financial position at October 31, 2023. The derivative liability is remeasured at fair value through profit and loss at each reporting period using the Black-Scholes option pricing model. The fair value of the derivative liability at October 31, 2023, was estimated to be $6,053,927 (October 31, 2022 - $Nil) using the following assumptions:
| Expected dividend yield | Nil |
|---|---|
| Risk-free interest rate | 4.18% |
| Expected life | 3.70 years |
| Expected volatility | 99% |
| 11.2.1 | 9% Convertible Debentures with Original Principal Amountof $1,000,000 |
| --- | --- |
On August 17, 2023, the Company announced that it had closed the second and final tranche of a non-brokered private placement of unsecured convertible debentures for gross proceeds of $1,000,000 (the August Convertible Debentures), for a total aggregate principal amount under both tranches of $6,000,000 with the July Convertible Debentures. Additionally, on closing, the Company issued to Subscribers under the second tranche an aggregate of 2,816,250 common share purchase warrants. The terms of the August Convertible Debentures and warrants issued as part of this second tranche are the same as those issued in the July Convertible Debentures and July Warrants.
Pg 32 of 48
Grown Rogue International Inc.
Notes to the Consolidated Financial Statements
For the Years Ended October 31, 2023and 2022
Expressed in United States Dollars, unless otherwise indicated
The conversion feature of the August Convertible Debentures gives rise to the derivative liability reported on the consolidated statement of financial position at October 31, 2023. The derivative liability is remeasured at fair value through profit and loss at each reporting period using the Black-Scholes option pricing model. The fair value of the derivative liability at October 31, 2023, was estimated to be $1,264,378 (October 31, 2022 - $Nil) using the following assumptions:
| Expected dividend yield | Nil |
|---|---|
| Risk-free interest rate | 4.18% |
| Expected life | 4.00 years |
| Expected volatility | 99% |
| 12. | SHARE CAPITAL AND SHARES ISSUABLE |
| --- | --- |
The Company is authorized to issue an unlimited number of common shares at no par value and an unlimited number of preferred shares issuable in series.
During the year ended October 31, 2023, the following share transactions occurred:
| 12.1 | 200,000 Common Shares Issued to Settle Shares Issuable |
|---|
On January 10, 2023, the Company issued 200,000 common shares with an aggregate fair value of $35,806, which was reported as issuable as at October 31, 2022, which represented a portion of consideration for the acquisition of Golden Harvests (Note 5).
| 12.2 | 10,151,250 Common Shares Issued to Settle Convertible Debentures |
|---|
On July 13, 2023, the Company issued 10,151,250 common shares with an aggregate fair value of $2,428,656, as holders opted to convert their convertible debentures (Note 11.1.1).
| 12.3 | 1,022,025 Common Shares Issued to Settle Convertible Debentures |
|---|
On August 30, 2023, the Company issued 1,022,025 common shares with an aggregate fair value of $270,133, as holders opted to convert their convertible debentures.
During the year ended October 31, 2022, the following share transactions occurred:
| 12.4 | 529,335 Common Shares Issued to Employees, Directors, and/or Consultants |
|---|
The Company issued 529,335 common shares with a fair value of $59,796 for employment compensation, director services and consulting services.
| 12.5 | 13,166,400 Common Shares Issued in Private Placement for Proceeds of $1,300,000 |
|---|
On December 9, 2021, the Company closed the Private Placement, a non-brokered private placement of common shares, for total gross proceeds of $1,300,000 (CDN$1,645,800). The Private Placement resulted in the issuance of 13,166,400 common shares of Grown Rogue at a purchase price of CAD$0.125 per share. All common shares issued pursuant to the Private Placement were subject to a hold period of four months and one day. The CEO of Grown Rogue invested $300,000 in the Private Placement and received 3,038,400 common shares of the Company.
Pg 33 of 48
Grown Rogue International Inc.
Notes to the Consolidated Financial Statements
For the Years Ended October 31, 2023and 2022
Expressed in United States Dollars, unless otherwise indicated
| 13. | WARRANTS |
|---|
The following table summarizes the warrant activities for the years ended October 31, 2023 and 2022:
| Number | Weighted Average Exercise Price (CAD) | |||
|---|---|---|---|---|
| Balance - October 31, 2021 | 56,919,787 | |||
| Expiration of warrants pursuant to convertible debt deemed re-issuance | (8,409,091 | ) | ||
| Expiration of warrants issued pursuant to private placement to CGOC | (15,000,000 | ) | ||
| Balance – October 31, 2022 | 33,510,696 | |||
| Issuance pursuant to the December Convertible Debentures (Note 11.1) | 6,716,499 | |||
| Issuance pursuant to the July Convertible Debentures (Note 11.2) | 13,737,500 | |||
| Issuance pursuant to the August Convertible Debentures (Note 11.2.1) | 2,816,250 | |||
| Issued pursuant to the Consulting Agreement with Goodness Growth (Note 13.2) | 8,500,000 | |||
| Expiration of warrants pursuant to Feb 2021 subscriptions | (8,200,000 | ) | ||
| Expiration of warrants pursuant to the Offering (Special warrant issue) | (23,162,579 | ) | ||
| Expiration of warrants pursuant to terminate purchase agreement | (2,148,117 | ) | ||
| Balance – October 31, 2023 | 31,770,249 |
All values are in US Dollars.
As at October 31, 2023, the following warrants were issued and outstanding:
| Exercise price (CAD) | Warrants outstanding | Life (years) | Expiry date | ||
|---|---|---|---|---|---|
| 6,716,499 | 2.09 | December 2, 2025 | |||
| 13,737,500 | 2.70 | July 13, 2026 | |||
| 2,816,250 | 2.80 | August 17, 2026 | |||
| 8,500,000 | 4.93 | October 05, 2028 | |||
| 31,770,249 | 3.18 |
All values are in US Dollars.
| 13.1 | Agent Warrants |
|---|
On March 5, 2021, as consideration for the services rendered the Agent to the Offering (a brokered private placement of special warrants), the Company issued to the Agent an aggregate of 1,127,758 Broker Warrants of the Company exercisable to acquire 1,127,758 Compensation Options for no additional consideration. As consideration for certain advisory services provided in connection with the Offering, the Company issued to the Agent an aggregate of 113,500 Advisory Warrants exercisable to acquire 113,500 Compensation Options for no additional consideration. The Broker Warrants and Advisory Warrants are collectively referred to as the Agent Warrants.
Each Compensation Option entitled the holder thereof to purchase one Compensation Unit of the Company at the Issue Price of CAD$0.225 for a period of twenty-four (24) months. Each Compensation Unit was comprised of one common share and one Compensation Warrant. Each Compensation Warrant entitled the holder thereof to purchase one common share in the capital of the Company at a price of CAD$0.30 for twenty-four (24) months. The Agent Warrants expired on March 5, 2023.
Pg 34 of 48
Grown Rogue International Inc.
Notes to the Consolidated Financial Statements
For the Years Ended October 31, 2023and 2022
Expressed in United States Dollars, unless otherwise indicated
| 13.2 | Goodness Growth Consulting Agreement |
|---|
The Consulting Agreement with Goodness Growth was executed as of May 24, 2023, whereby GR Unlimited will support Goodness Growth in the optimization of its cannabis flower products, with a particular focus on improving the quality and yield of top-grade “A” cannabis flower across its various operating markets, starting with Maryland and Minnesota (Note 2.5.1).
As part of this strategic agreement, Goodness Growth is obligated to issue 10,000,000 warrants to purchase 10,000,000 subordinate voting shares of Goodness Growth to the Company, with a strike price equal to CAD$0.317 (US$0.233), being a 25.0 percent premium to the 10-day VWAP of Goodness Growth’s subordinate voting shares prior to the effective date of the Consulting Agreement. Similarly, the Company will issue 8,500,000 warrants to purchase 8,500,000 common shares of the Company to Goodness Growth, with a strike price equal to CAD$0.225 (US$0.166), being a 25.0 percent premium to the 10-day VWAP of the Company’s common shares prior to the effective date of the Consulting Agreement.
The Company first measured and recognized the fair value ($1,232,253) of the warrants using a Black-Scholes option pricing model as of the warrants’ deemed issuance date, which was the effective date of the Consulting Agreement (May 24, 2023). The Company and Goodness Growth issued and exchanged the warrants on October 5, 2023, at which time the carrying value ($1,232,253) of the warrants issued and received was recorded to equity and Warrants Asset, respectively.
The Warrants Asset is remeasured at fair value through profit and loss at each reporting period using the Black-Scholes option pricing model. The fair value of the Warrants Asset at October 31, 2023, was estimated to be $1,361,366 (October 31, 2022 - $Nil) using the following assumptions:
| Expected (strike) price | 0.328 |
|---|---|
| Risk-free interest rate | 4.18% |
| Expected life | 4.94 years |
| Expected volatility | 99% |
Pg 35 of 48
Grown Rogue International Inc.
Notes to the Consolidated Financial Statements
For the Years Ended October 31, 2023and 2022
Expressed in United States Dollars, unless otherwise indicated
| 14. | STOCK OPTIONS |
|---|
The following table summarizes the stock option movements for the years ended October 31, 2023 and 2022:
| Number | Exercise price<br>(CAD) | |||
|---|---|---|---|---|
| Balance - October 31, 2021 | 5,765,000 | |||
| Granted to employees | 605,000 | |||
| Forfeitures by service provider | (500,000 | ) | ||
| Forfeitures by employees | (960,000 | ) | ||
| Balance – October 31, 2022 | 4,910,000 | |||
| Granted to employees | 3,650,000 | |||
| Granted to employees | 400,000 | |||
| Granted to service providers | 2,750,000 | |||
| Expiration of options to employees | (430,000 | ) | ||
| Expiration of options to employees | (75,000 | ) | ||
| Balance – October 31, 2023 | 11,205,000 |
All values are in US Dollars.
| 14.1 | Stock Options Granted |
|---|
During the year ended October 31, 2023, 6,800,000 options were granted (2022 – 605,000) to employees and service providers.
The fair value of the options granted during the year ended October 31, 2023, was approximately $450,325 (CAD$611,439) which was estimated at the grant dates based on the Black-Scholes option pricing model, using the following assumptions:
| Expected dividend yield | Nil% |
|---|---|
| Risk-free interest rate | 3.89% |
| Expected life | 4.0 years |
| Expected volatility | 86% |
The vesting terms of options granted during the year ended October 31, 2023, are set out in the table below:
| Number granted | Vesting terms | |
|---|---|---|
| 200,000 | 1/3 on each anniversary of grant date | |
| 200,000 | 50% on one year anniversary of grant date, 50% on second anniversary of grant date | |
| 400,000 | Fully vested on grant date | |
| 6,000,000 | Vest on one year anniversary of grant date | |
| 6,800,000 |
Pg 36 of 48
Grown Rogue International Inc.
Notes to the Consolidated Financial Statements
For the Years Ended October 31, 2023and 2022
Expressed in United States Dollars, unless otherwise indicated
| 14.2 | Stock Options Issued and Outstanding |
|---|
As at October 31, 2023, the following stock options were issued and outstanding:
| Exercise price (CAD) | Optionsoutstanding | Numberexercisable | RemainingContractual Life (years) | Expiry period | |||
|---|---|---|---|---|---|---|---|
| 1,845,000 | 1,782,500 | 0.7 | July 2024 | ||||
| 200,000 | 200,000 | 1.1 | November 2024 | ||||
| 1,000,000 | 850,000 | 1.5 | April 2025 | ||||
| 1,150,000 | 1,150,000 | 1.6 | May 2025 | ||||
| 85,000 | 85,000 | 2.0 | November 2025 | ||||
| 300,000 | 150,000 | 2.5 | April 2026 | ||||
| 6,225,000 | 400,000 | 3.2 | January 2027 | ||||
| 400,000 | - | 3.9 | September 2027 | ||||
| 11,205,000 | 4,617,500 | 2.4 |
All values are in US Dollars.
| 15. | CHANGES IN NON-CASH WORKING CAPITAL |
|---|
The changes to the Company’s non-cash working capital for the years ended October 31, 2023, and 2022 are as follows:
| Years ended October 31, | 2023 | 2022 | ||
|---|---|---|---|---|
| **** | **** | **** | ||
| Accounts receivable | ) | ) | ||
| Inventory and biological assets | ) | ) | ||
| Prepaid expenses and other assets | ) | |||
| Accounts payable and accrued liabilities | ) | |||
| Interest payable | ) | |||
| Income tax payable | ||||
| Unearned revenue | ) | ) | ||
| Total | ) | ) |
All values are in US Dollars.
| 16. | SUPPLEMENTAL CASH FLOW DISCLOSURE | |
|---|---|---|
| Years ended October 31, | 2023 | 2022 |
| --- | --- | --- |
| **** | ||
| Interest paid | ||
| Fair value of common shares issued and issuable for services | ||
| Fair value of common shares issued to settle convertible debentures | ||
| Right-of-use assets acquired through leases (Note 7) | ||
| Note payable to HSCP used to acquire assets (Note 10.1) |
All values are in US Dollars.
Pg 37 of 48
Grown Rogue International Inc.
Notes to the Consolidated Financial Statements
For the Years Ended October 31, 2023and 2022
Expressed in United States Dollars, unless otherwise indicated
| 17. | RELATED PARTY TRANSACTIONS |
|---|
During the years ended October 31, 2023 and 2022, the Company incurred the following related party transactions.
| 17.1 | Transactions with CEO |
|---|
Through its wholly owned subsidiary, GRU Properties, the Company leases Trail, owned by the Company’s President and CEO. The lease was extended during the year ended October 31, 2021, with a term through December 31, 2025. Lease charges of $72,000 (2022 – 72,000) were incurred for year ended October 31, 2023. The lease liability for Trail at October 31, 2023, was 139,014 (October 31, 2022 - $193,312).
During the year ended October 31, 2021, the Company leased Lars, a facility which is beneficially owned by the CEO, and is located in Medford, Oregon with a term through June 30, 2026. Lease charges for Lars of $190,035 (2022 - $184,500) were incurred for the year ended October 31, 2023. The lease liability for Lars at October 31, 2023, was $470,134 (October 31, 2022 - $607,900).
During the year ended October 31, 2021, the CEO leased equipment to the Company, which had a balance due of $Nil at October 31, 2023 (October 31, 2022 - $9,433). Lease payments of $9,971 were made against the equipment leases during the year ended October 31, 2023 (2022 - $28,871).
Leases liabilities payable to the CEO were $609,148 in aggregate at October 31, 2023 (October 31, 2022 - $810,645).
The CEO earned a royalty of 2.5% of sales of flower produced at Trail through December 31, 2021, at which time the royalty terminated. The CEO earned royalties of $Nil during the year ended October 31, 2023 (2022 - $305).
During the year ended October 31, 2022, the Company settled $62,900 in long-term liabilities due to the CEO as part of the CEO’s total $300,000 subscription to a non-brokered private placement of common shares (Note 12.3).
During the year ended October 31, 2023, the Company, through GR Unlimited, acquired 87% of the membership units of Canopy from the CEO. All payments necessary for GR Unlimited to exercise its option to acquire 87% of Canopy were equal to payments made by Canopy to purchase a controlling 60% interest of Golden Harvests.
| 17.2 | Transactions with Spouse of CEO |
|---|
During the year ended October 31, 2023, the Company incurred expenses of $98,846 (2022 - $60,000) for salary paid to the spouse of the CEO. At October 31, 2023, accounts and accrued liabilities payable to this individual were $2,692 (October 31, 2022 - $1,154). The spouse of the CEO was granted 500,000 options during the year ended October 31, 2023.
Pg 38 of 48
Grown Rogue International Inc.
Notes to the Consolidated Financial Statements
For the Years Ended October 31, 2023and 2022
Expressed in United States Dollars, unless otherwise indicated
| 17.3 | Transactions with Key Management Personnel |
|---|
Key management personnel consist of the President and CEO; the CFO, the COO, GM and the SVP of the Company. The compensation to key management is presented in the following table:
| Years ended October 31, | 2023 | 2022 |
|---|---|---|
| **** | ||
| Salaries and consulting fees | ||
| Share-based compensation | ||
| Stock option expense | ||
| Total |
All values are in US Dollars.
Stock options granted to key management personnel and close family members of key management personnel include the following. During the year ended October 31, 2023, 1,500,000 options were granted to the CEO; 750,000 options were granted to the CFO; 750,000 options were granted to the SVP; and 175,000 options to the GM. During the year ended October 31, 2022, no options were granted to key management personnel.
During the year ended October 31, 2023, 1,250,000 stock options were granted to three board of directors.
During the year ended October 31, 2023, the SVP purchased December 2022 Convertible Debentures with a principal balance of $50,000 and was issued 167,912 December Warrants.
During the year ended October 31, 2023, the Company issued 200,000 shares to the GM, which represented a portion of consideration for the acquisition of Golden Harvests (Notes 5 and 12.1).
Compensation to the board of directors during the year ended October 31, 2023, was $18,000, (2022 – fees of $18,000 and issuance of 273,750 common shares with a fair value of $20,562).
Through its subsidiary, Golden Harvests, the Company leased Morton, owned by the Company’s GM, that is located in Michigan, with a lease term through January 2026. Lease charges of $180,000 (2022 - $152,000) were incurred during the year ended October 31, 2023. The lease liability of Morton at October 31, 2023 was $377,043 (2022 - $428,476).
Through its subsidiary, Golden Harvests, the Company also leased Morton Annex located in Michigan, which is owned by the Company’s GM. The lease term was extended during the year ended October 31, 2023, through November 2023. Lease charges of $740,000 (2022 - $330,000) were incurred during the year ended October 31, 2023. The lease liability of Morton Annex at October 31, 2023, was $29,774 (2022 - $211,991).
Accounts payable, accrued liabilities, and lease liabilities due to key management at October 31, 2023, totaled $1,118,763 (October 31, 2022 - $1,587,700).
Pg 39 of 48
Grown Rogue International Inc.
Notes to the Consolidated Financial Statements
For the Years Ended October 31, 2023and 2022
Expressed in United States Dollars, unless otherwise indicated
| 17.4 | Debt Balances and Movements with Related Parties |
|---|
The following table sets out portions of debt pertaining to related parties:
| **** | CEO | **** | SVP | **** | Director | **** | COO | **** | GM | **** | Total | **** |
|---|---|---|---|---|---|---|---|---|---|---|---|---|
| **** | **** | **** | **** | **** | **** | **** | ||||||
| Balance - October 31, 2021 | ||||||||||||
| Interest | ||||||||||||
| Payments | ) | ) | ) | ) | ) | ) | ||||||
| Balance - October 31, 2022 | ||||||||||||
| Interest | ||||||||||||
| Payments | ) | ) | ) | ) | ) | |||||||
| Balance – October 31, 2023 |
All values are in US Dollars.
Pursuant to the loan and related agreements transacted during the year ended October 31, 2020, the CEO, SVP, and a director obtained 5.5%; 1%; and 2.5% of GR Michigan, respectively; third parties obtained 4% as part of the agreements, such that GR Michigan has a 13% non-controlling interest (Note 23.2). These parties, except the CEO, obtained the same interests in Canopy; the CEO obtained 92.5% of Canopy Management, of which 87% was acquired by the Company in January 2023 (Note 23.3); all payments necessary for the Company to exercise its option to acquire 87% of Canopy were equal to payments made by Canopy to purchase a controlling 60% interest of Golden Harvests. Interest payments of $59,400 were made on the business acquisition payable of $360,000 (Note 5.1).
| 18. | FINANCIAL INSTRUMENTS |
|---|---|
| 18.1 | Market Risk (Including Interest Rate Risk, Currency Risk and Other Price Risk) |
| --- | --- |
Market risk is the risk that the fair value or cash flows of a financial instrument will fluctuate due to changes in market prices. Market risk reflects interest rate risk, currency risk and other price risks.
| 18.1.1 | Interest Rate Risk |
|---|
At October 31, 2023, and 2022, the Company’s exposure to interest rate risk relates to long-term debt and finance lease obligations; each of these items bears interest at a fixed rate.
| 18.1.2 | Currency Risk |
|---|
As at October 31 2023, the Company had a portion of its accounts payable and accrued liabilities denominated in Canadian dollars which amounted to CAD$190,169. The Company is exposed to the risk of fluctuation in the rate of exchange between the Canadian Dollar and the United States Dollar.
| 18.1.3 | Other Price Risk |
|---|
Other price risk is the risk that the fair value or future cash flows of a financial instrument will fluctuate because of changes in market prices, other than those arising from interest rate risk or foreign currency risk and a change in the price of cannabis. The Company is not exposed to significant other price risk.
Pg 40 of 48
Grown Rogue International Inc.
Notes to the Consolidated Financial Statements
For the Years Ended October 31, 2023and 2022
Expressed in United States Dollars, unless otherwise indicated
| 18.2 | Credit Risk |
|---|
Credit risk is the risk that one party to a financial instrument will cause a loss for the other party by failing to pay for its obligation.
Credit risk to the Company is derived from cash and trade accounts receivable. The Company places its cash in deposit with United States financial institutions. The Company has established a policy to mitigate the risk of loss related to granting customer credit by primarily selling on a cash-on-delivery basis.
Financial instruments that potentially subject the Company to concentration of credit risk consist principally of cash deposits. Accounts at each institution are insured by the FDIC up to $250,000. At October 31, 2023 and October 31, 2022, the Company had $8,108,247 and $832,384 in excess of the FDIC insured limit, respectively.
Accounts receivable primarily consist of trade accounts receivable and sales tax receivable. The Company provides credit to certain customers in the normal course of business and has established credit evaluation and monitoring processes to mitigate credit risk. Credit risk is assessed on a case-by-case basis and a provision is recorded where required.
The carrying amount of cash, accounts receivable, and notes receivables represent the Company’s maximum exposure to credit risk; the balances of these accounts are summarized in the following table:
| **** | October 31,<br>2023 | October 31,<br>2022 |
|---|---|---|
| **** | ||
| Cash | ||
| Accounts receivable | ||
| Notes receivable | ||
| Total |
All values are in US Dollars.
The allowance for doubtful accounts at October 31, 2023, was $165,347 (October 31, 2022 - $264,719).
As at October 31, 2023 and October 31, 2022, the Company’s trade accounts receivable and notes receivable were aged as follows:
| **** | October 31,<br>2023 | **** | October 31,<br>2022 | **** |
|---|---|---|---|---|
| **** | **** | **** | ||
| Current | ||||
| 1-30 days | ||||
| 31 days older | ||||
| Total trade accounts receivable | ||||
| GST /HST | ||||
| Provision for bad debt | ) | ) | ||
| Total accounts receivable |
All values are in US Dollars.
Major customers are defined as customers that each individually account for greater than 10% of the Company’s annual revenues. During the year ended October 31, 2023, there was no major customer that accounted for greater than 10% of revenues (2022 – one major customer accounted for 14% of revenues). There were no customers with accounts receivable balances greater than 10% at October 31, 2023 and 2022.
Pg 41 of 48
Grown Rogue International Inc.
Notes to the Consolidated Financial Statements
For the Years Ended October 31, 2023and 2022
Expressed in United States Dollars, unless otherwise indicated
| 18.3 | Liquidity Risk |
|---|
Liquidity risk is the risk that an entity will have difficulties in paying its financial liabilities.
The Company’s approach to managing liquidity risk is to ensure that it will have sufficient liquidity to meet liabilities when they become due. At October 31, 2023 and 2022, the Company’s working capital accounts were as follows:
| **** | October 31,<br>2023 | **** | October 31,<br>2022 | **** |
|---|---|---|---|---|
| **** | **** | **** | ||
| Cash | ||||
| Current assets excluding cash | ||||
| Total current assets | ||||
| Current liabilities | ) | ) | ||
| Working capital |
All values are in US Dollars.
The contractual maturities of the Company’s liabilities occur over the next five years are as follows:
| **** | Year<br>1 | Over<br>1 Year - 3 Years | Over 3<br> Years - 5 Years |
|---|---|---|---|
| **** | |||
| Accounts payable and accrued liabilities | |||
| Lease liabilities | |||
| Convertible debentures | |||
| Debt | |||
| Business acquisition consideration payable | |||
| Total |
All values are in US Dollars.
| 18.4 | Fair Values |
|---|
The carrying amounts for the Company’s cash, accounts receivable, prepaid and other assets, accounts payable and accrued liabilities, current portions of debt and debentures payable, unearned revenue, and interest payable approximate their fair values because of the short-term nature of these items.
| 18.5 | Fair Value Hierarchy |
|---|
A number of the Company’s accounting policies and disclosures require the measurement of fair valued for both financial and nonfinancial assets and liabilities. The Company has an established framework, which includes team members who have overall responsibility for overseeing all significant fair value measurements, including Level 3 fair values. When measuring the fair value of an asset or liability, the Company uses observable market data as far as possible. The Company regularly assesses significant unobservable inputs and valuation adjustments. Fair values are categorized into different levels in a fair value hierarchy based on the inputs used in the valuation techniques as follows:
Level 1: unadjusted quoted prices in active markets for identical assets or liabilities;
Level 2: inputs other than quoted prices included in Level 1 that are observable for the asset or liability, either directly or indirectly; or
Level 3: inputs for the asset or liability that are not based on observable market data (unobservable inputs).
Pg 42 of 48
Grown Rogue International Inc.
Notes to the Consolidated Financial Statements
For the Years Ended October 31, 2023and 2022
Expressed in United States Dollars, unless otherwise indicated
The carrying values of the financial instruments at October 31, 2023, are summarized in the following table:
| Level in fair<br><br>value hierarchy | Amortized Cost | FVTPL | |
|---|---|---|---|
| **** | **** | ||
| Financial Assets | |||
| Cash | Level 1 | ||
| Accounts receivable | Level 2 | ||
| Warrants asset | Level 2 | ||
| Financial Liabilities | |||
| Accounts payable and accrued liabilities | Level 2 | ||
| Debt | Level 2 | ||
| Convertible debentures | Level 2 | ||
| Business acquisition consideration payable | Level 2 | ||
| Derivative liabilities | Level 2 |
All values are in US Dollars.
During the year ended October 31, 2023, there were no transfers of amounts between levels.
| 19. | GENERAL AND ADMINISTRATIVE EXPENSES |
|---|
General and administrative expenses for the years ended October 31, 2023, and 2022 are as follows:
| 2023 | 2022 | |
|---|---|---|
| **** | ||
| Office, banking, travel, and overheads | ||
| Professional services | ||
| Salaries and benefits | ||
| Total |
All values are in US Dollars.
| 20. | INCOME TAXES |
|---|
As the Company operates in the legal cannabis industry, certain subsidiaries of the Company are subject to the limits of IRC Section 280E for U.S. federal income tax purposes. Under IRC Section 280E, these subsidiaries are generally only allowed to deduct expenses directly related to cost of goods sold. This results in permanent differences between ordinary and necessary business expenses deemed non-allowable under IRC Section 280E. Therefore, the effective tax rate can be highly variable and may not necessarily correlate with pre-tax income or loss recognized for financial reporting purposes.
The Company is treated as a U.S. corporation for U.S. federal income tax purposes under IRC Section 7874 and is subject to U.S. federal income tax on its worldwide income. However, for Canadian tax purposes, the Company, regardless of any application of IRC Section 7874, is treated as a Canadian resident company for Canadian income tax purposes as defined in the Income Tax Act (Canada). As a result, the Company is subject to taxation both in Canada and the United States. The Company is also subject to state income taxation in various state jurisdictions in the United States. The Company’s income tax is accounted for in accordance with IAS 12 Income Taxes.
Pg 43 of 48
Grown Rogue International Inc.
Notes to the Consolidated Financial Statements
For the Years Ended October 31, 2023and 2022
Expressed in United States Dollars, unless otherwise indicated
For the tax years ended October 31, 2023, and 2022 income tax expense consisted of:
| 2023 | 2022 | |||
|---|---|---|---|---|
| **** | **** | **** | ||
| Current expense: | ||||
| Federal | ||||
| State | ||||
| Adjustment to prior years provision versus statutory tax returns | ||||
| Total current expense: | ||||
| Deferred expense (benefit): | ||||
| Federal | ) | ) | ||
| State | ) | ) | ||
| Change in unrecognized deductible temporary differences | ||||
| Total deferred (benefit): | ) | |||
| Total income tax expense: |
All values are in US Dollars.
The difference between the income tax expense for the years ended October 31, 2023 and 2022 and the expected income taxes based on the statutory tax rate applied to income (loss) before income tax is as follows:
| 2023 | 2022 | |||
|---|---|---|---|---|
| **** | **** | **** | ||
| Income (loss) before income taxes and noncontrolling interest | ) | |||
| Statutory tax rates | % | % | ||
| Expected income tax (recovery) | ) | |||
| Change in statutory tax rates and FX rates | ||||
| Nondeductible expenses | ||||
| Deferral adjustments | ) | ) | ||
| Change in unrecognized deductible temporary differences | ||||
| Net operating loss | ) | |||
| Fiscal year to calendar year adjustment | ) | |||
| Adjustment to prior years provision versus statutory tax returns | ||||
| Total income tax expense: |
All values are in US Dollars.
The following tax assets arising from temporary differences and non-capital losses have been recognized in the consolidated financial statements for the years ended October 31, 2023 and 2022:
| 2023 | 2022 | ||
|---|---|---|---|
| **** | **** | ||
| Property, plant and equipment | |||
| Inventory | |||
| ROU Leases | ) | ||
| Net Operating Loss Carryforward (federal) | |||
| Net Operating Loss Carryforward (state) | |||
| Net deferred tax assets |
All values are in US Dollars.
Pg 44 of 48
Grown Rogue International Inc.
Notes to the Consolidated Financial Statements
For the Years Ended October 31, 2023and 2022
Expressed in United States Dollars, unless otherwise indicated
Deferred income taxes reflect the net tax effects of temporary differences between the carrying amounts of assets and liabilities for financial reporting purposes and the amounts used for income tax purposes. Deferred income tax liabilities result primarily from amounts not taxable until future periods. Deferred income tax assets result primarily from operating tax loss carry forwards and temporary differences related to property, plant and equipment and inventory, and have been offset against deferred income tax liabilities. As of October 31, 2023, Grown Rogue International Inc. has estimated Canadian non-capital losses of CAD$9,000,490. These Canadian non-capital losses are available to be carried forward, to be applied against Grown Rogue International Inc.’s taxable income earned in Canada over the next 20 years and expire between 2030 and 2042. The deferred tax benefit of these Canadian tax losses has not been set up as an asset as it is not probable that sufficient taxable profits will be available for Canadian tax purposes to realize the carryforward of unused tax losses. Additionally, the deferred tax benefit of capitalized transaction costs and startup costs have not been setup as a deferred tax asset since it is not probable that the Company would be able to realize these deductible temporary differences for U.S. tax purposes.
The Company operates in various U.S. state tax jurisdictions and is subject to examination of its income tax returns by tax authorities in those jurisdictions who may challenge any item on these returns. Because the tax matters challenged by tax authorities are typically complex, the ultimate outcome of these challenges is uncertain. In accordance with IAS 12, the Company recognizes the benefits of uncertain tax positions in our consolidated financial statements only after determining that it is more likely than not that the uncertain tax positions will be sustained. For the years ended October 31, 2023 and 2022, the Company did not record an accrual for uncertain tax positions.
The Company recognizes accrued interest and penalties related to unrecognized tax benefits in the provision for income taxes. There are no positions for which it is reasonably possible that the uncertain tax benefit will significantly increase or decrease within twelve months. The Company files income tax returns in the United States, including various state jurisdictions, and in Canada, which remain open to examination by the respective jurisdictions starting with the 2018 tax year to the present.
U.S. Federal and state tax laws impose restrictions on net operating loss carryforwards in the event of a change in ownership of the Company, as defined by the IRC Section 382. The Company does not believe that a change in ownership, as defined by IRC Section 382, has occurred but a formal study has not been completed.
U.S. Congress passed the Inflation Reduction Act in August 2022. The Company does not anticipate any impact to its income tax provision as a result of the new U.S. legislation.
| 21. | CAPITAL DISCLOSURES |
|---|
The Company includes equity, comprised of share capital, contributed surplus (including the fair value of equity instruments to be issued), equity component of convertible promissory notes and deficit, in the definition of capital.
The Company’s objectives when managing capital are as follows:
| - | to safeguard the Company’s assets and ensure the Company’s<br>ability to continue as a going concern. |
|---|---|
| - | to raise sufficient capital to finance the construction of its<br>production facility and obtain license to produce recreational marijuana; and |
| --- | --- |
| - | to raise sufficient capital to meet its general and administrative<br>expenditures. |
| --- | --- |
The Company manages its capital structure and makes adjustments to, based on the general economic conditions, the Company’s short-term working capital requirements, and its planned capital requirements and strategic growth initiatives.
Pg 45 of 48
Grown Rogue International Inc.
Notes to the Consolidated Financial Statements
For the Years Ended October 31, 2023and 2022
Expressed in United States Dollars, unless otherwise indicated
The Company’s principal source of capital is from the issuance of common shares and debt. In order to achieve its objectives, the Company expects to spend its working capital, when applicable, and raise additional funds as required.
The Company does not have any externally imposed capital requirement.
| 22. | SEGMENT REPORTING |
|---|
Geographical information relating to the Company’s activities is as follows:
| Segments | Oregon | Michigan | Other | Services | Total |
|---|---|---|---|---|---|
| **** | |||||
| Non-current<br> assets other than financial instruments: | |||||
| As at October 31, 2023 | |||||
| As at October 31, 2022 | |||||
| Year ended October 31, 2023: | |||||
| Net revenue | |||||
| Gross profit | |||||
| Gross profit before fair value adjustments | |||||
| Year ended October 31, 2022: | |||||
| Net revenue | |||||
| Gross profit | |||||
| Gross profit before fair value adjustments |
All values are in US Dollars.
| 23. | NON-CONTROLLING INTERESTS |
|---|
The changes to the non-controlling interest for the years ended October 31, 2023 and 2022 are as follows:
| October 31,<br>2023 | October 31,<br>2022 | |||
|---|---|---|---|---|
| **** | **** | **** | ||
| Balance, beginning of period | ||||
| Non-controlling interest’s 13% share of GR Michigan | ||||
| Non-controlling interest’s 100% share of Canopy | ) | ) | ||
| Acquisition of 87% of Canopy | ) | |||
| Balance, end of period |
All values are in US Dollars.
Pg 46 of 48
Grown Rogue International Inc.
Notes to the Consolidated Financial Statements
For the Years Ended October 31, 2023and 2022
Expressed in United States Dollars, unless otherwise indicated
| 23.1 | Non-controlling Interest in GR Michigan | |
|---|---|---|
| October 31,<br>2023 | October 31,<br>2022 | |
| --- | --- | --- |
| **** | ||
| Current assets | ||
| Net loss for the period |
All values are in US Dollars.
Nine percent (9%) of GR Michigan is owned by officers and directors of the Company; this ownership is pursuant to an agreement that included their loans made to GR Michigan (Note 17.4), and 4% of GR Michigan owned by a third party. The total non-controlling ownership, including ownership by officers and directors, is 13%.
| 23.2 | Non-controlling Interest in Canopy | |||
|---|---|---|---|---|
| October 31,<br>2023 | October 31,<br>2022 | |||
| --- | --- | --- | --- | --- |
| **** | **** | **** | ||
| Current assets | ||||
| Non-current assets | ||||
| Current liabilities | ||||
| Non-current liabilities | ||||
| Net loss for the period attributed to non-controlling interest | ) | ) |
All values are in US Dollars.
In January of 2023, GR Unlimited exercised its option to acquire 87% of the membership units of Canopy from the CEO. Prior to this, ninety-six percent (96%) of Canopy was owned by officers and directors of the Company, and four percent (4%) was owned by a third party. Ownership by officers and directors, excluding the CEO, was pursuant to agreements which caused their ownership of Canopy to be equal to their ownership in GR Michigan (Note 23.2), which total 3.5%. The CEO owned 92.5% of Canopy, which was analogous to the CEO’s 5.5% ownership of GR Michigan, and an additional 87% of Canopy, which was and is equal to the Company’s 87% ownership of GR Michigan. Following GR Unlimited’s acquisition of 87% of the membership units of Canopy in January of 2023, Canopy became owned 87% by GR Unlimited; 7.5% by officers and directors; and 5.5% by the CEO.
| 24. | LEGAL MATTERS |
|---|
On September 22, 2022, the SEC issued an Order Instituting Proceedings pursuant to Section 12(j) of 1934 Act, against the Company alleging violations of the 1934 Act, as amended, and the rules promulgated thereunder, by failing to timely file periodic reports. Section 12(j) authorizes the SEC as it deems necessary or appropriate for the protection of investors to suspend for a period not exceeding 12 months, or to revoke, the registration of a security if the SEC finds, on the record after notice and opportunity for hearing, that the issuer of such security has failed to comply with any provision of the 1934 Act, as amended, or the rules promulgated thereunder. The Company has filed an answer to the Order Instituting Proceedings and is seeking a hearing in the matter. The Company is currently fully compliant with all of their filings, is vigorously defending itself in the matter, and is preparing to re-register its security if necessary.
Pg 47 of 48
Grown Rogue International Inc.
Notes to the Consolidated Financial Statements
For the Years Ended October 31, 2023and 2022
Expressed in United States Dollars, unless otherwise indicated
| 25. | SUBSEQUENT EVENTS |
|---|---|
| 25.1 | Purchase of Ross Lane, Oregon Farm Property |
| --- | --- |
On January 12, 2024, the Company executed the option to purchase the Ross Lane property located in Central Point, Oregon for total consideration of $1,525,000.
| 25.2 | New Jersey Retail Investment |
|---|
On January 17, 2024, the Company announced that it formed Grown Rogue Retail Ventures LLC and signed a definitive agreement on January 16, 2024, to invest in and support Nile of NJ LLC, a company that is developing an adult-use dispensary in West New York, New Jersey. The investment is in the form of a secured note, in which the Company advanced $500,000 pursuant to this secured note on February 13, 2024. These retail operations will be supported with products from a cultivation facility under development.
Pg 48 of 48
Exhibit 42
Note: [01 Mar 2017] – The following is a consolidation of 13-501F1. It incorporates amendments to this document that came into effect on March 1, 2017. This consolidation is provided for your convenience and should not be relied on as authoritative.
FORM 13-501F1
CLASS1 REPORTING ISSUERS AND CLASS 3B REPORTING ISSUERS –PARTICIPATION FEE
MANAGEMENT CERTIFICATION
| I, KEE, Ryan, an officer of the reporting issuer noted below have examined this Form 13-501F1 (the For m) being submitted hereunder to the Alberta Securities Commission and certify that to my knowledge, ha ving exercised reasonable diligence, the information provided in the Form is complete and accurate. | ||
|---|---|---|
| (s) KEE, Ryan | 28 Feb 2024 | |
| Name: | KEE, Ryan | Date: |
| Title: | Chief Financial Officer and Corporate Secretary | |
| Reporting Issuer Name: | Grown Rogue International Inc. / Grown Rogue International Inc. (000008380) | |
| --- | --- | --- |
| End date of previous financial year: | 31 Oct 2023 | |
| Type of Reporting Issuer: | ☒<br> Class 1 reporting issuer | ☐<br> Class 3B reporting issuer |
| Highest Trading Marketplace: | Canadian Securities Exchange (CSE) |
Market value of listed or quoted equity securities:
| Equity Symbol | GRIN | |
|---|---|---|
| 1st Specified Trading Period (dd/mm/yy) | 01/11/22 to 31/01/23 | |
| Closing price of the security in the class or series on the last trading day of the specified trading period in which such security was listed or quoted on the highest trading marketplace | $ 0.13<br><br> <br>(i) | |
| --- | --- | --- |
| Number of securities in the class or series of such security outstanding at the end of the last trading day of the specified trading period | 170832611<br><br> <br>(ii) | |
| Market value of class or series | (i) x (ii) | $ 22208239.43<br><br> <br>(A) |
| 2nd Specified Trading Period (dd/mm/yy) | 01/02/23 to 30/04/23 | |
| Closing price of the security in the class or series on the last trading day of the specified trading period in which such security was listed or quoted on the highest trading marketplace | $ 0.175<br><br> <br>(iii) | |
| Number of securities in the class or series of such security outstanding at the end of the last trading day of the specified trading period | 170832611<br><br> <br>(iv) | |
| Market value of class or series | (iii) x (iv) | $ 29895706.93<br><br> <br>(B) |
| 3rd Specified Trading Period (dd/mm/yy) | 01/05/23 to 31/07/23 | |
| Closing price of the security in the class or series on the last trading day of the specified trading period in which such security was listed or quoted on the highest trading marketplace | $ 0.23<br><br> <br>(v) | |
| Number of securities in the class or series of such security outstanding at the end of the last trading day of the specified trading period | 170832611<br><br> <br>(vi) | |
| Market value of class or series | (v) x (vi) | $ 39291500.53<br><br> <br>(C) |
2
| 4th Specified Trading Period (dd/mm/yy) | 01/08/23 to 31/10/23 | |
|---|---|---|
| Closing price of the security in the class or series on the last trading day of the specified trading period in which such security was listed or quoted on the highest trading marketplace | $ 0.4<br><br> <br>(vii) | |
| Number of securities in the class or series of such security outstanding at the end of the last trading day of the specified trading period | 182005886<br><br> <br>(viii) | |
| Market value of class or series | (vii) x (viii) | $ 72802354.40<br><br> <br>(D) |
| 5th Specified Trading Period (dd/mm/yy) | N/A | |
| Closing price of the security in the class or series on the last trading day of the specified trading period in which such security was listed or quoted on the highest trading marketplace | $ N/A (ix) | |
| Number of securities in the class or series of such security outstanding at the end of the last trading day of the specified trading period | N/A (x) | |
| Market value of class or series | (ix) x (x) | $ N/A<br><br> <br>(E) |
| Average Market Value of Class or Series (Calculate the simple average of the market value of the class or series of security for each applicable specified trading period (i.e. A through E above)) | $ 41049450.32<br><br> <br>(1) | |
| (Repeat the above calculation for each other class or series of equity securities of the reporting issuer (and a subsidiary, if applicable) that was listed or quoted on a marketplace at the end of the previous financial year) | ||
| Fair value of outstanding debt securities: | ||
| (Provide details of how value was determined) | $ 0.00<br><br> <br>(2) | |
| Capitalization for the previous financial year (1) + (2) | $ 41,049,450.32 |
3
| Participation Fee | $ 1,200.00 |
|---|---|
| Late Fee, if applicable | $ N/A |
| Total Fee Payable<br><br> <br>(Participation Fee plus Late Fee) | $ 1,200.00 |
4
Exhibit 43
FORM 13-502F1
CLASS1 AND CLASS 3B REPORTING ISSUERS –PARTICIPATION FEE
MANAGEMENTCERTIFICATION
| I, KEE, Ryan, an officer of the reporting issuer noted below have examined this Form 13-502F1 (the Form) being submitted hereunder to the Ontario Securities Commission and certify that to my knowledge, having exercised reasonable diligence, the information provided in the Form is complete and accurate. | ||
|---|---|---|
| (s)<br> KEE, Ryan | 28<br> Feb 2024 | |
| Name: | KEE, Ryan | Date: |
| Title: | Chief Financial Officer and Corporate Secretary | |
| Reporting Issuer Name: | Grown Rogue International Inc. / Grown Rogue International Inc. (000008380) | |
| --- | --- | --- |
| End date of previous financial year: | 31 Oct 2023 | |
| Type of Reporting Issuer: | ☒ Class 1 reporting issuer | ☐ Class 3B reporting issuer |
| Highest Trading Marketplace: | Canadian Securities Exchange (CSE) |
(refer to the definition of “highest trading marketplace” under OSC Rule 13-502 Fees)
Marketvalue of listed or quoted equity securities:
(in Canadian Dollars - refer to section 36 of OSC Rule 13-502 Fees)
| Equity Symbol | GRIN | |
|---|---|---|
| 1st Quarterly Trading Period (dd/mm/yy)<br><br> <br>(refer to the definition of “quarterly period” under OSC Rule 13-502 Fees) | 01/11/22 to 31/01/23 | |
| Closing price of the security in the class or series on the last trading day of the quarterly trading period in which such security was listed or quoted on the highest trading marketplace | $ 0.13<br><br> <br>(i) | |
| Number of securities in the class or series of such security outstanding at the end of the last trading day of the quarterly trading period | 170832611<br><br> <br>(ii) | |
| --- | --- | --- |
| Market value of class or series | (i) x (ii) | $ 22208239.43<br><br> <br>(A) |
| 2nd Quarterly Trading Period (dd/mm/yy)<br><br> <br>(refer to the definition of “quarterly period” under OSC Rule 13-502 Fees) | 01/02/23 to 30/04/23 | |
| Closing price of the security in the class or series on the last trading day of the quarterly trading period in which such security was listed or quoted on the highest trading marketplace | $ 0.175<br><br> <br>(iii) | |
| Number of securities in the class or series of such security outstanding at the end of the last trading day of the quarterly trading period | 170832611<br><br> <br>(iv) | |
| Market value of class or series | (iii) x (iv) | $ 29895706.93<br><br> <br>(B) |
| 3rd Quarterly Trading Period (dd/mm/yy)<br><br> <br>(refer to the definition of “quarterly period” under OSC Rule 13-502 Fees) | 01/05/23 to 31/07/23 | |
| Closing price of the security in the class or series on the last trading day of the quarterly trading period in which such security was listed or quoted on the highest trading marketplace | $ 0.23<br><br> <br>(v) | |
| Number of securities in the class or series of such security outstanding at the end of the last trading day of the quarterly trading period | 170832611<br><br> <br>(vi) | |
| Market value of class or series | (v) x (vi) | $ 39291500.53<br><br> <br>(C) |
| 4th Quarterly Trading Period (dd/mm/yy)<br><br> <br>(refer to the definition of “quarterly period” under OSC Rule 13-502 Fees) | 01/08/23 to 31/10/23 | |
| Closing price of the security in the class or series on the last trading day of the quarterly trading period in which such security was listed or quoted on the highest trading marketplace | $ 0.4<br><br> <br>(vii) |
2
| Number of securities in the class or series of such security outstanding at the end of the last trading day of the quarterly trading period | 182005886<br><br> <br>(viii) | |
|---|---|---|
| Market value of class or series | (vii) x (viii) | $ 72802354.40<br><br> <br>(D) |
| Average Market Value of Class or Series (Calculate the simple average of the market value of the class or series of security for each applicable quarterly period (i.e. A through D above)) | $ 41049450.32<br><br> <br>(1) | |
| (Repeat the above calculation for each other class or series of equity securities of the reporting issuer (and a subsidiary pursuant to paragraph 9(1)(b) of OSC Rule 13-502 Fees, if applicable) that was listed or quoted on a marketplace at the end of the last trading day of each quarterly period in the previous financial year of the reporting issuer) | ||
| Fair value of outstanding debt securities:<br><br> <br>(See paragraph 9(1)(c), and if applicable, paragraphs 9(1)(d) and (e) of OSC Rule 13-502 Fees) | ||
| (Provide details of how value was determined) | $ 0.00<br><br> <br>(2) | |
| Capitalization for the previous financial year (1) + (2) | $ 41,049,450.32 | |
| Participation Fee<br><br> <br>(For Class 1 reporting issuers, from Appendix A of OSC Rule 13-502 Fees, select the participation fee)<br><br> <br><br><br> <br>(For Class 3B reporting issuers, from Appendix B of OSC Rule 13-502 Fees, select the participation fee) | $ 2,400.00 | |
| Late Fee, if applicable<br><br> <br>(As determined under section 8 of OSC Rule 13-502 Fees) | $ 0.00 | |
| Total Fee Payable<br><br> <br>(Participation Fee plus Late Fee) | $ 2,400.00 |
3
Exhibit 44
GROWNROGUE INTERNATIONAL INC.
FORM 51-102F1
MANAGEMENT DISCUSSION & ANALYSIS
FOR THE YEAR ENDED OCTOBER 31, 2023
TABLE OF CONTENTS
| Management’s Responsibilities for Financial Reporting | 3 |
|---|---|
| Forward-Looking Statements | 4 |
| Description of Business | 4 |
| Selected Annual Information | 10 |
| Results of Operations | 11 |
| Summary of Quarterly Results | 14 |
| Liquidity | 14 |
| Capital Resources | 18 |
| Off-Balance Sheet Arrangements | 19 |
| Transactions with Related Parties | 19 |
| Other Selected Financial Information | 22 |
| Outstanding Share Data | 24 |
| Critical Accounting Judgments and Estimation Uncertainties | 25 |
| Newly Adopted Accounting Pronouncements | 25 |
| Financial Instruments and Other Risk Factors | 26 |
| Subsequent Events | 28 |
| Regulatory Disclosure | 29 |
| Internal Control over Financial Reporting and Disclosure Controls | 39 |
i
This Management Discussion and Analysis (“MD&A”) made as of February 28, 2024, should be read in conjunction with the consolidated financial statements of Grown Rogue International Inc. (the “Company”, “Grown Rogue”, (“we”, “our”, or “us”) for the years ended October 31, 2023, and 2022 (the “Reporting Period”), and the related notes thereto (the “Financial Statements”). The Company’s Financial Statements are presented on a consolidated basis with its wholly-owned subsidiary, Grown Rogue Unlimited, LLC (“GR Unlimited”), and GR Unlimited’s wholly-owned subsidiaries: Grown Rogue Gardens, LLC (“GR Gardens”), GRU Properties, LLC (“GRU Properties”), GRIP, LLC (“GRIP”), and Grown Rogue Distribution, LLC (“GR Distribution”); as well as GR Unlimited’s 87% interest in GR Michigan, LLC (“GR Michigan”), and GR Unlimited’s 87% interest in Canopy Management, LLC (“Canopy”), which owns 60% of Golden Harvests, LLC (“Golden Harvests”). During the year ended October 31, 2023, the Company announced that it had exercised its option to obtain 87% of the membership units of Canopy (through GR Unlimited). Grown Rogue’s reporting currency is the United States dollar and all amounts in this MD&A are expressed in United States dollars unless otherwise noted. The Company’s functional currency is the Canadian dollar while all subsidiaries use USD as the functional currency. The use of “CAD$” refers to Canadian dollars.
The Company’s comparative information included in this MD&A has been prepared in accordance with International Financial Reporting Standards (“IFRS”).
Additional information relating to the Company is also available on the System for Electronic Document Analysis and Retrieval (SEDAR+) at www.sedarplus.ca. The common shares of GRIN are listed on the Canadian Securities Exchange under the symbol “GRIN”.
Management’s Responsibilities for Financial Reporting
The Financial Statements have been prepared by management in accordance with IFRS and have been approved by the Company’s board of directors (the “Board”). The integrity and objectivity of the Financial Statements are the responsibility of management. In addition, management is responsible for ensuring that the information contained in the MD&A is consistent where appropriate, with the information contained in the Financial Statements.
The Financial Statements may contain certain amounts based on estimates and judgments. Management has determined such amounts on a reasonable basis to ensure that the Financial Statements are presented fairly in all material respects.
As the Company is a Venture Issuer (as defined under under National Instrument 52-109 Certification of Disclosure in Issuers’ Annual and Interim Filings) (“NI 52-109”), the Company and Management are not required to include representations relating to the evaluation, design, establishment and/or maintenance of disclosure controls and procedures (“DC&P”) and/or Internal Controls over Financial Reporting (“ICFR”), as defined in NI 52-109, nor has it completed such an evaluation. Inherent limitations on the ability of the certifying officers to design and implement on a cost-effective basis DC&P and ICFR for the issuer may result in additional risks of quality, reliability, transparency and timeliness of interim and annual filings and other reports provided under securities legislation.
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Forward-Looking Statements
This MD&A contains information and projections based on current expectations. Certain statements herein may constitute “forward-looking” statements which involve known and unknown risks, uncertainties and other factors which may cause the actual results, performance or achievements of the Company, or industry results, to be materially different from any future results, performance or achievements expressed or implied by such forward-looking statements. When used in this MD&A, such statements use such words as “will”, “may”, “could”, “intends”, “potential”, “plans”, “believes”, “expects”, “projects”, “estimates”, “anticipates”, “continue”, “potential”, “predicts” or “should” and other similar terminology. These statements reflect expectations regarding future events and performance but speak only as of the date of this MD&A. Forward-looking statements include statements with respect to planned acquisitions, strategic partnerships or other transactions and expansions not yet concluded, including the timing thereof; plans to market, sell and distribute products; market competition; plans to retain and recruit personnel; the ability to secure funding; and the ability to obtain regulatory and other approvals are all forward-looking information.
These statements should not be read as guarantees of future performance or results. Such statements involve known and unknown risks, uncertainties and other factors that may cause actual results, performance, or achievements to be materially different from those implied by such statements.
There can be no assurance that any intended or proposed activity or transaction will occur or that, if any such action or transaction is undertaken, it will be completed on terms currently intended by the Company. The Company assumes no responsibility to update or revise forward-looking information to reflect new events or circumstances unless required by law.
Although the Company believes that the expectations and assumptions on which the forward-looking statements are based are reasonable, undue reliance should not be placed on the forward-looking statements because the Company can give no assurance that they will prove to be correct. Since forward-looking statements address future events and conditions, by their very nature they involve inherent risks and uncertainties. The forward-looking statements herein speak only as of the date hereof. Actual results could differ materially from those anticipated due to a number of factors and risks including those described in this MD&A under “Risk Factors” and in section 17 of the Company’s Listing Statement dated November 15, 2018, which can be found under the Company’s profile on www.sedarplus.ca.
Description of Business
Grown Rogue, headquartered in Medford, Oregon, is a craft cannabis company focused on delighting customers with premium flower and flower-derived products at fair prices. Our roots are in Southern Oregon where we have demonstrated our capabilities in the highly competitive and discerning Oregon market by becoming the number one flower producer in Oregon in 2022, which we have maintained year-to-date in 2023, and we have successfully expanded our platform to Michigan, where we quickly became a top 5 indoor wholesaler in that state in 2022, which we have maintained year-to-date in 2023. We combine our passion for product and value with a disciplined approach to growth, prioritizing profitability and return on capital.
Grown Rogue’s strategy is built to win now and, in the future, as the Company profitably delivers craft cannabis at appropriate scale and continues building out indoor cultivation in new markets, while scaling sungrown capabilities to support eventual interstate commerce.
Grown Rogue’s competitive advantage is efficiently cultivating and delivering craft cannabis at accessible prices, having a healthy balance sheet and the access to capital to accelerate the growth with new market opportunities.
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Oregon
Grown Rogue, through its wholly owned subsidiary, GR Gardens, operates four cultivation facilities in Oregon, comprising approximately 95,000 square feet of flowering cultivation canopy, that currently service the Oregon recreational marijuana market: two outdoor, sungrown farms called “Foothill” and “Ross Lane,” and two state-of-the-art indoor facilities (“Rossanley” and “Airport”). GR Gardens currently holds five producer licenses in Oregon from the Oregon Liquor Control Commission (“OLCC”), two wholesaler licenses, and two processor licenses.
During the year ended October 31, 2023, we executed a two-year lease which includes an option to purchase Ross Lane, an Oregon property which includes 35 acres, 3 tax lots and an additional OLCC producer license. Subsequent to the statement of financial position dated October 31, 2023, the Company executed on this purchase option on January 12, 2024 for total consideration of $1,525,000 comprised of a promissory note for $1,285,000 with the remaining consideration consisting of down payment and credit for prepaid rents.
Grown Rogue’s Oregon business is headquartered in the world-renowned Emerald Triangle, which is known world-wide for the quality of its cannabis. The Emerald Triangle includes the southern part of Oregon and northern part of California. The company capitalizes on this ideal outdoor growing environment to produce high-quality, low-cost cannabis flower. The two sungrown farms produce one crop each year per farm, which is planted in June and harvested in October.
GR Gardens is responsible for production of recreational marijuana using outdoor and indoor production methodologies. Foothill and Ross Lane are outdoor farms with 40,000 square feet of flowering canopy each, for a total of 80,000 square feet, sitting on a combined land package of approximately 135 acres. Our “Trail’s End” outdoor property will not be cultivated in 2023, and the Company will transfer the Trail’s End license to Ross Lane for production in 2024 to streamline operational efficiencies by centralizing production facilities.
Rossanley, an approximately 17,000 square-foot indoor facility, with approximately 5,600 square feet of flowering bench space, produces high-quality indoor flower through controlled environment agriculture (“CEA”) operations. By carefully controlling temperature, humidity, carbon dioxide levels, and other criteria, we produce a year-round supply of high-quality cannabis flower with multiple harvests per month. Rossanley has eight dedicated flower rooms, which allows for an average of nearly four harvests per month resulting in approximately 4,000 pounds annually.
Airport, acquired in 2022 is a 30,000 square-foot indoor growing facility adding 30,000 square feet of CEA indoor production space and 9,152 square feet of flowering bench space. Airport is a short distance from Rossanley, which is a benefit to operating efficiency, and it is equipped with state-of-the-art equipment which facilitates the implementation of best practices developed at Rossanley.
The total annual production capacity for Grown Rogue’s Oregon operations, based on the current constructed capacity, will range between 20,000 and 24,000 pounds, depending upon various factors including sungrown growing conditions and strain performance.
Michigan
In May 2021, we acquired, through Canopy, a controlling 60% interest in our Michigan operation called Golden Harvests.
The Golden Harvests facility is approximately 65% constructed, with approximately 50,000 square feet in operation, including approximately 14,550 square feet of flowering bench space, in addition to all the ancillary support space, including office and administration to support the operations.
The facility produces high quality indoor flower through CEA, with fourteen individual flowering rooms in operation. Harvested pounds in Michigan in 2023 totaled approximately 10,000 pounds. Golden Harvests produces bulk flower, packaged flower, and manufactures pre-rolls on site.
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Services
On May 24, 2023, GR Unlimited entered into an independent contractor consulting agreement (the “Consulting Agreement”) with Goodness Growth Holdings, Inc. (CSE: GDNS; OTCQX: GDNSF) (“Goodness Growth”). Under the Consulting Agreement, GR Unlimited will support Goodness Growth in the optimization of its cannabis flower products, with a particular focus on improving the quality and yield of top-grade “A” cannabis flower across its various operating markets, starting with Maryland and Minnesota.
Under the initial term of the Consulting Agreement, which expires on June 30, 2025, Goodness Growth will provide compensation to GR Unlimited for sustained consulting support, including input on systems and processes, and recommendations to improve Goodness Growth’s cultivation operations. GR Unlimited will be entitled to receive additional incentive compensation if our services result in improved cash flow performance as compared to Goodness Growth’s baseline expectations over the term of the agreement. Our cooperation in the agreement will be on an exclusive basis to Goodness Growth within the markets in which Goodness Growth operates. The agreement will automatically extend for up to two additional two-year terms, unless terminated by Goodness Growth or the Company.
A termination fee of at least $5,000,000 is payable to GR Unlimited in the event that Goodness Growth is acquired, sells all or substantially all of its assets, or is merged into another entity and is not the surviving entity of such merger. In addition, a termination fee of at least $2,500,000 is payable to GR Unlimited in the event that the Consulting Agreement terminates for certain other conditions.
As part of this strategic agreement, Goodness Growth is obligated to issue 10,000,000 warrants to purchase 10,000,000 subordinate voting shares of Goodness Growth to the Company, with a strike price equal to CAD$0.317 (US$0.233), being a 25.0 percent premium to the 10-day volume weighted average price (“VWAP”) of Goodness Growth’s subordinate voting shares prior to the effective date of the Consulting Agreement. Similarly, the Company will issue 8,500,000 warrants to purchase 8,500,000 common shares of the Company to Goodness Growth, with a strike price equal to CAD$0.225 (US$0.166), being a 25.0 percent premium to the 10-day VWAP of the Company’s common shares prior to the effective date of the Consulting Agreement. These warrants were issued on October 5, 2023.
The Consulting Agreement and amendments to the Consulting Agreement provide for service revenue earned by the Company to be calculated beginning January 2023, and we reported service revenue of $929,016 and cost of service revenue of $308,461 for the year ended October 31, 2023.
Product
Grown Rogue produces a range of cultivars for consumers to enjoy, which are traditionally classified as indicas, sativas, and hybrids. Grown Rogue has a mix of “core” and “limited” strains to provide consumers with consistent and unique purchasing options at their local dispensary. Grown Rogue flower has won multiple awards in Oregon, which is one of the most competitive cannabis production environments in the world, including the prestigious Growers Cup competition on two occasions. Grown Rogue won 1^st^ place for highest THC content, 1^st^ place for highest terpene content, and 3^rd^ place in the grower’s choice category. In addition, we believe we achieved an outdoor production potency record, at the time, in the state of Oregon, when its Monkey Train cultivar tested at a THC potency of 35.13%. In 2023, Grown Rogue won 3^rd^ place in the Oregon Grower’s Cup Outdoor category for its Sour Grape strain. Consumers can enjoy bulk flower in both Oregon and Michigan. In the Michigan market we also offer our innovative nitrogen sealed 3.5 gram flower jars, our patented nitrogen sealed pre-rolls, 3.5 gram flower bags, and regularly packaged pre-rolls.
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We recently launched a new line of strain-specific prepackaged flower, coupled with proprietary genetics, in Michigan, and launched a new branded pre-roll pack product in Oregon in 2023. In addition, Grown Rogue launched a new brand of pre-rolls, a rapidly growing category, called Yeti in 2023. According to LeafLink’s MarketScape data, Grown Rogue was the #1 flower producer in Oregon and a top 5 indoor flower wholesaler in Michigan in 2022 and in 2023.
Genetics
We are committed to developing unique, proprietary genetics as long-term genetic diversity will be a major factor in establishing brand differentiation with consumers. We have allocated research and development space to develop new strains, while also phenotype hunting to identify new and exciting strain options that will delight consumers. Grown Rogue has developed a compelling mix of proprietary strains, along with a library of “fan favorites” to ensure that consumer and dispensary demand will remain strong for our flower and flower-derived products. All Grown Rogue genetics are rigorously tested to establish the genetic makeup of each strain in our portfolio. We continue to focus on bringing new unique genetics to ensure a steady flow of innovative flower and flower products to market. Currently we carry more than 50 unique cultivars in our genetic library, and we continue to develop our portfolio as we trial new genetics.
Distribution and Sales
Grown Rogue uses a multi-channel distribution strategy that includes direct-to-retail delivery and third-party delivery (Michigan regulations mandate independent third-party delivery); wholesalers, who have their own distribution channels; and processors, who utilize Grown Rogue products (e.g., trim) to create retail-ready products.
Regarding the direct-to-retail channel, Grown Rogue’s sales team works closely with dispensary owners and intake managers to provide consistent product, competitive prices, and personalized service using sales techniques from other industries such as pharmaceutical and liquor. Grown Rogue’s goal is to establish and maintain the client relationship as we continue to expand our footprint in the states in which we operate.
Grown Rogue has developed end user product marketing collateral and other educational information regarding Grown Rogue products as part of all sales with dispensaries that include strain type, testing results, information on the product and other necessary information to clearly articulate the product being provided. Each product is uniquely packaged while maintaining brand consistency across the product suite.
Grown Rogue works with dispensary owners to develop promotional opportunities for retail customers and bud tenders. Grown Rogue provides detailed tutorials to the staff and owners of the dispensaries around the product and how it is grown, processed, cured and packaged so that they are intimately familiar with the Grown Rogue process. Grown Rogue also invites dispensary owners and operators to Grown Rogue’s operating facilities so they can see first-hand the methods and processes used to create the product.
Based upon information from MarketScape, which is part of the sales analytics tool utilized by LeafLink, which handles all of our sales and invoicing, we are the largest producer in Oregon and a top five indoor flower producer in Michigan.
Branding
Developing compelling branding that engages, inspires, and creates transparency and trust with consumers is one of the most important aspects of building a successful cannabis company. Cannabis product branding has been evolving from promising high-quality flower, to providing descriptions of the effect a consumer should expect from a particular product.
While other brands have shifted into the “one word” product description, Grown Rogue has leveraged consumer insights and product feedback to evolve the messaging to provide significantly more detail so consumers can make a more informed choice about which Grown Rogue products will optimally enhance their experience.
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In order to grow the Grown Rogue community and spread knowledge of its products, Grown Rogue leverages social media and other digital platforms. Grown Rogue aspires to eliminate the “dark mystery” historically associated with cannabis by empowering consumers to learn about the plant and then “enhance experiences” as they desire. The transition from prohibition to legal cannabis has provided the cannabis community with an opportunity to welcome a large group of new members and it is vital that product education is completed in an authentic and informative manner to ensure that everyone’s first cannabis experience is not only positive but also as expected.
Marketing and Advertising
Grown Rogue’s marketing channels include a comprehensive, fully responsive, interactive website (including mobile). The website has been search-engine optimized and includes calls to action that encourage consumers to become part of the Grown Rogue community by following the company on social media.
Grown Rogue is focused on providing education to new and existing consumers through our website but even more hands on through our retail partners. We provide vendor days and budtender education days where we spend one on one time with the budtenders educating them about everything Grown Rogue.
We strategically leverage the narrative at retail through digital and physical retail assets to further educate consumers about Grown Rogue.
Grown Rogue has established a social media presence that includes Facebook, Twitter, Instagram, LinkedIn, TikTok and YouTube. Grown Rogue’s social identity is defined by delivering fresh content and keeping interaction with followers/fans prompt and positive. Grown Rogue attracts existing cannabis industry participants as well as people not familiar with the industry by creating a positive, inclusive environment where dialogue is encouraged. The goal is to change existing stereotypes and overcome the stigmas associated with the cannabis industry.
Trademarks and Patents
Grown Rogue actively seeks to protect its brand and intellectual property. Grown Rogue currently has three registered U.S. trademarks:
| 1. | Grown Rogue was filed on September 22, 2017, and registered on August 7, 2018 under Registration No. 5537240. |
|---|---|
| 2. | The Right Experience Every Time was filed on September 29, 2017 and registered on August 7, 2018 under Registration No. 5537260. |
| --- | --- |
| 3. | Sizzleberry was filed on September 29, 2017, and registered on August 7, 2018, under Registration No. 5537259. |
| --- | --- |
Grown Rogue filed a patent for its nitrogen sealed glass containers on February 15, 2018, with the United States Patent and Trademark Office (“USPTO”). The nitrogen sealed glass containers preserve the freshness of the flower and essential terpenes to improve the “entourage effect.” The USPTO issued Grown Rogue United States Patent Number 10,358,282 on July 23, 2019. Several third parties have contacted us to request licensing information on this technology. We have introduced nitrogen sealed jars and pre-rolls in Michigan and plan on launching them as we enter additional new markets and may license the technology to third parties operating in markets in which Grown Rogue is not currently licensed.
Social and Environmental Policies
Grown Rogue employs sustainable business models in our operations. We maintain the highest standards of environmental stewardship in cultivation. This includes sustainable water sources with optimization of reclamation and recapture from runoff and recycling of water input. We use only natural and sustainable products in all applications, including nutrients and integrated pest management. We maintain the highest level of sustainable cannabis practices through our focus on sustainable and natural cultivation methods. Grown Rogue hires and pays a living wage to its team members and is very involved in each of the communities where we operate.
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Plans for Expansion & Economic Outlook
Grown Rogue continues to focus on taking its learnings and experience from Oregon and Michigan into new markets across the United States. During the last two years, Grown Rogue has established a platform that excels at licensing, compliance, high-quality and low-cost production, understanding consumer purchasing preferences, and product innovation. This platform places Grown Rogue in a superior position to capitalize on new markets compared to our competitors. Oregon is arguably the most competitive cannabis market in the world, and we have excelled by implementing standard business practices that make the Company well suited for entering and building successful brand presence in newly-legalized cannabis markets.
The expansion into Airport (see “Description of the Business – Oregon”) and acquisition of a 60% interest in Golden Harvests (see “Description of the Business – Michigan”) represent execution of management’s strategy of growth through high quality, low-cost flower production. In addition, we have added a profitable services segment (see “Description of the Business – Services),” which leverages our cultivation expertise to generate margin and increase our presence to two new states at low financial risk. As other growth opportunities arise under favorable financial terms, management can activate known and repeatable systems into new assets.
We believe that the future of the cannabis industry is in branded products and that the leading brands are being developed on the west coast, which is well known for high quality cannabis. Unlike many current multi-state operators who prefer to obtain just a few licenses in a large volume of states, Grown Rogue is focused on establishing a larger number of licenses in fewer states to capitalize on the economies of scale we view as optimal to maximize profits. Over the next twelve months, we are focused on furthering our footprints and flower market shares in Oregon and Michigan markets, strengthening our presence in Minnesota and Maryland (by way of the Consulting Agreement), continuing to add new products to our portfolio, and exploring and executing on strategic opportunities in new states.
With the recent shift in political landscape, we have also begun analyzing the potential for federal de-regulation and the subsequent ability to export cannabis products across state lines. We believe Oregon will be a large export state. Being located in the Emerald Triangle provides a unique product differentiator due to the ability to produce high quality and low cost sungrown flower due to the environmental conditions that occur naturally in Southern Oregon. Our strategy to take advantage of what is projected to be a multi-billion dollar export business is developing, and we are excited to begin implementation of this business plan over the coming years, including the expansion into New Jersey.
On October 3, 2023, GR Unlimited executed a promissory note (the “New Jersey Retail Promissory Note”) and advanced $250,000 to an individual representing the principal amount of the note. Pursuant to the New Jersey Retail Promissory Note, interest on the outstanding principal borrowed accrues at a rate of 12% per annum provided that, if the extended maturity date of the note is triggered, interest shall accrue on the outstanding balance commencing on the maturity date and ending on the extended maturity date of the New Jersey Retail Promissory Note. The Company signed a related definitive agreement on January 16, 2024 to invest in the development of an adult-use dispensary in West New York, New Jersey. Also see Subsequent Events.
On October 4, 2023, the Company announced that it signed a definitive agreement with an option to acquire 70% of ABCO Garden State, LLC (“ABCO”), pending regulatory approval from the New Jersey Cannabis Regulatory Commission (the “CRC”). ABCO was granted a conditional cultivation and manufacturing license by the CRC and will receive its annual cultivation license soon. GR Unlimited executed a secured draw down promissory note (the “ABCO Promissory Note”) with ABCO’s affiliate, Iron Flag, LLC, to fund tenant improvements and for general working capital at the 50,000 square foot facility leased by ABCO for use in ABCO’s cannabis cultivation operations under construction and estimated to be completed in the second quarter of 2024. Pursuant to the ABCO Promissory Note, GR Unlimited shall make the maximum amount available to Iron Flag, LLC in one or more advances in an aggregate amount not to exceed $4,000,000. Interest on the outstanding principal borrowed accrues at a rate of 12.5% per annum commencing with respect to each advance and accruing until the date the standing advances and all accrued interest is paid in full.
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Legal Matters
On September 22, 2022, the United States Securities and Exchange Commission (the “Commission”) issued an Order Instituting Proceedings (“OIP”) pursuant to Section 12(j) of the Securities Exchange Act of 1934 (the “1934 Act”), against the Company alleging violations of the 1934 Act, as amended, and the rules promulgated thereunder, by failing to timely file periodic reports. Section 12(j) authorizes the Commission as it deems necessary or appropriate for the protection of investors to suspend for a period not exceeding 12 months, or to revoke, the registration of a security if the Commission finds, on the record after notice and opportunity for hearing, that the issuer of such security has failed to comply with any provision of the 1934 Act, as amended, or the rules promulgated thereunder. The Company has filed an answer to the OIP and is seeking a hearing in the matter. The Company is currently fully compliant with all of their filings, is vigorously defending itself in the matter, and is preparing to re-register its security if necessary.
Selected Annual Information
The following selected financial data for each of the three completed financial years are derived from the audited annual financial statements of the Company.
| Years ended October 31, | 2023 () | 2022 () | 2021 () | ||
|---|---|---|---|---|---|
| Total revenue | |||||
| Income (loss) from operations | |||||
| Net income (loss) | ) | ) | |||
| Net loss per share, basic and diluted | ) | ) | |||
| Comprehensive income (loss) | ) | ) | |||
| Comprehensive income (loss) per share, basic & diluted | ) | ) | |||
| Total assets | |||||
| Total non-current liabilities | |||||
| Cash dividends |
All values are in US Dollars.
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Results of Operations
Selected Financial Results
Years Ended October 31, 2023 and 2022
Selected financial results of operations for the years October 31, 2023 and 2022, are summarized below:
| Year ended October 31, | 2023 () | 2022 () | Variance () | Variance % | |||||
|---|---|---|---|---|---|---|---|---|---|
| Revenue | 32 | % | |||||||
| Cost of goods and services sold, excluding fair value adjustments | ) | ) | ) | 24 | % | ||||
| Gross profit before fair value adjustments | 39 | % | |||||||
| Net income (loss) | ) | ) | (258 | %) | |||||
| Cash flow from operations before NCWC | 102 | % |
All values are in US Dollars.
Significant items contributing to the generation of net income for the years ended October 31, 2023 and 2022 are summarized in the table below:
| Years ended October 31, | 2023 () | 2022 () | Variance | Variance % | |||||
|---|---|---|---|---|---|---|---|---|---|
| Total revenues | 32 | % | |||||||
| Cost of revenues, excluding fair value items | ) | ) | ) | 24 | % | ||||
| Realized fair value amounts in inventory sold | ) | (30 | %) | ||||||
| Unrealized fair value gain on growth of biological assets | ) | ) | ) | 2 | % | ||||
| Accretion expense | 109 | % | |||||||
| General and administrative expenses | 10 | % | |||||||
| Share-based compensation | 388 | % | |||||||
| Interest expense | ) | (8 | %) | ||||||
| Amortization of property and equipment | ) | (23 | %) | ||||||
| Unrealized loss on derivative liability | n/a | ||||||||
| Unrealized loss on marketable securities | ) | n/a | |||||||
| Unrealized gain on warrants asset | ) | ) | n/a | ||||||
| Loss on disposal of property and equipment | 2,812 | % |
All values are in US Dollars.
More detailed analysis of the components of results of operations are described in the following sections.
Revenues
Revenues – Years Ended October 31, 2023 and 2022
| Years ended October 31, | 2023 () | 2022 () | Variance () | Variance (%) | ||
|---|---|---|---|---|---|---|
| Revenue from Grown Rogue production | 26 | % | ||||
| Revenue from services | n/a | |||||
| Total revenue | 32 | % |
All values are in US Dollars.
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Service revenues during the year ended October 31, 2023, were derived from the Consulting Agreement (see Description of Business – Services); no service revenues were earned during the comparable period in 2022. The following table summarizes revenues from Grown Rogue production for the year ended October 31, 2023 and 2022:
| Years ended October 31, | 2023 () | 2022 () | Variance () | Variance (%) | ||
|---|---|---|---|---|---|---|
| Indoor | 14 | % | ||||
| Outdoor | 237 | % | ||||
| Pre-rolls | 151 | % | ||||
| Trim & other | 29 | % | ||||
| Revenue from Grown Rogue production | 26 | % |
All values are in US Dollars.
Revenues during the year ended October 31, 2023, were higher than the comparative period in 2022, due primarily to an increase in total pounds sold.
As detailed further below, we sold more pounds in the year ended October 31, 2023, than the comparative period in 2022, at lower ASP. Further, sales pricing for trim increased by approximately 29% during the year ended October 31, 2023, as compared to the year ended October 31, 2022.
The following tables summarize pounds sold and average selling prices:
| Years ended October 31, | 2023<br><br> Pounds sold | 2022<br><br> pounds sold | Pounds variance | 2023 <br>ASP () | 2022 <br>ASP () | ASP<br><br> variance | |||||
|---|---|---|---|---|---|---|---|---|---|---|---|
| Indoor flower | 20,329 | 18,325 | 2,004 | 21 | |||||||
| Outdoor flower | 7,114 | 2,828 | 4,286 | 88 | |||||||
| Pre-rolls | 651 | 187 | 464 | (491 | ) | ||||||
| Total | 28,094 | 21,340 | 6,754 | (33 | ) |
All values are in US Dollars.
Costs of goods and services sold
Years Ended October 31, 2023 and 2022
| Years ended October 31, | 2023 () | 2022 () | Change () | Change (%) | ||
|---|---|---|---|---|---|---|
| Costs of goods sold | 21 | % | ||||
| Costs of service revenues | n/a | |||||
| Costs of goods sold, excl. fair value items | 24 | % |
All values are in US Dollars.
Cost of finished cannabis inventory sold during the year ended October 31, 2023, increased by 21% over the comparative year ended October 31, 2022, while revenues for the same periods increased 26%. This reflects the impact to cost of goods sold of operational and scale efficiencies and increased sales volume (pounds sold increased 32%), and the impact to sales revenues of increased sales volume and a 4% decrease in ASP.
Net income and loss
Share-based Compensation
During the year ended October 31, 2023, we granted, or committed to grant, common shares and stock options as compensation to employees and service providers. The common shares issuances and stock options (measured at fair value using the Black-Scholes pricing model) resulted in total expense recognition of $346,113 during the year ended October 31, 2023 (2022 - $70,996).
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General and Administrative Expenses
| Years ended October 31, | 2023 () | 2022 () | Change () | Change (%) | ||
|---|---|---|---|---|---|---|
| Office, banking, travel, and overheads | 2 | % | ||||
| Professional services | 28 | % | ||||
| Salaries and benefits | 13 | % | ||||
| General and administrative expenses | 10 | % |
All values are in US Dollars.
General and administrative costs increased for the year ended October 31, 2023, as compared to the year ended October 31, 2022, in support of the Company’s growth and increased sales volumes.
Interest and Interest Accretion Expense
| Year ended October 31, | 2023 () | 2022 () | Change () | Change (%) | ||
|---|---|---|---|---|---|---|
| Interest and accretion expense | 56 | % |
All values are in US Dollars.
Interest and accretion expenses reflect the increase in accretion due to the new convertible debentures issued during the year ending October 31, 2023 including the convertible debentures issued on December 5, 2022, (the “December Convertible Debentures"); on July 13, 2023 (the “July Convertible Debentures”); and on August 17, 2023 (the “August Convertible Debentures”).
Segment reporting
We operate in the states of Oregon and Michigan in the United States, and we recently began providing consulting services. The following tables summarize performance by segment for the years ended October 31, 2023 and 2022.
| Segments | Oregon | Michigan | Other | Services | Total |
|---|---|---|---|---|---|
| **** | |||||
| Non-current assets other than financial instruments: | |||||
| As at October 31, 2023 | |||||
| As at October 31, 2022 | |||||
| Year ended October 31, 2023: | |||||
| Net revenue | |||||
| Gross profit | |||||
| Gross profit before fair value adjustments | |||||
| Year ended October 31, 2022: | |||||
| Net revenue | |||||
| Gross profit | |||||
| Gross profit before fair value adjustments |
All values are in US Dollars.
Pg **13** of **39**
Summary of Quarterly Results
The following table sets out selected quarterly results of the Company for the eight quarters ended on or before October 31, 2023. The information contained herein is drawn from the interim financial statements of the Company for each of the aforementioned eight quarters. The trend in revenues reflects the consolidation of Golden Harvests, following our acquisition of a 60% controlling interest, and its $3.9 million in revenues for the six months ended October 31, 2021, and its $8.9 million in revenues for the year ended October 31, 2022. Revenues in any period are subject to market sales pricing, which historically has fluctuated significantly. Management has observed that pricing and sales volumes tend to be lower seasonally during winter months, in the Company’s first fiscal quarter, although we do not have high confidence that this will persist. Net losses shifted to net income in Q3 2021 (with an exception of net loss in Q4 2022 and Q4 2023), the quarter (Q3 2021) in which we acquired a 60% interest in Golden Harvests. Net income and loss include the impact of significant non-cash expenses, such as losses on the fair valuation of derivative liabilities, marketable securities, share-based payments, and interest accretion. Expenses contributing to net loss do not have significant seasonal trends, except for costs of sales, which follow trends in revenues.
| Fiscal Year | **** | 2023 | 2023 | 2023 | ||||
|---|---|---|---|---|---|---|---|---|
| Quarter ended | **** | Jul 31 | Apr 30 | Jan 31 | ||||
| Revenue () | 6,522,291 | 6,295,717 | 6,004,637 | 4,530,540 | ||||
| Net income (loss) () | (2,012,324 | ) | 345,488 | 411,979 | 592,537 | |||
| Net income (loss)/share, basic & diluted | (0.00 | ) | 0.00 | 0.00 | 0.01 |
All values are in US Dollars.
| Fiscal Year | **** | 2022 | 2022 | 2022 | ||||
|---|---|---|---|---|---|---|---|---|
| Quarter ended | **** | Jul 31 | Apr 30 | Jan 31 | ||||
| Revenue () | 5,072,635 | 4,251,808 | 4,700,127 | 3,732,713 | ||||
| Net income (loss) () | (451,630 | ) | 571,406 | 144,734 | 155,441 | |||
| Net income (loss)/share, basic & diluted | (0.00 | ) | 0.00 | 0.01 | 0.00 |
All values are in US Dollars.
Liquidity
Our ability to generate cash in the short term is based upon sales from production and financing proceeds, and in the long term is based upon sales from production, including production from investments in production increases, or from growth by business acquisitions, or a combination thereof. Investments to increase production or acquire business may require further financing. The Company generates operating cash flows from sales of cannabis products which generate margin that contribute to coverage of other operating costs. We have generated net income for six of the eight most recent quarters (exception Q4 2023 and Q4 2022) and expect to continue generating net income consistently. We have raised financing historically through debt and equity, which has been and will be invested in the business in order to improve production yields and increase total productive capacity, as well as cover operating costs, and to strategically expand the business. We raised gross proceeds of $8,000,000 during the year ended October 31, 2023, (2022 - $1,400,000).
We are typically able to sell finished goods shortly after inventory reaches its final state, and sales are primarily made on cash-on-delivery terms, or with short net terms. Our ability to fund operations, to plan capital expenditures, and to plan acquisitions, depends on future operating performance and cash flows and the availability of capital by way of debt or equity investment in the Company, which are subject to prevailing economic conditions and financial, business, and other factors, some of which are beyond the Company’s control.
Pg **14** of **39**
Cash flows
The following table summarizes certain cash flow items for the years ended October 31, 2023, and 2022.
| Years ended October 31, | 2023 () | 2022 () | ||
|---|---|---|---|---|
| Net income (loss) | ) | |||
| Net cash provided by operating activities | ||||
| Net cash used in investing activities | ) | ) | ||
| Net cash provided / (used) by financing activities | ) | |||
| Net increase in cash and cash equivalents | ||||
| Effect of currency translation | ) | |||
| Cash and cash equivalents, beginning | ||||
| Cash and cash equivalents, ending |
All values are in US Dollars.
Operating Activities
During the year ended October 31, 2023, cash provided by operating activities was $5,729,351 (2022 - $2,004,175). This number was derived by adding back non-cash items to net income, including the following significant adjustments:
| ● | $578,641 (2022 - $750,916) in amortization of property & equipment; |
|---|---|
| ● | $1,757,672 (2022 - $1,102,688) from depreciation expensed in costs of finished inventory sold; |
| --- | --- |
| ● | Deduction of $3,355,797 (2022 – $3,278,572) from the unrealized change in fair value of biological assets; |
| --- | --- |
| ● | $2,573,151 (2022 - $3,685,338) for changes in fair value in inventory sold; |
| --- | --- |
| ● | Deduction of $470,358 (2022 - $nil) from deferred income taxes; |
| --- | --- |
| ● | $344,593 (2022 - $96,649) in share-based compensation and stock option vesting expense, including expense for option grants under our stock option plan implemented during 2020, as well as shares issued directly as compensation for employees, directors, and service providers; |
| --- | --- |
| ● | $1,026,732 (2022 - $491,781) in accretion of interest expense on debt and convertible debentures outstanding; |
| --- | --- |
| ● | $Nil (2022 – $333,777) from the unrealized loss on our investment in Plant Based Investment Corp. (“PBIC”) shares, measured at PBIC’s publicly quoted share price; |
| --- | --- |
| ● | $Nil (2022 – $455,674) from gain on debt settlement; |
| --- | --- |
| ● | $4,563,498 (2022 - $Nil) from the loss on fair value of derivative liability; |
| --- | --- |
| ● | Deduction of $129,113 (2022 - $nil) from the unrealized loss on warrants asset. |
| --- | --- |
Changes in non-cash working capital are summarized in the following table.
| Year ended October 31, | 2023 () | 2022 () | ||
|---|---|---|---|---|
| Accounts receivable | ) | ) | ||
| Inventory and biological assets | ) | ) | ||
| Prepaid expenses and other assets | ) | |||
| Accounts payable and accrued liabilities | ) | |||
| Interest payable | ) | |||
| Income tax payable | ||||
| Unearned revenue | ) | ) | ||
| Total | ) | ) |
All values are in US Dollars.
Pg **15** of **39**
Changes in accounts receivable are due to the timing and collection of sales. Changes in inventory and biological assets reflect increases due to increased productive capacity, as well as the timing of harvests, the timing of the completion growth cycles, and the timing of sales of finished inventory. Changes in liabilities, including accounts payable and accrued liabilities reflect the use of credit terms and cash flow management based upon ongoing liquidity management.
Investing Activities
During the year ended October 31, 2023, we added $4,008,866 (2022 - $4,000,874) to property and equipment, including non-cash right-of-use asset additions. We expended cash flows of $1,456,782 (2022 - $1,111,283) for property and equipment additions.
Financing Activities
Net cash flows from financing activities during the year ended October 31, 2023, were $4,433,820 (2022 – net cash used of $422,541). Significant financing activities included the following:
| ● | Proceeds of $8,000,000 from issuance of convertible debentures; |
|---|---|
| ● | Repayments of $261,006 of convertible debentures; |
| --- | --- |
| ● | Repayments of $1,673,344 of lease principal; and |
| --- | --- |
| ● | Repayments of $1,631,830 of long-term debt. |
| --- | --- |
Financing activities during the comparable year ended October 31, 2022, included the following:
| ● | Debt proceeds of $100,000 borrowed for general corporate uses; |
|---|---|
| ● | $1,300,000 raised through a private placement of common shares; |
| --- | --- |
| ● | Repayments of $1,089,738 of lease principal; and |
| --- | --- |
| ● | Repayments of $732,803 of long-term debt. |
| --- | --- |
Trends and expected fluctuations in liquidity
| October 31,<br> 2023 () | October 31,<br> 2022 () | Variance<br> () | Variance<br> (%) | ||||||
|---|---|---|---|---|---|---|---|---|---|
| Current assets | 120 | % | |||||||
| Current liabilities | ) | ) | ) | 145 | % | ||||
| Working capital | 70 | % |
All values are in US Dollars.
Working capital varied from October 31, 2022, to October 31, 2023, due primarily to an increase in net cash provided by financing activities, which was $4,433,820 during the year ended October 31, 2023 versus cash used by financing activities of $422,541 during the year ended October 31, 2022.
We expect significant ongoing fluctuations in working capital over time, as we are in the early stages of growth. We have historically raised debt with principal due on maturity, and accordingly, we expect significant one-time payments as debt matures, as opposed to smooth cash outflows over time. We have historically been able to meet commitments, modify debt maturities, and raise new financing as required to respond to changes in our liquidity position, although there is no guarantee we will be able to do so in the future. We are exposed to market pricing for cannabis products, which materially impacts our liquidity and is out of our control. The market for cannabis products, including flower, which is our primary product, is relatively immature, having recently become legal to buy and sell in certain markets.
Pg **16** of **39**
We have observed some indications of seasonality, and in addition, we have observed that market conditions can change rapidly without apparent explanations or analyzable causes. We cannot control whether we will be able to raise financing when required or sell cannabis products at profitable prices in the future; however, part of our strategy is to produce flower at sustainable gross margins over a growing productive base, which, holding other factors constant, is expected to result in improved net loss or net income, as well as net cash flows.
Commitments and Obligations
Set out below are undiscounted minimum future lease payments after October 31, 2023.
| Total future<br>minimum lease<br>payments () | |
|---|---|
| Less than one year | |
| Between one and five years | |
| Total |
All values are in US Dollars.
The Company has four lease contracts with extension options remaining after October 31, 2023, which were negotiated by management to provide flexibility in managing business needs. Set out below are the undiscounted potential rental payments related to periods following the date of exercise options that are not included in the lease term:
| Within<br><br>five years | More than<br><br>five years | |||
|---|---|---|---|---|
| Extension options available to be exercised | $ | 4,073,488 | $ | 6,439,274 |
The contractual maturities of the Company’s accounts payable and accrued liabilities, debt, leases, and unearned revenue occur over the next five years are as follows:
| **** | Year 1 | Over 1 Year<br>- 3 Years | Over 3 Years<br>- 5 Years |
|---|---|---|---|
| **** | |||
| Accounts payable and accrued liabilities | |||
| Lease liabilities | |||
| Convertible debentures | |||
| Debt | |||
| Business acquisition consideration payable | |||
| Total |
All values are in US Dollars.
Pg **17** of **39**
Capital Resources
Debt financing
On December 5, 2022, the Company announced the closing of a non-brokered private placement of the December Convertible Debentures with an aggregate principal amount of $2,000,000. The December Convertible Debentures bear an interest of 9% per year, paid quarterly, and mature 36 months from the date of issue. The Convertible Debentures are convertible into common shares of the Company at a conversion price of CAD$0.20 per common share. Additionally, on closing, the Company issued to the purchasers of the December Convertible Debentures an aggregate of 6,716,499 warrants (the "December Warrants"), that represent 50% coverage of each purchaser’s December Convertible Debenture investment. The December Warrants are exercisable for a period of three years from issuance into common shares at an exercise price of $0.25 CAD per common share. The Company has the right to accelerate the warrants if the closing share price of the Common Shares on the Canadian Securities Exchange is CAD$0.40 or higher for a period of 10 consecutive trading days. The December Convertible Debentures and December Warrants issued pursuant to the private placement (and the underlying common shares) were subject to a statutory hold period of four months and one day from the closing date.
During the year ended October 31, 2023, two holders of the December Convertible Debentures converted an aggregate total of convertible debenture principal of $1,040,662 and $133,977 at CAD$0.20 per share into 10,151,250 and 1,022,025 common shares respectively.
On July 13, 2023, the Company announced the closing of the first tranche of a non-brokered private placement of the July Convertible Debentures with an aggregate principal amount of $5,000,000. The July Convertible Debentures accrue interest at 9% per year, paid quarterly, and mature 48 months from the date of issue. The July Convertible Debentures are convertible into common shares of the Company at a conversion price of CAD$0.24 per common share, at any time on or prior to the maturity date. Additionally, on closing, the Company issued to the Subscribers of the July Convertible Debentures an aggregate of 13,737,500 warrants (the “July Warrants”), that represents one-half of one warrant for each CAD$0.24 of principal amount subscribed. The July Warrants are exercisable for a period of three years from issuance into common shares at an exercise price of CAD$0.28 per common share. The Company has the right to accelerate the warrants if the closing share price of the common shares on the Canadian Securities Exchange is CAD$0.40 or higher for a period of 10 consecutive trading days. The July Warrants’ expiry date will be accelerated to 90 days following notice of the acceleration.
On August 17, 2023, the Company announced that it had closed the second and final tranche of a non-brokered private placement of the August Convertible Debentures for gross proceeds of US$1,000,000, for a total aggregate principal amount under both tranches totaling $6,000,000 for both the July Convertible Debentures and August Convertible Debentures. On closing, the Company issued to subscribers of the August Convertible Debentures an aggregate of 2,816,250 common share purchase warrants. The terms of the convertible debentures and warrants issued as part of this second tranche are the same as those issued in the July Convertible Debentures and July Warrants.
Trends and expected fluctuations in capital resources
We realized net cash flows from financing of approximately $4.4 million during the year ended October 31, 2023, (2022 – $0.4 million outflow), resulting from proceeds from debt financing of $8.0 million (2022 - $0.1 million from debt and $1.3 million from equity), less debt, debenture, and lease principal repayments of $3.6 million (2022 - $1.8 million).
Pg **18** of **39**
Financing activities have been critical to our ability to continue operating, and significant portions of our financing have historically been raised from key management personnel. These individuals have not provided assurance that they will provide additional financing if the Company requires it but are able to raise such financing from third parties; this highlights the importance of management’s strategy of scaling operations. Our business strategy contemplates growing cash flows from operations, which may contribute to reinvestment and growth; however, further financing may be required or utilized based upon our future capital position and future business opportunities.
Off-Balance Sheet Arrangements
The Company does not have any off-balance sheet arrangements.
Transactions with Related Parties
Transactions with key management and directors
During the year ended October 31, 2023, the Company completed the following related party transactions:
Through its wholly owned subsidiary, GRU Properties, the Company leased a property located in Trail, Oregon (“Trail”) owned by the Company’s President and CEO (“CEO”). The lease was extended during the year ended October 31, 2021, with a term through December 31, 2025. Lease charges of $72,000 were incurred for year ended October 31, 2023 (2022 –72,000). The lease liability balance for Trail at October 31, 2023, was $139,014 (October 31, 2022 - $193,312).
During the year ended October 31, 2021, the Company leased a property which is beneficially owned by the CEO and is located in Medford, Oregon (“Lars”) with a term through June 30, 2026. Lease charges for Lars of $190,035 (2022 - $184,500) were incurred for the year ended October 31, 2023. The lease liability for Lars at October 31, 2023, was $470,134 (October 31, 2022 - $607,900).
During the year ended October 31, 2021, the CEO leased equipment to the Company, which had a balance due of $Nil at October 31, 2023 (October 31, 2022 - $9,433). Lease payments of $9,971 were made against the equipment leases during the year ended October 31, 2023 (2022 - $28,871).
Leases liabilities payable to the CEO were $609,148 in aggregate at October 31, 2023 (October 31, 2022 - $810,645).
The CEO earned a royalty of 2.5% of sales of flower produced at Trail through December 31, 2021, at which time the royalty terminated. The CEO earned royalties of $Nil during the year ended October 31, 2023 (2022 - $305).
During the year ended October 31, 2022, the Company settled $62,900 in long-term liabilities due to the CEO as part of the CEO’s total $300,000 subscription to a non-brokered private placement of common shares on December 9, 2021.
During year ended October 31, 2023, the Company incurred expenses of $98,846 (2022 - $60,000) for salary paid to the spouse of the CEO, who is employed as our Community Relations manager. At October 31, 2023, accounts and accrued liabilities payable to this individual were $2,692 (October 31, 2022 - $1,154). The spouse of the CEO was granted 500,000 options during the year ended October 31, 2023.
During the year ended October 31, 2023, the Company, through GR Unlimited, acquired 87% of the membership units of Canopy from the CEO. All payments necessary for GR Unlimited to exercise its option to acquire 87% of Canopy were equal to payments made by Canopy to purchase a controlling 60% interest of Golden Harvests.
Pg **19** of **39**
Key management personnel consists of the President and CEO; the Senior Vice President (“SVP”); the former Chief Operating Officer (“COO”); General Manager (“GM”); and the Chief Financial Officer (“CFO”) of the Company. The compensation to key management is presented in the following table:
| Year ended October 31, | 2023 | 2022 |
|---|---|---|
| Salaries and consulting fees | ||
| Share-based compensation | ||
| Stock option expense | ||
| Total |
All values are in US Dollars.
Stock options granted to key management personnel and close family members of key management personnel include the following. During the year ended October 31, 2023, 1,500,000 options were granted to the CEO; 750,000 options were granted to the CFO; 750,000 options were granted to the SVP; and 175,000 options to the GM. During the year ended October 31, 2022, no options were granted to key management personnel.
During the year ended October 31, 2023, 1,250,000 stock options were granted to three board of directors.
During the year ended October 31, 2023, the SVP purchased December 2022 Convertible Debentures with a principal balance of $50,000 and was issued 167,912 December Warrants.
During the year ended October 31, 2023, the Company issued 200,000 shares to the GM, which represented a portion of consideration for the acquisition of Golden Harvests (Note 5 and 12.1)
Compensation to board of directors during the year ended October 31, 2023, was $18,000, (2022 – fees of $18,000 and issuance of 273,750 common shares with a fair value of $20,562).
Through its subsidiary, Golden Harvests, the Company leased Morton, owned by the Company’s GM, that is located in Michigan, with a lease term through January 2026. Lease charges of $180,000 (2022 - $152,000) were incurred during the year ended October 31, 2023. The lease liability of Morton at October 31, 2023 was $377,043 (2022 - $428,476).
Through its subsidiary, Golden Harvests, the Company also leased Morton Annex located in Michigan, which is owned by the Company’s GM. The lease term was extended during the year ended October 31, 2023, through November 2023. Lease charges of $740,000 (2022 - $330,000) were incurred during the year ended October 31, 2023. The lease liability of Morton Annex at October 31, 2023, was $29,774 (2022 - $211,991).
Accounts payable, accrued liabilities, and lease liabilities due to key management at October 31, 2023, totaled $1,118,763 (October 31, 2022 $1,587,700).
Pg **20** of **39**
Debt balances and movements with key management and directors
The following table sets out the movements and balances of debt with related parties during the year ended October 31, 2023, and the year ended October 31, 2022. Borrowings from related parties were executed at times because we could identify very limited other sources of financing. The borrowing from the COO was transacted to accelerate expansion of an indoor growing facility at a competitive rate of interest. The borrowings from other than the COO in the table below were transacted to accelerate construction and production in Michigan. The names of the related parties, by designation, are as follows: CEO – Obie Strickler; SVP – Adam August; Directors – Abhilash Patel; former COO – Thomas Fortner; and GM – David Pleitner.
| CEO | SVP | Director | COO | GM | Total | |||||||
|---|---|---|---|---|---|---|---|---|---|---|---|---|
| Balance - October 31, 2021 | ||||||||||||
| Interest | ||||||||||||
| Payments | ) | ) | ) | ) | ) | ) | ||||||
| Balance - October 31, 2022 | ||||||||||||
| Interest | ||||||||||||
| Payments | ) | ) | ) | ) | ) | |||||||
| Balance – October 31, 2023 |
All values are in US Dollars.
Pursuant to the loan and related agreements transacted during the year ended October 31, 2020, the CEO, SVP, and a director obtained 5.5%; 1%; and 2.5% of GR Michigan, respectively; third parties obtained 4% as part of the agreements, such that GR Michigan has a 13% non-controlling interest. These parties, except the CEO, obtained the same interests in Canopy; the CEO obtained 92.5% of Canopy Management, of which 87% was acquired by the Company during the year ended October 31, 2023; all payments necessary for the Company to exercise its option to acquire 87% of Canopy were equal to payments made by Canopy to purchase a controlling 60% interest of Golden Harvests. Interest payments of $59,400 were made on the business acquisition payable of $360,000 (Note 5.1).
Pg **21** of **39**
Other Selected Financial Information
EBITDA and Adjusted EBITDA (non-IFRS measures)
The Company’s “Adjusted EBITDA,” or “aEBITDA,” is a non-IFRS measure used by management that does not have any prescribed meaning by IFRS and that may not be comparable to similar measures presented by other companies. Adjusted EBITDA is intended to provide a proxy for our operating cash flow before changes in non-cash working capital (“CNCWC”), which was $7,633,872 for the year ended October 31, 2023 (2022 - $5,091,551). The Company defines “EBITDA” as the Company’s net income or loss for a period, as reported, before interest, taxes, depreciation and amortization, and is further adjusted to remove transaction costs, stock-based compensation expense, accretion expense, gain (loss) on derecognition of derivative liabilities, the effects of fair-value accounting for biological assets and inventory, as well as other non-cash items and items not representative of operational performance as reported in net income (loss). Adjusted EBITDA is defined as EBITDA adjusted for the impact of various significant or unusual transactions. The Company believes that this is a useful metric to evaluate its operating performance, as it allows analysts to compare us to our competitors and derive expectations of our future performance. Adjusted EBITDA increases comparability between comparative companies by adjusting for variability resulting from differences in capital structures, resource allocations and investments, the impact of fair value adjustments on biological assets and inventory and financial statements, which may be volatile and fluctuate significantly from period to period.
| Years ended October 31, | ||||
|---|---|---|---|---|
| Adjusted EBITDA Reconciliation | 2023 () | 2022 () | ||
| Net income (loss), as reported | ) | |||
| Add back realized fair value amounts included in inventory sold | ||||
| Deduct unrealized fair value gain on growth of biological assets | ) | ) | ||
| Add back amortization of property and equipment included in cost of sales | ||||
| Add back interest and interest accretion expense, as reported | ||||
| Add back amortization of property and equipment, as reported | ||||
| Add back share-based compensation | ||||
| Add back unrealized loss on marketable securities, as reported | ||||
| Add back unrealized loss on derivative liability, as reported | ||||
| Deduct unrealized gain on warrants asset, as reported | ) | |||
| Add back income tax expense, as reported | ||||
| EBITDA | ||||
| Performance incentive bonus payment^1^ | ||||
| Severance and inactive employee compensation^2^ | ||||
| Business development incentive bonus^3^ | ||||
| Compliance costs^4^ | ||||
| Costs associated with acquisition of Golden Harvests^5^ | ||||
| Deduct gain on debt settlement with marketable securities^6^ | ) | |||
| New production location startup costs^7^ | ||||
| Adjusted EBITDA |
All values are in US Dollars.
| ^1^ | Payment to the minority owner and General Manager of Golden<br>Harvests in recognition of outstanding business performance that was in excess of expected ongoing employment performance bonuses. |
|---|
Pg **22** of **39**
| ^2^ | Payments to the COO as part of his transition when no longer<br>a paid member of the Company’s executive team, effectively a severance package. |
|---|---|
| ^3^ | Payments to the owners of Golden Harvests and Company’s<br>CEO to incentivize business growth during the startup phase of Golden Harvests. These costs are non-recurring in nature and not reflective<br>of operational efficiency during the quarter. Of the $153,825 payment, $100,000 was beneficially made to the CEO, a related party. |
| --- | --- |
| ^4^ | Costs for professional services pertaining to prior periods<br>as a result of efforts to bring the Company’s disclosures current with the Commission. The Company’s required disclosures<br>were brought current, and over-the-counter trading resumed in the United States. |
| --- | --- |
| ^5^ | Costs associated with the Company’s acquisition of the<br>Michigan assets. |
| --- | --- |
| ^6^ | On June 20, 2022, the Company announced the settlement<br>of the PBIC Note, which had a principal balance owing of $700,000. The Company agreed to transfer its ownership in PBIC, comprised of<br>2,362,204 common shares in PBIC, to the creditor, to which PBIC sold and assigned the PBIC Note. In exchange, the creditor provided forgiveness<br>and settlement of all amounts owing in connection with the PBIC Note, in which the Company reported a gain on debt settlement of $449,684<br>as a result of the settlement. |
| --- | --- |
| ^7^ | During the year ending October 31, 2022, we incurred<br>$697,120 in non-recurring costs associated with the first year of operations at our Foothill outdoor facility, including product quality<br>and sales prices not reflective of mature operations. |
| --- | --- |
Below we reconcile aEBITDA to cash flows from operations before changes in non-cash working capital, in order to present the efficiency with which aEBITDA is converted into cash flows.
| Year ended October 31 | ||||
|---|---|---|---|---|
| Reconciliation of aEBITDA to cash from operations before CNCWC | 2023 () | 2022 () | ||
| aEBITDA | ||||
| Less: Interest expense | ) | ) | ||
| Less: Income tax expense | ) | ) | ||
| Less: non-cash gain on debt settlement | ) | |||
| Add back: non-cash loss on asset disposal | ||||
| Impact of foreign exchange and other | ) | |||
| Impact of deferred income taxes | ) | |||
| Less: adjustments to EBITDA to arrive at aEBITDA: | ||||
| Performance incentive bonus payment | ) | |||
| Severance and inactive employee compensation | ) | |||
| Business development incentive bonus | ) | |||
| Gain on debt settlement for marketable securities | ||||
| Compliance costs | ) | ) | ||
| Costs associated with acquisition of Golden Harvests | ) | ) | ||
| New production location startup costs | ) | |||
| Cash flows from operations before CNCWC, as reported | ||||
| Cash flows from operations before CNCWC as % of aEBITDA | % | % |
All values are in US Dollars.
Pg **23** of **39**
Outstanding Share Data
As of the date of this MD&A, the Company had 182,005,886 common shares outstanding.
As of the date of this MD&A, the Company has the following warrants outstanding, exercisable into common shares:
| Exercise price<br>(CAD) | Warrants<br><br>outstanding | Life (years) | Expiry date | ||
|---|---|---|---|---|---|
| 0.25 | 6,716,499 | 1.76 | December 2, 2025 | ||
| 13,737,500 | 2.38 | July 13, 2026 | |||
| 2,816,250 | 2.47 | August 17, 2026 | |||
| 8,500,000 | 4.61 | October 05, 2028 | |||
| 31,770,249 | 2.85 |
All values are in US Dollars.
As of the date of this MD&A, the Company has the following stock options outstanding and exercisable into common shares:
| Exercise price<br>(CAD) | Options<br><br>outstanding | Number<br><br>exercisable | Remaining<br><br>Contractual<br><br>Life (years) | Expiry period | |||
|---|---|---|---|---|---|---|---|
| 1,840,000 | 1,777,500 | 0.3 | July 2024 | ||||
| 200,000 | 200,000 | 0.7 | November 2024 | ||||
| 1,000,000 | 850,000 | 1.1 | April 2025 | ||||
| 1,150,000 | 1,150,000 | 1.2 | May 2025 | ||||
| 85,000 | 85,000 | 1.7 | November 2025 | ||||
| 300,000 | 150,000 | 2.1 | April 2026 | ||||
| 6,225,000 | 6,225,000 | 2.8 | January 2027 | ||||
| 400,000 | - | 3.6 | September 2027 | ||||
| 600,000 | 125,000 | 3.7 | November 2027 | ||||
| 11,800,000 | 10,562,500 | 2.2 |
All values are in US Dollars.
As of the date of this MD&A, the Company has December Convertible Debentures outstanding with an aggregate principal balance of $350,000 and accrued interest of approximately $5,019. The debentures mature on December 2, 2025. Interest accrues at 9% per annum and is payable on the last business days of March, June, September, and December.
Shares issuable upon conversion of the December Convertible Debentures as of the date of this MD&A are presented in the table below.
| Debenture principal | Accrued interest | /CAD exchange rate * | Exercise price (CAD) | Shares issuable<br> if converted | |||
|---|---|---|---|---|---|---|---|
| 350,000 | 5,019 | 2,350,774 |
All values are in US Dollars.
| * | Most recent exchange rate as published by the Bank of Canada. |
|---|
As of the date of this MD&A, the Company also has July Convertible Debentures outstanding with an aggregate principal balance of $5,000,000 and accrued interest of approximately $43,022. The debentures mature on July 13, 2026. Interest accrues at 9% per annum and is payable on the last business days of March, June, September, and December.
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Shares issuable upon conversion of the July Convertible Debentures as of the date of this MD&A are presented in the table below:
| Debenture principal | Accrued interest | /CAD exchange rate * | Exercise price (CAD) | Shares issuable<br> if converted | |||
|---|---|---|---|---|---|---|---|
| 5,000,000 | 43,022 | 27,475,000 |
All values are in US Dollars.
| * | Most recent exchange rate as published by the Bank of Canada. |
|---|
Additionally, as of the date of this MD&A, the Company has August Convertible Debentures outstanding with an aggregate principal balance of $1,000,000 and accrued interest of approximately $14,341. The debentures mature on August 17, 2027. Interest accrues at 9% per annum and is payable on the last business days of March, June, September, and December.
Shares issuable upon conversion of the August Convertible Debentures as of the date of this MD&A are presented in the table below:
| Debenture principal | Accrued interest | /CAD<br>exchange rate * | Exercise price<br>(CAD) | Shares issuable<br><br>if converted | |||
|---|---|---|---|---|---|---|---|
| 1,000,000 | 14,341 | 5,632,500 |
All values are in US Dollars.
| * | Most recent exchange rate as published by the Bank of Canada. |
|---|
Critical Accounting Judgments and Estimation Uncertainties
The preparation of the consolidated financial statements in conformity with IFRS requires that the Company’s management make critical judgments, estimates and assumptions about future events that affect the reported amounts of assets and liabilities and the disclosure of contingent assets and liabilities at the date of the consolidated financial statements and the reported amounts of income and expenses during the reporting period. The estimates and associated assumptions are based on historical experience and other factors that are considered to be relevant. Actual results may differ from these estimates. The estimates and underlying assumptions are reviewed on an ongoing basis. The most significant judgments include those related to the ability of the Company to continue as a going concern, the determination of when property and equipment are available for use, and impairment of its financial and non-financial assets. The most significant estimates and assumptions include those related to the valuation of biological assets, the collectability of accounts receivable, the useful lives of property and equipment, inputs used in accounting the determination of the discount rate used to estimate the fair value of the liability component of convertible debt instruments, the discount rates used to calculate present values of lease liabilities, the inputs used in the estimate of the fair value of equity based compensation, and the inputs used in the estimate of the fair value of equity instruments.
Newly Adopted Accounting Pronouncements
Amendments to IAS 41: Agriculture
As part of its 2018-2020 annual improvements to the standards process of IFRS, the IASB issued amendments to IAS 41 Agriculture. The amendment removes the requirement in paragraph 22 of IAS 41 for entities to exclude taxation cash flow when measuring the fair value of a biological asset using a present value technique. This will ensure consistency with the requirements in IFRS 13 Fair Value Measurement. The amendment is effective for annual reporting periods beginning on or after January 1, 2022. The Company adopted the Amendments to IAS 41 effective November 1, 2022, which did not have material impact to the Company’s Financial Statements.
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Amendments to IFRS 9: Financial Instruments
As part of its 2018-2020 annual improvements to IFRS standards process, the IASB issued amendments to IFRS 9 Financial Instruments. The amendment clarifies the fees that an entity includes when assessing whether the terms of a new or modified financial liability are substantially different from the terms of the original financial liability. These fees include only those paid or received between the borrower and the lender, including fees paid or received by either the borrower or lender on the other’s behalf. An entity applies the amendment to financial liabilities that are modified or exchanged on or after the beginning of the annual reporting period in which the entity first applies the amendment. The amendment is effective for annual reporting periods beginning on or after January 1, 2022 with earlier adoption permitted. The Company adopted the Amendments to IFRS 9 effective November 1, 2022, which did not have material impact to the Company’s Financial Statements.
Amendments to IAS 37: Onerous Contracts — Cost of Fulfilling a Contract
The amendment specifies that the ‘cost of fulfilling’ a contract comprises the ‘costs that relate directly to the contract’. Costs that relate directly to a contract can either be incremental costs of fulfilling that contract or an allocation of other costs that relate directly to fulfilling contracts. The amendment is effective for annual periods beginning on or after January 1, 2022 with early application permitted. The Company adopted the amendments to IAS 37 effective November 1, 2022, which did not have material impact to the Company’s Financial Statements.
Financial Instruments and Other Risk Factors
Market Risk
Market risk is the risk that the fair value or cash flows of a financial instrument will fluctuate due to changes in market prices. Market risk reflects interest rate risk, currency risk and other price risks.
Interest Rate Risk
At October 31, 2023 and 2022, the Company’s exposure to interest rate risk relates to long term debt, convertible promissory notes, and finance lease obligations, but its interest rate risk is limited as the aforementioned financial instruments are fixed interest rate instruments.
Currency Risk
As at October 31, 2023, the Company had a portion of its accounts payable and accrued liabilities denominated in Canadian dollars which amounted to CAD$190,169. The Company is exposed to the risk of fluctuation in the rate of exchange between the Canadian Dollar and the United States Dollar.
Other Price Risk
Other price risk is the risk that the fair value or future cash flows of a financial instrument will fluctuate because of changes in market prices, other than those arising from interest rate risk or foreign currency risk and a change in the price of cannabis. The Company is not exposed to significant other price risk.
Credit Risk
Credit risk is the risk that one party to a financial instrument will cause a loss for the other party by failing to pay for its obligation.
Credit risk to the Company is derived from cash and trade accounts receivable. The Company places its cash in deposit with United States financial institutions. The Company has established a policy to mitigate the risk of loss related to granting customer credit by primarily selling on a cash-on-delivery basis.
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Financial instruments that potentially subject the Company to concentration of credit risk consist principally of cash deposits. Accounts at each institution are insured by the Federal Deposit Insurance Corporation (“FDIC”) up to $250,000. At October 31, 2023 and October 31, 2022, the Company had $8,108,247 and $832,384 in excess of the FDIC insured limit, respectively.
The carrying amount of cash and trade accounts receivable represents the Company’s maximum exposure to credit risk; the balances of these accounts are summarized in the following table:
| October 31,<br>2023 | October 31,<br>2022 | |
|---|---|---|
| **** | ||
| Cash | ||
| Accounts Receivable | ||
| Notes Receivable | ||
| Total |
All values are in US Dollars.
The allowance for doubtful accounts at October 31, 2023 was $165,347 (October 31, 2022 - $264,719).
Liquidity Risk
Liquidity risk represents the risk that the Company will encounter difficulty in meeting the obligations associated with its financial liabilities. The Company’s approach to managing liquidity risk is to ensure that it will have sufficient liquidity to meet liabilities when they become due. At October 31, 2023 and 2022, the Company’s working capital accounts were as follows:
| October 31,<br>2023 | October 31,<br>2022 | |||
|---|---|---|---|---|
| **** | **** | **** | ||
| Cash | ||||
| Current assets excluding cash | ||||
| Total current assets | ||||
| Current liabilities | ) | ) | ||
| Working capital |
All values are in US Dollars.
The Company Faces Risks Inherent in an Agricultural Business.
Cannabis is an agricultural product. There are risks inherent in the agricultural business, such as insects, plant diseases, forest fire and similar agricultural risks. Although some of the Company’s cannabis flower is grown indoors under climate-controlled conditions, with conditions monitored, there can be no assurance that natural elements will not have a material adverse effect on the production of the Company’s products.
Fair Values
A number of the Company’s accounting policies and disclosures require the measurement of fair valued for both financial and nonfinancial assets and liabilities. The Company has an established framework, which includes team members who have overall responsibility for overseeing all significant fair value measurements, including Level 3 fair values. When measuring the fair value of an asset or liability, the Company uses observable market data as far as possible.
The Company regularly assesses significant unobservable inputs and valuation adjustments. Fair values are categorized into different levels in a fair value hierarchy based on the inputs used in the valuation techniques as follows:
Level 1: unadjusted quoted prices in active markets for identical assets or liabilities;
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Level 2: inputs other than quoted prices included in Level 1 that are observable for the asset or liability, either directly or indirectly; or
Level 3: inputs for the asset or liability that are not based on observable market data (unobservable inputs).
The carrying values of the financial instruments at October 31, 2023 are summarized in the following table:
| Level in<br><br>fair value<br><br>hierarchy | Amortized<br>Cost | FVTPL | |
|---|---|---|---|
| **** | **** | ||
| Financial Assets | |||
| Cash | Level 1 | ||
| Accounts receivable | Level 2 | ||
| Warrants asset | Level 2 | ||
| Financial Liabilities | |||
| Accounts payable and accrued liabilities | Level 2 | ||
| Debt | Level 2 | ||
| Convertible debentures | Level 2 | ||
| Business acquisition consideration payable | Level 2 | ||
| Derivative liability | Level 2 |
All values are in US Dollars.
During the year ended October 31, 2023, there were no transfers of amounts between levels.
See additional risk factors relating to the Company as described in section 17 of the Company’s Listing Statement dated November 15, 2018 which can be found under the Company’s profile on www.sedarplus.ca.
Subsequent Events
Purchase of Ross Lane, Oregon farm property
On January 12, 2024, the Company executed the option to purchase the Ross Lane outdoor farm property located in Central Point, Oregon for total consideration of $1,525,000.
New Jersey retail investment
On January 17, 2024, the Company announced that it formed Grown Rogue Retail Ventures LLC and signed a definitive agreement on January 16, 2024, to invest in and support Nile of NJ LLC, a company that is developing an adult-use dispensary in West New York, New Jersey. The investment is in the form of a secured note, in which the Company advanced $500,000 pursuant to this secured note on February 13, 2024. These retail operations will be supported with products from a cultivation facility under development.
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Regulatory Disclosure
Grown Rogue derives a substantial portion of its revenues from the cannabis industry in the United States, which industry is illegal under United States federal law. Grown Rogue is indirectly involved (through subsidiaries) in the cannabis industry in the United States where local state laws permit such activities. Currently, its subsidiaries are directly engaged in the manufacture, possession, use, sale or distribution of cannabis in the recreational cannabis marketplace in the State of Oregon and in the recreational and medical marketplaces in the State of Michigan.
The United States federal government regulates drugs through the Controlled Substances Act (the “Federal CSA”), which places controlled substances, including cannabis, in a schedule. Cannabis is classified as a Schedule I drug. Under 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. The United States Food and Drug Administration has not approved marijuana as a safe and effective drug for any indication.
In the United States cannabis is largely regulated at the state level. Notwithstanding the permissive regulatory environment of medical cannabis at the state level, and the increasing number of states with legal recreational frameworks, cannabis continues to be categorized as a Schedule I controlled substance under the Federal CSA and as such, violates federal law in the United States. Senators Elizabeth Warren and Cory Gardner have introduced a bipartisan Senate bill titled “Strengthening the Tenth Amendment Through Entrusting States (STATES) Act” that would lift the Controlled Substance Act’s restrictions on cannabis in states that have written their own laws. However, there can be no assurances as to when this bill will pass, or if it will pass at all. The Supremacy Clause of the United States Constitution and United States federal laws made pursuant to it are paramount and in case of conflict between federal and state law in the United States, the federal law shall apply.
As a result of the conflicting views between state legislatures and the United States federal government regarding cannabis, investments in cannabis businesses in the United States are subject to inconsistent legislation and regulation. The response to this inconsistency was addressed in August 2013 when then Deputy Attorney General, James Cole, authored a memorandum (the “Cole Memorandum”) addressed to all United States district attorneys acknowledging that notwithstanding the designation of cannabis as a controlled substance at the federal level in the United States, several US states had enacted laws relating to cannabis for medical and recreational purposes. The Cole Memorandum outlined certain priorities for the Department of Justice relating to the prosecution of cannabis offenses. In particular, the Cole Memorandum noted that in jurisdictions that enacted laws legalizing cannabis in some form and that also implemented strong and effective regulatory and enforcement systems to control the cultivation, distribution, sale and possession of cannabis, conduct in compliance with those laws and regulations is less likely to be a priority at the federal level.
In March 2017, newly appointed Attorney General Jeff Sessions again noted limited federal resources and acknowledged that much of the Cole Memorandum had merit; however, he disagreed that it had been implemented effectively and, on January 4, 2018, Attorney General Jeff Sessions issued a memorandum (the “Sessions Memorandum”) that rescinded the Cole Memorandum. As a result of the Sessions Memorandum, federal prosecutors are no longer bound by the priorities in the Cole Memorandum relating to the prosecution of cannabis activities despite the existence of state-level laws that may be inconsistent with federal prohibitions.
There is no guarantee that state laws legalizing and regulating the sale and use of cannabis will not be repealed or overturned, or that local governmental authorities will not limit the applicability of state laws within their respective jurisdictions. Unless and until the United States Congress amends the Federal CSA with respect to medical and/or adult-use cannabis (and as to the timing or scope of any such potential amendments there can be no assurance), there is a risk that federal authorities may enforce current federal law. If the federal government begins to enforce federal laws relating to cannabis in states where the sale and use of cannabis is currently legal, or if existing applicable state laws are repealed or curtailed, Grown Rogue’s business, results of operations, financial condition and prospects would be materially adversely affected. Until Congress amends the federal law with respect to marijuana use, there is a risk that federal authorities may enforce current federal law against companies such as Grown Rogue for violation of federal law or they may seek to bring an action or actions against Grown Rogue and/or its investors for violation of federal law or otherwise, including, but not limited to, a claim against investors for aiding and abetting another’s criminal activities.
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In light of the uncertainty surrounding the treatment of United States cannabis-related activities, including the rescission of the Cole Memorandum, the Canadian Securities Administrators published a Staff Notice 51-352 (Revised) – Issuers with U.S. Marijuana-Related Activities (“Staff Notice 51-352”) on February 8, 2018 setting out certain disclosure expectations for issuers with United States cannabis-related activities. Staff Notice 51-352 includes additional disclosure expectations that apply to all issuers with United States cannabis-related activities, including those with direct and indirect involvement in the cultivation and distribution of cannabis, as well as issuers that provide goods and services to third parties involved in the United States cannabis industry.
In accordance with the Staff Notice 51-352*,* below is a table of concordance that is intended to assist readers in identifying the disclosure expectations outlined in Staff Notice 51-352.
In accordance with Staff Notice 51-352, this section provides a discussion of the federal and state-level U.S. regulatory regimes in the jurisdictions where Grown Rogue is currently directly involved through its subsidiaries or is planning to be directly involved in the future. Certain Grown Rogue subsidiaries are directly engaged in the manufacture, possession, use, sale or distribution of cannabis in the recreational cannabis marketplace in the State of Oregon and in the medical and recreational marketplaces in the State of Michigan. In accordance with Staff Notice 51-352, Grown Rogue will evaluate, monitor and reassess this disclosure, and any related risks, on an ongoing basis and the same will be supplemented and amended to investors in public filings, including in the event of government policy changes or the introduction of new or amended guidance, laws or regulations regarding marijuana regulation. Any non-compliance, citations or notices of violation which may have an impact on Grown Rogue’s licenses, business activities or operations will be promptly disclosed by Grown Rogue.
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| All Issuers with US Marijuana-Related Activities | Response |
|---|---|
| Describe the nature of the issuer’s involvement in the U.S. marijuana industry and include the disclosures indicates<br> for at least one of the direct, indirect and ancillary industry involvement types. | See above under “Description of Business”.<br><br> <br><br><br> <br>See below under “U.S. Regulatory Matters” |
| Prominently state that marijuana is illegal under US federal law and that enforcement<br> of relevant laws is a significant risk | See above |
| Discuss any statements and other available guidance made by federal authorities or<br> prosecutors regarding the risk of enforcement action in any jurisdiction where the<br> issuer conducts U.S. marijuana-related activities. | See below under “U.S. Regulatory Matters”<br><br> <br><br><br> <br>See the following risk factors included in the Company’s Listing Statement available on www.sedarplus.ca:<br><br> <br><br><br> <br>Section 17 – Risk Factors – Grown Rogue’s Business is Illegal under U.S. Federal Law<br><br> <br><br><br> <br>Section 17 – Risk Factors – Because marijuana is illegal under federal law, investing in cannabis<br> business could be found to violate the Federal CSA |
| Outline related risks including, among others, the risk that third party service providers<br> could suspend or withdraw services and the risk that regulatory bodies could impose<br> certain restrictions on the issuer’s ability to operate in the U.S. | See the following risk factors included in the Company’s Listing Statement available on www.sedarplus.ca:<br><br> <br><br><br> <br>Section 17 – Risk Factors – Grown Rogue’s Business is Illegal under U.S. Federal Law<br><br> <br><br><br> <br>Section 17 – Risk Factors – Because marijuana is illegal under federal law, investing in cannabis<br> business could be found to violate the Federal CSA<br><br> <br><br><br> <br>Section 17 – Risk Factors – Risks Relating to Other Laws and Regulations<br><br> <br><br><br> <br>Section 17 – Risk Factors – Current and Future Consumer Protection Regulatory Requirements<br><br> <br><br><br> <br>Section 17 – Risk Factors – Operational Risks<br><br> <br><br><br> <br>Section 17 – Risk Factors – Grown Rogue will not be able to deduct many normal business expenses<br><br> <br><br><br> <br>Section 17 – Risk Factors – External Factors<br><br> <br><br><br> <br>Section 17 – Risk Factors – Failure to Protect Intellectual Property<br><br> <br><br><br> <br>Section 17 – Risk Factors – Agricultural Operations<br><br> <br><br><br> <br>Section 17 – Risk Factors – Liability, Enforcement Complaints etc.<br><br> <br><br><br> <br>Section 17 – Risk Factors – Grown Rogue’s business is highly regulated and it may not be issued necessary licenses, permits,<br> and cards<br><br> <br><br><br> <br>Section 17 – Risk Factors – Licenses<br><br> <br><br><br> <br>Section 17 – Risk Factors – Local Laws and Ordinances |
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| All Issuers with US Marijuana-Related Activities | Response |
|---|---|
| Section 17 – Risk Factors – Third party service providers to Grown Rogue may withdraw or suspend their service<br><br> <br><br><br> <br>Section 17 – Risk Factors – Grown Rogue may not be able to obtain or maintain a bank account<br><br> <br><br><br> <br>Section 17 – Risk Factors – Grown Rogue’s contracts may be unenforceable and property may be subject to seizure<br><br> <br><br><br> <br>Section 17 – Risk Factors – The protections of US bankruptcy law may be unavailable<br><br> <br><br><br> <br>Section 17 – Risk Factors – Grown Rogue may have a difficult time obtaining insurance which may<br> expose Grown Rogue to additional risk and financial liabilities<br><br> <br><br><br> <br>Section 17 – Risk Factors – Grown Rogue’s websites are accessible in jurisdictions where medicinal or recreational use of<br> marijuana is not permitted and, as a result Grown Rogue may be found to be violating<br> the laws of those jurisdictions<br><br> <br><br><br> <br>Section 17 – Risk Factors – The marijuana industry faces significant opposition in the United States | |
| Given the illegality of marijuana under US federal law, discuss the issuer’s ability to access both public and private capital and indicate what financing options<br> are/are not available in order to support continuing operations. | See above under “Description of Business”.<br><br> <br><br><br> <br>See the following risk factor included in the Company’s Listing Statement available on www.sedarplus.ca:<br><br> <br><br><br> <br>Section 17 – Risk Factors – Grown Rogue may not be able to obtain or maintain a bank account |
| Quantify the issuer’s balance sheet and operating statement exposure to U.S. marijuana-related activities. | 100% of Grown Rogue’s balance sheet and operating statements are exposed to U.S. marijuana-related activities. |
| Disclose if legal advice has not been obtained, either in the form of a legal opinion<br> or otherwise, regarding (a) compliance with applicable state regulatory frameworks<br> and (b) potential exposure and implications arising from U.S. federal law. | Grown Rogue has received legal advice from multiple attorneys regarding (a) compliance<br> with applicable state regulatory frameworks and (b) potential exposure and implications<br> arising from U.S. federal law. |
| Federal CSA Requirement – US Marijuana Issuers with direct involvement in cultivation or distribution | Response |
| Outline the regulations for U.S. states in which the issuer operates and confirm how<br> the issuer complies with applicable licensing requirements and the regulatory framework<br> enacted by the applicable U.S. state. | See below under “U.S. Regulatory Matters” |
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| Federal CSA Requirement – US Marijuana Issuers with direct involvement in cultivation or distribution | Response |
|---|---|
| Discuss the issuer’s program for monitoring compliance with U.S. state law on an ongoing basis, outline<br> internal compliance procedures and provide a positive statement indicating that the<br> issuer is in compliance with U.S. state law and the related licensing framework. Promptly<br> disclose any non-compliance, citations or notices of violation which may have an impact<br> on the issuer’s license, business activities or operations. | See below under “U.S. Regulatory Matters”<br><br> <br><br><br> <br>See the following risk factors included in the Company’s Listing Statement available on www.sedarplus.ca:<br><br> <br><br><br> <br>Section 17 – Risk Factors – Grown Rogue’s Business is Illegal under U.S. Federal Law<br><br> <br><br><br> <br>Section 17 – Risk Factors – Risks Relating to Other Laws and Regulations<br><br> <br><br><br> <br>Section 17 – Risk Factors – Grown Rogue’s business is highly regulated and it may not be issued necessary licenses, permits,<br> and cards<br><br> <br><br><br> <br>Section 17 – Risk Factors – Licenses<br><br> <br><br><br> <br>Section 17 – Risk Factors – Liability, Enforcement Complaints etc. |
| U.S. Marijuana Issuers with indirect involvement in cultivation or distribution | Response |
| Outline the regulations for U.S. states in which the issuer’s investee(s) operate. | N/A |
| Provide reasonable assurance, through either positive or negative statements, that<br> the investee’s business is in compliance with applicable licensing requirements and the regulatory<br> framework enacted by the applicable U.S. state. Promptly disclose any non-compliance,<br> citations or notices of violation, of which the issuer is aware, that may have an<br> impact on the investee’s licence, business activities or operations. | N/A |
| U.S. Marijuana Issuers with material ancillary involvement | Response |
| Provide reasonable assurance, through either positive or negative statements, that<br> the applicable customer’s or investee’s business is in compliance with applicable licensing requirements and the regulatory<br> framework enacted by the applicable U.S. state. | N/A |
U.S. Regulatory Matters
Grown Rogue (through its subsidiaries) has direct involvement in the cultivation and distribution of marijuana in the United States. Grown Rogue and its subsidiaries are primarily involved in the U.S. marijuana industry as a seed to retail company with operations currently in Oregon (a state that has legalized recreational marijuana). Currently Grown Rogue through its subsidiaries produces recreational marijuana and distributes it to dispensaries throughout Oregon.
Producing, manufacturing, processing, possessing, distributing, selling, and using marijuana is a federal crime in the United States. The United States federal government regulates drugs through the Federal CSA, which places controlled substances, including cannabis, on one of five schedules. Cannabis is currently classified as a Schedule I controlled substance, which is viewed as having a high potential for abuse and having no currently accepted medical use in treatment in the United States. No prescriptions may be written for Schedule I substances, and such substances are subject to production quotas imposed by the United States Drug Enforcement Administration (the “DEA”). Schedule I drugs are the most tightly restricted category of drugs under the Federal CSA.
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State and territorial laws that allow the use of medical cannabis or legalize cannabis for adult recreational use are in conflict with the Federal CSA, which makes cannabis use and possession illegal at the federal level. Because cannabis is a Schedule I controlled substance, however, the development of a legal cannabis industry under the laws of these states is in conflict with the Federal CSA, which makes cannabis use and possession illegal on a federal level. Additionally, the Supremacy Clause of the United States Constitution establishes that the Constitution, federal laws made pursuant to the Constitution, and treaties made under the Constitution’s authority constitute the supreme law of the land. The Supremacy Clause provides that state courts are bound by the supreme law; in case of conflict between federal and state law, including Oregon and other state law legalizing certain cannabis uses, the federal law must be applied.
Until Congress amends the Federal CSA with respect to marijuana use, there is a risk that federal authorities may enforce current federal law against companies such as Grown Rogue for violation of federal law or they may seek to bring an action or actions against Grown Rogue and/or its investors for violation of federal law or otherwise, including, but not limited to, a claim against investors for aiding and abetting another’s criminal activities. The US federal aiding and abetting statute provides that anyone who commits an offense against the United States or aids, abets, counsels, commands, induces or procures its commission, is punishable as a principal. Additionally, even if the U.S. federal government does not prove a violation of the Federal CSA, the U.S. federal government may seize, through civil asset forfeiture proceedings, certain assets such as equipment, real estate, moneys and proceeds, or your assets as an investor in the Company, if the U.S. federal government can prove a substantial connection between these assets or your investment and marijuana distribution or cultivation.
Because many states in the United States have approved certain medical or recreational uses of cannabis, the U.S. Department of Justice, through the Cole Memorandum, had previously described a set of priorities for federal prosecutors operating in states that had legalized the medical or other adult use of cannabis. The Cole Memorandum represented a significant shift in U.S. federal government priorities away from strict enforcement of federal cannabis prohibition.
However, the Cole Memorandum was merely a directive regarding enforcement and did not overturn or invalidate the Federal CSA or any other federal law or regulation.
The Cole Memorandum was rescinded in January 2018 by Jeff Sessions, the former U.S. Attorney General, who deemed it “unnecessary”. This is based on Mr. Sessions’s belief, which was also expressed in the Cole Memorandum that each state’s federal prosecutor should “follow the well-established principles that govern all federal prosecutions. These principles require federal prosecutors deciding which cases to prosecute to weigh all relevant considerations, including federal law enforcement priorities set by the Attorney General, the seriousness of the crime, the deterrent effect of criminal prosecution, and the cumulative impact of particular crimes on the community.” The rescission of the Cole Memorandum, and comments made publicly by Mr. Sessions and other members of the Trump Administration, signal a significant shift by the U.S. federal government back to more strict enforcement of federal law.
On January 4, 2018, Billy J. Williams, the former United States Attorney for the District of Oregon and former Multnomah County (Oregon) Deputy District Attorney who handled major violent crimes and later served as a Chief of the Violent Crimes Unit and as the Indian Country AUSA/Tribal Liaison for the Department of Justice prior to being appointed as the federal prosecutor for Oregon, Mr. Williams provided the below statement on marijuana enforcement in the District of Oregon: “As noted by Attorney General Sessions, today’s memo on marijuana enforcement directs all U.S. Attorneys to use the reasoned exercise of discretion when pursuing prosecutions related to marijuana crimes. We will continue working with our federal, state, local and tribal law enforcement partners to pursue shared public safety objectives, with an emphasis on stemming the overproduction of marijuana and the diversion of marijuana out of state, dismantling criminal organizations and thwarting violent crime in our communities.”
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In an editorial published on January 12, 2018, Mr. Williams wrote: “In sum, I have significant concerns about the state’s current regulatory framework and the resources allocated to policing marijuana in Oregon.”
At a meeting on February 2, 2018, Mr. Williams told Oregon’s top politicians and law enforcement officials that there’s more cannabis being produced in the state than can legally be consumed. “And make no mistake about it, we’re going to do something,” Williams told dozens of politicians, tribal leaders, sheriffs as well as representatives of the FBI and the U.S. Drug Enforcement Administration. “Here’s what I know, in terms of the landscape here in Oregon: We have an identifiable and formidable marijuana over-production and diversion problem,” Williams said. “That’s the fact. My responsibly is to work with our state partners to do something about it.”
On January 12, 2024, the U.S. Department of Health and Human Services released hundreds of pages of documents explaining that cannabis “has a currently accepted medical use in treatment in the United States” and has a “potential for abuse less than the drugs or other substances in Schedules I and II.” This is the first time that U.S. Department of Health and Human Services has recommended the DEA place cannabis in Schedule III of the Federal CSA.
Because producing, manufacturing, processing, possessing, distributing, selling, and using marijuana is illegal under U.S. federal law, investing in cannabis business could be found to violate the Federal CSA. As a result, individuals involved with cannabis business, including but not limited to investors and lenders, may be indicted under U.S. federal law. An investment in the Company may: (a) expose an investor personally to criminal liability under U.S. federal law, resulting in monetary fines and jail time; and (b) expose any real and personal property used in connection with Grown Rogue’s business to seizure and forfeiture to the U.S. federal government.
Active enforcement of the current federal law on cannabis may thus directly and adversely affect revenues and profits of Grown Rogue. The risk of strict enforcement of the Federal CSA remains uncertain.
U.S. Federal Laws Applicable to Banking
Because producing, manufacturing, processing, possessing, distributing, selling, and using marijuana is a crime under the Federal CSA, most U.S. banks and other financial institutions are unwilling to provide banking services to marijuana businesses due to concerns about criminal liability under the Federal CSA as well as concerns related to federal money laundering rules under the U.S. Bank Secrecy Act. Canadian banks are also hesitant to deal with cannabis companies, due to the uncertain legal and regulatory framework of the industry. Banks and other financial institutions could be prosecuted and possibly convicted of money laundering for providing services to cannabis businesses.
Under U.S. federal law, banks or other financial institutions that provide a cannabis business with a checking account, debit or credit card, small business loan, or any other service could be found guilty of money laundering or conspiracy. In both Canada and the United States transactions by cannabis businesses involving banks and other financial institutions are both difficult and unpredictable under the current legal and regulatory landscape. Though guidelines issued in past years allow financial institutions to provide bank accounts to certain cannabis businesses, few U.S. banks have taken advantage of those guidelines and many U. S. cannabis businesses still operate on an all-cash basis.
Oregon State Regulation
The Oregon Medical Marijuana Program (“OMMP”) is a state registry program within the Public Health Division, Oregon Health Authority (“OHA”). The role of the OHA is to administer the Oregon Medical Marijuana Act. The OMMP allows individuals with a medical history of one or more qualifying illnesses and a doctor’s written statement to apply for registration with the OMMP. Qualified applicants are issued a medical marijuana card that entitles them to legally possess and cultivate cannabis, subject to certain limitations.
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On November 4, 2014, Oregon voters passed Measure 91, known as the Control, Regulation, and Taxation of Marijuana and Industrial Hemp Act (the “Act”), effectively ending the state’s prohibition of recreational marijuana and legalizing the possession, use, and cultivation of marijuana within legal limits by adults 21 years and older. The Act did not amend or effect the Oregon Medical Marijuana Act and the OMMP. The Act empowered the Oregon Liquor Control Commission (“OLCC”) with regulating sales of recreational marijuana in Oregon. It is possible that the voters could potentially repeal the law that permits both the medical and recreational marijuana industry to operate under state law.
Under current Oregon law, possession and home cultivation by adults at least 21 years old is allowed within legal limits. Public sales of marijuana and marijuana products may be done only through licensed retailers. The OLCC has the authority to decide how many licenses to allow in a specific area or location and may refuse granting a license if there are reasonable grounds to believe there are sufficient licenses in the area or if the granting of a license is not demanded by public interest or convenience. The OLCC may disqualify applicants for a number of reasons, including for lacking a good moral character, for lacking sufficient financial resources or responsibility, for relevant past convictions, and for using marijuana, alcohol, or drugs “to excess.”
Grown Rogue has a comprehensive compliance program, which tracks all aspects of operations through the METRC program (an online software tool mandated through the State of Oregon that tracks seed to retail purchases), as well as compliance with all state and federal employment and other safety regulations.
Grown Rogue is periodically advised by various outside attorneys about the requirements for compliance with Oregon law.
Grown Rogue is in compliance with Oregon state law and its related licensing framework.
Michigan State Regulation
In November 2008, Michigan residents approved the Michigan Medical Marihuana Act (the “MMMA”) to provide a legal framework for a safe and effective medical marijuana program. In September 2016, the Michigan Senate passed the Medical Marihuana Facilities Licensing Act (the “MMFLA”) and the Marihuana Tracking Act (the “MTA” and together with the MMMA and the MMFLA, the “Michigan Cannabis Regulations”) to provide a comprehensive licensing and tracking scheme, respectively, for the medical marijuana program. Additionally, the Michigan Department of Licensing and Regulatory Affairs and its licensing board (“LARA”) has supplemented the Michigan Cannabis Regulations with “Emergency Rules” to further clarify the regulatory landscape surrounding the medical marijuana program. LARA is the main regulatory authority for the licensing of marijuana businesses.
Under the MMFLA, LARA administrates five types of “state operating licenses” for medical marijuana businesses: (a) a “grower” license, (b) a “processor” license, (c) a “secure transporter” license, (d) a “provisioning center” license and (e) a “safety compliance facility” license. There are no stated limits on the number of licenses that can be made available on a state level; however, LARA has discretion over the approval of applications and municipalities can pass additional restrictions.
On November 6, 2018, Michigan voters approved Proposal 1, to make marihuana legal under state and local law for adults 21 years of age or older and to control the commercial production and distribution of marihuana under a system that licenses, regulates, and taxes the businesses involved. The act will be known as the Michigan Regulation and Taxation of Marihuana Act24. According to Proposal 1, LARA is required to art accepting applications for retail (recreational) dispensaries within 12 months of the measure’s effective date.
Grown Rogue has a comprehensive compliance program, which tracks all aspects of operations through the METRC program (an online software tool mandated through the State of Michigan that tracks seed to retail purchases), as well as compliance with all state and federal employment and other safety regulations.
Grown Rogue is periodically advised by various outside attorneys about the requirements for compliance with Michigan law.
Grown Rogue is in compliance with Michigan state law and its related licensing framework.
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Michigan License
State operating licenses for marijuana businesses have a 1 year term and are annually renewable if certain conditions are met: (a) the renewal application is submitted prior to the date the license expires, or within sixty (60) days of expiration if all other conditions are met and a late fee is paid, (b) the licensee pays the regulatory assessment fee set by LARA and (c) the licensee continues to meet the requirements to be a licensee under the Michigan Cannabis Regulations. Each renewal application is reviewed by LARA, but there is no guarantee of a timely renewal. There is no ultimate expiry after which no renewals are permitted.
Michigan Regulations
Michigan Marijuana Products may be purchased in a retail setting from a provisioning center by a registered qualified patient or registered primary caregivers connected to a registered qualifying patient (“Michigan Qualified Purchaser”); in each case, Michigan Qualified Purchasers must present a valid registry identification card issued by LARA (a “Michigan Registry ID”). For a Michigan Qualified Purchaser to receive Michigan Marijuana Products, provision centers must deploy an inventory control and tracking system that is capable of interfacing with the statewide monitoring system to determine (a) whether a Michigan Qualified Purchaser holds a Michigan Registry ID and (b) whether the sale or transfer will exceed the then-current daily and monthly purchasing limit for the holder of the Michigan Registry ID.
In order to receive a Michigan Registry ID, an applicant must provide: a completed application dated within one year of submission, a written certification from a physician with a bona-fide physician-patient relationship to the underlying patient, the application or renewal fee, contact information for the patient, caregiver (if applicable) and physician, as well as proof of Michigan residency.
For registered qualifying patients, the daily purchasing limit is 2.5 ounces, and for registered primary caregivers, the daily purchasing limit is 2.5 ounces per underlying registered qualifying patient that the registered primary caregiver is connected with through the registration process. Finally, the licensee shall verify in the statewide monitoring system that the sale or transfer does not exceed the monthly purchasing limit of ten (10) ounces of marihuana product per month to a qualifying patient, either directly or through the qualifying patient’s registered primary caregiver.
Allowable forms of medical marihuana includes smokable dried flower, dried flower for vaporizing and marihuana infused products, which are defined under the Act to include topical formulations, tinctures, beverages, edible substances or similar products containing usable marijuana that is intended for human consumption in a matter other than smoke inhalation. Under the Michigan Cannabis Regulations, marijuana-infused products shall not be considered food.
Qualifying conditions for the medical marijuana program in Michigan are the following:
| ● | Cancer, glaucoma, positive status for human immunodeficiency virus, acquired immune deficiency syndrome, hepatitis C, amyotrophic lateral sclerosis, Crohn’s disease, agitation of Alzheimer’s disease, nail patella or the treatment of these conditions; |
|---|---|
| ● | A chronic or debilitating disease or medical condition or its treatment that produces<br> 1 or more of the following: cachexia or wasting syndrome; severe and chronic pain; severe nausea;<br> seizures, including but not limited to those characteristic of epilepsy; or severe and persistent<br> muscle spasms, including but not limited to those characteristic of multiple sclerosis; |
| --- | --- |
| ● | Post-Traumatic Stress Disorder (PTSD); and/or |
| --- | --- |
| ● | Any other medical condition or its treatment approved by the department under the<br> Michigan Cannabis Regulations. |
| --- | --- |
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Reporting Requirements
Pursuant to the requirements of the MTA, Michigan selected Franwell’s METRC software as the state’s third-party solution for integrated marijuana industry verification. Using METRC, regulators are able to track third party inventory, permissible sales and seed-to-sale information. Additionally, provisioning centers can use the METRC API to connect their own inventory management and/or point-of-sale systems to verify the identity as well as permissible sales for Michigan Qualified Purchasers.
Storage and Security
To ensure the safety and security of cannabis business premises and to maintain adequate controls against the diversion, theft, and loss of cannabis or cannabis products, a provisioning center is required to:
Maintain and submit a security operations plan that includes the following at a minimum:
| ● | Escorts for all non-employee personnel in limited access areas. |
|---|---|
| ● | Secure locks for all interior rooms, windows and points of entry and exits with commercial<br> grade, nonresidential door locks. |
| --- | --- |
| ● | An alarm system. Licensees will make all information related to the alarm system including monitoring and alarm activity available to LARA. |
| --- | --- |
| ● | A video surveillance system that, at a minimum, consists of digital or network video<br> recorders, cameras, video monitors, digital archiving devices and a color printer capable of<br> delivering still photos. |
| --- | --- |
| ● | 24-hour surveillance footage with fixed, mounted cameras, tamper/theft proof secured<br> storage mediums and a notification system for interruption or failure of surveillance footage<br> or storage of surveillance footage. All surveillance footage must be of sufficient resolution to<br> identify individuals, have accurate time/date stamps and be stored for a minimum of 14 days unless state<br> regulators notify that such recordings may be destroyed. |
| --- | --- |
| ● | State access to view and obtain copies of any surveillance footage through LARA or<br> related investigators, agents, auditors and/or state police. A facility shall also provide<br> copies of recordings to LARA upon request. |
| --- | --- |
| ● | Logs of the following: the identities of the employee or employees responsible for monitoring the video surveillance system, the identity of the employee who removed the recording from the video surveillance<br> system storage device and the time and date removed and the identity of the employee who destroyed any recording. |
| --- | --- |
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Maintain marijuana storage plan for provisioning centers that includes the following at a minimum:
| ● | A secured limited access area for inventories of Michigan Marijuana Products. |
|---|---|
| ● | Clearly labeled containers (a) marked, labeled or tagged, (b) enclosed on all sides<br> and (c) latched or locked to keep all contents secured within. All such containers must be identified<br> and tracked in accordance with the MTA. |
| --- | --- |
| ● | A locked area for chemical and solvents separate from Michigan Marijuana Products. |
| --- | --- |
| ● | Separation of marijuana-infused products from toxic or flammable materials. |
| --- | --- |
| ● | A sales or transfer counter or barrier separated from stock rooms to ensure registered<br> qualifying patients or registered primary caregivers do not have direct access to Michigan Marijuana<br> Products. |
| --- | --- |
There are significant risks associated with the business of the Company, as described above and in Section 17 – Risk Factors of the Company’s Listing Statement as filed on www.sedarplus.ca. Readers are strongly encouraged to carefully read all of the risk factors contained in Section 17 – Risk Factors of the Company’s Listing Statement.
Internal Control over Financial Reporting and Disclosure Controls
Management, including the President and CEO and the CFO, is responsible for designing, establishing, and maintaining a system of ICFR to provide reasonable assurance that all information prepared by the Company for external purposes is reliable and timely. Internal control over financial reporting is designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of the consolidated financial statements for external purposes in accordance with IFRS.
The Company’s internal control over financial reporting includes those policies and procedures that (i) pertain to the maintenance of records that, in reasonable detail, accurately reflect the transactions of the Company; (ii) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with IFRS, and that receipts and expenditures of the Company are being made only in accordance with authorizations of management and directors of the Company; and (iii) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use or disposition of the Company’s assets that could have a material effect on the Company’s consolidated financial statements. Due to its inherent limitations, internal control over financial reporting and disclosure may not prevent or detect all misstatements.
The CEO and CFO have evaluated whether there were changes to the ICFR during the year ended October 31, 2023, that have materially affected, or are reasonably likely to materially affect, the ICFR. As a result, no such significant changes were identified through their evaluation.
There have been no material changes in the Company’s internal control over financial reporting during the year ended October 31, 2023, that have materially affected, or are reasonably likely to materially affect, internal control over financial reporting.
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Exhibit 45
FORM52-109FV1
CERTIFICATION OF ANNUALFILINGSVENTURE ISSUER BASIC CERTIFICATE
I, Ryan Kee, Chief Financial Officer and Corporate Secretary of Grown Rogue International Inc., certify the following:
| 1. | Review: I have reviewed the AIF, if any, annual financial statements and annual MD&A,<br> including, for greater certainty, all documents and information that are incorporated by<br> reference in the AIF (together, the “annual filings”) of Grown Rogue International<br> Inc. (the “issuer”) for the financial year ended October 31, 2023. |
|---|
| 2. | No misrepresentations: Based on my knowledge, having exercised reasonable diligence,<br> the annual filings do not contain any untrue statement of a material fact or omit to state<br> a material fact required to be stated or that is necessary to make a statement not misleading<br> in light of the circumstances under which it was made, for the period covered by the annual<br> filings. |
|---|
| 3. | Fair presentation: Based on my knowledge, having exercised reasonable diligence, the annual<br> financial statements together with the other financial information included in the annual<br> filings fairly present in all material respects the financial condition, financial performance<br> and cash flows of the issuer, as of the date of and for the periods presented in the annual<br> filings. |
|---|
Date: February 28, 2024.
| (signed) “Ryan Kee” | ||
|---|---|---|
| Name: | Ryan Kee | |
| Title: | Chief Financial Officer | |
| and Corporate Secretary | ||
| Note to Reader | ||
| --- | --- | --- |
| In<br> contrast to the certificate required for non-venture issuers under National Instrument 52-109<br> Certification of Disclosure in Issuers’ Annual and Interim Filings (NI 52-109),<br> this Venture Issuer Basic Certificate does not include representations relating to the establishment<br> and maintenance of disclosure controls and procedures (DC&P) and internal control over<br> financial reporting (ICFR), as defined in NI 52-109. In particular, the certifying officers<br> filing this certificate are not making any representations relating to the establishment<br> and maintenance of | ||
| i) | controls and other procedures designed to provide reasonable assurance that information required to be disclosed by the issuer in<br> its annual filings, interim filings or other reports filed or submitted under securities legislation is recorded, processed,<br> 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<br> statements for external purposes in accordance with the issuer’s GAAP. | |
| The<br> issuer’s certifying officers are responsible for ensuring that processes are in place<br> to provide them with sufficient knowledge to support the representations they are making<br> in this certificate. Investors should be aware that inherent limitations on the ability of<br> certifying officers of a venture issuer to design and implement on a cost effective basis<br> DC&P and ICFR as defined in NI 52-109 may result in additional risks to the quality,<br> reliability, transparency and timeliness of interim and annual filings and other reports<br> provided under securities legislation. |
Exhibit 46
FORM52-109FV1
CERTIFICATION OF ANNUALFILINGSVENTURE ISSUER BASIC CERTIFICATE
I, J. Obie Strickler, President and Chief Executive Officer of Grown Rogue International Inc., certify the following:
| 1. | Review: I have reviewed the AIF, if any, annual financial statements and annual MD&A,<br> including, for greater certainty, all documents and information that are incorporated by<br> reference in the AIF (together, the “annual filings”) of Grown Rogue International<br> Inc. (the “issuer”) for the financial year ended October 31, 2023. |
|---|
| 2. | No misrepresentations: Based on my knowledge, having exercised reasonable diligence,<br> the annual filings do not contain any untrue statement of a material fact or omit to state<br> a material fact required to be stated or that is necessary to make a statement not misleading<br> in light of the circumstances under which it was made, for the period covered by the annual<br> filings. |
|---|
| 3. | Fair presentation: Based on my knowledge, having exercised reasonable diligence, the annual<br> financial statements together with the other financial information included in the annual<br> filings fairly present in all material respects the financial condition, financial performance<br> and cash flows of the issuer, as of the date of and for the periods presented in the annual<br> filings. |
|---|
Date: February 28, 2024.
| (signed) “Obie Strickler” | ||
|---|---|---|
| Name: | J. Obie Strickler | |
| Title: | President and<br><br> Chief Executive Officer | |
| Note to Reader | ||
| --- | --- | --- |
| In<br> contrast to the certificate required for non-venture issuers under National Instrument 52-109<br> Certification of Disclosure in Issuers’ Annual and Interim Filings (NI 52-109),<br> this Venture Issuer Basic Certificate does not include representations relating to the establishment<br> and maintenance of disclosure controls and procedures (DC&P) and internal control over<br> financial reporting (ICFR), as defined in NI 52-109. In particular, the certifying officers<br> filing this certificate are not making any representations relating to the establishment<br> and maintenance of | ||
| i) | controls and other procedures designed to provide reasonable assurance that information required to be disclosed by the issuer in<br> its annual filings, interim filings or other reports filed or submitted under securities legislation is recorded, processed,<br> 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<br> statements for external purposes in accordance with the issuer’s GAAP. | |
| The<br> issuer’s certifying officers are responsible for ensuring that processes are in place<br> to provide them with sufficient knowledge to support the representations they are making<br> in this certificate. Investors should be aware that inherent limitations on the ability of<br> certifying officers of a venture issuer to design and implement on a cost effective basis<br> DC&P and ICFR as defined in NI 52-109 may result in additional risks to the quality,<br> reliability, transparency and timeliness of interim and annual filings and other reports<br> provided under securities legislation. |
Exhibit 47
Grown Rogue Reports Fiscal 2023 Results
| ● | Revenue of $23.4M compared to $17.8M in 2022, an increaseof 32% |
|---|---|
| ● | Operating Cash Flow (OCF), before changes in working capital(WC), of $6.4M compared to $3.2M in 2022, an increase of 102% |
| --- | --- |
| ● | Free Cash Flow^1^ (FCF) of $2.8M, after maintenanceand growth investments of $3.5M |
| --- | --- |
| ● | Announced a strategic advisory agreement with Goodness GrowthHoldings to focus on improving quality, yields, and efficiencies in their Minnesota and Maryland operations |
| --- | --- |
| ● | Announced entry into the attractive New Jersey market, withconstruction nearing completion and on track to be completed in Q2 2024, with sales expected in Q3 2024 |
| --- | --- |
| ● | Augmented New Jersey presence with a retail investment incollaboration with Bengal Capital to invest in the operations of an adult-use dispensary in West New York, New Jersey |
| --- | --- |
| ● | Closed three tranches of convertible debentures for totalgross proceeds of $8.0M |
| --- | --- |
Medford, Oregon, February 29, 2024 – Grown Rogue International Inc. (“Grown Rogue” or the “Company”) (CSE: GRIN) (OTC: GRUSF), a craft cannabis company born from the amazing terroir of Oregon’s Rogue Valley, is pleased to report its audited 2023 results for the twelve months ended October 31, 2023. All financial information is provided in U.S. dollars unless otherwise indicated.
Fiscal 2023 Financial Summary ($USD Millions)
| Fiscal 2023 Summary | 2023 | 2022 | +/- % | ||||||
|---|---|---|---|---|---|---|---|---|---|
| Revenue | 23.4 | 17.8 | +32 | % | |||||
| aEBITDA | 7.6 | 5.1 | +50 | % | |||||
| aEBITDA % | 32.7 | % | 28.7 | % | +400 bps | ||||
| OCF (Before Changes in WC) | 6.4 | 3.2 | +102 | % | |||||
| OCF % | 27.4 | % | 17.9 | % | +950 bps |
Management Commentary
“We are pleased to announce another record year at Grown Rogue, highlighted by continued strong performance in our core markets of Oregon and Michigan, and in our new advisory agreement with Goodness Growth. Our year-over-year revenue and operating cash flow growth of 32% and 102%, respectively, shows our ability to profitably scale our business, our commitment to controlling costs through the growth cycle, and our focus on high quality cannabis products that delight our consumers,” said Obie Strickler, CEO of Grown Rogue. “Our operational performance combined with our ability to raise $8 million in reasonably priced convertible debt, underscores my confidence in our ability to be successful in New Jersey and beyond.”
“We are pleased with the construction progress in New Jersey and continue to believe this is an incredibly compelling return on our capital and capabilities. We are particularly excited to soon be bringing Oregon quality cannabis to the great people of New Jersey.
We also recently announced a retail investment in New Jersey to augment our cultivation facility in that market. We are excited to be collaborating with Nile and Bengal in this investment to allow us to expand outside of our core competency without taking too much capital or bandwidth, and continue to look for similar opportunities to sponsor aligned New Jersey retail in the future. This allows us access to shelf space for our branded flower products and earn additional profits within the highly attractive New Jersey market, while continuing our meticulous focus on producing affordable, craft-quality flower,” continued Mr. Strickler.
“Our 2024 corporate objectives remain unchanged from 2023: continued operational improvements, launching in New Jersey, and identifying and executing our next expansion project. We continue to refine our production, genetics, and efficiencies in our markets, drive increases in quality and yield for Goodness Growth, and gain market share in our new packaged products in Michigan and Oregon. We are also looking to expand into at least one additional market should we find an opportunity that fits our criteria, and we are in some advanced discussions on this front.
I want to personally thank the entire Grown Rogue team, our shareholders, and our customers for the continued support to help Grown Rogue achieve our goal of becoming the first nationally recognized craft cannabis company in the U.S.”
Oregon Market Highlights ($USD Millions)
| Oregon | 2023 | 2022 | +/- % | ||||||
|---|---|---|---|---|---|---|---|---|---|
| Revenue | 11.0 | 8.9 | +24 | % | |||||
| aEBITDA | 3.8 | 2.6 | +49 | % | |||||
| aEBITDA Margin % | 34.7 | % | 29.0 | % | +570 bps | ||||
| ● | #1 Flower brand and #3 brand overall in 2023, according toLeafLink’s MarketScape data, and #1 flower brand for ten consecutive quarters | ||||||||
| --- | --- | ||||||||
| ● | Total harvested wet weights for the state of Oregon decreased0% YoY for indoor, 3% YoY for mixed, and increased 1% YoY for outdoor, according to the Oregon Liquor and Cannabis Commission (OLCC)for calendar year 2023 | ||||||||
| --- | --- | ||||||||
| ● | Increased Oregon sungrown capacity with a lease option of35 acres in Medford | ||||||||
| --- | --- | ||||||||
| ● | Launched Grown Rogue and Yeti branded pre-roll packs thatare exceeding internal expectations | ||||||||
| --- | --- |
2
Michigan Market Highlights ($USD Millions)
| Michigan | 2023 | 2022 | +/- % | ||||||
|---|---|---|---|---|---|---|---|---|---|
| Revenue | 11.4 | 8.9 | +28 | % | |||||
| aEBITDA | 5.1 | 3.9 | +30 | % | |||||
| aEBITDA Margin % | 44.2 | % | 43.8 | % | +40 bps | ||||
| ● | Released strain specific packaging and Yeti pre-rolls thathas pushed pre-packaged product mix to 40% of sales in Q4 and has led to an increase in pricing and brand awareness | ||||||||
| --- | --- | ||||||||
| ● | Sales in Michigan in December 2023 was a new recordat $280M, and sales in 2023 were over $3.0B, the second market in the U.S to reach that milestone | ||||||||
| --- | --- | ||||||||
| ● | Grown Rogue exercised its option and acquired 87% of CanopyManagement, LLC resulting in its controlling interest in Golden Harvests, LLC | ||||||||
| --- | --- |
Michigan operations are through Golden Harvests, LLC.
Financial Statements and aEBITDA reconciliation
| CONSOLIDATED STATEMENTS OF FINANCIAL POSITION | October 31,<br> 2023 | **** | October 31,<br> 2022 | **** |
|---|---|---|---|---|
| ASSETS | ||||
| Current assets | ||||
| Cash and cash equivalents | ||||
| Accounts receivable (Note 18) | ||||
| Biological assets (Note 3) | ||||
| Inventory (Note 4) | ||||
| Prepaid expenses and other assets | ||||
| Total current assets | ||||
| Property and equipment (Note 8) | ||||
| Notes receivable (Notes 6.2.1 and 6.2.2) | ||||
| Warrants asset (Note 13.2) | ||||
| Intangible assets and goodwill (Note 9) | ||||
| Deferred tax asset (Note 20) | ||||
| TOTAL ASSETS | ||||
| LIABILITIES | ||||
| Current liabilities | ||||
| Accounts payable and accrued liabilities | ||||
| Current portion of lease liabilities (Note 7) | ||||
| Current portion of long-term debt (Note 10) | ||||
| Business acquisition consideration payable (Note 5) | ||||
| Unearned revenue | ||||
| Derivative liability (Notes 11.1.1, 11.2 and 11.2.1) | ||||
| Income tax payable | ||||
| Total current liabilities | ||||
| Lease liabilities (Note 7) | ||||
| Long-term debt (Note 10) | ||||
| Convertible debentures (Notes 11.1, 11.2 and 11.2.1) | ||||
| TOTAL LIABILITIES | ||||
| EQUITY | ||||
| Share capital (Note 12) | ||||
| Shares issuable (Note 12) | ||||
| Contributed surplus (Notes 13 and 14) | ||||
| Accumulated other comprehensive loss | ) | ) | ||
| Accumulated deficit | ) | ) | ||
| Equity atributable to shareholders | ||||
| Non-controlling interests (Note 23) | ||||
| TOTAL EQUITY | ||||
| TOTAL LIABILITIES AND EQUITY |
All values are in US Dollars.
3
| CONSOLIDATED STATEMENTS OF INCOME & LOSS AND COMPREHENSIVEINCOME & LOSS | Years ended<br> October 31, | |||
|---|---|---|---|---|
| 2023 | 2022 | |||
| Revenue | ||||
| Product sales (Note 2.5) | ||||
| Service revenue (Note 2.5.1) | ||||
| Total revenue | ||||
| Cost of goods sold | ||||
| Cost of finished cannabis inventory sold | ) | ) | ||
| Costs of service revenue | ) | |||
| Gross profit, excluding fair value items | ||||
| Realized fair value amounts in inventory sold | ) | ) | ||
| Unrealized fair value gain on growth of biological assets | ||||
| Gross profit | ||||
| Expenses | ||||
| Accretion expense | ||||
| Amortization of property and equipment | ||||
| General and administrative | ||||
| Share-based compensation | ||||
| Total expenses | ||||
| Income from operations | ||||
| Other income and (expense) | ||||
| Interest expense | ) | ) | ||
| Other income (expense) | ) | |||
| Gain on debt settlement | ||||
| Unrealized loss on marketable securities | ) | |||
| Unrealized loss on derivative liability | ) | |||
| Unrealized gain on warrants asset | ||||
| Loss on disposal of property and equipment | ) | ) | ||
| Total other expense, net | ) | ) | ||
| Gain (loss) from operations before taxes | ) | |||
| Income tax (Note 20) | ) | ) | ||
| Net income (loss) | ) | |||
| Other comprehensive income (items<br> that may be subsequently reclassified to profit & loss) | ||||
| Currency translation loss | ) | ) | ||
| Total comprehensive income (loss) | ) | |||
| Gain (loss) per share atributable to owners of the parent – basic and diluted | ) | |||
| Weighted average shares outstanding – basic and diluted | ||||
| Net income (loss) for the period atributable to: | ||||
| Non-controlling interest | ) | ) | ||
| Shareholders | ) | |||
| Net income (loss) | ) | |||
| Comprehensive income (loss) for the period atributable to: | ||||
| Non-controlling interest | ) | ) | ||
| Shareholders | ) | |||
| Total comprehensive income (loss) | ) |
All values are in US Dollars.
4
| CONSOLIDATED STATEMENTS OF CASH FLOWS | Years<br> ended<br> October 31, | **** | ||
|---|---|---|---|---|
| 2023 | 2022 | |||
| Operating activities | ||||
| Net income (loss) | ) | |||
| Adjustments for non-cash items in net income (loss): | ||||
| Amortization of property and equipment | ||||
| Amortization of property and<br> equipment included in costs of inventory sold | ||||
| Unrealized gain on changes in fair value of biological assets | ) | ) | ||
| Changes in fair value of inventory sold | ||||
| Deferred income taxes | ) | |||
| Share-based compensation | ||||
| Stock option expense | ||||
| Accretion expense | ||||
| Loss on disposal of property and equipment | ||||
| Gain on debt settlement | ) | |||
| Unrealized loss on marketable securities | ||||
| Loss on fair value of derivative liability | ||||
| Gain on warrants asset | ) | |||
| Effects of foreign exchange | ) | |||
| Changes in non-cash working capital (Note 15) | ) | ) | ||
| Net cash provided by operating activities | ||||
| Investing activities | ||||
| Purchase of property and equipment and intangibles | ) | ) | ||
| Cash advances and loans made to other parties | ) | |||
| Payments of acquisition payable | ) | |||
| Net cash used in investing activities | ) | ) | ||
| Financing activities | ||||
| Proceeds from convertible debentures | ||||
| Proceeds from long-term debt | ||||
| Proceeds from private placement | ||||
| Repayment of long-term debt | ) | ) | ||
| Repayment of convertible debentures | ) | |||
| Payments of lease principal | ) | ) | ||
| Net cash provided by (used in) financing activities | ) | |||
| Change in cash and cash equivalents | ||||
| Cash and cash equivalents, beginning | ||||
| Cash and cash equivalents, ending |
All values are in US Dollars.
5
SEGMENTED aEBITDA – YEAR ENDED OCTOBER 31, 2023
| Oregon | Michigan | Services | Corporate | Consolidated | |||||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
| Sales revenues | 11,001,261 | 11,422,908 | 929,016 | - | 23,353,185 | ||||||||||
| Costs of goods sold, excluding fair value (“FV”) adjustments | (6,386,002 | ) | (4,769,674 | ) | (308,641 | ) | - | (11,464,317 | ) | ||||||
| Gross profit before fair value adjustments | 4,615,259 | 6,653,234 | 620,375 | - | 11,888,868 | ||||||||||
| Net fair value adjustments | 644,180 | 138,466 | - | - | 782,646 | ||||||||||
| Gross profit | 5,259,439 | 6,791,700 | 620,375 | - | 12,671,514 | ||||||||||
| Operating expenses: | |||||||||||||||
| General and administration | 1,535,791 | 1,985,636 | - | 2,944,450 | 6,465,877 | ||||||||||
| Depreciation and amortization | 109,672 | 372,119 | - | 96,850 | 578,641 | ||||||||||
| Share based compensation | - | - | - | 346,113 | 346,113 | ||||||||||
| Other income and expense: | |||||||||||||||
| Loss on sale of assets | (168,144 | ) | (13,881 | ) | - | - | (182,025 | ) | |||||||
| Interest and accretion | (322,262 | ) | (207,299 | ) | - | (867,787 | ) | (1,397,348 | ) | ||||||
| Unrealized (loss) gain on derivative liability | - | - | - | (4,563,498 | ) | (4,563,498 | ) | ||||||||
| Unrealized (loss) gain on warrants asset | - | - | - | 129,113 | 129,113 | ||||||||||
| Other income and expense | 410,751 | 14,043 | - | 16,693 | 441,487 | ||||||||||
| Net income (loss) before income tax | 3,534,321 | 4,226,808 | 620,375 | (8,672,892 | ) | (291,388 | ) | ||||||||
| Income tax | - | 690,725 | - | (319,793 | ) | 370,932 | |||||||||
| Net income after tax | 3,534,321 | 3,536,083 | 620,375 | (8,353,099 | ) | (662,320 | ) | ||||||||
| Add back (deduct) from net income after tax: | |||||||||||||||
| Net FV adjustments in costs of goods sold | (644,180 | ) | (138,466 | ) | - | - | (782,646 | ) | |||||||
| Amortization of property &<br> equipment included in cost of sales | 1,089,280 | 668,392 | - | - | 1,757,672 | ||||||||||
| Interest and accretion expense | 322,262 | 207,299 | - | 867,787 | 1,397,348 | ||||||||||
| Amortization of property and equipment | 109,672 | 372,119 | - | 96,850 | 578,641 | ||||||||||
| Share-based compensation | - | - | - | 346,113 | 346,113 | ||||||||||
| Unrealized loss on derivative liability | - | - | - | 4,563,498 | 4,563,498 | ||||||||||
| Unrealized gain on warrants asset | - | - | - | (129,113 | ) | (129,113 | ) | ||||||||
| Income tax expense | - | 690,725 | - | (319,793 | ) | 370,932 | |||||||||
| EBITDA | 4,411,355 | 5,336,152 | 620,375 | (2,927,757 | ) | 7,440,125 | |||||||||
| Add back to EBITDA: | |||||||||||||||
| Compliance costs | - | - | - | 83,747 | 83,747 | ||||||||||
| Costs associated with acquisition of Golden Harvests | - | - | - | 110,000 | 110,000 | ||||||||||
| aEBITDA | 4,411,355 | 5,336,152 | 620,375 | (2,734,009 | ) | 7,633,872 | |||||||||
| aEBITDA margin % | 40.10 | % | 46.71 | % | 66.78 | % | - | 32.69 | % |
Free Cash Flow Reconciliation
| Net cash provided by operating activities | 5,729,351 | |
|---|---|---|
| Purchase of property and equipment and intangibles | (1,456,782 | ) |
| Cash advances and loans made to other parties | (1,430,526 | ) |
| Free Cash Flow | 2,842,043 |
NOTES:
| 1. | The Company’s “Free cash flow” metric is defined<br>by cash flow from operations minus capital expenditures and expansion related advances |
|---|---|
| 2. | The Company’s “aEBITDA,” or “Adjusted<br>EBITDA,” is a non-IFRS measure used by management that does not have any prescribed meaning by IFRS and that may not be comparable<br>to similar measures presented by other companies. The Company defines “EBITDA” as the Company’s net income or loss<br>for a period, as reported, before interest, taxes, depreciation and amortization, and is further adjusted to remove transaction costs,<br>stock-based compensation expense, accretion expense, gain (loss) on derecognition of derivative liabilities, the effects of fair-value<br>accounting for biological assets and inventory, as well as other non-cash items and items not representative of operational performance<br>as reported in net income (loss). Adjusted EBITDA is defined as EBITDA adjusted for the impact of various significant or unusual transactions.<br>The Company believes that this is a useful metric to evaluate its operating performance. |
6
NON-IFRS FINANCIAL MEASURES
EBITDA and aEBITDA are non-IFRS measures and do not have standardized definitions under IFRS. The Company has also provided unaudited pro-forma financial information, which assumes that closed and pending mergers and acquisitions in 2021 are included in the Company’s financial results as of the beginning of the quarterly and annual periods in 2021. The Company has provided the non-IFRS financial measures, which are not calculated or presented in accordance with IFRS, as supplemental information and in addition to the financial measures that are calculated and presented in accordance with IFRS. These supplemental non-IFRS financial measures are presented because management has evaluated the financial results both including and excluding the adjusted items and believe that the supplemental non-IFRS financial measures presented provide additional perspective and insights when analyzing the core operating performance of the business. These supplemental non-IFRS financial measures should not be considered superior to, as a substitute for or as an alternative to, and should only be considered in conjunction with, the IFRS financial measures presented herein. Accordingly, the following information provides reconciliations of the supplemental non-IFRS financial measures, presented herein to the most directly comparable financial measures calculated and presented in accordance with IFRS.
About Grown Rogue
Grown Rogue International Inc. (CSE: GRIN | OTC: GRUSF) is a craft cannabis company operating in Oregon, Michigan, Minnesota, Maryland, and New Jersey, focused on delighting customers with premium flower and flower-derived products at fair prices. The Company’s roots are in Southern Oregon, where it has proven its capabilities in the highly competitive and discerning Oregon market. The Company’s passion for quality product and value, combined with a disciplined approach to growth, prioritizes profitability and return on capital without sacrificing quality. The Company’s strategy is to pursue capital efficient methods to expand into new markets, bringing craft-quality product at fair prices to more consumers. The Company also continues to make modest investments to improve outdoor craft cultivation capabilities in preparation for eventual interstate commerce. For more information, visit www.grownrogue.com.
FORWARD-LOOKING STATEMENTS
This press release contains statements which constitute “forward-looking information” within the meaning of applicable securities laws, including statements regarding the plans, intentions, beliefs and current expectations of the Company with respect to future business activities. Forward- looking information is often identified by the words “may,” “would,” “could,” “should,” “will,” “intend,” “plan,” “anticipate,” “believe,” “estimate,” “expect” or similar expressions and include information regarding: (i) statements regarding the future direction of the Company (ii) the ability of the Company to successfully achieve its business and financial objectives, (iii) plans for expansion of the Company and securing applicable
7
regulatory approvals, and (iv) expectations for other economic, business, and/or competitive factors. Investors are cautioned that forward-looking information is not based on historical facts but instead reflect the Company’s management’s expectations, estimates or projections concerning the business of the Company’s future results or events based on the opinions, assumptions and estimates of management considered reasonable at the date the statements are made. Although the Company believes that the expectations reflected in such forward-looking information are reasonable, such information involves risks and uncertainties, and undue reliance should not be placed on such information, as unknown or unpredictable factors could have material adverse effects on future results, performance or achievements of the combined company. Among the key factors that could cause actual results to differ materially from those projected in the forward-looking information are the following: changes in general economic, business and political conditions, including changes in the financial markets; and in particular in the ability of the Company to raise debt and equity capital in the amounts and at the costs that it expects; adverse changes in the public perception of cannabis; decreases in the prevailing prices for cannabis and cannabis products in the markets that the Company operates in; adverse changes in applicable laws; or adverse changes in the application or enforcement of current laws; compliance with extensive government regulation and related costs, and other risks described in the Company’s public disclosure documents filed on Sedar.
Should one or more of these risks or uncertainties materialize, or should assumptions underlying the forward-looking information prove incorrect, actual results may vary materially from those described herein as intended, planned, anticipated, believed, estimated or expected. Although the Company has attempted to identify important risks, uncertainties and factors which could cause actual results to differ materially, there may be others that cause results not to be as anticipated, estimated or intended. The Company does not intend, and does not assume any obligation, to update this forward-looking information except as otherwise required by applicable law.
The Company is indirectly involved in the manufacture, possession, use, sale and distribution of cannabis in the recreational cannabis marketplace in the United States through its indirect operating subsidiaries. Local state laws where its subsidiaries operate permit such activities however, these activities are currently illegal under United States federal law. Additional information regarding this and other risks and uncertainties relating to the Company’s business are disclosed in the Company’s Listing Statement filed on its issuer profile on SEDAR+ at www.sedarplus.ca. Should one or more of these risks, uncertainties or other factors materialize, or should assumptions underlying the forward-looking information or forward-looking statements prove incorrect, actual results may vary materially from those described herein as intended, planned, anticipated, believed, estimated or expected.
No stock exchange, securities commission or other regulatory authority has approved or disapproved the information contained herein.
8
For further information on Grown Rogue, please visit www.grownrogue.com or contact:
Obie Strickler
Chief Executive Officer
Jakob Iote
Vice President of Investor Relations
(458) 226-2662
9
Exhibit48
GrownRogue Announces Notice of Warrant Acceleration
Medford,Oregon, March 1, 2024 – Grown Rogue International Inc. (“Grown Rogue” or the “Company”) (CSE: GRIN) (OTC: GRUSF), a craft cannabis company born from the amazing terroir of Oregon’s Rogue Valley, is pleased to announce it has accelerated the expiry date of an aggregate of 23,270,249 common share purchase warrants issued in December of 2022 and in July/August of 2023 (together the “Warrants”).
In conjunction with the convertible debentures dated December 2, 2022, the Company issued 6,716,499 warrants exercisable into one common share of the Company at a price of CAD$0.25 and, in conjunction with the convertible debentures issued on both July 13, 2023 and August 17, 2023, the Company issued 16,553,750 warrants exercisable into one common share of the Company at a price of CAD$0.28. The terms of the Warrants are subject to acceleration at the Company’s option if the closing price of the Company’s common shares on the Canadian Securities Exchange is at or above CAD$0.40 for ten consecutive trading days. This requirement for acceleration was satisfied on February 5, 2024.
The Company issued the notice of acceleration required by the warrant certificates governing the Warrants on March 1, 2024, thereby accelerating the expiry date to 90 days from the date of notice. Should all Warrants be exercised, the Company would collect proceeds of approximately CAD$6.3 million.
AboutGrown Rogue
Grown Rogue International Inc. (CSE: GRIN | OTC: GRUSF) is a craft cannabis company operating in Oregon, Michigan, Minnesota, Maryland, and New Jersey, focused on delighting customers with premium flower and flower-derived products at fair prices. The Company’s roots are in Southern Oregon, where it has proven its capabilities in the highly competitive and discerning Oregon market. The Company’s passion for quality product and value, combined with a disciplined approach to growth, prioritizes profitability and return on capital without sacrificing quality. The Company’s strategy is to pursue capital efficient methods to expand into new markets, bringing craft-quality product at fair prices to more consumers. The Company also continues to make modest investments to improve outdoor craft cultivation capabilities in preparation for eventual interstate commerce. For more information, visit www.grownrogue.com.
FORWARD-LOOKINGSTATEMENTS
Thispress release contains statements which constitute “forward-looking information” within the meaning of applicablesecurities laws, including statements regarding the plans, intentions, beliefs and current expectations of the Company with respectto future business activities. Forward- looking information is often identified by the words “may,” “would,”“could,” “should,” “will,” “intend,” “plan,” “anticipate,”“believe,” “estimate,” “expect” or similar expressions and include information regarding: (i)statements regarding the future direction of the Company (ii) the ability of the Company to successfully achieve its business andfinancial objectives, (iii) plans for expansion of the Company and securing applicable regulatory approvals, and (iv) expectationsfor other economic, business, and/or competitive factors. Investors are cautioned that forward-looking information is not based onhistorical facts but instead reflect the Company’s management’s expectations, estimates or projections concerning thebusiness of the Company’s future results or events based on the opinions, assumptions and estimates of management consideredreasonable at the date the statements are made. Although the Company believes that the expectations reflected in suchforward-looking information are reasonable, such information involves risks and uncertainties, and undue reliance should not beplaced on such information, as unknown or unpredictable factors could have material adverse effects on future results,performance or achievements of the combined company. Among the key factors that could cause actual results to differ materiallyfrom those projected in the forward-looking information are the following: changes in general economic, business and politicalconditions, including changes in the financial markets; and in particular in the ability of the Company to raise debt and equitycapital in the amounts and at the costs that it expects; adverse changes in the public perception of cannabis; decreases in theprevailing prices for cannabis and cannabis products in the markets that the Company operates in; adverse changes in applicablelaws; or adverse changes in the application or enforcement of current laws; compliance with extensive government regulation andrelated costs, and other risks described in the Company’s public disclosure documents filed on Sedar.
Shouldone or more of these risks or uncertainties materialize, or should assumptions underlying the forward-looking information prove incorrect,actual results may vary materially from those described herein as intended, planned, anticipated, believed, estimated or expected. Althoughthe Company has attempted to identify important risks, uncertainties and factors which could cause actual results to differ materially,there may be others that cause results not to be as anticipated, estimated or intended. The Company does not intend, and does not assumeany obligation, to update this forward-looking information except as otherwise required by applicable law.
TheCompany is indirectly involved in the manufacture, possession, use, sale and distribution of cannabis in the recreational cannabis marketplacein the United States through its indirect operating subsidiaries. Local state laws where its subsidiaries operate permit such activitieshowever, these activities are currently illegal under United States federal law. Additional information regarding this and other risksand uncertainties relating to the Company’s business are disclosed in the Company’s Listing Statement filed on its issuerprofile on SEDAR+ at www.sedarplus.ca. Should one or more of these risks, uncertainties or other factors materialize, or shouldassumptions underlying the forward-looking information or forward-looking statements prove incorrect, actual results may vary materiallyfrom those described herein as intended, planned, anticipated, believed, estimated or expected.
Nostock exchange, securities commission or other regulatory authority has approved or disapproved the information contained herein.
2
Forfurther information on Grown Rogue, please visit www.grownrogue.com or contact:
Obie Strickler
Chief Executive Officer
Jakob Iote
Vice President of Investor Relations
(458) 226-2662
3
Exhibit 49
GrownRogue Announces Entry into Illinois
| ● | Signed a definitive agreement to form Rogue EBC, LLC, a joint venture with EBC Ventures |
|---|---|
| ● | The JV has entered into a definitive agreement to acquire 100% of CannEquality, LLC, which holds a craft growers license with the Illinois Department of Agriculture |
| --- | --- |
| ● | The JV holds all local zoning and planning approvals and has secured a long-term lease of a ~50,000 sq ft facility in Waukegan, Illinois |
| --- | --- |
| ● | The Facility will allow for development of up to 14,000 square feet of canopy for cultivation, and sufficient space to build out a manufacturing business |
| --- | --- |
| ● | Construction is expected to be completed in H1 2025 with first harvest to be completed in H2 2025 |
| --- | --- |
Medford, Oregon, March 5, 2024 – Grown Rogue International Inc. (“Grown Rogue” or the “Company”) (CSE: GRIN) (OTC: GRUSF), a craft cannabis company born from the amazing terroir of Oregon’s Rogue Valley, announces that it has signed a definitive agreement on March 4, 2024 to form a joint venture (the “JV”) with EBC Ventures (“EBC”), signaling the Company’s entrance into the Illinois market. The JV entered into a definitive agreement on February 22, 2024 to acquire 100% of CannEquality, LLC, which holds a craft growers license with the Illinois Department of Agriculture (“IDOA”). The acquisition is subject to regulatory approval from the IDOA.
The deal highlights are as follows:
| ● | Grown Rogue will own 70% of the JV and has agreed to contribute up to US$6,000,000 to support the development of the facility |
|---|---|
| ● | The buildout will initially include ~5,000 square feet of canopy and 4,700 square feet of dedicated processing and manufacturing space, with the ability to increase to a total of 14,000 square feet of canopy allowed under the license |
| --- | --- |
| ● | The JV agreement includes multiple purchase options, which ultimately give Grown Rogue the ability to acquire 100% of the membership interests of the JV |
| --- | --- |
Management Commentary
“We are excited to announce our partnership with EBC, accelerating our ability to bring the quality and value of Grown Rogue products to the consumers of Illinois,” said Obie Strickler, CEO of Grown Rogue. “We have been watching the Illinois market develop and believe this partnership represents a compelling opportunity to deliver great returns on our invested capital while enhancing the overall market for Illinois cannabis consumers. The Illinois market is particularly attractive to us as we believe there is pent up demand for craft-quality flower at accessible price points.
We have secured a great location close to Chicago that is right in our sweet spot of facility size, approximately 50,000 sq ft, and current regulatory rules allow us to develop up to 14,000 square feet of canopy while maintaining sufficient space to build out a manufacturing business. The manufacturing segment is another example of us looking to broaden our scope within the industry, while staying laser focused on producing high-quality, craft cannabis that delights our consumers,” continued Mr. Strickler.
“This will largely be funded by cash on hand and the cash we anticipate receiving with the recent warrant acceleration announcement. The warrants are held by a small group of investors, and we expect most or all the eligible warrants to be exercised and lead to maximum proceeds for the Company of US$4.7 million.”
According to the Illinois Department of Financial and Professional Regulation, Illinois reported over $1.6 billion in recreational cannabis sales in 2023. This included a new record for recreational cannabis sales in December 2023 with $154 million.
About Grown Rogue
Grown Rogue International Inc. (CSE: GRIN | OTC: GRUSF) is a craft cannabis company operating in Oregon, Michigan, Minnesota, Maryland, and New Jersey, focused on delighting customers with premium flower and flower-derived products at fair prices. The Company’s roots are in Southern Oregon, where it has proven its capabilities in the highly competitive and discerning Oregon market. The Company’s passion for quality product and value, combined with a disciplined approach to growth, prioritizes profitability and return on capital without sacrificing quality. The Company’s strategy is to pursue capital efficient methods to expand into new markets, bringing craft-quality product at fair prices to more consumers. The Company also continues to make modest investments to improve outdoor craft cultivation capabilities in preparation for eventual interstate commerce. For more information, visit www.grownrogue.com.
FORWARD-LOOKING STATEMENTS
This press release contains statements which constitute “forward-looking information” within the meaning of applicable securities laws, including statements regarding the plans, intentions, beliefs and current expectations of the Company with respect to future business activities. Forward- looking information is often identified by the words “may,” “would,” “could,” “should,” “will,” “intend,” “plan,” “anticipate,” “believe,” “estimate,” “expect” or similar expressions and include information regarding: (i) statements regarding the future direction of the Company (ii) the ability of the Company to successfully achieve its business and financial objectives, (iii) plans for expansion of the Company and securing applicable regulatory approvals, and (iv) expectations for other economic, business, and/or competitive factors. Investors are cautioned that forward-looking information is not based on historical facts but instead reflect the Company’s management’s expectations, estimates or projections concerning the business of the Company’s future results or events based on the opinions, assumptions and estimates of management considered reasonable at the date the statements are made. Although the Company believes that the expectations reflected in such forward-looking information are reasonable, such information involves risks and uncertainties, and undue reliance should not be placed on such information, as unknown or unpredictable factors could have material adverse effects on future results, performance or achievements of the combined company. Among the key factors that could cause actual results to differ materially from those projected in the forward-looking information are the following:
2
changes in general economic, business and political conditions, including changes in the financial markets; and in particular in the ability of the Company to raise debt and equity capital in the amounts and at the costs that it expects; adverse changes in the public perception of cannabis; decreases in the prevailing prices for cannabis and cannabis products in the markets that the Company operates in; adverse changes in applicable laws; or adverse changes in the application or enforcement of current laws; compliance with extensive government regulation and related costs, and other risks described in the Company’s public disclosure documents filed on Sedar.
Should one or more of these risks or uncertainties materialize, or should assumptions underlying the forward-looking information prove incorrect, actual results may vary materially from those described herein as intended, planned, anticipated, believed, estimated or expected. Although the Company has attempted to identify important risks, uncertainties and factors which could cause actual results to differ materially, there may be others that cause results not to be as anticipated, estimated or intended. The Company does not intend, and does not assume any obligation, to update this forward-looking information except as otherwise required by applicable law.
The Company is indirectly involved in the manufacture, possession, use, sale and distribution of cannabis in the recreational cannabis marketplace in the United States through its indirect operating subsidiaries. Local state laws where its subsidiaries operate permit such activities however, these activities are currently illegal under United States federal law. Additional information regarding this and other risks and uncertainties relating to the Company’s business are disclosed in the Company’s Listing Statement filed on its issuer profile on SEDAR+ at www.sedarplus.ca. Should one or more of these risks, uncertainties or other factors materialize, or should assumptions underlying the forward-looking information or forward-looking statements prove incorrect, actual results may vary materially from those described herein as intended, planned, anticipated, believed, estimated or expected.
No stock exchange, securities commission or other regulatory authority has approved or disapproved the information contained herein.
For further information on Grown Rogue, please visit www.grownrogue.com or contact:
Obie Strickler
Chief Executive Officer
Jakob Iotte
Vice President of Investor Relations
(458) 226-2662
3